BKI INVESTMENT COMPANY LIMITED ABN: 23 106 719 868 Annual Report for the year ended 30 June 2019 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 Corporate Directory Directors Robert Dobson Millner Non-Executive Chairman David Capp Hall AM Independent Non-Executive Director Alexander James Payne Non-Executive Director Ian Thomas Huntley Independent Non-Executive Director Investment Manager Contact Asset Management Pty Limited Tom Millner Portfolio Manager Will Culbert Portfolio Manager Company Secretaries Jaime Pinto Larina Tcherkezian (Alternate) Registered Office Level 14, 151 Clarence Street Sydney NSW 2000 Telephone: (02) 9210 7000 (02) 9210 7099 Facsimile: Postal Address: GPO Box 5015 Sydney 2001 ii 2019 Annual Report Contents Financial Highlights List of Securities as at 30 June 2019 Group Profile Chairman’s Address Portfolio Manager’s Report Directors’ Report Consolidated Income Statement Consolidated Statement of Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Auditor’s Independence Declaration ASX Additional Information 2 3 5 6 10 13 23 24 25 26 27 28 47 48 51 52 1 2019 Annual Report BKI INVESTMENT COMPANY LIMITED Financial Highlights Revenue performance Total income – ordinary Special investment income Total income from ordinary activities Profits Operating result after tax – before special investment income net of applicable tax Special investment income net of applicable tax Net profit from ordinary activities after tax attributable to shareholders Net profit attributable to shareholders Portfolio Total portfolio value (including cash and receivables) Change Jun 2019 $’000 Jun 2018 $’000 up up up up up up up up 12.7% to to 54,254 27,977 from from 48,128 786 68.1% to 82,231 from 48,914 11.1% to to 49,150 25,550 from from 44,224 786 66.0% to 66.0% to 74,700 74,700 from from 45,010 45,010 4.4% to 1,234,262 from 1,182,036 Change Jun 2019 Cents Jun 2018 Cents Earnings per share (EPS) Basic EPS before special investment income and applicable tax Basic EPS after special investment income and applicable tax down up 4.9% to 41.9% to 6.75 10.26 Dividends Interim – Ordinary Interim – Special Final – Ordinary Final – Special Full Year Total steady up steady up up at to at to 34.1% to 3.625 1.500 3.700 1.000 9.825 from from from from from from from 7.10 7.23 3.625 0.000 3.700 0.000 7.325 10 Year Dividend History (cents per share) 30 June 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Interim Final Special Total 2.50 2.75 1.00 6.25 3.00 3.00 1.00 7.00 3.20 3.20 – 6.40 3.25 3.40 0.50 7.15 3.45 3.50 – 6.95 3.55 3.65 – 7.20 3.60 3.65 – 7.25 3.60 3.70 – 7.30 3.625 3.700 – 7.325 3.625 3.700 2.500 9.825 All ordinary and special dividends paid by BKI Investment Company Limited (“BKI”) since listing on the Australian Stock Exchange have been fully franked. 10 Year Net Tangible Asset (NTA) History ($ per share) 30 June 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NTA before tax NTA after tax 1.32 1.27 1.42 1.34 1.30 1.26 1.52 1.42 1.63 1.51 1.65 1.53 1.55 1.47 1.61 1.52 1.63 1.54 1.69 1.58 2 2019 Annual Report BKI INVESTMENT COMPANY LIMITED Financial Highlights (continued) List of Securities as at 30 June 2019 Financials Commonwealth Bank National Australia Bank Macquarie Group Westpac Banking Corporation ANZ Banking Group ASX Limited IAG Limited Magellan Financial Group Limited Suncorp Group Milton Corporation Challenger Limited Pendal Group Platinum Asset Management Equity Trustees Evans Dixon Industrials Transurban Group Sydney Airport Seek Limited Brambles Limited Lindsay Australia Reece Limited Boral Limited Consumer Discretionary Wesfarmers Limited Invocare Limited ARB Corporation Harvey Norman Holdings Limited Consumer Staples Woolworths Group Coles Group Amcor Treasury Estate Inghams Group Utilities APA Group AGL Energy Limited 2019 Annual Report Number of shares held Market value $’000 Portfolio weight % 992,432 2,509,175 489,770 2,076,403 1,560,624 397,750 3,443,445 383,500 1,196,094 2,103,640 1,485,000 1,093,185 1,238,000 185,054 2,050,000 3,697,584 4,560,427 537,500 500,576 17,141,631 488,835 554,952 1,129,102 1,638,974 945,447 2,542,777 1,428,744 1,129,102 500,250 451,844 1,340,000 4,894,714 1,483,708 82,154 67,045 61,412 58,887 44,025 32,763 28,443 19,559 16,111 9,908 9,860 7,816 6,004 5,478 1,640 6.66 5.43 4.98 4.77 3.57 2.65 2.30 1.58 1.31 0.80 0.80 0.63 0.49 0.44 0.13 451,105 36.54 54,502 36,666 11,374 6,447 5,914 4,771 2,841 122,515 40,828 26,207 17,207 10,349 94,591 47,478 15,073 8,099 6,742 5,387 82,779 52,863 29,689 82,552 4.42 2.97 0.92 0.52 0.48 0.39 0.23 9.93 3.31 2.12 1.39 0.84 7.66 3.85 1.22 0.66 0.55 0.44 6.72 4.28 2.41 6.69 3 Financial Highlights (continued) List of Securities as at 30 June 2019 (continued) Energy New Hope Corporation Woodside Petroleum Limited Caltex Australia Health Care Sonic Healthcare Ramsay Healthcare Regis Healthcare Telecommunications Telstra Corporation TPG Telecom Materials BHP Limited Brickworks Limited Property Trusts Goodman Group Limited Stockland LendLease Total Portfolio Investment portfolio Trading portfolio Total Portfolio Cash and dividends receivable Total Investment Assets Number of shares held Market value $’000 Portfolio weight % 14,815,952 1,010,802 131,824 960,899 514,000 1,807,428 9,234,451 4,819,251 1,342,481 436,209 945,000 1,225,000 513,535 40,151 36,753 3,263 80,167 26,040 37,131 4,754 67,925 35,553 31,036 66,589 55,257 7,106 62,363 14,203 5,108 6,676 25,987 3.25 2.98 0.26 6.49 2.11 3.01 0.39 5.51 2.88 2.51 5.39 4.48 0.58 5.06 1.15 0.41 0.54 2.10 1,136,573 92.09 – 1,136,573 97,689 – 92.09 7.91 1,234,262 100.00 The Group is a substantial shareholder in accordance with the Corporations Act 2001 of Lindsay Australia Limited, holding 5.83% of the issued capital as at 30 June 2019. 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 2019 Annual Report BKI INVESTMENT COMPANY LIMITED Group Profile BKI Investment Company Limited (“BKI” or “the Group”) is a Listed Investment Company on the Australian Stock Exchange. The Group invests in a diversified portfolio of Australian shares, trusts and interest bearing securities. BKI shares were listed on the Australian Stock Exchange Limited commencing 12 December 2003. Corporate Objectives The Group aims to generate an increasing income stream for distribution to shareholders in the form of fully franked dividends to the extent of available imputation tax credits, through long-term investment in a portfolio of assets that are also able to deliver long term capital growth to shareholders. Investment Strategy The Group is a research driven, long term manager focusing on well managed companies, with a profitable history and that offer attractive dividend yields. Stock selection is bottom up, focusing on the merits of individual companies rather than market and economic trends. Dividend Policy 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 prudent 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. Management The portfolio management and advisory function of BKI is performed by 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 meet regularly to review the portfolio and set the investment strategy of BKI. 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. 2019 Annual Report 5 Chairman’s Address Dear Shareholders, I am pleased to enclose the 16th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2019. During the year, BKI reached the milestone of trading on the ASX for 15 years, having listed in December 2003. Since that time, BKI has: p Grown its shareholder base from 7,832 in 2003 to almost 18,000; p Increased Total Assets from $171m to $1.3b; p Paid out over $640m to shareholders in Dividends and Franking Credits; p Distributed seven Fully Franked Special Dividends; and p Reduced the MER from 0.69% in 2003 to 0.17% in 2019. Result Highlights Investors’ chase for growth has continued, resulting in 2019 being a turbulent year for markets. The S&P/ASX 300 Accumulation Index increased by 11.4% over the year. However, it was a tale of two halves, with the market dropping 7.0% between July and December 2018, before rallying an incredible 19.8% between January and June 2019. We have been able to deliver another solid result for our shareholders in a market dominated by volatility and uncertainty. Net Operating Result before special investment revenue increased from $44.2m to $49.2m, an increase of 11%. Basic Earnings per Share before special investment revenue was 6.75cps compared to 7.10cps last year, as the number of issued shares increased significantly following the 2018 entitlement offer. Positive contributors to this result include increased dividends from Woodside Petroleum, New Hope Corporation, BHP Limited, Macquarie Group, Transurban Group, Sydney Airport and Lindsay Australia, while lower dividends from National Australia Bank, Telstra Corporation, Suncorp Group, Invocare Limited and LendLease Limited detracted from the result. Revenue from bank deposits continues to be low. BKI received $27.98m in Special Investment Income during 2019FY, compared to $0.8m in 2018FY. BKI received $4.35 million in special dividend income over the year from Telstra Corporation, QUBE Logistics, IAG Insurance, Suncorp Group, Woolworths Group, BHP Limited, Wesfarmers Limited and Milton Corporation, compared to $0.79 million of special dividends received in 2018. BKI also received special investment income totalling $15.54 million from off market buy-backs conducted by BHP Limited and Caltex Limited, and a further $8.09 million from a non-cash demerger dividend from Wesfarmers. This demerger dividend wasn’t paid in cash, but instead BKI was issued new shares in the newly listed Coles Group Limited. Total Shareholder Return including franking credits for the year to 30 June 2019 was 11.6%, compared to the S&P/ASX 300 Accumulation Index, which returned 13.5% over the same period. BKI has delivered a Total Shareholder Return including Franking Credits of 10.4% per annum over a 15 year period compared to the S&P/ASX 300 Accumulation Index, which returned 10.6%. 