BKI INVESTMENT
COMPANY LIMITED
2017
ANNUAL
REPORT
For year ended 30 June 2017
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
Investment Manager
Contact Asset Management Pty Limited (Contact)
AFSL Licence No: 494045
BKI Portfolio Managers appointed by Contact
Tom Millner
Will 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
2017 Annual Report
BKI INVESTMENT COMPANY LIMITED
Contents
Page
Financial Highlights
List of Securities as at 30 June 2017
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
11
21
22
23
24
25
26
45
46
50
51
1
2017 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 2017
$’000
June 2016
$’000
Up
1.4%
Up 256.8%
Up
7.6%
Up
1.5%
Up 256.8%
Up
Up
8.0%
8.0%
to
to
to
to
to
to
to
44,462
3,861
48,323
from 43,833
from
1,082
from 44,915
41,787
3,861
from 41,170
from
1,082
45,648
45,648
from 42,252
from 42,252
Total portfolio value (including cash & receivables)
Up
7.7%
to
998,617
from 926,993
n Earnings per share (EPS)
Basic EPS before special dividend income
Basic EPS after special dividend income
Down
Up
3.2%
3.0%
to
to
Cents
6.93
7.57
from
from
Cents
7.16
7.35
n Dividends
Interim
Final
Full year total
Steady
Up
Up
at
to
to
1.4%
0.7%
3.60
3.70
7.30
from
from
from
3.60
3.65
7.25
n Dividend History (cents per share):
30 June
2004* 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Interim
Final
Special
Total
- 2.10 2.50 2.60 3.00 3.00 2.50 3.00 3.20 3.25 3.45 3.55 3.60 3.60
2.00 2.20 2.50 2.70 3.00 3.00 2.75 3.00 3.20 3.40 3.50 3.65 3.65 3.70
-
- 1.00
-
-
- 1.00 1.00
- 0.50
-
-
-
2.00 4.30 6.00 5.30 6.00 6.00 6.25 7.00 6.40 7.15 6.95 7.20 7.25 7.30
* The Company listed on the ASX on 12 December 2003, no interim dividend was declared for this financial year.
All ordinary and special dividends paid by BKI Investment Company Limited (“BKI”) since listing on the Australian
Stock Exchange have been fully franked.
2
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
Securities Held and their Market Value as at 30 June 2017
Number of
Shares
Held
Market
Value
($’000)
Portfolio
Weight
%
Financials
Commonwealth Bank
National Australia Bank
Westpac Banking Corporation
ANZ Banking Group
IAG Limited
Macquarie Group
ASX Limited
Challenger Limited
Suncorp Group
IOOF Holdings
Perpetual Limited
AMP Limited
Milton Corporation
Bank of Queensland
National Australia Bank Convertible Notes
National Australia Bank Preference Notes
Equity Trustees
Westpac Banking Corporation Convertible Notes
BT Investment Management
Industrials
Transurban Group
Sydney Airport
Qube Holdings
Brambles Limited
Seek Limited
Lindsay Australia
Boral Limited
Consumer Staples
Wesfarmers Limited
Woolworths Limited
Coca Cola Limited
Amcor Limited
Graincorp Limited
Telecommunications
Telstra Corporation
TPG Telecom
1,125,434
2,709,826
2,262,015
1,560,624
3,157,370
230,370
375,500
1,485,000
1,196,094
1,174,094
181,751
1,872,946
2,103,640
810,000
40,000
39,775
185,054
20,000
123,185
2,593,205
3,395,427
5,111,664
1,045,576
537,500
17,141,631
188,452
1,038,602
1,050,244
1,233,894
115,000
93,444
9,234,451
5,017,814
93,197
80,184
69,014
44,821
21,407
20,388
20,131
19,810
17,726
11,506
10,154
9,721
9,487
9,275
4,090
4,018
3,277
2,060
1,402
9.32
8.02
6.91
4.49
2.14
2.04
2.02
1.98
1.78
1.15
1.02
0.97
0.95
0.93
0.41
0.40
0.33
0.21
0.14
451,667
45.21
30,729
24,074
13,444
10,173
9,089
6,428
1,310
95,247
41,669
26,823
11,389
1,864
885
82,630
39,708
28,602
68,310
3.08
2.41
1.35
1.02
0.91
0.64
0.13
9.54
4.17
2.69
1.14
0.19
0.09
8.28
3.98
2.86
6.84
3
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
Securities Held and their Market Value as at 30 June 2017
(continued)
Utilities
APA Group
AGL Energy Limited
Consumer Discretionary
Invocare Limited
ARB Corporation
Tatts Group Limited
Flight Centre
Health Care
Sonic Healthcare
Ramsay Healthcare
Primary Healthcare
Regis Healthcare
Ansell Limited
Energy
New Hope Corporation
Woodside Petroleum Limited
Caltex Australia
Santos Limited
Materials
BHP Billiton
Brickworks Limited
Property Trusts
Lend Lease
Westfield Corporation
Scentre Group
TOTAL PORTFOLIO
Investment Portfolio
Trading Portfolio
Total Portfolio
Cash and dividends receivable
Total Investment Assets
Number of
Shares
Held
Market
Value
($’000)
Portfolio
Weight
%
3,659,452
1,250,708
1,358,474
945,447
2,489,000
270,000
822,031
264,500
2,484,500
650,428
87,130
14,815,952
525,802
151,950
615,292
724,822
436,209
350,035
233,157
290,514
33,557
31,893
65,450
19,970
14,853
10,404
10,341
55,568
19,910
19,466
9,044
2,556
2,068
53,044
22,668
15,707
4,803
1,864
45,042
16,874
6,015
22,889
5,828
1,872
1,177
8,877
948,724
946,190
2,534
948,724
49,893
998,617
3.36
3.19
6.55
2.00
1.49
1.04
1.04
5.57
1.99
1.95
0.91
0.26
0.21
5.32
2.27
1.57
0.48
0.19
4.51
1.69
0.60
2.29
0.58
0.19
0.12
0.89
95.00
94.73
0.27
95.00
5.00
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 2017. The Group is not a substantial shareholder in
any other investee corporation as each equity investment represents less than 5% of the issued capital of the
investee corporation.
4
2017 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 commencing 12 December 2003.
