BKI INVESTMENT COMPANY LIMITED ABN: 23 106 719 868 Annual Report for the year ended 30 June 2023 Contents ii Annual Report 2023 ASX: BKI Financial Highlights 1Chair’s Address 4Portfolio Manager’s Report 7Directors’ Report 12Remuneration Report 17Statement of Profit or Loss 23Statement of Other Comprehensive Income 24Statement of Financial Position 25Statement of Changes in Equity 26Statement of Cash Flows 27Notes to the Financial Statements 28Directors’ Declaration 46Independent Auditor’s Report to the Members of BKI Investment Company Limited 47Auditor’s Independence Declaration 50Shareholder Information 51Corporate Directory 53 Financial Highlights Revenue performance Total revenue – ordinary Special investment revenue Change Jun 2023 $’000 Jun 2022 $’000 up down 15% to 88% to 72,753 4,998 from from 63,390 42,713 Total income from ordinary activities down 27% to 77,751 from 106,103 Profits Operating result after tax – before special investment revenue Special investment revenue Net profit from ordinary activities after tax attributable to shareholders Net profit attributable to shareholders Portfolio Total portfolio value (including cash & receivables) up down down down 12% to 88% to 65,068 4,998 from from 58,086 42,713 31% to 31% to 70,066 70,066 from from 100,799 100,799 up 12% to 1,390,008 from 1,236,581 Change Cents Cents Earnings per share (EPS) Basic EPS before special investment revenue and applicable tax Basic EPS after special investment revenue and applicable tax up down 11% to 31% to 8.68 9.35 from from Dividends Interim – Ordinary Interim – Special Final – Ordinary Final – Special Full Year Total up steady up down down 6% to 0% to 10% to 100% to 5% to 3.700 0.500 4.000 – 8.200 from from from from from 7.84 13.60 3.500 0.500 3.650 1.000 8.650 10 Year Dividend History (cents per share) 30 June 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Interim – Ordinary Interim – Special Final – Ordinary Final – Special Total 3.45 – 3.50 – 6.95 3.55 – 3.65 – 7.20 3.60 – 3.65 – 7.25 3.60 – 3.70 – 7.30 3.625 – 3.700 – 7.325 3.625 2.500 3.700 – 9.825 3.625 1.000 2.320 – 6.945 2.00 – 3.00 – 5.00 3.50 0.50 3.65 1.00 8.65 3.70 0.50 4.00 – 8.20 All ordinary and special dividends paid by BKI Investment Company Limited (“BKI”) since listing on the Australian Securities Exchange have been fully franked. 10 Year Net Tangible Asset (NTA) History ($ per share) 30 June 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 NTA before tax NTA after tax 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 1.71 1.59 1.66 1.58 1.75 1.64 BKI Investment Company Limited ABN: 23 106 719 868 1 Financial Highlights (continued) List of Securities as at 30 June 2023 Financials Macquarie Group Limited Commonwealth Bank of Australia National Australia Bank Limited Suncorp Group Limited Equity Trustees Limited E&P Financial Group Limited Materials BHP Group Limited Rio Tinto Limited Amcor Limited Brickworks Limited Orora Limited Energy New Hope Corporation Limited Woodside Energy Limited Yancoal Australia Limited Washington H Soul Pattinson & Co Limited Ampol Limited Consumer Discretionary Wesfarmers Limited Harvey Norman Holdings Limited ARB Corporation Limited Industrials Transurban Group Aurizon Holdings Limited Lindsay Australia Limited Smartgroup Corporation Limited Reece Limited IPH Limited Number of securities held Market value $’000 Portfolio weight % 655,182 917,528 3,238,000 1,531,408 447,932 6,631,759 2,640,000 295,000 1,670,000 436,209 2,473,000 12,950,952 1,652,925 3,485,000 391,908 275,000 1,228,000 8,070,000 978,590 3,485,952 5,245,000 17,141,631 1,310,000 515,499 665,000 116,373 92,001 85,386 20,659 11,610 2,785 328,814 118,774 33,834 24,816 11,629 8,136 197,189 62,812 56,927 15,961 12,455 8,234 8.37 6.62 6.14 1.49 0.83 0.20 23.65 8.54 2.43 1.79 0.84 0.59 14.19 4.52 4.09 1.15 0.90 0.59 156,389 11.25 60,590 28,084 27,988 116,662 49,675 20,560 19,541 10,375 9,573 5,207 114,931 4.36 2.02 2.01 8.39 3.57 1.48 1.41 0.75 0.69 0.37 8.27 2 Annual Report 2023 ASX: BKI List of Securities as at 30 June 2022 (continued) Number of securities held Market value $’000 Portfolio weight % Consumer Staples Woolworths Group Limited Coles Group Limited Metcash Limited Treasury Wine Estates Limited Utilities APA Group Health Care Sonic Healthcare Limited Ramsay Health Care Limited Regis Healthcare Limited Telecommunications Telstra Corporation Limited TPG Telecom Limited Tuas Limited Nine Entertainment Co. Holdings Limited Property Goodman Group Limited Stockland Corporation Limited Total Portfolio Investment portfolio Trading portfolio Total Portfolio Cash and dividends receivable Total Investment Assets 1,159,906 1,129,102 3,621,084 905,155 8,775,389 1,262,000 575,000 1,807,428 9,725,000 5,748,362 2,874,181 2,300,000 945,000 1,225,000 46,083 20,798 13,615 10,165 90,661 85,033 85,033 44,889 32,367 4,012 81,268 41,818 27,995 6,007 4,519 80,339 18,966 4,937 23,903 1,275,189 1,275,189 – 1,275,189 114,819 3.32 1.50 0.97 0.73 6.52 6.12 6.12 3.23 2.33 0.29 5.85 3.01 2.01 0.43 0.33 5.78 1.36 0.36 1.72 91.74 91.74 – 91.74 8.26 1,390,008 100.00 The Group is a substantial shareholder in accordance with the Corporations Act 2001 of Lindsay Australia Limited, holding 5.65% of the issued capital as at 30 June 2023. 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. BKI Investment Company Limited ABN: 23 106 719 868 3 Chair’s Address Dear Shareholders, I am pleased to enclose the 20th Annual Report of BKI Investment Company Limited (BKI) for the year to 30 June 2023 (“FY2023”). Despite a strong performance from the equity markets in FY2023, the last year saw many challenges emerge. The aftermath of COVID19 and flooding the world economy with cash through global stimulus packages distributed during 2020 and 2021 became evident. The global economy has greatly benefited from a variety of stimulus packages over the last couple of years, creating a huge tailwind for households, consumers and businesses. Labour shortages have also endured, pushing up wages and other costs to businesses. Inventory shortages have continued to impact pricing and availability of goods and services across the world. In addition, the war in Ukraine continues to disrupt global energy supply. These factors have led to a sharp rise in inflation, forcing Central Banks around the world to lift interest rates at an aggressive rate. In Australia, the official cash rate has increased from 0.85% in June 2022 to 4.10% in June 2023. This is the sharpest rise in rates ever. Global equity markets were extremely strong for the year. Domestically the S&P/ASX 300 Accumulation Index generated a very robust 14.4% return for the year. Company profits led by Utilities, Energy, Resources and Communications improved and dividends paid by Australian equities increased again throughout the year. The strong performance of the Australian equity market highlights that there is still likely large cash balances looking for opportunities. However, the dramatic rises in interest rates is beginning to take a toll on many parts of the economy. While we are positive on the future of the Australian economy, we are mindful of further interest rate increases, recession risks, the potential mortgage cliff, rental issues and a general slowdown of consumer spending. Result Highlights BKI’s Revenue from investment portfolio was up 14.8% to $72.8 million. The result was boosted by higher ordinary dividends received over the last year from New Hope Corporation, Woodside Energy, Telstra Corporation, Yancoal Australia, Lindsay Australia and Macquarie Group. BKI’s interest received was $1.6 million, up substantially on FY2022 following a significant rise in interest rates during the year. BKI’s Net Operating Profit After Tax, before special investment revenue, was a record $65.1 million, an increase of 12.0% over the previous corresponding period. BKI’s basic earnings per share before special investment revenue was 10.8% higher to 8.68 cents per share. Special Investment Revenue was lower in FY2023, following the $42.7 million in special dividends received in FY2022. Special Dividends received in FY2023 from New Hope Corporation, Ampol Limited and Smartgroup Limited totalled $5.0 million. BKI’s Net Operating Profit After Tax, including special investment revenue for FY2023 of $70.1 million, fell 31.3% on the previous corresponding period. BKI’s FY2023 basic earnings per share, including special investment revenue, was 9.35 cents per share. Dividends The BKI Board has declared a final ordinary dividend of 4.00cps, up 10% from 3.65cps in the previous corresponding period. This 4.00cps ordinary dividend is the highest ordinary dividend paid by BKI in its 20 years and takes total dividends paid for the FY2023 year to 8.20cps. Including the payment of the FY2023 dividend, BKI has now paid out over $1.31 per share in dividends since listing on the ASX twenty years ago. Including franking credits BKI has paid out over $1.0 billion to Shareholders since IPO. Based on the FY2023 dividends of 8.20cps, the current historical BKI grossed up dividend yield is 6.8% based on a tax rate of 30% and a share price of $1.73, as at 30 June 2023. 