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 2019 was positive 9.4%. Dividends In the lead up to the Federal Election, we were overwhelmed by the level of angst in the investment community regarding Labor’s proposal to eliminate cash refunds of excess franking credits. In response to a possible change in franking credit policy, the Directors of BKI declared a Fully Franked Special Dividend of 1.50cps in the first half. The BKI Directors have also agreed to distribute to shareholders another Fully Franked Special Dividend of 1.00cps with the full year result. Including the two Special Dividends, the BKI Board has declared total dividends of 9.825cps in FY2019, up from 7.325cps paid last year. Like all previous dividends paid to shareholders, all FY2019 dividends are fully franked. Following payment of the 2019 dividends, BKI will have approximately $16.75m of imputation credits available for future dividends. 6 2019 Annual Report Chairman’s Address (continued) Dividend Key Dates The last trading date to be eligible for the FY2019 Final Dividend is Thursday 8 August 2019. 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 8 August 2019 Friday 9 August 2019 Monday 12 August 2019 Tuesday 13 August 2019 Thursday 29 August 2019 BKI’s Dividend Reinvestment Plan (DRP) offers shareholders the opportunity to acquire further ordinary shares in BKI. The DRP will not be offered at a discount. To obtain access to a DRP form please visit the following webpage: www.bkilimited.com.au/ dividend-reinvestment-plan/ Fully Franked Ordinary Dividends and Special Dividends declared by BKI (cents per share) e r a h s r e p s t n e C 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ordinary Dividends per Share Special Dividends per Share BKI focuses on investing for the long term in profitable, high yielding, well managed companies that ultimately deliver wealth for BKI shareholders, through an increasing fully franked dividend and capital growth. The chart below shows how powerful compounding can be by reinvesting the dividends that have been paid by BKI over the last 14 years. Dividends + Franking Credits received from a $10,000 investment in BKI at IPO versus Bank Quarterly Interest $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Dividend Income (including Franking Credits) Interest $2,776 $357 7 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Chairman’s Address (continued) In this example, an investor who spent the equivalent of $10,000 to purchase BKI shares upon listing in December 2003 and reinvested those dividends, would have received fully franked dividends of $1,943 in a rolling 12 month period. The franking credits enhance the income by a further $833 (total income of $2,776). The same investment in a term deposit (based on the cash rate + 0.50%) would be earning $357pa with no franking credits. 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 12 August 2019). Management Expense Ratio (MER) BKI’s MER as at 30 June 2019 was 0.17%. The Board & Portfolio Managers are shareholders in BKI, we invest for the long term and do not charge excessive external portfolio management fees or any performance fees. We focus on creating wealth for all shareholders by keeping costs low and increasing fully franked dividends and capital growth. Top 25 Investments Stock Commonwealth Bank 1 National Australia Bank 2 Macquarie Group 3 Westpac Banking Corp 4 BHP Limited 5 Transurban Group 6 APA Group 7 Woolworths Group 8 ANZ Banking Group 9 10 Wesfarmers Limited 11 12 13 Woodside Petroleum New Hope Corporation Ramsay Healthcare % of Total Portfolio 6.7% 5.4% 5.0% 4.8% 4.5% 4.4% 4.3% 3.8% 3.6% 3.3% 3.3% 3.0% 3.0% Stock Sydney Airport Telstra Corporation ASX Limited TPG Telecom AGL Energy Limited IAG Limited Invocare Limited Sonic Healthcare 14 15 16 17 18 19 20 21 22 Magellan Financial Group ARB Corporation 23 24 Suncorp Group 25 Coles Group Cash and cash equivalents Total of Top 25 including cash and cash equivalents % of Total Portfolio 3.0% 2.9% 2.7% 2.5% 2.4% 2.3% 2.1% 2.1% 1.6% 1.4% 1.3% 1.2% 7.9% 88.5% Outlook We believe the momentum in our equity market could continue to be driven by macro factors rather than company fundamentals. Yet these macro conditions are out of our control, and it is easy to get caught up in the negative. We expect there will be several periods of opportunity for long term investors in the year ahead and that patience will pay off. The recent chase for growth is just one segment of the market. As we see continued pressure on the official cash rate, many investors who rely on income will now become reluctant to invest further into cash products. We believe that this situation will continue to encourage investors into equity markets and in particular into stocks that are offering attractive and sustainable dividend yields. BKI is well placed to take advantage of this situation offering shareholders and potential future investors an attractive fully franked dividend yield. Using the 3.625cps interim dividend and 3.70cps final dividend, the BKI current dividend yield is 4.6%, grossed up to 6.5%, based on a tax rate of 30% and a share price of $1.60. Including the 1.00cps special dividend declared today, the BKI dividend yield increases to 5.2%, grossed up to 7.4%, assumes a tax rate of 30% and a share price of $1.60. 8 2019 Annual Report Chairman’s Address (continued) BKI is also well positioned with a portfolio of high quality dividend paying stocks. BKI’s cash represents approximately 8% of the portfolio and we have no debt. We will continue to ensure BKI achieves its goals of investing for the long term in profitable, high yielding, well managed companies. On behalf of my fellow Board members and the investment managers, I would like to thank you for your ongoing support of BKI and wish you all the very best for the year ahead. Robert Millner Chairman 9 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Portfolio Manager’s Report Dear Shareholders, Contact Asset Management, as the Portfolio Manager of BKI Investment Company, is pleased to include our report for FY2019. Market Commentary The momentum in our equity market continued to be driven by macro factors rather than company fundamentals. Over the last year, we have seen the conclusion of the Royal Commission into the Australian banking system, a devaluation of Australian house prices and worries over a global trade war escalation. We have also experienced important and meaningful outcomes in both State and Federal elections. In the last quarter of the financial year, concerns of a domestic and global growth slowdown are being confirmed with interest rate cuts. The Reserve Bank of Australia has now lowered the official cash rate to a new record low of 1.0%. It is the first back- to-back cut since 2012, aimed at underpinning employment growth and provide greater confidence to the consumer and the homeowner. Overall it has been an exciting 12 months, with the S&P/ASX 300 Index again generating very strong returns. The half-yearly reporting season ended with many good quality companies delivering stronger than expected results and company guidance that reflected more buoyant market conditions. Capital management initiatives were also front of mind, with many management teams having the confidence to focus on investing for the future. Announcements of share buybacks, acquisitions and general business investment have been driven by stronger balance sheets, strong cash flows and improved operational certainty. For long-term investors this is certainly a welcome change from achieving earnings growth simply through cost out programs. However, there are areas of concern that may influence the market direction during the August reporting season. We are concerned around a global growth slowdown. Many stocks in our market are trading on very high multiples and may not be supported by earnings growth when they provide the market with full year results. Portfolio Movements BKI’s total investments over FY2019 was approximately $190.0m, with disposals of approximately $76.6m. Major long term investments included; BHP Limited, Macquarie Group, Woodside Petroleum, Ramsay Healthcare, Woolworths Limited, Transurban Group, AGL Energy and APA Group. New portfolio positions established by BKI during the year include Coles Group, Platinum Asset Management, Magellan Financial Group, Stockland Group, Treasury Wine Estates and Reece Group. The main disposals from BKI’s investment portfolio included Flight Centre, IOOF Holdings, Perpetual Limited, Pact Group, QUBE Holdings, NABPA Preference Shares, NABPC Preference Shares, Ansell Limited, WBCPF Preference Shares and CBAPG Preference Shares. Performance BKI’s short-term performance has improved. Total Shareholder Return including franking credits for the year to 30 June 2019 was 11.6%, compared to the S&P/ASX 300 Accumulation Index, which returned 13.5% over the same period. BKI’s Total Shareholder Returns including Franking Credits for 15 years has delivered 10.4% per annum, compared to the S&P/ ASX 300 Accumulation Index, which returned 10.6% over the same period. 