Milton
Annual Report 2014

Plain-text annual report

MILTON CORPORATION LIMITED ABN 18 000 041 421 An Australian Listed Investment Company Listed since 1958 ANNUAL REPORT 2014 Profile Milton was established as a private investment vehicle for four shareholders in 1938. It became a public company in 1950 and listed on the Sydney Stock Exchange in 1958. Milton is now an investment vehicle for more than 21,000 shareholders and it is listed on the Australian Securities Exchange under the code MLT. Objective Milton’s objective is to hold a diversified portfolio of assets that generates a growing income stream for distribution to shareholders in the form of increasing fully franked dividends and provides capital growth in the value of the shareholders’ investments. Investment philosophy Milton is predominantly a long term investor in companies and trusts that are well managed, with a profitable history and an expectation of increasing dividends and distributions. Turnover of investments is low and capital gains arising from disposals are reinvested. Milton holds liquid assets such as cash and term deposits and it may invest in hybrid securities as well as real property development through joint ventures. Value proposition Milton provides a reliable income stream through the payment of fully franked dividends semi annually Ordinary fully franked dividends are paid out of profit after tax excluding special investment revenue and acquisition related costs of subsidiaries. Dividends have been paid every year since listing and all dividends have been fully franked since the introduction of franking. Refer to the dividend history graph on page 3. Special fully franked dividends may be paid out of special investment revenue when this revenue has accumulated to a material amount. Milton provides exposure to a diversified portfolio of companies and trusts listed on the Australian Securities Exchange Milton’s $2.6 billion equity investment portfolio, which represents 94% of total assets, comprises interests in companies and trusts which are expected to provide an increase in investment revenue over the long term. Consistent application of this investment philosophy over many years has created a portfolio that is not aligned with any securities exchange index. A list of investments by sector commences on page 7 and the classification of investments is detailed in the Chairman’s Review on page 4. Milton’s efficient, internally managed structure provides all of the above for less than 0.13% per annum of total assets. Milton’s directors oversee the performance of its executives who are employed by the company to manage its investments. All employees are focussed on operating efficiently and maximising returns to shareholders. Contents Key Performance Charts Chairman’s Review of the 2014 Financial Year Dividend History Classification of Investments Five Year Financial Summary Milton Corporation Foundation Listed Investments by Sector at 30 June 2014 Directors’ Report 1 2 3 4 6 6 7 11 Remuneration Report Auditor’s Independent Declaration Corporate Governance Statement Financial Statements Directors’ Declaration Independent Auditor’s Report Directory ASX Information 14 18 19 22 45 46 48 49 Calendar Final dividend & special dividend: - Ex dividend date - Payment date Share Purchase Plan closes Annual General Meeting: - To be held at 14 August 2014 3 September 2014 19 September 2014 16 October 2014 at 3 pm UNSW CBD Campus Level 7, 1 O’Connell Street, Sydney Key performance charts 120 117 111 109 103 103 Profit ($ millions) 94 91 73 69 NTA per share (Dollars) 3.30 3.03 3.47 3.22 3.28 3.09 4.35 3.86 3.89 3.52 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Net Profit Underlying operating profit NTA before tax on unrealised capital gains per share NTA after tax on unrealised capital gains per share Earnings per share (cents) 16.8 15.6 16.2 17.0 14.7 19.3 18.8 18.3 17.8 16.9 Dividends per share (cents) 1.0 7.8 8.0 7.2 0.4 9.4 0.5 8.6 7.0 7.4 7.6 7.8 8.2 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Eps Underlying eps Interim Final special Total returns (Per cent per annum) Totalportfolio returns (TPR) are after expenses and tax liabilities and do not take into account the benefits of franking credits Totalshareholder returns (TSR) are after expenses and do not take into account the benefit of franking credits All Ordinaries accumulation returns (XAOAI) are before expenses and tax liabilities and do not take into account the benefit of franking credits TPR TSR XAOAI 1 year 16.5 28.6 17.6 3 Years 5 Years 10 Years 15 Years 12.7 18.8 9.7 12.3 14.5 11.0 9.2 10.2 8.8 10.3 11.3 8.5 1 Chairman’s Review of the 2014 financial year Profit review Net profit after tax was $120.3 million, 8.2% higher than that reported last year whilst the underlying operating profit, which excludes special investment revenue and acquisition related costs of a subsidiary, was $117.4 million, also up 8.2%. The main factors that influenced the result were: • Growth in franked dividend income, • Increased profits from the property joint ventures, • Low interest rates earned on liquid assets, • Ongoing cost control and • Earnings on the funds raised from the issue of shares during the year, The 8.7% growth in franked dividend income resulted from increased dividends from many of the companies in the portfolio as well as dividends received from most of the additions to the investment portfolio. The ongoing low interest rate environment helped to maintain strong demand for housing sites in Milton’s property development joint ventures near Perth and with sound management of the developments, earnings increased by 28% to $6.4 million. However, the low interest rates affected the earnings on the liquid assets with interest income falling by 16% to $4.7 million. Milton remains one of the most efficient investment vehicles listed on the Australian Security Exchange (ASX) with total administration expenses of $3.3 million representing less than 0.13% of average total assets. The administration expenses include the cost of communicating with shareholders, managing the share registry and ASX listing fees which were all affected by the five for one share split in October 2013, the issue of new shares during the year and the 8% increase in number of Milton shareholders to over 21,000. In the 2014 financial year capital was increased by a total of $78 million through the reinstatement of the Share Purchase Plan, the introduction of the Dividend Reinvestment Plan and an acquisition of an unlisted investment company. The weighted average earnings per share for the 2014 year were 5.5 % higher at 19.3 cents. Dividends Ordinary The corporate objective is to pay increasing fully franked dividends and the directors are also mindful that a reliable income stream is important to many shareholders. Accordingly the dividend policy is to pay a high percentage of underlying operating profit to shareholders as ordinary dividends. The total ordinary dividends increased by 7.3 cents per share to 17.6 cents per share and absorbed 94.3% of the underlying operating profit for 2014. Special The level of special dividend income earned can fluctuate from year to year and therefore this income is excluded from the net profit in determining the underlying operating profit. When the level of special dividend income accumulates to a significant amount a special dividend may be declared. A fully franked special dividend of 0.4 cents per share was declared out of the special investment revenue received in 2014 earnings. This compares with the special dividend of 0.5 cents paid in the prior year. 2 Chairman’s Review of the 2014 financial year (continued) Milton dividend history Dividends have been paid every year since listing in 1958 and every dividend paid, since franking was introduced in 1987, has been fully franked. The chart below illustrates the growth in Milton’s dividends since 1958 based on the following assumptions: 1,000 shares were purchased for £1,000 ($2,000) in 1958, dividends have NOT been reinvested and no further shares have been purchased. Through the sub-division of shares on the introduction of decimal currency, bonus share issues, and the share split, the number of shares held would have increased to 28,531 and they would have been valued at $129,530 at 30 June 2014. The annual ordinary fully franked dividend on these shares would have increased to $5,021 in 2014 from $160 in 1959. In addition the 2014 special fully franked dividend would have been $114. Fully franked since franking was introduced in 1987 Ordinary dividend Special dividend $5,021 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Net asset backing The net asset backing (NTA) is disclosed to the ASX each month and is commonly used by investors and their advisers as a guide to the value of a Milton share. The monthly movement in the NTA will normally be determined by the change in value of the investments and the movement in retained earnings. Over the 2014 financial year the NTA, before provision for tax on unrealised capital gains, increased in value by 11.9% to $4.35 per share. At 30 June 2014 the assets included an investment portfolio of Australian listed equities valued at $2.6 billion and cash including term deposits of $0.1 billion. Net profit after tax Change in value of investments Total return (1) Share issues Dividends paid during year Total movement in NTA Net assets(1) at 30 June 13 Net assets(1) at 30 June 14 $ millions $ per share 120.3 278.8 399.1 78.1 (107.0) 370.2 2,375.1 2,745.3 3.89 4.35 Provision for tax on unrealised capital gains (308.8) Net assets after provision for tax 2,436.9 3.86 (1) before provision for tax on unrealised capital gains The investments are held for the long term and there is no intention to dispose of the investment portfolio however the accounting standards require a provision to be made in the financial statements for the capital gains tax that may arise if the portfolio was realised. At 30 June 2014 that provision was $0.3 billion and the NTA, after this provision was $3.86 per share. 3 Chairman’s Review of the 2014 financial year (continued) Portfolio The investments, which are held for the long term, are actively managed by three analysts and the managing director. These executives are responsible for making portfolio recommendations for the consideration and approval of the investment committee. During the year the Investment Committee met 21 times and approved purchases totalling $94 million and disposals amounting to $13 million. The purchases were spread over 43 companies with the larger investments being in Bank of Queensland, Equity Trustees, Insurance Australia Group, Rio Tinto and Transurban Group. Carsales.com and WDS were added to the portfolio during the year. Companies in the portfolio that were affected by demergers or corporate activity included Amcor, Brambles, Trust Company, Westfield Retail Trust and Westfield Group. As a result of this activity the portfolio now includes Orora, Scentre Group and Westfield Corporation. Milton elected to receive $24 million worth of Perpetual scrip as consideration for the merger with Trust Company. During the year holdings of QBE Insurance Group and Metcash were reduced whilst holdings in Alumina, APN News & Media, Fairfax Media and Recall Holdings were removed from the portfolio. The portfolio was increased by a further $14 million through the acquisition of an unlisted investment company. The consistent application of Milton’s investment philosophy over many years has determined the composition of the portfolio of investments. It comprises companies and trusts that are listed on the Australian Securities Exchange that can be expected to produce a reliable source of dividends for payment on to shareholders over the long term. Whilst the portfolio is not aligned with any index many of its investments are well represented in the All Ordinaries Index. The following asset classification table shows the composition of Milton’s assets by sector. Classification(1) Banks Consumer staples Materials Energy Commercial services Insurance Diversified financials Telecommunications Capital goods Real estate Other shares Utilities Healthcare Retailing Media Total listed investments Cash & liquids(2) Other assets(3) Total Opening position Additions(4) Disposals Change in value Closing position Income Share of total assets $ million $ million $ million $ million $ million $ million % 151.7 1,008.3 845.0 254.7 217.3 180.9 117.5 117.5 110.0 76.5 39.6 48.8 51.7 39.9 50.9 40.5 11.7 11.8 4.9 15.7 7.0 3.1 9.6 8.7 1.7 3.2 6.8 21.2 5.0 2.4 5.0 0.5 (0.2) (1.9) (0.9) - - 2.1 26.5 21.1 (6.7) (2.6) (2.4) (1.4) - (0.2) (2.4) (1.2) - (0.1) (0.1) (2.2) 36.4 13.3 5.1 6.5 2.5 3.9 6.0 12.0 1.1 259.8 258.6 209.0 113.9 122.1 153.7 91.5 47.7 59.7 74.2 48.8 59.2 57.4 11.1 2,202.5 106.6 (13.2) 279.1 2,575.0 129.0 46.6 2,378.1 126.0 47.5 2,748.5 51.9 11.5 8.9 7.2 4.8 5.4 5.8 4.2 1.9 3.5 2.7 2.1 1.3 2.2 0.6 114.0 4.7 10.9 129.6 36.7 9.5 9.4 7.6 4.1 4.4 5.6 3.3 1.7 2.2 2.7 1.8 2.2 2.1 0.4 93.7 4.6 1.7 100.0 (1) Investments are grouped according to their asset classes using the Global Industry Classification Standard (“GICS”) codes. Full details of the investments at 30 June 2014 are reported on pages 7 to 10. (2) Cash & liquid assets include cash, term deposits and hybrid securities. (3) Other assets include receivables and investments in real property development through joint ventures. (4) Additions include investments that were held by the unlisted investment company that was acquired on 31 January 2014. 4 Chairman’s Review of the 2014 financial year (continued) Capital initiatives Shareholders approved a five for one share split in October 2013. The splitting of the shares was intended to benefit shareholders by creating improved liquidity and turnover in the trading of the Company’s shares and increasing affordability of the shares to retail investors. The value of shares traded in the year to 30 June 2014 were higher than prior years as can be seen in the Turnover of Milton Shares table below. Turnover of Milton Shares Premium (Discount) to NTA 2012 2013 2014 Annual turnover ($m) 98.3 110.8 174.4 The increased turnover coincided with a reduction in the level of discount relative to NTA at which the shares traded over that same period. The closing price of Milton shares on 30 June 2014 was $4.54, which was a premium of 4.3% to NTA. (See graph on right.) 