Corporate Objectives
The Group aims to generate an increasing income stream for distribution to shareholders in the form of fully
franked dividends to the extent of available imputation tax credits, through long-term investment in a portfolio of
assets that are also able to deliver long term capital growth to shareholders.
Investment Strategy
The Group’s investment strategy focuses on investing in well managed companies, with a profitable history and
that offer attractive dividend yields. The strategy, implemented by Contact Asset Management, incorporates
bottom up stock selection, focusing on the merits of individual companies rather than market and economic
trends.
Dividend Policy
Having 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
From 1 November 2016 the portfolio management and advisory function of BKI was externalised to Contact
Asset Management Pty Ltd (“Contact”). Contact is majority owned by Mr Tom Millner and Mr Will Culbert, the
former CEO and Portfolio Manager respectively of BKI, with the remaining 20% owned by Washington H Soul
Pattinson and Company Limited. The BKI Board of Directors and Investment Committee have continued to
perform their current functions, and in particular, continue to meet regularly to review the portfolio and set the
investment strategy of BKI. Incorporating the investment management services of Contact, BKI will ensure it
maintains the disciplined adherence to its long standing and successful investment philosophy.
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
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS
Dear Shareholders,
I am pleased to enclose the 14th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2017.
Result Highlights
BKI’s Net Operating Result before special investment revenue increased from $41.2m to $41.8m, while the Net
Profit Attributable to Shareholders increased 8% to $45.6m.
The BKI Board has declared a Final Dividend of 3.70cps, up from the 3.65cps Final Dividend paid last year. This
dividend will be fully franked, like all previous BKI dividends paid to shareholders. BKI’s Retained Profits as at 30
June 2017 totalled $47.4m prior to the declaration of this dividend.
BKI’s Net Operating Result of $41.8m 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.
BKI received $3.9m in special dividend income from participating in the Telstra Corporation off market buy back.
This compares to $1.1m of special dividends received last year.
Dividends
A fully franked Final Ordinary Dividend of 3.70cps was declared, bringing the total 2017FY dividend to 7.30cps,
representing a 96% pay-out ratio on BKI’s Net Profit. As at 30 June 2017, BKI’s fully franked dividend yield was
4.5% (based on the immediate past 12 Month rolling dividend and share price of $1.62), while the grossed up
yield was 6.4% (assumes a tax rate of 30%).
BKI has been listed since December 2003, and during this time, the Company has paid a total of $465m or
85.1cps in dividends to BKI shareholders, including five fully franked Special Dividends passed on to shareholders.
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
7.30
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
2017
Ordinary Dividends
Special Dividends
Above: Fully franked Interim and Final dividends declared (cents per share)
The last trading date to be eligible for the Final Dividend is Thursday 3 August 2017. Key dates for the Fully
Franked Final Dividend are as follows:
Event
Last trading date to be eligible for the Final Dividend
Ex-Dividend Date
Record Date
DRP Nomination
Payment Date
Date
Thursday 3 August 2017
Friday 4 August 2017
Monday 7 August 2017
Tuesday 8 August 2017
Wednesday 23 August 2017
6
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED CHAIRMAN’S ADDRESS (continued)
Dividend Reinvestment Plan (DRP)
BKI’s 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 7 August 2017).
Externalised Management
On 26 September 2016 BKI announced that the management of its investment portfolio would be externalised
from 1 November 2016. The portfolio management and advisory function has been assumed by Contact Asset
Management Pty Ltd (“Contact”), a new investment management company majority owned by Mr Tom Millner
and Mr Will Culbert, the former CEO and Portfolio Manager respectively of BKI. Mr Millner and Mr Culbert each
own 40% of Contact, with the remaining 20% owned by Washington H Soul Pattinson and Company Limited.
The BKI Board of Directors and Investment Committee has continued to perform their functions, and in particular,
have continued to meet regularly to review the portfolio and set the investment strategy of BKI. Along with the
investment management services of Contact we have ensured that our disciplined adherence to BKI’s long
standing and successful investment philosophy has been maintained.
We have ensured continued alignment of the Management team through a long-term, Investment Management
Agreement (“IMA”) and through the existing BKI shares already held by the principals of Contact. The IMA was
negotiated on behalf of BKI by an Independent Board Committee comprising David Hall, Alex Payne and Ian
Huntley. The key terms of the IMA can be found on the BKI website www.bkilimited.com.au
We have preserved BKI’s low MER by locking in a long term Management Fee of only 0.10% with no Performance
Fee charged to BKI shareholders. Two new Investment Analysts have been employed at Contact, they are due
to commence in July and September.
Board of Directors
Investment Committee
Investment
Manager
Cash
Australian
Equities
Above: Organisational chart of BKI Investment Company with Contact as Investment Manager
7
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued)
Management Expense Ratio (MER)
BKI’s Board & Portfolio Managers are shareholders in BKI. We invest for the long term and do not charge excessive
external portfolio management or any performance fees. We focus on creating wealth for all shareholders by
keeping costs low and increasing fully franked dividends and capital growth.
BKI’s MER as at 30 June 2017 was 0.15%, down from 0.16% reported at 30 June 2016.
Based on an investment of $10,000 in BKI.ASX and using BKI’s 13 year Total Shareholder Return of 11.2%pa,
you can see from the chart below the significant difference that a low MER can make to a shareholders returns.
Over a 13-year period the management fee to the shareholder charging 0.15% is $691, compared to a fee
of $8,355 from an investment product charging the shareholder 2.00%. At BKI we will always be focused on
keeping costs low.
$691
0.15%pa
MER
$4,405
1.0%pa
MER
$8,355
2.0%pa
MER
$39,061
$35,348
$31,397
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
0.15% p.a. MER
1.0% p.a. MER
2.0% p.a. MER
Income to the Shareholder
Management + Admin Fees
Above: 11.2% return p.a. over 13 years, based on $10k investment in BKI.ASX
Performance
BKI’s Total Shareholder Return including franking credits for the year to 30 June 2017 was 9.3%, compared
to the S&P/ASX 300 Accumulation Index, which returned 15.5% over the same period. BKI’s 13 year Total
Shareholder Return including franking credits was 11.2% per annum as at 30 June 2017, compared to the S&P/
ASX 300 Accumulation Index, which returned 10.1% per annum over the same period.
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 2017 was positive 9.1%.
