BKI INVESTMENT COMPANY LIMITED ABN: 23 106 719 868 Annual Report for the year ended 30 June 2020 2020 BKI INVESTMENT COMPANY LIMITED Contents Financial Highlights List of Securities as at 30 June 2020 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 Corporate Directory 2 3 5 6 10 13 23 24 25 26 27 28 45 46 49 50 52 1 2020 Annual Report Financial Highlights Revenue performance Total income – ordinary Special investment revenue Change Jun 2020 $’000 Jun 2019 $’000 down down 13.9% to 74.3% to 46,732 7,182 from from 54,254 27,977 Total income from ordinary activities down 34.4% to 53,914 from 82,231 Profits Operating result after tax - before special investment revenue net of applicable tax Special investment revenue net of applicable tax Net profit from ordinary activities after tax attributable to shareholders Net profit attributable to shareholders Portfolio Total portfolio value (including cash & receivables) down down 15.4% to 72.4% to 41,578 7,044 from from 49,150 25,550 down down 34.9% to 34.9% to 48,622 48,622 from from 74,700 74,700 down 12.1% to 1,084,667 from 1,234,262 Change Cents Cents Earnings per share (EPS) Basic EPS before special investment revenue and applicable tax Basic EPS after special investment revenue and applicable tax down down 16.0% to 35.4% to 5.67 6.63 Dividends Interim – Ordinary Interim – Special Final – Ordinary Final – Special Full Year Total steady down down steady down at 100% to 37.3% to at 29.3% to 3.625 0.000 2.320 1.000 6.945 from from from from from from from 6.75 10.26 3.625 1.500 3.700 1.000 9.825 10 Year Dividend History (cents per share) 30 June 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Interim Final Special Total 3.00 3.00 1.00 7.00 3.20 3.20 – 6.40 3.25 3.40 0.50 7.15 3.45 3.50 – 6.95 3.55 3.65 – 7.20 3.60 3.65 – 7.25 3.60 3.70 – 7.30 3.625 3.700 – 7.325 3.625 3.700 2.500 9.825 3.625 2.320 1.000 6.945 All ordinary and special dividends paid by BKI Investment Company Limited (“BKI”) since listing on the Australian Stock Exchange have been fully franked. 10 Year Net Tangible Asset (NTA) History ($ per share) 30 June 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 NTA before tax NTA after tax 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 1.47 1.43 2 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Financial Highlights (continued) List of Securities as at 30 June 2020 Financials Macquarie Group Commonwealth Bank National Australia Bank ASX Limited Westpac Banking Corporation Magellan Financial Group Limited IAG Limited Suncorp Group Milton Corporation Pendal Group Platinum Asset Management Equity Trustees Evans Dixon Industrials Transurban Group Sydney Airport Seek Limited Lindsay Australia Brambles Limited Reece Limited Consumer Discretionary Wesfarmers Limited Invocare Limited ARB Corporation Harvey Norman Holdings Limited Materials BHP Group Limited Amcor Brickworks Limited Orora Limited Consumer Staples Woolworths Group Coles Group Treasury Estate Inghams Group 2020 Annual Report Number of shares held Market value $’000 Portfolio weight % 655,172 1,030,023 2,146,120 397,750 1,305,518 383,500 3,063,445 951,408 2,103,640 1,093,185 1,738,000 195,054 5,674,572 4,031,534 5,127,677 537,500 17,141,631 500,576 515,499 1,129,102 1,638,974 945,447 3,887,454 1,925,000 1,194,890 436,209 1,600,000 1,428,744 1,129,102 905,155 1,978,355 77,703 71,504 39,102 33,960 23,434 22,247 17,676 8,782 8,604 6,526 6,483 4,828 3,036 7.16 6.59 3.61 3.13 2.16 2.05 1.63 0.81 0.79 0.60 0.60 0.45 0.28 323,885 29.86 56,966 29,074 11,766 6,000 5,441 4,737 5.25 2.68 1.09 0.55 0.50 0.44 113,984 10.51 50,618 17,176 16,971 13,761 98,526 68,954 17,302 6,905 4,064 97,225 53,263 19,387 9,486 6,331 88,467 4.67 1.58 1.56 1.27 9.08 6.36 1.60 0.64 0.37 8.97 4.91 1.79 0.87 0.58 8.15 3 Financial Highlights (continued) List of Securities as at 30 June 2020 (continued) Utilities APA Group AGL Energy Limited Telecommunications TPG Telecom Telstra Corporation Health Care Ramsay Healthcare Sonic Healthcare Regis Healthcare Energy Woodside Petroleum Limited New Hope Corporation Property Goodman Group Limited LendLease Stockland Total Portfolio Investment portfolio Trading portfolio Total Portfolio Cash and dividends receivable Total Investment Assets Number of shares held Market value $’000 Portfolio weight % 5,770,434 1,233,708 5,748,362 8,524,451 515,070 960,899 1,807,428 1,175,876 17,950,950 945,000 633,178 1,225,000 64,225 21,035 85,260 49,514 26,682 76,196 34,262 29,240 2,548 66,050 25,458 24,503 49,961 14,033 7,832 4,055 25,920 1,025,474 1,025,474 – 1,025,474 59,193 5.92 1.94 7.86 4.56 2.46 7.02 3.16 2.70 0.23 6.09 2.36 2.26 4.62 1.29 0.72 0.37 2.38 94.54 94.54 – 94.54 5.46 1,084,667 100.00 The Group is a substantial shareholder in accordance with the Corporations Act 2001 of Lindsay Australia Limited, holding 5.73% of the issued capital as at 30 June 2020. 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 2020 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 Act. Management The portfolio management and advisory function of BKI is performed by Contact Asset Management Pty Limited (“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. 2020 Annual Report 5 Chairman’s Address Dear Shareholders, I am pleased to enclose the 17th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2020. The first half of FY2020 saw an increase in concerns around global economic conditions and geopolitical events, even as most global share indices tracked upwards. However, the advent of the COVID-19 economic crisis created significant social and economic upheaval in the second half of the financial year, causing extreme economic uncertainty across all industries globally, and resulting in extreme fluctuations in global sharemarkets. Result Highlights This disruption to the underlying economy and subsequent impact on investment markets means Australian equity investors have recently experienced a significant cut to dividends, with many companies deferring or even cancelling dividend payments altogether. BKI’s income and profits were not immune. In an extremely difficult year, BKI’s Ordinary Revenue from Investment portfolio was down 13% to $45.4 million. This result was negatively impacted by lower ordinary dividends received from Woodside Petroleum, AGL Energy, SEEK, Regis Healthcare, Transurban Group, New Hope Corporation, National Australia Bank and Macquarie Group. This was exacerbated in the second half of the year when Harvey Norman, Sydney Airport, ANZ Bank and Westpac Banking Corporation did not pay an ordinary dividend at all. BKI realised $0.7 million from the trading portfolio, after participating in the National Australia Bank and LendLease Limited capital raisings. BKI’s interest received was $0.6 million, down 68% on FY2019. The fallout from the COVID-19 economic crisis has been significant. BKI’s Net Operating Profit After Tax, before special investment revenue, was $41.6 million, a decrease of 15% over the previous corresponding period. BKI’s basic earnings per share before special investment revenue decreased 16% to 5.67 cents per share. Special Dividend Revenue was again a feature with BKI receiving $7.2 million in Special Dividend Revenue over the year. Special Dividends were received from Telstra Corporation, Harvey Norman and Orora Limited. Also, during the period TPG Australia received the final court approval which