BKI INVESTMENT
COMPANY LIMITED
Annual Report
for year ended 30 June 2010
ABN 23 106 719 868
BKI INVESTMENT
COMPANY LIMITED
CORPORATE DIRECTORY
Directors
Robert Dobson Millner
Non-Executive Director and Chairman
David Capp Hall
Non-Executive Director
Alexander James Payne
Non-Executive Director
Ian Thomas Huntley
Non-Executive Director
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 NSW 2001
Auditors
Ruwald & Evans
Level 1, 276 Pitt Street,
Sydney NSW 2000
Share Registry
Advanced Share Registry Services Limited
150 Stirling Highway,
Nedlands, WA 6009
Telephone: (08) 9389 8033
Australian Stock Exchange Code
Ordinary Shares
BKI
Website
www.bkilimited.com.au
2010 Annual Report
B K I 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 2010
Group Profile
Chairman’s Address
Directors’ Report
Corporate Governance
Consolidated Income Statement
Statement of Other Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Directors’ Declaration
Auditor’s Report
Auditor’s Independence Declaration
ASX Additional Information
2
3
6
7
11
21
28
29
30
31
32
33
55
56
57
58
2010 Annual Report
1
BKI INVESTMENT
COMPANY LIMITED
FINANCIAL HIGHLIGHTS
■ Revenue Performance
Dividend/distribution income - Ordinary
Dividend/distribution income - Special
Total revenue
■ Profits
% Change
8.2%
761.4%
46.0%
Up
Up
Up
Operating profit before tax but before special dividend
income, realised and unrealised losses on investment
portfolio and discount on acquisition
Dividend income - Special
Net realised losses on investment portfolio before tax
Discount recognised on acquisition of controlled entity
Net profit from ordinary activities after tax attributable
to shareholders
Net profit attributable to shareholders
Up
Up
Down
Down
Up
Up
8.4%
761.4%
2.3%
100.0%
34.8%
34.8%
$’000
21,547
11,155
35,721
22,401
11,155
(2,358)
(46)
31,152
31,152
to
to
to
to
to
to
to
to
to
■ Portfolio
Total Portfolio Value
■ Earnings per share
Up
15.2%
to
551,003
Basic earnings per share before special dividend income
and realised gains on investment portfolio
Down
8.2%
Basic earnings per share after special dividend income
and realised gains on investment portfolio
Up
14.1%
to
to
■ Dividends
Interim - Ordinary
Interim - Special
Final - Ordinary
Final - Special
Full Year Total
Cents
5.44
7.57
2.50
0.50
2.75
0.50
6.25
2
2010 Annual Report
B K I 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)
■ Net Tangible Asset (NTA) History:
30/06/04
30/06/05
30/06/06
30/06/07
30/06/08
30/06/09
30/06/10
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
$1.32
$1.27
■ Dividend History (cents per share)
Interim
Final
Special
Total
30/06/04
30/06/05
30/06/06
30/06/07
30/06/08
30/06/09
30/06/10
-*
2.0
-
2.0
2.1
2.2
-
4.3
2.5
2.5
1.0
6.0
2.6
2.7
-
5.3
3.0
3.0
-
6.0
3.0
3.0
-
6.0
2.5
2.75
1.0
6.25
* This Company was listed on ASX 12 December 2003, no interim dividend is applicable.
LIST OF SECURITIES HELD AND THEIR MARKET VALUE AT
30 JUNE 2010 WERE:
Stock
Financials
National Australia Bank Limited
Commonwealth Bank of Australia
Westpac Banking Corporation
QBE Insurance Group Limited
Australia and New Zealand Banking Group Limited
Westpac SPS II Institutional Offer
ASX Limited
AMP Limited
Choiseul Investments Limited
Bendigo Bank Limited
Insurance Australia Group Limited
Perpetual Limited
Suncorp-Metway Limited Convertible Preference Shares
Bank of Queensland Limited
Macquarie Group Limited
Suncorp-Metway Limited
AXA Asia Pacific Holdings Limited
Westpac Stapled Preferred Securities
Milton Corporation Limited
2010 Annual Report
Shares
Held
1,802,259
831,600
1,183,000
662,600
460,261
90,165
202,000
1,003,833
1,086,210
557,600
1,280,000
153,010
40,000
317,426
85,000
390,000
426,000
20,840
107,538
Market
Value
($’000)
41,830
40,416
25,091
12,046
9,942
9,490
5,882
5,220
4,834
4,539
4,339
4,303
3,802
3,301
3,155
3,101
2,317
2,088
1,718
187,414
Portfolio
Weight
7.59%
7.33%
4.55%
2.19%
1.80%
1.72%
1.07%
0.95%
0.88%
0.82%
0.79%
0.78%
0.69%
0.60%
0.57%
0.56%
0.42%
0.38%
0.31%
34.01%
3
BKI INVESTMENT
COMPANY LIMITED
List of securities (continued):
Stock
Energy
New Hope Corporation Limited
Woodside Petroleum Limited
Santos Limited
Caltex Australia Limited
Industrials
Campbell Brothers Limited
Brambles Limited
GWA International Limited
Salmat Limited
UGL Limited
Seek Limited
The MAC Services Group Limited
Transfield Services Limited
Intoll Group
Lindsay Australia Limited
Skilled Group Limited
Transurban Group
Consumer Discretionary
Invocare Limited
ARB Corporation Limited
Tatts Group
Fairfax Media Limited
West Australian Newspapers Holdings Limited
Tabcorp Holdings Limited
Ten Network Holdings Limited
Crown Limited
Gazal Corporation Limited
Consolidated Media Holdings
Consumer Staples
Wesfarmers Limited
Woolworths Limited
Metcash Limited
Coca Cola Amatil Limited
AWB Limited
Fosters Group Limited
Graincorp Limited
4
Shares
Held
Market
Value
($’000)
Portfolio
Weight
14,760,452
390,000
130,000
91,950
389,734
745,952
1,310,000
970,100
211,200
400,000
845,035
400,000
762,329
4,370,034
644,826
134,581
881,000
845,600
1,411,000
2,100,000
372,458
336,300
847,429
90,574
211,865
75,574
663,070
667,000
2,209,000
696,000
1,164,000
95,000
93,444
64,946
16,263
1,629
864
83,702
11,712
4,028
3,930
3,832
2,820
2,788
1,986
1,212
789
787
696
568
35,148
5,304
4,761
3,147
2,709
2,417
2,125
1,322
696
337
239
23,057
18,997
17,902
9,212
8,220
1,057
536
496
56,420
11.79%
2.95%
0.30%
0.16%
15.19%
2.13%
0.73%
0.71%
0.70%
0.51%
0.51%
0.36%
0.22%
0.14%
0.14%
0.13%
0.10%
6.38%
0.96%
0.86%
0.57%
0.49%
0.44%
0.39%
0.24%
0.13%
0.06%
0.04%
4.18%
3.45%
3.25%
1.67%
1.49%
0.19%
0.10%
0.09%
10.24%
2010 Annual Report
B K I I n v e s t m e n t C o m p a n y L i m i t e d
List of securities (continued):
Stock
Health Care
Ramsay Health Care Limited
Sonic Healthcare Limited
Clover Corporation Limited
Materials
BHP Billiton Limited
Brickworks Limited
Rio Tinto Limited
Onesteel Limited
Orica Limited Step up Preference Securities
Boral Limited
Bluescope Steel Limited
Property Trusts
Westfield Group
GPT Group
Telecommunications Services
Telstra Corporation Limited
TPG Telecom Limited
Utilities
AGL Energy Limited
APA Group
Total Investments
Bank Deposits
TOTAL PORTFOLIO
Shares
Held
155,500
113,800
858,000
1,386,000
436,209
49,562
800,000
10,000
125,000
233,568
233,157
200,000
5,918,000
4,090,000
1,111,500
794,452
Fair
Value
($’000)
2,174
1,178
236
3,588
52,155
5,169
3,304
2,376
918
601
488
65,011
2,838
560
3,398
19,234
7,730
26,964
16,117
2,860
18,977
503,679
47,324
551,003
Portfolio
Weight
%
0.39%
0.21%
0.04%
0.65%
9.47%
0.94%
0.60%
0.43%
0.17%
0.11%
0.09%
11.80%
0.52%
0.10%
0.62%
3.49%
1.40%
4.89%
2.93%
0.52%
3.44%
91.41%
8.59%
100.00%
The Group is not a substantial shareholder in accordance with the Corporations Act 2001 in any of the
investee corporations as each equity investment represents less than 5% of the issued capital of the
investee corporation.
2010 Annual Report
5
BKI INVESTMENT
COMPANY LIMITED
GROUP PROFILE
BKI 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 ASX 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.
Management
The Group has an internalised portfolio management function headed by the CEO, Mr Tom Millner.
The Group also engages Corporate and Administrative Services Pty Ltd to provide accounting and group
secretarial services. These services are overseen by the BKI Company Secretary, Mr Richard Pillinger.
