Black Knight Annual Report 2013

Plain-text annual report

Annual Report 2013 for year ended 30 June 2013 BKI INVESTMENT COMPANY LIMITED ABN 23 106 719 868 BKI INVESTMENT COMPANY LIMITED CORPORATE DIRECTORY Directors Robert Dobson Millner David Capp Hall Alexander James Payne Ian Thomas Huntley Non-Executive Director and Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Thomas Charles Dobson Millner Company Secretaries Jaime Perry Pinto Larina Tcherkezian (Alternate) Registered Office Level 2 160 Pitt Street Mall, Sydney NSW 2000 Telephone: Facsimile: (02) 9210 7000 (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 2013 Annual Report BKI INVESTMENT COMPANY LIMITED Contents Financial Highlights List of Securities as at 30 June 2013 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 Independent Auditor’s Report Auditor’s Independence Declaration ASX Additional Information 2013 Annual Report Page 2 3 6 7 13 23 32 33 34 35 36 37 57 58 60 61 1 BKI INVESTMENT COMPANY LIMITED FINANCIAL HIGHLIGHTS (cid:0) Revenue Performance: Total Income - Ordinary Total Income - Special Total Revenue from Ordinary Activities (cid:0) Profits: Net Operating Result before special dividend income Dividend Income - Special Net Profit from ordinary activities after tax attributable to shareholders Net Profit attributable to shareholders (cid:0) Portfolio: % Change $’000 Up Up Up Up Up Up Up 7.4% 62.6% 11.3% 8.0% 62.6% 12.1% 12.1% to to to to to to to 31,971 3,685 35,656 29,927 3,685 33,612 33,612 Total Portfolio Value (including cash) Up 21.5% to 676,585 (cid:0) Earnings Per Share: Basic Earnings Per Share before special dividend income Basic Earnings Per Share after special dividend income (cid:0) Dividends: Interim - Ordinary Final - Ordinary Full Year Total - Ordinary Full Year Total - Specials Full Year Total Dividends Up Up Up Up Up Up Up 4.7% 8.7% to to 1.6% 6.2% 3.9% - 11.7% Cents 6.81 7.65 Cents 3.25 3.40 6.65 0.50 7.15 (cid:0) 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 30/06/11 30/06/12 30/06/13 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 $1.42 $1.34 $1.30 $1.26 $1.52 $1.42 2 2013 Annual Report BKI INVESTMENT COMPANY LIMITED FINANCIAL HIGHLIGHTS (continued) (cid:0) Dividend History (cents per share): 30/06/04* 30/06/05 30/06/06 30/06/07 30/06/08 30/06/09 30/06/10 30/06/11 30/06/12 30/06/13 Interim Final Special Total - 2.00 - 2.10 2.20 - 2.00 4.30 2.50 2.50 1.00 6.00 2.60 2.70 - 3.00 3.00 - 3.00 3.00 - 5.30 6.00 6.00 2.50 2.75 1.00 6.25 3.00 3.00 1.00 3.20 3.20 - 3.25 3.40 0.50 7.00 6.40 7.15 * The Company listed on the ASX on 12 December 2003, no interim dividend is applicable for this financial year. All ordinary and special dividends paid by (“BKI”) Investment Company Limited since listing on the Australian Stock Exchange have been fully franked. The following chart summarises all interim and final fully franked dividends declared by the company. 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1 0.5 0.5 1 0.5 2 2.1 2.2 2.5 2.5 2.6 2.7 3 3 3 3 2.5 2.75 3 3 3.2 3.2 3.25 3.4 4 0 H 2 5 0 H 1 5 0 H 2 6 0 H 1 6 0 H 2 7 0 H 1 7 0 H 2 8 0 H 1 8 0 H 2 9 0 H 1 9 0 H 2 0 1 H 1 0 1 H 2 1 1 H 1 1 1 H 2 2 1 H 1 2 1 H 2 3 1 H 1 3 1 H 2 Ordinary Dividends Special Dividends 2013 Annual Report 3 BKI INVESTMENT COMPANY LIMITED FINANCIAL HIGHLIGHTS (continued) Securities held and their Market value as at 30 June 2013 Stock Financials Commonwealth Bank of Australia National Australia Bank Limited Westpac Banking Corporation Australia and New Zealand Banking Group Limited QBE Insurance Group Limited Milton Corporation Limited ASX Limited Insurance Australia Group Limited Bendigo Bank Limited Perpetual Limited AMP Limited Suncorp-Metway Limited Macquarie Group Limited Bank of Queensland Limited Energy New Hope Corporation Limited Woodside Petroleum Limited Caltex Australia Limited Santos Limited Industrials ALS limited Brambles Limited Seek Limited Transurban Group GWA International Limited QUBE Logistics UGL Limited Salmat Limited Skilled Group Limited Lindsay Australia Limited Consumer Discretionary Invocare Limited ARB Corporation Limited Tatts Group Crown Limited Tabcorp Holdings Limited Fairfax Media Limited Fleetwood Corporation Limited West Australian Newspapers Holdings Limited Gazal Corporation Limited 4 Shares Held 951,900 2,160,000 1,738,000 906,000 737,000 410,378 215,500 1,280,000 610,400 166,310 1,314,813 390,000 85,000 370,000 14,760,452 390,000 91,950 130,000 1,948,670 785,576 400,000 499,581 1,310,000 1,710,000 390,500 970,100 644,826 5,749,400 974,000 845,600 1,909,000 150,574 438,111 2,100,000 240,500 372,458 211,865 Market Value ($’000) Portfolio Weight % 65,824 64,066 50,159 25,884 11,107 7,530 7,126 6,962 6,147 5,881 5,575 4,649 3,555 3,223 267,688 52,695 13,654 1,659 1,628 69,636 18,668 7,329 3,628 3,377 3,144 2,847 2,694 1,877 1,657 1,006 46,228 11,084 9,614 6,052 1,823 1,336 1,029 863 706 604 33,111 9.73% 9.47% 7.41% 3.83% 1.64% 1.11% 1.05% 1.03% 0.91% 0.87% 0.82% 0.69% 0.53% 0.48% 39.57% 7.79% 2.02% 0.25% 0.24% 10.30% 2.76% 1.08% 0.54% 0.50% 0.46% 0.42% 0.40% 0.28% 0.24% 0.15% 6.83% 1.64% 1.42% 0.89% 0.27% 0.20% 0.15% 0.13% 0.10% 0.09% 4.89% 2013 Annual Report BKI INVESTMENT COMPANY LIMITED FINANCIAL HIGHLIGHTS (continued) Securities Held (continued): Stock Consumer Staples Wesfarmers Limited Woolworths Limited Metcash Limited Coca Cola Amatil Limited Graincorp Limited Health Care Ramsay Health Care Limited Sonic Healthcare Limited Materials BHP Billiton Limited Brickworks Limited Rio Tinto Limited Arrium Limited Property Trusts Westfield Group Telecommunications Services Telstra Corporation Limited TPG Telecom Limited Utilities AGL Energy Limited APA Group TOTAL PORTFOLIO Cash and dividends receivable TOTAL PORTFOLIO Shares Held 769,200 751,565 3,051,000 846,000 93,444 189,000 153,600 1,369,443 436,209 49,562 800,000 233,157 7,355,000 4,420,000 1,141,000 1,554,452 Market Value ($’000) Portfolio Weight % 30,453 24,659 10,740 10,736 1,174 77,762 6,768 2,273 9,041 42,932 5,522 2,589 620 51,663 2,665 2,665 35,010 15,514 50,524 16,510 9,296 25,806 4.50% 3.64% 1.59% 1.59% 0.17% 11.49% 1.00% 0.34% 1.34% 6.35% 0.82% 0.38% 0.09% 7.64% 0.39% 0.39% 5.17% 2.29% 7.46% 2.44% 1.37% 3.81% 634,123 93.72% 42,462 6.28% 676,585 100.00% 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. 2013 Annual Report 5 BKI INVESTMENT COMPANY LIMITED GROUP PROFILE BKI Investment Company Limited (“BKI” or “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. BKI Shares were listed on the Australian Stock Exchange Limited commencing 12 December 2003. Corporate Objectives The Group aims to generate an increasing income stream for distribution to shareholders in the form of fully franked dividends to the extent of 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 research driven, long term manager focusing on well managed companies, with a profitable history and that offer attractive dividend yields. Stock selection is bottom up, focusing on the merits of individual companies rather than market and economic trends. Dividend Policy The Group will pay the maximum amount of realised profits after tax for that year to shareholders as 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 investments. Dividends will be declared by the Board of Directors out of realised profit after tax for the relevant year, excluding realised capital profit from any disposals of long-term investments. Management The Group has an internalised portfolio management function headed by the CEO, Mr Tom Millner. The Group also engages Corporate & Administrative Services Pty Ltd to provide accounting and group secretarial services. These services are overseen by the BKI Company Secretary, Mr Jaime Pinto. 6 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS Dear Shareholders, I am pleased to enclose the 10th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2013. The Net Operating Result before special dividend income increased 8.0% to $29.9m, while Earnings per Share before special dividend income increased 4.7% to 6.81cps. Total dividends for FY2013 were up 11.7% on the previous corresponding period to 7.15cps, including a Fully Franked Special Dividend of 0.50cps paid in the first half. This year marked the 7th consecutive year of increasing the Net Operating Result for the shareholders of BKI. The Board and management are very pleased with this result, especially when you reflect on the performance of share markets over these years. There have been some tough times for investors; however, BKI has been able to take advantage of its closed end LIC structure and re-invest funds into the market without having to wait for inflows from investors; nor, as with some open ended structures, has BKI had to manage outflows when it may have wished to invest counter cyclically. 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Above: Net Operating Result by financial year end 30 June ($millions) The Net Operating Result was boosted by additional income received from Commonwealth Bank, National Australia Bank, Westpac Bank, ANZ Bank, Wesfarmers, Invocare, APA Group, Insurance Australia, Woolworths and ALS Limited. A decrease in ordinary income received from QBE Insurance, Seven West Media, Salmat Limited and GWA International were the main negatives. BKI also received special dividend income from Woodside Petroleum, Coca Cola Amatil, Salmat Limited, Westpac Banking Corporation and Graincorp Limited. These special dividends helped lift the Net Profit attributable to shareholders by 12.1% to $33.6m. The result also highlights the advantages of holding a long term, diversified portfolio of companies in varying sectors. We believe we have positioned the portfolio to be able to perform well in most economic environments. 2013 Annual Report 7 BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued) Dividends A further increase in the Net Operating Result enabled the Board to again meet one of BKI’s core objectives - to provide an increasing income stream for the owners of the company; the shareholders. A Fully Franked Final Ordinary Dividend of 3.40cps was declared, up from 3.20cps in FY2013. 