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Magellan Financial Group LimitedAnnual Report 2016
for year ended 30 June 2016
BKI INVESTMENT
COMPANY LIMITED
BKI INVESTMENT
COMPANY LIMITED
CORPORATE DIRECTORY
Directors
Robert Dobson Millner
David Capp Hall AM
Alexander James Payne
Ian Thomas Huntley
Non-Executive Chairman
Independent Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Chief Executive Officer
Thomas Charles Dobson Millner
Portfolio Manager
William Culbert
Company Secretaries
Jaime 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
MGI Sydney Assurance Services Pty Ltd
5th Floor, 6 O’Connell Street,
Sydney NSW 2000
Share Registry
Advanced Share Registry Services Limited
110 Stirling Highway,
Nedlands, WA 6009
Telephone: (08) 9389 8033
Australian Stock Exchange Code
Ordinary Shares
BKI
Website
www.bkilimited.com.au
2016 Annual Report
BKI INVESTMENT COMPANY LIMITED
Contents
Page
Financial Highlights
List of Securities as at 30 June 2016
Group Profile
Chairman’s Address
Directors’ Report
Consolidated Income Statement
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Auditor’s Independence Declaration
ASX Additional Information
2
3
5
6
10
22
23
24
25
26
27
46
47
49
50
1
2016 Annual Report FINANCIAL HIGHLIGHTS
n Revenue Performance:
Total income – ordinary
Total income – special
Total income from ordinary activities
n Profits
Net operating result before special dividend income
Special dividend income
Net profit from ordinary activities after tax attributable
to shareholders
Net profit attributable to shareholders
n Portfolio
Change
June 2016
$’000
June 2015
$’000
Down
1.6%
Down 48.4%
Down
3.7%
Up
0.7%
Down 48.4%
Down
Down
1.7%
1.7%
to
to
to
to
to
to
to
43,833
1,082
44,915
from 44,568
from
2,095
from 46,663
41,170
1,082
from 40,876
from
2,095
42,252
42,252
from 42,971
from 42,971
Total portfolio value (including cash & receivables)
Up
1.0%
to
926,993
from 918,264
n Earnings per share (EPS)
Basic EPS before special dividend income
Basic EPS after special dividend income
Down
Down
3.2%
5.5%
to
to
Cents
7.16
7.35
from
from
Cents
7.40
7.78
n Dividends
Interim
Final
Full year total
Up
Steady
Up
1.4%
0.7%
to
to
to
3.60
3.65
7.25
from
from
from
3.55
3.65
7.20
n Dividend History (cents per share):
30 June
2004* 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Interim
Final
Special
Total
-
2.10
2.50
2.60 3.00
3.00
2.50
3.00
3.20 3.25 3.45
2.00
2.20
2.50
2.70 3.00
3.00
2.75
3.00
3.20 3.40 3.50
-
-
1.00
-
-
-
1.00
1.00
- 0.50
-
3.55
3.65
-
3.60
3.65
-
2.00
4.30
6.00
5.30 6.00
6.00
6.25
7.00
6.40 7.15 6.95
7.20
7.25
* The Company listed on the ASX on 12 December 2003, no interim dividend is applicable for this financial year.
All ordinary and special dividends paid by BKI Investment Company Limited (“BKI”) since listing on the Australian
Stock Exchange have been fully franked.
n Net Tangible Asset (NTA) History ($ per share):
30 June
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015 2016
NTA Before Tax $1.08 $1.28 $1.43 $1.69 $1.52 $1.22 $1.32 $1.42 $1.30 $1.52 $1.63 $1.65 1.55
NTA After Tax
$1.06 $1.20 $1.32 $1.51 $1.41 $1.19 $1.27 $1.34 $1.26 $1.42 $1.51 $1.53 1.47
2
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
FINANCIAL HIGHLIGHTS (continued)
Securities Held and their Market Value as at 30 June 2016
Financials
Commonwealth Bank
National Australia Bank
Westpac Banking Corporation
ANZ Banking Group
IAG Limited
ASX Limited
Suncorp Group
Macquarie Group
AMP Limited
Milton Corporation
Bank of Queensland
Challenger Limited
Perpetual Limited
IOOF Holdings
Equity Trustees
Telecommunications
TPG Telecom
Telstra Corporation
Industrials
Transurban Group
Sydney Airport
Brambles Limited
Qube Holdings
Seek Limited
Lindsay Australia
Programmed Maintenance Services
Salmat Limited
Consumer Staples
Wesfarmers Limited
Woolworths Limited
Coca Cola Limited
Graincorp Limited
Amcor
Utilities
APA Group
AGL Energy Limited
Number of
Shares
Held
Market
Value
($’000)
Portfolio
Weight
%
1,102,477
2,686,976
2,262,015
1,560,624
3,157,370
375,500
1,196,094
170,370
1,872,946
2,103,640
810,000
935,000
181,751
609,094
162,961
81,991
68,330
66,503
37,642
17,208
17,183
14,568
11,738
9,664
9,004
8,578
8,069
7,474
4,769
2,679
8.83
7.73
7.17
4.06
1.86
1.85
1.57
1.27
1.04
0.97
0.93
0.87
0.81
0.51
0.29
365,401
39.40
4,420,000
9,191,404
52,598
51,104
103,702
2,218,205
2,045,427
1,045,576
4,652,747
537,500
16,341,631
354,654
1,080,088
1,002,753
1,050,244
1,233,894
93,444
14,388
26,596
14,195
12,955
10,283
8,175
7,762
622
475
81,064
40,210
21,940
10,155
806
215
73,326
3,659,452
1,250,708
33,813
24,126
57,939
5.67
5.51
11.18
2.87
1.53
1.40
1.11
0.88
0.84
0.07
0.05
8.74
4.34
2.37
1.10
0.09
0.02
7.91
3.65
2.60
6.25
3
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
FINANCIAL HIGHLIGHTS (continued)
Securities Held (continued):
Consumer Discretionary
Invocare Limited
ARB Corporation
Tatts Group Limited
Crown Resorts
Fairfax Media
Health Care
Ramsay Healthcare
Sonic Healthcare
Primary Healthcare
Regis Healthcare
Ansell Limited
Energy
New Hope Corporation
Woodside Petroleum Limited
Caltex Australia
Santos Limited
Materials
BHP Billiton
Brickworks Limited
Boral Limited
Alumina Limited
Property Trusts
Westfield Corporation
Scentre Group
Lend Lease
TOTAL PORTFOLIO
Investment Portfolio
Trading Portfolio
Total Portfolio
Cash and dividends receivable
Total Investment Assets
Number of
Shares
Held
Market
Value
($’000)
Portfolio
Weight
%
1,358,474
945,447
2,489,000
155,584
2,100,000
264,500
572,031
2,484,500
650,428
87,130
14,815,952
455,802
151,950
615,292
1,489,822
436,209
188,452
370,000
233,157
290,514
5,035
17,850
15,827
9,508
1,962
1,953
47,100
18,981
12,327
9,814
3,051
1,583
45,755
21,039
12,234
4,847
2,855
40,975
27,785
6,264
1,172
479
35,700
2,483
1,429
63
3,976
1.93
1.71
1.03
0.21
0.21
5.09
2.06
1.33
1.06
0.33
0.17
4.95
2.27
1.32
0.52
0.31
4.42
3.00
0.68
0.13
0.05
3.86
0.27
0.15
0.01
0.43
854,939
92.23
854,460
479
854,939
72,058
926,997
92.18
0.05
92.23
7.77
100.00
The Group is a substantial shareholder in accordance with the Corporations Act 2001 of Lindsay Australia
Limited, holding 5.64% of the issued capital as at 30 June 2016. The Group is not a substantial shareholder in
any other investee corporations as each equity investment represents less than 5% of the issued capital of the
investee corporation.