will now see TPG Australia merge with VHA (Vodafone Hutchinson Australia). As part of the merger, TPG Australia spun-off Tuas Limited (TUA), who will now be the owner of the TPG Singapore business. As an existing shareholder of TPG Australia, in July BKI received one share in Tuas Limited via an In-Specie Dividend of Tuas shares for every two TPG Australia shares. BKI has recognized a $1.9 million fully franked special dividend in FY2020 as a result of the TUA demerger. Shareholders in TPG Australia were also rewarded with a $0.516 fully franked special dividend following implementation of the Scheme. This resulted in BKI recognizing an additional $3.0 million special dividend in FY2020. BKI’s Net Operating Profit After Tax, including special investment revenue for FY2020 was $48.6 million, down 35% on the previous corresponding period. The main contributing factor for BKI’s significant decrease in Net Operating Profits from the previous year was the large number of special dividends received in FY2019 after the acceleration of payments by many companies reacting to the possible threat of legislation to remove the benefit of franking credits. The special dividends received in FY2019 also included the fully franked special dividend component of the BHP off-market buy-back, and a non-cash unfranked dividend recognised from the Coles-Wesfarmers demerger. BKI’s basic earnings per share, including special investment revenue, decreased 35% to 6.63 cents per share. Dividends Given the current economic situation, and the pressure created by significant cuts to dividends received, the BKI Board has declared a fully franked final dividend of 2.32cps, representing a 100% payout ratio on BKI’s basic earnings per share, excluding special investment revenue. The BKI Board has also declared a 1.00cps fully franked special dividend. This is BKI’s eighth special dividend paid to shareholders since listing in 2003. Based on the 3.625cps FY2020 interim dividend and 2.32cps FY2020 final dividend, the current BKI dividend yield is 4.3%, grossed up to 6.3%, based on a tax rate of 30% and a share price of $1.385 as at 30 June 2020. Including special dividends, BKI has declared total dividends of 6.945 cps in respect of FY2020, fully franked. Following payment of the FY2020 dividends, BKI will have approximately $16.0m of imputation credits available for future dividends. BKI’s Retained Profits at 30 June 2020 were $45.3m. 6 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Chairman’s Address (continued) Dividend Key Dates The last trading date to be eligible for the FY2020 Final Dividends is Thursday 6 August 2020. Key dates for the fully franked Final Dividends are as follows: Event Last trading date to be eligible for the Final Dividends Ex-Dividend Date Record Date DRP Nomination Payment Date Date Thursday 6 August 2020 Friday 7 August 2020 Monday 10 August 2020 Tuesday 11 August 2020 Thursday 27 August 2020 Dividend Reinvestment Plan (DRP) The Board has confirmed that BKI’s DRP will be maintained for the FY2020 final dividends, offering shareholders the opportunity to acquire further ordinary shares in BKI. The DRP will not be offered at a discount. The last day to nominate for participation in the DRP is Tuesday 11 August 2020. To obtain access to a DRP form please use the following link: https://bkilimited.com.au/dividend-information 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 10 August 2020). 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 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 2020 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 following chart shows how powerful compounding can be by reinvesting the dividends that have been paid by BKI over the last 15 years. 2020 Annual Report 7 Chairman’s Address (continued) Dividends + Franking Credits received from a $10,000 investment in BKI at IPO versus Bank Quarterly Interest $2,500 $2,000 $1,500 $1,000 $500 $0 $2,374 $187 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Total Dividend Income (including Franking Credits) Interest 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 totaling $1,662. The franking credits enhance the income by a further $712 (total income of $2,374). The same investment in a term deposit (based on the cash rate + 0.50%) would be earning $187pa with no franking credits. Management Expense Ratio (MER) BKI’s MER as at 30 June 2020 was 0.17%, in line with FY2019. 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 Macquarie Group Commonwealth Bank BHP Limited APA Group Transurban Group Woolworths Limited Wesfarmers Limited TPG Telecom National Australia Bank Ramsay HealthCare ASX Limited Sonic Healthcare Sydney Airport 1 2 3 4 5 6 7 8 9 10 11 12 13 8 % of Total Portfolio Stock 7.2% 6.6% 6.4% 5.9% 5.3% 4.9% 4.7% 4.6% 3.6% 3.2% 3.1% 2.7% 2.7% Telstra Corporation 14 15 Woodside Petroleum 16 New Hope Corporation 17 Westpac Banking Corporation 18 Magellan Financial Group 19 AGL Energy Limited 20 Coles Group IAG Limited 21 Amcor 22 Invocare Limited 23 24 ARB Corporation 25 Goodman Group Limited Cash and cash equivalents % of Total Portfolio 2.5% 2.3% 2.3% 2.2% 2.1% 1.9% 1.8% 1.6% 1.6% 1.6% 1.6% 1.3% 5.5% Total of Top 25 including cash and cash equivalents 89.2% 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Chairman’s Address (continued) Outlook Australia’s economic stimulus packages currently in place have been a significant benefit to the Australian household and consumer during the COVID-19 crisis. The Government’s economic support package of almost $260 billion and the banks 779,458 loan deferrals have been very well received. However, longer-term, we are concerned with forecast unemployment numbers as well as the impact of the upcoming completion of deferral payment programs focused on small/medium businesses and individual mortgages will have on the economy. This upcoming reporting season is going to be of particular interest to investors. It will be the first time since March 2020 that companies will be able to talk to investors about their business, how they are seeing the current environment and the longer term impacts that COVID-19 will have on their future financial capacity and earnings. We believe the global economic and social shutdown will cause some long-lasting negative impacts on businesses across our market. There may actually only be a small number of companies that could escape with earnings unharmed, benefiting over the short-term from a change in consumer behaviour or through significant government stimulus packages. These companies could come out of this situation quicker and better than others, however, for the most part we believe that it will be a long and slow road ahead. Whilst we are in for an interesting period ahead, which could last for longer than expected, BKI continues to be well positioned with a portfolio of high-quality dividend paying stocks. BKI has available cash and no debt. Even during these difficult times ahead, we will continue to ensure BKI achieves its objective of investing for the long term in profitable, high yielding and well managed companies. Robert Millner Chairman 2020 Annual Report 9 Portfolio Manager’s Report Dear Shareholders, Contact Asset Management, as the Investment Manager of BKI Investment Company, are pleased to include our report for FY2020. Market Commentary The momentum in global equity