4 Annual Report 2023 ASX: BKI Chair’s Address (continued) Dividends per Share (DPS) 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 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Ordinary Dividends per Share Special Dividends per Share Dividend Key Dates The last trading date to be eligible for the FY2023 Final Dividend is Thursday 10 August 2023. Key dates for the fully franked final dividend are as follows: Key Dates BKI Announce Full Year FY2023 Results Last trading date to be eligible for dividend Ex-dividend Date Record Date DRP Nomination Dividend Payment Date Annual General Meeting Wednesday 19 July 2023 Thursday 10 August 2023 Friday 11 August 2023 Monday 14 August 2023 Tuesday 15 August 2023 Tuesday 29 August 2023 Wednesday 8 November 2023 Dividend Reinvestment Plan (DRP) The BKI Board has confirmed that BKI’s Dividend Reinvestment Plan (DRP) will be maintained offering shareholders the opportunity to acquire further ordinary shares in BKI. The DRP will not be offered at a discount. The last day to nominate for participation in the DRP is Tuesday 15 August 2022. To complete a DRP form please follow the 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 shares sold in the ordinary course of trading on the ASX during the 5 trading days after, but not including, the Record Date (Monday 14 August 2022). BKI Investment Company Limited ABN: 23 106 719 868 5 Chair’s Address (continued) Management Expense Ratio (MER) BKI’s MER as at 30 June 2023 was 0.18%. The Board and 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. Our focus is on creating wealth for all shareholders by keeping costs low, increasing fully franked dividends and generating capital growth over the long- term. BKI has no debt and thus shareholder returns are not diluted by interest payable on such a facility. BKI’s MER continues to compare very favourably to other externally managed LICs, ETFs and managed funds in the domestic market that provide a similar broad-based exposure to Australian equities. Outlook Post the COVID19 years we continue to experience the secondary effects of flooding the world economy with cash through global stimulus packages distributed during 2020 and 2021. These actions have led to a sharp rise in inflation, forcing Central Banks around the world to lift interest rates at an aggressive rate. We expect to see further challenges emerge following high inflation and rising interest rates over the short to medium term. However, as we have explained many times before, despite times of uncertainty there are always opportunities to invest within equity markets. Our goal is to always invest in high quality businesses with a strong balance sheet, competitive advantage and managed by capable and trustworthy people. We seek to invest in businesses that will pay us an attractive and sustainable dividend stream throughout the cycle. In this environment we target those companies that are more defensive in nature and display a competitive advantage. Those companies who have pricing power and the ability to pass on prices to their customers to ensure continued profitability, earnings growth and dividend growth for our shareholders should perform well. We aim to invest in these businesses at a reasonable price with a view of holding them for the long-term. BKI holds a portfolio of high-quality dividend paying stocks and has no debt. We are well positioned to take advantage of any market opportunity which may present itself over the year ahead with 8.3% of the portfolio currently in cash. Robert Millner AO Chair 6 Annual Report 2023 ASX: BKI Portfolio Manager’s Report Dear Shareholders, Contact Asset Management, as the Investment Manager of BKI Investment Company, is pleased to include our Investment Report for FY2023. Market Commentary In FY2022, most Global equities fell hard on increased concerns over rising inflation and the chance of an economic recession. However, a year on and following a wave of negative sentiment and monetary policy headwinds, the returns for FY2023 in Global equities markets have been quite extraordinary. The following chart is illustrative. 35% 30% 25% 20% 15% 10% 5% 0.0% -5% -10% -15% Global Markets – 1 Year Return 28.6% 26.3% 26.1% 24.0% 20.6% 19.6% 14.4% 9.1% Nikkei 225 D A X N A S D A Q India S & P E U S T O X S & P 500 A S X 300 -10.6% -12.2% FT S E 100 H ang Seng C hina C SI 300 Central Bank action continues to be a major focus for markets. In June 2023, the Bank of England (BoE) upped the ante on Britain’s chronic inflation, headline inflation 8.7%, by raising its benchmark rate by 50bps to 5.0%; its highest level since September 2008. The BoE flagged that more action might be needed, as it monitors faster than expected wages growth, relatively buoyant consumer spending, and sticky inflation in the services sector. The Bank of Canada defied expectations by restarting its interest- rate tightening campaign, raising their official cash rate by +25bps to 4.75% saying the economy is running too hot. In the US, more US FOMC hikes are likely if Powell is right, with Powell telling senators that officials think “it will be appropriate to raise rates again this year, and perhaps twice”. In Australia, the labour market shows no sign of slowing, supported by still elevated job vacancies amid mixed economic conditions. The unemployment rate held steady at 3.60%, with 76k jobs added in May. The RBA lifted rates for the 10th time in FY2023 in early May, taking the RBA cash rate to 4.10%. This latest hike by the RBA was unexpected. BKI Investment Company Limited ABN: 23 106 719 868 7 Portfolio Manager’s Report (continued) The positive news on domestic inflation arrived late in the year. The closely watched CPI number for May was lower than expected at 5.6% versus expectations of a 6.1% increase (and notably lower than the 6.8% printed in April). Market economists remain divided on whether the RBA needs to continue increasing rates in the coming months. On that topic, the wave of interest rate rises is certainly impacting consumer confidence and market analysts have eased earnings expectations for the market in recent months. Earnings per Share (EPS) expectations on a 12-month forward basis for the S&P/ASX 300 is -3.6% and Dividends per Share (DPS) growth is -3.0%. The Price to Earnings Multiple (P/E) of the market is just under 16x (based on a 12-month forward basis) and the current dividend yield for the market is just under 3.9%. Commodity prices have been mixed, however companies producing Iron Ore, Oil and Gas, Thermal and Met Coal, Nickel and Copper are still generating enormous profits. The Australian Dollar also continues to trade under US$0.70, and ended the year at US$0.67 providing a tailwind for those commodity focused companies reporting in US Dollars. Iron ore has bounced back to US$113/t, having flirted with US$100/t in May. Having recently broken through US$2,000/oz in April, gold prices have generally tracked lower and ended June at $1,912/oz. Despite day-to-day volatility, oil prices (WTI) continue to hover around the US$70/bbl range. Thermal coal traded lower throughout the June quarter and closed the period just under US$150/t. The energy market is expected to get more support as we approach the northern hemisphere winter later in 2023. Portfolio Movements In the first half of FY2023, we invested $34 million adding to positions in Ampol Limited, Equity Trustees, Orora Limited, ARB Corporation and Harvey Norman Holdings. Three new names were added to the BKI portfolio, including Yancoal Australia, Nine Entertainment and James Hardie. In the second half of FY2023, BKI invested a further $70 million, including National Australia Bank, Yancoal Australia, Sonic Healthcare, Telstra Corporation, Wesfarmers, Smart Group and Ramsay Healthcare. BKI realised approximately $49 million worth of sales with the exit of positions in Invocare Limited, Pendal Group, Perpetual Limited and James Hardie. As at the end of June 2023, there were 39 stocks within the BKI Portfolio, with the Top 25 holdings and cash accounting for 92.0% of the total Portfolio. The Investment Portfolio (including cash) was valued at $1.39 billion, with the cash position of $115 million representing 8.3%. BKI Share Purchase Plan (SPP) BKI recently completed a SPP, raising $73 million. The SPP provided existing shareholders the opportunity to subscribe for up to $30,000 worth of new BKI shares, without incurring brokerage. SPP Shares are eligible for the fully franked final dividend of 4.00cps. Each Director participated for the maximum amount of $30,000 new SPP Shares. The SPP Issue Price of $1.66 represented an 8% discount to BKI’s Pre-tax NTA. The SPP funds are being used to continue to deliver on BKI’s investment strategy by investing for the long term in profitable, high