4
2016 Annual ReportBKI INVESTMENTCOMPANY 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 in the form of fully
franked dividends to the extent of available imputation tax credits, through long term investment in a portfolio of
assets that are also able to deliver long term capital growth to shareholders.
Investment Strategy
The Group is a research driven, long term manager focusing on well managed companies, with a profitable
history and that offer attractive dividend yields. Stock selection is bottom up, focusing on the merits of individual
companies rather than market and economic trends.
Dividend Policy
With respect to prudent business practices, and ensuring the business retains sufficient working capital to allow
the achievement of the Group’s 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.
In circumstances where the Group accumulates sufficient special investment revenue after ensuring the business
retains sufficient working capital in accordance with its capital management objectives, the Board will consider
declaring special fully franked dividends to the extent permitted by the Corporations Act and the Income Tax
Assessment Act.
In circumstances 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 internal portfolio management function comprising the CEO, Mr Tom Millner and Portfolio
Manager, Mr Will Culbert.
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.
5
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS
Dear Shareholders,
I am pleased to enclose the 13th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2016.
Result Highlights
BKI’s Net Operating Result before special investment revenue increased 1% to $41.2m, while the BKI Board has
declared a Final Ordinary Dividend of 3.65cps, unchanged from the 2015 Final Dividend. BKI’s Full Year Dividend
totalled 7.25cps, a 1% increase on last year.
BKI’s Net Operating Result of $41.2m was mainly driven by higher dividends received from Transurban Limited,
APA Group, Sydney Airports, Macquarie Group, TPG Telecom and Ramsay Healthcare. Lower dividends received
from BHP Billiton, Woolworths, Woodside Petroleum, ANZ Banking Group and Suncorp Group impacted the result,
while revenues from bank deposits and investments held for trading were also lower than the corresponding period.
The resulting basic earnings per share decreased 3.3% to 7.16cps on an increased share capital base. BKI also
received special dividend income for the year from New Hope Corporation, Milton Corporation, Suncorp Group
and IAG Group. Total special dividend income received was $1.1m compared to $2.1m last year, generating
basic earnings per share after special dividend income of 7.35cps (2015: 7.78cps).
45
40
35
30
25
20
15
10
5
0
s
n
o
i
l
l
i
M
$
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Above: Net Operating Result by financial year end 30 June ($millions)
Dividends
The Directors have declared a fully franked Final Ordinary Dividend of 3.65cps, in line with the prior year
corresponding period. BKI’s Total Full Year Dividend is 7.25cps, a 1% increase on last year. The full year dividend
payment of 7.25cps represents a 99% pay-out ratio on BKI’s Net Operating Profit. BKI’s historical grossed up
yield as at 30 June 2016 was 6.6%, based on the share price as at 30 June 2016 and a tax rate of 30%. BKI
has ample franking credits to ensure dividends are fully franked into the future.
BKI’s Dividend Re-investment plan (DRP) will be maintained, offering shareholders the opportunity to acquire
further ordinary shares in BKI. The DRP will not be offered at a discount. The DRP price will be calculated using
the average of the daily volume weighted average sale price of BKI’s shares sold in the ordinary course of trading
on the ASX during the 5 trading days after, but not including, the Record Date (Monday 8 August 2016). The last
day for shareholders to nominate for their participation in the DRP is Tuesday 9 August 2016.
1.00
5.00
5.30
6.00
6.00
1.00
5.25
0.50
6.65
1.00
6.00
6.40
6.95
7.20
7.25
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
2015
2016
Ordinary Dividends
Special Dividends
Above: Fully franked Interim and Final dividends declared (cents per share)
6
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
The Board and Management continue to focus on creating wealth for all shareholders by keeping costs low and
increasing fully franked dividends and capital growth. BKI has been listed for 12.5 years and has been providing
shareholders with an increasing income stream of fully franked dividends and capital growth throughout this time.
As can be seen in the chart below, an investor who spent the equivalent of $10,000 to purchase BKI shares
upon listing in December 2003 and had reinvested dividends would now be receiving fully franked dividends of
$1,208pa. The franking credits enhance the income by a further $518 (based on current corporate tax rate of
30%), taking total income received in FY2016 to $1,726. The same investment in a term deposit, based on the
cash rate plus 0.50% would only be earning $441pa pre-tax and without benefit of franking credits.
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$1,726
$411
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Interest
Total Dividend Income (including Franking Credits)
Above: Fully Franked dividends received on a $10k investment in BKI at listing in 2003.
Management Expense Ratio
BKI’s Board & Management are shareholders in BKI. We invest for the long term and do not charge external
portfolio management or performance fees. We focus on creating wealth for all shareholders by keeping costs
low and increasing fully franked dividends and capital growth.
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.16%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Above: Historical MER achieved by BKI.
7
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued)
Performance
BKI’s Total Shareholder Return (including the reinvestment of dividends) for the year to 30 June 2016 was
negative 0.8%, compared to the S&P/ASX 300 Accumulation Index which returned positive 0.9% over the same
period. BKI’s Total Shareholder Return for 5 years, 10 years and 12 years outperformed the Index by 3.5% per
annum, 2.0% per annum and 1.2% per annum respectively.
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 2016 was negative 1.4%.
BKI Performance
as at 30 June 2016
1 Year
3 Yrs
(pa)
5 Yrs
(pa)
7 Yrs
(pa)
10 Yrs
(pa)
12 Yrs
(pa)
S&P/ASX 300 ACC INDEX (XKOAI)
0.9%
7.7%
7.2%
8.7%
4.8%
7.9%
BKI Total Shareholder Return (TSR)
(0.8%)
8.2% 10.7%
11.3%
6.7%
9.1%
BKI TSR Outperformance V’s XKOAI
(1.7%)
0.5%
3.5%
2.6%
2.0%
1.2%
BKI Portfolio Performance
(1.4%)
5.2%
6.6%
8.3%
5.7%
7.6%
BKI Portfolio Outperformance V’s XKOAI
(2.3%)
(2.5%)
(0.6%)
(0.4%)
0.9%
(0.3%)
BKI Performance
Including Franking Credits
1 Year
3 Yrs
(pa)
5 Yrs
(pa)
7 Yrs 10 Yrs
(pa)
(pa)
12 Yrs
(pa)
S&P/ASX 300 ACC INDEX (XKOAI) -
80% Franked
BKI Total Shareholder Return -
100% Franked
2.4%
9.3%
9.0%
10.5%
6.5%
9.6%
1.1%
10.1% 13.0% 13.6%
9.0%
11.3%
The following chart shows BKI’s Total Shareholder Return including Franking Credits. The S&P/ASX 300
Accumulation Index has been franked at approximately 80% over this period.
13.0%
13.6%
10.1%
9.3%
9.0%
10.5%
11.3%
9.6%
9.0%
6.5%
15.0%
10.0%
5.0%
0.0%
2.4%
1.1%
1 Year
3 Years pa
5 Years pa
7 Years pa
10 Years pa
12 Years pa
BKI Total Shareholder Returns
S&P/ASX 300 ACC INDEX
Above - BKI Total Shareholder Return Including Franking Credits as at 30 June 2016
BKI’s Total Shareholder Return including Franking Credits for 5 years, 10 years and 12 years outperformed the
Index by 4.0% per annum, 2.5% per annum and 1.7% per annum respectively.