markets over the last decade finally eased during FY2020. Despite falling interest rates continuing to influence market valuations for the first six months of the year, it was on 31 December 2019 that the world’s economies and equity markets began to change course. It was on this day that Wuhan health officials confirmed 27 cases of Coronavirus (COVID-19). As the outbreak quickly spread, every country globally took desperate measures to prevent further cases emerging. Unfortunately, cases did spread globally and with that came a very volatile period for markets. Despite the S&P/ASX300 Accumulation index being up 24% for the year to 31 December 2019, and a reasonable start to the Australian reporting season in February 2020, emerging news of the spread of COVID-19 and the remarkable shutdown of all countries worldwide played havoc with market returns. The short-term volatility was significant and unfortunately Australian markets were among the hardest hit. Towards the end of March 2020, the S&P/ASX300 Accumulation index had fallen 36% from its highs in the previous month. The COVID-19 health crisis has also led to further and multiple waves of interest rate cuts globally. The Federal Reserve cut rates to 0%, China lowered its benchmark 1 year Prime Rate by 10 bps to 4.05%, the Bank of England announced emergency cuts in interest rates to 0.10%, taking borrowing costs down to the lowest level in history. The Bank of Japan left its key short-term interest rate unchanged at negative 0.10%. In an emergency meeting, the New Zealand Governor made a surprise decision to cut the official cash rate by 0.75% to 0.25%, an all-time low, and the RBA cut Australian rates by 50 bps to a record low 0.25%. As we had been writing about for some time, we were wary of elevated valuation metrics of the Australian market. While many companies in the BKI Portfolio continued to deliver an attractive income stream, valuations had become stretched. We expected some material downward revisions at some point, however the downward push on markets linked to the COVID-19 health crisis took everyone by surprise. The main challenge we faced during the June quarter, from a valuation perspective, was estimating the earnings impact in the near term. The FY2021 consensus EPS growth expectations continued to paint a very optimistic picture and we believed that these forecasts looked vulnerable to erosion, putting a strain on valuations (and prices) which remained elevated despite the market pullback. We believed during this period that there was more pain to come. The short-term pain seen in the Australian share market was surprisingly short lived and the index finished the financial year strongly, despite returning negative 7.6% for the year. This recovery is partly attributable to the $260 billion Australian Federal stimulus being implemented to combat the COVID-19 crisis. Australia continues to undergo its largest ever infrastructure boom with the Government investing a record $100 billion towards transport infrastructure over the next decade, boosted again by additional funding throughout the COVID-19 pandemic. As lockdown restrictions eased and stimulus cash flowed into bank accounts, we began to see some very strong retail sales activity. These observations in the market were confirmed with some very strong data over the quarter. The ABS reported retail sales up 16.3% in May, the largest seasonally adjusted rise ever published in the 38 years of the Retail Trade survey, following the largest ever seasonally adjusted fall of 17.7% in April 2020. Trading updates from many retailers point to double digit sales growth with a significant amount driven by online sales. We are finding it difficult to justify the (so far) V-shaped recovery in Global Equities Markets. This recovery has seen governments globally doing “whatever it takes” to stem the impact of COVID-19 on their economies. This involves maintaining near-zero interest rates, significant liquidity injections through money printing and pushing out “fiscal cliffs” with further deferments of mortgages and interest payments by small and medium business owners. Despite all the stimulus packages and historically low interest rates currently on offer, these deep, longer term issues may take 6-12 months to play out and we continue to be concerned about the medium-term outlook for much of the Australian economy. The ASX300 index is trading at almost exactly the same level as it was in June 2019, however the earnings outlook for most companies in the index has deteriorated significantly. We do not believe we have seen the real impact high unemployment, supply chain issues, low dividends or low immigration will have on our economy. We believe that sooner or later the market will focus on company valuations and realise that valuations do not align with the likely earnings outlook. We remain cautious into FY2021. 10 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Portfolio Manager’s Report (continued) Portfolio Movements In the first half of this financial year, we made changes to the portfolio through $55 million of sales, including exiting positions in Boral and Ampol (formally Caltex). We also reduced our overall exposure to the banking sector through sell downs of National Australia Bank, Westpac Banking Corporation and ANZ Banking Group. Over the last three years we have reduced our overall portfolio weighting in the banks from 33% to 15%. In the second half of the year BKI’s sales included the complete divestment of ANZ Banking Group following its failure to pay an interim 2020 dividend, as well as Challenger Limited and CIMIC Group. BKI also sold down partial positions in IAG Limited, Suncorp Group, AGL Energy and Telstra Corporation. Total divestments for the year were $91 million. These further divestments in the second half of the year allowed BKI to reinvest capital into other positions within the portfolio. BKI invested $128 million during FY2020 with the largest investments being BHP Limited, Macquarie Group, Amcor, Treasury Wine Estates, Harvey Norman Holdings, Transurban Group, New Hope Corporation, TPG Telecom, Sydney Airport and Woodside Petroleum. During June we welcomed the final court approval which sees TPG Telecom merge with VHA (Vodafone Hutchinson Australia). The merger will create Australia’s third largest telecommunications company, bringing together two highly complementary businesses and creating economies of scale to compete with Telstra and Optus. The transaction also sees the Fund receive a $0.516 cash Special Dividend and an in-specie distribution of shares in Tuas Limited (TUA). TUA is the fourth and newest mobile network operator in Singapore. While still in start-up phase, the business will have no debt and S$130m of cash which they anticipate will be sufficient to get to EBITDA breakeven. As at the end of June 2020, there were 43 stocks within the Portfolio, with the Top 25 holdings and cash accounting for 89.2% of the total Portfolio. The Investment Portfolio (including cash) was valued at $1,084.7 million, with the cash position of $59.2 million representing 5.5%. Performance For the year to 30 June 2020, the S&P/ASX 300 Accumulation Index return was negative 7.6%. BKI’s Total Shareholder Return was negative 7.1%, an outperformance of 0.5%. BKI’s Total Shareholder Returns including franking credits for the