10 2019 Annual Report Portfolio Manager’s Report (continued) BKI Total Shareholder Returns (TSR) Including Franking Credits as at 30 June 2019 20.0% 15.0% 13.5% 11.6% 14.0% 10.0% 5.0% 0.0% 6.9% 5.8% 10.5% 11.6% 11.7% 10.4% 10.6% 1 Year 3 Yrs pa 5 Yrs pa 10 Yrs pa 15 Yrs pa BKI Total Shareholder Returns – 100% Franked S&P/ASX 300 ACC INDEX (XKOAI) – 80% Franked 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 2019 was 9.4% compared to the S&P/ASX 300 Accumulation Index, which returned 11.4% over the same period. There continues to be significant long-term value created by owning BKI shares. BKI focuses on investing for the long term in profitable, high yielding, well managed companies that ultimately deliver wealth for BKI shareholders, through an increasing fully franked dividend and capital growth. The chart below shows how powerful compounding can be by reinvesting the dividends that have been paid by BKI over the last 15 years. The Cumulative Value (TSR) of BKI shares since IPO in December 2003 (including franking credits and the reinvestment of dividends). $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 Dec ‘03 Dec ‘04 Dec ‘05 Dec ‘06 Dec ‘07 Dec ‘08 Dec ‘09 Dec ‘10 Dec ‘11 Dec ‘12 Dec ‘13 Dec ‘14 Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18 Dec ‘19 $4.33 11 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Portfolio Manager’s Report (continued) Investment Team Contact continues to invest in the team for future growth and opportunities. During the year, Contact Asset Management added four new members to the team. 1. Mr Rodney Forrest Senior Investment Analyst 2. Mr Jared Tilley Investment Analyst 3. Mr Charlie Kingston Investment Analyst / Equities Dealer 4. Mr Rob Horne Investment Analyst Mr Rodney Forrest – Prior to joining Contact, Rodney worked at Moelis Investment Bank on the Sales Trading desk. Rodney spent six years as Head of Finance at both Woolworths and Coles. Further experience has been the Principal Financial Analyst for NSW Treasury as well as roles at ALDI, Ernst & Young and the Australian Taxation Office. Rodney holds a Bachelor of Economics from the University of Sydney, Masters of Economics from Macquarie University, Diploma in Taxation from the University of NSW and a Research Doctorate from the University of Vienna. Mr Jared Tilley – Prior to joining Contact, Jared spent nine years at Colonial First State. Whilst at Colonial Jared had various roles across client services and distribution including Account Manager and Business Development Associate. Most recently, Jared was an Investment Specialist looking after the sales and marketing efforts for two managed funds. Jared holds a Bachelor of Commerce majoring in Accounting and Finance from Notre Dame, Sydney and is a CFA Charter Holder. Mr Charlie Kingston – Prior to Contact, Charlie spent six years at Perpetual where most recently was a dealer for their Australian and Global equity teams. Prior to Perpetual Charlie worked at Pulse Markets as a Client Advisor and also AJ Lucas Group as a Business Analyst. Charlie holds a holds a Bachelor of Commerce majoring in Finance and Commercial Law from the University of Sydney, a Bachelor of Business majoring in Finance and Accounting from the University of Technology, Sydney. Mr Rob Horne – Prior to Contact, Rob had a successful professional Rugby career for over ten years. He represented NSW and Australia and also played professionally in the UK. Rob held Senior Leadership positions throughout his career. Rob works at Contact in conjunction with his role at Rugby Australia as Team Manager for the Australian Men’s 7’s Olympic Team. Rob holds a Graduate Certificate in Commerce from the University of Sydney, a Graduate Diploma in Commerce from Charles Sturt University and will complete a Master of Commerce in 2019. This now brings the Contact Asset Management investment team to seven. We remain committed to investing for better outcomes for all BKI Shareholders, so as Contact’s investment team grows it will provide attractive benefits for BKI shareholders. Research and Ratings During the year, BKI was once again well endorsed by various investment product research and ratings companies. BKI currently has a Recommended rating from LONSEC, a Recommended-Plus rating from Independent Investment Research (IIR), a Neutral rating from Morningstar and is on the Approved Product List for ThreeSixty. These reports can be found on the BKI website at https://bkilimited.com.au/research-reports/ Tom Millner and Will Culbert Contact Asset Management 12 2019 Annual Report 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 2019. 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: p Washington H Soul Pattinson and Company Limited (appointed 1984, Chairman since 1998) p New Hope Corporation Limited (appointed 1995, Chairman since 1998) p Brickworks Limited (appointed 1997, Chairman since 1999) p Milton Corporation Limited (appointed 1998, Chairman since 2002) p Apex Healthcare Berhad (Appointed 2000) p Australian Pharmaceutical Industries Limited (Appointed 2000) p TPG Telecom Limited (appointed 2000) Former listed company directorships within the last three years: p Hunter Hall Global Value Limited (appointed 2017, resigned 2017) Special Responsibilities: p Chairman of the Board p Chairman of the Investment Committee p Member of the Remuneration Committee p 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: p Chairman of the Audit Committee p Member of the Remuneration Committee p Member of the Nomination Committee Ian Thomas Huntley, BA – Independent Non-Executive Director Mr Huntley joined the Board as a Non-executive Director in February 2009. After a career in financial journalism, Mr Huntley acquired Your Money Weekly newsletter in 1973. Over the following 33 years, Mr Huntley built the Your Money Weekly newsletter into one of Australia’s best known investment advisory publications. He and partners sold the business to Morningstar Inc of the USA in mid 2006. Special Responsibilities: p Member of the Investment Committee p Member of the Remuneration Committee p Member of the Audit Committee p Member of the Nomination Committee 13 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Directors’ Report (continued) 1. Directors (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: p Member of the Audit Committee p Member of the Investment Committee p Chairman of the Remuneration Committee 2. Key Management Personnel Jaime Pinto, BComm, CA – Company Secretary Mr Pinto is a Chartered Accountant with extensive experience in both professional practice and in senior commercial roles across a broad range of industries. He is currently Company Secretary of Quickstep Holdings Limited (ASX:QHL), URB Investments Limited (ASX: URB), and Palla Pharma Limited (ASX: PAL) and is Company Secretary and CFO of a number of unlisted financial 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 2019, and the numbers of meetings attended by each Director. Board1 Investment Audit Remuneration Nomination2 Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend RD Millner AJ Payne DC Hall IT Huntley 8 8 8 7 8 8 8 8 14 14 – 14 14 14 – 14 – 2 2 1 – 2 2 2 2 2 2 1 2 2 2 2 – 1 1 – – 1 1 – 1 2 The number of board meetings includes circular resolutions passed by the board during the year. The sole meeting of the Nomination Committee was held in July 2018. Mr RD Millner & Mr IT Huntley were not members of the Committee at this time as they were scheduled for re-election as a Director under the Company’s Director rotation policy. Subsequent to being re-elected as Directors at the 2018 AGM, Mr RD Millner and Mr IT Huntley were reappointed to the Nomination Committee, and Mr AJ Payne resigned from the Committee as he is due for re-election as a Director at the 2019 AGM. 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 Total Ordinary Revenue from its investment portfolio was $52.3m, 10.0% higher than 2018, driving a 11.1% increase in Net Operating Result before special investment revenue to $49.2m from $44.2m in 2018. Basic and diluted earnings per share before special dividend income was down 4.9% to 6.75cps. Positive contributors to this result include increased dividends from Woodside Petroleum, New Hope Corporation, BHP Limited, Macquarie Group, Transurban Group, Sydney Airport and Lindsay Australia, while lower dividends from National Australia Bank, Telstra Corporation, Suncorp Group, Invocare Limited and LendLease Limited detracted from the result. Despite a gradual decrease in rates being offered on cash products, revenue from bank deposits was much higher than the previous year due to BKI’s higher cash levels. 14 2019 Annual Report Directors’ Report (continued) 5. Operating Results (continued) BKI received $27.98m in Special Investment Income during 2019FY, compared to $0.8m in 2018FY, including special dividends paid by Telstra Corporation, QUBE Logistics, IAG Insurance, Suncorp Group, Woolworths Group, BHP Limited, Wesfarmers Limited and Milton Corporation. This Special Investment Income also included amounts generated by participating in off market buy backs conducted by BHP Limited and Caltex Limited, and a non-cash Wesfarmers Demerger Dividend. Total Shareholder Return including franking credits for the year to 30 June 2019 was 11.6%, compared to the S&P/ASX 300 Accumulation Index, which returned 13.5% over the same period. BKI’s Total Shareholder Return including Franking Credits for 15 years was 10.4% per annum compared to the S&P/ASX 300 Accumulation Index, which returned 10.6%. 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 2019 was 9.4%. 6. Review of Operations Operating expenses of $2.0m were higher than the previous year (2018: $1.8m), with the company seeing a lift in professional costs in particular, including Director and Officer Insurance, ASIC fees and Share Registry fees. BKI’s management fees have also increased as the Total Assets of the company grew. BKI’s MER is 0.17% compared to 0.16% in 2018. BKI’s total investments over 2019FY was approximately $190.0m, with disposals of approximately $76.6m. Major long term investments included; BHP Limited, Macquarie Group, Woodside Petroleum, Ramsay Healthcare, Woolworths Group, Transurban Group, AGL Energy and APA Group. New portfolio positions established by BKI during the year include Coles Group, Platinum Asset Management, Magellan Financial Group, Stockland Group and Reece Group. The main disposals from BKI’s investment portfolio included Flight Centre, IOOF Holdings, Perpetual Limited, Pact Group, QUBE Holdings, NABPA Preference Shares, NABPC Preference Shares, Ansell Limited, WBCPF Preference Shares and CBAPG Preference Shares. 7. Financial Position Net assets of the Group increased during the financial year to $1,155.4m (2018: $1,115.6m), primarily driven by a positive revaluation of the investment portfolio, even after distribution of a special dividend to BKI shareholders. 8. Employees The Group had no employees as at 30 June 2019 (2018: nil). 