8
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CHAIRMAN’S ADDRESS (continued)
Portfolio Movements
BKI’s net investment over FY2016 was approximately $76m, with major long term investments made in
companies including; Commonwealth Bank, ANZ Banking Group, Westpac Banking Corporation, National
Australia Bank, Macquarie Group, Qube Logistics, Telstra Corporation, Ramsay Healthcare, Caltex Australia, APA
Group and Sydney Airports. The main disposals from BKI’s investment portfolio included Bendigo and Adelaide
Bank, Clydesdale Bank, RioTinto Limited and the partial sell-down of our position in BHP Billiton.
During the year BKI completed the acquisition of all the issued capital of three unlisted investment companies
with net assets of approximately $32m. The private companies acquired were a good fit with BKI’s existing
portfolio. An investment in BKI provides the vendors with administration simplicity as well as access to a low
cost diversified equity portfolio, increasing fully franked dividend distributions and capital growth. This brings the
number of transactions of this nature completed by BKI to four, 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.
Outlook
Twelve months ago, we said that we expected fiscal 2016 to be an interesting year for equity markets. While the
broad market return was flat, there was significant volatility in equities. This has created a sense of uncertainty.
Investor sentiment is downbeat and much of the news flow is focused on the negative. Slowing consumption
and manufacturing growth rates in Asia continue to impact sentiment as does the uncertain political landscape
in many major economies. The Australian Dollar traded sideways in fiscal 2016, which impacted a number of
our export facing industries. Many Australian resources companies continue to be challenged by the imbalance
between supply and demand of commodities.
Last year we lamented that many Australian listed companies were focused on cost out strategies rather than growth
initiatives. The benign Australian economy has seen that behaviour continue. The subdued investor sentiment is yet
to translate into a broad based sell-off of the market. We do not necessarily expect one. There is little incentive for
investors to transition into cash. Australia’s historically low interest rate environment continues to drive investors
to chase yield. Well managed companies offering quality and sustainable dividend yields continue to trade at lofty
multiples. We remain cautious on those companies trading on high earnings multiples that will struggle to deliver
sustainable growth. We also remain cautious on companies with unsustainable dividend payout ratios.
While we recognise the challenges in the economy, we believe the BKI portfolio is well placed for the long-term.
We think there is cause for optimism. As long-term investors, we welcome periods of volatility where we can
add to the holdings of those businesses that we deem to be superior. We continually look for businesses that
are managed by capable executives, are appropriately geared, have a favourable outlook and are appropriately
priced. A sustainable income stream remains a core tenet of our disciplined investment criteria.
BKI remains in a strong financial position with no debt, and cash and cash equivalents representing approximately
8% of the portfolio.
Yours sincerely,
Robert Millner
Chairman
Sydney
19 July 2016
9
2016 Annual ReportBKI 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 2016.
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:
K Washington H Soul Pattinson and Company Limited (appointed 1984, Chairman since 1998)
K New Hope Corporation Limited (appointed 1995, Chairman since 1998)
K Brickworks Limited (appointed 1997, Chairman since 1999)
K Milton Corporation Limited (appointed 1998, Chairman since 2002)
K Apex Healthcare Berhad (Appointed 2000)
K Australian Pharmaceutical Industries Limited (Appointed 2000)
K TPG Telecom Limited (appointed 2000)
Special Responsibilities:
K Chairman of the Board
K Chairman of the Investment Committee
K Member of the Remuneration Committee
K Member of the Nomination Committee
David Capp Hall, AM, FCA, FAICD – Independent Non-Executive Director
Mr Hall was appointed a Non-executive Director and Chair of the Audit Committee upon the Company’s formation
in October 2003. 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:
K Chairman of the Audit Committee
K Member of the Remuneration Committee
K Member of the Nomination Committee
Ian Thomas Huntley, BA – Independent Non-Executive Director
Mr Huntley joined the Board as a Non-executive Director in February 2009. After a career in financial journalism
Mr Huntley acquired “Your Money Weekly” newsletter in 1973. Over the following 33 years, Mr Huntley built the
Your Money Weekly newsletter into one of Australia’s best known investment advisory publications. He and
partners sold the business to Morningstar Inc of the USA in mid 2006.
Special Responsibilities:
K Member of the Investment Committee
K Member of the Remuneration Committee
K Member of the Audit Committee
K Member of the Nomination Committee
10
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED DIRECTORS’ REPORT (continued)
Alexander James Payne, B.Comm, Dip Cm, FCPA, FCIS, FCIM – Non-Executive Director
Mr Payne was appointed a Non-executive Director upon the Company’s formation in October 2003, and has
been a member of the Audit Committee since then. Mr Payne is Chief Financial Officer of Brickworks Limited
and has considerable experience in finance and investment.
Special Responsibilities:
K Member of the Audit Committee
K Member of the Investment Committee
K Chairman of the Remuneration 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, New Hope Corporation Limited and PM Capital Global
Opportunities Fund Limited, providing him with additional insight into Australian and Global investment markets.
Special Responsibilities:
K 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 Quickstep
Holdings Limited (ASX:QHL) and Clover Corporation Limited (ASX: CLV), and is Company Secretary and CFO of
a number of unlisted investment and industrial companies.
3. Meetings of Directors
Summarised below are the numbers of Board meetings and Committee meetings held during the year to 30 June
2016, and the numbers of meetings attended by each Director.
Board1
Investment
Audit
Remuneration
Nomination2
Attended
Eligible Attended
to attend
Eligible
to attend
Attended Eligible
to attend
Attended Eligible
to attend
Attended
Eligible
to attend
RD Millner 11
11
AJ Payne
11
DC Hall
IT Huntley 10
11
11
11
11
11
13
-
12
13
13
-
13
-
2
2
2
-
2
2
2
2
2
2
2
2
2
2
2
-
1
1
-
-
1
1
-
1 The number of board meetings includes circular resolutions passed by the board during the year.
2 The sole meeting of the Nomination Committee was held in July 2015. Mr RD Millner and Mr IT Huntley were not members
of the Committee at this time as they were scheduled for re-election as Directors under the Company’s Director rotation
policy. Subsequent to being re-elected as Directors at the 2015 AGM Mr RD Millner and Mr IT Huntley were reappointed
to the Nomination Committee, and Mr AJ Payne resigned from the Committee as he is due for re-election as a Director at
the 2016 AGM.
11
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
4. Principal Activities
Principal activities of the Group are that of a Listed Investment Company (LIC) primarily focused on long term
investment in ASX listed securities. There were no significant changes in the nature of those activities during the year.
5. Operating Results
BKI’s Net Operating Result before special investment revenue increased 1% to $41.2m (2015: $40.9m),
supported by higher dividends received from Transurban Limited, APA Group, Sydney Airports, Macquarie
Group, TPG Telecom and Ramsay Healthcare. Lower dividends received from BHP Billiton, Woolworths,
Woodside Petroleum, ANZ Banking Group and Suncorp Group reduced the result, while revenues from bank
deposits and investments held for trading were also lower than the previous year. The resulting basic earnings
per share decreased 3.3% to 7.16cps on an increased share capital base.
BKI also received special dividend income for the year from New Hope Corporation, Milton Corporation, Suncorp
Group and IAG Group. Total special dividend income received was $1.1m compared to $2.1m in 2015FY,
resulting in a basic earnings per share after special dividend income of 7.35cps (2015: 7.78cps).
BKI’s Total Shareholder Return for the year to 30 June 2016 was negative 0.8%, compared to the S&P/ASX 300
Accumulation Index which returned positive 0.9% over the same period. BKI’s 12 year Total Shareholder Return
including the benefit of franking credits was 11.3% pa as at 30 June 2016.