1 0.5 0.5 1 0.5 2 2.1 2.2 2.5 2.5 2.6 2.7 3 3 3 3 2.5 2.75 3 3 3.2 3.2 3.25 3.4 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 4 0 H 2 5 0 H 1 5 0 H 2 6 0 H 1 6 0 H 2 7 0 H 1 7 0 H 2 8 0 H 1 8 0 H 2 9 0 H 1 9 0 H 2 0 1 H 1 0 1 H 2 1 1 H 1 1 1 H 2 2 1 H 1 2 1 H 2 3 1 H 1 3 1 H 2 Ordinary Dividends Special Dividends Above: Fully franked Interim and Final dividends declared (cents per share) Key dates for the Final Dividend are as follows: Event Last trading date to be eligible for the Final Dividend Ex-Dividend Date Record Date Payment Date Date 12 August 2013 13 August 2013 19 August 2013 29 August 2013 BKI’s historical fully franked dividend yield as at 31 July 2013 was 4.5% (based on the rolling 12 Month Dividend and share price of $1.60). BKI’s historical grossed up yield as at 31 July 2013 was 6.4% (based on a tax rate of 30%). BKI’s Dividend Reinvestment Plan (DRP) has been maintained, offering shareholders the opportunity to acquire further ordinary shares in BKI. The DRP will not be offered at a discount. The DRP price will be calculated using the average of the daily volume weighted average sale price of BKI’s shares sold in the ordinary course of trading on the ASX during the 5 trading days after, but not including, the Record Date (19 August 2013). 8 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued) Portfolio Movements In October 2012 BKI successfully completed a Share Purchase Plan (SPP), raising $19.1m. BKI deployed all of the funds raised in the SPP during October/November 2012 with major investments including ANZ Banking Corporation, National Australia Bank, Westpac Banking Corporation, APA Group, Transurban Group and Metcash Limited. Yields on offer at this time were very compelling to the long term shareholder. As income from cash products began to decline, investors were forced to re-enter the market looking for additional income and franking credits. This created a significant push for dividend yield in the Australian share market over the last 6 months, with many labelling it a “Yield Bubble”. While many companies were still offering a fully franked dividend yield well in excess of the cash rate, the BKI Investment Committee took the view that the share market in general was trading at fair value, and accordingly BKI invested only $2.2m during the second half of FY2013. The Company’s main divestments from the investment portfolio during FY2013 were: the balance of the Westpac Preference Shares, Clover Corporation and Ten Network Holdings. Divestments from the trading portfolio were Entitlements from Seven West Media and Ten Network Holdings, Renounceable Rights from ASX Limited and shares in SCA Property Group, issued as an In-Specie Capital Return from Woolworths Limited. Top 20 Investments at 30 June 2013 Stock Market Value ($’000) Portfolio Weight % 1 2 3 Commonwealth Bank National Australia Bank New Hope Corporation 4 Westpac Banking Corporation 5 6 BHP Billiton Limited Telstra Corporation Limited 7 Wesfarmers Limited 8 ANZ Bank 9 Woolworths Limited 10 ALS Limited 11 AGL Energy Limited 12 TPG Telecom Limited 13 Woodside Petroleum Limited 14 QBE Insurance Group 15 InvoCare Limited 16 Metcash Limited 17 Coca Cola Amatil Limited 18 ARB Corporation Limited 19 APA Group 20 Milton Corporation Limited Cash and cash equivalents Total of Top 20 plus cash and cash equivalents 2013 Annual Report 65,824 64,066 52,695 50,159 42,932 35,010 30,453 25,884 24,659 18,668 16,510 15,514 13,654 11,107 11,084 10,740 10,736 9,614 9,296 7,530 42,462 9.7% 9.5% 7.8% 7.4% 6.3% 5.2% 4.5% 3.8% 3.6% 2.8% 2.4% 2.3% 2.0% 1.6% 1.6% 1.6% 1.6% 1.4% 1.4% 1.1% 6.3% 568,597 83.9% 9 BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued) Performance BKI’s Share Price Performance (including the reinvestment of dividends) for the year to 30 June 2013 was 29.4%, outperforming the S&P/ASX 300 Accumulation Index over the same period by 7.5%. 29.4% 21.9% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 13.5% 8.2% 8.8% 9.4% 8.0% 6.1% 3.5% 2.7% 1 Year 3 Years (pa) 5 Years (pa) 7 Years (pa) 9 Years (pa) BKI Total Shareholder Returns S&P/ASX 300 ACC Index (XKOAI) BKI’s Net Portfolio Return (after all operating expenses, provision and payment of both income and capital gains tax and the reinvestment of dividends) for the year to 30 June 2013 was 22.2%, compared to the S&P/ASX 300 Accumulation Index which returned 21.9% over the same period. 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 10 22.2% 21.9% 9.9% 8.2% 8.5% 8.0% 4.8% 2.7% 5.6% 3.5% 1 Year 3 Years (pa) 5 Years (pa) 7 Years (pa) 9 Years (pa) BKI Portfolio Performance S&P/ASX 300 ACC Index (XKOAI) 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued) It is important to point out that these performance numbers are measured after all operating expenses, provision and payment of income and capital gains tax. The numbers do not include the added benefit of franking credits which are attached to dividend distributions. We believe that as we see general interest rates and term deposit rates fall, dividends and franking credits will become even more important to many shareholders. Operating Expenses Operating expenses for the Full Year were $1.16m, an increase of $0.1m on FY2012. BKI has increased marketing activities to improve the awareness of BKI within the broker and advisory industries. This exposure has been a material factor in BKI’s total Shareholder Returns over the last year significantly outperforming the market, and has helped to reduce the discount that BKI shares are trading to the pre-tax NTA. BKI’s Management Expense Ratio – which is calculated incorporating all expenses - as at 30 June 2013 was 0.19%, which is a very competitive cost structure within the managed funds industry. BKI is internally managed and does not charge shareholders external portfolio management fees or performance fees. 0.56% 0.46% 0.46% 0.80% 0.70% 0.69% 0.71% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.31% 0.19% 0.18% 0.18% 0.19% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Outlook Although there has been a minor improvement, global economic activity has continued to be subdued. The US economic recovery is playing out slowly and European economies remain under pressure. Many Asian economies (with a particular focus on China) have stabilised, however the Japanese economic situation remains a concern. Locally, our share market performed well over the last year with the S&P/ASX 300 Accumulation Index gaining 21.9% to 30 June 2013, driven by investors chasing dividend yield and defensive industrial stocks. However, our broader economy appears to be stalling, with employment, business confidence and retail spending all on the decline. A high Australian Dollar has also been a catalyst for the Reserve Bank to reduce the cash rate to encourage spending and support non-resource related sectors. 2013 Annual Report 11 BKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued) Investors are facing a changing dynamic within the resource sector, especially those companies in exploration and development phase. Resource Investment has deteriorated substantially due to continual pressure on mining and drilling costs as well as lower commodity prices. However, the better quality resource companies; those with a diversified portfolio of assets, strong balance sheet and exposure to multiple commodities have seen some of the pressure ease with a recent fall in the Australian dollar and lower costs associated with labour. The upcoming reporting season will give investors an insight into the financial health of many companies and sectors within our market. BKI will focus on the following topics during the upcoming reporting season: (cid:0) Dividend Yield - A company’s ability to deliver a sustainable and growing dividend stream. (cid:0) Franking Credits – Current balance and impact of offshore earnings. (cid:0) Sustainable Business Model and Competitive advantage. (cid:0) Reduced Costs - Management’s ongoing ability to control costs. (cid:0) Balance Sheet - Financial strength; capacity to grow business through acquisition; ability to return surplus funds to shareholders. (cid:0) Australian Dollar - Impact on earnings from a falling Australian Dollar or rising US Dollar. (cid:0) Valuation and Growth Rates - The earnings outlook for FY14 and FY15. BKI continues to be in a strong financial position with no debt, and cash and cash equivalents representing 6.3% of the total portfolio. With this in mind, BKI will continue to take advantage of investment opportunities when they arise. Yours sincerely, Robert Millner Chairman Sydney, 13 August 2013 12 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT The Directors of BKI Investment Company Limited (“the Company”, or “BKI”) present the following report on the Company and its controlled entities (“the Group”) for the year to 30 June 2013. 