Annual Report 2014
for year ended 30 June 2014
BKI INVESTMENT
COMPANY LIMITED
ABN 23 106 719 868
BKI INVESTMENT
COMPANY LIMITED
CORPORATE DIRECTORY
Directors
Robert Dobson Millner
David Capp Hall, AM
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
5th Floor, 6 O’Connell 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
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
Contents
Financial Highlights
List of Securities as at 30 June 2014
Group Profile
Chairman’s Address
Directors’ Report
Corporate Governance
Consolidated Income Statement
Consolidated 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
2014 Annual Report
Page
2
3
5
6
11
21
30
31
32
33
34
35
55
56
58
59
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
Down
Up
Up
Down
Up
Up
20.6%
59.3%
12.4%
20.1%
59.3%
11.4%
11.4%
5.0%
2.7%
6.2%
2.9%
4.5%
Up
Up
Up
Down
11.2%
to
to
to
to
to
to
to
to
to
to
to
to
38,562
1,499
40,061
35,940
1,499
37,439
37,439
853,370
Cents
7.15
7.45
Cents
3.45
3.50
6.95
6.95
Total Portfolio Value (including cash)
Up
26.1%
(cid:0) Earnings Per Share:
Basic Earnings Per Share before special dividend income
Basic Earnings Per Share after special dividend income
Up
Down
(cid:0) Dividends:
Interim - Ordinary
Final - Ordinary
Full Year Total - Ordinary
Full Year Total Dividends
(cid:0) Net Tangible Asset (NTA) History:
30 June
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
NTA Before Tax
NTA After Tax
$1.08
$1.06
$1.28
$1.43
$1.69
$1.20
$1.32
$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
$1.63
$1.51
(cid:0) Dividend History (cents per share):
30 June
2004*
2005
2006
2007
2008
2009
2010
2011
2012
2013
Interim
Final
Special
Total
-
2.00
-
2.00
2.10
2.20
-
4.30
2.50
2.50
1.00
6.00
2.60
2.70
-
5.30
3.00
3.00
-
6.00
3.00
3.00
-
6.00
2.50
2.75
1.00
6.25
3.00
3.00
1.00
7.00
3.20
3.20
-
6.40
3.25
3.40
0.50
7.15
2014
3.45
3.50
-
6.95
* 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 (“BKI”) since listing on the Australian
Stock Exchange have been fully franked.
2
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
FINANCIAL HIGHLIGHTS (continued)
Securities Held and their Market value as at 30 June 2014
Stock
Financials
Commonwealth Bank of Australia Limited
National Australia Bank Limited
Westpac Banking Corporation Limited
Australia & New Zealand Banking Group Limited
Insurance Australia Group Limited
Suncorp Group Limited
Bendigo and Adelaide Bank Limited
Bank of Queensland Limited
Milton Corporation Limited
Perpetual Limited
ASX Limited
AMP Limited
Macquarie Group Limited
IOOF Holdings Limited
Equity Trustees Limited
BKI Investment Company Limited
Energy
New Hope Corporation Limited
Woodside Petroleum Limited
Caltex Australia Limited
Santos Limited
Industrials
ALS Limited
Transurban Group
Brambles Limited
Seek Limited
Toll Holdings Limited
Qube Holdings Limited
GWA Group Limited
MaxiTRANS Industries Limited
UGL Limited
Lindsay Australia Limited
Salmat Limited
Sydney Airport
Skilled Group Limited
Consumer Discretionary
ARB Corporation Limited
Invocare Limited
Tatts Group Limited
Crown Resorts Limited
Fairfax Media Limited
Seven West Media Limited
2014 Annual Report
Shares
Held
1,006,400
2,320,000
2,033,656
1,234,000
2,527,370
883,000
838,000
810,000
2,055,810
179,310
215,500
1,314,813
80,223
563,594
77,836
160,000
14,810,452
432,084
91,950
134,000
1,995,822
1,503,205
785,576
400,000
1,120,000
1,717,076
1,310,000
2,800,000
403,500
6,820,829
1,089,951
778,297
644,826
873,600
1,019,000
1,909,000
150,574
2,100,000
372,458
Market
Value
($’000)
Portfolio
Weight
%
81,398
76,050
68,880
41,129
14,760
11,956
10,223
9,866
9,333
8,496
7,674
6,968
4,784
4,728
1,596
263
358,104
39,248
17,746
1,983
1,911
60,888
17,663
11,109
7,219
6,332
5,712
3,898
3,432
2,716
2,756
2,285
1,766
3,276
1,483
69,647
10,693
10,302
6,204
2,277
1,900
700
32,076
9.54%
8.91%
8.07%
4.82%
1.73%
1.40%
1.20%
1.16%
1.09%
1.00%
0.90%
0.82%
0.56%
0.55%
0.19%
0.03%
41.96%
4.60%
2.08%
0.23%
0.22%
7.14%
2.07%
1.30%
0.85%
0.74%
0.67%
0.46%
0.40%
0.32%
0.32%
0.27%
0.21%
0.38%
0.17%
8.16%
1.25%
1.21%
0.73%
0.27%
0.22%
0.08%
3.76%
3
BKI INVESTMENT
COMPANY LIMITED
FINANCIAL HIGHLIGHTS (continued)
Securities Held (continued):
Stock
Consumer Staples
Wesfarmers Limited
Woolworths Limited
Coca-Cola Amatil Limited
GrainCorp Limited
Health Care
Ramsay Health Care Limited
Sonic Healthcare Limited
Primary Health Care Limited
Materials
BHP Billiton Limited
Brickworks Limited
Rio Tinto Limited
Arrium Limited
Alumina Limited
Property Trusts
Westfield Corporation
Scentre Group
Telecommunications Services
Telstra Corporation Limited
TPG Telecom Limited
Utilities
APA Group
AGL Energy Limited
DUET Group
Origin Energy Limited
TOTAL PORTFOLIO
Cash and dividends receivable
TOTAL PORTFOLIO INCLUDING CASH AND RECEIVABLES
Shares
Held
893,634
881,000
1,046,000
93,444
189,000
457,167
1,622,000
1,429,443
436,209
49,562
800,000
370,000
233,157
290,514
8,740,000
4,420,000
2,854,452
1,247,207
3,427,353
12,000
Market
Value
($’000)
Portfolio
Weight
%
37,389
31,029
9,885
784
79,087
8,599
7,918
7,348
23,865
51,303
5,954
2,939
636
498
61,330
1,667
927
2,594
45,535
24,354
69,889
19,667
19,307
8,294
175
47,443
4.38%
3.64%
1.16%
0.09%
9.27%
1.01%
0.93%
0.86%
2.80%
6.01%
0.70%
0.34%
0.07%
0.06%
7.19%
0.20%
0.11%
0.30%
5.34%
2.85%
8.19%
2.30%
2.26%
0.97%
0.02%
5.56%
804,923
94.32%
48,447
853,370
5.68%
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.