9. Significant Changes in the State of Affairs Other than as stated in this Directors’ Report and in the accompanying Financial Report, there were no significant changes in the state of affairs of the Group during the reporting year. 10. Likely Developments and Expected Results The operations of the Group will continue with planned long term investments in Australian equities and fixed interest securities. The Group will continue its strategy of investing for the long term in a portfolio of assets to deliver shareholders an increasing income stream and long term capital growth. The success of this strategy will be strongly influenced by the performance of the underlying investee companies, their share price movements, and capital management and income distribution policies. The performance of these companies will be influenced by general economic and market conditions such as economic growth rates, interest rates and inflation. Performance could also be influenced by regulatory change. These external conditions are difficult to predict and not within the control of the Group, making it difficult to forecast the future results of the Group. However, BKI is a research driven, long term manager focusing on investing in well managed, profitable companies. Stock selection is bottom up, focusing on the merits of individual companies rather than market and economic trends. The Group will continue to implement prudent business practice to allow the achievement of the Group’s Corporate Objectives and Business Strategy. 15 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Directors’ Report (continued) 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 2019: p On 29 August 2018, a final total dividend of $26,836,530 (ordinary dividend of 3.700 cents per share fully franked) was paid out of retained profits at 30 June 2018. p On 28 February 2019, an interim total dividend of $37,285,818 (ordinary dividend of 3.625 cents per share and special dividend of 1.500 cents per share, both fully franked) was paid out of retained profits at 31 December 2018. In addition, the Directors declared a final ordinary dividend of 3.700 cents per share and a final special dividend of 1.000 cents per share, both fully franked at 30%, payable on 29 August 2019. At 30 June 2019 there are $14,690,735 of franking credits available to the Group (2018: $15,676,205) after allowing for payment of the final, fully franked dividends. 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 2001. During the year to 30 June 2019, 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. 16. Non-audit Services During the year to 30 June 2019 MGI Sydney did not provide any non-audit services to the Group, nor did the Group pay any fees for such services. During the year ended 30 June 2018 the external auditor, MGI Sydney Assurance Services Pty Limited (“MGI Sydney”), provided the following non-audit services to the Group: Review services in relation to the Entitlement Offer conducted by the Group Fees (ex GST) $’000 7 16 2019 Annual Report Directors’ Report (continued) 16. Non-audit Services (continued) The Board of Directors has considered the non-audit services provided during the previous financial year and is satisfied that the provision of those non-audit services by the auditor (or by another person or firm on the auditor’s behalf) during the year is compatible with, and did not compromise, the audit independence requirements of the Corporations Act 2001 for the following reasons: p all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Board to ensure they do not impact upon the impartiality and objectivity of the auditor; and p the non-audit services do not undermine the general principles relating to auditor independence as set out in APES 110: Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. 17. Auditor’s Independence Declaration The Auditor’s Independence Declaration for the year to 30 June 2019 is on page 51. 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: Name RD Millner DC Hall AJ Payne IT Huntley J Pinto Number of Shares 8,810,842 2,460,607 414,056 11,224,980 119,761 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. The Company has externalised its investment management function to Contact Asset Management Pty Limited, and currently has no employees. In addition to the Directors, the only individual classified as Key Management Personnel is Mr Jaime Pinto, the Company Secretary, and there are no Other Key Executives. Remuneration Policy The Board is responsible for determining and reviewing remuneration arrangements, including performance incentives, for the Directors themselves and the Company Secretary. It is the Group’s objective to provide maximum shareholder benefit from the retention of a high quality Board and Executive team by remunerating Directors and Key Management Personnel fairly and appropriately with reference to relevant employment market conditions, their performance, experience and expertise. 17 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) Elements of Director and Key Management Personnel (KMP) remuneration The Board’s policy for determining the nature and amount of remuneration for Key Management Personnel of the Group is as follows: p The remuneration policy is developed by the Remuneration Committee and approved by the Board after professional advice is sought from independent external consultants. p All Key Management Personnel are to receive a base fee, or salary and superannuation, combined with performance incentives. p Performance incentives are only paid once predetermined key performance indicators have been met. p Incentives paid in the form of shares are intended to align the interests of the Key Management Personnel with those of the shareholders. p The Remuneration Committee reviews the remuneration packages of Key Management Personnel annually by reference to the Group’s performance, KMP performance and comparable information from industry sectors. The performance of Key Management Personnel is measured against relative market indices and financial and strategic goals approved by the Board and as agreed with each KMP. 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 KMP and reward them for performance results leading to long- term growth in shareholder wealth. All remuneration paid to Key Management Personnel is valued at the cost to the Group and expensed. The Board’s policy is to remunerate Non-Executive Directors at market rates for time, commitment and responsibilities. The Remuneration Committee determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at the Annual General Meeting. Performance-based Remuneration BKI has 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 2018 and as at the date of this report the only participant in the BKI Incentive Scheme was Mr Jaime Pinto. To achieve the objectives of BKI, the BKI Incentive Scheme is required to include several components with separate measurement criteria. Short Term Incentive The Short Term Incentive is determined by reference to annual Total Portfolio Return compared to the S&P ASX 300 Accumulation Index. BKI’s Total Portfolio Returns are measured by the change in pre tax NTA and are after all operating expenses, payment of both income and capital gains tax and the reinvestment of dividends. The Short Term Incentive is paid by way of BKI shares purchased on market by the Company. For the 2019FY the Short Term Incentive for the Company Secretary was set at 15,000 BKI shares. 18 2019 Annual Report Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) 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 2019 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 9.4% 11.4% (2.0)% Nil The vesting criteria for the 2019 Financial Year Short Term Incentives were therefore not satisfied, and the Company did not award any short term incentives in respect of 2019 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 2019, the Company Secretary’s Long Term Incentive was set at 25,000 BKI shares. 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 accrues as an expense the appropriate portion of the future cost of all Long Term Incentives issued. Once an incentive has lapsed or it is probable that the incentive will not vest, the Company reverses prior year accruals previously recognised in respect of that Long Term Incentive. The net positive or negative expense is included in the disclosed remuneration of the Company Secretary. During the 2019 Financial Year the following outstanding Long Term Incentives granted by the Company became eligible for vesting: Incentive issue Issue date Number of rights granted Value of initial grant Initial vesting date Number of rights vested Number of rights yet to vest/ lapse Expiry date J Pinto 2016 01/07/2015 18,628 $31,500 30/06/2019 30/06/2020 Nil – 19 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) 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 accumulation index over 4 years Over/ (Under) performance % Entitlement to eligible bonus 1/07/2015 to 30/06/2019 3.3% 9.7% (6.4)% nil Based on the above performance the vesting criteria for Long Term Incentives issued on 1 July 2015 were not satisfied. In accordance with the terms of the Long Term Incentive Scheme, these incentives will be retested as at 30 June 2020. During the 2019 Financial Year the following outstanding Long Term Incentives granted by the Company became eligible for retesting: Incentive issue Issue date Number of rights granted Value of initial grant Initial vesting date Number of rights vested Number of rights yet to vest/ lapse Expiry date J Pinto 2015 01/07/2014 18,545 $30,600 30/06/2018 30/06/2019 Nil – The table below summarises the performance for the relevant five year period against the Long Term Incentive measurement criteria: Period 5 year BKI total shareholder return S&P/ASX 300 accumulation index over 5 years Over/ (Under) performance % Entitlement to eligible bonus 1/07/2014 to 30/06/2015 3.7% 8.9% (5.2)% nil Based on the above performance the vesting criteria for Long Term Incentives issued on 1 July 2014 were not satisfied. In accordance with the terms of the Long Term Incentive Scheme, these incentives lapsed as at 30 June 2019. No outstanding Long Term Incentives granted by the Company became eligible for vesting between 1 July 2019 and the date of this report. The following table summarises movements in Long Term Incentives granted by the Company that have not vested or lapsed as at the date of this report: Incentive issue Issue date Number of rights granted Value of initial grant Initial vesting date Expiry date Number of rights vested/ lapsed Number of rights yet to vest/ lapse 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 J Pinto 2018 01/07/2017 25,000 $41,385 30/06/2021 30/06/2022 J Pinto 2019 01/07/2018 25,000 $38,040 30/06/2022 30/06/2023 – – – – 18,628 24,030 25,000 25,000 Rights granted under the Short Term and a Long Term Incentive Scheme do not carry an entitlement to receive dividends. 