1. Directors The following persons were Directors since the start of the financial year and up to the date of this report: Robert Dobson Millner, FAICD – Non-Executive Director and Chairman Mr Millner was appointed Non-executive Chairman upon the Company’s formation in October 2003. Mr Millner has over 29 years experience as a Company Director and extensive experience in the investment industry, and is currently a Director of the following ASX listed companies: (cid:0) Milton Corporation Limited (cid:0) New Hope Corporation Limited (cid:0) Washington H. Soul Pattinson and Company Limited (cid:0) TPG Telecom Limited (cid:0) Brickworks Limited (cid:0) Australian Pharmaceutical Industries Limited During the past three years Mr Millner has also served as a Director of the following ASX listed companies: (cid:0) Souls Private Equity Limited (cid:0) Choiseul Investments Limited (cid:0) Northern Energy Corporation Limited (cid:0) Exco Resources Limited Special Responsibilities: (cid:0) Chairman of the Board (cid:0) Chairman of the Investment Committee (cid:0) Member of the Remuneration Committee (cid:0) Member of the Nomination Committee David Capp Hall, FCA, FAICD – Independent Non-Executive Director A Non-executive Director since October 2003, and Chair of the Audit Committee since this time, Mr Hall is a Chartered Accountant with experience in corporate management, finance and as a Company Director, holding Directorships in other companies for more than 30 years. Special Responsibilities: (cid:0) Chairman of the Audit Committee (cid:0) Member of the Remuneration Committee (cid:0) Member of the Nomination Committee 2013 Annual Report 13 BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) Alexander James Payne, B.Comm, Dip Cm, FCPA, FCIS, FCIM –Non-Executive Director A Non-executive Director since October 2003, and a member of the Audit Committee since this time, Mr Payne is Chief Financial Officer of Brickworks Limited and has considerable experience in finance and investment. Special Responsibilities: (cid:0) Member of the Audit Committee (cid:0) Member of the Investment Committee (cid:0) Chairman of the Remuneration Committee Ian Thomas Huntley, BA – Independent Non-Executive Director Mr Huntley joined the Board as a Non-executive Director in February 2009. 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. Special Responsibilities: (cid:0) Member of the Investment Committee (cid:0) Member of the Remuneration Committee (cid:0) Member of the Audit Committee (cid:0) Member of the Nomination Committee 2. Key Management Personnel Thomas Charles Dobson Millner, B.Des (Industrial), GDipAppFin, F Fin, GAICD – Chief Executive Officer Mr Millner joined the Company in December 2008 from Souls Funds Management (SFM). Mr Millner held various roles with SFM covering research, analysis and business development, and during this time 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. Mr Millner is also currently a director of Washington H Soul Pattinson and Company Limited. Special Responsibilities (cid:0) Member of the Investment Committee Jaime Pinto, BComm, CA - Company Secretary Mr Pinto is a Chartered Accountant with over 20 years experience in both professional practice and in senior commercial roles across a broad range of industries. Jaime is currently Company Secretary of Clover Corporation Limited (ASX: CLV) and Quickstep Holdings Limited (ASX:QHL), and is Company Secretary and CFO of a number of unlisted investment and industrial companies. 3. Principal Activities Principal activities of the Group are 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. 14 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) 4. Operating Results BKI’s Net Operating Result before special dividend income increased 8.0% to $29.9m. The result highlights the advantages of holding a long term, diversified portfolio of companies in varying sectors. The Operating Result was boosted by additional income received from Commonwealth Bank, National Australia Bank, Westpac Bank, ANZ Bank, Wesfarmers, Invocare, APA Group, Insurance Australia, Woolworths and ALS Limited. BKI also received special dividend income from Woodside Petroleum, Coca Cola Amatil, Salmat Limited, Westpac Banking Corporation and Graincorp Limited, which saw Net Profit attributable to shareholders increase 12.1% to $33.6m. 5. Review of Operations Operating expenses in 2013 were $1.16m, an increase of $0.1M over 2012, allowing BKI to maintain a low MER of 0.19% (2012: 0.18%). BKI’s Share Price Performance (including the reinvestment of dividends) for the year to 30 June 2013 was 29.4%, outperforming the S&P/ASX 300 Accumulation Index by 7.5%. BKI’s Net Portfolio Return (after all operating expenses, provision and payment of income and capital gains tax and the reinvestment of dividends) for the year to 30 June 2013 was 22.2%, comparing favourably to the S&P/ASX 300 Accumulation Index which increased 21.9% over the same period. In October 2012 BKI successfully completed a Share Purchase Plan (SPP), raising $19.1m. BKI deployed all of the SPP funds during October/November 2012 with major investments including ANZ Banking Corporation, National Australia Bank, Westpac Banking Corporation, APA Group, Transurban Group and Metcash Limited. Yields on offer at this time were very compelling to the long term shareholder. The Investment Committee also invested a further $2.2m during the second half of FY2013. The Company’s main divestments from the investment portfolio during FY2013 were: the balance of the Westpac Preference Shares, Clover Corporation and Ten Network Holdings. Divestments from the trading portfolio were Entitlements from Seven West Media and Ten Network Holdings, Renounceable Rights from ASX Limited and shares in SCA Property Group, issued as an In-Specie Capital Return from Woolworths Limited. 6. Financial Position The net assets of the Group increased during the financial year by $92.4 million to $632.0 million. This movement was driven largely by a $66.8 million increase (net of tax) in the market value of the investment portfolio, assisted by the $19.1 million (net of costs) raised in the Share Purchase Plan in October 2012. 7. Employees The Group has one employee as at 30 June 2013 (2012: one). 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 as to 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. 2013 Annual Report 15 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. ii. the operations of the Company and the entities that it controls; the results of those operations; or iii. the state of affairs of the Group in subsequent years. 11. Dividends There were two dividend payments made during the year to 30 June 2013: (cid:0) On 30 August 2012, a final total dividend of $13,680,523 (ordinary dividend of 3.20 cents per share fully franked) was paid out of retained profits at 30 June 2012; (cid:0) On 28 February 2013, an interim total dividend of $16,658,059 (ordinary dividend of 3.25 cents per share and special dividend of 0.50 cents per share, both fully franked) was paid out of retained profits at 31 December 2012. In addition, the Directors have declared a final ordinary dividend of $15,168,748 (3.40 cents per share fully franked) payable on 29 August 2013. At 30 June 2013 there are $12,382,100 of franking credits available to the Group (2012: $11,679,000) after allowing for payment of the final, fully franked ordinary dividend. 12. Environmental Regulations The Group’s operations are not materially affected by environmental regulations. 13. Meetings of Directors The numbers of meetings of the Board of Directors and each Board Committee held during the year to 30 June 2013, and the numbers of meetings attended by each Director were: Board Investment Audit Remuneration Nomination* Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend RD Millner AJ Payne DC Hall IT Huntley 8 9 9 8 9 9 9 9 13 13 - 12 13 13 - 13 - 4 4 3 - 4 4 4 2 2 2 2 2 2 2 2 - 1 1 - - 1 1 - * The sole meeting of the Nomination Committee was held in July 2012. Mr RD Millner and Mr IT Huntley were not members of the Committee at this time as they were scheduled for re-election as Directors under the Company’s Director rotation policy. Subsequent to being re-elected as Directors at the 2012 AGM Mr RD Millner and Mr IT Huntley were reappointed to the Nomination Committee, and Mr AJ Payne resigned from the Committee as he is due for re-election as a Director at the 2013 AGM. 16 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) 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, including performance incentives, for the Directors themselves, the Chief Executive Officer and the Company Secretary. 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: (cid:0) The remuneration policy is developed by the Remuneration Committee and approved by the Board after professional advice is sought from independent external consultants. (cid:0) All Key Management Personnel receive a base salary or fee, superannuation and performance incentives. (cid:0) Performance incentives are only paid once predetermined key performance indicators have been met. (cid:0) Incentives paid in the form of shares are intended to align the interests of the Key Management Personnel with those of the shareholders. (cid:0) 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 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. 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 Jaime Pinto. The aims of the BKI Incentive Scheme are: 1. To promote superior performance at BKI over both the short 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. 2013 Annual Report 17 BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) 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 purchased on market by the Company. The value of the Short Term Incentive for the CEO is calculated as 15% of CEO Base Remuneration. The Short Term Incentive for the Company Secretary is set at 40% of the CEO Incentive. 100% of the Short Term Incentive is initially 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. The following table summarises performance for the year to 30 June 2013 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 22.2% 21.9% 0.3% 100% Given the above performance, the vesting criteria for the 2013 Financial Year Short Term Incentives were satisfied, and subsequent to 30 June 2013 the Company purchased on market 46,193 shares on behalf of executives. 