6
2010 Annual Report
B K I I n v e s t m e n t C o m p a n y L i m i t e d
CHAIRMAN’S ADDRESS
Dear Shareholders,
I am pleased to enclose the 7th Annual Report of BKI Investment Company Limited for the year ended
30 June 2010.
Net Operating Profit before special dividend income and net losses on the investment portfolio increased 8.4%
to $22.4m. This is the profit figure used by your Board of Directors to determine the level of ordinary dividends
to be declared by BKI.
Net Profit After Tax was $31.2m, up 34.8% on the previous corresponding period. Income from operating
activities before special investment revenue and net losses on the investment portfolio increased 6.0% to $24.6m.
Special Investment Revenue increased significantly to $11.2m after New Hope Corporation distributed a 72.75
cents per share special dividend and ARB Corporation paid out a 40 cents per share special dividend.
Performance
BKI’s track record continues to deliver sound net investment returns with low investment risk. 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 2010 was 13.4% compared to the S&P/ASX 300
Accumulation Index which increased by 13.1%. Chart 1 shows historical Net 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 2010
was 14.4%. This is compared to the S&P/ASX 300 Accumulation Index which returned 13.1% over the same
period. Chart 2 shows historical Share Price Returns benchmarked to the S&P/ASX 300 Accumulation Index.
2010 Annual Report
7
BKI INVESTMENT
COMPANY LIMITED
CHAIRMAN’S ADDRESS - Continued
There has been much talk recently regarding the industry’s method of reporting returns. It is important to note that
BKI (like most LICs) reports returns on a Pre-Tax NTA basis. Many investors believe that the Pre-Tax component only
relates to the provision of tax on unrealised capital gains within the investment portfolio. This measure also includes
the total operating expenses and income tax expense of the Company and shows no benefit of franking credits.
The Index which BKI is benchmarked against does not take into account any of these additional expenses.
Also many managed funds report performance numbers without deducting tax expenses, management fees
and performance fees. Research papers written recently on this topic suggest that performance figures under
the LIC reporting methodology could be understated by up to 3% per annum when compared against these
alternative measurement criteria.
Portfolio Movements
During FY2010 BKI invested some $36.2m into the market including the full $24.1m that was raised through
the Share Purchase Plan in September 2009. Major investments included ANZ Banking Group, Metcash
Limited, Telstra Corporation, Ramsay Health Care, Campbell Brothers, Woolworths Limited, UGL Limited, QBE
Insurance, Woodside Petroleum and Westpac Banking Corporation.
Major divestments from the BKI Investment Portfolio included half of the Macquarie Group holding, and all
shares in Alumina Limited and Qantas Airways. BKI is a long term investor with a buy and hold strategy,
however if companies significantly reduce dividend payments or there is uncertainty surrounding future dividend
payments and franking levels these positions are considered for divestment.
Divestments from the BKI Trading Portfolio included Seek Limited, Bendigo and Adelaide Bank, AWB Limited
and Graincorp Limited. These stocks were all acquired through capital raisings and resulted in net profits of
$712k being realised, a return of 52% on a post tax basis.
Table 1 – Top 25 Investments at 30 June 2010
Stock
Amount ($’000)
% of total portfolio*
New Hope Corporation
BHP Billiton Limited
National Australia Bank
Commonwealth Bank
1
2
3
4
5 Westpac Banking Corporation
6
Telstra Corporation Limited
7 Wesfarmers Limited
8 Woolworths Limited
9 Woodside Petroleum Limited
10 AGL Energy Limited
11 QBE Insurance Group
12 Campbell Brothers Limited
13 ANZ Banking Group Limited
14 Westpac Prefs (BB + 380 bp)
15 Metcash Limited
16 Coca Cola Amatil Limited
TPG Telecom Limited
17
18 ASX Limited
19
20 AMP Limited
21 Brickworks Limited
22 Choiseul Investments
23 ARB Corporation Limited
24 Bendigo and Adelaide Bank Limited
25
InvoCare Limited
Insurance Australia Group
Cash and cash equivalents
* - Includes cash and cash equivalents
64,946
52,155
41,830
40,416
25,091
19,234
18,997
17,902
16,263
16,117
12,046
11,712
9,942
9,490
9,212
8,220
7,730
5,882
5,304
5,220
5,169
4,834
4,761
4,539
4,339
47,324
468,675
11.79%
9.47%
7.59%
7.33%
4.55%
3.49%
3.45%
3.25%
2.95%
2.93%
2.19%
2.13%
1.80%
1.72%
1.67%
1.49%
1.40%
1.07%
0.96%
0.95%
0.94%
0.88%
0.86%
0.82%
0.79%
8.59%
85.06%
8
2010 Annual Report
B K I 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
Dividends
Directors announced that the Final Dividend will be made up of a 2.75cps ordinary dividend as well as a 0.5cps
special dividend. Both will be fully franked. The record date will be the 27th August 2010 with a payment date
of 10th September 2010.
Total dividends paid by BKI during FY2010 equate to 6.25 cents per share which is an increase of 4% on the
previous corresponding period.
BKI’s Dividend Reinvestment Plan will be maintained offering shareholders the opportunity to acquire further
ordinary shares in BKI at a discount of 1.0%.
Operating Expenses
Operating Expenses were $1.0m for the year ended 30 June 2010, a reduction of 29.3% on the previous
corresponding period.
Last year we stated that the MER for the financial year ended 30 June 2010 should be approximately 0.20% -
0.25%. I am pleased to report that BKI’s MER for FY2010 is 0.19%, down from 0.31%. This MER now
compares very favourably with those of the largest and long established LICs within the industry.
As can be seen from Chart 3, BKI has been successful in significantly reducing the Company’s MER since
listing in 2003. We will continue to pursue cost cutting initiatives to help increase value for BKI shareholders.
Share Registry
BKI recently transferred the company share register to Advanced Share Registry Services Limited.
Shareholders are advised that their SRN/HIN will remain unchanged. You can access your shareholding details
and manage your shareholding on Advanced Share Registry's website www.advancedshare.com.au or by
contacting Advanced Share Registry on 08 9389 8033.
By transferring BKI’s register, shareholders will save a considerable sum of money each year and the BKI Board
and Management are confident that the quality of service for shareholders should increase.
Name Change
Shareholder approval was given at the 2009 AGM to change the name of the company to BKI Investment
Company Limited. This change was made to better reflect the stand alone status of the company following the
divestment of shares by Brickworks Limited.
2010 Annual Report
9
BKI INVESTMENT
COMPANY LIMITED
CHAIRMAN’S ADDRESS - Continued
Director Resignation
Mr Geoffrey Hill resigned as a Director of the Company on the 8 September 2009. Geoff played a significant
role in the listing of BKI and later joined the Board on the 14 December 2005 following the acquisition of Pacific
Strategic Investments. Geoff was also a Director of Huntley Investment Company Limited. On behalf of my
fellow Directors and Management I would like to thank and acknowledge Geoff for his contribution to the
Company and wish him well in the future.
Outlook
The long term outlook for the Australian market looks attractive. Short term however, the recovery is still
somewhat frail. The international backdrop remains a concern. The high levels of European debt and a possible
US double-dip recession suggest concerns on the health of financial and economic systems in major
economies will be prolonged.
Following the Global Financial Crisis the Australian Stock Market rallied strongly. The last 6 months has seen
instability and anxiety re-emerge with the ill health of major economies placing significant pressure on our
market. In addition to this, there are concerns over rising interest rates, house prices, energy costs and an
eventual termination of stimulus support. These factors have all damaged investor confidence over the short
term.
With market negativity comes opportunity. This correction is providing the long term investor with yet another
chance to deploy funds in quality companies that have the ability to distribute dividends, have strong business
models, robust balance sheets, proven boards and management teams and are trading at attractive valuations.
The BKI Investment Portfolio is well positioned for both income and capital growth over the coming years. BKI
remains in a strong position to take advantage of investment opportunities when they arise, with cash and
dividends receivable representing some 8.6% of the total portfolio.
Reduced company distributions over the last 18 months have had an impact on the earnings generated by
investment companies, however, BKI is confident that distributions should continue to improve during the
FY2010 reporting season and into FY2011 and FY2012.
BKI has a strong dividend payout ability including abundant franking credits, a high quality diversified
investment portfolio, experienced Board and conservative investment team, no external portfolio management
or performance fees and a competitive Management Expense Ratio (MER). BKI remains an attractive
investment opportunity delivering sound returns with low investment risk.
Yours sincerely,
Robert Millner
Chairman
Sydney, 4 August 2010
10
2010 Annual Report
B K I 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 BKI Investment Company Limited present the following report on the Company and its
controlled entities (the Group) for the year ended 30 June 2010.
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 over 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:
• Undercoverwear Limited
Special Responsibilities:
• Chairman of the Audit Committee
• Member of the Remuneration Committee
• Member of the Nomination Committee
2010 Annual Report
11
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT - Continued
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
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 Editor, 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 (taken over by BKI Investment Company Limited in January 2009)
Special Responsibilities:
• Member of the Investment Committee
• Member of the Remuneration Committee
• Member of the Nomination Committee
• Member of the Audit Committee
2. Key Management Personnel
Thomas Charles Dobson Millner, B.Des (Industrial), GDipAppFin (Finsia), F Fin – Chief Executive
Officer
Mr Millner Joined the Company in December 2008. Mr Millner was previously with Souls Funds Management
(SFM) and held various roles covering research, analysis and business development. Whilst at SFM Mr Millner
was responsible for the Investment Portfolio of BKI Investment Company Limited. Prior to this Mr Millner was
an investment analyst with Republic Securities Limited, manager of the Investment Portfolio of Pacific Strategic
Investments.