The performance figures above exclude the value of franking credits which have been passed on by BKI to its
shareholders. The following chart shows BKI’s Total Shareholder Returns including Franking Credits. The S&P/
ASX 300 Accumulation Index has been franked to 80%.
BKI’s Total Shareholder Returns including Franking Credits for 5 years, 10 years and 13 years has delivered
14.1% per annum, 7.8% per annum and 11.2% per annum respectively.
8
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED CHAIRMAN’S ADDRESS (continued)
20.0%
15.0%
15.5%
10.0%
9.3%
5.0%
0.0%
14.1%
13.3%
12.6%
10.6%
11.2%
10.1%
8.2%
5.8%
7.8%
5.2%
1 Year
3 Years pa
5 Years pa
7 Years pa
10 Years pa
13 Years pa
BKI Total Shareholder Returns
S&P/ASX 300 ACC INDEX
Above: BKI Total Shareholder Returns Including Franking Credits as at 30 June 2017
Portfolio Movements
BKI’s total net investment over FY2017 was approximately $54m, with major long term investments made in
companies including; Flight Centre, Sydney Airport, Telstra Corporation, Sonic Healthcare, Challenger Limited,
Lend Lease, IOOF Group, Macquarie Group, Transurban Group and TPG Telecom.
The main disposals from BKI’s investment portfolio included Fairfax Media, Crown Resorts, Programmed
Maintenance and Salmat Limited. BKI also disposed of half of the BHP Billiton position and participated in the off
market buy back by Telstra Corporation.
Stock
1
2
3
4
5
6
7
8
9
10
11
12
13
Commonwealth Bank
National Australia Bank
Westpac Banking Corp
ANZ Banking Group
Wesfarmers Limited
Telstra Corporation
APA Group
AGL Energy Limited
Transurban Group
TPG Telecom
Woolworths Limited
Sydney Airport
New Hope Corporation
% of Total
Portfolio
Stock
% of Total
Portfolio
9.3%
8.0%
6.9%
4.5%
4.2%
4.0%
3.4%
3.2%
3.1%
2.9%
2.7%
2.4%
2.3%
14
15
16
17
18
19
20
21
22
23
24
25
IAG Limited
Macquarie Group
ASX Limited
Invocare Limited
Sonic Healthcare
Challenger Limited
Ramsay HealthCare
Suncorp Group
BHP Billiton
Woodside Petroleum
ARB Corporation
Qube Holdings
Cash and cash equivalents
2.1%
2.0%
2.0%
2.0%
2.0%
2.0%
1.9%
1.8%
1.7%
1.6%
1.5%
1.3%
5.0%
Total of Top 25 including cash and cash
equivalents
83.8%
9
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED CHAIRMAN’S ADDRESS (continued)
Share Sale Agreements
During FY2016 and FY2017 BKI completed the acquisition of four unlisted investment company’s with net assets
of approximately $36m. The portfolios acquired were a strong fit with BKI’s existing portfolio. An investment in
BKI will now provide the vendors with administration simplicity as well as access to a low cost diversified equity
portfolio, increasing fully franked dividend distributions and capital growth.
Share Purchase Plan
BKI announced on 22 June 2017 that it had raised $21.2m under its 2017 Share Purchase Plan (SPP). BKI
Shareholders were given the opportunity to purchase shares up to a maximum value of $15,000 at $1.58 per
share. The offer was once again attractive for shareholders giving them the opportunity to purchase new shares
without paying brokerage plus being eligible for the 3.70cps final dividend declared today by the Company in
respect of the 2017 financial year.
Outlook
The S&P/ASX 300 Index generated very strong returns in FY2017. These returns have been driven by Australian
investors continuing their search for yield, investing in sectors like Diversified Financials and the Banks, returning
28% and 22% respectively over the year.
The official cash rate has been 1.50% for 11 months now and provided there is no change to jobs growth
or consumer spending, we believe that Australia’s historically low interest rate environment will continue into
FY2018. This situation will continue to encourage investors into equity markets and in particular into stocks that
are offering attractive and sustainable dividend yields.
The BKI portfolio is well placed for the long-term and remains in a strong financial position with no debt, and cash
and cash equivalents representing approximately 5% of the portfolio.
Yours sincerely,
Robert Millner
Chairman
10
2017 Annual ReportBKI INVESTMENTCOMPANY 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 2017.
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)
Former listed company directorships within the last three years:
K Hunter Hall Global Value Limited (appointed 2017, resigned 2017)
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
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
11
2017 Annual ReportBKI INVESTMENT COMPANY 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 was Chief Financial Officer of Brickworks Limited
for 13 years and has considerable experience in finance and investment.
Special Responsibilities:
K Member of the Audit Committee
K Member of the Investment Committee
K Member of the Nomination 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 (resigned 31 October 2016)
Mr Millner joined the Company in December 2008 and has been responsible for the management of BKI’s
Investment Portfolio from this time. Prior to this Mr Millner held various roles with Souls Funds Management
covering research, analysis and business development, and during this time was responsible for the Investment
Portfolio of BKI. Effective 1 November 2016 BKI externalised the management of its Investment Portfolio to
Contact Asset Management Pty Limited. From this date Mr Millner ceased being CEO of BKI and commenced
management of the BKI Investment Portfolio as Portfolio Manager.
Mr Millner is currently a non-executive director of Washington H Soul Pattinson and Company Limited and New Hope
Corporation Limited, and was previously a non-executive director of PM Capital Global Opportunities Fund Limited.
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 URB Investments Limited (ASX: URB), 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
2017, 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 10
11
AJ Payne
DC Hall
11
IT Huntley 10
10
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
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 2016. Mr AJ Payne was not a member of the Committee at this time as
he was scheduled for re-election as a Director under the Company’s Director rotation policy. Subsequent to being re-elected as a Director
at the 2016 AGM, Mr AJ Payne was reappointed to the Nomination Committee, and Mr DC Hall resigned from the Committee as he is due
for re-election as a Director at the 2017 AGM.
12
2017 Annual ReportBKI INVESTMENTCOMPANY 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 1.5% to $41.8m (2016: $41.2m),
supported by increased dividends from AGL Energy, APA Group, Transurban Limited, Macquarie Group, Sydney
Airports, TPG Telecom and Ramsay Healthcare. Lower dividends received from BHP Billiton, Woolworths Limited,
Woodside Petroleum, ANZ Banking Group and Primary Healthcare negatively impacted the result. Revenues from
bank deposits and investments held for trading were again lower than the corresponding period.