4% 2% 0% -2% -4% -6% -8% -10% -12% The Share Purchase Plan (SPP) was reintroduced in September 2013 with shares issued at $3.82 being a discount of 2.5% to the volume weighted average share price for the three days immediately after the shares traded ex dividend on 15 August 2013. The issue was well supported with $63 million being raised. The SPP is once again being offered in 2014 with the same pricing mechanism. A Dividend Reinvestment Plan (DRP) was introduced in January 2014 to provide a facility for shareholders to reinvest their interim dividends. The DRP will continue to be offered with each dividend as it broadens the appeal of Milton to a greater number of shareholders. Accordingly the DRP will be available for the 2014 final dividend and special dividend which are payable on 3 September 2014. The last day for receipt of DRP participation forms will be 19 August 2014 which is the first trading day after the record date. Outlook Australian companies continue to operate in an uncertain environment. Many have already restructured their businesses so that they may benefit as conditions improve however revenue growth remains a challenge. Uncertainty is also likely to challenge investors over the year ahead and this may provide Milton with opportunities to invest the $100 million it had available for investment at 30 June 2014. The issue of Milton shares under the Share Purchase Plan and Dividend Reinvestment Plan will increase the investable funds. Dividend income from the company’s portfolio is currently anticipated to increase in 2015 and in the absence of unforeseen circumstances, this should enable the full year ordinary dividend of 17.6 cents per share to at least be maintained. R. D. MILLNER Chairman Sydney, 7 August 2014 5 Five Year Financial Summary Underlying operating profit after tax(1) ($million) Underlying earnings per share (cents) Profit after tax ($million) Earnings per share (cents) Administration costs as % of average total assets Interim dividend (cents per share) Final dividend (cents per share)* Full year ordinary dividend (cents per share) Special dividend (cents per share) *LIC Capital Gain paid as part of final dividend (cents per share) Net assets(2) at 30 June ($million) Net asset backing per share(2) at 30 June($) Net asset backing per share(3) at 30 June($) Last sale price at 30 June ($) All Ordinaries Index at 30 June Ten year Total Shareholder Return (% per annum) Five year Total Shareholder Return (% per annum) Shares on issue (million) Number of shareholders 2014 2013 2012 2011 2010 117.4 108.5 102.7 18.8 17.8 16.9 120.3 111.2 103.4 19.3 0.13 8.2 9.4 17.6 0.4 18.3 0.14 7.8 8.6 16.4 0.5 - - 17.0 0.16 7.6 8.0 15.6 - - 90.5 16.2 93.9 16.8 0.17 7.4 7.8 15.2 1.0 - 2,746 2,375 1,997 2,112 4.35 3.86 4.54 5382 10.2 14.5 3.89 3.52 3.68 4775 8.3 4.0 3.28 3.09 3.04 4135 6.7 (3.0) 3.47 3.22 3.12 4660 7.8 (0.4) 68.9 14.7 73.1 15.6 0.17 7.0 7.2 14.2 - 0.4 1,603 3.30 3.03 3.20 4325 10.7 4.0 630.8 610.5 608.0 616.5 485.5 21,055 19,309 19,008 19,490 15,890 (1) Underlying operating profit after tax excludes special investment revenue and acquisition related costs of subsidiaries. (2) Before provision for tax on unrealised capital gains net of tax on unrealised capital losses and before providing for the ordinary final and special dividends. (3) After provision for tax on unrealised capital gains net of tax on realised capital losses and before providing for the ordinary final and special dividends. All prior years’ per share values and number of shares on issue in the table above have been adjusted to account for the increase in number of shares as a result of the 5:1 share split in October 2013. Milton Corporation Foundation (ABN 95 051 921 133) The Foundation was established in 1988 to support charitable organisations, particularly those which direct assistance to persons that are disadvantaged in the community. The objective is to create a vehicle with sufficient capital that can make regular meaningful donations from the earnings derived from its investments. Contributions from Milton, shareholders and others over the years have helped to grow the Foundation’s total assets at 30 June 2014 to $2 million. The Foundation’s assets can now support annual distributions of $100,000 and in 2014, fourteen organisations received much needed support from the Milton Foundation. The Foundation has provided $1.8 million of assistance to the community since its establishment. The Foundation is a deductible gift recipient and donations of $2 or more are tax deductible. You can support the Foundation by forwarding a cheque to: The Trustees, Milton Corporation Foundation, PO Box R1836, Royal Exchange NSW 1225. J F Church Chairman of Trustees Sydney, 7 August 2014 6 LISTED INVESTMENTS BY SECTOR AT 30 JUNE 2014 Holding Fair Value $'000 Banks Australia & New Zealand Banking Group Limited - ordinary shares - convertible preference shares - capital notes 2 Bendigo and Adelaide Bank Limited Bank of Queensland Limited Commonwealth Bank of Australia - ordinary shares - PERLS V National Australia Bank Limited - ordinary shares - convertible preference shares MyState Limited Wide Bay Australia Limited Westpac Banking Corporation Consumer Staples Blackmores Limited Coca-Cola Amatil Limited Graincorp Limited Metcash Limited Select Harvests Limited Treasury Wine Estates Limited Wesfarmers Limited Woolworths Limited Materials Adelaide Brighton Limited Amcor Limited Arrium Limited BHP Billiton Limited Boral Limited Brickworks Limited DuluxGroup Limited Fletcher Building Limited Incitec Pivot Limited Orica Limited Orora Limited Rio Tinto Limited Sims Group Limited 7 2,970,045 19,500 2,000 5,709,708 7,306,078 3,033,075 500 4,404,523 300 444,992 433,570 10,451,306 378,014 1,466,434 362,290 4,047,559 161,862 1,053,604 2,863,064 2,725,473 2,357,886 1,194,512 4,251,050 3,382,121 1,666,463 3,234,567 395,011 803,229 1,610,689 188,987 1,194,512 567,618 793,037 99,021 2,007 208 69,658 89,061 245,315 102 144,380 31 2,065 2,385 354,091 1,008,324 10,282 13,872 3,043 10,686 832 5,279 119,791 95,991 259,776 8,135 12,459 3,380 121,418 8,749 44,217 2,236 6,570 4,671 3,681 1,702 33,665 7,676 258,559 LISTED INVESTMENTS BY SECTOR AT 30 JUNE 2014 Energy New Hope Corporation Limited Origin Energy Limited Santos Limited Woodside Petroleum Limited Washington H. Soul Pattinson & Company Limited Worley Parsons Limited Diversified Financials Argo Investments Limited ASX Limited Australian Foundation Investment Company Limited BKI Investment Company Limited Carlton Investments Limited Diversified United Investment Limited Equity Trustees Limited IOOF Holdings Limited Macquarie Group Limited Perpetual Limited Insurance AMP Limited Austbrokers Limited Insurance Australia Group Limited - ordinary shares - convertible preference shares IAG Finance (NZ) Limited perpetual reset exchangeable notes QBE Insurance Group Limited Suncorp Group Limited Commercial Services ALS Limited Brambles Limited McMillan Shakespeare Limited Transfield Services Limited Telecommunication Telstra Corporation Limited TPG Telecom Limited 8 Holding 1,290,107 629,174 1,424,787 823,342 9,174,640 396,112 985,766 496,965 1,294,722 1,223,866 354,809 378,845 441,541 702,075 466,349 1,359,278 2,121,110 1,024,795 4,814,075 3,000 12,000 2,618,375 3,074,732 11,235,037 1,280,966 100,000 1,519,032 13,310,253 3,731,553 Fair Value $ 000 3,457 9,199 20,317 33,815 135,326 6,896 209,010 7,521 17,712 8,002 2,013 9,669 1,364 9,264 5,897 27,808 64,403 153,653 11,242 11,058 28,114 319 1,284 28,462 41,632 122,111 99,542 11,772 917 1,649 113,880 70,909 20,561 91,470 LISTED INVESTMENTS BY SECTOR AT 30 JUNE 2014 Real Estate Australand Property Group Aveo Group (formerly FKP Property Group) BWP Trust CFS Retail Property Trust Group Finbar Group Limited Goodman Group Lend Lease Group Scentre Group Stockland Group Westfield Corporation Healthcare Cochlear Limited CSL Limited Ramsay Health Care Limited Sonic Healthcare Limited Retailing A.P. Eagers Limited ARB Corporation Limited Automotive Holdings Group Limited David Jones Limited Noni B Limited Premier Investments Limited Utilities AGL Energy Limited APA Group Capital Goods Bradken Limited Cardno Limited GWA Group Limited Leighton Holdings Limited Reece Australia Limited Sedgman Limited UGL Limited WDS Limited 9 Holding 832,732 1,498,282 1,584,008 7,846,000 2,782,249 646,376 464,539 1,667,480 2,150,940 760,000 33,800 592,198 153,442 615,925 5,833,107 744,741 2,243,171 356,090 729,296 590,250 2,390,954 1,705,833 826,514 1,204,699 2,275,000 757,865 133,085 2,021,674 1,451,191 1,047,983 Fair Value $ 000 3,697 