4
2014 Annual Report
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 from 12 December 2003.
Corporate Objectives
The Group aims to generate an increasing income stream for distribution to shareholders as 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.
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
With respect to prudent business practices, and ensuring the business retains sufficient working capital to allow
the achievement of the Corporate Objectives and Business Strategy, 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 and the Income Tax Assessment Act .
Ordinary dividends will be declared by the Board of Directors out of the Company’s Net Operating Result, after
tax but before special investment revenue.
When the Group accumulates sufficient special investment revenue, special fully franked dividends will be
declared by the Board to the extent permitted by the Corporations Act and the Income Tax Assessment Act.
Where the Group generates sufficient qualifying capital gains, LIC Gains will be distributed to shareholders to the
extent permitted by the Corporations Act and the Income Tax Assessment Act.
Management
The Group has an internalised portfolio management function headed by the CEO, Mr Tom Millner. In November
2013 the Company strengthened its portfolio management resources with the appointment of Mr William Culbert
as Senior Investment Analyst. Mr Culbert has over 15 years experience in the investment industry, bringing with
him a great breadth and depth of technical capability and analytical experience.
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.
2014 Annual Report
5
BKI INVESTMENT
COMPANY LIMITED
CHAIRMAN’S ADDRESS
Dear Shareholders,
I am pleased to enclose the 11th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2014.
Result Highlights
Your Board and Management have delivered to shareholders another solid result with Ordinary Dividend and
Distribution Income up 21% to $38.6m, Net Operating Result before special dividend income increased 20% to
$35.9m and Basic Earnings per Share before special dividend income increased 5% to 7.15cps.
BKI’s improved result was driven by higher dividend distributions from Woodside Petroleum, Suncorp Group,
BHP Billiton, TPG Telecom, ANZ bank, National Australia Bank, Westpac Bank and Commonwealth Bank, partly
offset by lower contributions from UGL Limited, GWA International and ALS Limited.
BKI also received special dividend income from Westpac Bank, New Hope Corporation, Milton Corporation,
Coca-Cola Amatil and Suncorp Group. These special dividends helped lift the Net Profit attributable to
shareholders by 11% to $37.4m.
40
35
30
25
20
15
10
5
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Above: Net Operating Result by financial year end 30 June ($millions)
Dividends
The improved headline numbers enabled the BKI Board to lift the Final fully franked Ordinary Dividend from
3.40cps to 3.50cps. We are conscious that many BKI shareholders live on dividends that we provide and it
remains our aim to continue to provide a growing income stream each year. Full Year Dividends have grown by
an average of 16% a year from FY2005 to FY2014. BKI has also paid fully franked Special Dividends in 4 of the
10 years since listing, as noted below.
1.00
5.00
5.30
6.00
6.00
1.00
5.25
0.50
6.65
6.95
1.00
6.00
6.40
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
4.30
2.00
2004
2005
2006
2007 2008
2009
2010
2011 2012
2013
2014
Ordinary Dividends
Special Dividends
Above: Fully franked Interim and Final dividends declared (cents per share)
6
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
Dividend Reinvestment Plan (DRP)
BKI’s DRP is maintained, offering shareholders the opportunity to acquire further ordinary shares in BKI. The DRP
was not offered at a discount. The DRP price was 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 (14 August 2014).
The last day for shareholders to nominate for their participation in the DRP was Friday 15 August 2014.
Operating Expenses and MER
BKI continues to focus on minimizing operating costs. Shareholders are not charged an external portfolio
management or performance fee, and BKI continues to be debt free. BKI’s Management Expense Ratio (MER)
as at 30 June 2014 was 0.17%. This all provides a solid foundation for long term portfolio management with a
real focus on lifting dividend distributions to shareholders.
0.69%
0.71%
0.56%
0.46% 0.46%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.31%
0.19% 0.18% 0.18% 0.19%
0.17%
BKI is internally managed and does
not charge Shareholders an
external management fee or
performance fees.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Above: Historical MER achieved by BKI.
10 Year Milestone
In December 2013 BKI reached a significant milestone, recording 10 years of listing on the ASX. BKI has come
a long way during this time with the Board and Management dedicated to addressing those issues that come
with starting a smaller LIC. Some of those issues, and the progress achieved, include:
Issue
Action
Size and Liquidity
Cost and Structure
Discount to NTA
Dividend History
The shareholder base has grown from 7,832 in 2003 to over 13,000 in 2014; whille
the Portfolio Valuation increased from $171m at listing to over $850m in 2014.
Internalised Management helped reduce the MER from 0.69% in 2003 to 0.17% in
2014.
BKI’s discount to NTA improved from a peak of 20% in June 2008 to a premium in
June 2014.
As at FY2014, Full Year Dividends have grown by an average of 16% a year from
FY2005. BKI has also paid 5 Fully Franked Special Dividends since listing.
Company Awareness and Profile
Lifted the awareness and profile of BKI with Advisors, Brokers and SMSF’s. Won the
2011 LIC of the Year Award.
2014 Annual Report
7
BKI INVESTMENT
COMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
Acquisition of Unlisted Investment Company
In April 2014, BKI completed the acquisition of an unlisted investment company with net assets of approximately
$4 million. Consideration was satisfied with the issue of BKI shares. The private company has been a long term
investor for 50 years, and developed a quality portfolio of investments that was complementary to our existing
portfolio. The vendors now enjoy the benefits of an actively managed, diversified investment portfolio without the
administrative burden and we welcome them to the BKI register.
This is the first transaction of this nature completed by BKI, which will benefit existing BKI shareholders by
increasing the size of BKI’s portfolio in a cost-effective manner. The BKI Board looks forward to engaging in similar
transactions in the future.
Capital Raising
BKI successfully completed a Placement to sophisticated and professional investors and a non-renounceable
Entitlement Offer to existing shareholders. BKI raised gross proceeds of $59m at $1.48 per share in the
Placement, and the Entitlement Offer (at $1.48 per share) closed over-subscribed, raising a further $48.1m.
Performance
BKI’s Total Shareholder Returns (including the reinvestment of dividends) for the year to 30 June 2014 was
21.0%, outperforming the S&P/ASX 300 Accumulation Index over the same period by 3.7%.
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 2014 was 11.2%, compared to the S&P/ASX 300
Accumulation Index which returned 17.3% over the same period.
21%
17.3%
16.7%
15.1%
11.0%
9.9%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Total Shareholder Returns
exclude the benefit of franking
credits being passed on from
BKI to shareholders
10.5%
8.9%
6.4%
2.1%
1 Year
3 Years
5 Years
7 Years
10 Years
BKI Total Shareholder Returns
S&P/ASX 300 ACC Index (XKOAI)
Above: BKI Total Shareholder Returns as at 30 June 2014.
8
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
Portfolio Movements
The capital raising was a great opportunity to increase BKI’s exposure to the market and take advantage of
dividend income and franking credits on offer by many stocks within the local market. BKI deployed funds of
approximately $140m into the market over FY2014; whilst sales totalled approximately $25m.