BKI received $3.9m in special dividend income from participating in the Telstra Corporation off market buy back.
This compares to $1.1m of special dividends received in 2016FY.
BKI’s Total Shareholder Return including franking credits for the year to 30 June 2017 was 9.3%, compared
to the S&P/ASX 300 Accumulation Index which returned 15.5% over the same period. BKI’s 13 year Total
Shareholder Return including franking credits was 11.2% per annum as at 30 June 2017, compared to the S&P/
ASX 300 Accumulation Index which returned 10.1% per annum over the same period.
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 2017 was positive 9.1%.
6. Review of Operations
Operating expenses of $1.51m were in line with the previous year (2016: $1.48m). This, combined with an
increase in the average Total Portfolio Value during the year, lowered BKI’s MER to 0.15% (2016: 0.16%).
BKI’s net investment during FY2017 was approximately $54m, with major long term investments made in
companies including; Flight Centre, Sydney Airport, Telstra Corporation, Sonic Healthcare, Challenger Limited,
Lend Lease, IOOF Group, Macquarie Group, Transurban Group and TPG Telecom. The main disposals from
BKI’s investment portfolio included Fairfax Media, Crown Resorts, Programmed Maintenance and Salmat
Limited. BKI also disposed of half of the BHP Billiton position and participated in the off market buy back by
Telstra Corporation.
During the year BKI completed the acquisition of one unlisted investment company with net assets of $4.2m. The
portfolio acquired was a strong fit with BKI’s existing portfolio. BKI has now completed five transactions of this
nature, 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 to $940m (2016: $880.0m). The acquisition of one
unlisted investment entity increased assets by $4.2m during the year, the SPP in June 2017 increased funds by
an additional $21.2m, and the market value of the investment portfolio increased $37m.
8. Employees
The Group had no employees as at 30 June 2017 (2016: two).
9. Significant Changes in the State of Affairs
Other than as stated in this Director’s Report and in the accompanying Financial Report, there were no significant
changes in the state of affairs of the Group during the reporting year.
13
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued)
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 2017:
K On 26 August 2016, a final total dividend of $21,842,342 (ordinary dividend of 3.65 cents per share fully
franked) was paid out of retained profits at 30 June 2016.
K On 27 February 2017, an interim total dividend of $21,710,468 (ordinary dividend of 3.60 cents per share,
fully franked) was paid out of retained profits at 31 December 2016.
In addition, the Directors declared a final ordinary dividend of 3.70 cents per share fully franked payable on
23 August 2017.
At 30 June 2017 there are $15,676,205 of franking credits available to the Group (2016: $15,714,362) 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 2017, 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.
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.
14
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED DIRECTORS’ REPORT (continued)
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 2017, 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 2017 is on page 50.
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
J Pinto
Number of Shares
8,083,574
2,306,820
355,366
11,224,980
108,320
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.
During the year the Company externalised its investment management function to Contact Asset Management
Pty Limited. As part of this process the employment of the CEO, Mr Thomas Millner and the Portfolio Manager,
Mr William Culbert, terminated effective 31 October 2016.
During the period to 31 October 2016 Mr Thomas Millner was classified as Key Management Personnel and Mr
William Culbert was classified as an Other Key Executive.
Mr Jaime Pinto, the Company Secretary, is classified as Key Management Personnel.
Remuneration Policy
The Board is responsible for determining and reviewing remuneration arrangements, including performance
incentives, for the Directors themselves and the Company Secretary, and previously for the Chief Executive Officer
and the Portfolio Manager. 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.
15
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED DIRECTORS’ REPORT (continued)
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 previously established the BKI Incentive Scheme to form part of the remuneration packages of the
Group’s executive team.
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.
As at 1 July 2016, the participants in the BKI Incentive Scheme were Mr Thomas Millner, the CEO, Mr William
Culbert, the Portfolio Manager, and Mr Jaime Pinto, the Company Secretary. The employment of Mr Thomas
Millner and Mr William Culbert was terminated effective 31 October 2016. In accordance with their Deeds of
Termination, all unvested incentives previously allocated to Mr Millner and Mr Culbert under the BKI Incentive
Scheme were forfeited. Therefore, at the date of this report the only participant in the BKI Incentive Scheme is
Mr Jaime Pinto.
To achieve the objectives of BKI, the Incentive Scheme is required to include several components with separate
measurement criteria.
16
2017 Annual ReportBKI INVESTMENTCOMPANY 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 the 2017FY the value of the Short Term Incentive for the CEO was calculated as 20% of CEO Base
Remuneration, the value of the Short Term Incentive for the Portfolio Manager was calculated as 15% of Portfolio
Manager Base Remuneration, and the Short Term Incentive for the Company Secretary was set at 40% of the
CEO Incentive. The CEO and Portfolio manager subsequently forfeited their entitlement to the 2017FY Short
Term 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 2017 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
9.1%
13.8%
(4.7%)
Nil
The vesting criteria for the 2017 Financial Year Short Term Incentives were therefore not satisfied, and the
Company did not award any short term incentives in respect of 2017 Financial Year Short Term incentives.
Long Term Incentive
The Long Term Incentive is determined by reference to annual Total Shareholder Returns; compared to the S&P/
ASX 300 Accumulation Index. Total Shareholder Returns are based on the change in BKI Share Price and include
the reinvestment of dividends.
For the year ended 30 June 2017, the CEO’s Long Term Incentive was calculated on 30% of the Base
Remuneration of the CEO, the Portfolio Manager’s Long Term Incentive was calculated as 20% of Portfolio
Manager Base Remuneration, and the Company Secretary’s Long Term Incentive was set at 40% of the CEO
Long Term Incentive and subject to the same vesting conditions. The CEO and Portfolio Manager subsequently
forfeited their entitlement to the 2017FY Long Term Incentive, and to all unvested Long Term Incentives issued
in respect of previous years.
17
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
All outstanding Long Term Incentives granted are to be awarded to participants 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. The
Company has accrued as an expense the appropriate portion of these future costs in the 2017 financial year. The
Company reversed prior year accruals previously recognised in respect of unvested Long Term Incentives of the
CEO and Portfolio Manager, creating a negative expense in the 2017 financial year. These positive and negative
expenses have been included in the disclosed remuneration of the CEO and Company Secretary.