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 the change in BKI Share Price and include the reinvestment of dividends. For the CEO, the Long Term Incentive is calculated on 25% of Base Remuneration. Incentives granted prior to 30 September 2011 will be awarded to the CEO after 3 years, provided that BKI’s 3 year Total Shareholder Returns exceed the S&P/ASX 300 Accumulation Index over the same period. Should that test fail on the day it 18 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) will be retested in Year 4 and Year 5 to reflect the longer term success of previous decisions. Incentives granted after 30 September 2011 will be awarded to the CEO after 4 years, provided that BKI’s 4 year Total Shareholder Returns exceed the S&P/ASX 300 Accumulation Index over the same period. Should that test fail on the day it will be retested in Year 5. 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 is to be paid by way of BKI shares purchased on market by the Company should the incentive targets be met. The test was first applied on 30 June 2013, and as at that date no shares had yet been awarded under the Long Term Incentive Plan. The Company has accrued as an expense the appropriate portion of these future costs in the 2013FY, but will not include the costs in the disclosed remuneration of the CEO or Company Secretary until the year in which the shares are purchased. The following table summarises the performance for the three year period to 30 June 2013 against the Long Term Incentive measurement criteria: 3 Year BKI Total Shareholder Return S&P/ASX 300 Acc Index over 3 Years Over / (Under) Performance % Entitlement to Eligible Bonus 13.5% 8.2% 5.3% 100% Based on the above performance, the vesting criteria for Long Term Incentives issued in the 2011 financial year were satisfied, and subsequent to 30 June 2013 the Company purchased on market 59,420 shares on behalf of executives. Remuneration Details for the Year to 30 June 2013 The following disclosures detail the remuneration of the Directors and the highest remunerated Executives of the Group. The names and positions held of group Directors and Other Key Management Personnel in office at any time during the financial year are: Name RD Millner DC Hall AJ Payne IT Huntley TCD Millner JP Pinto Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Company Secretary1 1 Services provided under contract through Corporate & Administrative Services Pty Limited There are no other employees of the group. 2013 Annual Report 19 BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) Details of the nature and amount of each Non–Executive Director’s and Other Key Management Personnel’s emoluments from the Parent and its controlled entities in respect of the year to 30 June were: Directors: 2013 RD Millner DC Hall AJ Payne IT Huntley Total 2012 RD Millner DC Hall AJ Payne IT Huntley Total Primary $ Superannuation Bonus - Equity Compensation $ $ Other Compensation $ Total $ 58,000 45,000 37,000 40,330 5,220 4,050 3,330 - 180,330 12,600 58,000 45,000 37,000 40,330 5,220 4,050 3,330 - 180,330 12,600 - - - - - - - - - - - - - - - - - - - - 63,220 49,050 40,330 40,330 192,930 63,220 49,050 40,330 40,330 192,930 The combined annual payment to all Non-Executive Directors is capped 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. Other Key Management Personnel: Primary $ Superannuation Bonus - Equity Compensation $ $ Other Compensation $ Total $ 285,030 - 285,030 275,725 - 275,725 16,470 - 16,470 15,775 - 15,775 45,900 18,360 64,260 57,915 17,375 75,290 - - - - - - 347,400 18,360 365,760 349,415 17,375 366,790 2013 TCD Millner JP Pinto Total 2012 TCD Millner JP Pinto* Total *Mr Pinto’s equity compensation was reduced on a pro-rata basis to reflect the fact that he commenced employment part way through the 2012 financial year. There were no retirement allowances provided for the retirement of Non-Executive Directors or Other Key Management Personnel. 20 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued) Contract of Employment Mr TCD 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. Base Remuneration is currently $306,000 per annum inclusive of superannuation. Remuneration is reviewed annually by the Remuneration Committee. Mr JP Pinto provides Company Secretarial services under contract through Corporate & 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 Other Key Management Personnel in Shares As at the date of this report, details of Directors and Other 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 * JP Pinto Number of Shares 7,647,354 252,101 259,810 11,063,445 6,606,872 29,011 * Common to RD Millner and TCD Millner are 6,348,572 shares (2012: 6,230,540) held in related companies and trusts in which both hold beneficial interests. 16. Directors’ and Officers’ Indemnity The Constitution of the Company provides indemnity against liability and legal costs incurred by Directors and Officers to the extent permitted by the Corporations Act. During the year to 30 June 2013, the Group has paid premiums in respect of an insurance contract to insure each of the officers against all liabilities and expenses arising as a result of work performed in their respective capacities. 17. Proceedings on Behalf of the 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. 2013 Annual Report 21 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: (cid:0) 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 (cid:0) 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 to 30 June 2013. 19. Auditor’s Independence Declaration The Auditor’s Independence Declaration for the year to 30 June 2013 is on page 60. This report is made in accordance with a resolution of the Directors. Robert D Millner Director Sydney 13 August 2013 22 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE The Board of BKI Investment Company Limited (the Company) are committed to achieving and demonstrating the highest standards of corporate governance. Unless otherwise stated, during the reporting year the Company has followed the Corporate Governance Principles and Recommendations with 2010 Amendments (2nd Edition) set by the ASX Corporate Governance Council. This report summarises the Company’s application of the 8 Corporate Governance Principles and Recommendations, together with an explanation of the Company’s policy concerning trading in company securities. 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 Company and its controlled entities. The Directors of the Company are required to act honestly, transparently, diligently, independently, and in the best interests of all shareholders in order to increase shareholder value. The Directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed. Role of the Board The responsibilities of the Board include: (cid:0) contributing to the development of and approving the corporate strategy (cid:0) reviewing and approving business results, business plans and financial plans (cid:0) ensuring regulatory compliance (cid:0) ensuring adequate risk management processes (cid:0) monitoring the Board composition, Director selection and Board processes and performance (cid:0) overseeing and monitoring: • organisational performance and the achievement of the Group’s strategic goals and objectives • compliance with the Group’s code of conduct (cid:0) monitoring financial performance including approval of the annual report and half-year financial reports and liaison with the Group’s auditors (cid:0) appointment and contributing to the performance assessment of the Chief Executive Officer and external service providers (cid:0) enhancing and protecting the reputation of the Group (cid:0) reporting to shareholders. Role of Senior Executives The responsibilities of Senior Executives include: (cid:0) organisation and monitoring of the investment portfolio (cid:0) managing organisational performance and the achievement of the Group’s strategic goals and objectives (cid:0) management of financial performance (cid:0) management of internal controls 2013 Annual Report 23 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: (cid:0) ensuring, where practicable to do so, that a majority of the Board are Independent Directors (cid:0) Non-Executive Directors bring a fresh perspective to the Board’s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management (cid:0) the Company is to maintain a mix of Directors on the Board from different backgrounds with complementary skills and experience (cid:0) 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 Company 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 Company 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 Company. 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 Company. In relation to Director 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 given their long standing association with the BKI Portfolio the Board is 24 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) satisfied that Mr Millner and Mr Payne play an important role in the continued success and performance of the Group. In accordance with the Corporations Act 2001, any member of the Board who has an interest that could conflict with those of the Company must inform the Board. Where the Board considers that a significant conflict exists it may exercise 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 roles of Chair and Chief Executive Officer are not occupied by the same individual. Recommendation 2.4: The Board should establish a Nomination Committee The Company established a Nomination Committee effective from 12 December 2003. The Nomination Committee consists of Directors who are not up for re-election during the year. Below are the current members of the Committee, effective from the Company’s 2012 Annual General Meeting. RD Millner (Chairman) DC Hall IT Huntley The main responsibilities of the Committee are to: (cid:0) assess the membership of the Board having regard to present and future needs of the Group (cid:0) assess the independence of Directors to ensure the majority of the Board are Independent Directors (cid:0) propose candidates for Board vacancies, with consideration given to qualifications, experience, domicile, and diversity of background (cid:0) oversee Board succession (cid:0) 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: (cid:0) compares the performance of the Board with goals and objectives (cid:0) 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, and meets privately with each Director to discuss this assessment. The Chairman’s performance is reviewed by the Board. 