Major investments during the year included ANZ Banking Corporation, Westpac Banking Corporation, Primary
Health Care, APA Group, Telstra Corporation, Insurance Australia Group and Transurban Group. New positions
were established in Duet Group, Toll Holdings, IOOF Holdings, Maxitrans Industries and Equity Trustees.
Disposals included Metcash Limited, Gazal Corporation, Tabcorp Holdings, Fleetwood Corporation, Recall
Holdings and the balance of the QBE Insurance Group position.
Top 25 Investments as at 30 June 2014
Stock
Market Value ($’000)
Portfolio Weight %
1
2
Commonwealth Bank of Australia Limited
National Australia Bank Limited
3 Westpac Banking Corporation Limited
4
5
6
7
BHP Billiton Limited
Telstra Corp Limited
Australia & New Zealand Banking Group Limited
New Hope Corporation Limited
8 Wesfarmers Limited
9 Woolworths Limited
10
TPG Telecom Limited
11 APA Group
12 AGL Energy Limited
13 Woodside Petroleum Limited
14 ALS Limited
15
Insurance Australia Group Limited
16 Suncorp Group Limited
17
Transurban Group
18 ARB Corporation Limited
19
Invocare Limited
20 Bendigo and Adelaide Bank Limited
21 Coca-Cola Amatil Limited
22 Bank of Queensland Limited
23 Milton Corporation Limited
24 Ramsay Health Care Limited
25 Perpetual Limited
Cash and cash equivalents
Total of Top 25 plus cash and cash equivalents
2014 Annual Report
81,398
76,050
68,880
51,303
45,535
41,129
39,248
37,389
31,029
24,354
19,667
19,307
17,746
17,663
14,760
11,956
11,109
10,693
10,302
10,223
9,885
9,866
9,333
8,599
8,496
48,447
734,367
9.5%
8.9%
8.1%
6.0%
5.3%
4.8%
4.6%
4.4%
3.6%
2.9%
2.3%
2.3%
2.1%
2.1%
1.7%
1.4%
1.3%
1.3%
1.2%
1.2%
1.2%
1.2%
1.1%
1.0%
1.0%
5.7%
86.2%
9
BKI INVESTMENT
COMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
Outlook
The low interest rate environment both domestically and offshore remains, which encourages retail investors and
SMSF’s to continue to search for income outside of term deposits and other cash products. The Australian share
market appreciated considerably over the last year with the S&P/ASX300 Accumulation Index returning 17.3%,
in significant part due to this search for yield.
We await the upcoming reporting season with interest. Despite what many are saying about an overvalued
market, for the long term investor there are currently opportunities to deploy funds in well managed, profitable,
dividend paying stocks. There may also be some short term disappointment in earnings growth during this
reporting season, especially from stocks within the industrial, consumer discretionary and resources space. We
believe this may provide a good buying opportunity should it eventuate.
BKI remains in a strong financial position with cash and cash equivalents representing 5.7% of the total portfolio and no debt.
Yours sincerely,
Robert Millner
Chairman
Sydney
12 August 2014
10
2014 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 2014.
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 30 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) 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) Chairman of the Nomination Committee
David Capp Hall, AM, 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
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
(cid:0) Member of the Nomination Committee
2014 Annual Report
11
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT (continued)
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 and PM Capital Global
Opportunities Fund 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 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.
4. Operating Results
BKI’s Net Operating Result before special dividend income increased 20% to $35.9m, while Basic Earnings per
Share before special dividend income increased 5% to 7.15cps. Special dividend income for the year totalled
$1.5m, taking Basic Earnings per Share after special dividend income to 7.45cps.
BKI’s improved result was driven by higher dividend distributions from Woodside Petroleum, Suncorp Group,
BHP Billiton, TPG Telecom, ANZ bank, National Australia Bank, Westpac Bank and Commonwealth Bank.
Lower contributions were recorded from UGL Limited, GWA International and ALS Limited.
BKI also received special dividend income from Westpac Bank, New Hope Corporation, Milton Corporation,
Coca-Cola Amatil and Suncorp Group. These special dividends helped lift the 2014FY Net Profit attributable to
shareholders by 11% to $37.4m.
12
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
5. Review of Operations
Operating expenses for the full year were $1.25m, an increase of $0.09m on FY2013, against a 26% increase in
the Total Portfolio Value from 30 June 2013, reducing BKI’s MER to 0.17% (2013: 0.19%).
BKI’s Total Shareholder Return (including the reinvestment of dividends) for the year to 30 June 2014 was 21.0%,
outperforming the S&P/ASX 300 Accumulation Index by 3.7%.
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 2014 was 11.2%, compared to the S&P/ASX 300
Accumulation Index which returned 17.3%.
BKI successfully completed a Placement to sophisticated and professional investors and a non-renounceable
Entitlement Offer to existing shareholders. BKI raised gross proceeds of approximately $59m at $1.48 per share
in the Placement, while the Entitlement Offer (at $1.48 per share) closed over-subscribed, raising a further $48.1m.
The capital raising was a great opportunity to increase BKI’s exposure to the market and take advantage of
dividend income and franking credits on offer by many stocks within the local market. BKI deployed funds of
$140m into the market over FY2014, while sales totalled $25m.
Major investments during the year included ANZ Banking Corporation, Westpac Banking Corporation, Primary
Health Care, APA Group, Telstra Corporation, Insurance Australia Group and Transurban Group. New positions
were Duet Group, Toll Holdings, IOOF Holdings, Maxitrans Industries and Equity Trustees.
Disposals included Metcash Limited, Gazal Corporation, Tabcorp Holdings, Fleetwood Corporation, Recall
Holdings and the balance of the QBE Insurance Group position.
6. Financial Position
The net assets of the Group increased during the financial year by $159.4 million to $791.4 million.
This movement was driven by the $107 million (before costs) raised in the Placement and Entitlement Offer in
September/October 2013, as well as a $52.3 million increase (net of tax) in the market value of the investment
portfolio.
7. Employees
The Group has two employees as at 30 June 2014 (2013: 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 long term investments in Australian equities and fixed
interest securities. Neither the expected results of those operations nor the strategy for particular investments
have been included in this report as, in the opinion of the Directors, this information would prejudice the interests
of the Group if included.
2014 Annual Report
13
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT (continued)
10. Significant Events after Balance Date
In August 2014 the Group successfully completed a Share Purchase Plan, raising $47.8m from the issue of
28,879,401 shares to eligible investors.
Other than the Share Purchase Plan, 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 2014:
(cid:0) On 29 August 2013, a final total dividend of $15,168,747 (ordinary dividend of 3.4 cents per share fully
franked) was paid out of retained profits at 30 June 2013.
(cid:0) On 28 February 2014, an interim total dividend of $17,944,256 (ordinary dividend of 3.45 cents per share, fully
franked) was paid out of retained profits at 31 December 2013.