3,086 3,928 16,006 4,535 3,264 6,090 5,336 8,346 5,435 59,723 2,085 39,411 6,982 10,674 59,152 33,307 9,116 8,188 1,403 343 5,016 57,373 37,012 11,753 48,765 3,141 7,614 5,983 14,953 4,024 1,011 9,926 1,006 47,658 LISTED INVESTMENTS BY SECTOR AT 30 JUNE 2014 Transport Lindsay Australia Limited Qube Holdings Limited Sydney Airport Transurban Group Toll Holdings Limited Consumer Services Crown Resorts Limited InvoCare Limited Tatts Group Limited Media Amalgamated Holdings Limited Seven Group Holdings Limited – TELYS4 preference shares Seven West Media Limited Information Technology Carsales.com Limited Automobiles & Components Fleetwood Corporation Limited Schaffer Corporation Limited Holding 3,200,000 2,568,000 1,453,629 2,743,081 1,311,348 267,301 1,836,903 2,223,955 781,476 7,000 1,678,311 332,000 228,000 68,999 Fair Value $ 000 1,088 5,855 6,134 20,271 6,689 40,037 4,042 18,571 7,272 29,885 7,291 617 3,156 11,064 3,516 3,516 531 408 939 Total Listed Investments by Sector 2,574,894 10 Directors’ Report For the year ended 30 June 2014 The directors present their report together with the financial statements of the consolidated entity (“Milton”) consisting of Milton Corporation Limited and its subsidiaries for the financial year ended 30 June 2014 and the independent auditor’s report thereon. Directors The directors of Milton at any time during or since the end of the financial year are: Robert D. Millner FAICD Independent non-executive chairman. Director of Milton Corporation Limited since 1998 and appointed chairman in 2002. Chairman of the Investment and Remuneration Committees. Extensive experience in the investment industry. Other current directorships: Director of Australian Pharmaceutical Industries Limited since 2000, Chairman of BKI Investment Company Limited since 2003, Director of Brickworks Limited since 1997 and appointed chairman in 1999, Director of New Hope Corporation Limited since 1995 and appointed chairman in 1998, Director of TPG Telecom Limited since 2000, Director of Washington H. Soul Pattinson & Company Limited since 1984 and appointed chairman in 1998. Former directorships in the last three years: Exco Resources Limited from November 2012 to January 2013 (company delisted in January 2013), Northern Energy Corporation Limited from February 2011 (company delisted in October 2011) and Souls Private Equity Limited from 2004 to 2012 (company delisted in January 2012). John F. Church FCSA, F Fin, FAICD Independent non-executive director. Director of Milton Corporation Limited since 1986. Member of the Investment Committee. A Solicitor and Notary Public and over 41 years experience in the investment industry. Graeme L. Crampton B.Ec, FCA, FAICD Independent non-executive director. Director of Milton Corporation Limited since 2009. Chairman of the Audit Committee and a member of the Remuneration Committee. A Chartered Accountant and former partner of a major firm of Chartered Accountants for more than 30 years and has extensive experience in the investment industry. Former directorships in the last three years: Souls Private Equity Limited from 2011 to 2012. Kevin J. Eley CA, F Fin, FAICD Independent non-executive director. Director of Milton Corporation Limited since 2011. Member of the Investment and Audit Committees. A Chartered Accountant and has extensive experience in the investment industry. Other current directorships: Director of Equity Trustees Limited since 2011, HGL Limited since 1985 and PO Valley Energy Limited since 2012. Former directorships in the last three years: Kresta Holdings Limited from 2011 to February 2014. Francis G. Gooch B.Bus, CPA Managing director. Managing Director of Milton Corporation Limited since 2004 and chief executive since 1999. Member of the Investment Committee. A Certified Practising Accountant and over 29 years experience in the finance and investment industries. Ian A. Pollard BA (Macq), MA (Oxon), D Phil (IMC), FIAA, FAICD Independent non-executive director. Director of Milton Corporation Limited since 1998. Member of the Audit and Remuneration Committees. An Actuary and over 37 years of involvement in the investment industry. Other current directorships: Director and Chairman of Billabong International Limited since 2012 and Director of SCA Property Group since 2012. 11 Directors’ meetings The number of directors’ meetings (including meetings of committees of directors) and the number of meetings attended by each of the directors of Milton during the financial year were: Director Directors’ Meetings Investment Committee Meetings Audit Committee Meetings Nomination Committee Meetings R.D. Millner J.F. Church G.L. Crampton K.J. Eley F.G. Gooch I.A. Pollard A 6 6 6 6 5 6 B 6 6 6 6 6 6 A 18 21 * 20 21 * B 21 21 * 21 21 * A * * 5 5 * 5 B * * 5 5 * 5 A * 1 * * 1 1 B * 1 * * 1 1 Remuneration Committee Meetings A B 1 * 1 * * 1 1 * 1 * * 1 A - Number of meetings attended. B - Number of meetings held during the time the director held office or was a member of the committee during the year. * - Not a member of the relevant committee. Principal activities The principal activity of Milton is investment. Milton invests in companies and trusts, real property development, fixed interest securities, and liquid assets such as cash and term deposits. There has been no significant change in the nature of this activity during the financial year. Operating and financial review The consolidated profit after income tax of Milton for the year was $120.3 million (2013: $111.2 million). Milton is in a sound financial position with net assets after provision for tax on unrealised capital gains at 30 June 2014 of $2.4 billion (2013: $2.2 billion) and no debt. The operating and financial reviews are contained in the Chairman’s Review on page 2. Significant changes in the state of affairs There were no significant changes in the state of affairs of Milton during the past financial year other than as disclosed in the financial statements. Dividends Dividends paid or declared by Milton to members since the end of the previous financial year were: Declared and paid during the year - Final 2013 ordinary fully franked - Special 2013 fully franked - Interim 2014 ordinary fully franked Declared after end of year and not provided for Cents per share Total amount $’000 Date of payment 43.0(1) 2.5(1) 8.2 52,523 3,054 51,443 4 September 2013 4 September 2013 4 March 2014 - Final 2014 ordinary fully franked 9.4 59,298 3 September 2014 - Special 2014 fully franked (1) Final 2013 ordinary dividend of 43cps and special 2013 dividend of 2.5cps were based on shares on issue prior to the share split. No LIC capital gain was included in the above dividends. All the dividends paid by Milton since franking was introduced in 1987 have been fully franked. 3 September 2014 2,523 0.4 Events subsequent to reporting date Apart from the information contained in note 24 to the financial statements, no matter or circumstance has arisen since the end of the financial year that has or may significantly affect the operations, results or state of affairs of Milton in subsequent financial years. 