2013 Annual Report 25 BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) Principle 3 – Promote ethical and responsible decision-making Recommendation 3.1: Companies should establish a Code of Conduct and disclose the code or a summary of the code The Company has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and applies to all Directors, employees and external service providers. The Code is regularly reviewed to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Group’s integrity. A signed Code has been received from the CEO, Mr TCD Millner and from Mr JP Pinto as a representative of Corporate & 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: (cid:0) their legal obligations and the reasonable expectations of their stakeholders (cid:0) their responsibility and accountability for reporting and investigating reports of unethical practices. Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them The Company has established and disclosed on its website its Diversity Policy. The Company is committed to creating a workplace environment and culture that: (cid:0) Is free of discrimination (cid:0) Is conducive to attracting and retaining people from a broad experience base (cid:0) Rewards performance (cid:0) provides opportunities that allow individuals to reach their full potential irrespective of background or difference. (cid:0) Is understanding of each individual’s personal circumstances Recommendation 3.3: Companies should disclose in each annual report the measureable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress in achieving them The Board of BKI is committed to appointing employees, Directors and other Officers based on merit, free from positive or negative bias on any ground including gender. BKI currently has four Non-executive Directors, one Executive employee (the Chief Executive Officer), and two other Company Officers (Company Secretaries) appointed on a contract basis through Corporate & Administrative Services Pty Limited. This minimalist organisational structure, combined with low Director and Executive turnover, has been a significant driver in the successful establishment of a business model that continues to deliver solid shareholder returns combined with low investment risk while maintaining a competitive cost structure. Given the above, the Board has determined that numerical gender targets are not appropriate short-term objectives for the Company. Rather, the most appropriate initial measurable objectives addressing gender diversity will be those that ensure BKI implements workplace policies and practices such that when new employees or Board members are required, the Company will recruit from a diverse pool of potential employees or Directors, all of whom have skill sets appropriate for the role in question. 26 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) The following table outlines the measureable objectives the Company will initially focus on to achieve gender diversity. Objective Progress achieved to date Develop and promote a Diversity Policy that promotes a corporate culture of diversity Policy developed, displayed on corporate website, and distributed to appropriate stakeholders Update recruitment documents, processes, and partners to ensure the company always appeals to, and targets, a diverse pool of potential employees Performed review of existing recruitment documents and Nomination Committee policies and procedures Update internal policies and procedures to reflect flexible work culture Performed review of corporate leave policy. Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board Role Director Executive Employees Other Employees Other Officers (Contracted*) Total Employees and Officers Female Total Male Total Female % Male % Nil Nil Nil 1 1 4 1 Nil 1 6 0% 0% n/a 50% 14% 100% 100% n/a 50% 86% * through Corporate & Administrative Services Pty Limited 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 Recommendation 4.2: The Audit Committee should be structured so that it: (cid:0) consists only of Non-Executive Directors (cid:0) consists of a majority of Independent Directors (cid:0) is chaired by an independent Chair, who is not Chair of the Board (cid:0) has at least three members 2013 Annual Report 27 BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) 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 as defined in the Audit Committee Charter are to: (cid:0) review, assess and approve the annual report, half-year financial report and all other financial information published by the Group or released to the market (cid:0) review the effectiveness of the organisation’s internal control environment covering: - - effectiveness and efficiency of operations reliability of financial reporting - compliance with applicable laws and regulations. (cid:0) oversee the effective operation of the risk management framework (cid:0) recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance and consider the independence and competence of the external auditor on an ongoing basis. The Audit Committee receives certified independence assurances from the external auditors (cid:0) review and approve the level of non-audit services provided by the external auditors and ensure it does not adversely impact on auditor independence. The external auditor will not provide services to the Group where the auditor would have a mutual or conflicting interest with the Group; be in a position where they audit their own work; function as management of the Group; or have their independence impaired or perceived to be impaired in any way (cid:0) review and monitor related party transactions and assess their priority (cid:0) report to the Board on matters relevant to the Committee’s role and responsibilities The external auditor will attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Principle 5 – Make timely and balanced disclosure Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies The Chairman and Company Secretary have been nominated as being the persons responsible for communications with the Australian Stock Exchange (ASX). This role includes the responsibility for ensuring compliance with the continuous disclosure requirements in the ASX listing rules and overseeing and co-ordinating information disclosure to ASX. The Chairman and Chief Executive Officer are responsible for disclosure to analysts, brokers and shareholders, the media and the public. The Company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the Company’s securities. 28 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) 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. The Board has approved a Risk Management Policy governing the effective discharge of the responsibilities of the Board and Executives for the management of business, market, credit, operational liquidity and reputational risk. 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 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 2013 Annual Report 29 BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) The main responsibilities of the Committee are to: (cid:0) assess the information and recommendations received from the Chief Executive Officer in his role as portfolio manager regarding the present and future investment needs of the Group (cid:0) assess the performance of the Chief Executive Officer in his role as portfolio manager (cid:0) evaluate investment performance. Recommendation 7.3: The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Chief Executive Officer and the administrative and company secretarial service provider, namely Mr TCD Millner and Mr JP Pinto of Corporate & Administrative Services Pty Ltd, have made the following certifications to the Board in accordance with Section 295A of the Corporations Act: (cid:0) that the Group’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Parent and consolidated entities in accordance with all mandatory professional reporting requirements (cid:0) that the above statement is founded on a sound system of internal control and risk management which implements the policies adopted by the Board and that the Group’s risk management and internal control is operating effectively and efficiently in all material respects in relation to financial reporting risks Principle 8 – Remunerate fairly and responsibly Recommendation 8.1: The Board should establish a Remuneration Committee. The Group has established a Remuneration Committee consisting of the following members: AJ Payne (Chairman) DC Hall RD Millner IT Huntley The Remuneration Committee oversees and reviews remuneration packages and other terms of employment for Executive Management. In undertaking their roles the Committee members consider reports from external remuneration experts on recent developments on remuneration and related matters. Mr RD Millner abstains from any discussions or votes in relation to the remuneration of the CEO, Mr TCD Millner in order to avoid any conflict of interest. Executive remuneration and other terms of employment are reviewed annually by the Remuneration Committee having regard to personal and corporate performance, contribution to long term growth, relevant comparative information and independent expert advice. Performance is measured against relative market indices. Any person engaged in an executive capacity is required to sign a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities, and any entitlements on termination. 