During the 2017 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 2014
01/07/2013 21,998
$30,600 30/06/2017 30/06/2018
21,998
-
The table below summarises the performance for the 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
1/07/2013 to 30/06/2017
7.9%
9.2%
(1.3)%
nil
Based on the above performance the vesting criteria for Long Term Incentives issued on 1 July 2013 were not
satisfied. In accordance with the terms of the Long Term Incentive Scheme, these incentives will be retested
as at 30 June 2018.
No outstanding Long Term Incentives granted by the Company became eligible for vesting between 1 July 2017
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
J Pinto 2014
01/07/2013 21,998
$30,600 30/06/2017 30/06/2018
J Pinto 2015
01/07/2014 18,545
$30,600 30/06/2018 30/06/2019
J Pinto 2016
01/07/2015 18,628
$31,500 30/06/2019 30/06/2020
J Pinto 2017
01/07/2016 24,030
$37,800 30/06/2020 30/06/2021
-
-
-
-
21,998
18,545
18,628
24,030
Rights granted under the Short Term and a Long Term Incentive Scheme do not carry an entitlement to receive
dividends.
18
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
DIRECTORS’ REPORT (continued)
Remuneration Details for the Year to 30 June 2017
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 AM
AJ Payne
IT Huntley
TCD Millner
JP Pinto1
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer (resigned 31 October 2016)
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:
2016
RD Millner
DC Hall
AJ Payne
IT Huntley
Total
2017
RD Millner
DC Hall
AJ Payne1
IT Huntley
Total
Primary
Fee
$
63,699
49,315
40,297
40,297
193,608
65,205
50,411
19,697
41,164
176,477
Superannuation
$
6,051
4,685
3,828
3,828
18,392
6,195
4,789
25,378
3,911
40,273
Total
$
69,750
54,000
44,125
44,125
212,000
71,400
55,200
45,075
45,075
216,750
1 – Includes salary sacrifice superannuation contributions
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
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
DIRECTORS’ REPORT (continued)
Other Key Management Personnel:
Fixed remuneration
Share based performance
related remuneration
Salary
$
Superannuation
$
Total
STI
$
LTI
$
Total
$
Total
Remuneration
2016
TCD Millner
J Pinto
295,692
-
19,308
-
315,000
-
Total
295,692
19,308
315,000
2016
TCD Millner
J Pinto
98,564
-
Total
98,564
6,539
-
6,539
105,103
-
105,103
-
-
-
-
-
-
75,132
31,178
75,132
31,178
390,132
31,178
106,310
106,310
421,310
(117,283)
(616)
(117,283)
(616)
(12,180)
(616)
(117,899)
(117,899)
(12,796)
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
2017
2016
2017
2016
TCD Millner
(863)%
80.7%
J Pinto
0%
0%
0%
0%
0%
0%
2017
963%
100%
2016
19.3%
100%
There were no retirement allowances provided for the retirement of Non-Executive Directors or Other Key
Management Personnel.
Contract of Employment
Mr J 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
18 July 2017
20
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2017
Ordinary revenue from investment portfolio
Revenue from bank deposits
Other income
Other gains
Income from operating activities before special investment
revenue
Operating expenses
Discount on acquisition of controlled entities, net of expenses
Operating result before income tax expense and special
investment revenue
Income tax expense
Note
2(a)
2(c)
2(d)
2(e)
2017
$’000
2016
$’000
43,398
41,738
656
5
403
1,155
-
940
44,462
43,833
3
(1,506)
(1,479)
188
114
43,144
42,468
4(a)
(1,357)
(1,298)
Net operating result before special investment revenue
41,787
41,170
Special investment revenue
2(b)
3,861
1,082
Net operating profit
45,648
42,252
Profit for the year attributable to members of the Company
45,648
42,252
Basic and diluted earnings per share before special dividend income
Basic and diluted earnings per share after special dividend income
6
6
6.93
7.57
7.16
7.35
2017
Cents
2016
Cents
This Income Statement should be read in conjunction with the accompanying notes
21
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Note
2017
$’000
2016
$’000
Profit for the year attributable to members of the Company
45,648
42,252
Other comprehensive income
Unrealised gains/ (losses) on investment portfolio
52,773
(48,470)
Deferred tax (expense)/ benefit on unrealised gains/ losses on
investment portfolio
Realised losses on investment portfolio
(15,832)
(14,840)
Tax benefit relating to realised losses on investment portfolio
4(a)
4,452
14,541
(9,244)
2,773
Total other comprehensive income
Total comprehensive income
26,553
(40,400)
72,201
1,852
This Statement of Other Comprehensive Income should be read in conjunction with the accompanying notes.
22
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
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
This Statement of Financial Position should be read in conjunction with the accompanying notes
Note
2017
$’000
2016
$’000
7
8
9
9
10
11
12
13
14
15
16
40,973
8,920
2,534
16
52,443
63,740
8,315
479
24
72,558
946,190
-
15,504
961,694
854,460
21
12,129
866,610
1,014,137
939,168
436
48
-
484
484
381
16
881
73,298
-
73,298
58,308
19
58,327
73,782
59,208
940,355
879,960
749,967
170,228
(27,228)
47,388
940,355
718,221
133,287
(16,840)
45,292
879,960
23
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital
Gains
Reserve
$’000
Retained
Profits
$’000
Total
Equity
$’000
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
Total equity at 1 July 2016
718,221
133,287
(16,840)
45,292
879,960
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 loss through other
comprehensive income
31,746
-
-
-
-
-
-
-
52,773
(15,832)
-
-
-
-
-
-
-
(43,552)
31,746
(43,552)
-
52,773
-
45,648
(15,832)
45,648
-
(10,388)
-
(10,388)
Total equity at 30 June 2017
749,967
170,228
(27,228)
47,388
940,355
This Statement of Changes in Equity should be read in conjunction with the accompanying notes
24
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2017
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
2017
$’000
2016
$’000
46,521
42,242
5
-
(1,602)
(1,474)
719
2,748
(2,370)
808
(1,373)
-
1,292
(1,881)
Net cash inflow from operating activities
17(a)
42,708
42,927
Cash flows from investing activities
Net cash from acquisition of controlled entities
Proceeds from sale of 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 outflow from financing activities
Net (decrease)/ increase in cash held
Cash at the beginning of the year
Cash at the end of the year
(12)
137
26,335
29,886
(75,796)
-
(43,451)
(9)
(49,473)
(13,437)
20,985
27,883
5(b)
(36,987)
(34,766)
(16,002)
(6,883)
(22,767)
22,607
63,740
40,973
41,133
63,740
7
This Cash Flow Statement should be read in conjunction with the accompanying notes
25
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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.