year to 30 June 2020 was negative 5.0%. BKI’s Net Portfolio Return (after all operating expenses, provisions and payment of both income and capital gains tax and the reinvestment of dividends) for the year to 30 June 2020 was negative 8.2%. BKI Total Shareholder Returns (TSR) Including Franking Credits as at 30 June 2020 7.0% 7.7% 2.0% 3.2% 9.3% 9.5% 8.9% 8.4% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -5.0% -6.0% 1 Year 3 Yrs pa 5 Yrs pa 10 Yrs pa 15 Yrs pa BKI Total Shareholder Returns Including Franking Credits S&P/ASX 300 ACC INDEX 2020 Annual Report 11 Portfolio Manager’s Report (continued) 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). $4.26 $5.00 $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 Investment Team Contact Asset Management’s investment team is made up of seven investment analysts; Tom Millner, Will Culbert, Rodney Forrest, Jovana Gagic, Jared Tilley, Charlie Kingston and Rob Horne. All staff at Contact Asset Management own shares in BKI, ensuring the investment manager is aligned with shareholders. We remain committed to investing for better outcomes for all BKI Shareholders. Our focus is on earnings growth and dividend payments – not generating excessive fees. 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) and a Neutral rating from Morningstar. Tom Millner and Will Culbert Contact Asset Management 12 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Directors’ Report The Directors of BKI Investment Company Limited (“the Company”, or “BKI”) present the following report on the Company and its controlled entities (“the Group”) for the year to 30 June 2020. 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 Chair Mr Millner was appointed Non-executive Chair upon the Company’s formation in October 2003. Mr Millner has over 36 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, Chair since 1998) p New Hope Corporation Limited (appointed 1995, Chair since 1998) p Brickworks Limited (appointed 1997, Chair since 1999) p Milton Corporation Limited (appointed 1998, Chair since 2002) p Apex Healthcare Berhad (Appointed 2000) p Australian Pharmaceutical Industries Limited (Appointed 2000) p TPG Telecom Limited (appointed 2000) Special Responsibilities: p Chair of the Board p Chair 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 & Risk 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 Chair of the Audit & Risk Committee p Member of the Remuneration Committee Ian Thomas Huntley, BA – Independent Non-Executive Director Mr Huntley joined the Board as a Non-executive Director in February 2009. After a career in financial journalism, Mr Huntley acquired “Your Money Weekly” newsletter in 1973. Over the following 33 years, Mr Huntley built the Your Money Weekly newsletter into one of Australia’s best known investment advisory publications. He and partners sold the business to Morningstar Inc of the USA in mid 2006. Special Responsibilities: p Member of the Investment Committee p Member of the Remuneration Committee p Member of the Audit & Risk Committee p Member of the Nomination Committee 2020 Annual Report 13 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 & Risk 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 & Risk Committee p Member of the Investment Committee p Chair of the Remuneration Committee p Member of the Nomination 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), 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 2020, and the numbers of meetings attended by each Director. Board1 Investment Audit & Risk 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 7 8 7 8 7 8 7 11 11 – 11 11 11 – 11 – 2 2 2 – 2 2 2 2 2 2 2 2 2 2 2 1 – 1 1 1 – 1 1 1 2 The number of board meetings includes circular resolutions passed by the board during the year. It also includes a meeting of a special purpose sub-committee, which not all directors were invited to attend. The sole meeting of the Nomination Committee was held in July 2019. Mr AJ Payne was not a member of the Committee at this time as he was scheduled for re-election as a Director under the Company’s Director rotation policy. Subsequent to being re-elected as a Director at the 2019 AGM, Mr Payne was reappointed to the Nomination Committee, and Mr DC Hall resigned from the Committee as he is due for re-election as a Director at the 2020 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 $45.4m, 13.3% lower than 2019, driving a 15.4% decrease in Net Operating Result before special investment revenue to $41.6m from $49.2m in 2019. Basic and diluted earnings per share before special dividend revenue was down 16.0% to 5.67 cents per share. This result was negatively impacted by lower ordinary dividends received from Woodside Petroleum, AGL Energy, SEEK, Regis Healthcare, Transurban Group, New Hope Corporation, National Australia Bank and Macquarie Group. This was exacerbated in the second half of the year when Harvey Norman, Sydney Airport, ANZ Bank and Westpac Banking Corporation did not pay an ordinary dividend at all. 14 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Directors’ Report (continued) 5. Operating Results (continued) BKI realised $0.7m from its trading portfolio, after participating in the National Australia Bank and LendLease Limited capital raisings. With the RBA decreasing interest rates to 0.25% by the end of the financial year, BKI’s interest received was only $0.6 m in FY2020, down 68% on FY2019. Although special dividend revenue was down 74.3% on FY2019, BKI still received a healthy $7.2m in Special Dividend Revenue in FY2020, including special dividends from Telstra Corporation, Harvey Norman, Orora Limited, and TPG Australia. The special dividends were declared by TPG Australia following the receipt of final court approval for its merger with VHA (Vodafone Hutchinson Australia). Shareholders in TPG Australia were rewarded with a $0.516 per share fully franked cash special dividend, generating $3.0m special dividend revenue for BKI in FY2020. In addition, BKI has recognized a further $1.9m fully franked special dividend in FY2020 as a result of an in-specie distribution of TUA shares. In July, as part of the merger, TPG Australia spun off Tuas Limited (TUA), who will be the owner of the TPG Singapore business, and as an existing shareholder of TPG Australia, BKI received one share in Tuas Limited via an In-Specie Dividend of Tuas shares for every two TPG Australia shares. BKI’s Net Operating Profit After Tax, including special investment revenue for FY2020 was $48.6 million, down 35% on the previous corresponding period, with basic earnings per share, including special investment revenue, decreasing 35% to 6.63 cents per share. Total Shareholder Return including franking credits for the year to 30 June 2020 was negative 5.0%, compared to the S&P/ ASX 300 Accumulation Index, which returned negative 6.0% over the same period. BKI’s Total Shareholder Return including Franking Credits for 15 years was 8.9% per annum compared to the S&P/ASX 300 Accumulation Index, which returned 8.4%. 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 2020 was negative 8.2%. 