Special Responsibilities:
• Member of the Investment Committee
Richard Pillinger, BSc, CA - Company Secretary
Mr Pillinger is a Chartered Accountant with over 15 years 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.
12
2010 Annual Report
B K I I n v e s t m e n t C o m p a n y L i m i t e d
DIRECTORS’ REPORT - Continued
4. Operating Results
The consolidated profit of the Group after providing for income tax amounted to $31,152,000 (2009: $23,118,000).
5. Review of Operations
Operating expenses were $1.0m for the year ended 30 June 2010, a reduction of 29.3% on the previous
corresponding period.
BKI’s Net Portfolio Return (after all operating expenses, payment of both income and capital gains tax and the
reinvestment of dividends) for the year to 30 June 2010 was 13.4% compared to the S&P/ASX 300
Accumulation Index which increased by 13.1%.
BKI’s Share Price Performance (including the reinvestment of dividends) for the year to 30 June 2010 was 14.4%.
This is compared to the S&P/ASX 300 Accumulation Index which returned 13.1% over the same period.
During FY2010 BKI invested some $36.2m into the market including the full $24.1m that was raised through
the Share Purchase Plan (SPP) in September 2009. Major investments included ANZ Banking Group, Metcash
Limited, Telstra Corporation, Ramsay Health Care, Campbell Brothers, Woolworths Limited, UGL Limited, QBE
Insurance, Woodside Petroleum and Westpac Banking Corporation.
Major divestments from the BKI Investment Portfolio included half of the Macquarie Group holding, and all
shares in Alumina Limited and Qantas Airways. BKI is a long term investor with a buy and hold strategy,
however if companies significantly reduce dividend payments or there is uncertainty surrounding future dividend
payments and franking levels these positions are considered for divestment.
Divestments from the BKI Trading Portfolio included Seek Limited, Bendigo and Adelaide Bank, AWB Limited
and Graincorp Limited.
6. Financial Position
The net assets of the Group increased during the financial year by $63.3 million to $534.4 million.
This movement has largely resulted from the following factors;
• Funds raised through the Share Purchase Plan of $24.1m; and
• An increase in the market value of the investment portfolio of $27.6 million net of tax; and
• Special dividend income of $11.2m.
7. Employees
The Group has one employee as at 30 June 2010 (2009: 1).
8. Significant changes in the state of affairs
Other than as stated above and in the accompanying Financial Report, there were no significant changes in the
state of affairs of the 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.
2010 Annual Report
13
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT - Continued
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 Parent and the entities that it controls;
ii. the results of those operations; or
iii. the state of affairs of the Group in subsequent years.
11. Dividends
There were two dividend payments during the year ended 30 June 2010.
On 4 September 2009, a final ordinary dividend of $11,824,290 (3.0 cents per share fully franked) was paid out
of retained profits at 30 June 2009.
On 12 March 2010, an interim ordinary and special dividend of $12,497,248 (3.0 cents per share fully franked)
was paid out of retained profits at 31 December 2009.
In addition, the Directors have declared a final ordinary dividend of $13,603,400 (2.75 cents per share fully
franked ordinary dividend plus 0.5 cents per share fully franked special dividend) payable on 10 September
2010.
At 30 June 2010 there are $13,981,000 of franking credits available to the Group (2009: $11,916,000) 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
2010 Annual Report
B K I 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 2010, 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
AJ Payne
DC Hall
IT Huntley
GG Hill 1
6
6
6
6
1
6
6
6
6
1
14
14
-
14
-
14
14
-
14
-
-
3
3
1
1
-
3
3
1
1
2
2
2
2
-
2
2
2
2
-
1 – Mr G Hill resigned on 8 September 2009 and was ineligible to attend any meetings after this date.
14. Remuneration Report (Audited)
This remuneration report outlines the Director and Executive remuneration arrangements of the Group in
accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this
report, Key Management Personnel of the Group are defined as those persons having authority and
responsibility for planning, directing and controlling the major activities of the Group, 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, their performance, experience
and expertise.
Elements of director and executive remuneration
The Board’s policy for determining the nature and amount of remuneration for Key Management Personnel of
the Group is as follows:
• The remuneration policy is developed by the Remuneration Committee and approved by the Board after
professional advice is sought from independent external consultants.
• All Key Management Personnel receive a base salary or fee, superannuation and performance incentives.
• Performance incentives are only paid once predetermined key performance indicators have been met.
• Incentives paid in the form of rights are intended to align the interests of the Key Management Personnel
with those of the shareholders.
• The Remuneration Committee reviews Key Management Personnel packages annually by reference to the
Group’s performance, Executive performance and comparable information from industry sectors.
The performance of Key Management Personnel is measured against criteria as agreed with each Executive
and is based predominantly on the growth of shareholder and portfolio returns. The Board may exercise its
discretion in relation to approving incentives and can recommend changes to the Committee’s
recommendations. Any changes must be justified by reference to measurable performance criteria. The policy
is designed to attract the highest calibre of executives and reward them for performance results leading to
long-term growth in shareholder wealth.
2010 Annual Report
15
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT - Continued
14. Remuneration Report (Audited) (continued)
All remuneration paid to Key Management Personnel is valued at the cost to the Group and expensed.
The Board’s policy is to remunerate Non-Executive Directors at market rates for time, commitment and
responsibilities. The Remuneration Committee determines payments to the Non-Executive Directors and
reviews their remuneration annually, based on market practice, duties and accountability. Independent external
advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-Executive
Directors is subject to approval by shareholders at the Annual General Meeting.
Performance-based Remuneration
BKI has established a Short Term and a Long Term Incentive Scheme. The participants in this scheme are the
CEO, Mr Tom Millner and the Company Secretary, Mr Richard Pillinger.
The aims of the BKI Incentive Scheme are:
1. To promote superior performance at BKI over both the short term and, more importantly, long term.
2. To ensure remuneration is fair and reasonable market remuneration to reward staff.
3. To promote long term staff retention and alignment.
To achieve the objectives of BKI, the Incentive Scheme is required to include several components with separate
measurement criteria.
Short Term Incentive
The Short Term Incentive is determined by reference to annual Total Portfolio Return; compared to the S&P
ASX 300 Accumulation Index. BKI’s Total Portfolio Returns are measured by the change in pre tax NTA and are
after all operating expenses, payment of both income and capital gains tax and the reinvestment of dividends.
The Short Term Incentive is paid by way of BKI shares which will be purchased on market by the Company.
The value of the Short Term Incentive for the CEO is calculated as 15% of CEO base salary. The Short Term
Incentive for the Company Secretary is to be set at 40% of the CEO Incentive.
100% of the Short Term Incentive would initially be based on the Total Portfolio Returns as follows:
BKI Total Portfolio Return Compared
to S&P ASX 300 Acc Index
% of Eligible Bonus
Less than Index
Equal to Index
Plus 1%
Plus 2%
Plus 3%
Plus 4%
Plus 5% or more
0%
100%
110%
120%
130%
140%
150%
The Short Term Incentive is subject to discretionary Board adjustment for the achievement of improved
Management Expense Ratio and promotion of BKI.
16
2010 Annual Report
B K I 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
The following table summarises current year performance against the Short Term Incentive measurement
criteria:
1 Year BKI Total
Portfolio Return
S&P ASX 300 Acc
Index over 1 Year
Over / (Under)
Performance
% Entitlement to
Eligible Bonus
13.4%
13.1%
0.3%
100%
Long Term Incentive
The Long Term Incentive is determined by reference to annual Total Shareholder Returns; compared to the S&P
ASX 300 Accumulation Index. Total Shareholder Returns are based on change in BKI Share Price and include
the reinvestment of dividends.
For the CEO, the Long Term Incentive is calculated on 25% of base salary and vested in the CEO at 3 years
provided that the 3 year Total Shareholder Returns exceed the S&P/ASX 300 Accumulation Index. Should that
test fail it will again be tested in Year 4 and 5 to reflect the longer term success of the investment strategy. For
the Company Secretary, the Long Term Incentive is to be set at 40% of the CEO Incentive and subject to the
same vesting conditions.
The Long Term Incentive Scheme commences from 1 July 2010 and as such no cost is reflected in the results
for the year ended 30 June 2010 for this Incentive Scheme.
Remuneration Details for the Year Ended 30 June 2010
The following disclosures detail the remuneration of the Directors and the highest remunerated Executives of
the Group.
The names of and positions held by group Directors and Key Management Personnel in office at any time
during the financial year are:
Name
RD Millner
DC Hall
AJ Payne
IT Huntley
GG Hill
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (resigned 8 September 2009)
TCD Millner
Chief Executive Officer
RJ Pillinger
Company Secretary (services provided under contract through Corporate and
Administrative Services Pty Limited)
There are no other employees of the group.