26
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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.
27
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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.
28
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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.
29
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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 2017 (“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 investments 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
Investment Management
Professional fees
Depreciation
Total operating expenses
30
2017
$’000
2016
$’000
37,394
2,012
3,992
37,220
1,431
3,087
43,398
41,738
3,861
1,082
656
1,155
5
-
214
189
403
1,027
(87)
940
48,323
44,915
385
4
251
669
190
7
376
13
930
-
153
7
1,506
1,479
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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% (2016: 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 provision
2017
$’000
2016
$’000
47,005
43,550
14,102
13,065
(12,377)
(11,491)
(265)
(51)
(52)
(195)
(34)
(47)
Net income tax expense on operating profit before net gains on investments
1,357
1,298
Net realised losses on investment portfolio
Tax calculated at 30% (2016: 30%)
Total tax benefit
(b) The components of tax expense comprise:
Current tax
Deferred tax
Prior year over provision
Total tax benefit
5. Dividends
(a) Dividends paid during the year
Final dividend for the year ended 30 June 2016 of 3.65 cents per
share (2015 final: 3.65 cents per share) fully franked at the tax rate
of 30%, paid on 26 August 2016
Interim dividend for the year ended 30 June 2017 of 3.60 cents per
share (2016 interim: 3.60 cents per share) fully franked at the tax
rate of 30%, paid on 27 February 2017
Total dividends paid
(14,840)
(9,244)
(4,452)
(2,773)
(3,095)
(1,474)
151
(3,194)
(52)
(3,095)
1,264
(2,691)
(47)
(1,474)
21,842
20,314
21,710
20,473
43,552
40,787
31
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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% (2016: 30%)
(d) Dividends declared after balance date
2017
$’000
2016
$’000
43,552
(6,565)
36,987
40,787
(6,021)
34,766
25,483
24,703
(9,807)
(8,989)
15,676
15,714
36,578
36,667
Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2017
of 3.70 cents per share fully franked at the tax rate of 30% (2016: final ordinary dividend of 3.65 cents per share
fully franked at the tax rate of 30%), payable on 23 August 2017, 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
45,648
42,252
41,787
41,170
45,648
42,252
2017
2016
No. (‘000) No. (‘000)
Weighted average number of ordinary shares used in calculating basic and
diluted earnings per share
602,860
574,631
Basic and diluted earnings per share before special dividend income
Basic and diluted earnings per share after special dividend income
2017
Cents
6.93
7.57
2016
Cents
7.16
7.35
32
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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 - Equity 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
2017
$’000
2016
$’000
8,973
32,000
15,740
48,000
40,973
63,740
8,829
32
28
31
8,920
8,091
184
(3)
43
8,315
2,534
479
946,190
854,460
948,724
854,939
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.
33
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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
2017
$’000
2016
$’000
252
21
15,231
371
121
11,637
15,504
12,129
Opening
balance
$’000
444
119
8,812
9,375
371
121
11,637
12,129
Credited/
(charged) to
statement of
comprehensive
income
$’000
Credited/
(charged)
to equity
$’000
Closing
balance
$’000
(165)
2
2,825
2,662
(175)
(100)
3,594
3,319
92
-
-
92
56
-
-
56
371
121
11,637
12,129
252
21
15,231
15,504
2017
$’000
2016
$’000
48
381
Transaction costs on equity issues
Accrued expenses
Realised capital tax losses
Balance as at 30 June 2016
Transaction costs on equity issues
Accrued expenses
Realised capital tax losses
Balance as at 30 June 2017
11. Current tax liabilities
Provision for income tax
34
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12. Deferred tax liabilities
The deferred tax asset balance comprises the following timing differences:
Revaluation of investments held
Unfranked dividends receivable and interest receivable
Total
Movements in deferred tax liabilities
2017
$’000
2016
$’000
72,576
722
57,710
598
73,298
58,308
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
Opening
balance
$’000
72,308
628
Balance as at 30 June 2016
72,936
(Credited)/
charged to
statement of
comprehensive
income
$’000
(Credited)/
charged
to equity
$’000
Closing
balance
$’000
-
(14,598)
57,710
(30)
(30)
-
598
(14,598)
58,308
Revaluation of investment portfolio
Unfranked dividends receivable
and interest receivable
598
Balance as at 30 June 2017
58,308
57,710
-
14,866
72,576
124
124
-
722
14,866
73,298
35
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
2017
$’000
2016
$’000
13. Share capital
(a) Issued and paid-up capital
618,463,068 ordinary shares fully paid (2016: 598,420,148)
749,967
718,221
(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
2017
2016
Number of
shares
$’000
Number of
shares
$’000
598,420,148
718,221
556,560,509
652,562
4,053,333
13,400,891
2,588,696
6,565
21,174
4,139
(131)
3,663,370
18,189,797
20,006,472
6,021
28,192
31,662
53,654
(216)
End of the financial year
618,463,068
749,967
598,420,148
718,221
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 2017 net debt was $Nil (2016: $Nil).
36
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
13. Share capital (continued)
(d) Acquisition of controlled entities
During the 2017FY the Company acquired 100% of the shares of one unlisted investment company (2016FY:
three acquisitions were made). The acquisition benefits 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 Company issued 2,588,696 new shares in BKI Investment Company Limited as consideration for the
acquisition in 2017FY, having a fair value of $4M. The acquisition resulted in BKI achieving a discount on
acquisition, which is not allocated against the assets of the company 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”.