income producing, well managed companies. BKI believes that the current market is offering an attractive opportunity for the long-term investor with many companies within the BKI portfolio offering: p Fully franked dividends that are growing and an attractive yield p Growth prospects and a reasonable Return on Equity with which to reinvest p Sound Balance Sheets p Good Management Teams p Attractive Valuation Metrics 8 Annual Report 2023 ASX: BKI Portfolio Manager’s Report (continued) Top 25 Investments Dates BHP Group Limited Macquarie Group Limited Commonwealth Bank of Australia National Australia Bank Limited APA Group New Hope Corporation Limited Wesfarmers Limited Woodside Energy Limited Transurban Group 1 2 3 4 5 6 7 8 9 10 Woolworths Group Limited 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Sonic Healthcare Limited Telstra Corporation Limited Rio Tinto Limited Ramsay Health Care Limited Harvey Norman Holdings Limited TPG Telecom Limited ARB Corporation Limited Amcor Limited Coles Group Limited Suncorp Group Limited Aurizon Holdings Limited Lindsay Australia Limited Goodman Group Limited Yancoal Australia Limited Metcash Limited Cash and cash equivalents % of Total Portfolio 8.5% 8.4% 6.6% 6.1% 6.1% 4.5% 4.4% 4.1% 3.6% 3.3% 3.2% 3.0% 2.4% 2.3% 2.0% 2.0% 2.0% 1.8% 1.5% 1.5% 1.5% 1.4% 1.4% 1.1% 1.0% 8.3% Total of top 25 plus cash and cash equivalents 92.0% BKI Investment Company Limited ABN: 23 106 719 868 9 Portfolio Manager’s Report (continued) Performance For the year to 30 June 2023, BKI’s Total Shareholder Return was positive 9.2%. The S&P/ASX 300 Accumulation Index returned 14.4% for the same period. BKI’s Total Shareholder Returns including franking credits for the year to 30 June 2023 was positive 11.6%, compared to the index return of 16.0%. BKI Total Shareholder Returns (TSR) Including Franking Credits as at 30 June 2023 16.0% 11.6% 14.3% 12.5% 9.7% 8.6% 8.8% 10.0% 9.6% 8.1% 20% 15% 10% 5% 0% 1 year 3 years pa 5 years pa 10 years pa 15 years pa BKI Total Shareholder Returns – 100% Franked S&P/ASX 300 ACC INDEX (XKOAI) – 70% Franked Above – BKI Total Shareholder Returns (TSR) Including Franking Credits as at 30 June 2023. 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 2023 was positive 10.7% compared to the S&P/ASX 300 Accumulation Index which returned 14.4% for the same period. The BKI Portfolio has benefited from its exposure to Energy and in particular the large overweight positions in New Hope Corporation, delivering a total shareholder return of 55.4% for the year, and Woodside returning 22.7%. Some of BKI’s other quality core portfolio positions including Lindsay Australia, Washington H Soul Pattinson, Suncorp Group, BHP Group, Wesfarmers Limited and Telstra Corporation also delivered above index returns for the year. Negative contributors to the performance of the portfolio included the consumer-focused businesses including Amcor, Metcash Limited, Orora Limited, Harvey Norman and ARB Corporation. 10 Annual Report 2023 ASX: BKI Portfolio Manager’s Report (continued) Premium / Discount to NTA BKI’s Pre-Tax Net Tangible Assets as at 30 June 2023 was $1.75, and represented a 1.5% discount to the BKI share price. Premium/Discount to NTA $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80 $0.70 30% 20% 10% 0% –10% Dec 2003 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017 Dec 2019 Dec 2021 Dec 2023 Prem/Disc % BKI Share Price Pre Tax NTA Above – BKI’s Premium/Discount over the last 20 years. Research and Ratings 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 BKI Investment Company Limited ABN: 23 106 719 868 11 Directors’ Report The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of BKI Investment Company Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of BKI Investment Company Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Robert Dobson Millner AO Non-Executive Director and Chair David Capp Hall AM Non-Executive Director Ian Thomas Huntley Non-Executive Director Alexander James Payne Non-Executive Director Jacqueline Ann Clarke Non-Executive Director Principal activities The 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. Dividends Dividends paid during the financial year were as follows: Consolidated 2023 $’000 2022 $’000 Final ordinary dividend for the year ended 30 June 2022 of 3.65 cents per share (2021: 3.00 cents per share) fully franked at the tax rate of 30%, paid on 30 August 2022 27,122 22,170 Final special dividend for the year ended 30 June 2022 of 1.00 cent per share (2021: nil cents per share) fully franked at the tax rate of 30%, paid on 30 August 2022 7,431 – Interim ordinary dividend for the year ended 30 June 2023 of 3.70 cents per share (2022: 3.50 cents per share) fully franked at the tax rate of 30%, paid on 28 February 2023 27,589 25,874 Interim special dividend for the year ended 30 June 2023 of 0.50 cents per share (2022: 0.50 cents per share) fully franked at the tax rate of 30%, paid on 28 February 2023 Total dividends paid 3,728 3,756 65,870 51,800 Operating results BKI’s Revenue from its investment portfolio was up 14.8% to $72.8 million. The result was boosted by higher ordinary dividends received over the last year from New Hope Corporation, Woodside Energy, Telstra Corporation, Yancoal Australia, Lindsay Australia and Macquarie Group. BKI’s interest received was $1.6 million, up substantially on FY2022 following a significant rise in interest rates during the year. BKI’s Net Operating Profit After Tax, before special investment revenue, was a record $65.1 million, an increase of 12.0% over the previous corresponding period. BKI’s basic earnings per share before special investment revenue was 10.8% higher to 8.68 cents per share. Special Investment Revenue was lower in FY2023, following the $42.7 million in special dividends received in FY2022. Special Dividends received in FY2023 from New Hope Corporation, Ampol Limited and Smartgroup Limited totalled $5.0 million. 12 Annual Report 2023 ASX: BKI Directors’ Report (continued) BKI’s Net Operating Profit After Tax, including special investment revenue for FY2023 of $70.1 million, fell 31.3% on the previous corresponding period. BKI’s FY2023 basic earnings per share, including special investment revenue, was 9.35 cents per share. For the year to 30 June 2023, BKI’s Total Shareholder Return was positive 9.2%. The S&P/ASX 300 Accumulation Index returned 14.4% for the same period. BKI’s Total Shareholder Returns including franking credits for the year to 30 June 2023 was positive 11.6%, compared to the Index return of 16.0%. 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 2023 was positive 10.7% compared to the S&P/ASX 300 Accumulation Index which returned negative 14.4% for the same period. Review of operations Operating expenses increased to $2.4 million (2022: $2.1 million) with BKI’s MER increasing to 0.18% (2022: 0.17%). BKI’s MER continues to compare very favourably to other externally managed LICs, ETFs and managed funds in the domestic market that provide a similar broad-based exposure to Australian equities. In the first half of FY2023, BKI invested $34 million, adding to positions in Ampol Limited, Equity Trustees, Orora Limited, ARB Corporation and Harvey Norman Holdings. Three new names were added to the BKI portfolio, including Yancoal Australia, Nine Entertainment and James Hardie. In the second half of FY2023, BKI invested a further $70 million, including National Australia Bank, Yancoal Australia, Sonic Healthcare, Telstra Corporation, Wesfarmers, Smart Group and Ramsay Healthcare. BKI realised approximately $49 million worth of sales with the exit of positions in Invocare Limited, Pendal Group, Perpetual Limited and James Hardie. As at the end of June 2023, there were 39 stocks within the BKI Portfolio, with the Top 25 holdings and cash accounting for 92.0% of the total Portfolio. The Investment Portfolio (including cash) was valued at $1.39 billion, with the cash position of $115 million representing 8.3%. Financial position Net assets of the Group increased during the year to $1,301.1 million (2022: $1,171.6 million) as a result of raising $73 million by way of Share Purchase Plan and the increased value of the investment portfolio. Employees The Group had no employees as at 30 June 2023 (2022: nil). Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2023 of 4.00 cents per share fully franked at the tax rate of 30%, payable on 29 August 2023, but not recognised as a liability at the year end. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely developments and expected results of operations 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. BKI Investment Company Limited ABN: 23 106 719 868 13 Directors’ Report (continued) The performance of these companies will be influenced by general economic and market conditions such as economic growth rates, interest rates and inflation. Performance could also be influenced by regulatory change. These external conditions are difficult to predict and not within the control of the Group, making it difficult to forecast the future results of the Group. However, BKI is a research driven, long-term manager focusing on investing in well managed, profitable companies, focusing on the merits of individual companies rather than market and economic trends. BKI will continue to implement prudent business practice to allow the achievement of the Group’s Corporate Objectives and Business Strategy. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Robert Dobson Millner AO FAICD Non-Executive Director and Chair Experience and expertise: Mr Millner was appointed Non-executive Chair upon the Company’s formation in October 2003. Mr Millner has extensive experience in the investment industry. Other current directorships: 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 Apex Healthcare Berhad (appointed 2000) p TPG Telecom Limited (appointed July 2020) p Tuas Limited (appointed May 2020) p Aeris Resources Limited (appointed July 2022) Former directorships (last 3 years): p Milton Corporation Limited (appointed 1998, resigned 2021 following delisting from ASX on 6 October 2021) p Australian Pharmaceutical Industries Limited (appointed 2000, resigned July 2020) p TPG Corporation Limited (appointed 2000, resigned July 2020) Special responsibilities: p Chair of the Board p Chair of the Investment Committee p Member of the Remuneration Committee p Chair of the Nomination Committee Interests in shares: 11,247,048 David Capp Hall AM FCA, FAICD 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 extensive experience in corporate management, finance and as a Company Director. Other current directorships: None Former directorships (last 3 years): None 14 Annual Report 2023 ASX: BKI Directors’ Report (continued) Information on Directors (continued) Special responsibilities: p Chair of the Audit & Risk Committee p Member of the Remuneration Committee p Member of the Nomination Committee Interests in shares: 3,050,899 Ian Thomas Huntley BA 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 his partners sold the business to Morningstar Inc of the USA in mid-2006. Other current directorships: None Former directorships (last 3 years): None 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 Interests in shares: 11,300,452 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. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: p Member of the Audit & Risk Committee p Member of the Investment Committee p Chair of the Remuneration Committee Interests in shares: 548,073 Jacqueline Ann Clarke FCA, CTA, JP, GAICD Non-Executive Director Ms Clarke is an author, trusted advisor, board member, executor and veteran business executive with over 30 years of experience in the big 4, 15 of which as partner of Deloitte. Having held a number of executive roles across Australia, New Zealand and Asia, her experience covers many industries and sectors including retail, property, automotive, professional services (accounting, legal and engineering), technology, financial services, agriculture and oil & gas. Ms Clarke currently sits on the Paul Fudge Group Advisory Board, is also founder of boutique accounting and advisory firm Maxima Private, non-executive director of Cleary Bros and Chair of SMEG Australia. Other current directorships: Empire Energy Group Limited (alternate Director) (appointed 16 August 2021) Former directorships (last 3 years): None BKI Investment Company Limited ABN: 23 106 719 868 15 Directors’ Report (continued) Special responsibilities: p Member of the Audit & Risk Committee p Member of the Investment Committee p Member of the Remuneration Committee Interests in shares: 95,053 ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Mr Pinto was appointed Company Secretary in November 2011. He is a Chartered Accountant with extensive experience in both professional practice and in senior commercial roles across a broad range of industries. Mr Pinto resigned as Company Secretary on 13 September 2022. On 1 June 2022, Ms Wong (CPA, LLB) was appointed as Company Secretary. Ms Wong is a finance professional having held senior roles in ASX listed companies and also a qualified lawyer with experience gained in private practice. Following the resignation of Mr Pinto on 13 September 2022, Ms Wong is the sole Company Secretary. Meetings of directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each director were: Full Board* Investment Audit & Risk Remuneration Nomination1 Attended Held Attended Held Attended Held Attended Held Attended Held R D Millner AO A J Payne D C Hall AM I T Huntley J A Clarke 8 8 9 7 7 8 8 9 7 7 14 14 – 14 14 14 14 – 14 14 – 2 2 2 2 – 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 – 1 1 – 1 – 1 1 – Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. * 1 Includes two meetings of a Sub-committee of the BKI Board During the year, a meeting of the Nomination Committee was held in July 2022 when both Ms J A Clarke and Mr A J Payne were not members as they were each scheduled for re-election as Directors under the Company’s Director rotation policy. Subsequent to each being re-elected as Directors at the 2022 AGM, Ms J A Clarke and Mr A J Payne were reappointed to the Nomination Committee. 16 Annual Report 2023 ASX: BKI Directors’ Report (continued) Remuneration Report Remuneration Report (Audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: p Principles used to determine the nature and amount of remuneration p Details of remuneration p Service agreements p Share-based compensation p Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration 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, accounting and company secretarial functions to Contact Asset Management Pty Limited, and currently has no employees. 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. Elements of Director and Key Management Personnel (KMP) remuneration The Board’s policies for determining the nature and amount of remuneration for Key Management Personnel of the Group is as follows: p The Director Remuneration Policy and Executive Remuneration Policy are developed by the Remuneration Committee and approved by the Board. Professional advice is sought from independent external consultants if deemed appropriate. p Key Management Personnel are eligible to receive a base fee, or salary and superannuation, combined with performance incentives if deemed appropriate by the Board. 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 assessed annually by the Board. Assessment of performance incentives offered is conducted annually, based on the growth of shareholder and portfolio returns. The Board may exercise discretion in relation to approving incentives and can recommend changes to the Remuneration Committee’s recommendations. Any changes must be justified by reference to measurable performance criteria. The policies are 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. BKI Investment Company Limited ABN: 23 106 719 868 17 Directors’ Report (continued) Remuneration Report (continued) Non-executive directors remuneration 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. The combined annual payment to all Non-Executive Directors is capped at $400,000 until shareholders, by ordinary resolution, approve some other fixed sum amount. The aggregate pool of remuneration paid to Non-Executive Directors was approved by shareholders on 18 October 2022. 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 2023 financial year (2022: nil). Performance-based remuneration BKI previously established the BKI Executive 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. In July 2021 the Remuneration Committee resolved to cease making any new grants under the BKI Incentive Scheme until further notice. On 31 May 2022, the services agreement between BKI and CAS ceased and in accordance with the BKI Executive Incentive Scheme, all unpaid and/or unallocated incentives were forfeited. At 30 June 2023, there were no participants or entitlements under the Scheme. Use of remuneration consultants The Group did not engage remuneration consultants during the year ended 30 June 2023. Voting and comments made at the Company’s 18 October 2022 Annual General Meeting (‘AGM’) At the 18 October 2022 AGM, 95.28% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2022. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. The key management personnel of the Group consisted of the following directors of BKI Investment Company Limited: p R D Millner AO – Non-Executive Director and Chair p D C Hall AM – Non-Executive Director p I T Huntley – Non-Executive Director p A J Payne – Non-Executive Director p J A Clarke – Non-Executive Director And the following person: p J P Pinto – Company Secretary (resigned 13 September 2022)* * Services provided under contract through Corporate & Administrative Services Pty Limited ceased on 31 May 2022. 