In addition, the Directors declared a final ordinary dividend of 3.50 cents per share fully franked payable on
28 August 2014.
At 30 June 2014 there are $13,122,959 of franking credits available to the Group (2013: $12,382,100) 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
2014, 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 12
AJ Payne
DC Hall
IT Huntley
12
12
12
12
12
12
12
10
10
-
10
10
10
-
10
-
3
3
3
-
3
3
3
2
2
2
2
2
2
2
2
1
-
1
1
1
-
1
1
* The sole meeting of the Nomination Committee was held in July 2013. Mr AJ Payne was not a member of the
Committee at this time as he was scheduled for re-election as a Director under the Company’s Director rotation policy.
Subsequent to being re-elected as a Director at the 2013 AGM Mr AJ Payne was reappointed to the Nomination
Committee, and Mr DC Hall resigned from the Committee as he is due for re-election as a Director at the 2014 AGM.
14
2014 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, the Senior Investment Analyst 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 and
other Key Executives 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 and other Key Executives 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 and
other Key Executives with those of the shareholders.
(cid:0) The Remuneration Committee reviews the remuneration packages of Key Management Personnel and other
Key Executives annually by reference to the Group’s performance, Executive performance and comparable
information from industry sectors.
The performance of Key Management Personnel and other Key Executives 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 and other Key Executives 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.
2014 Annual Report
15
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Performance-based Remuneration
BKI has established a Short Term and a Long Term Incentive Scheme. The participants in this scheme are the
CEO, Mr Thomas Millner, the Senior Investment Analyst (SIA), Mr William Culbert, and the Company Secretary,
Mr Jaime Pinto. Mr Thomas Millner and Mr Jaime Pinto are classified as Key Management Personnel, whereas
Mr William Culbert is classified as an Other Key Executive.
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.
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. The value of the Short Term
Incentive for the SIA is calculated as 10% of SIA Base Remuneration.
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 2014 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
11.8%
17.3%
(5.5)
nil
Given the above performance, the vesting criteria for the 2014 Financial Year Short Term Incentives were not
satisfied, and the Company did not purchase shares on behalf of executives.
16
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
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 the Base Remuneration of the CEO. 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 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 Long Term Incentive and
subject to the same vesting conditions.
For the SIA, the Long Term Incentive is calculated on 15% of the Base Remuneration of the SIA, and subject to
the same vesting conditions as the CEO Long Term Incentive.
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 Company has accrued as an expense the appropriate portion of these
future costs in the 2014FY, and has included these costs in the disclosed remuneration of the CEO and Company
Secretary.
The following table summarises the performance for the three year period to 30 June 2014 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
16.7%
9.9%
6.8%
100%
Based on the above performance, the vesting criteria for Long Term Incentives issued in the 2012 financial year
were satisfied, and subsequent to 30 June 2014 the Company purchased on market 60,033 shares on behalf of
executives.
Incentive Issue
Issue Number of Value of
Rights
Date
Granted
Initial
Grant
Initial
Vesting
Date
Expiry
Date
Number Number of
of Rights
Vested/ Yet to Vest/
Lapsed
Lapse
Rights
T Millner 2012 LTI
1/07/2011
60,033
$71,500
30/06/2014 30/06/2015
(60,033)
-
J Pinto 2012 LTI
13/12/2011 18,010
$21,450
12/12/2015 11/12/2016
T Millner 2013 LTI
1/07/2012
64,230
$74,250
30/06/2016 30/06/2017
J Pinto 2013 LTI
1/07/2012
25,692
$29,700
30/06/2016 30/06/2017
T Millner 2014 LTI
1/07/2013
54,996
$76,500
30/06/2017 30/06/2018
J Pinto 2014 LTI
1/07/2013
21,998
$30,600
30/06/2017 30/06/2018
W Culbert 2014 LTI 1/12/2013
12,847
$20,075
30/11/2017 30/11/2018
-
-
-
-
-
-
2014 Annual Report
18,010
64,230
25,692
54,996
21,998
12,847
17
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Remuneration Details for the Year to 30 June 2014
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
Mr William Culbert was appointed as Senior Investment Analyst in December 2013. Mr Culbert is not considered
to be a member of Key Management Personnel.
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:
2014
RD Millner
DC Hall
AJ Payne
IT Huntley
Total
2013
RD Millner
DC Hall
AJ Payne
IT Huntley
Total
Primary
Superannuation
Total
$
$
$
59,598
46,246
37,908
37,908
181,660
58,000
45,000
37,000
40,330
5,513
4,278
3,507
3,507
16,805
5,220
4,050
3,330
-
65,111
50,524
41,415
41,415
198,465
63,220
49,050
40,330
40,330
180,330
12,600
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 among the Directors as
they may determine.
18
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Other Key Management Personnel:
Salary
Superannuation
Share based
performance related
remuneration
LTI
STI
Total
Proportion of
Remuneration Remuneration
Performance
Related
$
$
$
$
$
288,225
17,775
-
-
288,225
17,775
-
-
-
101,051
24,169
125,220
407,051
24,169
431,220
2014
TCD Millner
JP Pinto
Total
2013
TCD Millner
285,030
16,470
JP Pinto
Total
-
-
285,030
16,470
45,900
18,360
64,260
65,313
12,787
78,100
412,713
31,147
443,860
24.8%
100.0%
26.9%
100.0%
The value included in the preceding table for share based performance related remuneration (STI and LTI) is the
portion of the estimated value of the performance rights allocated as an expense in each relevant reporting period.
There were no retirement allowances provided for the retirement of Non-Executive Directors or Other Key
Management Personnel.
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.
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
8,472,043
277,970
286,194
11,224,980
7,597,492
38,340
* Common to RD Millner and TCD Millner are 7,231,771 shares (2013: 6,348,572) held in related companies and
trusts in which both hold beneficial interests.
2014 Annual Report
19
BKI INVESTMENT
COMPANY LIMITED
DIRECTORS’ REPORT (continued)
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 2014, 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.
18. Non-audit Services
No non-audit services were provided by and no fees for non-audit services were paid to the external auditor,
Ruwald & Evans, during the year to 30 June 2014.
19. Auditor Rotation
In accordance with section 324DAA of the Corporations Act 2001 (“the Act”) and the recommendation of the BKI
Audit Committee, the Board of BKI has granted approval for Martin Boxce of Ruwald + Evans to play a significant
role in the audit of BKI for an additional 2 successive financial years to 30 June 2015.
Approval is so granted as the BKI Board is satisfied that retaining Ruwald + Evans will maintain the quality of the
audit provided to the company; and will not give rise to a conflict of interest situation (as defined in section 324CD
of the Act). Reasons supporting this decision include:
(cid:0) BKI will retain the right to reassess the appointment at any time;
(cid:0) Ruwald + Evans has recently merged with another firm, resulting in an additional three independent registered
auditors being available to undertake the audit of BKI;
(cid:0) Ruwald + Evans does not provide any services to BKI other than audit services;
(cid:0) The existing independence and service metrics put in place by Ruwald + Evans and BKI are sufficient to
ensure that auditor independence will not be diminished by such an extension.