12 Likely developments Milton will continue its investment activities consistent with its objective of generating increasing revenue for distribution to its shareholders from its diversified portfolio of assets. The performance of Milton’s investments is subject to and influenced by many external factors and therefore it is not appropriate to predict the future results of the investments and Milton’s performance. The Chairman’s Review commencing on page 2 of the Annual Report contains information relating to Milton’s past performance, operations and outlook. Environmental regulations There are no significant environmental regulations that apply directly to Milton. Directors’ relevant interests No director has or has had any interest in a contract entered into since the last Directors’ Report or any contract or proposed contract with Milton or any subsidiary or any related entity other than as disclosed in note 22 to the financial statements. The relevant interest of each director in the capital of Milton at the date of this report is as follows: Director R.D. Millner J.F. Church G.L. Crampton K.J. Eley F.G. Gooch I.A. Pollard No. of Shares 13,089,725 28,485,645 148,295 103,920 803,985 87,540 Indemnification and insurance of directors, officers and auditors Neither Milton nor any related entity has indemnified or agreed to indemnify, paid or agreed to pay any insurance premium which would be prohibited under Section 199A or Section 199B of the Corporations Act 2001 during or since the financial year ended 30 June 2014. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses insurance contracts as such disclosure is prohibited under the terms of the contracts. Secretary Mr Nishantha Seneviratne MBA, ACMA, CPA, AICM, GradDipACG was appointed secretary and Chief Financial Officer in December 2012. Prior to that, he held the role of senior accountant at Milton from March 2010 and was appointed assistant company secretary in March 2012. He has held senior finance positions in private companies for over 6 years and has over 4 years experience in corporate finance and credit in the banking sector. He is an associate member of CIMA(UK), CPA and holds a graduate diploma in Applied Corporate Governance. Non-audit services During the year, Moore Stephens Sydney, Milton’s auditor, has performed certain non-audit services in addition to its statutory duties. Details of the amounts paid to the auditors and related practices of the auditor are disclosed in note 4 to the consolidated financial statements. The board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: - All non-audit services were subject to the corporate governance procedures adopted by Milton and have been reviewed and approved by the Audit Committee to ensure they do not impact on the integrity and objectivity of the auditor, and - The non-audit services provided do not undermine the general principles relating to auditor independence as set out in Professional Statement APES110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for Milton, acting as an advocate for Milton or jointly sharing risks and rewards. The auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 18. 13 Remuneration Report This report, which is audited, details the policy for determining the remuneration of directors and executives and provides specific details of their remuneration. Remuneration of non-executive directors Non-executive directors are paid base fees, committee fees and superannuation contributions. Fees are not linked to Milton’s performance and no bonuses are paid or options issued. Each year the base fees and committee fees are determined by the board of directors who take into account the demands made on directors and the remuneration of non executive directors of comparable Australian companies. Base fees and committee fees (including superannuation contributions) Chairman base fee Director base fee Chairman of the Audit Committee fee Member of the Audit Committee fee Member of the Investment Committee fee 2013 124,580 62,290 5,512 3,125 5,512 2014 127,072 63,536 5,622 3,188 5,622 The total remuneration paid to non executive directors in 2014 was $410,080 (2013: $402,038). In October 2011 shareholders approved an increase to the maximum non-executive directors’ total remuneration to $700,000. Non-executive directors, who were appointed before 30 June 2003, are entitled to retirement benefits in accordance with a shareholder approved scheme. In June 2003 the board resolved to cap retirement benefits for all directors at the amounts provided as at 30 June 2003. The total balance provided at 30 June 2014 is $190,905 (2013: $190,905). Remuneration of executives Executive remuneration is a key element of Milton’s staff retention strategy which is designed to attract and retain appropriately qualified and experienced professionals who share Milton’s goals and values and will seek to deliver superior long term returns to Milton shareholders. The remuneration of the managing director and senior executives is reviewed annually by the Remuneration Committee which then makes recommendations to the board for its consideration and approval. In formulating its recommendations the Remuneration Committee considers: • the short term and long term performance of the Company as measured by dividend growth and total returns. • the contribution of the managing director and the senior executives to this performance, • market trends in remuneration in terms of both quantum and structure and • the remuneration of key management personnel of other listed investment companies with similar long term investment philosophies and objectives. Executive remuneration includes a component known as the Total Employment Cost Package (TECP), and it may include a cash bonus component and an equity component. The TECP includes cash salary, company contributions to superannuation and it may include non monetary benefits such as the provision of a motor vehicle and car parking. No executive is entitled to a guaranteed bonus however the board may award a cash bonus to reward an executive’s outstanding contribution to the achievement of Milton’s objectives. The board will consider qualitative measures such as contribution to the investment process, participation in board discussions, timeliness and accuracy of reports and staff development when assessing executive performance. In determining the amount of any bonus the board has regard to quantitative measures such as underlying operating earnings per share, dividends per share and total returns relative to the market as a whole. In 2014, the cash bonus was less than 15% of each executive’s TECP. The equity component of the remuneration package encourages executives to have an investment in Milton so that their interests are aligned with the shareholders’ interests. The equity component is delivered through participation in the Senior Staff Share Plan (“SSSP”), which was approved by shareholders at Milton’s Annual General Meeting on 9 October 2001 (refer note 17b to the financial statements). In accordance with the terms of the SSSP, the directors determine the maximum number of shares for which the executive may apply. All SSSP shares are acquired on the market and held on behalf of the executives by the trustee of the SSSP. The price offered to the executive shall be at a discount of one cent per share to the market value of the shares. 