6. Review of Operations Operating expenses remained steady at $2.0m (2019: $2.0m), with all cost categories in line with the previous year. As a result, BKI was able to maintain its MER at 0.17% for the year (2019: 0.17%). BKI made a number of changes to the portfolio during FY2020, with investments of $127.7m and disposals of $90.7m. Additional investments were made into existing holdings including BHP Limited, Macquarie Group, Amcor, Treasury Wine Estates, Harvey Norman Holdings, Transurban Group, New Hope Corporation, TPG Telecom, Sydney Airports and Woodside Petroleum, while a new position in Orora Limited was also established. BKI reduced its holdings in National Australia Bank, Westpac Banking Corporation, IAG Limited, Suncorp Group, AGL Energy and Telstra Corporation, and completely divested holdings in Boral, Ampol (formerly Caltex), Challenger Limited, CIMIC Group and ANZ Banking Group. 7. Financial Position Net assets of the Group decreased during the financial year to $1,047.9m (2019: $1,155.4m), primarily driven by a negative revaluation of the investment portfolio. 8. Employees The Group had no employees as at 30 June 2020 (2019: 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. 2020 Annual Report 15 Directors’ Report (continued) 10. Likely Developments and Expected Results The operations of the Group will continue with planned long term investments in Australian equities and fixed interest securities. 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. As mentioned previously in this report, the advent of the COVID-19 economic crisis created significant social and economic upheaval in FY2020, causing extreme economic uncertainty across all industries globally, and resulting in extreme fluctuations in global sharemarkets. The social, economic and financial impacts of COVID-19 are expected to continue in FY2021, and we expect further changes in government policy and regulations in order to address these impacts. All of these changes will impact the intention and/or ability of companies to generate returns and pay dividends, including those companies in which BKI invests. 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. 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 2020: p On 29 August 2019, a final ordinary dividend of 3.700 cents per share and a final special dividend of 1.00 cents per share (both fully franked) totalling $34.3 million was paid out of retained profits at 30 June 2019. p On 27 February 2020, an interim ordinary dividend of 3.625 cents per share (fully franked) totalling $26.6 million was paid out of retained profits at 31 December 2019. In addition, the Directors declared a final ordinary dividend of 2.32 cents per share and a final special dividend of 1.00 cents per share, both fully franked at 30%, payable on 27 August 2020. At 30 June 2020 there are $16,040,832 of franking credits available to the Group (2019: $14,691,000) 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 2020, 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. 16 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Directors’ Report (continued) 15. Proceedings on Behalf of the Group No person has applied for leave of the Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. 16. Non-audit Services During the year ended 30 June 2019 and the year ended 30 June 2020 MGI Sydney did not provide any non-audit services to the Group, nor did the Group pay any fees for such services. 17. Auditor’s Independence Declaration The Auditor’s Independence Declaration for the year to 30 June 2020 is on page 49. 18. Beneficial and Relevant Interest of Directors and Other Key Management Personnel in Shares As at the date of this report, details of Directors and Other Key Management Personnel who hold shares for their own benefit or who have an interest in holdings through a third party and the total number of such shares held are listed as follows: Name RD Millner DC Hall AJ Payne IT Huntley J Pinto Number of Shares 9,857,446 2,471,337 430,000 11,224,980 125,916 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. 2020 Annual Report 17 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 2019 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 FY2020 the Short Term Incentive for the Company Secretary was set at 15,000 BKI shares. 18 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 2020 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 (8.2)% (7.6)% (0.6)% Nil The vesting criteria for the 2020 Financial Year Short Term Incentives were therefore not satisfied, and the Company did not award any short term incentives in respect of 2020 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 2020, 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 2020 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 01/07/2016 24,030 $37,800 30/06/2020 30/06/2021 Nil - 2020 Annual Report 19 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 1/07/2016 to 30/06/2020 1.7% 7.3% (5.6)% nil Based on the above performance the vesting criteria for Long Term Incentives issued on 1 July 2016 were not satisfied. In accordance with the terms of the Long Term Incentive Scheme, these incentives will be retested as at 30 June 2021. During the 2020 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 2016 01/07/2015 18,628 $31,500 30/06/2019 30/06/2020 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 1/07/2015 to 30/06/2020 1.2% 6.0% (4.8)% 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 lapsed as at 30 June 2020. No outstanding Long Term Incentives granted by the Company became eligible for vesting between 1 July 2020 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 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 J Pinto 2020 01/07/2019 25,000 $38,678 30/06/2023 30/06/2024 J Pinto 2021 01/07/2020 25,000 $35,943 30/06/2024 30/06/2025 – – – – – 24,030 25,000 25,000 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 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) Remuneration Details for the Year to 30 June 2020 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 Chair 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: 2019 RD Millner DC Hall AJ Payne1 IT Huntley Total 2020 RD Millner DC Hall AJ Payne IT Huntley Total Primary fee $ Superannuation $ Total $ 68,196 52,717 29,080 43,037 193,030 69,041 53,379 43,562 43,562 6,479 5,008 18,044 4,088 33,619 6,559 5,071 4,138 4,138 74,675 57,725 47,124 47,125 226,649 75,600 58,450 47,700 47,700 209,544 19,906 229,450 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. 