20. Auditor’s Independence Declaration
The Auditor’s Independence Declaration for the year to 30 June 2014 is on page 58.
This report is made in accordance with a resolution of the Directors.
Robert D Millner
Director
Sydney, 12 August 2014
20
2014 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. The Company intends to follow the Corporate Governance
Principles and Recommendations (3rd Edition), set by the ASX Corporate Governance Council, for the 2015FY.
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) is 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
(cid:0) appointment, management and assessing the performance assessment of other Executives and staff
2014 Annual Report
21
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE (continued)
Recommendation 1.2: Companies should disclose the process for evaluating the performance of Senior
Executives.
Performance of Senior Executives is measured against relative market indices and financial and strategic goals
approved by the Board. Performance is measured on an ongoing basis using management reporting tools.
Principle 2 – Structure the Board to add value
The key elements of the Board composition include:
(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 Hall is defined as
independent despite being a BKI director for over ten years. During this time Mr Hall has never been engaged in
an executive capacity nor has he partaken in any management activities of the company, and his interaction with
current BKI management has always been at a governance level. 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 believes 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
22
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
CORPORATE GOVERNANCE (continued)
Brickworks Limited and given their long standing association with the BKI Portfolio the Board is 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 2013 Annual General Meeting.
RD Millner (Chairman)
AJ Payne
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.
2014 Annual Report
23
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, the Senior Investment Analyst, Mr W Culbert,
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), one
employee (the Senior Investment Analyst) 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, is 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 current organisation structure, 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.
24
2014 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
1
1
7
0%
0%
0%
50%
100%
100%
100%
50%
12.5%
87.5%
* 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
The Audit Committee consists only of Non-Executive Directors. The majority of members are independent.
2014 Annual Report
25
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE (continued)
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.
26
2014 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
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.
2014 Annual Report
27
BKI INVESTMENT
COMPANY LIMITED
CORPORATE GOVERNANCE (continued)
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 and voting 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.
As well as a base salary, remuneration in such circumstances could be expected to include superannuation,
performance-related bonuses and fringe benefits.
28
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
CORPORATE GOVERNANCE (continued)
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.
2014 Annual Report
29
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2014
Revenue from investment portfolio
Revenue from bank deposits
Other gains
Income from operating activities before special investment revenue
Operating expenses
Expenses associated with acquisition of controlled entity
Operating result before income tax expense and special investment revenue
Income tax expense
Note
2 (a)
2 (c)
2 (d)
3
4
2014
$’000
2013
$’000
36,539
30,312
1,791
232
1,463
196
38,562
31,971
(1,251)
(1,156)
(75)
37,236
(1,296)
-
30,815
(888)
Net Operating Result before special investment revenue
35,940
29,927
Special investment revenue
2 (b)
1,499
3,685
Net Operating Profit
37,439
33,612
Profit for the year attributable to members of the Company
37,439
33,612
Basic and diluted Earnings Per Share before special dividend income
Basic and diluted Earnings Per Share after special dividend income
22
22
7.15
7.45
6.81
7.65
2014
Cents
2013
Cents
This Income Statement should be read in conjunction with the accompanying notes
30
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Profit for the year attributable to members of the Company
Other Comprehensive Income
Unrealised gains on investment portfolio
Deferred tax expense on unrealised gains on investment portfolio
Realised losses on investment portfolio
Tax benefit relating to realised losses on investment portfolio
Total Other Comprehensive Income
Total Comprehensive Income
2014
$’000
2013
$’000
37,439
33,612
73,069
95,396
(21,921)
(15,694)
(28,619)
(2,537)
4,708
761
40,162
65,001
77,601
98,613
This Statement of Other Comprehensive income should be read in conjunction with the accompanying notes.
2014 Annual Report
31
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2014
Current Assets
Cash and cash equivalents
Trade and other receivables
Trading portfolio
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
Note
2014
$’000
2013
$’000
6
7
9
8
9
10
11
12
13
14
40,960
7,488
761
20
-
36,230
6,232
-
25
138
49,229
42,625
804,162
11
10,352
634,123
4
4,966
814,525
639,093
863,754
681,718
291
230
18
539
385
-
15
400
15
71,769
49,286
71,769
49,286
72,308
49,686
791,446
632,032
16
17
18
19
599,124
164,646
(12,237)
39,913
484,198
113,498
(1,251)
35,587
791,446
632,032
This Balance Sheet should be read in conjunction with the accompanying notes
32
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital
Gains
Reserve
$’000
Retained
Profits
$’000
Total
Equity
$’000
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 on
revaluation of investment portfolio
Net operating profit for the year
Net realised losses through other
comprehensive income
24,118
-
-
-
-
-
-
-
95,396
(28,619)
-
-
-
-
-
-
-
-
24,118
(30,338)
(30,338)
-
-
95,396
(28,619)
33,612
33,612
(1,776)
-
(1,776)
Total equity at 30 June 2013
484,198
113,498
(1,251)
35,587
632,032
Total equity at 1 July 2013
484,198
113,498
(1,251)
35,587
632,032
Issue of shares, net of cost
Dividends paid or provided for
Revaluation of investment portfolio
Provision for tax on unrealised gains on
revaluation of investment portfolio
Net operating profit for the year
Net realised losses through other
comprehensive income
114,926
-
-
-
-
-
-
-
73,069
(21,921)
-
-
-
-
-
-
-
-
114,926
(33,113)
(33,113)
-
-
73,069
(21,921)
37,439
37,439
(10,986)
-
(10,986)
Total equity at 30 June 2014
599,124
164,646
(12,237)
39,913
791,446
This Statement of Changes in Equity should be read in conjunction with the accompanying notes
2014 Annual Report
33
BKI INVESTMENT
COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2014
Cash flows from operating activities
Payments to suppliers and employees
Dividends and distributions received
Payments for trading portfolio stocks
Proceeds from sale of trading portfolio stocks
Interest received
Interest paid
Income tax paid
Note
2014
$’000
2013
$’000
(1,352)
36,862
(1,510)
2,577
1,743
(3)
(499)
(1,314)
32,607
(646)
842
1,284
-
(1,026)
Net cash inflow from operating activities
19(a)
37,818
31,747
Cash flows from investing activities
Cash acquired on acquisition of controlled entity
Payments for investment portfolio
Proceeds from sale of investment portfolio
Payments for plant and equipment
702
-
(132,324)
(21,115)
21,236
(10)
6,822
-
Net cash outflow from investing activities
(110,396)
(14,293)
Cash flows from financing activities
Proceeds from issues of ordinary shares less issue costs
Dividends paid
105,190
(27,882)
18,946
(25,166)
5(a)
Net cash inflow / (outflow) from financing activities
77,308
(6,220)
Net increase in cash held
Cash at the beginning of the year
4,730
11,234
36,230
24,996
Cash at the end of the year
6
40,960
36,230
This Cash Flow Statement should be read in conjunction with the accompanying notes
34
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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, with
information relating to BKI Investment Company Limited as an individual parent entity, summarised in Note 28.