20 2019 Annual Report Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) Remuneration Details for the Year to 30 June 2019 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 JP Pinto1 Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director 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: 2018 RD Millner DC Hall AJ Payne1 IT Huntley Total 2019 RD Millner DC Hall AJ Payne1 IT Huntley Total Primary fee $ Superannuation $ Total $ 66,690 51,553 22,100 42,100 182,443 68,196 52,717 29,080 43,037 193,030 6,335 4,897 24,000 4,000 39,232 6,479 5,008 18,044 4,088 33,619 73,025 56,450 46,100 46,100 221,675 74,675 57,725 47,124 47,125 226,649 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. 21 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) Other Key Management Personnel: Fixed remuneration Salary $ Super- annuation $ Share based performance related remuneration Total $ STI $ LTI $ Total $ Total Remuneration $ – – – – – – – – – – – – – – – – 30,456 30,456 30,456 30,456 8,442 8,442 8,442 8,442 30,456 30,456 8,442 8,442 2018 J Pinto Total 2019 J Pinto Total 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. It does not reflect the value of rights to BKI shares (if any) vested during that 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 J Pinto 2019 0% 2018 0% 2019 0% 2018 0% 2019 100% 2018 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 17 July 2019 22 2019 Annual Report Consolidated Income Statement for the year ended 30 June 2019 Ordinary revenue from investment portfolio Revenue from bank deposits Other gains Income from operating activities before special investment revenue Operating expenses Operating result before income tax expense and special investment revenue Special investment revenue Operating result before income tax expense Income tax expense Net operating profit Profit for the year attributable to members of the Company Basic and diluted earnings per share before special dividend income (net of applicable tax) Basic and diluted earnings per share after special dividend income (net of applicable tax) Note 2(a) 2(c) 2(d) 3 2(b) 4(a) Note 6 6 2019 $’000 52,310 1,944 – 54,254 (2,047) 52,207 27,977 80,184 (5,484) 74,700 74,700 2019 Cents 6.75 10.26 2018 $’000 47,134 908 86 48,128 (1,818) 46,310 786 47,096 (2,086) 45,010 45,010 2018 Cents 7.10 7.23 This Income Statement should be read in conjunction with the accompanying notes 23 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Consolidated Statement of Other Comprehensive Income for the year ended 30 June 2019 Note 2019 $’000 2018 $’000 Profit for the year attributable to members of the Company 74,700 45,010 Other comprehensive income Unrealised gains on investment portfolio Deferred tax expense on unrealised gains on investment portfolio Realised losses on investment portfolio Tax benefit relating to realised losses on investment portfolio 4(a) Total other comprehensive income Total comprehensive income 43,504 (13,051) (13,474) 4,042 21,021 95,721 28,304 (8,491) (3,199) 960 17,574 62,584 This Statement of Other Comprehensive income should be read in conjunction with the accompanying notes 24 2019 Annual Report Consolidated Statement of Financial Position as at 30 June 2019 Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Investment portfolio Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Current tax liabilities Total current liabilities Non-current liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Net Assets Equity Share capital Revaluation reserve Realised capital gains reserve Retained profits Total Equity Note 7 8 9 10 11 12 13 14 15 16 2019 $’000 88,856 9,165 23 98,044 1,136,573 20,230 2018 $’000 177,570 10,562 16 188,148 994,277 17,232 1,156,803 1,011,509 1,254,847 1,199,657 307 1,272 1,579 97,840 97,840 99,419 1,386 409 1,795 82,247 82,247 84,042 1,155,428 1,115,615 916,233 220,494 (38,902) 57,603 908,015 190,041 (29,467) 47,025 1,155,428 1,115,615 This Statement of Financial Position should be read in conjunction with the accompanying notes 25 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Consolidated Statement of Changes in Equity for the year ended 30 June 2019 Share capital $’000 Revaluation reserve $’000 Realised capital gains reserve $’000 Retained profits $’000 Total equity $’000 Total equity at 1 July 2017 749,967 170,228 (27,228) 47,388 940,355 Issue of shares, net of issue costs 158,048 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 – – – – – – – 28,304 (8,491) – – Total equity at 30 June 2018 908,015 190,041 Total equity at 1 July 2018 908,015 190,041 Issue of shares, net of issue costs 8,218 Dividends paid or provided for Unrealised gain on revaluation of investment portfolio Provision for tax on unrealised gain on revaluation of investment portfolio Realised gains transferred on deregistration of subsidiaries Net operating profit for the year Net realised loss through other comprehensive income – – – – – – – – 43,504 (13,051) – – – – – – – – (2,239) (29,467) (29,467) – – – – (3) – – 158,048 (45,373) (45,373) – – 45,010 28,304 (8,491) 45,010 – (2,239) 47,025 1,115,615 47,025 1,115,615 – 8,218 (64,122) (64,122) – – – 43,504 (13,051) (3) 74,700 74,700 (9,432) – (9,432) Total equity at 30 June 2019 916,223 220,494 (38,902) 57,603 1,155,428 This Statement of Changes in Equity should be read in conjunction with the accompanying notes 26 2019 Annual Report Consolidated Cash Flow Statement for the year ended 30 June 2019 Note 2019 $’000 2018 $’000 Cash flows from operating activities Dividends and distributions received Payments to suppliers and employees Proceeds from sale of trading portfolio Payments for trading portfolio Interest received Income tax paid Net cash inflow from operating activities 17(a) Cash flows from investing activities Proceeds from sale of investment portfolio Payments for investment portfolio Capital returns received from investment portfolio 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)/ inflow from financing activities Net (decrease)/ increase in cash held Cash at the beginning of the year Cash at the end of the year 5(b) 7 This Cash Flow Statement should be read in conjunction with the accompanying notes 73,551 (2,893) – – 1,870 (1,154) 71,374 76,633 (181,937) 1,130 (104,174) (31) (55,883) (55,914) (88,714) 177,570 88,856 46,561 (1,084) 2,660 (40) 898 (873) 48,122 79,543 (102,544) 21 (22,980) 150,392 (38,937) 111,455 136,597 40,973 177,570 27 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements for the year ended 30 June 2019 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 AASB Terminology Market Value Fair Value for Actively Traded Securities Cash Cash and Cash Equivalents Share Capital 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. 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. 28 2019 Annual Report Notes to the Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) 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. 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 Share incentives Share incentives are provided under the Short and Long Term Incentive Plans (the Plans). The incentives awarded under the Plans are based on the performance of the Group over differing periods specified within the rules of the Plans. The Plans are settled in shares, but based on a cash amount. 29 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Expenses are recognised over the assessment period based on the amount expected to be payable under the Plans, 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, or the vesting criteria are not satisfied within the required period, 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. g. 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. h. 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. i. 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. j. 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. k. Critical Accounting Estimates and Judgments Deferred Tax Balances The preparation of this financial report requires the use of certain critical estimates based on historical knowledge and best available current information. This requires the Directors and management to exercise their judgement in the process of applying the Group’s accounting policies. The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. In accordance with AASB 112: Income Taxes deferred tax liabilities have been recognised for Capital Gains Tax on unrealised gains in the investment portfolio at the current tax rate of 30%. As the Group does not intend to dispose of the portfolio, this tax liability may not be crystallised at the amount disclosed in Note 12. In addition, the tax liability that arises on disposal of those securities may be impacted by changes in tax legislation relating to treatment of capital gains and the rate of taxation applicable to such gains at the time of disposal. Apart from this, there are no other key assumptions or sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying amount of certain assets and liabilities within the next reporting period. 