2010 Annual Report
17
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT - Continued
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
2010
RD Millner
DC Hall
AJ Payne
IT Huntley
GG Hill 1
Total
Primary
Superannuation
$
47,500
36,000
30,000
32,700
4,167
$
4,275
3,240
2,700
-
375
150,367
10,590
1 – Resigned 8 September 2009
2009
RD Millner
DC Hall
AJ Payne
GG Hill
IT Huntley 2
Total
40,000
30,000
25,000
25,000
13,625
3,600
2,700
2,250
2,250
-
133,625
10,800
2 – Appointed 10 February 2009
Equity
Compensation
$
Other
Compensation
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
51,775
39,240
32,700
32,700
4,542
160,957
43,600
32,700
27,250
27,250
13,625
144,425
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.
Key Management Primary
Personnel
2010
$
TCD Millner
RJ Pillinger
Total
2009
240,826
-
240,826
TCD Millner 3
133,792
RJ Pillinger
Total
-
133,792
3 – Appointed 1 December 2008
Superannuation
$
21,674
-
21,674
12,041
-
12,041
Equity
Compensation
$
Other
Compensation
$
41,250
16,500
57,750
-
-
-
-
-
-
-
-
-
Total
$
303,750
16,500
320,250
145,833
-
145,833
There were no retirement allowances provided for the retirement of Non-Executive Directors or Key
Management Personnel.
18
2010 Annual Report
B K I 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
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 $275,000 per
annum inclusive of superannuation.
Remuneration is reviewed annually by the Remuneration Committee.
Mr R Pillinger provides Company Secretarial services under contract through Corporate and Administrative
Services Pty Limited. This is an open ended contract with a notice period of one month required to terminate.
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
IT Huntley
TCD Millner
RJ Pillinger
Number of Shares
6,252,078
234,460
191,305
11,063,445
10,068
-
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 2010, the Group has paid premiums of $40,939 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.
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.
2010 Annual Report
19
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT - Continued
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 2010.
19. Auditor’s Independence Declaration
The Auditor’s Independence Declaration for the year ended 30 June 2010 has been received and can be found
on page 57.
This report is made in accordance with a resolution of the Directors.
Robert D Millner
Director
Sydney, 4 August 2010
20
2010 Annual Report
B K I 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
The Board of BKI 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 Group 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:
■ contributing to the development of and approving the corporate strategy
■ reviewing and approving business results, business plans, the annual budget and financial plans
■ ensuring regulatory compliance
■ ensuring adequate risk management processes
■ monitoring the Board composition, Director’s selection and Board processes and performance
■ overseeing and monitoring:
- organisational performance and the achievement of the Group’s strategic goals and objectives
- compliance with the Group’s code of conduct
■ monitoring financial performance including approval of the annual report and half-year financial reports
and liaison with the Group’s auditors
■ appointment and contributing to the performance assessment of the Chief Executive Officer and external
service providers
■ enhancing and protecting the reputation of the Group
■ reporting to shareholders.
Role of Senior Executives
The responsibilities of Senior Executives include:
■ organisation and monitoring of the investment portfolio
■ managing organisational performance and the achievement of the Group’s strategic goals and objectives
■ management of financial performance
■ management of internal controls
2010 Annual Report
21
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE - Continued
Recommendation 1.2: Companies should disclose the process for evaluating the performance of Senior
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:
■ ensuring, where practicable to do so, that a majority of the Board are Independent Directors
■ Non-Executive Directors bring a fresh perspective to the Board’s consideration of strategic, risk and
performance matters and are best placed to exercise independent judgement and review and
constructively challenge the performance of management
■ the Group is to maintain a mix of Directors on the Board from different backgrounds with complimentary
skills and experience
■ the Board seeks to ensure that:
- at any point in time, its membership represents an appropriate balance between Directors with
experience and knowledge of the 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
Recommendation 2.2: The Chair should be an Independent Director.
The Group has not followed recommendation 2.1 or recommendation 2.2 as the Board currently comprises
two independent Non-Executive Directors and two Non-Executive Directors and the Chair is not an
Independent Director.
Of the members of the Board, Mr Hall and Mr Huntley are considered independent. Mr Huntley is defined as
independent as his shareholding in the Group at less than 5% of issued capital is not considered substantial.
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 he is an officer of Washington H. Soul Pattinson and
Company Limited, which is a substantial shareholder of the Parent.
Mr Payne although meeting other criteria, and bringing independent judgement to bear on his role, is not defined
as independent, primarily due to the fact that he is an officer of Brickworks Limited, which is an associated entity
of Washington H. Soul Pattinson and Company Limited, a substantial shareholder of the Parent.
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.
Recommendations 2.1 and 2.2 have not been followed because the Board are of the opinion that all Directors
exercise and bring to bear an unfettered and independent judgement towards their duties. BKI Investment
Company Limited listed on the Australian Stock exchange on 12 December 2003 to take over the investment
portfolio of Brickworks Limited and the given their long standing association with the portfolio the Board is
satisfied that Mr Millner and Mr Payne play an important role in the continued success and performance of
the Group.
22
2010 Annual Report
B K I I n v e s t m e n t C o m p a n y L i m i t e d
CORPORATE GOVERNANCE - Continued
In accordance with the Corporations Act 2001, any member of the Board who has an interest that could
conflict with those of the Group must inform the Board. Where the Board considers that a significant conflict
exists it may exercise its discretion to determine whether the Director concerned may be present at any
meeting while the item is considered.
Mr Millner and Mr Payne do not meet the criteria for independence in accordance with the ASX Corporate
Governance Principles and Recommendations, however, for the reasons stated above they can be considered
to be acting independently and in the best interest of the Group in the execution of their duties.
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
IT Huntley
The main responsibilities of the Committee are to:
■ assess the membership of the Board having regard to present and future needs of the Group
■ assess the independence of Directors to ensure the majority of the Board are Independent Directors
■ propose candidates for Board vacancies in consideration of qualifications, experience and domicile
■ oversee Board succession
■ evaluate 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:
■ compares the performance of the Board with goals and objectives
■ 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 Director 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
2010 Annual Report
23
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE - Continued
reflects the highest standards of behaviour and professionalism and the practices necessary to maintain
confidence in the Group’s integrity.
A signed Code has been received from the CEO, Mr T Millner and from Mr R Pillinger as a representative of
Corporate and Administrative Services Pty Limited. No diversions from the Code were noted during the year.
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:
■ their legal obligations and the reasonable expectations of their stakeholders
■ their responsibility and accountability for reporting and investigating reports of unethical practices.
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.
BKI Limited’s policy regarding allowable dealings by Directors, Officers and employees in BKI shares, options
and other securities require each person to:
■ never engage in short term trading of the Company’s securities;
■ not deal in the Company’s securities while in possession of price sensitive information;
■ notify the Company Secretary of any material intended transactions involving the Company’s securities;
and
■ restrict their buying and selling of the corporation’s securities to the following Trading Windows:-
- during the currency of a prospectus;
- for a new issue while rights are being traded;
- where shares are offered pursuant to an approved employee share scheme;
- to 14 days after the release of the company’s half yearly announcement;
- to 14 days after the release of the company’s annual results announcements;
- to 14 days after the annual general meeting; and
- to 14 days after release of an NTA announcement.
Any request to trade outside of the Trading Window must be made in writing to the Company Secretary who
will record the request in a register of all relevant details of such dealings and the current interests held by
Directors. Any such requests will be subject to approval by the Chairman. No requests were made during the
current year to trade outside of the Trading Window.
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
IT Huntley
24
2010 Annual Report
B K I 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
2010 Annual Report
25
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE - Continued
Recommendation 4.2: The Audit Committee should be structured so that it:
■ consists only of Non-Executive Directors
■ consists of a majority of Independent Directors
■ is chaired by an Independent Chair, who is not Chair of the Board
■ has at least three members
The Audit Committee consists only of Non-Executive Directors. The majority of 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:
■ 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
■ reviewing the effectiveness of the organisation’s internal control environment covering:
- effectiveness and efficiency of operations
- reliability of financial reporting
- compliance with applicable laws and regulations
■ oversee the effective operation of the risk management framework
■ recommend to the Board the appointment, removal and remuneration of the external auditors, and
review the terms of their engagement, the scope and quality of the audit and assess performance and
consider the independence and competence of the external auditor on an ongoing basis. The Audit
Committee receives certified independence assurances from the external auditors
■ review and approve the level of non-audit services provided by the external auditors and ensure it does
not adversely impact on auditor independence. The external auditor will not provide services to the
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
■ review and monitor related party transactions and assess their priority
■ 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
26
2010 Annual Report
B K I 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
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.