30 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CORPORATE GOVERNANCE (continued) As well as a base salary, remuneration in such circumstances could be expected to include superannuation, performance-related bonuses and fringe benefits. Recommendation 8.2: Companies should clearly distinguish the structure of Non-Executive Directors’ remuneration from that of Executive Directors and Senior Executives. Fees for Non-Executive Directors reflect the demands on and responsibilities of our Directors. Non-Executive Directors are remunerated by way of base fees and statutory superannuation contributions and do not participate in schemes designed for the remuneration of executives. Non-Executive Directors do not receive any options, bonus payments nor are provided with retirement benefits other than statutory superannuation. The Remuneration Committee’s terms of reference include responsibility for reviewing any transactions between the organisation and the Directors, or any interest associated with the Directors, to ensure the structure and terms of the transaction are in compliance with the Corporations Act 2001 and are appropriately disclosed. Trading Policy ASX Listing Rule 12.9 requires that a Company must establish a policy concerning trading in company securities by Directors, Senior Executives and employees, and release the policy to the market The Company 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 requires each person to: (cid:0) never engage in short term trading of the Company’s securities; (cid:0) not deal in the Company’s securities while in possession of price sensitive information; (cid:0) notify the Company Secretary of any material intended transactions involving the Company’s securities; and (cid:0) 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 that contains 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. 2013 Annual Report 31 BKI INVESTMENT COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2013 Revenue from investment portfolio Revenue from bank deposits Other Gains Income from operating activities before special investment revenue Operating Expenses Note 2 (a) 2 (c) 2 (d) 3 4 2013 $’000 2012 $’000 30,312 27,610 1,463 196 1,525 623 31,971 29,758 (1,156) (1,037) 30,815 28,721 (888) (1,005) Operating Result before income tax expense and special investment revenue Income Tax Expense Net Operating Result before special investment revenue 29,927 27,716 Special Investment Revenue 2 (b) 3,685 2,266 Net Operating Profit 33,612 29,982 Profit for the year attributable to members of the Company 33,612 29,982 Basic and diluted Earnings Per Share before special dividend income Basic and diluted Earnings Per Share after special dividend income 22 22 6.81 7.65 6.51 7.04 2013 Cents 2012 Cents This Income Statement should be read in conjunction with the accompanying notes 32 2013 Annual Report BKI INVESTMENT COMPANY LIMITED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Profit for the year attributable to members of the Company Other Comprehensive Income 2013 $’000 2012 $’000 33,612 29,982 Unrealised gains/ (losses) on investment portfolio 95,396 (46,757) Deferred tax benefit/ (expense) on unrealised gains/ (losses) on investment portfolio (28,619) 14,027 Realised losses on investment portfolio Tax benefit relating to realised losses on investment portfolio Total Other Comprehensive Income Total Comprehensive Income (2,537) 761 (931) 206 65,001 (33,455) 98,613 (3,473) This Statement of Other Comprehensive income should be read in conjunction with the accompanying notes. 2013 Annual Report 33 BKI INVESTMENT COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2013 Current Assets Cash and cash equivalents Trade and other receivables Prepayments Current tax asset 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 Total Equity This Balance Sheet should be read in conjunction with the accompanying notes 34 Note 2013 $’000 2012 $’000 6 7 8 36,230 6,232 25 138 24,996 6,185 26 - 42,625 31,207 9 10 11 634,123 4 4,966 525,483 5 4,200 639,093 529,688 681,718 560,895 12 13 14 385 - 15 400 547 96 17 660 15 49,286 20,596 49,286 20,596 49,686 21,256 632,032 539,639 16 17 18 19 484,198 113,498 (1,251) 35,587 460,080 46,721 525 32,313 632,032 539,639 2013 Annual Report BKI INVESTMENT COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 Share Capital $’000 Revaluation Reserve $’000 Realised Capital Gains Reserve $’000 Retained Profits $’000 Total Equity $’000 Total equity at 1 July 2011 454,833 79,451 1,250 32,863 568,397 Issue of shares, net of cost Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised losses Profit for the year Net realised losses through other comprehensive income 5,247 - - - - - - (46,757) 14,027 - - - - - - - (30,532) - - 29,982 5,247 (30,532) (46,757) 14,027 29,982 - - (725) - (725) Total equity at 30 June 2012 460,080 46,721 525 32,313 539,639 Total equity at 1 July 2012 460,080 46,721 525 32,313 539,639 Issue of shares, net of cost Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised gains Profit for the year Net realised losses through other comprehensive income 24,118 - - - - - - 95,396 (28,619) - - - - - - - (30,338) - - 33,612 24,118 (30,338) 95,396 (28,619) 33,612 - - (1,776) - (1,776) Total equity at 30 June 2013 484,198 113,498 (1,251) 35,587 632,032 This Statement of Changes in Equity should be read in conjunction with the accompanying notes 2013 Annual Report 35 BKI INVESTMENT COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2013 Cash flows from operating activities Payments to suppliers and employees Dividends and distributions received Payments for trading portfolio Proceeds from sale of trading portfolio Interest received Income tax paid Note 2013 $’000 2012 $’000 (1,314) 32,607 (646) 842 1,284 (1,104) 29,304 (484) 1,107 1,777 (1,026) (1,023) Net cash inflow from operating activities 19(a) 31,747 29,577 Cash flows from investing activities Payment for investment portfolio Proceeds from sale of investment portfolio (21,115) (27,682) 6,822 14,486 Net cash outflow from investing activities (14,293) (13,196) Cash flows from financing activities Proceeds from issues of ordinary shares less issue costs Dividends paid Net cash outflow from financing activities Net increase / (decrease) in cash held Cash at the beginning of the year 18,946 (9) 5(a) (25,166) (25,276) (6,220) (25,285) 11,234 24,996 (8,904) 33,900 Cash at the end of the year 6 36,230 24,996 This Cash Flow Statement should be read in conjunction with the accompanying notes 36 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 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 its 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 28. BKI Investment Company Limited is a listed public company, incorporated and domiciled in Australia. The financial report of BKI Investment Company Limited and its 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. 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 Cash Share Capital AASB Terminology Fair Value for Actively Traded Securities Cash and Cash Equivalents Contributed Equity 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 25 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. 2013 Annual Report 37 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 1. Summary of Significant Accounting Policies (continued) 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. 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 entity 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’. 38 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 1. Summary of Significant Accounting Policies (continued) c. Financial Instruments (continued) 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. Valuation of trading 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 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. d. Employee Benefits (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. (iii) Share incentives Share incentives are provided under the Short and Long Term Incentive Plans. The Short Term Incentive Plan is 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. 2013 Annual Report 39 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 1. Summary of Significant Accounting Policies (continued) 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 occurs 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. 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. 40 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 1. Summary of Significant Accounting Policies (continued) 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 15. 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 The Group has not applied any Australian Accounting Standards or UIG interpretations that have been issued as at balance date but are not yet operative for the year ended 30 June 2013 (“the inoperative standards”). The impact of the inoperative standards has been assessed and the impact has been identified as not being material. The Group only intends to adopt inoperative standards at the date at which their adoption becomes mandatory. 