BKI Investment Company Limited is a listed public company, incorporated and domiciled in Australia.
The financial report complies 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.
2014 Annual Report
35
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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’.
36
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
re-valued 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
re-valued 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.
2014 Annual Report
37
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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.
38
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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 2014 (“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.
2014 Annual Report
39
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
2. Revenues
(a) Revenue from investment portfolio
Fully franked dividends
Unfranked dividends
Trust Distributions
Total ordinary revenue from investment portfolio
(b) Special investment revenue
Fully franked dividends
Unfranked dividends
Total special revenue from investment portfolio
(c) Revenue from bank deposits
Interest received
(d) Other gains
Net realised gain on sale of investments held for trading
Net unrealised gain/(loss) on investments held for trading
Total other gains
Total Income
3. Operating Expenses
Administration expenses
Occupancy costs
Employment expenses
Professional fees
Depreciation
Interest Expense
Total Expenditure
2014
$’000
2013
$’000
33,176
28,150
1,285
2,078
1,495
667
36,539
30,312
1,114
385
1,499
3,655
30
3,685
1,791
1,463
234
(2)
232
196
-
196
40,061
35,656
371
11
707
156
3
3
305
8
677
165
1
-
1,251
1,156
40
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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% (2013: 30%)
Tax effect of amounts which are not deductible (taxable) in
calculating taxable income:
- Franked dividends and distributions received
- Accounting distributions not taxable
- Costs associated with acquisition of subsidiary
- Under provision in prior year
Net tax expense on operating profit before net gains on investments
Net realised (losses) on investment portfolio
Tax calculated at 30% (2013: 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
2014 Annual Report
2014
$’000
2013
$’000
38,735
34,500
11,621
10,350
(10,287)
(9,542)
(91)
23
30
1,296
-
-
80
888
(15,694)
(2,537)
(4,708)
(761)
-
(3,412)
1,122
(4,564)
30
(3,412)
-
127
712
(665)
80
127
41
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
5. Dividends
(a) Dividends paid during the year
Final dividend for the year ended 30 June 2013 of 3.40 cents per share
(2012 final: 3.20 cents per share) fully franked at the tax rate of 30%,
paid on 30 August 2013
Interim dividend for the year ended 30 June 2014 of 3.45 cents per share
(2013 interim: 3.25 cents per share) fully franked at the tax rate 30%,
paid on 28 February 2014
Interim special dividend for the year ended 30 June 2014 of Nil cents per share
(2013 interim: 0.50 cents per share fully franked at the tax rate 30%)
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
(b) Dividends declared after balance date
2014
$’000
2013
$’000
15,169
13,681
17,944
14,436
-
2,221
33,113
30,338
27,882
5,231
25,166
5,172
33,113
30,338
20,987
18,883
(7,864)
(6,501)
13,123
12,382
Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2014
of 3.50 cents per share fully franked at the tax rate of 30% (2013: final ordinary dividend of 3.40 cents per share
fully franked at the tax rate of 30%), payable on 28 August 2014, but not recognised as a liability at the year end.
42
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
6. Cash and Cash Equivalents
Cash at bank
Short term bank deposits
7. Trade and Other Receivables
Dividends and distributions receivable
Interest receivable
Other receivable
8. Current Tax Assets
Income tax refundable
9. Financial Assets - Investment Portfolio
Trading Portfolio - Current
Listed securities at fair value held for trading
Investment Portfolio - Non-Current
Listed securities at fair value available for sale
Total Investment Portfolio
10. Property, plant and equipment
Office equipment, furniture & fittings at cost
Accumulated depreciation
Total
2014
$’000
2013
$’000
460
40,500
40,960
1,230
35,000
36,230
6,901
5,839
458
129
391
2
7,488
6,232
-
138
761
-
804,162
634,123
804,923
634,123
29
(18)
11
19
(15)
4
Reconciliation of the carrying amounts of each class of asset at the beginning and end of the financial year:
Office equipment, furniture & fittings at cost
Carrying value at 1 July
Additions
Depreciation expense
Carrying value at 30 June
2014 Annual Report
4
10
(3)
11
5
-
(1)
4
43
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
Movements in deferred tax assets
2014
$’000
2013
$’000
499
56
9,797
10,352
62
87
4,817
4,966
Opening
Balance
$'000
49
57
4,094
4,200
62
87
4,817
4,966
Transaction costs on equity issues
Accrued expenses
Tax losses
Balance as at 30 June 2013
Transaction costs on equity issues
Accrued expenses
Tax losses
Balance as at 30 June 2014
12. Trade and Other Payables
Current Liabilities
Creditors and accruals
13. Current Tax Liabilities
Provision for income tax
44
Credited/
(Charged) to
Statement of
Comprehensive
Income
$'000
Credited/
(Charged)
to Equity
$'000
13
30
723
766
(137)
(31)
4,980
4,812
Closing
Balance
$'000
62
87
4,817
4,966
-
-
-
-
574
-
-
574
499
56
9,797
10,352
2014
$’000
2013
$’000
291
385
230
-
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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
2014
$’000
2013
$’000
18
15
18
18
15
15
71,196
48,961
573
325
71,769
49,286
(Credited)/
Charged to
Statement of
Comprehensive
Income
$'000
(Credited)/
Charged
to Equity
$'000
Closing
Balance
$'000
-
28,589
48,961
101
101
-
325
28,589
49,286
-
22,235
71,196
248
248
-
573
22,235
71,769
Opening
Balance
$'000
20,372
224
20,596
48,961
325
49,286
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
Balance as at 30 June 2013
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
Balance as at 30 June 2014
2014 Annual Report
45
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
2014
$’000
2013
$’000
16. Share Capital
(a) Issued and paid-up capital
524,240,486 ordinary shares fully paid (2013: 446,139,639)
599,124
484,198
(b) Movement in ordinary shares
Beginning of the financial year
Issued during the year:
- dividend reinvestment plan
- share purchase plan
- placement
- rights issue
- acquisition of controlled entity
Gross funds raised during year
- less net transaction costs
2014
2013
Number of
Shares
$’000
Number of
Shares
$’000
446,139,639
484,198
427,516,347
460,080
3,298,704
-
39,900,000
32,468,378
2,433,765
5,231
-
59,052
48,053
3,931
116,267
(1,341)
3,828,600
14,794,692
-
-
-
5,171
19,085
-
-
-
24,256
(138)
End of the financial year
524,240,486
599,124
446,139,639
484,198
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 higher 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 2014 net debt was $Nil (2013: $Nil).