6. Review of Operations
Operating expenses decreased $0.13m to $1.48m (2015: $1.61m). This, combined with an increase in the
average Total Portfolio Value during the year, lowered BKI’s MER to 0.16% (2015: 0.18%).
BKI’s net investment over FY2016 was approximately $76m, with major long term investments made in
companies including; Commonwealth Bank, ANZ Banking Group, Westpac Banking Corporation, National
Australia Bank, Macquarie Group, Qube Logistics, Telstra Corporation, Ramsay Healthcare, Caltex Australia, APA
Group and Sydney Airports. The main disposals from BKI’s investment portfolio included Bendigo and Adelaide
Bank, Clydesdale Bank, RioTinto Limited and a partial disposal of BHP Billiton.
During the year BKI completed the acquisition of three unlisted investment companies with net assets of
approximately $32m. The private companies acquired were a strong fit with BKI’s existing portfolio. This brings
the number of transactions of this nature completed by BKI to four, which benefit existing BKI shareholders by
increasing the size of BKI’s portfolio in a cost-effective manner.
7. Financial Position
Net assets of the Group increased during the financial year by $26.7m to $880.0m. Acquisitions of unlisted
investment entities increased assets by a combined $32m during the year and the SPP in May 2016 increased
funds by an additional $28.2m. This was affected by a net decrease of $33.9m in the market value of the
investment portfolio.
8. Employees
The Group has two employees as at 30 June 2016 (2015: two).
12
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED DIRECTORS’ REPORT (continued)
9. 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.
10. 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.
11. Significant Events after Balance Date
The Directors are not aware of any matter or circumstance that has arisen since the end of the year to the date
of this report that has significantly affected or may significantly affect:
i.
the operations of the Company and the entities that it controls;
ii. the results of those operations; or
iii. the state of affairs of the Group in subsequent years.
12. Dividends
There were two dividend payments made during the year to 30 June 2016:
K On 27 August 2015, a final total dividend of $20,314,465 (ordinary dividend of 3.65 cents per share fully
franked) was paid out of retained profits at 30 June 2015.
K On 26 February 2016, an interim total dividend of $20,473,202 (ordinary dividend of 3.60 cents per share,
fully franked) was paid out of retained profits at 31 December 2015.
In addition, the Directors declared a final ordinary dividend of 3.65 cents per share fully franked payable on
26 August 2016.
At 30 June 2016 there are $15,714,362 of franking credits available to the Group (2015: $13,847,692) after
allowing for payment of the final, fully franked ordinary dividend.
13. Environmental Regulations
The Group’s operations are not materially affected by environmental regulations.
14. 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 2016, the Group 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.
The Directors have not included details of the nature of liabilities covered or the amount of premium paid in
respect of the insurance contract as such disclosure is prohibited under the terms of the contract.
13
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued)
15. 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.
16. Non-audit Services
The external auditor, MGI Sydney Assurance Services Pty Limited (“MGI Sydney”), did not provide any non-audit
services to the Group during the year to 30 June 2016, nor did the Group pay any fees for such services.
17. Auditor’s Independence Declaration
The Auditor’s Independence Declaration for the year to 30 June 2016 is on page 49.
18. 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:
SHAREHOLDINGS
Name
RD Millner*
DC Hall
AJ Payne
IT Huntley
TCD Millner*
J Pinto
Number of Shares
8,555,552
297,326
295,872
11,224,980
7,660,745
77,937
* Common to RD Millner and TCD Millner are 7,260,805 shares (2015: 7,231,771) held in related companies and
trusts in which both hold beneficial interests.
19. Corporate Governance Statement
BKI’s Corporate Governance Statement can be found on the Company’s website at the following address:
http://bkilimited.com.au/about-us/corporate-governance/#cgs
20. 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.
14
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED DIRECTORS’ REPORT (continued)
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:
K The remuneration policy is developed by the Remuneration Committee and approved by the Board after
professional advice is sought from independent external consultants.
K All Key Management Personnel and other Key Executives receive a base salary or fee, superannuation and
performance incentives.
K Performance incentives are only paid once predetermined key performance indicators have been met.
K 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.
K 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 relative market
indices and financial and strategic goals approved by the Board and as agreed with each Executive. Performance
is measured on an ongoing basis using management reporting tools. Performance for the assessment of
incentives is performed annually, 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.
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 Portfolio Manager, 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.
15
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued)
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.
For financial years up to and including the year ended 30 June 2016, the value of the Short Term Incentive for the
CEO was calculated as 15% of CEO Base Remuneration. For future financial years, commencing 1 July 2016,
the value of the Short Term Incentive for the CEO will be calculated as 20% of CEO Base Remuneration.
For financial years up to and including the year ended 30 June 2016, the value of the Short Term Incentive for
the Portfolio Manager was calculated as 10% of Portfolio Manager Base Remuneration. For future financial years,
commencing 1 July 2016, the value of the Short Term Incentive for the Portfolio Manager will be calculated as
15% of Portfolio Manager Base Remuneration.
The Short Term Incentive for the Company Secretary is set at 40% of the CEO Incentive.
100% of the Short Term Incentive is 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 2016 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
(1.4%)
0.9%
(2.3%)
Nil
The vesting criteria for the 2016 Financial Year Short Term Incentives were therefore not satisfied, and the
Company did not award any short term incentives in respect of 2016 Financial Year Short Term incentives.
However, as noted in the 2015 Annual Report, in July 2015 the Company purchased 51,577 shares in satisfaction
of 2015 Financial Year Short Term Incentives.
16
2016 Annual ReportBKI INVESTMENTCOMPANY 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 financial years up to and including the year ended 30 June 2016, the CEO’s Long Term Incentive was
calculated on 25% of the Base Remuneration of the CEO. For future financial years, commencing 1 July 2016,
the Long Term Incentive for the CEO will be calculated as 30% of CEO Base Remuneration.
For financial years up to and including the year ended 30 June 2016, the Portfolio Manager’s Long Term
Incentive was calculated on 15% of the Base Remuneration of the Portfolio Manager. For future financial years,
commencing 1 July 2016, the Long Term Incentive for the Portfolio Manager will be calculated as 20% of Portfolio
Manager Base Remuneration.
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.
All outstanding incentives granted are to be awarded to the above executives 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 is to be retested in Year 5.
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 2016 financial year, and has included these costs in the disclosed remuneration of the CEO
and Company Secretary.
During the 2016 Financial Year the following outstanding Long Term Incentives granted by the Company became
eligible for vesting:
Incentive Issue
Issue Number of Value of
rights
date
granted
initial
grant
Initial
vesting
date
Expiry
date
Number Number of
of rights
vested
rights
yet to vest/
lapse
J Pinto 2012
13/12/2011 18,010
$21,450 12/12/2015 11/12/2016
18,010
T Millner 2013
01/07/2012 64,230
$74,250 30/06/2016 30/06/2017
64,230
J Pinto 2013
01/07/2012 25,692
$29,700 30/06/2016 30/06/2017
25,692
-
-
-
The table below summarises the performance for each relevant four year period against the Long Term Incentive
measurement criteria:
Period
4 year BKI
total shareholder
return
S&P/ASX 300 Over/ (Under)
accumulation performance
% Entitlement
to eligible bonus
index over 4 years
13/12/2011 to 12/12/2015
1/07/2012 to 30/06/2016
14.6%
13.1%
9.2%
11.1%
5.3%
2.0%
100%
100%
17
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Based on the above performance:
- The vesting criteria for Long Term incentives issued on 13 December 2011 were satisfied, and during the 30
June 2016 Financial Year the Company purchased on market 18,010 shares on behalf of executives.