2013 Annual Report 41 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 2. Revenues (a) Revenue from investment portfolio Rebateable dividends: - other corporations Non-rebateable dividends: - other corporations Distributions: - other corporations (b) Special investment revenue Rebateable dividends - special: - other corporations Non-rebateable dividends - special: - other corporations (c) Revenue from bank deposits Interest received (d) Other gains Net gain on sale of investments held for trading Total Income 3. Operating Expenses Administration expenses Occupancy costs Employment expenses Professional fees Depreciation Total Expenditure Consolidated 2013 $’000 2012 $’000 28,150 25,385 1,495 1,691 667 534 30,312 27,610 3,655 2,266 30 3,685 - 2,266 1,463 1,525 196 623 35,656 32,024 305 8 677 165 1 272 8 606 150 1 1,156 1,037 42 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 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% (2012:30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: - Franked dividends and distributions received - Under provision in prior year Consolidated 2013 $’000 2012 $’000 34,500 30,987 10,350 9,296 (9,542) 80 (8,295) 4 Net tax expense on operating profit before net gains on investments 888 1,005 Net realised (losses) on investment portfolio Tax calculated at 30% (2012: 30%) Tax effect of: - difference between accounting and tax cost bases for capital gains purposes Total Tax expense (b) The components of tax expense comprise: Current tax Deferred tax Under provision in prior year (2,537) (761) - 127 712 (665) 80 127 2013 Annual Report (931) (279) 73 799 909 (114) 4 799 43 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 5. Dividends (a) Dividends paid during the year Final dividend for the year ended 30 June 2012 of 3.20 cents per share (2011 final: 3.00 cents per share) fully franked at the tax rate of 30%, paid on 30 August 2012 Final special dividend for the year ended 30 June 2012 of Nil cents per share (2011 final special: 1.00 cents per share) fully franked at the tax rate 30% Interim dividend for the year ended 30 June 2013 of 3.25 cents per share (2012 interim: 3.20 cents per share) fully franked at the tax rate 30%, paid on 28 February 2013 Interim special dividend for the year ended 30 June 2013 of 0.50 cents per share (2012 interim: Nil cents per share) fully franked at the tax rate 30%, paid on 28 February 2013 Total Dividends paid in cash or invested in shares under the dividend reinvestment plan ("DRP") Paid in cash Reinvested in shares via DRP Total Franking Account Balance Balance of the franking account after allowing for tax payable in respect of the current year's profits and the receipt of dividends recognised as receivables Impact on the franking account of dividends declared but not recognised as a liability at the end of the financial year Net available Consolidated 2013 $’000 2012 $’000 13,681 12,686 - 4,229 14,436 13,617 2,221 - 30,338 30,532 25,166 5,172 25,276 5,256 30,338 30,532 18,883 17,542 (6,501) (5,863) 12,382 11,679 (b) Dividends declared after balance date Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2013 of 3.40 cents per share fully franked at the tax rate of 30% (2012: final ordinary dividend of 3.20 cents per share fully franked at the tax rate of 30%), payable on 29 August 2013, but not recognised as a liability at the year end. 44 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 6. Cash and Cash Equivalents Cash at bank Short term bank deposits 7. Trade and Other Receivables Dividends and distributions receivable Interest receivable Outstanding settlements Other receivable 8. Current Tax Assets Income tax refundable 9. Financial Assets - Investment Portfolio Investment Portfolio - Non-Current Listed securities at fair value available for sale: - Shares in other corporations Total Investment Portfolio 10. Property, plant and equipment Office equipment, furniture & fittings at cost Accumulated depreciation Total Consolidated 2013 $’000 2012 $’000 1,230 35,000 1,192 23,804 36,230 24,996 5,839 391 - 2 4,449 212 1,518 6 6,232 6,185 138 - 634,123 525,483 634,123 525,483 19 (15) 4 19 (14) 5 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 Depreciation expense Carrying value at 30 June 2013 Annual Report 5 (1) 4 6 (1) 5 45 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 11. 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 Consolidated 2013 $’000 2012 $’000 62 87 4,817 49 57 4,094 4,966 4,200 Credited/ (Charged) to Statement of Credited/ Opening Balance $'000 Comprehensive (Charged) to Income $'000 Equity $'000 Closing Balance $'000 Transaction costs on equity issues Accrued expenses Tax losses Balance as at 30 June 2012 Transaction costs on equity issues Accrued expenses Tax losses Balance as at 30 June 2013 211 39 3,800 4,050 49 57 4,094 4,200 (162) 18 294 150 13 30 723 766 12. Trade and Other Payables Current Liabilities Creditors and accruals 13. Current Tax Liabilities Provision for income tax 46 - - - - - - - - 49 57 4,094 4,200 62 87 4,817 4,966 Consolidated 2013 $’000 2012 $’000 385 547 - 96 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 14. Employee Benefits Aggregate employee benefits Analysis of provisions: Current 15. 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 Consolidated 2013 $’000 2012 $’000 15 15 15 17 17 17 48,961 325 20,372 224 49,286 20,596 (Credited)/ Charged to Statement of (Credited)/ Comprehensive Charged to Income $'000 Equity $'000 Closing Balance $'000 - (13,835) 20,372 36 36 - 224 (13,835) 20,596 - 28,589 48,961 101 101 - 325 28,589 49,286 Opening Balance $'000 34,207 188 34,395 20,372 224 20,596 Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2012 Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2013 2013 Annual Report 47 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 16. Share Capital (a) Issued and paid-up capital 446,139,639 ordinary shares fully paid (2012: 427,516,347) (b) Movement in ordinary shares Consolidated 2013 $’000 2012 $’000 484,198 460,080 2013 2012 Number of Shares $’000 Number of Shares $’000 Beginning of the financial year Issued during the year: - dividend reinvestment plan - share purchase plan - less net transaction costs 427,516,347 460,080 422,863,407 454,833 3,828,600 14,794,692 5,171 19,085 (138) 4,652,940 - 5,256 - (9) End of the financial year 446,139,639 484,198 427,516,347 460,080 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 2013 net debt was $Nil (2012: $Nil). 48 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 17. 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 18. 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 Statement of Comprehensive Income Balance at the end of the year 19. Retained Profits Retained profits at the beginning of the year Net profit attributable to members of the company Dividends provided for or paid Retained profits at the end of the year Consolidated 2013 $’000 2012 $’000 46,721 66,777 79,451 (32,730) 113,498 46,721 525 1,250 (1,776) (725) (1,251) 525 32,313 33,612 (30,338) 32,863 29,982 (30,532) 35,587 32,313 2013 Annual Report 49 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 20. Reconciliation of Cash Flow (a) Reconciliation of cash flow from operating activities to operating profit Net Profit from ordinary activities Non cash item : - depreciation expense Change in assets and liabilities, net of the effects of purchase of subsidiaries (Increase) in receivables and prepayments (Increase)/ Decrease in deferred tax assets (Increase) in current tax assets Increase / (Decrease) in payables (Decrease) in employee entitlements Increase in deferred tax liabilities (Decrease) in current tax liabilities Net cash inflow from operating activities (b) Non-cash financing and investing activities (i) Dividend reinvestment plan Consolidated 2013 $’000 2012 $’000 33,612 29,982 1 1 (1,564) (5) (138) (162) (2) 101 (96) 31,747 (327) 56 - 51 (1) 228 (413) 29,577 Under the terms of the dividend reinvestment plan, $5,171,000 (2012: $5,256,000) of dividends were paid via the issue of 3,828,600 shares (2012: 4,652,940). (c) Acquisition of controlled entities No controlled entities were acquired in 2013FY or 2012FY. 21. Auditors’ Remuneration Remuneration of the auditor of the parent entity for: Auditing the financial report of the Parent and the controlled entities 22 22 19 19 50 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 22. Earnings per Share Net Operating Profit Consolidated 2013 $’000 2012 $’000 33,612 29,982 Earnings used in calculating basic and diluted earnings per share 33,612 29,982 Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share Basic and diluted earnings per share before special dividend income (cents) Basic and diluted earnings per share after special dividend income (cents) 2013 2012 No. ('000) No. ('000) 439,281 425,698 6.81 7.65 6.51 7.04 23. Key Management Personnel Remuneration The names and positions held of Group Directors and Other Key Management Personnel in office at any time during the financial year are: Name RD Millner DC Hall AJ Payne IT Huntley TCD Millner JP Pinto Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Company Secretary1 1 Services provided under contract through Corporate & 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 Other Key Management Personnel’s emoluments from the Group in respect of the year to 30 June 2013 have been included in the Remuneration Report section of the Directors’ Report. The combined annual payment to all Non-Executive Directors is capped at $300,000 until shareholders, by ordinary resolution, approve some other fixed sum amount. This amount is to be divided amongst the Directors as they may determine. These fees exclude any additional fee for any service based agreement which may be agreed from time to time and the reimbursement of out of pocket expenses. No such payments were made in 2013FY (2012: nil). 2013 Annual Report 51 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 24. 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. 25. Related Party Transactions Related parties of the Group fall into the following categories: (i) Controlled Entities At 30 June 2013, subsidiaries of the Parent were: Country of incorporation Percentage Owned (%) Brickworks Securities Pty Limited Pacific Strategic Investments Pty Limited Huntley Investment Company Pty Limited Australia Australia Australia 2013 2012 100 100 100 100 100 100 Transactions between the Parent and controlled entities consist of loan balance due from the Parent to 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 2013 were: Directors: RD Millner DC Hall AJ Payne IT Huntley Chief Executive Officer: TCD Millner Company Secretary: JP Pinto1 1 Services provided under contract through Corporate & Administrative Services Pty Limited Corporate & Administrative Services Pty Limited The Group has appointed Corporate & Administrative Services Pty Limited (CAS), an entity in which Mr RD Millner and Mr TD Millner have an indirect interest, to provide the Group with administration, company secretarial services and preparation of all financial accounts. Fees paid to CAS for services provided to the Parent and controlled entities for the year to 30 June 2013 were $122,100 (2012: $122,100, including GST) and are at standard market rates. No administration fees were owed by the Group to CAS as at 30 June 2013. 