46
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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 net gains and losses after applicable
taxation arising from the disposal of securities in the investment portfolio.
Balance at the beginning of the year
Net (losses) 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
2014
$’000
2013
$’000
113,498
51,148
46,721
66,777
164,646
113,498
(1,251)
525
(10,986)
(12,237)
(1,776)
(1,251)
35,587
37,439
32,313
33,612
(33,113)
(30,338)
39,913
35,587
2014 Annual Report
47
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
20. Reconciliation of Cash Flow
(a) Reconciliation of cash flow from operating activities to operating profit
Net Profit from ordinary activities
Non cash items:
- expenses associated with acquisition of subsidiary
- depreciation expense
- unrealised loss on trading investments
Change in assets and liabilities, net of effects from consolidation of subsidiary:
(Increase) / decrease in trade and other receivables
(Increase) / decrease in held for trading investments
(Increase) / decrease in prepayments
(Increase) / decrease in current tax assets
(Increase) / decrease in deferred tax assets
(Decrease) increase in payables
(Decrease) increase in provisions
(Decrease) increase in current tax liabilities
(Decrease) increase in deferred tax liabilities
2014
$’000
2013
$’000
37,439
33,612
75
3
2
(1,246)
834
5
138
168
(94)
3
230
261
-
1
-
(1,564)
-
-
(138)
(5)
(162)
(2)
(96)
101
Net cash inflow from operating activities
37,818
31,747
(b) Non-cash financing and investing activities
(i) Dividend reinvestment plan
Under the terms of the dividend reinvestment plan, $5,231,000 (2013: $5,171,000) of dividends were paid
via the issue of 3,828,600 shares (2013: 4,652,940).
(ii) Acquisition of controlled entity
During the year the Company Group acquired shares in an unlisted investment company via the issue of
2,433,765 new shares in BKI (refer below).
(c)
Acquisition of controlled entities
During the year the Company acquired 100% of the shares of an unlisted investment company for a
consideration of 2,433,765 new shares in BKI Investment Company Limited (2013FY: No acquisitions
were made). Based on an issue price of $1.615 per share, the consideration for the acquisition had a fair
value of $3,930,530.
21. Auditors’ Remuneration
Remuneration of the auditor of the parent entity for:
Auditing the financial report of the Parent and the controlled entities
48
24
24
22
22
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
22. Earnings per Share
Net Operating Profit
Earnings used in calculating basic and diluted earnings per share
before special dividend income
Earnings used in calculating basic and diluted earnings per share
after special dividend income
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)
23. Key Management Personnel Remuneration
2014
$’000
2013
$’000
37,439
33,612
35,940
29,982
37,439
33,612
2014
2013
No. ('000) No. ('000)
502,728
439,281
7.15
7.45
6.81
7.65
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
Mr William Culbert was appointed as Senior Investment Analyst in December 2013. Mr Culbert is not considered
to be a member of Key Management Personnel.
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 2014 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 the Board
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 2014FY (2013: nil).
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.
2014 Annual Report
49
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
25. Related Party Transactions
Related parties of the Group fall into the following categories:
(i) Controlled Entities
At 30 June 2014, subsidiaries of the Parent were:
Country of incorporation
Percentage Owned (%)
Brickworks Securities Pty Limited
Huntley Investment Company Pty Limited
R Love Investments Pty Limited
Pacific Strategic Investments Pty Limited
Australia
Australia
Australia
Australia
2014
2013
100
100
100
100
100
100
nil
100
Transactions between the Parent and controlled entities consist of transfers of investment holdings from
subsidiaries to the parent entity. In addition, there are loan balances 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 the year ended 30 June 2014 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
During the period the company conducted a non-renounceable entitlement offer, which was partially underwritten
by three of BKI’s directors. This underwriting facility was not called upon.
In September 2013 the Company entered into a short term revolving loan agreement with Washington H. Soul
Pattinson and Company Limited, a major shareholder in BKI. The facility was established to allow more efficient
use of the funds raised in placement completed by the Company in September 2013. The terms and conditions
of the facility were as follows;
- Facility Limit: $10,000,000
- Interest: 5.0% per annum compounded daily
- Term: 14 days
The first draw-down on the facility was on 9 September 2013 and repayment was made in full on 12 September
2013. Total interest paid on the facility was $2,891.
Corporate & Administrative Services Pty Limited
The Group has appointed Corporate & Administrative Services Pty Limited (CAS), an entity in which Mr RD Millner
and Mr TCD 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 2014 were
$122,100 (2013: $122,100, including GST) and are at standard market rates.
No administration fees were owed by the Group to CAS as at 30 June 2014.
50
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
(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
2014
Balance at
1/07/13
Granted as
compensation
Net Change
Other
Balance at
30/6/14
Net Movements
Post Balance Date
Balance at date
of Annual Report
RD Millner1
7,364,206
DC Hall
AJ Payne
IT Huntley
252,101
259,810
11,063,445
-
-
-
-
TCD Millner1
6,431,309
JP Pinto
15,813
92,415
13,198
803,453
8,167,659
304,384
8,472,043
16,805
17,320
268,906
277,130
9,064
9,064
277,970
286,194
161,535
11,224,980
-
11,224,980
712,370
7,236,094
361,398
7,597,492
3,285
32,296
6,044
38,340
Total
2013
25,386,684
105,613
1,714,768
27,207,065
689,954
27,897,019
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
-
-
-
-
105,547
7,364,206
83,148
7,447,354
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
-
15,029
784
15,813
13,198
29,011
25,113,940
65,128
207,616
25,386,684
271,909
25,658,593
Common to RD Millner and TCD Millner are the following shares held in related companies and trusts in which both hold beneficial interests:
- 6,954,579 (2013: 6,265,424) as at 30 June 2014.
- 7,231,771 (2013: 6,348,572) as at date of Annual Report
Directors acquired shares through the Dividend Reinvestment Plan, the 2012 Share Purchase Plan, the 2013
Entitlement Offer, the 2014 Share Purchase Plan or on-market purchase.
There have been no other changes to Directors’ shareholdings during the years ended 30 June 2013 or 30 June 2014.
Other Key Management Personnel acquired shares through the Dividend Reinvestment Plan, the 2012 Share
Purchase Plan, the 2013 Entitlement Offer, the 2014 Share Purchase Plan, on-market purchase, or purchases by
the company on behalf of the KMP in satisfaction of vested performance rights.
All Key Management Personnel or their associated entities, being shareholders, are entitled to receive dividends.
26. Financial Reporting by Segments
The Group operates solely in the securities industry in Australia and has no reportable segments.
2014 Annual Report
51
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
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% (2013: 93%) of total assets.
As at 30 June 2014, 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 (2013: 5%); and
- A movement of 7.7 cents per share in the net asset backing before provision for tax on unrealised
capital gains (2013: 7.1 cents).
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.