30 2019 Annual Report Notes to the Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) l. New or amended Accounting Standards and Interpretations adopted The Company has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The following new Accounting Standards and Interpretations issued by the AASB have become effective in the current accounting period. AASB 9 Financial Instruments and associated Amending Standards The new AASB 9: Financial Instruments and its associated amending standards replaces all versions of AASB 9 and completes the project to replace AASB 139 – Financial Instruments Recognition and Measurement. The standard introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income (‘OCI’). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 15: Revenue from Contracts with Customers AASB 15 Revenue from contracts with customers establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Group currently does not have any revenue to which AASB 15 is applicable. The adoption of these Accounting Standards has not had, and is not expected to have, a material impact on the financial performance and position of the Group and consequently, no further disclosures have been included in this report. 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 2019 (“the inoperative standards”). The Group only intends to adopt the inoperative standards at the date at which their adoption becomes mandatory. The impact of the inoperative standards has been assessed and the impact has been identified as not being material. The most relevant standards are discussed in further detail below. AASB 16 Leases AASB 16 Leases will supersede the existing lease accounting requirements in AASB 117: Leases and the related Interpretations. It introduces a single lessee accounting model by eliminating the current requirement to distinguish leases as either operating leases or finance leases depending on the transfer of risks and rewards of ownership. The Standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The adoption of this standard is not expected to have an impact on the financial performance and position of the Group. 31 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 2. Revenue (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 Unfranked dividends Total special investment revenue (c) Revenue from bank deposits Interest received (d) Other gains Net realised gain on sale of investments held for trading Net unrealised (loss)/ gain on investments held for trading Total other gains Total income 3. Operating expenses Administration expenses Employment expenses Investment Management Professional fees Total operating expenses 2019 $’000 41,878 3,679 6,753 52,310 19,886 8,091 27,977 1,944 – – – 2018 $’000 39,326 2,801 5,007 47,134 786 – 786 908 250 (164) 86 82,231 48,914 459 235 1,194 159 2,047 366 254 1,038 160 1,818 32 2019 Annual Report Notes to the Financial Statements (continued) 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 result before income tax expense, including special investment revenue Tax calculated at 30% (2018: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: – Franked dividends and distributions received – Prior year over provision Net income tax expense on operating profit before net gains on investments Net realised losses on investment portfolio Tax calculated at 30% (2018: 30%) Total tax expense (b) The components of tax expense comprise Current tax Deferred tax Prior year over provision Total tax expense 5. Dividends (a) Dividends paid during the year 2019 $’000 2018 $’000 80,184 24,055 (18,520) (51) 5,484 (13,474) (4,042) 1,442 4,161 (2,668) (51) 1,442 47,096 14,129 (12,034) (9) 2,086 (3,199) (960) 1,126 1,311 (176) (9) 1,126 Final dividend for the year ended 30 June 2018 of 3.70 cents per share (2017 final: 3.70 cents per share) fully franked at the tax rate of 30%, paid on 29 August 2018 26,837 22,883 Interim ordinary dividend for the year ended 30 June 2019 of 3.625 cents per share (2018 interim: 3.625 cents per share) fully franked at the tax rate of 30%, paid on 28 February 2019 Interim special dividend of 1.50 cents per share (2018: nil), fully franked at the tax rate of 30%, paid on 28 February 2019 Total dividends paid (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 26,372 22,490 10,913 64,122 64,122 (8,239) 55,883 – 45,373 45,373 (6,436) 38,937 33 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 5. Dividends (continued) (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 2019 $’000 2018 $’000 29,409 28,220 (14,718) 14,691 (11,501) 16,719 Maximum fully franked dividends payable from available franking credits at the tax rate of 30% (2018: 30%) 34,278 39,010 (d) Dividends declared after balance date Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2019 of 3.70 cents per share and a special dividend of 1.00 cents per share, both fully franked at the tax rate of 30% (2018: final ordinary dividend of 3.70 cents per share fully franked at the tax rate of 30%), payable on 29 August 2019, 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 after special dividend income Less: Special investment revenue Add: Tax expense attributable to special investment revenue Earnings used in calculating basic and diluted earnings per share before special dividend income 74,700 45,010 74,700 (27,977) 2,427 45,010 (786) – 49,150 44,224 No. ’000 No. ’000 Weighted average number of ordinary shares used in calculating basic and diluted earnings per share 728,234 622,799 Basic and diluted earnings per share before special dividend income Basic and diluted earnings per share after special dividend income Cents 6.75 10.26 Cents 7.10 7.23 34 2019 Annual Report Notes to the Financial Statements (continued) 7. Cash and cash equivalents Cash at bank Short term bank deposits 8. Trade and other receivables Dividends and distributions receivable Interest receivable Other 9. Financial Assets – Equity Portfolio Investment portfolio – non-current Listed securities at fair value available for sale Total investment portfolio Fair Value Measurement 2019 $’000 65,856 23,000 88,856 8,833 116 216 9,165 2018 $’000 57,570 120,000 177,570 10,189 42 331 10,562 1,136,573 1,136,573 994,277 994,277 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. 35 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 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 2019 $’000 2018 $’000 778 32 19,420 20,230 1,064 29 16,139 17,232 Opening balance $’000 252 21 15,231 15,504 1,063 29 16,140 17,232 Credited/ (charged) to statement of comprehensive income $’000 Credited/ (charged) to equity $’000 (407) 8 909 510 (294) 3 3,280 2,989 1,218 – – 1,218 9 – – 9 2019 $’000 1,272 Closing balance $’000 1,063 29 16,140 17,232 778 32 19,420 20,230 2018 $’000 409 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2018 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2019 11. Current tax liabilities Provision for income tax 36 2019 Annual Report Notes to the Financial Statements (continued) 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 2019 $’000 96,463 1,377 97,840 Opening balance $’000 72,576 722 73,298 81,191 1,056 82,247 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2018 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2019 13. Share Capital 2018 $’000 81,191 1,056 82,247 Closing balance $’000 81,191 1,056 82,247 96,463 1,377 (Credited)/ charged to statement of comprehensive income $’000 (Credited)/ charged to equity $’000 8,615 – 8,615 15,272 – – 334 334 – 321 321 15,272 97,840 2019 $’000 2018 $’000 (a) Issued and paid-up capital 730,688,257 ordinary shares fully paid (2018: 725,311,402) 916,233 908,015 37 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 13. Share Capital (continued) (b) Movement in ordinary shares Beginning of financial year Issued during the year: – dividend reinvestment plan – entitlement offer Gross funds raised – less net transaction costs 2019 2018 Number of shares $’000 Number of shares $’000 725,311,402 908,015 618,463,068 749,967 5,376,855 – 3,878,164 102,970,170 8,239 – 8,239 (21) 6,436 154,455 160,891 (2,843) 908,015 End of financial year 730,688,257 916,233 725,311,402 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 fully franked 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 the Group 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 2019 net debt was $Nil (2018: $Nil). (d) Acquisition of controlled entities The Company did not acquire shares in any unlisted investment companies during the 2018FY or 2019FY. 38 2019 Annual Report Notes to the Financial Statements (continued) 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 Realised gains transferred to retained earnings on deregistration of subsidiaries 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 2019 $’000 2018 $’000 190,041 43,504 (13,051) 220,494 170,228 28,305 (8,492) 190,041 (29,467) (9,432) (3) (38,902) 47,025 74,700 (64,122) 57,603 (27,228) (2,239) – (29,467) 47,388 45,010 (45,373) 47,025 39 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 17. Notes to the statement of cash flows (a) Reconciliation of cash flow from operating activities to net operating profit Net operating profit Non cash items: – Non-cash dividend income – Unrealised loss/(gain) on trading investments Changes in assets and liabilities, net of effects from consolidation of subsidiaries: – Decrease/ (increase) in trade and other receivables – Decrease in held for trading investments – – Decrease in deferred tax assets (Decrease)/ increase in payables – Increase in current tax liabilities – Increase in deferred tax liabilities – Increase in prepayments 2019 $’000 2018 $’000 74,700 45,010 (8,091) – 1,397 – (7) 435 (1,083) 863 3,160 – 164 (1,641) 2,370 – 402 950 362 505 Net cash inflow from operating activities 71,374 48,122 (b) Non-cash financing and investing activities (i) Dividend reinvestment plan Under the terms of the dividend reinvestment plan, $8,240,000 (2018: $6,436,000) of dividends were paid via the issue of 5,376,855 shares (2018: 3,878,164). 