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
TCD Millner
The main responsibilities of the Committee are to:
■ 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
■ assess the performance of the Chief Executive Officer in his role as portfolio manager
2010 Annual Report
27
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2010
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
Special investment revenue
Net operating profit before net gains / (losses) on
investment portfolio
Realised (losses) / gains on investment portfolio sold before
31 December 2009
Tax credit / (expense) relating to net realised (losses) / gains on
investment portfolio
Net realised (losses) / gains on investment portfolio sold before
31 December 2009
Discount on acquisition of controlled entity
Profit for the year after net (losses)/gains on investment portfolio and
discount on acquisition
Net loss attributable to Minority Interest
Profit for the year attributable to members of the Company
Basic earnings per share
Diluted earnings per share
21
21
This Income Statement should be read in conjunction with the accompanying notes
28
Consolidated
2010
$’000
2009
$’000
21,599
2,303
16
648
19,907
2,382
19
871
24,566
23,179
(1,008)
(1,426)
23,558
21,753
(1,157)
(1,093)
Note
2 (a)
2 (c)
2 (d)
2 (e)
3
4
22,401
20,660
2 (b)
11,155
1,295
33,556
21,955
(3,369)
(5,396)
4
1,011
3,090
(2,358)
(2,306)
(46)
3,323
31,152
22,972
-
146
31,152
23,118
2010
Cents
7.57
7.57
2009
Cents
6.63
6.63
2010 Annual Report
B K I I n v e s t m e n t C o m p a n y L i m i t e d
STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2010
Consolidated
2010
$’000
2009
$’000
Note
Profit for the year attributable to members of the Company
31,152
23,118
Other Comprehensive Income / (Loss)
Unrealised gains / (losses) on investment portfolio
Deferred tax (expense) / credit on unrealised gain / (losses)
on investment portfolio
Realised (losses) / gains on investment portfolio since 1 January 2010
Tax credit / (expense) relating to net realised (losses) / gains on
investment portfolio since 1 January 2010
39,414
(58,484)
(11,824)
17,545
86
(26)
-
-
Total Other Comprehensive Income / (Loss)
27,650
(40,939)
Total Comprehensive Income / (Loss)
58,802
(17,821)
This Statement of Other Comprehensive Income should be read in conjunction with the accompanying notes
2010 Annual Report
29
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2010
Current Assets
Cash and cash equivalents
Trade and other receivables
Trading portfolio
Prepayments
Total Current Assets
Non-Current Assets
Investment Portfolio
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
Deferred tax liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Revaluation reserve
Realised capital gains reserve
Retained profits
Note
6
7
8(a)
2010
$’000
Consolidated
2009
$’000
2008
$’000
47,324
3,810
-
21
51,155
35,818
2,919
247
39
39,023
43,645
4,413
-
15
48,073
8(b)
9
10
503,679
9
4,233
442,210
11
3,300
394,001
-
498
507,921
445,521
394,499
559,076
484,544
442,572
11
12
13
1,077
204
13
84
2,043
3
166
172
-
1,294
2,130
338
14
23,380
11,275
30,811
23,380
24,674
11,275
13,405
30,811
31,149
534,402
471,139
411,423
15
16
17
18
449,707
54,032
1,444
29,219
420,925
26,442
3,742
20,030
322,915
67,381
6,048
15,079
Total Equity
534,402
471,139
411,423
This Balance Sheet should be read in conjunction with the accompanying notes
30
2010 Annual Report
B K I 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 STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED ENTITY
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital
Gains
Reserve
$’000
Retained
Profits
$’000
Total
Equity
$’000
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
Profit / (Loss) for the year
-
-
-
-
-
-
(58,484)
17,545
-
-
-
-
-
98,010
(20,473)
(20,473)
-
-
(58,484)
17,545
-
(2,306)
25,424
23,118
Total equity at 30 June 2009
420,925
26,442
3,742
20,030
471,139
Total equity at 1 July 2009
Issue of shares, net of cost
Dividends paid or provided for
Revaluation of investment portfolio
Provision for tax on unrealised losses
Profit / (Loss) for the year
Net realised gains post 1 January 2010
through other comprehensive income
420,925
28,782
-
-
-
-
-
26,442
3,742
20,030
471,139
-
-
39,414
(11,824)
-
-
-
-
-
-
-
28,782
(24,321)
(24,321)
-
-
39,414
(11,824)
(2,358)
33,510
31,152
60
-
60
Total equity at 30 June 2010
449,707
54,032
1,444
29,219
534,402
This Statement of Changes in Equity should be read in conjunction with the accompanying notes
2010 Annual Report
31
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2010
Cash flows from operating activities
Payments to suppliers and employees
Other receipts in the course of operations
Dividends and distributions received
Payments for trading portfolio
Proceeds from sale of trading portfolio
Interest received
Income tax paid
Consolidated
2010
$’000
2009
$’000
Note
(912)
16
32,279
(1,375)
2,380
1,855
(2,583)
(2,143)
31
22,141
(2,046)
2,965
2,621
(204)
Net cash inflows from operating activities
19(a)
31,660
23,365
Cash flows from investing activities
Cash acquired on acquisition of controlled entity
Purchase costs for acquisition of controlled entity
Payment for investment portfolio
Proceeds from sale of investment portfolio
Payments for plant and equipment
Net cash outflow from investing activities
-
(46)
16,636
(1,412)
(35,284)
(34,779)
10,715
-
5,365
(13)
(24,615)
(14,203)
Cash flows from financing activities
Proceeds from issues of ordinary shares less issue costs
Dividends paid
24,023
(78)
5(a)
(19,562)
(16,911)
Net cash inflow / (outflow) from financing activities
4,461
(16,989)
Net increase / (decrease) in cash held
Cash at the beginning of the year
Cash at the end of the year
11,506
35,818
(7,827)
43,645
47,324
35,818
This Cash Flow Statement should be read in conjunction with the accompanying notes
32
2010 Annual Report
B K I 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 2010
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 BKI Investment Company Limited and controlled entities, and
BKI Investment Company Limited as an individual parent entity. Following recent changes to corporate
reporting requirements, parent company information is summarised in Note 27. BKI Investment Company
Limited is a listed public company, incorporated and domiciled in Australia.
The financial report of BKI Investment Company Limited and controlled entities, and BKI 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 except as follows:
ASB 101 (revised): Presentation of Financial Statements
With effect from 1 July 2009, the Group has adopted the revised AASB 101 – Presentation of Financial
Statements. This standard requires the presentation of a new Statement of Comprehensive Income separate
from changes in equity arising from transactions with shareholders.
The adoption of this new standard has no impact on the Group’s net assets, net profit or total recognised gains
and losses, but changes the statement where certain gains and losses are presented. Previously, unrealised
gains / (losses) on the investment portfolio and the associated deferred tax (charge) / credit were presented in
the Statement of Changes in Equity. These items are now presented as components of “Other Comprehensive
Income” in the new Statement of Comprehensive Income.
AASB 9: Financial Instruments
The Group has early adopted AASB 9 – Financial Instruments, with effect from 31 December 2009. Under this
new standard, the Group has designated the investments in the investment portfolio held at that date as at “fair
value through other comprehensive income”.
Application of the new standard results in realised gains and losses arising from the disposal of investments in
the investment portfolio (and the associated tax charge / (credit)) being recognised as “Other Comprehensive
Income” in the new Statement of Comprehensive Income instead of forming a component of profit in the
Income Statement.
Under the old accounting standard where there was objective evidence of impairment, an impairment charge
was required to be booked through the income statement, even where no loss had been realised. There are no
such impairment provisions for the Group’s investments in the new standard. The adoption of this accounting
standard has no impact on the valuation of the Group’s investments and therefore no impact on the Group’s
net assets or total comprehensive income.
The adoption of both of these standards results in all realised and unrealised gains and losses on the
investment portfolio being reported through the Statement of Comprehensive Income.
AASB 9 may only be applied retrospectively for those investments held on the date of adoption, 31 December
2009. However, investments which were sold prior to 31 December 2009 continue to be accounted for under
AASB 139, resulting in the realised gains or losses on these sales continuing to form a component of profit.
2010 Annual Report
33
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
Therefore both the comparative period and the current period profits include realised gains or losses from the
sale of investments from the investment portfolio. All sales from the investment portfolio subsequent to 31
December 2009 will be accounted for through other comprehensive income and not profit. Comparatives have
only been restated in respect of those investments the Group held at 31 December 2009. This restatement
only impacts the allocation of reserves at 30 June 2009, with no impact on net profit or net assets. Further
information has been provided in note 28.
The Group has attempted to improve the transparency of its reporting by adopting ‘plain English’ where
possible. Key ‘plain English’ phrases and their equivalent AASB terminology are as follows:
Phrase
Market Value
AASB Terminology
Fair Value for Actively Traded Securities
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 BKI 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.
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.
34
2010 Annual Report
B K I 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 2010 (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b.
Income Tax (continued)
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.
BKI 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.
The Group has two portfolios of securities, the investment portfolio and the trading portfolio. The
investment portfolio relates to holdings of securities which the Directors intend to retain on a long-term
basis and the trading portfolio comprises securities held for short term trading purposes.
Securities within the investment portfolio are classified as ‘financial assets measured at fair value through
other comprehensive income’, and are designated as such upon initial recognition. Securities held within
the trading portfolio are classified as ‘mandatorily measured at fair value through profit or loss in
accordance with AASB 9’.
Valuation of investment portfolio
Listed securities are initially brought to account at market value, which is the cost of acquisition, and are
revalued to market values continuously. Movements in carrying values of securities are recognised as
Other Comprehensive Income and taken to the Revaluation Reserve.
Where disposal of an investment occurs, any revaluation increment or decrement relating to it is
transferred from the Revaluation Reserve to the Realised Capital Gains Reserve.