18 Annual Report 2023 ASX: BKI Directors’ Report (continued) Remuneration Report (continued) 2023 Non-Executive Directors R D Millner AO D C Hall AM I T Huntley A J Payne J A Clarke Other Key Management Personnel J P Pinto Total 2022 Non-Executive Directors R D Millner D C Hall AM I T Huntley A J Payne J A Clarke* Other Key Management Personnel J P Pinto** Total Short-term benefits Post- employment benefits Cash salary and fees Super- annuation $ $ Total $ 70,408 63,778 53,710 53,710 59,350 7,392 6,697 5,640 5,640 – 77,800 70,475 59,350 59,350 59,350 – – – 300,956 25,369 326,325 68,727 57,682 47,909 47,909 26,227 6,873 5,768 4,791 4,791 2,623 75,600 63,450 52,700 52,700 28,850 – – 2,752 248,454 24,846 273,300 * Ms Clarke was appointed a Non-Executive Director on 18 January 2022. ** Mr Pinto was remunerated by Corporate & Administrative Services Pty Limited. The proportion of remuneration linked to performance and the fixed proportion are as follows: Non-Executive Directors R D Millner AO D C Hall AM I T Huntley A J Payne J A Clarke Fixed remuneration At risk – STI At risk – LTI 2023 2022 2023 2022 2023 2022 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – – – – – – – – – – – – – – – – – – Service agreements Mr J P Pinto provided Company Secretarial services under contract through Corporate & Administrative Services Pty Limited (CAS). On 31 May 2022, services between CAS and BKI ceased. Commencing from 1 June 2022, Contact Asset Management Pty Limited became the provider of Company Secretarial services to BKI. BKI Investment Company Limited ABN: 23 106 719 868 19 Directors’ Report (continued) Remuneration Report (continued) Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2023. Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 30 June 2023. During the financial year ended 30 June 2022, the following incentives lapsed: 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 2018 J Pinto 2019 J Pinto 2020 J Pinto 2021 01/07/2017 01/07/2018 01/07/2019 01/07/2020 25,000 25,000 25,000 25,000 $41,385 $38,040 $38,678 $35,943 30/06/2021 30/06/2022 30/06/2023 30/06/2024 30/06/2022 30/06/2023 30/06/2024 30/06/2025 25,000 25,000 25,000 25,000 – – – – Additional disclosures relating to key management personnel Shareholding – Ordinary shares The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the end of the year 11,247,048 3,050,899 11,300,452 548,073 95,053 – Balance at the start of the year Received as part of remuneration Additions** Disposals/ others Ordinary shares R D Millner AO D C Hall AM I T Huntley A J Payne J A Clarke J P Pinto* Total 10,794,971 3,014,753 11,218,920 530,000 69,121 136,269 25,764,034 – – – – – – – 452,077 36,146 94,946 18,073 25,932 – 627,174 – – (13,414) – – (136,269) (149,683) 26,241,525 * Mr J P Pinto resigned on 13 September 2022. Included in Disposals/other is the removal from the table of Mr Pinto’s shareholdings at the date of his resignation. ** Directors acquired shares through the Dividend Reinvestment Plan, Share Purchase Plan and/or on-market purchase. All KMP or their associated entities, being shareholders, are entitled to receive dividends. This concludes the remuneration report, which has been audited. 20 Annual Report 2023 ASX: BKI Directors’ Report (continued) Remuneration Report (continued) Shares under option There were no unissued ordinary shares of BKI Investment Company Limited under option at the date of this report. Shares issued on the exercise of options There were no ordinary shares of BKI Investment Company Limited issued on the exercise of options during the year ended 30 June 2023 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services There were no non-audit services provided during the financial year by the auditor. Officers of the Company who are former partners of MGI Sydney Assurance Services Pty Ltd There are no officers of the Company who are former partners of MGI Sydney Assurance Services Pty Ltd. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is on page 50. BKI Investment Company Limited ABN: 23 106 719 868 21 Directors’ Report (continued) Auditor MGI Sydney Assurance Services Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Robert D Millner AO Chair 18 July 2023 Sydney 22 Annual Report 2023 ASX: BKI Statement of Profit or Loss for the year ended 30 June 2023 Ordinary revenue from investment portfolio Revenue from bank deposits Other gains Income from operating activities before special investment revenue Operating expenses Operating result before income tax expense and special investment revenue Special investment revenue Operating result before income tax expense Income tax expense Consolidated 2023 $’000 71,128 1,625 – 72,753 (2,416) 70,337 4,998 75,335 (5,269) 2022 $’000 62,604 141 645 63,390 (2,139) 61,251 42,713 103,964 (3,165) Note 5 6 5 7 Operating result after income tax expense for the year attributable to the owners of BKI Investment Company Limited 13 70,066 100,799 Basic and diluted earnings per share before special investment revenue Basis and diluted earnings per share after special investment revenue Note 25 25 2023 Cents 8.68 9.35 2022 Cents 7.84 13.60 The above Statement of Profit or Loss should be read in conjunction with the accompanying notes. BKI Investment Company Limited ABN: 23 106 719 868 23 Statement of Other Comprehensive Income for the year ended 30 June 2023 Consolidated 2023 $’000 2022 $’000 Note Operating result after income tax expense for the year attributable to the owners of BKI Investment Company Limited 70,066 100,799 Other comprehensive income Items that may be reclassified subsequently to profit or loss Unrealised gains/(losses) on investment portfolio Deferred tax (expense)/benefit on unrealised gains/losses on investment portfolio Realised (losses)/gains on investment portfolio Tax benefit/(expense) relating to realised gains/losses on investment portfolio Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of BKI Investment Company Limited 7 68,311 (100,681) (20,493) (5,110) 1,533 44,241 30,204 20,120 (6,036) (56,393) 114,307 44,406 The above Statement of Other Comprehensive Income should be read in conjunction with the accompanying notes. 24 Annual Report 2023 ASX: BKI Statement of Financial Position as at 30 June 2023 Assets Current assets Cash and cash equivalents Trade and other receivables Income tax refund due Other Total current assets Non-current assets Investment portfolio Property, plant and equipment Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax Total current liabilities Non-current liabilities Deferred tax Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained profits Total equity Consolidated 2023 $’000 2022 $’000 Note 8 9 7 10 7 7 7 11 12 13 105,222 10,589 – 52 115,863 72,078 8,594 51 58 80,781 1,275,189 1 7,306 1,156,086 1 7,836 1,282,496 1,163,923 1,398,359 1,244,704 307 4,228 4,535 92,763 92,763 97,298 270 – 270 72,855 72,855 73,125 1,301,061 1,171,579 1,016,811 188,288 95,962 935,766 144,047 91,766 1,301,061 1,171,579 The above Statement of Financial Position should be read in conjunction with the accompanying notes. BKI Investment Company Limited ABN: 23 106 719 868 25 Statement of Changes in Equity for the year ended 30 June 2023 Consolidated Share capital $’000 Revaluation reserve $’000 Realised capital gains reserve $’000 Retained profits $’000 Total equity $’000 Balance at 1 July 2021 929,185 229,584 (29,144) 42,767 1,172,392 Operating result after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Dividends paid (note 14) – – – – – 100,799 100,799 (70,477) (70,477) 14,084 14,084 – (56,393) 100,799 44,406 6,581 – – – – – – 6,581 (51,800) (51,800) Balance at 30 June 2022 935,766 159,107 (15,060) 91,766 1,171,579 Balance at 1 July 2022 935,766 159,107 (15,060) 91,766 1,171,579 Operating result after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Dividends paid (note 14) – – – – – 70,066 70,066 47,818 47,818 (3,577) (3,577) – 44,241 70,066 114,307 81,045 – – – – – – 81,045 (65,870) (65,870) Balance at 30 June 2023 1,016,811 206,925 (18,637) 95,962 1,301,061 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 26 Annual Report 2023 ASX: BKI Statement of Cash Flows for the year ended 30 June 2023 Cash flows from operating activities Payments to suppliers and employees Dividends and distributions received Interest received Proceeds from sale of trading portfolio Payments for trading portfolio Income taxes refunded/(paid) Net cash from operating activities Cash flows from investing activities Payments for investments Proceeds from sale of investment portfolio Capital returns received from investment portfolio Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Share issue transaction costs Dividends paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Consolidated 2023 $’000 2022 $’000 Note 24 11 11 14 (2,373) 74,318 1,438 – – 528 73,911 (2,100) 104,512 141 9,961 (9,316) (3,032) 100,166 (104,847) 48,945 – (171,601) 145,865 2,261 (55,902) (23,475) 72,977 (184) (57,658) 15,135 33,144 72,078 – (16) (45,203) (45,219) 31,472 40,606 72,078 Cash and cash equivalents at the end of the financial year 8 105,222 The above Statement of Cash Flows should be read in conjunction with the accompanying notes BKI Investment Company Limited ABN: 23 106 719 868 27 Notes to the Financial Statements for the year ended 30 June 2023 Note 1.