14 Executives are required to hold the SSSP shares for a minimum period of three years however the benefit to the executive is increased through long term ownership to the extent dividends are paid and the Milton share price appreciates. Milton provides an interest free loan to the executives to fund the acquisition of each parcel of SSSP shares. Each loan is repaid by the application of the after tax proceeds from the dividends paid on the SSSP shares. The opportunity cost to Milton of providing the loan is the notional interest. The Remuneration Committee includes this cost when it reviews each executive’s TECP. SSSP shares may not be sold, transferred, mortgaged or otherwise dealt with by the executive for a period of three years from the date of issue or until the executive ceases employment with Milton. If the executive’s employment ceases, the executive may within 30 days repay the loan and direct the trustee to transfer the shares to the executive or, provided the value of the shares is greater than the loan outstanding, direct the trustee to sell the shares, repay the loan and distribute the balance to the executive. Otherwise the trustee will sell the shares when so directed by Milton and apply the proceeds to the repayment of the loan. The board considers that the SSSP is appropriately designed to encourage long term ownership of shares by executives, which then aligns their interests with that of Milton’s predominantly long term shareholder base. Executives, other than the managing director, may participate in the Employee Share Plan (“ESP”) which provides for a bonus of up to $1,000 to be paid in the form of Milton shares (refer note 17a to the financial statements). Eligible executives are provided with life, total and permanent disablement and salary continuance insurance. The overall level of executive reward takes into account the performance of Milton over a number of years. Key performance indicators for Milton over five years are tabled below. Key performance indicators (All prior year per share values in the table above have been adjusted for the 5:1 share split ) 2014 2013 2012 2011 2010 Profitability Underlying operating profit ($million) 117.4 108.5 102.7 Growth in underlying operating profit (%) Underlying earnings per share (cents) Growth in underlying earnings per share (%) Dividend Full year ordinary dividend (cents per share) Growth in full year ordinary dividend (%) Special dividend (cents per share) Capital Net asset backing per share(1) at 30 June($) Growth (decline) in net asset backing per share (%) Net assets(1) at 30 June ($million) Total Return Ten year Total Shareholder Return Ten year Total Portfolio Return Ten year accumulation return of the All Ordinaries Index 8.2 18.8 5.5 17.6 7.3 0.4 4.35 11.9 5.7 17.8 5.5 16.4 5.1 0.5 3.89 18.4 13.5 16.9 4.5 15.6 2.6 - 3.28 (5.4) 90.5 31.3 16.2 9.6 15.2 7.0 1.0 3.47 5.1 2,746 2,375 1,997 2,112 10.2 9.2 8.8 8.3 9.3 9.2 6.7 7.5 7.1 7.8 8.5 7.4 68.9 (6.4) 14.7 (13.3) 14.2 (9.0) - 3.30 9.3 1,603 10.7 10.2 7.1 (1) Before provision for tax on unrealised capital gains net of tax on realised capital losses and before providing for the ordinary final dividend. At Milton’s 2013 Annual General Meeting, shareholders supported the remuneration report for the 2013 financial year with 86.3% of the proxies in favour of the resolution to approve the report. The resolution to approve the remuneration report was passed by a show of hands at the Annual General Meeting held in October 2013. 15 Details of remuneration Amounts of remuneration Details of the remuneration of each non-executive director of Milton Corporation Limited, the managing director and specified executives of Milton for the years ended 30 June 2013 and 2014 are set out in the following tables. Non-executive directors of Milton Corporation Limited R.D. Millner Chairman J.F. Church Director G.L. Crampton Director K.J. Eley I.A. Pollard Director Director Total remuneration 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Short Term Benefits Fees $ 121,460 119,350 63,303 62,204 45,158 43,802 55,185 65,071 61,075 60,014 346,181 350,441 Post Employment Superannuation Total paid Retirement Provision(1) $ 11,234 10,742 5,855 5,598 24,000 24,000 17,181 5,856 5,649 5,401 63,919 51,597 $ 132,694 130,092 69,158 67,802 69,158 67,802 72,346 70,927 66,724 65,415 410,080 402,038 $ 55,905 55,905 90,000 90,000 - - - - 45,000 45,000 190,995 190,995 (1) The directors’ retirement benefits have been capped at the balance provided at 30 June 2003. Managing director and executives of Milton Corporation Limited and its subsidiaries Short Term Benefits Salary Cash bonus $ 2014 2013 2014 2013 466,506 443,741 155,606 122,340 (1) $ 66,500 25,000 21,053 13,761 2014 2013 2014 2013 - 140,004 - - 622,112 706,085 87,553 38,761 Non monetary benefits (2) $ 33,302 41,910 - - - 2,812 33,302 44,722 Post Employ- ment Super- annuation $ 20,013 20,008 16,341 12,249 - 15,308 36,354 47,565 Other long term benefits (3) Share based payments Total (4) $ 118,361 132,885 6,789 4,540 $ 14,848 18,325 - - $ 719,530 681,869 199,789 152,890 - 4,025 - 25,583 - 187,732 14,848 22,350 125,150 163,008 919,319 1,022,491 F.G. Gooch Managing director D.N. Seneviratne CFO, secretary (appointed 21/12/12) A.R. Davison CFO, secretary (resigned 15/04/13) Total remuneration (1) Represents 100% of cash bonus paid or payable which vested in the year. (2) Non monetary benefits include the provision of a motor vehicle, parking, the cost of life, total & permanent disablement insurance and salary continuance insurance provided through nominated superannuation funds. (3) Other long term benefits comprise changes in long service leave provisions. (4) Represents the notional value of interest on loans provided to acquire shares in Milton under the Senior Staff Share Plan and cost of shares purchased under the Employee Share Plan. There are no fixed term employment contracts between Milton and its employees. Employment may be terminated with four weeks notice by either Milton or the employee. There are no provisions for any termination payments other than for unpaid annual and long service leave. 16 Share based compensation, Senior Staff Share Plan equity holdings and loans The movements during the reporting period are as follows: Executives’ shareholdings in relation to the Senior Staff Share Plan - Number of shares held (All holdings below have been adjusted to account for the 5:1 share split) F.G. Gooch Managing director D.N. Seneviratne CFO, secretary A.R. Davison CFO, secretary (resigned 15/04/13) Opening Balance 700,000 625,000 17,500 17,500 - 237,500 2014 2013 2014 2013 2014 2013 Received as Remuneration Closing Balance 75,000 75,000 35,000 - - - 775,000 700,000 52,500 17,500 - - Loans in relation to the Senior Staff Share Plan Details regarding loans outstanding at the reporting date to specified directors and specified executives, are as follows: Opening Balance $ 1,840,320 1,683,932 48,521 50,635 - 665,824 2014 2013 2014 2013 2014 2013 Net change $ 197,606 156,388 133,091 2,114 - (665,824) Closing Balance $ 2,037,926 1,840,320 181,612 48,521 Highest balance in the period $ 2,135,181 1,920,264 186,120 50,635 Notional Interest (1) $ 118,361 132,885 5,789 3,540 - - - 665,824 - 25,583 F.G. Gooch Managing director D.N. Seneviratne CFO, secretary (appointed 21/12/12) A.R. Davison CFO, secretary (resigned 15/04/13) (1) The notional interest has been included under “Share Based Payment” in the remuneration of the managing director and the executive disclosed on page 16. Notional interest is based on the applicable FBT benchmark interest rate, which for the year averaged 6.27% (2013: 7.18%). Apart from loan balances shown above, there were no loans outstanding from key management personnel. Terms and conditions of the loans are referred to in note 17b to the financial statements. Share holdings of key management personnel and their related parties – Number of shares held (All holdings below have been adjusted to account for the 5:1 share split) Opening Balance Received as Remuneration Other Acquisitions 2014 2013 2014 2013 2014 2013 993,685 918,685 75,000 75,000 - 18,440 35,000 18,125 - - 240,060 315 - - - 3,920 - - Closing Balance 1,072,605 993,685 53,440 18,440 - - F.G. Gooch Managing director D.N. Seneviratne CFO, secretary (appointed 21/12/12) A.R. Davison CFO, secretary (resigned 15/04/13) Rounding off The company is of a kind referred to in Class Order 98/100 issued by the Australian Securities & Investments Commission and in accordance