52
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
At 30 June 2014, 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
2014
%
41.96
9.27
7.14
7.19
8.19
8.16
3.76
5.56
2.80
0.30
94.32
5.68
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
2014
$'000
358,104
79,087
60,888
61,330
69,889
69,647
32,076
47,443
23,865
2,594
2013
$'000
267,688
77,762
69,636
51,663
50,524
46,227
33,111
25,806
9,041
2,665
804,923
634,123
48,447
42,462
100.00
100.00
853,370
676,585
Securities representing over 5% of the investment portfolio at 30 June 2014 were:
Company
Commonwealth Bank of Australia
National Australia Bank Limited
Westpac Banking Corporation
BHP Billiton Limited
Telstra Corporation Limited
Percentage of total investment
Amount
2014
%
9.5
8.9
8.1
6.0
5.3
37.9
2013
%
9.7
9.5
7.4
6.3
5.2
2014
$'000
81,398
76,050
68,880
51,303
45,535
2013
$'000
65,824
64,066
50,159
42,932
35,010
38.1
323,166
257,991
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.
e.
Interest Rate Risk
The Group is not materially exposed to interest rate risk as all its cash investments, excluding cash in
operating bank accounts, are short term (up to 1 year) for a fixed rate.
During the year the Group entered into a short term revolving facility (refer Note 25). Given the facility was
fixed rate in nature, any movement in market interest rates would not have affected the value of the
underlying financial liability nor would it have affected the Group’s operating result. This facility was closed
with no liability existing as at 30 June 2014.
f.
Foreign Currency Risk
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.
2014 Annual Report
53
BKI INVESTMENT
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
g.
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 more than 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 are in the form of readily tradeable securities which
can be sold on-market if necessary.
h.
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
2014
$’000
2013
$’000
49,149
1,013,789
1,062,938
429
279,028
279,457
599,124
184,289
783,413
37,452
40,163
42,624
836,469
879,093
320
254,789
255,109
484,198
139,787
623,985
33,612
65,001
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Reserves
Total shareholders’ equity
Net Operating Profit
Total Other Comprehensive Income
The parent company has no contingent liabilities as at 30 June 2014.
29. Capital and Leasing Commitments
The Group has no capital and leasing commitments as at 30 June 2014.
30. Contingent Liabilities
The Group has no contingent liabilities as at 30 June 2014.
31. Authorisation
The financial report was authorised for issue on 12 August 2014 by the Board of Directors.
54
2014 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 30 to 54, 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 2014 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 2014.
This declaration is made in accordance with a resolution of the Board of Directors.
Robert D Millner
Director
Sydney
12 August 2014
2014 Annual Report
55
BKI INVESTMENT
COMPANY LIMITED
INDEPENDENT AUDITOR’S REPORT
Level 1
276 Pitt Street
Sydney NSW 2000
Australia
PO Box 1523
Queen Victoria Building
NSW 1230
Australia
Phone:
02 9247 7442
Facsimile:
02 9251 4867
Partners:
N.F. Olney
M.J. Bocxe
Consultant:
B.R. Houston
Email:
info@ruwald.com.au
ABN 92 826 953 015
www.ruwald.com.au
56
Liability limited by a scheme
approved under Professional
Standards legislation
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
INDEPENDENT AUDITOR’S REPORT
Level 1
276 Pitt Street
Sydney NSW 2000
Australia
PO Box 1523
Queen Victoria Building
NSW 1230
Australia
Phone:
02 9247 7442
Facsimile:
02 9251 4867
Partners:
N.F. Olney
M.J. Bocxe
Consultant:
B.R. Houston
Email:
info@ruwald.com.au
ABN 92 826 953 015
www.ruwald.com.au
2014 Annual Report
Liability limited by a scheme
approved under Professional
Standards legislation
57
BKI INVESTMENT
COMPANY LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
Level 1
276 Pitt Street
Sydney NSW 2000
Australia
PO Box 1523
Queen Victoria Building
NSW 1230
Australia
Phone:
02 9247 7442
Facsimile:
02 9251 4867
Partners:
N.F. Olney
M.J. Bocxe
Consultant:
B.R. Houston
Email:
info@ruwald.com.au
ABN 92 826 953 015
www.ruwald.com.au
58
Liability limited by a scheme
approved under Professional
Standards legislation
2014 Annual Report
BKI INVESTMENT COMPANY LIMITED
ASX ADDITIONAL INFORMATION
1)
Equity Holders
At 31 July 2014 there were 13,139 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
887
1,904
1,926
7,645
777
13,139
531
Holding less than a marketable parcel of 295 shares
The 20 largest holdings of the Parent’s share as at 31 July 2014 are listed below:
Name
Washington H Soul Pattinson and Company Limited
Huntley Group Investments Pty Ltd
J S Millner Holdings Pty Limited
UBS Wealth Management Austalia Nominees Pty Ltd
I R McDonald Pty Limited
Nulis Nominees (Australia) Limited
Navigator Australia Ltd
Huntley Group Investments Pty Ltd
Farjoy Pty Limited
Trevin Ronald Love
T N Philiips Investments Pty Limited
Lunicash Super Pty Ltd
T G Millner Holdings Pty Limited
K C Perks Investments Pty Ltd
Milton Corporation limited
Donald Cant Pty Limited
The Miller Foundation ltd
Mr Timothy Frank Robertson
Joyleen Morris Montgomery
One 478 Pty Ltd
2014 Annual Report
Shares Held
%
61,740,641
11.78
8,523,274
4,940,171
3,203,110
3,000,000
2,208,637
1,994,517
1,630,711
1,441,736
1,352,092
1,298,065
1,250,000
1,242,741
1,233,752
1,223,866
1,119,294
1,100,000
1,088,400
1,081,673
1,080,225
1.63
0.94
0.61
0.57
0.42
0.38
0.31
0.28
0.26
0.25
0.24
0.24
0.24
0.23
0.21
0.21
0.21
0.21
0.21
59
BKI INVESTMENT
COMPANY LIMITED
ASX ADDITIONAL INFORMATION
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.
2)
Substantial Shareholders
As at 31 July 2014 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
Brickworks Limited2
Shares Held
%
61,740,641
11.87%
61,740,641
11.87%
1 Details included on substantial shareholder notice dated 18 November 2013 lodged by Brickworks Limited
2 Details included on substantial shareholder notice dated 18 November 2013. Shares held by Brickworks Limited represent a technical
relevant interest as a result of Brickworks Limited’s shareholding in Washington H Soul Pattinson & Company Limited.
3)
Other Information:
(cid:0) There is no current on-market buy-back in place.
(cid:0) There were 226 (2013: 34) transactions in securities undertaken by the Group and the total brokerage
paid or accrued during the year was $497,746 (2013: $84,438)
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
30/06/14
0.69%
0.71%
0.56%
0.46%
0.46%
0.31%
0.19%
0.18% 0.18%
0.19% 0.17%
60
2014 Annual Report
BKI INVESTMENT
COMPANY LIMITED