2020 Annual Report 21 Directors’ Report (continued) 20. Remuneration Report (Audited) (continued) Other Key Management Personnel: Fixed remuneration Salary Super- annuation Total $ – – – – $ – – – – $ – – – – Share based performance related remuneration STI $ – – – – LTI $ 8,442 8,442 2,752 2,752 Total $ 8,442 8,442 2,752 2,752 Total Remuneration $ 8,442 8,442 2,752 2,752 2019 J Pinto Total 2020 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 2020 0% 2019 0% 2020 0% 2019 0% 2020 100% 2019 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 16 July 2020 22 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Consolidated Income Statement for the year ended 30 June 2020 Ordinary revenue from investment portfolio Revenue from bank deposits Other income 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 investment revenue (net of applicable tax) Basic and diluted earnings per share after special investment revenue (net of applicable tax) Note 2(a) 2(c) 2(d) 2(e) 3 2(b) 4(a) Note 6 6 2020 $’000 45,368 614 2 748 46,732 (2,034) 44,698 7,182 51,880 (3,258) 48,622 48,622 2020 Cents 5.67 6.63 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 This Income Statement should be read in conjunction with the accompanying notes 2020 Annual Report 23 Consolidated Statement of Other Comprehensive Income for the year ended 30 June 2020 Note 2020 $’000 2019 $’000 Profit for the year attributable to members of the Company 48,622 74,700 Other comprehensive income Unrealised (losses)/gains on investment portfolio Deferred tax benefit/(expense) on unrealised losses/gains on investment portfolio Realised losses on investment portfolio Tax benefit relating to realised losses on investment portfolio Total other comprehensive income Total comprehensive (loss)/income 4(a) (128,339) 43,504 38,502 (18,963) 5,689 (103,111) (54,489) (13,051) (13,474) 4,042 21,021 95,721 This Statement of Other Comprehensive income should be read in conjunction with the accompanying notes 24 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Consolidated Statement of Financial Position as at 30 June 2020 Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Investment portfolio Property, plant & equipment Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Current tax liabilities 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 2020 $’000 48,290 11,079 45 59,414 2019 $’000 88,856 9,165 23 98,044 1,025,474 1 25,744 1,136,573 – 20,230 1,051,219 1,156,803 1,110,633 1,254,847 312 2,438 2,750 59,976 59,976 62,726 307 1,272 1,579 97,840 97,840 99,419 1,047,907 1,155,428 924,130 130,657 (52,176) 45,296 916,233 220,494 (38,902) 57,603 1,047,907 1,155,428 This Statement of Financial Position should be read in conjunction with the accompanying notes 2020 Annual Report 25 Consolidated Statement of Changes in Equity for the year ended 30 June 2020 Share capital $’000 Revaluation reserve $’000 Realised capital gains reserve $’000 Retained profits $’000 Total equity $’000 Total equity at 1 July 2018 908,015 190,041 (29,467) 47,025 1,115,615 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) – – – Total equity at 30 June 2019 916,233 220,494 Total equity at 1 July 2019 916,233 220,494 Issue of shares, net of issue costs 7,897 Dividends paid or provided for Unrealised loss on revaluation of investment portfolio Provision for tax on unrealised loss on revaluation of investment portfolio Net operating profit for the year Net realised loss through other comprehensive income – – – – – – – (128,339) 38,502 – – Total equity at 30 June 2020 924,130 130,657 – – – – (3) – (9,432) (38,902) (38,902) – – – – – – 8,218 (64,122) (64,122) – – – 43,504 (13,051) (3) 74,700 74,700 – (9,432) 57,603 1,155,428 57,603 1,155,428 – 7,897 (60,929) (60,929) – – 48,622 (128,339) 38,502 48,622 (13,274) (52,176) – (13,274) 45,296 1,047,907 This Statement of Changes in Equity should be read in conjunction with the accompanying notes 26 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Consolidated Cash Flow Statement for the year ended 30 June 2020 Note 2020 $’000 2019 $’000 Cash flows from operating activities Dividends and distributions received Other receipts in the course of operations Payments to suppliers and employees Proceeds from sale of trading portfolio Payments for trading portfolio Interest received Income tax paid 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 from financing activities Net decrease 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 50,727 2 (2,045) 5,409 (4,662) 729 (1,234) 48,926 73,551 – (2,893) – – 1,870 (1,154) 71,374 90,732 (127,711) 527 76,633 (181,937) 1,130 (36,452) (104,174) (26) (53,014) (53,040) (40,566) 88,856 48,290 (31) (55,883) (55,914) (88,714) 177,570 88,856 2020 Annual Report 27 Notes to the Financial Statements for the year ended 30 June 2020 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. 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 28 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) 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. 2020 Annual Report 29 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 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 16 Leases AASB 16 Leases supersedes the previous lease accounting requirements in AASB 117: Leases and the related Interpretations. It introduced a single lessee accounting model by eliminating the requirement to distinguish leases as either operating leases or finance leases depending on the transfer of risks and rewards of ownership. The Group does not have any arrangements that satisfy the definition of a Lease, and therefore the adoption of this standard has not had an impact on the financial performance or position of the Group. 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 2020 (“the inoperative standards”). The Group only intends to adopt the inoperative standards at the date at which their adoption becomes mandatory. 2. Revenues (a) Ordinary revenue from investment portfolio Fully franked dividends Unfranked dividends Trust distributions Total ordinary revenue from investment portfolio (b) Special investment revenue Fully franked dividends Unfranked dividends Total special investment revenue (c) Revenue from bank deposits Interest received (d) Other income Other income (e) Other gains Net realised gain on sale of investments held for trading Total income 2020 Annual Report 2020 $’000 34,206 4,606 6,556 45,368 6,724 458 7,182 614 2 748 53,914 2019 $’000 41,878 3,679 6,753 52,310 19,886 8,091 27,977 1,944 – – 82,231 31 Notes to the Financial Statements (continued) 3. Operating expenses Administration expenses Employment expenses Investment Management Professional fees Total operating expenses 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% (2019: 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% (2019: 30%) Total tax expense (b) The components of tax expense comprise Current tax Deferred tax Prior year over provision Total tax expense 2020 $’000 454 232 1,188 160 2,034 2019 $’000 459 235 1,194 159 2,047 51,880 15,564 (12,279) (27) 3,258 80,184 24,055 (18,520) (51) 5,484 (18,963) (13,474) (5,689) (2,431) 3,356 (5,760) (27) (2,431) (4,042) 1,442 4,161 (2,668) (51) 1,442 32 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) 5. Dividends 2020 $’000 2019 $’000 (a) Dividends paid during the year Final ordinary dividend for the year ended 30 June 2019 of 3.70 cents per share (2018: 3.70 cents per share) fully franked at the tax rate of 30%, paid on 29 August 2019 27,036 26,837 Final special dividend for the year ended 30 June 2019 of 1.00 cents per share (2018: nil) fully franked at the tax rate of 30%, paid on 29 August 2019 7,306 – Interim ordinary dividend for the year ended 30 June 2020 of 3.625 cents per share (2019: 3.625 cents per share) fully franked at the tax rate of 30%, paid on 27 February 2020 Interim special dividend of $nil (2019: 1.50 cents per share, fully franked at the tax rate of 30%) 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 (c) Franking account balance Balance of the franking account after allowing for tax payable in respect of the current year’s profits and the receipt of dividends recognised as receivables Estimated impact on the franking account of dividends declared but not recognised as a liability at the end of the financial year (refer below) Net imputation credits available for future dividends Maximum fully franked dividends payable from available franking credits at the tax rate