with that Class Order, amounts in the Directors’ Report and financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the directors. R. D. MILLNER Chairman Sydney, 7 August 2014 17 Level 15, 135 King Street Sydney NSW 2000 T +61 (0)2 8236 7700 F +61 (0)2 9233 4636 www.moorestephens.com.au AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF MILTON CORPORATION LIMITED In accordance with the requirements of section 307C of the Corporations Act 2001 , as lead auditor for the audit of Milton Corporation Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Moore Stephens Sydney Chartered Accountants Martin J. (Joe) Shannon Partner Dated in Sydney this 7th day of August 2014. Moore Stephens Sydney ABN 90 773 984 843. Liability limited by a scheme approved under Professional Standards Legislation* *Other than for the acts or omissions of financial services licensees. An independent member of Moore Stephens International Limited - members in principal cities throughout the world The Sydney Moore Stephens firm is not a partner or agent of any other Moore Stephens firm. 18 Corporate Governance Statement This statement outlines Milton’s main corporate governance practices which have been in place throughout the financial year. The Board considers it essential that directors and staff of Milton employ sound corporate governance practices in carrying out their duties and responsibilities. Accordingly a code of conduct has been issued to detail the expected behaviour required to ensure Milton acts with integrity and objectivity. A number of committees, which operate in accordance with their respective charters, have been established to assist the board in carrying out its responsibilities. Milton has placed its corporate governance statement on its website: www.milton.com.au. The Board Charter, Code of Conduct, Audit, Nomination and Remuneration Committee charters and share trading, communication, disclosure, performance evaluation and risk management policies are available on this website. The ASX Corporate Governance Council released its “Principles of Good Corporate Governance and Best Practice Recommendations” (“Recommendations”) in March 2003 and these were revised in August 2007 and in June 2010. The third edition of the Corporate Governance Principles and Recommendations was released on 27 March 2014 and is effective from 1 July 2014. The ASX Listing Rules require listed companies to identify those Recommendations that have not been followed and the reasons for not following them. The directors consider that Milton’s corporate governance practices do comply with the Recommendations. Board of directors The Board charter details the composition and the role and responsibilities of the Board and their relationship with management to accomplish the board's primary role of promoting the long-term success of Milton. The Board is accountable to shareholders for the performance of Milton. It oversees the activities and performance of management and provides an independent and objective view of Milton’s performance. The Board which is comprised of a majority of independent non-executive directors and one executive director is equipped with a mix of skills and considerable experience in the investment industry. The details of the directors, their experience, qualifications, term of office, and independent status are set out in the Directors’ Report. The Recommendations state that to be considered independent, directors must be “a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with (or could reasonably be perceived to materially interfere with) the independent exercise of their judgement.” All directors except Mr R. D. Millner would satisfy all the tests of the Recommendations and are considered as being independent. Milton’s chairman, Mr R. D. Millner, is also chairman of Washington H. Soul Pattinson & Co Limited, a substantial shareholder of Milton. The Recommendations state that the determination of the independence of a director is to be dealt with by the board of directors who are to consider all relevant facts and circumstances on a case by case basis. The Washington H. Soul Pattinson holding of less than 6% of Milton’s issued capital represents less than 5% of Washington H. Soul Pattinson’s assets and therefore the Board considers it is unlikely to impact the chairman’s independence. The Board is of the opinion that the thinking and actions of Mr R. D. Millner and his commitment to represent the interests of all shareholders is not impaired, and he is considered by the Board as a whole to be independent. In accordance with the Corporations Act 2001, any director who has an interest of any kind in relation to any matter dealt with at a board or committee meeting is required to advise the meeting and abstain from participation in the decision process. All non-executive directors are subject to re-election at least every three years. Independent professional advice may be sought by a director at Milton’s expense with the prior approval of the chairman. A copy of advice received by the director is made available to the chairman to be dealt with at his discretion. 19 The Board meets regularly to review management reports on the investment portfolio and on the operational and financial performance of Milton. The directors agreed in 2003 to phase out retirement benefits, with the amount to be paid to each director upon retirement limited to the provision in the financial statements as at 30 June 2003, details of which are disclosed on page 16. Board committees The Board has established committees to assist it in carrying out its responsibilities. The charters that identify the roles and responsibilities of the following committees have been approved by the Board and are available on Milton’s web site. The Audit Committee, consisting of at least three independent non-executive directors, reviews the effectiveness of the risk management and internal controls, the reliability of financial information and the appointment and effectiveness of the external auditor. To assist in this function the committee may invite the external auditor and senior executives to report to meetings. Any significant non-audit services to be provided by the external auditors must be approved in advance by the Audit Committee. The Audit Committee considers that the provision of those non-audit services provided to date by the external auditor would not affect the auditor’s independence. The Investment Committee, consisting of three independent non-executive directors and the managing director, meets regularly to review the investment portfolio and to make investment decisions within defined limits. All directors may attend the Investment Committee meetings. The defined limits are reviewed by the Board from time to time. The Nomination Committee consists of those directors who are not seeking re-election. This committee reviews the composition of the Board annually and makes recommendations on the appropriate skill mix, personal qualities, expertise and diversity. Performance of the Board and its committees are reviewed annually in July by the Nomination Committee while performance of individual directors is subject to continuous review by the Chairman. Performance evaluation of the Board and its committees for 2013/14 financial year has been completed in accordance with the Performance Evaluation Policy of Milton. The Remuneration Committee, consisting of three independent non-executive directors, advises the Board on remuneration policies and practices generally, and makes specific recommendations to the Board annually on remuneration packages and other terms of employment for senior executives