(cid:30)General information The financial statements cover BKI Investment Company Limited as a Group consisting of BKI Investment Company Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is BKI Investment Company Limited’s functional and presentation currency. BKI Investment Company Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 302, Level 3 1 Castlereagh Street Sydney NSW 2000 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 18 July 2023. The directors have the power to amend and reissue the financial statements. Note 2.(cid:30)Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group 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. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, financial assets at fair value through other comprehensive income. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 21. 28 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 2.(cid:31)Significant accounting policies (continued) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of BKI Investment Company Limited (‘Company’ or ‘parent entity’) as at 30 June 2023 and the results of all subsidiaries for the year then ended. BKI Investment Company Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 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. BKI Investment Company Limited ABN: 23 106 719 868 29 Notes to the Financial Statements (continued) Note 2.(cid:31)Significant accounting policies (continued) Fair value Fair value is determined based on last sale price for all quoted investments. 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). Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: p When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or p When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. BKI Investment Company Limited (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 30 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 2.(cid:31)Significant accounting policies (continued) Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. 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. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2023. The Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. Note 3.(cid:30)Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Deferred tax balances 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 7. 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. Note 4.(cid:30)Operating segments Identification of reportable operating segments 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 the performance of the operating segments. The Group operates solely in the securities industry in Australia and has no reportable segments. BKI Investment Company Limited ABN: 23 106 719 868 31 Notes to the Financial Statements (continued) Note 5.(cid:30)Revenue (a) Ordinary revenue from investment portfolio Fully franked dividends Unfranked dividends Trust distributions Total ordinary revenue from investment portfolio (b) Special investment revenue Fully franked dividends (c) Revenue from bank deposits Interest received (d) Other income (e) Other gains Net realised gain on sale of investments held for trading Consolidated 2023 $’000 56,674 7,036 7,418 71,128 2022 $’000 50,673 5,998 5,933 62,604 4,998 42,713 1,625 – – 141 – 645 Total revenue 77,751 106,103 Note 6.(cid:30)Operating expenses Administration expenses Employment expenses Investment management Professional fees Total operating expenses 531 326 1,354 205 2,416 463 175 1,320 181 2,139 32 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 7.(cid:30)Income tax (a) Income tax expense on operating profit before net gains on investments Current tax Deferred tax – origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Operating result before income tax expense Tax at the statutory tax rate of 30% Consolidated 2023 $’000 2022 $’000 1,856 3,325 88 5,269 75,335 22,601 787 1,684 694 3,165 103,964 31,189 Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Franked dividends and distributions received (17,420) (28,718) Adjustment recognised for prior periods Income tax expense (b) Total tax expense Net income tax expense on operating profit before net gains on investments Income tax on net realised gains/(losses) on investment portfolio Total tax expense (c) Movements in deferred tax assets 5,181 88 5,269 5,269 (1,533) 3,736 2,471 694 3,165 3,165 6,036 9,201 Credited/ (charged) to statement of comprehensive income $’000 Credited/ (charged) to equity $’000 Closing balance $’000 (243) (30) (7,492) (7,765) – 1 (571) (570) – – – – 40 – – 40 14 9 7,813 7,836 54 10 7,242 7,306 Opening balance $’000 257 39 15,305 15,601 14 9 7,813 7,836 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2022 Transaction costs on equity issues Accrued expenses Realised capital tax losses Balance as at 30 June 2023 BKI Investment Company Limited ABN: 23 106 719 868 33 Notes to the Financial Statements (continued) Note 7.(cid:31)Income tax (continued) (d) Movements in deferred tax liabilities Credited/ (charged) to statement of comprehensive income $’000 – (46) (46) – 2,755 Credited/ (charged) to equity $’000 (30,513) – (30,513) 17,153 – Opening balance $’000 101,911 1,503 103,414 71,398 1,457 Closing balance $’000 71,398 1,457 72,855 88,551 4,212 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2022 Revaluation of investment portfolio Unfranked dividends receivable and interest receivable Balance as at 30 June 2023 72,855 2,755 17,153 92,763 (e) Income tax refund due Income tax refund due (f) Provision for income tax Provision for income tax Consolidated 2023 $’000 2022 $’000 – 4,228 51 – Note 8.(cid:30)Current assets – cash and cash equivalents Cash at bank 105,222 72,078 Note 9.(cid:30)Current assets – trade and other receivables Dividends and distributions receivable Other receivables Interest receivable 9,597 805 187 10,589 8,417 177 – 8,594 34 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 10.(cid:30)Non-current assets – Investment portfolio Consolidated 2023 $’000 2022 $’000 Listed securities at fair value through other comprehensive income 1,275,189 1,156,086 Fair value measurement 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 2. Note 11.(cid:30)Equity – Share capital Ordinary shares – fully paid 791,783,319 743,074,632 1,016,811 935,766 Consolidated 2023 Shares 2022 Shares 2023 $’000 2022 $’000 Movements in ordinary share capital Balance at 1 July 2021 Dividend reinvestment plan Transaction costs Balance at 30 June 2022 Dividend reinvestment plan Share purchase plan Transaction costs Deferred tax credit recognised directly in equity Shares 739,002,595 4,072,037 – 743,074,632 4,743,604 43,965,083 – – $’000 929,185 6,597 (16) 935,766 8,212 72,977 (184) 40 Balance at 30 June 2023 791,783,319 1,016,811 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. BKI Investment Company Limited ABN: 23 106 719 868 35 Notes to the Financial Statements (continued) Note 11.(cid:31)Equity – Share capital (continued) Share buy-back There is no current on-market share buy-back. Capital risk 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 2023 net debt was $nil (2022: $nil). The capital risk management policy remains unchanged from the 30 June 2022 Annual Report. Note 12.(cid:30)Equity – reserves Revaluation surplus reserve Capital profits reserve Consolidated 2023 $’000 206,925 (18,637) 188,288 2022 $’000 159,107 (15,060) 144,047 Financial assets at fair value through other comprehensive income reserve The reserve is used to recognise increments and decrements in the fair value of financial assets at fair value through other comprehensive income. 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. 36 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 12.(cid:31)Equity – reserves (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2021 Gross revaluation of investment portfolio Deferred tax provision on unrealised gains/losses Net gains/(losses) on investment portfolio transferred from Statement of Comprehensive Income Balance at 30 June 2022 Gross revaluation of investment portfolio Deferred tax provision on unrealised gains/losses Net gains/(losses) on investment portfolio transferred from Statement of Comprehensive Income Balance at 30 June 2023 Note 13.(cid:30)Equity – retained profits Retained profits at the beginning of the financial year Operating result after income tax expense for the year Dividends paid (note 14) Retained profits at the end of the financial year Revaluation reserve $’000 Realised capital gains reserve $’000 229,584 (100,681) 30,204 – 159,107 68,311 (20,493) – 206,925 (29,144) – – 14,084 (15,060) – – (3,577) (18,637) Total $’000 200,440 (100,681) 30,204 14,084 144,047 68,311 (20,493) (3,577) 188,288 Consolidated 2023 $’000 91,766 70,066 (65,870) 95,962 2022 $’000 42,767 100,799 (51,800) 91,766 BKI Investment Company Limited ABN: 23 106 719 868 37 Notes to the Financial Statements (continued) Note 14.