40 2019 Annual Report Notes to the Financial Statements (continued) 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. Financial instruments’ terms, conditions and accounting policies The Group’s accounting policies are included in Note 1, while the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are included under the appropriate note for that instrument. b. Net fair values The carrying amounts of financial instruments in the balance sheets approximate their net fair value determined in accordance with the accounting policies disclosed in Note 1 to the accounts. c. Credit risk The risk that a financial loss will occur because a counterparty to a financial instrument fails to discharge an obligation is known as credit risk. The credit risk on the Group’s financial assets, excluding investments, is the carrying amount of those assets. The Group’s principal credit risk exposures arise from the investment in liquid assets, such as cash and bank bills, and income receivable. Cash and bank bills are reviewed monthly by the Board to ensure cash is only placed with pre-approved financial institutions with low risk profiles (primarily “Big 4” banks) and that the spread of cash and bank bills between banks is within agreed limits. Income receivable is comprised of accrued interest and dividends and distributions which were brought to account on the date the shares or units traded ex-dividend. There are no financial instruments overdue or considered to be impaired. d. Market risk Market risk is the risk that changes in market prices will affect the fair value of a financial instrument. The Group is a long term investor in companies and trusts and is therefore exposed to market risk through the movement of the share/unit prices of the companies and trusts in which it is invested. The market value of the portfolio changes continuously because the market value of individual companies within the portfolio fluctuates throughout the day. The change in the market value of the portfolio is recognised through the Revaluation Reserve. Listed Investments represent 91% (2018: 83%) of total assets. As at 30 June 2019, a 5% movement in the market value of the BKI portfolio would result in: p a 5% movement in the net assets of BKI before provision for tax on unrealised capital gains (2018: 4%); and p A movement of 7.8 cents per share in the net asset backing before provision for tax on unrealised capital gains (2018: 6.9 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. 41 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 18. Management of Financial Risk (continued) At 30 June 2019 and 30 June 2018, the spread of investments was in the following sectors: Financials Industrials Consumer discretionary Consumer staples Utilities Energy Health care Telecommunications services Materials Property trusts Total investments Cash and dividends receivable Percentage of total investment (%) Amount ($’000) 2019 2018 2019 2018 36.54 9.93 7.66 6.72 6.69 6.49 5.51 5.39 5.06 2.10 92.09 7.91 37.31 8.69 5.51 7.41 6.04 5.95 3.82 4.16 3.75 1.51 84.15 15.85 451,105 122,515 94,591 82,779 82,552 80,167 67,925 66,589 62,363 25,987 1,136,573 97,689 440,719 102,792 65,156 87,587 71,404 70,283 45,115 49,110 44,303 17,808 994,277 187,759 Total portfolio 100.00 100.00 1,234,262 1,182,036 Securities representing over 5% of the investment portfolio at 30 June 2019 or 30 June 2018 were: Commonwealth Bank National Australia Bank Westpac Banking Corporation Percentage of total investment (%) Amount ($’000) 2019 2018 2019 2018 6.7 5.4 4.8 5.7 6.4 5.8 82,154 67,045 58,887 67,436 76,003 68,079 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 2019 (2018: Nil). f. Foreign currency risk The Group is not exposed to foreign currency risk as all investments are quoted in Australian dollars. 42 2019 Annual Report Notes to the Financial Statements (continued) 18. Management of Financial Risk (continued) g. 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. h. Capital risk management The Group invests its equity in a diversified portfolio of assets that aim to generate a growing income stream for distribution to shareholders in the form of fully franked dividends. The capital base is managed to ensure there are funds available for investment as opportunities arise. Capital is increased annually through the issue of shares under the Dividend Reinvestment Plan. Other means of increasing capital include Rights Issues, Share Placements and Share Purchase Plans. 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 JP Pinto Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director 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 2019 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 2019FY (2018: nil). 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. 43 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 21. Related Party Transactions Related parties of the Group fall into the following categories: (i) Controlled Entities At 30 June 2019, subsidiaries of the Parent were: Brickworks Securities Pty Limited Huntley Investment Company Pty Limited BKI Sub Pty Limited Pacific Strategic Investments Pty Limited George Meller Pty Limited1 Bryn Cwar Holdings Pty Limited1 WWM Pty Limited1 Auburn Pty Limited1 Country of incorporation Percentage Owned (%) 2019 2018 Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 nil nil nil nil 100 100 100 100 100 100 100 100 1 During the financial year the Group completed the voluntary deregistration of four subsidiaries. Transactions between the Parent and controlled entities consist of transfers of investment holdings from subsidiaries to the parent entity. In addition, there are loan balances due from the Parent to controlled entities. No interest is charged on the loan balance by the controlled entities and no repayment period is fixed for the loan. (ii) Directors/Officers Related Entities Persons who were Directors/Officers of BKI Investment Company Limited for the year ended 30 June 2019 were: Directors: RD Millner DC Hall, AM AJ Payne IT Huntley Company Secretary: JP Pinto1 1 Services provided under contract through Corporate & Administrative Services Pty Limited Corporate & Administrative Services Pty Limited Corporate & Administrative Services Pty Limited (CAS), an entity in which Mr RD Millner has an indirect interest, provides 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 2019 were $122,100 (2018: $122,100, including GST) and are at standard market rates. As at 30 June 2019 the Group owed $nil to CAS (2018: $10,175). Pitt Capital Partners Limited The Group appointed Pitt Capital Partners Limited (PCP), an entity in which Mr RD Millner has an indirect interest, to act as Financial Advisor for the 2018 Entitlement Offer. There were nil fees paid to PCP for services provided to the Parent and controlled entities for the year to 30 June 2019 (2018: $594,653, including GST, which were at standard market rates). As at 30 June 2019 the Group did not have any unpaid amounts due to PCP (2018: $594,653). 44 2019 Annual Report Notes to the Financial Statements (continued) 21. Related Party Transactions (continued) Contact Asset Management Pty Limited Contact Asset Management Pty Limited (Contact) is the Investment Manager of the Group. Contact is an entity in which Mr RD Millner has an indirect interest. Fees payable to Contact for services provided to the Parent and controlled entities for the year to 30 June 2019 were $1,193,956 including GST (2018: $1,114,278) and are at standard market rates. As at 30 June 2019 the Group owed $113,174 to Contact (2018: $108,389). (iii) Transactions in securities Share Holdings Aggregate number of listed securities of the Company held by Key Management Personnel (KMP) or their related entities: Balance as at 1 July Granted as compensation Net other changes Balance as at 30 June Net movements post balance date Balance as at date of Annual Report 2019 RD Millner DC Hall AJ Payne IT Huntley J Pinto Total 2018 RD Millner DC Hall AJ Payne IT Huntley J Pinto Total 8,488,231 2,460,607 379,056 11,224,980 113,154 22,666,028 8,224,934 2,306,820 355,366 11,224,980 108,320 22,220,420 – – – – – – – – – – – – 322,611 8,810,842 – 2,460,607 35,000 414,056 – 11,224,980 6,607 119,761 364,218 23,030,246 263,297 8,488,231 153,787 2,460,607 23,690 379,056 – 11,224,980 4,834 113,154 445,608 22,666,028 – – – – – – – – – – – – 8,810,842 2,460,607 414,056 11,224,980 119,761 23,030,246 8,488,231 2,460,607 379,056 11,224,980 113,154 22,666,028 Directors acquired shares through the Dividend Reinvestment Plan, the 2018 Entitlement Offer, and/ or on-market purchase. Mr RD Millner disposed of shares through the making of in-specie distributions as Trustee of a deceased estate. Other Key Management Personnel acquired shares through the Dividend Reinvestment Plan. All KMP or their associated entities, being shareholders, are entitled to receive dividends. 45 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Notes to the Financial Statements (continued) 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 Net operating profit Total other comprehensive income The parent company has no contingent liabilities as at 30 June 2019. 23. Capital and Leasing Commitments The Group has no capital and leasing commitments as at 30 June 2019. 2019 $’000 2018 $’000 98,044 1,358,155 1,456,199 1,499 307,232 308,731 916,233 231,236 1,147,469 75,169 21,021 188,148 1,248,859 1,437,007 1,718 328,106 329,824 908,015 199,167 1,107,182 45,010 17,575 24. Auditor’s Remuneration During the financial year the following fees were paid or payable for services provided to the Group by the auditor of the Group: Auditing the financial report of the Parent and the controlled entities Total remuneration for audit and other assurance services Providing review services in respect of the Entitlement Offer conducted by the Company Total remuneration of the auditor of the Group 26 26 – 26 25 25 7 32 25. Contingent Liabilities The Group has no contingent liabilities as at 30 June 2019. 26. Authorisation The financial report was authorised for issue on 17 July 2019 by the Board of Directors. 