of 30% (2019: 30%) 26,587 26,372 – 60,929 60,929 (7,915) 53,014 10,913 64,122 64,122 (8,239) 55,883 26,506 29,409 (10,465) 16,041 (14,718) 14,691 37,429 34,278 (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 2020 of 2.32 cents per share and a special dividend of 1.00 cents per share, both fully franked at the tax rate of 30% (2019: final ordinary dividend of 3.70 cents per share and special dividend of 1.00 cents per share, both fully franked at the tax rate of 30%), payable on 27 August 2020, but not recognised as a liability at the year end. 2020 Annual Report 33 Notes to the Financial Statements (continued) 6. Earnings per share (a) Calculation of earnings Net operating profit Earnings used in calculating basic and diluted earnings per share after special investment revenue Less: Special investment revenue Add: Tax expense attributable to special investment revenue Earnings used in calculating basic and diluted earnings per share before special investment revenue 2020 $’000 2019 $’000 48,622 74,700 48,622 (7,182) 138 74,700 (27,977) 2,427 41,578 49,150 No. ’000 No. ’000 b) Number of shares Weighted average number of ordinary shares used in calculating basic and diluted earnings per share, before and after special investment revenue 733,696 728,234 c) Earnings per share Basic and diluted earnings per share before special investment revenue Basic and diluted earnings per share after special investment revenue 5.67 6.63 6.75 10.26 Cents Cents 7. Cash and cash equivalents Cash at bank Short term bank deposits 8. Trade and other receivables Dividends and distributions receivable Capital returns receivable Interest receivable Other 2020 $’000 48,290 – 48,290 10,655 248 – 176 11,079 2019 $’000 65,856 23,000 88,856 8,833 – 116 216 9,165 34 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) 9. Financial Assets – Equity Portfolio Investment portfolio – non-current Listed securities at fair value available for sale Total investment portfolio Fair Value Measurement 2020 $’000 2019 $’000 1,025,474 1,136,573 1,025,474 1,136,573 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. 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 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2019 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2020 2020 Annual Report 510 34 25,200 25,744 778 32 19,420 20,230 Credited/ (charged) to statement of comprehensive income $’000 Credited/ (charged) to equity $’000 (294) 3 3,280 2,989 (276) 2 5,780 5,506 9 – – 9 8 – – 8 Opening balance $’000 1,063 29 16,140 17,232 778 32 19,420 20,230 Closing balance $’000 778 32 19,420 20,230 510 34 25,200 25,744 35 Notes to the Financial Statements (continued) 11. Current tax liabilities Provision for income tax 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 2020 $’000 2,438 2019 $’000 1,272 58,853 1,123 59,976 96,463 1,377 97,840 (Credited)/ charged to statement of comprehensive income $’000 – 321 321 – (254) Opening balance $’000 81,191 1,056 82,247 96,463 1,377 (Credited)/ charged to equity $’000 15,272 – 15,272 (37,610) – Closing balance $’000 96,463 1,377 97,840 58,853 1,123 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2019 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2020 97,840 (254) (37,610) 59,976 36 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) 13. Share Capital (a) Issued and paid-up capital 2020 $’000 2019 $’000 735,513,845 ordinary shares fully paid (2019: 730,688,257) 924,130 916,233 (b) Movement in ordinary shares Beginning of financial year Issued during the year: – dividend reinvestment plan Gross funds raised – less net transaction costs 2020 2019 Number of shares $’000 Number of shares $’000 730,688,257 916,233 725,311,402 908,015 4,825,588 7,915 5,376,855 7,915 (18) 8,239 8,239 (21) End of financial year 735,513,845 924,130 730,688,257 916,233 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 2020 net debt was $Nil (2019: $Nil). (d) Acquisition of controlled entities The Company did not acquire shares in any unlisted investment companies during the 2019FY or 2020FY. 2020 Annual Report 37 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 2020 $’000 2019 $’000 220,494 (128,339) 38,502 130,657 190,041 43,504 (13,051) 220,494 (38,902) (13,274) – (52,176) 57,603 48,622 (60,929) 45,296 (29,467) (9,432) (3) (38,902) 47,025 74,700 (64,122) 57,603 38 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 (Increase)/decrease in trade and other operating receivables Increase in prepayments Changes in assets and liabilities, net of effects from consolidation of subsidiaries: – – – Decrease in deferred tax assets Increase/(decrease) payables – Increase in current tax liabilities – Increase in deferred tax liabilities – 2020 $’000 2019 $’000 48,622 74,700 – (8,091) (1,666) (22) 380 5 1,166 441 1,397 (7) 435 (1,083) 863 3,160 Net cash inflow from operating activities 48,926 71,374 (b) Non-cash financing and investing activities (i) Dividend reinvestment plan Under the terms of the dividend reinvestment plan, $7,915,000 (2019: $8,240,000) of dividends were paid via the issue of 4,825,588 shares (2019: 5,376,855). 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 & Risk 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. 2020 Annual Report 39 Notes to the Financial Statements (continued) 18. Management of Financial Risk (continued) 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 92% (2019: 91%) of total assets. As at 30 June 2020, 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 (2019: 5%); and p a movement of 7.0 cents per share in the net asset backing before provision for tax on unrealised capital gains (2019: 7.8 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. At 30 June 2020 and 30 June 2019, the spread of investments was in the following sectors: Financials Industrials Consumer discretionary Materials Consumer staples Utilities Telecommunications services Health care Energy Property Total investments Cash and dividends receivable Percentage of total investment (%) Amount ($’000) 2020 2019 2020 2019 29.86 10.51 9.08 8.97 8.15 7.86 7.02 6.09 4.62 2.38 94.54 5.46 36.54 9.93 7.66 5.72 6.06 6.69 5.39 5.51 6.49 2.10 92.09 7.91 323,885 113,984 98,526 97,225 88,467 85,260 76,196 66,051 49,961 25,920 451,105 122,515 94,591 70,461 74,679 82,552 66,589 67,925 80,167 25,987 1,025,474 59,193 1,136,573 97,689 Total portfolio 100.00 100.00 1,084,667 1,234,262 40 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) Securities representing over 5% of the investment portfolio at 30 June 2020 or 30 June 2019 were: Macquarie Group Commonwealth Bank BHP Group APA Group Transurban Group National Australia Bank Percentage of total investment (%) Amount ($’000) 2020 2019 2020 2019 7.2 6.6 6.4 5.9 5.3 3.6 5.0 6.7 4.5 4.3 4.4 5.4 77,703 71,504 68,954 64,225 56,966 39,102 61,412 82,154 55,257 52,863 54,502 67,045 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 2020 (2019: Nil). f. Foreign Currency Risk The Group is not exposed to foreign currency risk as all investments are quoted in Australian dollars. 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. 2020 Annual Report 41 Notes to the Financial Statements (continued) 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 Chair 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 2020 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 FY2020 (2019: 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. 