- The vesting criteria for Long Term Incentives issued on 1 July 2012 were satisfied, and subsequent to 30 June
2016 the Company will purchase on market 89,922 shares on behalf of executives.
No outstanding Long Term Incentives granted by the Company became eligible for vesting between 1 July 2016
and the date of this report.
The following table summarises movements in Long Term Incentives granted by the Company that have not
vested as at the date of this report:
Incentive Issue
Issue Number of Value of
rights
date
granted
initial
grant
Initial
vesting
date
Expiry
date
Number Number of
of rights
vested
rights
yet to vest/
lapse
T Millner 2014
01/07/2013 54,996
$76,500 30/06/2017 30/06/2018
J Pinto 2014
01/07/2013 21,998
$30,600 30/06/2017 30/06/2018
W Culbert 2014
01/12/2013 12,847
$20,075 31/12/2017 31/12/2018
T Millner 2015
01/07/2014 46,363
$76,500 30/06/2018 30/06/2019
J Pinto 2015
01/07/2014 18,545
$30,600 30/06/2018 30/06/2019
W Culbert 2015
01/07/2014 20,904
$34,493 30/06/2018 30/06/2019
T Millner 2016
01/07/2015 46,570
$78,750 30/06/2019 30/06/2020
J Pinto 2016
01/07/2015 18,628
$31,500 30/06/2019 30/06/2020
W Culbert 2016
01/07/2015 22,176
$37,500 30/06/2019 30/06/2020
T Millner 2017
01/07/2016 60,076
$94,500 30/06/2020 30/06/2021
J Pinto 2017
01/07/2016 24,030
$37,800 30/06/2020 30/06/2021
W Culbert 2017
01/07/2016 33,375
$52,500 30/06/2020 30/06/2021
-
-
-
-
-
-
-
-
-
-
-
-
54,996
21,998
12,847
46,363
18,545
20,904
46,570
18,628
22,176
60,076
24,030
33,375
Rights granted under the Short Term and a Long Term Incentive Scheme do not carry an entitlement to receive
dividends.
18
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
DIRECTORS’ REPORT (continued)
Remuneration Details for the Year to 30 June 2016
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
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 are as follows:
Directors:
2015
RD Millner
DC Hall
AJ Payne
IT Huntley
Total
2016
RD Millner
DC Hall
AJ Payne
IT Huntley
Total
Primary
Fee
$
62,100
48,173
39,383
39,383
189,041
63,699
49,315
40,297
40,297
193,608
Superannuation
$
5,900
4,576
3,741
3,741
17,959
6,051
4,685
3,828
3,828
18,392
Total
$
68,000
52,750
43,125
43,125
207,000
69,750
54,000
44,125
44,125
212,000
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.
19
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Other Key Management Personnel:
2015
TCD Millner
J Pinto
Total
2016
TCD Millner
J Pinto
Fixed remuneration
Share based performance
related remuneration
Salary
$
Superannuation
$
Total
STI
$
LTI
$
Total
$
Total
Remuneration
291,717
-
291,717
18,783
-
310,500
-
45,900
18,360
91,746
51,948
137,646
70,308
448,146
70,308
18,783
310,500
64,260
143,694
207,954
518,454
295,692
-
19,308
-
315,000
-
Total
295,692
19,308
315,000
-
-
-
75,132
31,178
75,132
31,178
390,132
31,178
106,310
106,310
421,310
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 which has been allocated as an expense in each relevant
reporting period.
The relative proportions of Total Remuneration that are fixed or linked to performance are as follows:
Fixed remuneration
Performance-related - STI
Performance-related - LTI
2016
2015
2016
2015
2016
2015
TCD Millner
J Pinto
80.7%
0%
69.3%
0%
0%
0%
10.2%
26.1%
19.3%
100%
20.5%
73.9%
There were no retirement allowances provided for the retirement of Non-Executive Directors or Other Key
Management Personnel.
20
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
DIRECTORS’ REPORT (continued)
Contract of Employment
Mr TCD Millner is employed by the Company under a contract of employment. This is an open ended contract
with a notice period of one month required to terminate employment. Base Remuneration is currently $315,000
per annum inclusive of superannuation.
Remuneration is reviewed annually by the Remuneration Committee.
Mr JP Pinto provides Company Secretarial services under contract through Corporate & Administrative Services
Pty Limited. This is an open ended contract with a notice period of one month required to terminate.
This report is made in accordance with a resolution of the Directors.
Robert D Millner
Director
Sydney
19 July 2016
21
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2016
Ordinary revenue from investment portfolio
Revenue from bank deposits
Other income
Other gains
Note
2(a)
2(c)
2(d)
2(e)
2016
$’000
2015
$’000
41,738
40,815
1,155
1,519
-
940
8
2,226
Income from operating activities before special investment revenue
43,833
44,568
Operating expenses
Discount on acquisition of controlled entities, net of expenses
3
(1,479)
(1,607)
114
-
Operating result before income tax expense and special investment revenue
42,468
42,961
Income tax expense
4(a)
(1,298)
(2,085)
Net operating result before special investment revenue
41,170
40,876
Special investment revenue
2(b)
1,082
2,095
Net operating profit
42,252
42,971
Profit for the year attributable to members of the Company
42,252
42,971
Basic and diluted earnings per share before special dividend income
Basic and diluted earnings per share after special dividend income
6
6
7.16
7.35
7.40
7.78
2016
Cents
2015
Cents
This Income Statement should be read in conjunction with the accompanying notes
22
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 30 JUNE 2016
Note
2016
$’000
2015
$’000
Profit for the year attributable to members of the Company
42,252
42,971
Other comprehensive income
Unrealised gains/ (losses) on investment portfolio
(48,470)
3,671
Deferred tax (expense) benefit on unrealised gains / losses on investment
portfolio
Realised gains/ (losses) on investment portfolio
14,541
(9,244)
(1,101)
2,670
Tax (expense)/ benefit relating to realised gains/losses on investment
portfolio
4(a)
2,773
(802)
Total other comprehensive income
(40,400)
4,438
Total comprehensive income
1,852
47,409
This Statement of Other Comprehensive Income should be read in conjunction with the accompanying notes.
