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
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2013 Annual Report
BKI INVESTMENT
COMPANY LIMITED