Listed securities are initially brought to account at market value, which is the cost of acquisition and are
revalued to market values continuously.
Movements in carrying values of securities in the trading portfolio are taken to Profit or Loss through the
Income Statement.
Fair value
Fair value is determined based on current bid prices for all quoted investments.
2010 Annual Report
35
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d.
Impairment of Assets
(i) Wages, salaries and annual leave
Liabilities for wages and salaries, including annual leave, expected to be settled within 12 months of
balance date are recognised as current provisions in respect of employees’ services up to balance date
and are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
In calculating the value of long service leave, consideration is given to expected future wage and salary
levels, experience of employee departures and periods of service. Expected future payments are
discounted using market yields at balance date on national government bonds with terms to maturity
and currency that match, as closely as possible, the estimated future cash outflows.
(iv) Share incentives
Share incentives are provided under the Short and Long Term Incentive Plans. The Short and Long Term
Incentive Plans are settled in shares, but based on a cash amount. A provision for the amount payable
under the Short Term Incentive plan is recognised on the Balance Sheet.
For the Long Term Incentive Plan, the incentives are based on the performance of the Group over a
minimum three year period. The incentives are settled in shares (but based on a cash amount). Expenses
are recognised over the assessment period based on the amount expected to be payable under this plan,
resulting in a provision for incentive payable being built up on the balance sheet over the assessment period.
In the event that the executive does not complete the period of service, the cumulative expense is reversed.
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.
Plant and Equipment
Plant and equipment represents the costs of furniture and computer equipment and is depreciated over
its useful life, a period of between 3 and 5 years.
h.
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.
36
2010 Annual Report
B K I 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 2010 (continued)
i.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting used by the chief
operating decision-maker. The Board has been identified as the chief operating decision-maker, as it is
responsible for allocating resources and assessing performance of the operating segments.
j.
Comparative Figures
When required by Accounting Standards, comparative figures have been adjusted to conform to
changes in presentation for the current financial year. Where a retrospective restatement of items in the
statement of financial position has occurred, presentation of the statement as at the beginning of the
earliest comparative period has been included.
k.
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.
l.
Critical Accounting Estimates and Judgments
Deferred Tax Balances
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
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.
m.
Australian Accounting Standards not yet effective
Other than as described under the Basis of Preparation above, 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 2010. The impact of these new standards and
interpretations not yet applied has been assessed and is set out below:
AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual
Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] (application date 1 July 2010).
The amendments to some Standards result in accounting changes for presentation, recognition or
measurement purposes, while some amendments that relate to terminology and editorial changes are
expected to have no or minimal effect on accounting except for the following:
The amendment to AASB 117 removes the specific guidance on classifying land as a lease so that only
the general guidance remains. Assessing land leases based on the general criteria may result in more
land leases being classified as finance leases and if so, the type of asset which is to be recorded
(intangible vs. property, plant and equipment) needs to be determined.
2010 Annual Report
37
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
m.
Australian Accounting Standards not yet effective (continued)
The amendment to AASB 101 stipulates that the terms of a liability that could result, at anytime, in its
settlement by the issuance of equity instruments at the option of the counterparty do not affect its
classification.
The amendment to AASB 107 explicitly states that only expenditure that results in a recognised asset
can be classified as a cash flow from investing activities.
The amendment to AASB 118 provides additional guidance to determine whether an entity is acting as
a principal or as an agent.
The amendment to AASB 136 clarifies that the largest unit permitted for allocating goodwill acquired in
a business combination is the operating segment, as defined in IFRS 8 before aggregation for reporting
purposes.
The main change to AASB 139 clarifies that a prepayment option is considered closely related to the
host contract when the exercise price of a prepayment option reimburses the lender up to the
approximate present value of lost interest for the remaining term of the host contract.
The other changes clarify the scope exemption for business combination contracts and provide
clarification in relation to accounting for cash flow hedges.
AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based
Payment Transactions [AASB 2] (application date 1 July 2010).
This Standard makes amendments to Australian Accounting Standard AASB 2 Share-based Payment
and supersedes Interpretation 8 Scope of AASB 2 and Interpretation 11 AASB 2 – Group and Treasury
Share Transactions.
The amendments clarify the accounting for group cash-settled share-based payment transactions in the
separate or individual financial statements of the entity receiving the goods or services when the entity
has no obligation to settle the share-based payment transaction.
The amendments clarify the scope of AASB 2 by requiring an entity that receives goods or services in a
share-based payment arrangement to account for those goods or services no matter which entity in the
group settles the transaction, and no matter whether the transaction is settled in shares or cash.
AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119,
133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (application date 1 July 2010).
This amendment makes numerous editorial changes to a range of Australian Accounting Standards and
Interpretations.
The amendment to AASB 124 clarifies and simplifies the definition of a related party.
No other non-mandatory standards are considered applicable to the Group.
38
2010 Annual Report
B K I 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 2010 (continued)
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
(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
Total Income
3. OPERATING EXPENSES
Administration expenses
Occupancy Costs
Employment expense
Professional fees
Depreciation
Management fees
Total Expenditure
Consolidated
2010
$’000
2009
$’000
19,062
18,121
1,526
1,216
959
52
21,599
570
-
19,907
11,155
1,295
2,303
2,382
16
19
648
-
648
35,721
778
93
871
24,474
372
8
489
137
2
-
428
5
295
166
2
530
1,008
1,426
2010 Annual Report
39
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
4. TAX EXPENSE
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
Tax calculated at 30% (2009:30%)
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
Net gains on investments prior to 31 December 2009
Tax calculated at 30% (2009: 30%)
Tax effect of:
- difference between accounting and tax cost bases for capital gains purposes
Tax expense on net gains on investments
Net gains on investments post 31 December 2009
Tax calculated at 30% (2009: 30%)
Total Tax (credit) / expense
5. DIVIDENDS
(a) Dividends paid during the year
Final dividend for the year ended 30 June 2009 of 3.0 cents per share
(2008: 3.0 cents per share) fully franked at the tax rate of 30%, paid
on 4 September 2009
Interim dividend for the year ended 30 June 2010 of 2.5 cents per share
(2009: 3.0 cents per share) fully franked at the tax rate 30%, paid on
12 March 2010
Interim special dividend for the year ended 30 June 2010 of 0.5 cents per
share (2009: 0 cents per share) fully franked at the tax rate 30%, paid on
12 March 2010
Total
Consolidated
2010
$’000
2009
$’000
34,713
10,414
23,048
6,914
(9,065)
(192)
1,157
(3,369)
(1,011)
-
(1,011)
86
26
172
(5,821)
-
1,093
(5,396)
(1,619)
(1,471)
(3,090)
-
-
(1,997)
11,824
8,729
10,414
11,744
2,083
24,321
-
20,473
40
2010 Annual Report
B K I 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 2010 (continued)
5. DIVIDENDS (continued)
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
Consolidated
2010
$’000
2009
$’000
19,562
4,759
24,321
16,911
3,562
20,473
19,811
16,984
(5,830)
(5,068)
13,981
11,916
(b) Dividends declared after balance date
Since the end of the financial year the Directors have declared a final ordinary dividend for the year ended 30 June
2010 of 2.75 of cents per share (2009: final 3.0 cents per share) and a final special dividend for the year ended 30
June 2010 of 0.5 of cents per share (2009: final special 0 cents per share). Both are fully franked at the tax rate of
30% and payable on 10 September 2010, and have not been 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
2010
$’000
47,087
237
47,324
7. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES
Dividends receivable
Distributions receivable
Interest receivable
Outstanding settlements
Other receivable
2010 Annual Report
3,146
-
664
-
-
3,810
Consolidated
2009
$’000
27,012
8,806
35,818
2,723
-
167
-
29
2,919
2008
$’000
2,623
41,022
43,645
2,948
197
406
833
29
4,413
41
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
8. FINANCIAL ASSETS - INVESTMENT PORTFOLIO
(a) Trading Portfolio - Current
Listed securities at fair value held for trading:
- Shares in other corporations
(b) Investment Portfolio - Non-Current
Listed securities at fair value available for sale:
- Shares in other corporations
Total Investment Portfolio
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 July
Additions
Depreciation expense
Carrying value at 30 June
2010
$’000
Consolidated
2009
$’000
2008
$’000
-
247
-
503,679
442,210
394,001
503,679
442,457
394,001
19
(10)
9
11
-
(2)
9
19
(8)
11
-
13
(2)
11
6
(6)
-
-
-
-
-
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
419
55
3,759
4,233
553
19
2,728
3,300
489
9
-
498
42
2010 Annual Report
B K I 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 2010 (continued)
10. NON CURRENT ASSETS - DEFERRED TAX ASSETS (continued)
Credited/
(Charged) to
Statement of
Comprehensive
Income
$'000
Tax
Balances
Transferred
on Takeover
$'000
Opening
Balance
$'000
Tax
Balance
Transferred
$'000
Closing
Balance
$'000
Consolidated
Transaction costs on equity issues
489
Accrued expenses
Tax losses
Balance as at 30 June 2009
Transaction costs on equity issues
Accrued expenses
Tax losses
Balance as at 30 June 2010
9
-
498
553
19
2,728
3,300
(133)
(17)
3,090
2,940
(134)
36
1,031
933
11. TRADE AND OTHER PAYABLES
Current Liabilities
Creditors and accruals
12. CURRENT TAX LIABILITIES
197
27
-
224
-
-
-
-
(362)
(362)
-
-
-
553
19
2,728
3,300
419
55
3,759
4,233
2010
$’000
Consolidated
2009
$’000
2008
$’000
1,077
84
166
Provision for income tax
204
2,043
172
13. TRADE AND OTHER PAYABLES
Aggregate employee benefits
Analysis of provisions:
Current
13
13
13
3
3
3
2010 Annual Report
-
-
-
43
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
14. NON CURRENT LIABILITIES - DEFERRED TAX LIABILITIES
The deferred tax liability balance comprises the following
timing differences:
Revaluation of investments held
Non rebateable dividends receivable and interest receivable
Movements in deferred tax liabilities
2010
$’000
Consolidated
2009
$’000
2008
$’000
23,073
307
23,380
11,241
34
11,275
30,603
208
30,811
Credited/
(Charged) to
Statement of
Comprehensive
Income
$'000
Tax
Balances
Transferred
on Takeover
$'000
Opening
Balance
$'000
Tax
Balance
Transferred
$'000
Closing
Balance
$'000
Consolidated
Revaluation of investment portfolio
30,603
(1,356)
(17,644)
(362)
11,241
Non rebateable dividends receivable
and interest receivable
Balance as at 30 June 2009
208
30,811
(174)
(1,530)
-
(17,644)
Revaluation of investment portfolio
11,241
8
11,824
Non rebateable dividends receivable
and interest receivable
Balance as at 30 June 2010
34
11,275
273
281
-
11,824
-
-
34
11,275
23,073
307
23,380
44
2010 Annual Report
B K I 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 2010 (continued)
15. SHARE CAPITAL
2010
$’000
Consolidated
2009
$’000
2008
$’000
(a) Issued and paid-up capital
418,566,158 ordinary shares fully paid (2009: 394,143,000)
449,707
420,925
322,915
(b) Movement in ordinary shares
Beginning of the financial year
Issued during the year:
- dividend reinvestment plan
- share purchase plan
- issued as consideration on takeover
- less net transaction costs
2010
$’000
Number of
Shares
2009
$’000
Number of
Shares
394,143,000
420,925
290,966,594
322,915
3,999,346
20,423,812
-
4,759
24,100
-
(77)
3,813,744
-
99,362,662
3,562
-
94,526
(78)
End of the financial year
418,566,158
449,707
394,143,000
420,925
The Parent does not have an authorised share capital and the ordinary shares on issue have no par value.