23
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2016
Current assets
Cash and cash equivalents
Trade and other receivables
Trading portfolio
Prepayments
Total current assets
Non-current assets
Investment portfolio
Property, plant and 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
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Revaluation reserve
Realised capital gains reserve
Retained profits
Total equity
Note
2016
$’000
2015
$’000
7
8
9
9
10
11
12
13
14
15
16
63,740
8,315
479
24
72,558
41,133
17,688
566
29
59,416
854,460
21
12,129
866,610
858,877
18
9,375
868,270
939,168
927,686
484
381
16
881
486
993
19
1498
58,308
19
58,327
72,936
16
72,952
59,208
74,450
879,960
853,236
718,221
133,287
(16,840)
45,292
879,960
652,562
167,216
(10,369)
43,827
853,236
This Statement of Financial Position should be read in conjunction with the accompanying notes
24
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2016
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital
Gains
Reserve
$’000
Retained
Profits
$’000
Total
Equity
$’000
Total equity at 1 July 2014
599,124
164,646
(12,237)
39,913
791,446
Issue of shares, net of issue costs
Dividends paid or provided for
Unrealised gain on revaluation of
investment portfolio
Provision for tax on unrealised gain on
revaluation of investment portfolio
Net operating profit for the year
Net realised gains through other
comprehensive income
53,438
-
-
-
-
-
-
-
3,671
(1,101)
-
-
-
-
-
-
-
(39,057)
53,438
(39,057)
-
3,671
-
42,971
(1,101)
42,971
-
1,868
-
1,868
Total equity at 30 June 2015
652,562
167,216
(10,369)
43,827
853,236
Total equity at 1 July 2015
652,562
167,216
(10,369)
43,827
853,236
Issue of shares, net of issue costs
Dividends paid or provided for
Unrealised loss on revaluation of
investment portfolio
Provision for tax on unrealised loss
on revaluation of investment portfolio
Net operating profit for the year
Net realised loss through other
comprehensive income
65,659
-
-
-
-
-
-
-
(48,470)
14,541
-
-
-
-
-
-
-
(40,787)
65,659
(40,787)
-
(48,470)
-
42,252
14,541
42,252
-
(6,471)
-
(6,471)
Total equity at 30 June 2016
718,221
133,287
(16,840)
45,292
879,960
This Statement of Changes in Equity should be read in conjunction with the accompanying notes
25
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2016
Cash flows from operating activities
Dividends and distributions received
Other receipts in the course of operations
Payments to suppliers and employees
Proceeds from sale of trading portfolio
Payments for trading portfolio
Interest received
Income tax paid
Note
2016
$’000
2015
$’000
42,242
42,398
-
(1,474)
2,748
-
1,292
(1,881)
8
(1,409)
10,629
(8,763)
1,655
(986)
Net cash inflow from operating activities
17(a)
42,927
43,532
Cash flows from investing activities
Cash acquired on acquisition of controlled entities
Proceeds from sale of investment portfolio
Capital returns received from investment portfolio
Payments for investment portfolio
Payments for plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issues of ordinary shares less issue costs
Dividends paid
Net cash inflow/ (outflow) from financing activities
Net increase in cash held
Cash at the beginning of the year
Cash at the end of the year
137
-
29,886
33,270
-
1,930
(43,451)
(9)
(92,833)
(14)
(13,437)
(57,647)
27,883
47,482
5(b)
(34,766)
(33,194)
(6,883)
14,288
22,607
41,133
63,740
173
40,960
41,133
7
This Cash Flow Statement should be read in conjunction with the accompanying notes
26
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
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 22.
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 21(i) 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.
27
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
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’.
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.
28
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
1. Summary of Significant Accounting Policies (continued)
c.
Financial Instruments (continued)
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 last sale price 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, where the total long service leave liability becomes material,
consideration is given to expected future wage and salary levels, experience of employee departures and
periods of service. In such circumstances, expected future payments are discounted using market yields
at balance date on long term corporate 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 four year period. The incentives are settled in shares. Expenses are recognised over the
assessment period based on the amount expected to be payable under this plan, resulting in a provision
for incentive payable being built up on the balance sheet over the assessment period.
In the event that the executive does not complete the period of service, the cumulative expense is reversed.
e.
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 and distribution revenue is recognised when the right to receive a dividend or distribution has
been established.
All revenue is stated net of the amount of goods and services tax (GST).
f.
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.
29
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
1. Summary of Significant Accounting Policies (continued)
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. The Group
operates solely in the securities industry in Australia and has no reportable 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 Corporations Instrument (Rounding in Financial
/ Directors’ Reports) 2016/191 and accordingly, amounts in the financial report and Directors’ report have
been rounded off to the nearest $1,000.
l.
Critical Accounting Estimates and Judgments
Deferred Tax Balances
The preparation of this financial report requires the use of certain critical estimates based on historical
knowledge and best available current information. This requires the Directors and management to exercise
their judgement in the process of applying the Group’s accounting policies.
The carrying amounts of certain assets and liabilities are often determined based on estimates and
assumptions of future events. In accordance with AASB 112: Income Taxes deferred tax liabilities have been
recognised for Capital Gains Tax on unrealised gains in the investment portfolio at the current tax rate of 30%.
As the Group does not intend to dispose of the portfolio, this tax liability may not be crystallised at the
amount disclosed in Note 12. 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.
30
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
1. Summary of Significant Accounting Policies (continued)
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 2016 (“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.
2. Revenues
(a) Ordinary revenue from investment portfolio
Fully franked dividends
Unfranked dividends
Trust distributions
Total ordinary revenue from investment portfolio
(b) Special investment revenue
Fully franked dividends
(c) Revenue from bank deposits
Interest received
(d) Other income
Other revenue
(e) Other gains
Net realised gain on sale of investment held for trading
Net unrealised gain/ (loss) on investments held for trading
Total other gains
Total income
3. Operating expenses
Administration expenses
Occupancy expenses
Employment expenses
Professional fees
Depreciation
Total operating expenses
2016
$’000
2015
$’000
37,220
1,431
3,087
36,785
1,034
2,996
41,738
40,815
1,082
2,095
1,155
1,519
-
8
1,027
(87)
940
2,163
63
2,226
44,915
46,663
376
13
930
153
7
1,479
352
13
1,075
160
7
1,607
31
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
4. Tax expense
(a) Reconciliation of income 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:
Operating profit before income tax expense, including gross gains
on investment portfolio
Tax calculated at 30% (2015: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating
taxable income:
- Franked dividends and distributions received
- Permanent difference to reset tax cost base of investments acquired on
acquisition of subsidiaries
- Discount on acquisition of subsidiaries, net of expenses
- Prior year (over)/ under provision
Net income tax expense on operating profit before net gains on investments
Net realised gains/(losses) on investment portfolio
Tax calculated at 30% (2015: 30%)
Total tax expense / (benefit)
(b) The components of tax expense comprise:
Current tax
Deferred tax
Prior year (over)/ under provision
Total tax expense/ (benefit)
5. Dividends
(a) Dividends paid during the year
Final dividend for the year ended 30 June 2015 of 3.65 cents per share
(2014 final: 3.50 cents per share) fully franked at the tax rate of 30%,
paid on 27 August 2015
Interim dividend for the year ended 30 June 2016 of 3.60 cents per
share (2015 interim: 3.55 cents per share) fully franked at the tax rate
of 30%, paid on 26 February 2016
Total dividends paid
32
2016
$’000
2015
$’000
43,550
45,056
13,065
13,517
(11,491)
(11,664)
(195)
(34)
(47)
1,298
(9,244)
(2,773)
-
-
232
2,085
2,670
802
(1,474)
2,887
1,264
(2,692)
(47)
(1,474)
1,531
1,124
232
2,887
20,314
19,359
20,473
19,698
40,787
39,057
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
5. Dividends (continued)
(b) Reconciliation of total dividends paid to dividends paid in cash:
Total dividends paid
Less: Dividends reinvested in shares via DRP
Dividends paid in cash
(c) 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
Estimated impact on the franking account of dividends declared but not
recognised as a liability at the end of the financial year (refer below)
Net imputation credits available for future dividends
Maximum fully franked dividends payable from available franking credits at
the tax rate of 30% (2015: 30%)
(d) Dividends declared after balance date
2016
$’000
2015
$’000
40,787
(6,021)
34,766
39,057
(5,863)
33,194
24,703
22,554
(8,989)
(8,076)
15,714
13,848
36,667
32,311
Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2016
of 3.65 cents per share fully franked at the tax rate of 30% (2015: final ordinary dividend of 3.65 cents per share
fully franked at the tax rate of 30%), payable on 26 August 2016, but not recognised as a liability at the year end.