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/losses
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 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
2017
$’000
2016
$’000
133,287
52,773
(15,832)
170,228
167,216
(48,470)
14,541
133,287
(16,840)
(10,369)
(10,388)
(27,228)
(6,471)
(16,840)
45,292
45,648
(43,552)
47,388
43,827
42,252
(40,787)
45,292
37
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
2017
$’000
2016
$’000
17. Notes to the statement of cash flows
(a) Reconciliation of cash flow from operating activities to net operating profit
Net operating profit
45,648
42,252
Non cash items:
- Expenses associated with acquisition of subsidiary
- Non-cash purchases of held for trading investments
- Depreciation & impairment of fixed assets
- Loss on disposal of fixed assets
- Unrealised (gain)/ loss 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
(188)
-
19
1
(189)
(606)
(1,865)
8
285
(44)
(34)
(333)
6
42,708
(114)
1,721
7
-
87
(445)
-
5
164
(2)
(1)
(607)
(140)
42,927
(i) Dividend reinvestment plan
Under the terms of the dividend reinvestment plan, $6,565,000 (2016: $6,021,000) of dividends were paid
via the issue of 4,053,333 shares (2016: 3,663,370).
(ii) Acquisition of controlled entities
During the year the Group acquired shares in one unlisted investment company via the issue of 2,588,696
new shares in BKI (refer Note 13 (d)).
38
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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 94% (2016: 91%) of total
assets.
As at 30 June 2017, 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 (2016: 5%);
and
- A movement of 7.7 cents per share in the net asset backing before provision for tax on unrealised
capital gains (2016: 7.1 cents).
The performance of the companies within the portfolio, both individually and as a whole, is monitored by the
Investment Committee and the Board.
BKI seeks to reduce market risk at the investment portfolio level by ensuring that it is not, in the opinion of the
Investment Committee, overly exposed to one Group or one sector of the market.
39
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
18. Management of Financial Risk (continued)
d. Market risk (continued)
At 30 June 2017, the spread of investments is in the following sectors:
Sector
Financials
Industrials
Consumer staples
Telecommunications Services
Utilities
Consumer discretionary
Health care
Energy
Materials
Property trusts
Total investments
Cash and dividends receivable
Total portfolio
Percentage of total investment
Amount
2017
%
45.21
9.54
8.28
6.84
6.55
5.57
5.32
4.51
2.29
0.89
95.00
5.00
2016
%
39.40
8.74
7.91
11.18
6.25
5.09
4.95
4.42
3.86
0.43
92.23
7.77
2017
$’000
451,667
95,247
82,630
68,310
65,450
55,568
53,044
45,042
22,889
8,877
948,724
49,893
2016
$’000
365,401
81,064
73,326
103,702
57,939
47,100
45,755
40,975
35,700
3,977
854,939
72,058
100.00
100.00
998,617
926,997
Securities representing over 5% of the investment portfolio at 30 June 2017 or 30 June 2016 were:
Company
Commonwealth Bank
National Australia Bank
Westpac Banking Corporation
Telstra Corporation
TPG Telecom
Percentage of total investment
Amount
2017
%
2016
%
9.3
8.0
6.9
4.0
2.9
8.8
7.4
7.2
5.5
5.7
2017
$’000
93,197
80,184
69,014
39,708
28,602
2016
$’000
81,991
68,330
66,503
51,104
52,598
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 2017 (2016: Nil).
40
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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.
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 (resigned 31 October 2016)
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 2017 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 2017FY (2016: nil).
41
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
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 2017, subsidiaries of the Parent were:
Country of incorporation
Percentage Owned (%)
2017
2016
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
Auburn Pty Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
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 2017 were:
Directors:
RD Millner
DC Hall, AM
AJ Payne
IT Huntley
Chief Executive Officer: TCD Millner (resigned 31 October 2016)
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 2017 were
$122,100 (2016: $122,100, including GST) and are at standard market rates. As at 30 June 2017 the Group
owed $10,175 to CAS (2016: Nil).
42
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
21. Related Party Transactions (continued)
(ii) Directors/Officers Related Entities (continued)
Pitt Capital Partners Limited
The Group appointed Pitt Capital Partners Limited (PCP), an entity in which Mr RD Millner and Mr TCD Millner
have an indirect interest, to act as Financial Advisor for the 2016 and 2017 Share Purchase Plans.
Fees payable to PCP for services provided to the Parent and controlled entities for the year to 30 June 2017
were $55,000 (2016: $49,500, including GST) and are at standard market rates. As at 30 June 2017 the Group
owed $55,000 to PCP (2016: Nil).
Contact Asset Management Pty Limited
Effective 1 November 2016, the Group appointed Contact Asset Management Pty Limited (Contact) as
Investment Manager. Contact is an entity in which Mr RD Millner has an indirect interest and Mr TCD Millner has
a direct interest.
Fees payable to Contact for services provided to the Parent and controlled entities for the year to 30 June 2017
were $718,149 including GST (2016: Nil) and are at standard market rates. As at 30 June 2017 the Group owed
$91,541 to Contact (2016: Nil).
(iii) Transactions in securities
Share Holdings
Aggregate number of listed securities of the Company held by Key Management Personnel (KMP) or their related entities:
2017
RD Millner1
DC Hall
AJ Payne
IT Huntley
TCD Millner1
J Pinto
Total
2016
RD Millner1
DC Hall
AJ Payne
IT Huntley
TCD Millner1,2
J Pinto
Total
Balance as at
1 Jul
Granted as
compensation
Net other
changes
Balance as at
30 Jun
Net movements Balance as at date
of Annual Report
post balance date
8,555,552
297,326
295,872
11,224,980
7,660,745
77,937
28,112,412
8,484,091
277,970
286,194
11,224,980
7,597,492
39,943
27,910,670
-
-
-
-
64,230
25,692
89,922
-
-
-
-
27,148
28,869
56,017
(330,618)
2,009,494
59,494
-
37,997
4,691
1,781,058
71,461
19,356
9,678
-
36,105
9,125
145,725
8,224,934
2,306,820
355,366
11,224,980
7,762,972
108,320
29,983,392
8,555,552
297,326
295,872
11,224,980
7,660,745
77,937
28,112,412
(141,360)
-
-
-
-
-
(141,360)
-
-
-
-
-
-
-
8,083,574
2,306,820
355,366
11,224,980
N/A
108,320
22,079,060
8,555,552
297,326
295,872
11,224,980
7,660,745
77,937
28,112,412
1 Common to RD Millner and TCD Millner as at 30 June 2017 are 7,289,287 shares (2016: 7,260,285) held in related companies and trusts
in which both hold beneficial interests.