46 2019 Annual Report Directors’ Declaration The Directors of BKI Investment Company Limited declare that: 1. the financial statements and notes, as set out on pages 23 to 46, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations; b. comply with International Financial Reporting Standards, as stated in note 1 to the financial statements; and c. give a true and fair view of the financial position as at 30 June 2019 and of the performance for the year ended on that date of the consolidated entity. 2. 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. 3. 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 2019. This declaration is made in accordance with a resolution of the Board of Directors. Robert D Millner Director Sydney 17 July 2019 47 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Independent Auditor’s Report to the Members of BKI Investment Company Limited MGI Sydney Assurance Services Pty Limited Level 5, 6 O’Connell Street Sydney NSW 2000 Tel: +61 2 9230 9200 PO Box H258 Australia Square Sydney NSW 1215 ABN 24 160 063 525 www.mgisyd.com.au Report on the Audit of the Financial Report Opinion We have audited the accompanying financial report of BKI Investment Company Limited and Controlled Entities (the consolidated entity), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated income statement, consolidated statement of other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and the directors’ declaration of the consolidated entity comprising BKI Investment Company Limited and the entities it controlled at the year’s end or from time to time during the year. In our opinion, the accompanying financial report of BKI Investment Company Limited and its Controlled Entities, is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. c) the financial report also complies with the International Financial Reporting Standards as disclosed in Note 1. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of BKI Investment Company Limited in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of BKI Investment Company Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. MGI refers to one or more of the independent member firms of MGI Worldwide. MGI Worldwide is a network of independent auditing, accounting and consulting firms. Each MGI firm in Australasia is a separate legal entity and has no liability for another Australasian or international member’s acts or omissions. MGI is a brand name for the MGI Australasian network and for each of the member firms of MGI Worldwide. Liability limited by a scheme approved under Professional Standards Legislation. Chartered Accountants and Taxation Advisors 48 2019 Annual Report Independent Auditor’s Report (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How Our Audit Addressed the Key Audit Matter Valuation and Existence of Investments The investment portfolio at 30 June 2019 comprised of listed equity investments of $1,136.57 million. We tested the valuation of a representative sample of listed investments by vouching the share prices to external market information to ensure they are fairly stated. We focused on the valuation and existence of investments because investments represent the principal element of the net asset value disclosed on the Consolidated Statement of Financial Position in the financial report. We agreed the existence of a representative sample of listed investments by confirming shareholdings with share registries. No material differences were identified. Revenue from Investments ASAs presume there are risks of fraud in revenue recognition unless rebutted. We focused on the cut-off, accuracy and completeness of dividend revenue and dividend receivables. We assessed the accounting policy for revenue recognition for compliance with the accounting standards and performed testing to ensure that revenue had been accounted for in accordance with the accounting policy. We found that the accounting policies implemented were in accordance with the accounting standards, and that revenue has been accounted for in accordance with the accounting policy. We tested the accuracy and completeness of dividend revenue by agreeing the dividends and distributions of a representative sample of investments to supporting documentation obtained from share registries. We tested the cut-off and completeness of dividend revenue and dividend receivables by checking the dividend details of a representative sample of investments from external market information and ensured that dividends that were declared before, but payable after, the reporting date were recorded. No material differences were identified. Other Information The directors of BKI Investment Company Limited are responsible for the other information. The other information comprises the information in the annual report for the year ended 30 June 2019, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 49 BKI INVESTMENT COMPANY LIMITED2019 Annual Report Independent Auditor’s Report (continued) Responsibilities of the Directors for the Financial Report The directors of BKI Investment Company Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. In preparing the financial report, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 18 to 22 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of BKI Investment Company Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of BKI Investment Company Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report of BKI Investment Company Limited and Controlled Entities for the year ended 30 June 2019 included on BKI Investment Company Limited’s web site. The directors of the Company are responsible for the integrity of BKI Investment Company Limited’s web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report to confirm the information included in the audited financial report presented on this web site. MGI Sydney Assurance Services Pty Limited Chartered Accountants Clayton Lawrence Director Sydney, 17 July 2019 50 2019 Annual Report Auditor’s Independence Declaration MGI Sydney Assurance Services Pty Limited Level 5, 6 O’Connell Street Sydney NSW 2000 Tel: +61 2 9230 9200 PO Box H258 Australia Square Sydney NSW 1215 ABN 24 160 063 525 www.mgisyd.com.au BKI Investment Company Limited and Controlled Entities ABN: 23 106 719 868 Auditor’s Independence Declaration Under Section 307C of the Corporations Act 2001 to the Directors of BKI Investment Company Limited and Controlled Entities As lead auditor for the audit of BKI Investment Company Ltd and Controlled Entities for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Name of Firm: MGI Sydney Assurance Services Pty Limited Chartered Accountants Name of Auditor: Clayton Lawrence Address: Level 5, 6 O’Connell Street, Sydney NSW 2000 Dated this: 17th day of July 2019 MGI refers to one or more of the independent member firms of MGI Worldwide. MGI Worldwide is a network of independent auditing, accounting and consulting firms. Each MGI firm in Australasia is a separate legal entity and has no liability for another Australasian or international member’s acts or omissions. MGI is a brand name for the MGI Australasian network and for each of the member firms of MGI Worldwide. Liability limited by a scheme approved under Professional Standards Legislation. Chartered Accountants and Taxation Advisors 51 BKI INVESTMENT COMPANY LIMITED2019 Annual Report ASX Additional Information 1) Equity Holders At 30 June 2019 there were 17,604 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 1,244 2,491 2,655 10,058 1,156 17,604 Holding less than a marketable parcel of 318 shares 614 The 20 largest holdings of the Parent’s share as at 30 June 2019 are listed below: Name Washington H Soul Pattinson and Company Limited Huntley Group Investments Pty Ltd J S Millner Holdings Pty Limited HSBC Custody Nominees (Australia) Limited Jeanneau Cloud Nine Pty Limited GM Pty Limited I R McDonald Pty Limited John E Gill Trading Pty Limited Nibot Pty Limited Nulis Nominees (Australia) Limited Estate of Francis Albert Robertson Donald Cant Pty Limited K C Perks Investments Pty Ltd Fennybentley Pty Limited Stuart Llewellyn Gwyn Morgan + Margaret Patricia Morgan Snow Foundation Limited Navigator Australia Limited Farjoy Pty Limited T N Phillips Investments Pty Limited Mr Timothy Frank Robertson 52 Number of shares held 62,405,057 8,523,274 5,566,300 5,096,636 4,169,612 3,365,124 3,000,000 2,284,877 2,251,845 2,182,068 2,136,110 1,848,698 1,844,233 1,658,178 1,626,089 1,604,100 1,594,335 1,550,800 1,548,794 1,460,102 % 8.54 1.17 0.76 0.70 0.57 0.46 0.41 0.31 0.31 0.30 0.29 0.25 0.25 0.23 0.22 0.22 0.22 0.21 0.21 0.20 2019 Annual Report ASX Additional Information (continued) Votes of Members Article 5.12 of the Company’s Constitution provides: a) 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. b) 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 2019 the name and holding of each substantial shareholder as disclosed in a notice received by the Parent is: Substantial Shareholder Washington H Soul Pattinson & Company Limited1 Brickworks Limited2 Shares Held % 62,405,057 62,405,057 8.60% 8.60% 1 Details included on substantial shareholder notice dated 26 June 2018. 2 Details included on substantial shareholder notice dated 27 June 2018. 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: p There is no current on-market buy-back in place. p There were 322 (2018: 141) transactions in securities undertaken by the Group and the total brokerage paid or accrued during the year was $577,354 (2018: $396,363). 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 0.69 2012 0.18 2005 0.71 2013 0.19 2006 0.56 2014 0.17 2007 0.46 2015 0.18 2008 0.46 2016 0.16 2009 0.31 2017 0.15 2010 0.19 2018 0.16 2011 0.18 2019 0.17 Designed and Produced by APM Graphics Management > 1800 806 930 Produced by APM Graphics Management > 1800 806 930 Produced by APM Graphics Management > apmgraphics.com.au > 1800 806 930 53 Produced by APM Graphics Management > apmgraphics.com.au BKI INVESTMENT COMPANY LIMITED2019 Annual Report ABN: 23 106 719 868 Level 14, 151 Clarence Street Sydney NSW 2000