6. 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 calculating basic and
diluted earnings per share
Basic and diluted earnings per share before special dividend income
Basic and diluted earnings per share after special dividend income
42,252
42,971
41,170
40,876
42,252
42,971
2016
2015
No. (‘000) No. (‘000)
574,631
552,158
2016
Cents
7.16
7.35
2015
Cents
7.40
7.78
33
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
7. Cash and cash equivalents
Cash at bank
Short term bank deposits
8. Trade and other receivables
Dividends and distributions receivable
Interest receivable
Outstanding settlements
Other
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
Fair Value Measurement
2016
$’000
2015
$’000
15,740
48,000
2,633
38,500
63,740
41,133
8,091
184
(3)
43
7,537
321
9,821
9
8,315
17,688
479
566
854,460
858,877
854,939
859,443
BKI measures the fair value of its trading portfolio and investment portfolio with reference to the following fair value
measurement hierarchy mandated by accounting standards:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices); and
Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Both the trading portfolio and investment portfolio are classified as Level 1, and are measured in accordance with
the policy outlined in Note 1.c.
34
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
10. Deferred tax assets
The deferred tax asset balance comprises the following timing differences
and unused tax losses:
Transaction costs on equity issues
Accrued expenses
Realised capital tax losses
Total
Movements in deferred tax assets
2016
$’000
2015
$’000
371
121
11,637
12,129
444
119
8,812
9,375
Credited/
(charged) to
statement of
comprehensive
income
$’000
Credited/
(charged)
to equity
$’000
Transaction costs on equity issues
Accrued expenses
Realised capital tax losses
Opening
balance
$’000
499
56
9,797
(147)
63
(985)
Balance as at 30 June 2015
10,352
(1,069)
Transaction costs on equity issues
Accrued expenses
Realised capital tax losses
Balance as at 30 June 2016
444
119
8,812
9,375
(165)
2
2,825
2,662
11. Current tax liabilities
Provision for income tax
Closing
balance
$’000
444
119
8,812
9,375
371
121
11,637
12,129
92
-
-
92
92
-
-
92
2016
$’000
2015
$’000
381
993
35
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
12. Deferred tax liabilities
The deferred tax asset balance comprises the following timing differences:
Revaluation of investments held
Non rebateable dividends receivable and interest receivable
Total
Movements in deferred tax liabilities
2016
$’000
2015
$’000
57,710
598
72,308
628
58,308
72,936
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
Opening
balance
$’000
71,196
573
Balance as at 30 June 2015
71,769
(Credited)/
charged to
statement of
comprehensive
income
$’000
(Credited)/
charged
to equity
$’000
Closing
balance
$’000
-
55
55
1,112
72,308
-
628
1,112
72,936
72,308
-
(14,598)
57,710
628
(30)
(30)
-
598
(14,598)
58,308
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
Balance as at 30 June 2016
72,936
36
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
2016
$’000
2015
$’000
13. Share capital
(a) Issued and paid-up capital
598,420,148 ordinary shares fully paid (2015: 556,560,509)
718,221
652,562
(b) Movement in ordinary shares
Beginning of financial year
Issued during the year:
- dividend reinvestment plan
- share purchase plan
- acquisition of controlled entities
Gross funds raised
- less net transaction costs
2016
2015
Number of
shares
$’000
Number of
shares
$’000
556,560,509
652,562
524,240,486
599,124
3,663,370
18,189,797
20,006,472
6,021
28,192
31,662
(216)
3,440,622
28,879,401
-
5,864
47,790
-
53,654
(216)
End of the financial year
598,420,148
718,221
556,560,509
652,562
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 provide shareholders with attractive investment returns through
access to a steady stream of fully-franked dividends and enhancement of capital invested, with goals of paying
an enhanced level of dividends and providing attractive total returns over the medium to long term.
The Group recognises that its capital will fluctuate in accordance with market conditions and in order to maintain
or adjust the capital structure, may adjust the amount of dividends paid, issue new shares from time-to-time or
return capital to shareholders.
The Group’s capital consists of shareholders’ equity plus net debt. The movement in equity is shown in the
Consolidated Statement of Changes in Equity. At 30 June 2016 net debt was $Nil (2015: $Nil).
37
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
13. Share capital (continued)
(d) Acquisition of controlled entities
During the 2016FY the Company acquired 100% of the shares of three unlisted investment companies (2015FY:
No acquisitions were made). The Company issued 20,006,472 new shares in BKI Investment Company Limited
in total as consideration for the three acquisitions, having a combined fair value of $32M. These acquisitions
benefit BKI shareholders by increasing the size of BKI’s portfolio in a cost-effective manner, and at the same time
reducing the per share cost of managing the portfolio.
The acquisitions resulted in BKI achieving a discount on acquisition, which is not allocated against assets of the
companies purchased because only financial assets were purchased. The discount has therefore been included
in “Discount on acquisition of controlled entities, net of expenses” in the “Consolidated Income Statement”.
2016
$’000
2015
$’000
167,216
(48,470)
14,541
133,287
164,646
3,671
(1,101)
167,216
(10,369)
(12,237)
(6,471)
(16,840)
1,868
(10,369)
43,827
42,252
(40,787)
45,292
39,913
42,971
(39,057)
43,827
14. Revaluation reserve
The revaluation reserve is used to record increments and decrements
on the revaluation of the investment portfolio, net of applicable income tax.
Balance at the beginning of the year
Gross revaluation of investment portfolio
Deferred provision for tax on unrealised gains
Balance at the end of the year
15. Realised capital gains reserve
The realised capital gains reserve records net gains and losses after
applicable income tax arising from the disposal of securities in the
investment portfolio.
Balance at the beginning of the year
Net gains/ (losses) on investment portfolio transferred from statement of
Comprehensive income
Balance at the end of the year
16. Retained profits
Balance at the beginning of the year
Net profit attributable to members of the Company
Dividends provided for or paid
Balance at the end of the year
38
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
17. Notes to the statement of cash flows
(a) Reconciliation of cash flow from operating activities to net operating profit
Net operating profit
42,252
42,971
2016
$’000
2015
$’000
Non cash items:
- Expenses associated with acquisition of subsidiary
- Non-cash purchases of held for trading investments
- Depreciation expense
- Unrealised loss/ (gain) on trading investments
Changes in assets and liabilities, net of effects from consolidation of subsidiaries:
- (Increase)/ decrease in trade and other receivables
- (Increase)/ decrease in held for trading investments
- (Increase)/ decrease in prepayments
- (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
Net cash inflow from operating activities
(b) Non-cash financing and investing activities
(114)
1,721
7
87
(445)
-
5
164
(2)
(1)
(607)
(140)
42,927
-
-
7
(63)
(3,131)
2,448
(9)
241
194
17
763
94
43,532
(i) Dividend reinvestment plan
Under the terms of the dividend reinvestment plan, $6,021,000 (2015: $5,864,000) of dividends were paid
via the issue of 3,663,370 shares (2015: 3,440,622).
(ii) Acquisition of controlled entities
During the year the Company Group acquired shares in three unlisted investment companies via the issue
of 20,006,472 new shares in BKI (refer Note 13 (d)).
39
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
18. 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.
b.
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.
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.
Cash and bank bills are reviewed monthly by the Board to ensure cash is only placed with pre-approved
financial institutions with low risk profiles (primarily “Big 4” banks) and that the spread of cash and bank bills
between banks 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 91% (2015: 93%) of total
assets.
As at 30 June 2016, 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 (2015: 5%);
and
- A movement of 7.1 cents per share in the net asset backing before provision for tax on unrealised
capital gains (2015: 7.7 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 sector of the market.