(cid:30)Equity – dividends (a) Dividends paid during the year Final ordinary dividend for the year ended 30 June 2022 of 3.65 cents per share (2021: 3.00 cents per share) fully franked at the tax rate of 30%, paid on 30 August 2022 Final special dividend for the year ended 30 June 2022 of 1.00 cent per share (2021: nil cents per share) fully franked at the tax rate of 30%, paid on 30 August 2022 Interim ordinary dividend for the year ended 30 June 2023 of 3.70 cents per share (2022: 3.50 cents per share) fully franked at the tax rate of 30%, paid on 28 February 2023 Interim special dividend for the year ended 30 June 2023 of 0.50 cents per share (2022: 0.50 cents per share) fully franked at the tax rate of 30%, paid on 28 February 2023 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 accounting 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 Franking credits available for subsequent financial years based on a tax rate of 30% 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 Consolidated 2023 $’000 2022 $’000 27,122 22,170 7,431 – 27,589 25,874 3,728 65,870 65,870 (8,212) 57,658 47,516 47,516 (13,573) 33,943 3,756 51,800 51,800 (6,597) 45,203 43,538 43,538 (14,808) 28,730 Maximum fully franked dividends payable from available franking credits at the tax rate of 30% (2022: 30%) 79,200 67,035 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: p franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date p franking debits that will arise from the payment of dividends recognised as a liability at the reporting date p franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date 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 2023 of 4.00 cents per share fully franked at the tax rate of 30% (2022: final ordinary dividend of 3.65 cents per share and a special dividend of 1.0 cents per share, both fully franked at the tax rate of 30%), payable on 29 August 2023, but not recognised as a liability at the year end. 38 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 15.(cid:30)Financial instruments 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. 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. Financial instruments’ terms, conditions and accounting policies The Group’s accounting policies are included in Note 1, while the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are included under the appropriate note for that instrument. Net fair values The carrying amounts of financial instruments in the balance sheets approximate their net fair value determined in accordance with the accounting policies disclosed in Note 1 to the accounts. 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. Market risk Price 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% (2022: 93%) of total assets. As at 30 June 2023, a 5% (2022: 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 (2022: 5%); and p A movement of 8.1 cents per share in the net asset backing before provision for tax on unrealised capital gains (2022: 7.8 cents). BKI Investment Company Limited ABN: 23 106 719 868 39 Notes to the Financial Statements (continued) Note 15.(cid:31)Financial instruments (continued) 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 2023 and 30 June 2022, the spread of investments was in the following sectors: Financials Materials Energy Consumer discretionary Industrials Consumer staples Utilities Health care Telecommunications services Property Total investments Cash, dividends and distributions receivable Percentage of total investment Amount 2023 % 23.65 14.19 11.25 8.39 8.27 6.52 6.12 5.85 5.78 1.72 91.74 8.26 2022 % 24.44 14.82 9.06 9.48 7.36 7.04 8.00 5.89 5.69 1.72 93.50 6.50 2023 $’000 328,814 197,189 156,389 116,662 114,931 90,661 85,033 81,268 80,339 23,903 2022 $’000 302,237 183,251 111,971 117,283 91,022 87,029 98,899 72,786 70,327 21,281 1,275,189 1,156,086 114,819 80,495 Total portfolio 100.00 100.00 1,390,008 1,236,581 Securities representing over 5% of the investment portfolio at 30 June 2023 or 30 June 2022 were: BHP Group Macquarie Group Commonwealth Bank National Australia Bank APA Group Percentage of total investment Amount 2023 % 8.5 8.4 6.6 6.1 6.1 2022 % 8.8 8.7 6.7 5.5 8.0 2023 $’000 118,774 116,373 92,001 85,386 85,034 2022 $’000 108,900 107,784 82,926 68,527 98,899 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. Foreign currency risk The Group is not exposed to foreign currency risk as all investments are quoted in Australian dollars. 40 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 15.(cid:31)Financial instruments (continued) 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 2023 (2022: Nil). 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. Note 16.(cid:30)Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Consolidated 2023 $’000 301 25 326 2022 $’000 248 25 273 Note 17.(cid:30)Remuneration of auditors During the financial year the following fees were paid or payable for services provided by MGI Sydney Assurance Services Pty Ltd, the auditor of the Company: Consolidated 2023 $’000 2022 $’000 Audit services – MGI Sydney Assurance Services Pty Ltd Audit or review of the financial statements 30 28 Note 18.(cid:30)Contingent liabilities The Group had no contingent liabilities as at 30 June 2023 and 30 June 2022. Note 19.(cid:30)Commitments The Group had no capital and leasing commitments as at 30 June 2023 and 30 June 2022. BKI Investment Company Limited ABN: 23 106 719 868 41 Notes to the Financial Statements (continued) Note 20.(cid:30)Related party transactions Parent entity BKI Investment Company Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 22. Key management personnel Disclosures relating to key management personnel are set out in note 16 and the remuneration report included in the directors’ report. Transactions with related parties Corporate & Administrative Services Pty Limited Corporate & Administrative Services Pty Limited (CAS), an entity in which Mr R D Millner has an indirect interest, provided the Group with administration, company secretarial and accounting services, including preparation of all financial accounts. The contract was terminated on 31 May 2022. Fees paid to CAS for services provided to the Parent and controlled entities for the year to 30 June 2023 were $nil (2022: $126,042, including GST) and are at standard market rates. As at 30 June 2023 the Group owed $nil to CAS (2022: $11,458). Contact Asset Management Pty Limited Contact Asset Management Pty Limited (Contact) is the Investment Manager of the Group. Additionally, from 1 June 2022, Contact provides accounting, administrative, and company secretarial services, including the preparation of all financial accounts. Contact is an entity in which Mr R D Millner has an indirect interest. Fees payable to Contact for services provided to the Parent and controlled entities for the year to 30 June 2023 were $1,617,860 including GST (2022: $1,430,827) and are at standard market rates. As at 30 June 2023 the Group owed $141,263 to Contact (2022: $125,125). Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. 42 Annual Report 2023 ASX: BKI Notes to the Financial Statements (continued) Note 21.(cid:30)Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Operating result after income tax Other comprehensive income for the year, net of tax Total comprehensive income Statement of financial position Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained profits Total equity Parent 2023 $’000 2022 $’000 70,068 44,241 114,309 100,797 (56,393) 44,404 115,863 80,779 1,483,849 1,365,275 1,599,712 1,446,054 4,455 302,156 306,611 190 282,247 282,437 1,293,101 1,163,617 1,016,811 189,099 87,191 935,766 144,858 82,993 1,293,101 1,163,617 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2023 and 30 June 2022. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2023 and 30 June 2022. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2023 and 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: p Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. p Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. BKI Investment Company Limited ABN: 23 106 719 868 43 Notes to the Financial Statements (continued) Note 22.(cid:30)Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Brickworks Securities Pty Limited Huntley Investment Company Pty Limited BKI Sub Pty Limited Pacific Strategic Investments Pty Limited Principal place of business / Country of incorporation Australia Australia Australia Australia Ownership interest 2023 % 100 100 100 100 2022 % 100 100 100 100 Note 23.(cid:30)Events after the reporting period Since the end of the year the Directors have declared a final ordinary dividend for the year ended 30 June 2023 of 4.00 cents per share fully franked at the tax rate of 30%, payable on 29 August 2023, but not recognised as a liability at the year end. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Note 24.(cid:30)Cash flow information Reconciliation of operating result after income tax to net cash from operating activities Operating result after income tax expense for the year 70,066 100,799 Consolidated 2023 $’000 2022 $’000 Change in operating assets and liabilities: Increase in trade and other receivables Decrease/(increase) in income tax refund due Decrease/(increase) in deferred tax assets Decrease/(increase) in prepayments Increase in trade and other payables Increase/(decrease) in provision for income tax Increase/(decrease) in deferred tax liabilities Net cash from operating activities Non-cash investing and financing activities Dividend reinvestment plan (1,995) 51 (18,390) 6 37 4,228 19,908 73,911 (805) (51) 31,933 (6) 45 (1,190) (30,559) 100,166 Under the terms of the dividend reinvestment plan, $8,212,000 (2022: $6,597,000) of dividends were paid via the issue of 4,743,604 shares (2022: 4,072,037). 44 Annual Report 2023 ASX: BKI Note 25.(cid:30)Earnings per share (a) Calculation of earnings Operating result after income tax attributable to the owners of BKI Investment Company Limited Less: Special investment revenue Earnings used in calculating basic and diluted earnings per share before special investment revenue (b) Number of shares Consolidated 2023 $’000 2022 $’000 70,066 (4,998) 100,799 (42,713) 65,068 58,086 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share, before and after special investment revenue 749,690,945 741,249,270 Weighted average number of ordinary shares used in calculating diluted earnings per share, before and after special investment revenue 749,690,945 741,249,270 (c) Earnings per share Basic and diluted earnings per share before special investment revenue Basic and diluted earnings per share after special investment revenue Cents Cents 8.68 9.35 7.84 13.60 BKI Investment Company Limited ABN: 23 106 719 868 45 Directors’ Declaration for the year ended 30 June 2023 In the directors’ opinion: p the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; p the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; p the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2023 and of its performance for the financial year ended on that date; and p there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Robert D Millner AO Chair 18 July 2023 Sydney 46 Annual Report 2023 ASX: BKI Independent Auditor’s Report to the Members of BKI Investment Company Limited MGI Sydney Assurance Services Pty Limited Level 14, 20 Martin Place 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 (the Company) and its controlled entities (together the Group), which comprises the consolidated statement of financial position as at 30 June 2023, 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 Group comprising BKI Investment Company Limited and the entities it controlled at the year 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 Group’s financial position as at 30 June 2023 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 2. 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 the Group 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 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 BKI Investment Company Limited ABN: 23 106 719 868 47 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 as at 30 June 2023 comprised of listed equity investments of $1,275.19 million. 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. 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 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 agreed the existence of a representative sample of listed investments by confirming shareholdings with share registries. No material differences were identified. 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 the Company are responsible for the other information. The other information comprises the information in the annual report for the year ended 30 June 2023, 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. 48 Annual Report 2023 ASX: BKI Independent Auditor’s Report (continued) Responsibilities of the Directors for the Financial Report The directors of the Company 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 2, 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 Group’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 Group 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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 17 to 20 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of BKI Investment Company Limited for the year ended 30 June 2023, 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. MGI Sydney Assurance Services Pty Limited Chartered Accountants Kimmy Jongue Director Sydney, 18 July 2023 BKI Investment Company Limited ABN: 23 106 719 868 49 Auditor’s Independence Declaration MGI Sydney Assurance Services Pty Limited Level 14, 20 Martin Place 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 its Controlled Entities for the year ended 30 June 2023, 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. MGI Sydney Assurance Services Pty Limited Chartered Accountants Kimmy Jongue Director Sydney, 18 July 2023 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 50 Annual Report 2023 ASX: BKI Shareholder Information for the year ended 30 June 2023 The shareholder information set out below was applicable as at 30 June 2023. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of shares held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Ordinary shares Number of holders % of total shares issued 1,599 2,590 2,308 9,487 1,325 9.24 14.96 13.33 54.81 7.66 17,309 100.00 Holding less than a marketable parcel of 290 shares 669 3.87 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Washington H Soul Pattinson and Company Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Huntley Group Investments Pty Ltd HSBC Custody Nominees (Australia) Limited J S Millner Holdings Pty Limited J P Morgan Nominees Australia Pty Limited Netwealth Investments Limited I R McDonald Pty Ltd Citicorp Nominees Pty Limited John E Gill Trading Pty Ltd Fennybentley Pty Ltd Nibot Pty Limited Donald Cant Pty Ltd T N Phillips Investments Pty Ltd Mr Timothy Frank Robertson Snow Foundation Limited K C Perks Investments Pty Ltd G Guglielmini Nominees Pty Ltd Jeanneau Cloud Nine Pty Ltd Mr Timothy Frank Robertson Ordinary shares Number held % of total shares issued 64,534,868 23,505,489 8,523,274 8,135,044 6,234,373 5,725,270 3,555,149 3,000,000 2,548,244 2,302,950 2,281,044 2,251,845 2,216,771 2,190,624 2,154,183 2,092,700 2,052,296 1,901,504 1,818,073 1,765,428 8.15 2.97 1.08 1.03 0.79 0.72 0.45 0.38 0.32 0.29 0.29 0.28 0.28 0.28 0.27 0.26 0.26 0.24 0.23 0.22 148,789,129 18.79 BKI Investment Company Limited ABN: 23 106 719 868 51 Shareholder Information (continued) Equity security holders (continued) 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. Unquoted equity securities There are no unquoted equity securities. Substantial holders As at 30 June 2023 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 Limited 1 Brickworks Limited 2 Number Held % of total shares issued 62,405,057 62,405,057 7.88 7.88 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. Other information There is no current on-market buy-back in place. There were 115 (2022: 109) transactions in securities undertaken by the Group and the total brokerage paid or accrued during the year was $239,906 (2022: $448,268). 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. 2006 0.56 2007 0.46 2015 2016 0.18 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 2021 0.17 2013 0.19 2022 0.17 2014 0.17 2023 0.18 52 Annual Report 2023 ASX: BKI Share Register Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Telephone: 1300 853 816 Auditor MGI Sydney Assurance Services Pty Ltd Level 14 20 Martin Place Sydney NSW 2000 ASX BKI Investment Company Limited shares are listed on the Australian Securities Exchange (ASX code: BKI) Website www.bkilimited.com.au Corporate Governance Statement www.bkilimited.com.au/about-us/corporate- governance/#statement Corporate Directory Directors Robert Dobson Millner AO Non-Executive Chair David Capp Hall AM Independent Non-Executive Director Alexander James Payne Non-Executive Director Ian Thomas Huntley Independent Non-Executive Director Jacqueline Ann Clarke Independent Non-Executive Director Investment Manager Contact Asset Management Pty Limited (Contact) Thomas Charles Dobson Millner Portfolio Manager William Anthony Culbert Portfolio Manager Company Secretary Amanda Wong Registered office and principal place of business Suite 302, Level 3 1 Castlereagh Street Sydney NSW 2000 Telephone: (02) 7251 6242 (02) 8355 1617 Facsimile: Postal Address: PO Box H280 Australia Square NSW 1215 Produced by APM Graphics Management > 1800 806 930 BKI Investment Company Limited ABN: 23 106 719 868 53 ABN: 23 106 719 868 Suite 302, Level 3 1 Castlereagh Street Sydney NSW 2000