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 2010 net debt was $ Nil (2009: $Nil).
2010 Annual Report
45
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
16. REVALUATION RESERVE
The Revaluation reserve is used to record increments and decrements on the revaluation of the investment
portfolio.
Balance at the beginning of the year
Revaluation of investment portfolio
Balance at the end of the year
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
Net (losses) / gains on investment portfolio transferred from
retained profits
Net (losses) / gains on investment portfolio transferred from
Statement of Comprehensive Income
Balance at the end of the year
18. RETAINED PROFITS
Retained profits at the beginning of the year
Net profit attributable to members of the company
Net losses / (gains) on investment portfolio transferred to
realised capital gains reserve
Dividends provided for or paid
Retained profits at the end of the year
2010
$’000
26,442
27,590
54,032
Consolidated
2009
$’000
2008
$’000
67,381
(40,939)
100,128
(32,747)
26,442
67,381
3,742
6,048
2,660
(2,358)
(2,306)
3,388
60
1,444
-
-
3,742
6,048
20,030
31,152
15,079
23,118
11,317
22,576
2,358
(24,321)
2,306
(20,473)
(3,388)
(15,426)
29,219
20,030
15,079
46
2010 Annual Report
B K I 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 2010 (continued)
19. RECONCILIATION OF CASH FLOW
(a) Reconciliation of cash flow from operating activities to operating profit
Net Profit from ordinary activities
Non cash item :
- net losses on investment portfolio
- discount on acquisition of controlled entity
- depreciation expense
Change in assets and liabilities, net of the effects of purchase of subsidiaries
Decrease in available for sale financial assets
(Increase) / Decrease in receivables and prepayments
Decrease in deferred tax assets
Increase / (Decrease) in payables
Increase in employee entitlements
Increase / (Decrease) in deferred tax liabilities
Increase / (Decrease) in current tax liabilities
Net cash inflow from operating activities
Consolidated
2010
$’000
2009
$’000
31,152
22,972
2,358
46
2
357
(873)
52
114
10
281
(1,839)
31,660
2,306
(3,323)
2
48
1,178
512
(710)
3
(493)
870
23,365
(b) Non-cash financing and investing activities - Dividend reinvestment plan
Under the terms of the dividend reinvestment plan, $4,759,000 (2009: $3,562,000) of dividends were paid via
the issue of 3,999,346 shares (2009: 3,813,744).
(c) Acquisition of controlled entities
No controlled entities were acquired in 2010. $46,000 of costs have been incurred in the current year in relation
to the acquisition of Huntley Investment Company Limited during 2009. No more costs are expected to be
incurred in relation to this acquisition.
During 2009, the Group completed the takeover of 100% of the share capital of Huntley Investment
Company Limited. Purchase consideration was the issue of 99,362,662 ordinary shares of BKI Investment
Company Limited.
2010 Annual Report
47
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
20. AUDITOR’S REMUNERATION
Remuneration of the auditor of the parent entity for:
Auditing the financial report of the Parent and the controlled entities
21. 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)
Consolidated
2010
$’000
2009
$’000
21
22
31,152
31,152
23,118
23,118
2010
2009
No. ('000)
No. ('000)
411,636
348,548
7.57
7.57
6.63
6.63
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
IT Huntley
GG Hill
TCD Millner
RJ Pillinger
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (resigned 8 September 2009)
Chief Executive Officer (appointed 1 December 2009)
Company Secretary (services provided under contract through Corporate and
Administrative Services Pty Limited)
There are no other employees of the Group.
Details of the nature and amount of each Non – Executive Director’s and Key Management Personnel’s
emoluments from the Group in respect of the year to 30 June 2010 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.
48
2010 Annual Report
B K I 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 2010 (continued)
These fees exclude any additional fee for any service based agreement which may be agreed from time to time
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.
24. RELATED PARTY TRANSACTIONS
Related parties of the Group fall into the following categories:
(i) Controlled Entities
At 30 June 2010, 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
2010
100
100
100
2009
100
100
100
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.
(ii) Directors/Officers Related Entities
Persons who were Directors/Officers of BKI Investment Company Limited for part or all of the year ended
30 June 2010 were:
Directors:
RD Millner
DC Hall
AJ Payne
IT Huntley
Chief Executive Officer
TCD Millner
GG Hill (resigned 8 September 2009)
Company Secretary:
RJ Pillinger (services provided under contract through Corporate and
Administrative Services Pty Limited)
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 2010 were $117,480 (2009: $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 2010.
(iii) Transactions in securities
2010 Annual Report
49
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
(b) Share and Option Holdings
Aggregate number of listed securities of the Company held by Key Management Personnel or their related
entities:
Shares
2010
RD Millner
DC Hall
AJ Payne
IT Huntley
TCD Millner
RJ Pillinger
Total
2009
RD Millner
DC Hall
AJ Payne
IT Huntley *
GG Hill
TCD Millner
RJ Pillinger
Total
Balance at
1/07/09
5,621,223
221,749
169,612
11,004,901
1,500
-
17,018,985
Balance at
1/07/08
4,905,200
221,749
120,586
-
764,367
1,500
-
6,013,402
Granted as
compensation
Net Change
Other
Balance at
30/6/10
-
-
-
-
-
-
-
630,855
6,252,078
12,711
21,693
234,460
191,305
58,544
11,063,445
8,568
-
10,068
-
732,371
17,751,356
Granted as
compensation
Net Change
Other
Balance at
30/6/09
-
-
-
-
-
-
-
-
716,023
5,621,223
-
49,026
221,749
169,612
11,004,901
11,004,901
76,936
841,303
1,500
-
-
11,846,886
17,860,288
* 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 2010.
All Key Management Personnel or their associated entities, being shareholders are entitled to receive dividends.
25. FINANCIAL REPORTING BY SEGMENTS
The Group operates solely in the securities industry in Australia and has no reportable segments.
50
2010 Annual Report
B K I 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 2010 (continued)
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 90% (2009: 92%) 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% (2009: 5%) movement in the net assets before provision for tax on unrealised capital gains at
30 June 2010.
The net asset backing before provision for tax on unrealised capital gains would move by 6.0 cents per share
at 30 June 2010 (2009: 5.6 cents).
The performance of the companies within the portfolio is monitored by the Investment Committee and the
Board as a whole.
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.