40
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
18. Management of Financial Risk (continued)
d. Market risk (continued)
At 30 June 2016, the spread of investments is in the following sectors:
Sector
Financials
Telecommunications Services
Industrials
Consumer staples
Utilities
Consumer discretionary
Health care
Energy
Materials
Property trusts
Total investments
Cash and dividends receivable
Total portfolio
Percentage of total investment
Amount
2016
%
39.40
11.18
8.74
7.91
6.25
5.09
4.95
4.42
3.86
0.43
92.23
7.77
2015
%
43.12
10.27
7.01
8.40
5.25
4.66
4.63
5.56
5.36
0.35
94.61
5.39
2016
$’000
365,401
103,702
81,064
73,326
57,939
47,100
45,755
40,975
35,700
3,976
854,939
72,058
2015
$’000
391,713
93,311
63,684
76,265
47,673
42,328
42,027
50,499
48,728
3,216
859,443
49,000
100.00
100.00
926,997
908,443
Securities representing over 5% of the investment portfolio at 30 June 2016 or 30 June 2015 were:
Company
Commonwealth Bank
National Australia Bank
Westpac Banking Corporation
TPG Telecom
Telstra Corporation
Percentage of total investment
Amount
2016
%
2015
%
8.8
7.4
7.2
5.7
5.5
9.4
9.3
7.4
4.4
5.9
2016
$’000
81,991
68,330
66,503
52,598
51,104
2015
$’000
85,675
84,559
67,311
39,647
53,664
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. All cash investments are short term (up to 1 year)
for a fixed rate, except for cash in operating bank accounts which are at-call and attract variable rates.
The Group has no financial liability as at 30 June 2016 (2015: Nil).
41
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
18. Management of Financial Risk (continued)
f.
g.
h.
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.
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet financial obligations as they fall due.
The Group has no borrowings, and sufficient cash reserves to fund core operations at current levels for
more than 10 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.
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.
19. Key Management Personnel Remuneration
The names and positions held of Group Directors and Other Key Management Personnel in office at any time
during the financial year are:
Name
RD Millner
DC Hall AM
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
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 2016 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 2016FY (2015: nil).
42
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
20. 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.
21. Related Party Transactions
Related parties of the Group fall into the following categories:
(i) Controlled Entities
At 30 June 2016, subsidiaries of the Parent were:
Country of incorporation
Percentage Owned (%)
2016
2015
Brickworks Securities Pty Limited
Huntley Investment Company Pty Limited
R Love Investments Pty Limited
Pacific Strategic Investments Pty Limited
George Meller Pty Limited
Bryn Cwar Holdings Pty Limited
WWM Pty Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
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 part or all of the year ended
30 June 2016 were:
Directors:
RD Millner
DC Hall, AM
AJ Payne
IT Huntley
Chief Executive Officer: TCD Millner
Company Secretary:
JP Pinto1
1 Services provided under contract through Corporate & Administrative Services Pty Limited
Corporate & Administrative Services Pty Limited
The Group has appointed Corporate & Administrative Services Pty Limited (CAS), an entity in which Mr RD Millner
and Mr TCD Millner have an indirect interest, to provide the Group with administration, company secretarial and
accounting services, including preparation of all financial accounts.
Fees paid to CAS for services provided to the Parent and controlled entities for the year to 30 June 2016 were
$122,100 (2015: $122,100, including GST) and are at standard market rates. No fees were owed by the Group
to CAS as at 30 June 2016.
43
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
21. Related Party Transactions (continued)
(iii) Transactions in securities
Share Holdings
Aggregate number of listed securities of the Company held by Key Management Personnel (KMP) or their related entities:
2016
Balance as at
1 Jul 2015
Granted as
compensation
Net other
changes
Balance as at
30 Jun 2016
Net movements Balance as at date
of Annual Report
post balance date
RD Millner1
8,484,091
277,970
286,194
11,224,980
7,597,492
39,943
-
-
-
-
71,461
8,555,552
19,356
9,678
297,326
295,872
-
11,224,980
27,148
28,869
36,105
7,660,745
9,125
77,937
27,910,670
56,017
145,725
28,112,412
-
-
-
-
-
-
-
8,555,552
297,326
295,872
11,224,980
7,660,745
77,937
28,112,412
DC Hall
AJ Payne
IT Huntley
TCD Millner1
J Pinto
Total
2015
Balance as at
1 Jul 2014
Granted as
compensation
Net other
changes
Balance as at
30 Jun 2015
Net movements Balance as at date
of Annual Report
post balance date
RD Millner1 8,167,659
DC Hall
268,906
AJ Payne
277,130
IT Huntley
11,224,980
-
-
-
-
316,432
8,484,091
9,064
9,064
277,970
286,194
-
11,224,980
-
-
-
-
8,484,091
277,970
286,194
11,224,980
TCD Millner1
7,236,094
60,033
301,365
7,597,492
27,148
7,624,640
JP Pinto
Total
32,296
-
7,647
39,943
10,859
50,802
27,207,065
60,033
643,572
27,910,670
38,007
27,948,677
1 Common to RD Millner and TCD Millner are the following shares held in related companies and trusts in which both hold beneficial interests:
- 7,260,805 (2015: 7,231,771) as at 30 June 2016.
- 7,260,805 (2015: 7,231,771) as at date of Annual Report
Directors acquired shares through the Dividend Reinvestment Plan, the July 2014 Share Purchase Plan, the 2016
Share Purchase Plan and/ or on-market purchase.
There have been no other changes to Directors’ shareholdings during the years ended 30 June 2016 or 30 June
2015.
Other Key Management Personnel acquired shares through the Dividend Reinvestment Plan, the July 2014 Share
Purchase Plan, the 2016 Share Purchase Plan, on-market purchase, and/ 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.
44
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
22. Parent Company Information
Information relating to the parent entity of the Group, BKI Investment Company Limited:
2016
$’000
2015
$’000
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Reserves
Total shareholders’ equity
72,335
59,409
1,099,808 1,069,620
1,172,143 1,129,029
1,416
282,338
283,754
652,562
192,713
845,275
803
299,629
300,432
718,221
153,510
871,712
Net operating profit
Total other comprehensive income
41,968
(40,402)
42,973
4,439
The parent company has no contingent liabilities as at 30 June 2016.
23. Capital and Leasing Commitments
The Group has no capital and leasing commitments as at 30 June 2016.
24. Auditors’ Remuneration
Remuneration of the auditor of the parent entity for auditing the financial report
of the Parent and the controlled entities
24
23
25. Contingent Liabilities
The Group has no contingent liabilities as at 30 June 2016.
26. Authorisation
The financial report was authorised for issue on 19 July 2016 by the Board of Directors.
45
2016 Annual ReportBKI 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 22 to 45, 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 2016 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 2016.
This declaration is made in accordance with a resolution of the Board of Directors.
Robert D Millner
Director
Sydney
19 July 2016
46
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
47
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED INDEPENDENT AUDITOR’S REPORT (continued)
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
48
2016 Annual ReportBKI INVESTMENTCOMPANY LIMITED AUDITOR’S INDEPENDENCE DECLARATION
49
2016 Annual ReportBKI INVESTMENT COMPANY LIMITED ASX ADDITIONAL INFORMATION
1)
Equity Holders
At 30 June 2016 there were 14,358 holders of ordinary shares in the capital of the Parent. These holders were
distributed as follow:
Number of shares held
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Number of shareholders
947
1,957
2,116
8,438
900
14,358
521
Holding less than a marketable parcel of 316 shares
The 20 largest holdings of the Parent’s share as at 30 June 2016 are listed below:
Name
Number of shares held
%
Washington H Soul Pattinson and Company Limited
61,759,383
10.32
Huntley Group Investments Pty Ltd
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