2 Mr TCD Millner ceased to be a KMP on 31 October 2016. However, his shareholding as at 30 June 2017 has been disclosed.
43
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
(iii) Transactions in securities (continued)
Directors acquired shares through the Dividend Reinvestment Plan, the 2016 Share Purchase Plan, the 2017
Share Purchase Plan, and/ or on-market purchase.
Other Key Management Personnel acquired shares through the Dividend Reinvestment 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 KMP or their associated entities, being shareholders, are entitled to receive dividends.
2017
$’000
2016
$’000
22. Parent Company Information
Information relating to the parent entity of the Group, BKI Investment Company Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Reserves
Total shareholders’ equity
52,410
72,335
1,199,044 1,099,808
1,251,454 1,172,143
803
299,629
300,432
718,221
153,491
871,712
407
319,125
319,532
749,967
181,955
931,922
Net operating profit
Total other comprehensive income
45,466
26,551
41,968
(40,402)
The parent company has no contingent liabilities as at 30 June 2017.
23. Capital and Leasing Commitments
The Group has no capital and leasing commitments as at 30 June 2017.
24. Auditors’ Remuneration
Remuneration of the auditor of the parent entity for auditing the financial report
of the Parent and the controlled entities
24
24
25. Contingent Liabilities
The Group has no contingent liabilities as at 30 June 2017.
26. Authorisation
The financial report was authorised for issue on 18 July 2017 by the Board of Directors.
44
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED
DIRECTORS’ DECLARATION
The Directors of BKI Investment Company Limited declare that:
1.
the financial statements and notes, as set out on pages 21 to 44, 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 2017 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 2017.
This declaration is made in accordance with a resolution of the Board of Directors.
Robert D Millner
Director
Sydney
18 July 2017
45
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
46
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED INDEPENDENT AUDITOR’S REPORT (continued)
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
47
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED INDEPENDENT AUDITOR’S REPORT (continued)
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
48
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED INDEPENDENT AUDITOR’S REPORT (continued)
TO THE MEMBERS OF BKI INVESTMENT COMPANY LIMITED
49
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED AUDITOR’S INDEPENDENCE DECLARATION
50
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED ASX ADDITIONAL INFORMATION
1)
Equity Holders
At 30 June 2017 there were 14,769 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
1,044
2,019
2,095
8,659
952
14,769
587
Holding less than a marketable parcel of 308 shares
The 20 largest holdings of the Parent’s share as at 30 June 2017 are listed below:
Name
Number of shares held
Washington H Soul Pattinson and Company Limited
58,504,741
Huntley Group Investments Pty Ltd
J S Millner Holdings Pty Limited
GM Pty Limited (GM Family A/C>
Jeanneau Cloud Nine Pty Limited
I R McDonald Pty Limited
Nulis Nominees (Australia) Limited
Nibot Pty Limited
Netwealth Investments Limited
Navigator Australia Limited
Stuart Llewellyn Gwyn Morgan + Margaret Patricia Morgan
Huntley Group Investments Pty Ltd
HSBC Custody Nominees (Australia) Limited
Fennybentley Pty Limited
Farjoy Pty Limited
Stuart Llewellyn Gwyn Morgan
T N Phillips Investments Pty Limited
K C Perks Investments Pty Ltd
Donald Cant Pty Limited
Mr Peter Graydon Moppett
8,523,274
5,218,407
3,957,047
3,909,012
3,000,000
2,499,839
2,111,105
1,885,708
1,746,489
1,646,089
1,630,711
1,557,453
1,554,678
1,450,800
1,399,588
1,387,276
1,384,223
1,307,530
1,281,720
%
9.46
1.38
0.84
0.64
0.63
0.49
0.40
0.34
0.30
0.28
0.27
0.26
0.25
0.25
0.23
0.23
0.22
0.22
0.21
0.21
51
2017 Annual ReportBKI INVESTMENT COMPANY LIMITED ASX ADDITIONAL INFORMATION
Votes of Members
Article 5.12 of the Company’s Constitution provides
a)
b)
Subject to this Constitution and any rights or restrictions attached to a class of Shares, on a show of hands
at a meeting of Members, every Eligible Member present has one vote.
Subject to this Constitution and any rights or restrictions attached to a class of Shares, on a poll at a
meeting of Members, every Eligible Member present has:
(i) one vote for each fully paid up Share (whether the issue price of the Share was paid up or credited or
both) that the Eligible Member holds; and
(ii) a fraction of one vote for each partly paid up Share that the Eligible Member holds. The fraction is equal
to the proportion which the amount paid up on that Share (excluding amounts credited) is to the total
amounts paid up and payable (excluding amounts credited) on that Share.
2)
Substantial Shareholders
As at 30 June 2017 the name and holding of each substantial shareholder as disclosed in a notice received by
the Parent is:
Substantial Shareholders
Washington H Soul Pattinson & Company Limited1
Brickworks Limited2
Shares Held
%
58,595,247
58,595,247
9.68%
9.68%
1 Details included on substantial shareholder notice dated 11 April 2017. This does not agree to the holding of Washington H. Soul
Pattinson & Company Limited as at 30 June 2017
2 Details included on substantial shareholder notice dated 11 April 2017. Shares held by Brickworks Limited represent a technical
relevant interest as a result of Brickworks Limited’s shareholding in Washington H Soul Pattinson & Company Limited.
3) Other Information:
K There is no current on-market buy-back in place.
K There were 88 (2016: 121) transactions in securities undertaken by the Group and the total brokerage
paid or accrued during the year was $288,699 (2016: $174,744).
4) Management Expense Ratio:
The Management Expense Ratio (“MER”) is the operating expenses of the Group for the financial year, as shown
in the income statement, expressed as a percentage of the average total assets of the Group for the financial
year. The table below summarises the MER for each financial year ended 30 June.
2004 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0.69
0.71
0.56
0.46
0.46
0.31
0.19
0.18
0.18
0.19
0.17
0.18
0.16
0.15
5) Net Tangible Asset (NTA) History ($ per share):
30 June
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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 1.61
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 1.52
52
2017 Annual ReportBKI INVESTMENTCOMPANY LIMITED BKI INVESTMENT
COMPANY LIMITED
BKI INVESTMENT
COMPANY LIMITED