52 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 (iii) Transactions in securities (b) Share and Option Holdings Aggregate number of listed securities of the Company held by Key Management Personnel (KMP) or their related entities: Shares 2013 Balance at 1/07/12 Granted as compensation Net Change Other Balance at 30/6/13 Net Movements Post Balance Date Balance at date of Annual Report RD Millner1 7,258,659 DC Hall AJ Payne IT Huntley 240,473 226,665 11,063,445 - - - - 305,547 7,564,206 83,148 7,647,354 11,628 33,145 252,101 259,810 - 11,063,445 - - - 252,101 259,810 11,063,445 TCD Millner1 6,324,698 50,099 56,512 6,431,309 175,563 6,606,872 JP Pinto3 Total 2012 - 15,029 784 15,813 13,198 29,011 25,113,940 65,128 407,616 25,586,684 271,909 25,858,593 Balance at 1/07/11 Granted as compensation Net Change Other Balance at 30/6/12 Net Movements Post Balance Date Balance at date of Annual Report RD Millner1 6,774,543 DC Hall AJ Payne IT Huntley TCD Millner1 RJ Pillinger2 JP Pinto3 Total 240,473 226,665 11,063,445 - - - - 484,116 7,258,659 25,000 7,283,659 - - - 240,473 226,665 11,063,445 - - - 240,473 226,665 11,063,445 5,828,678 36,020 460,000 6,324,698 75,099 6,399,797 14,261 14,408 - - - - 28,669 - - 15,029 28,669 15,029 24,148,065 50,428 944,116 25,142,609 115,128 25,257,737 1 Common to RD Millner and TCD Millner as at 30 June 2013 are 6,265,424 shares (2012: 6,230,540) held in related companies and trusts in which both hold beneficial interests. 2 RJ Pillinger ceased being a KMP upon his resignation on 2 November 2011. 3 JP Pinto became a KMP on 2 November 2011. Directors acquired shares through the Dividend Reinvestment Plan, the Share Purchase Plan or on-market purchase. There have been no other changes to Directors’ shareholdings during the years ended 30 June 2012 or 30 June 2013. All Key Management Personnel or their associated entities, being shareholders, are entitled to receive dividends. 2013 Annual Report 53 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 26. Financial Reporting by Segments The Group operates solely in the securities industry in Australia and has no reportable segments. 27. 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 Board 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 a 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/unit prices of the companies and trusts in which it is invested. The market value of the portfolio changes continuously because the market value of individual companies within the portfolio fluctuates throughout the day. The change in the market value of the portfolio is recognised through the Revaluation Reserve. Listed Investments represent 93% (2012: 94%) of total assets. As at 30 June 2013, a 5% movement in the market value of the BKI portfolio would result in: - a 5% movement in the net assets of BKI before provision for tax on unrealised capital gains (2012: 5%) ; and - A movement of 7.1 cents per share in the net asset backing before provision for tax on unrealised capital gains (2012: 6.1 cents). 54 2013 Annual Report BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 The performance of the companies within the portfolio, both individually and as a whole, is monitored by the Investment Committee and the Board. BKI seeks to reduce market risk at the investment portfolio level by ensuring that it is not, in the opinion of the Investment Committee, overly exposed to one Group or one particular sector of the market. At 30 June 2013, the spread of investments is in the following sectors: Sector Financials Consumer Staples Energy Materials Telecommunications Services Industrials Consumer Discretionary Utilities Health Care Property Trusts Total Investments Cash and dividends receivable Total Portfolio Percentage of total investment Amount 2013 % 39.56% 11.49% 10.29% 7.64% 7.47% 6.83% 4.89% 3.81% 1.34% 0.39% 93.72% 6.28% 2012 % 2013 $'000 2012 $'000 35.66% 11.62% 13.29% 9.16% 6.20% 7.91% 5.11% 3.95% 1.18% 0.40% 94.47% 5.53% 267,688 77,762 69,636 51,663 50,524 46,227 33,111 25,806 9,041 2,665 634,123 42,462 198,342 64,610 73,907 50,952 34,481 44,022 28,450 21,965 6,539 2,215 525,483 30,740 100.00% 100.00% 676,585 556,223 Securities representing over 5% of the investment portfolio at 30 June 2013 were: Company Commonwealth Bank of Australia National Australia Bank Limited New Hope Corporation Limited Westpac Banking Corporation BHP Billiton Limited Telstra Corporation Limited Percentage of total investment Amount 2013 % 9.7% 9.5% 7.8% 7.4% 6.3% 5.2% 45.9% 2012 % 9.0% 8.5% 10.6% 6.0% 7.7% 4.8% 46.7% 2013 $'000 65,824 64,066 52,695 50,159 42,932 35,010 2012 $'000 50,265 47,174 59,189 33,554 43,055 26,790 310,686 260,027 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 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. 2013 Annual Report 55 BKI INVESTMENT COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 27. Management of Financial Risk (continued) e. Liquidity risk Liquidity risk is the risk that the Group is unable to meet 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 tradeable 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. 28. Parent Company Information 2013 $’000 2012 $’000 42,624 836,469 879,093 320 254,789 255,109 484,198 139,787 623,985 31,207 727,065 758,272 581 226,099 226,680 460,080 71,512 531,592 33,612 65,001 29,982 (33,455) 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) The parent company has no contingent liabilities as at 30 June 2013. 29. Capital and Leasing Commitments The Group has no capital and leasing commitments as at 30 June 2013. 30. Contingent Liabilities The Group has no contingent liabilities as at 30 June 2013. 31. Authorisation The financial report was authorised for issue on 13 August 2013 by the Board of Directors. 56 2013 Annual Report BKI INVESTMENT COMPANY LIMITED DIRECTORS’ DECLARATION The Directors of BKI Investment Company Limited declare that: 1. the financial statements and notes, as set out on pages 32 to 56, are in accordance with the Corporations Act 2001 and: a. b. c. comply with Accounting Standards and the Corporations Regulations; and comply with International Financial Reporting Standards, as stated in note 1 to the financial statements give a true and fair view of the financial position as at 30 June 2013 and of the performance for the year ended on that date of the consolidated entity; 2. 3. in the Directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. this declaration has been made after receiving the declaration required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2013. This declaration is made in accordance with a resolution of the Board of Directors. Robert D Millner Director Sydney 13 August 2013 2013 Annual Report 57 BKI INVESTMENT COMPANY LIMITED INDEPENDENT AUDITOR’S REPORT 58 2013 Annual Report BKI INVESTMENT COMPANY LIMITED INDEPENDENT AUDITOR’S REPORT 2013 Annual Report 59 BKI INVESTMENT COMPANY LIMITED AUDITOR’S INDEPENDENCE DECLARATION 60 2013 Annual Report BKI INVESTMENT COMPANY LIMITED ASX ADDITIONAL INFORMATION 1) Equity Holders At 31 July 2013 there were 11,752 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 No. of Shareholders 835 1,784 1,718 6,800 615 11,752 Holding less than a marketable parcel of 312 shares 511 Votes of Members Article 5.12 of the Company’s Constitution provides a) b) 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. 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. 2013 Annual Report 61 BKI INVESTMENT COMPANY LIMITED ASX ADDITIONAL INFORMATION The 20 largest holdings of the Parent’s share as at 31 July 2013 are listed below: Name Shares Held % Washington H Soul Pattinson & Company Limited 57,881,851 12.97 Huntley Group Investments Pty Limited J S Millner Holdings Pty Limited Argo Investments Limited UBS Wealth Management Australia Nominees Pty Limited Huntley Group Investments Pty Limited Lunicash Super Pty Limited T G Millner Holdings Pty Limited Milton Corporation Limited K C Perks Investments Pty Limited The Miller Foundation Ltd Nulis Nominees (Australia) Limited One 478 Pty Ltd Farjoy Pty Ltd Citicorp Nominees Pty Limited D E C Investments Pty Limited John E Gill Operations Pty Limited Mr Timothy Frank Robinson Mrs Patricia Roberta Huntley 8,523,274 4,393,890 3,259,352 2,460,759 1,529,360 1,500,000 1,165,070 1,147,375 1,135,187 1,100,000 1,042,863 1,012,711 1,011,628 935,155 922,513 911,567 909,154 902,763 Mr Robert David Evans + Mrs Meredith Neville Evans 881,963 1.91 0.98 0.73 0.55 0.34 0.34 0.26 0.26 0.25 0.25 0.23 0.23 0.23 0.21 0.21 0.20 0.20 0.20 0.20 2) Substantial Shareholders As at 31 July 2013 the name and holding of each substantial shareholder as disclosed in a notice received by the Parent is: Substantial Shareholders Washington H Soul Pattinson & Company Limited1 Shares Held 53,561,922 % 13.68% 1 Details included on substantial shareholder notice dated 19 February 2009 62 2013 Annual Report BKI INVESTMENT COMPANY LIMITED ASX ADDITIONAL INFORMATION 3) Other Information: (cid:0) There is no current on-market buy-back in place. (cid:0) There were 34 (2012: 87) transactions in securities undertaken by the Group and the total brokerage paid or accrued during the year was $84,438 (2012: $102,768) 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 30/06/11 30/06/12 30/06/13 0.69% 0.71% 0.56% 0.46% 0.46% 0.31% 0.19% 0.18% 0.18% 0.19% Chart showing MER by year: 0.80% 0.70% 0.69% 0.71% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.56% 0.46% 0.46% 0.31% 0.19% 0.18% 0.18% 0.19% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Annual Report 63 BKI INVESTMENT COMPANY LIMITED This page has been left blank intentionally 64 2013 Annual Report BKI INVESTMENT COMPANY LIMITED

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