21. Related Party Transactions Related parties of the Group fall into the following categories: (i) Controlled Entities At 30 June 2020, subsidiaries of the Parent were: Brickworks Securities Pty Limited Huntley Investment Company Pty Limited BKI Sub Pty Limited Pacific Strategic Investments Pty Limited Country of incorporation Percentage Owned (%) 2020 2019 Australia Australia Australia Australia 100 100 100 100 100 100 100 100 There were no transactions between the Parent and controlled entities in FY2020. In FY2019 transactions between the Parent and controlled entities consisted of transfers of investment holdings from subsidiaries to the parent entity. 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. 42 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Notes to the Financial Statements (continued) 21. Related Party Transactions (continued) (ii) Directors/Officers Related Entities Persons who were Directors/Officers of BKI Investment Company Limited for the year ended 30 June 2020 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 2020 were $122,100 (2019: $122,100, including GST) and are at standard market rates. As at 30 June 2020 the Group owed $nil to CAS (2019: $nil). 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 2020 were $1,275,159 including GST (2019: $1,281,319) and are at standard market rates. As at 30 June 2020 the Group owed $99,461 to Contact (2019: $113,174). (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 2020 RD Millner DC Hall AJ Payne IT Huntley J Pinto Total 2019 RD Millner DC Hall AJ Payne IT Huntley J Pinto Total 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 – – – – – – – – – – – – 1,046,604 10,730 15,944 – 6,155 9,857,446 2,471,337 430,000 11,224,980 125,916 1,079,433 24,109,679 322,611 – 35,000 – 6,607 8,810,842 2,460,607 414,056 11,224,980 119,761 364,218 23,030,246 Directors acquired shares through the Dividend Reinvestment Plan, and/or on-market purchase. Other Key Management Personnel acquired shares through the Dividend Reinvestment Plan. All KMP or their associated entities, being shareholders, are entitled to receive dividends. 2020 Annual Report – – – – – – – – – – – – 9,857,446 2,471,337 430,000 11,224,980 125,916 24,109,679 8,810,842 2,460,607 414,056 11,224,980 119,761 23,030,246 43 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 2020 $’000 2019 $’000 59,413 1,252,571 1,311,984 2,670 269,368 272,038 924,130 115,817 1,039,947 48,622 (103,111) 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 The parent company has no contingent liabilities as at 30 June 2020. 23. Capital and Leasing Commitments The Group has no capital and leasing commitments as at 30 June 2020. 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 Other non-audit services Total remuneration of the auditor of the Group 25. Contingent Liabilities The Group has no contingent liabilities as at 30 June 2020. 26. Authorisation The financial report was authorised for issue on 16 July 2020 by the Board of Directors. 27 27 – 27 26 26 – 26 44 2020 Annual Report BKI INVESTMENT COMPANY LIMITED Directors’ Declaration The Directors of BKI Investment Company Limited declare that: 1. the financial statements and notes, as set out on pages 23 to 44, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations; and b. comply with International Financial Reporting Standards, as stated in Note 1 to the financial statements c. give a true and fair view of the financial position as at 30 June 2020 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 2020. This declaration is made in accordance with a resolution of the Board of Directors. Robert D Millner Director Sydney 16 July 2020 2020 Annual Report 45 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 2020, 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 2020 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 46 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 2020 comprised of listed equity investments of $1,025.47 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 2020, 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. 2020 Annual Report 47 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 reports. 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. Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 17 to 22 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of BKI Investment Company Limited for the year ended 30 June 2020, 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 2020 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, 16 July 2020 48 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 2020, 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 Director Address: Level 5, 6 O’Connell Street, Sydney NSW 2000 Dated this: 16th day of July 2020 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 2020 Annual Report 49 ASX Additional Information 1) Equity Holders At 30 June 2020 there were 18,271 holders of ordinary shares in the capital of the Parent. These holders were distributed as follows: Number of shares held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 1,485 2,769 2,731 10,116 1,170 18,271 Holding less than a marketable parcel of 361 shares 729 The 20 largest holdings of the Parent’s shares as at 30 June 2020 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 Netwealth Investments Limited I R McDonald Pty Limited John E Gill Trading Pty Limited Nibot Pty Limited Donald Cant Pty Limited Estate of Francis Albert Robertson K C Perks Investments Pty Ltd Snow Foundation Limited Fennybentley Pty Limited BNP Paribas Nominees Pty Limited T N Phillips Investments Pty Limited T G Millner Holdings Pty Limited Farjoy Pty Limited Mr Timothy Frank Robertson 50 Number of shares held 62,405,057 8,523,274 5,816,300 5,658,288 4,169,612 3,365,124 3,024,782 3,000,000 2,284,877 2,251,845 2,198,618 2,136,110 2,004,233 1,863,600 1,700,000 1,623,394 1,619,044 1,605,708 1,550,800 1,535,151 % 8.48 1.16 0.79 0.77 0.57 0.46 0.41 0.41 0.31 0.31 0.30 0.29 0.27 0.25 0.23 0.22 0.22 0.22 0.21 0.21 2020 Annual Report BKI INVESTMENT COMPANY LIMITED 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 2020 the name and holding of each substantial shareholder as disclosed in a notice received by the Parent is listed below. The number of shares held and percentage ownership do not necessarily reflect the current ownership levels of these shareholders, as any subsequent movements of less than 1% would not need to be disclosed to ASX or the Company: 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 150 (2019: 322) transactions in securities undertaken by the Group and the total brokerage paid or accrued during the year was $427,873 (2019: $577,354). 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 2013 0.19 2005 0.71 2014 0.17 2006 0.56 2015 0.18 2007 0.46 2016 0.16 2008 0.46 2017 0.15 2009 0.31 2018 0.16 2010 0.19 2019 0.17 2011 0.18 2020 0.17 2012 0.18 Produced by APM Graphics Management > 1800 806 930 2020 Annual Report 51 Auditor 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 Chair 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 Thomas Charles Dobson Millner Portfolio Manager William Anthony Culbert Portfolio Manager Company Secretaries Jaime Perry 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 52 2020 Annual Report ABN: 23 106 719 868 Level 14, 151 Clarence Street Sydney NSW 2000