2010 Annual Report
51
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
26. MANAGEMENT OF FINANCIAL RISK (continued)
d) Market risk (continued)
At 30 June 2010, the spread of investments is in the following sectors:
Percentage of total investment
Amount
Sector
Financials
Energy
Materials
Consumer Staples
Bank deposits
Industrials
Telecommunications Services
Consumer Discretionary
Utilities
Health Care
Property Trusts
2010
%
34.01
15.19
11.80
10.24
8.59
6.38
4.89
4.18
3.44
0.65
0.62
100.0
2009
%
35.20
17.87
12.67
9.67
7.49
5.47
3.94
3.56
3.41
0.15
0.56
100.0
2010
$’000
187,414
83,702
65,011
56,420
47,324
35,148
26,964
23,057
18,977
3,588
3,398
551,003
Securities representing over 5% of the investment portfolio at 30 June 2010 were:
Company
New Hope Corporation Limited
BHP Billiton Limited
National Australia Bank Limited
Commonwealth Bank
Westpac Banking Corporation
12.9%
10.4%
8.3%
8.0%
5.0%
44.6%
14.1%
9.9%
9.0%
7.2%
5.2%
45.4%
64,946
52,155
41,830
40,416
25,091
224,438
208,940
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.
52
2010 Annual Report
2009
$’000
168,341
85,488
60,611
46,265
35,818
26,176
18,849
17,028
16,327
695
2,677
478,275
67,310
47,190
39,590
31,920
22,930
B K I 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 2010 (continued)
26. MANAGEMENT OF FINANCIAL RISK (continued)
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. PARENT COMPANY INFORMATION
2010
$’000
2009
$’000
Information relating to the parent entity of the Group, BKI Investment Company Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Reserves
Total shareholders’ equity
Profit or loss
Total Other Comprehensive Income / (Loss)
51,155
705,298
756,453
1,214
228,883
230,097
449,707
76,649
526,356
30,949
28,578
37,723
642,612
680,335
2,120
215,844
217,964
420,925
41,446
462,371
16,764
(42,275)
The parent company has no contingent liabilities at 30 June 2010.
2010 Annual Report
53
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2010 (continued)
28. EFFECT OF CHANGES IN ACCOUNTING STANDARDS
The impact on comparative profit, other comprehensive income and the allocation of the Company’s reserves
resulting from the adoption of AASB 9 is summarised below.
(i) Net profit – restated 2009 results
As previously Reverse net
reported impairment
charge
$’000
$’000
Restated
$’000
Consolidated
Profit for the year attributable to members of the Company
Earnings per share (cents - basic)
22,112
6.34
1,006
0.29
23,118
6.63
(ii) Other comprehensive income
Consolidated
Net unrealised loss on investment portfolio
(39,933)
(1,006)
(40,939)
The restated net unrealised loss on the investment portfolio for the year ended 30 June 2009 is shown in the
Total Other Comprehensive Loss for 2009.
(iii) Shareholders’ equity
During the year ended 30 June 2009, under the old AASB 139, the Company was required to book an
impairment charge. There are no provisions for impairment in the new standard, which is retrospectively applied
to investments held at the date of adoption, 31 December 2009.
The Company has not sold the investments against which an impairment charge was taken at 30 June 2009,
and therefore retrospectively applying AASB 9 at 30 June 2009 results in the reversal of this impairment charge
(as this will be taken as an unrealised loss through other comprehensive income instead of an impairment loss
through profit).
This results in the following restatement of reserves on the 30 June 2009 balance sheet.
Consolidated
Share capital
Revaluation reserve
Realised capital gains reserve
Retained profits
Total Shareholder’s Equity
420,925
27,448
3,742
19,024
471,139
-
420,925
(1,006)
26,442
-
3,742
1,006
20,030
-
471,139
29. CONTINGENT LIABILITIES
The Group has no contingent liabilities at 30 June 2010.
30. AUTHORISATION
The financial report was authorised for issue on 4 August 2010 by the Board of Directors.
54
2010 Annual Report
B K I 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 BKI Investment Company Limited declare that:
1.
The financial statements and notes of the consolidated entity are in accordance with the Corporations
Act 2001 and:
a.
b.
c.
comply with Accounting Standards (including the Australian Accounting Interpretations) and
the Corporations Regulations 2001; and
comply with International Financial Reporting Standards as disclosed in Note 1; and
give a true and fair view of the financial position as at 30 June 2010 and of the performance
for the year ended on that date of the consolidated entity;
In the Directors’ opinion there are reasonable grounds to believe that the consolidated entity 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 2010.
2.
3.
This declaration is made in accordance with a resolution of the Board of Directors.
Robert D Millner
Director
Sydney
4 August 2010
2010 Annual Report
55
BKI INVESTMENT
COMPANY LIMITED
AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
Report on the Financial Report
We have audited the accompanying financial report of BKI Investment Company Limited (the company), which comprises the balance sheet as at 30
June 2010, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the
year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration for both BKI
Investment Company Limited and the BKI Investment Company Limited Group (the consolidated entity). The consolidated entity comprises the
company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing
and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances. In Note 1, the directors also state, in accordance with AASB 101: Presentation of Financial Statements, that the financial statements
comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing
Standards These Auditing Standards require that we comply with relevant ethical requirements relating to auditing engagements and plan and
perform the audit to obtain reasonable assurance as to whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected
depend on the auditor’s judgement, including the assessment of risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the
financial report.
Our audit did not involve the analysis of the prudence of business decisions made by directors or management.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence
declaration required by the Corporations Act 2001, provided to the directors of BKI Investment Company Limited on 4 August 2010, would be in the
same terms if provided to the directors as at the date of this audit report.
Auditor’s Opinion
In our opinion:
(a) The financial report of BKI Investment Company Limited is in accordance with the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the company and consolidated entity’s financial position as at 30 June 2010 and of their performance for
the year ended on that date; and
complying with Australian Accounting Standards(including the Australian Accounting Interpretations) and the Corporations Regulations
2001;
(b) The financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration Report included in the directors report for the year ended 30 June 2010. The directors of the company are
responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s Opinion
In our opinion the Remuneration Report of BKI Investment Company Limited for the year ended 30 June 2010, complies with section 300A of the
Corporations Act 2001.
RUWALD & EVANS
Martin Bocxe
Partner
Level 1, 276 Pitt Street, SYDNEY NSW 2000
4 August, 2010
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2010 Annual Report
B K I 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
Auditors’ Independence Declaration under Section 307C of the Corporations Act 2001 to the
directors of BKI Investment Company Limited and Controlled Entities
As lead audit partner for the audit of the financial statements of BKI Investment Company Limited for the
financial year ended 30 June 2010, I declare that to the best of my knowledge and belief, during the review for
the year ended 30 June 2010, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the review.
RUWALD & EVANS
Martin Bocxe
Partner
Level 1, 276 Pitt Street,
SYDNEY NSW 2000
4 August, 2010
2010 Annual Report
57
BKI INVESTMENT
COMPANY LIMITED
ASX Additional Information
1) Equity Holders
At 30 July 2010, there were 11,374 holders of ordinary shares in the capital of the Parent. These holders were
distributed as follow:
No. of Shares held
1
– 1,000
1,001
– 5,000
5,001
– 10,000
10,001 – 100,000
100,001 and over
Total
Holding less than a marketable parcel of 421 shares
Votes of Members
Article 5.12 of the Company’s Constitution provides:
No. of Shareholders
730
1,918
1,825
6,325
512
11,374
453
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).
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2010 Annual Report
B K I 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 share as at 30 July 2010 are listed below:
Name
Washington H Soul Pattinson & Company Limited
Shares Held
56,796,574
%
13.57%
Huntley Group Investments Pty Limited
8,523,274
Argo Investments Limited
Bougainville Copper Limited
J S Millner Holdings Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
8,311,237
4,907,527
3,534,557
1,630,713
Huntley Group Investments Pty Limited
1,529,360
Lunicash Super Pty Ltd
Willpower Investments Pty Ltd
Aust Executor Trustees Ltd
T G Millner Holdings Pty Limited
Milton Corporation Limited
D E C Investments Pty Limited
1,435,602
1,164,903
1,158,638
1,153,442
1,147,375
1,093,408
RBC Dexia Investor Services Australia Nominees Pty Limited
959,001
Patjen2 Pty Ltd
Farjoy Pty Ltd
Mrs Patricia Roberta Huntley
The Miller Foundation Ltd
One 478 Pty Ltd
Trephant Pty Ltd
957,043
917,655
902,763
900,000
900,000
840,000
2.04%
1.99%
1.17%
0.84%
0.39%
0.37%
0.34%
0.28%
0.28%
0.28%
0.27%
0.26%
0.23%
0.23%
0.22%
0.22%
0.22%
0.22%
0.20%
Total top 20 security holders
Total number of shares on issue
98,763,072
418,566,158
23.62%
2) Substantial Shareholders
As at 30 July 2010 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
56,796,574
13.57%
2010 Annual Report
59
BKI INVESTMENT
COMPANY LIMITED
ASX Additional Information (continued)
3) Other Information:
• There is no current on-market buy-back in place.
• There were 296 (2009: 171) transactions in securities undertaken by the Group and the total brokerage paid
or accrued during the year was $164,240 (2009: $81,124)
4) 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
30/06/10
0.69%
0.71%
0.56%
0.46%
0.46%
0.31%
0.19%
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2010 Annual Report
BKI INVESTMENT
COMPANY LIMITED