and directors. The Remuneration Committee formally reviews the performance of the Managing Director. Performance of each senior executive is reviewed each year by the Managing Director and reported to the Remuneration Committee. Annual reviews of the Managing Director and senior executives for the 2013/14 financial year were completed in accordance with Milton’s performance evaluation policy as disclosed on Milton’s website. An independent committee is appointed to deal with matters that may be potentially influenced by related parties. The Committee will comprise of all members of the board excluding the board member who is a related party to the matter considered. Trading policy in relation to listed securities This trading policy is provided to all directors and employees so that they are aware of the restrictions that apply to them in relation to their dealing in securities. The policy has been developed to ensure that directors and employees comply with insider trading provisions of the Corporations Act and to avoid the risk that they are perceived to have traded while in the possession of insider information. Milton encourages directors and employees to have a personal financial interest in Milton by acquiring and holding shares on a long term basis. Short term dealing in and short selling of Milton securities by its directors and employees is not permitted. The buying or selling of shares is not permitted by any director or employee of Milton or their immediate family when that person is in possession of price sensitive information in relation to those shares that is not available to the market. This trading restriction is a requirement of the Corporations Act and it applies to dealing in Milton securities and other listed securities. Price sensitive information must be treated as confidential and must not be communicated to third parties who may use the information inappropriately. 20 The following trading restrictions apply regardless of whether the director or employee or their immediate family is in possession of price sensitive information. Directors and employees of Milton or their immediate family may not purchase or sell Milton shares in the following blackout periods:- i) from the end of the month until the day after the announcement of the net tangible asset backing per share (NTA) for that month and ii) from the end of the half year or full year until the day after the results for the half year or full year are announced to the market. It is the responsibility of directors and employees to advise the secretary of any intention to deal in Milton’s securities and the secretary must be advised when the dealing occurs. Directors or employees or their immediate family who intend to deal in Milton shares during the closed periods must receive prior approval from the Chairman. Such requests, which must be made in writing, will only be approved in exceptional circumstances, which include severe financial hardship. The restrictions on buying or selling Milton shares by directors or employees or their immediate family in the blackout periods do not apply in the following situations of passive trading in Milton shares: a. the transfer of securities already held by directors or employees or their immediate family into a superannuation fund or similar scheme where the above are a beneficiary; b. the acceptance of a takeover offer; c. trading under an offer or invitation made to all or most of the company’s security holders, such as a rights issue, a security purchase plan, a dividend reinvestment plan and an equal access buy-back, where the plan that determines the timing and structure of the offer has been approved by the Board. This includes decisions relating to whether or not to take up the entitlements and the sale of entitlements required to provide for the take up of the balance of entitlements under a renounceable pro rata issue; d. accepting an offer to participate in an employee securities plan; and e. any such similar transaction determined by the directors to be a passive dealing. Continuous disclosure and shareholder communication The secretary has been nominated as the person responsible for communications with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements of the ASX listing rules. The Board reviews and approves all announcements to the ASX, except for the monthly net asset backing announcements which are reviewed by the chief financial officer and the managing director. Milton has established a website to enhance communication with its shareholders and potential investors. The website contains historical information, copies of all information disclosed to the ASX and a Governance Policies section that includes details of the various committee charters and policies. Shareholders who have advised Milton of their email addresses, are notified by email of all announcements to the ASX. The Milton Communications Policy is available on Milton’s website. Risk management The managing director and chief financial officer report annually to the Audit Committee on Milton’s risk management system and provide written confirmation to the Board that the integrity of the financial statements are founded on a sound system of risk management and internal control which is operating effectively in all material respects in relation to financial reporting. The Board considers an internal audit function is not necessary due to the nature and size of Milton’s operations. The external auditors report to the Audit Committee on risk management issues identified during the course of the audit. The risk management policy is available on Milton’s website. Diversity The board has established a diversity policy which is available on Milton’s website. The key element of the diversity policy is that Milton will seek the best person available for the position which will not be influenced by gender, age, ethnicity or cultural background. In relation to the appointment of a new director, the board will seek male and female candidates with the appropriate skills and investment experience to complement the current directors. At 30 June 2014 the proportion of women employed by Milton was: total Milton employees, 57%; board of directors, 0%; and senior positions, 14%. 21 Milton Corporation Limited Consolidated income statement for the year ended 30 June 2014 Ordinary dividends and distributions 2a 114,281 Note 2014 $'000 Interest Net gains on trading portfolio Other revenue Operating Revenue 2013 $'000 105,839 5,637 293 412 4,717 785 310 120,093 112,181 Share of net profits of joint ventures – equity accounted Special dividends and distributions Income from operating activities 19b 2b 6,412 3,050 5,013 2,744 129,555 119,938 Administration expenses Acquisition related costs of subsidiaries Profit before income tax expense (3,347) (58) (3,214) (46) 126,150 116,678 Income tax expense thereon 3 (5,856) (5,461) Profit attributable to shareholders of Milton 120,294 111,217 Basic and diluted earnings per share 7 19.27 18.26(1) Cents Cents (1)The basic and diluted earnings per share in the 2013 financial statement were 91.3cps. This number has been adjusted to account for the increase in number of shares as a result of the 5 for 1 share split in October 2013. The consolidated income statement is to be read in conjunction with the notes to the consolidated financial statements. 22 Milton Corporation Limited Consolidated statement of comprehensive income for the year ended 30 June 2014 2014 $’000 2013 $’000 Profit 120,294 111,217 Other comprehensive income Items that will not be reclassified to profit and loss Revaluation of investments Provision for tax expense on revaluation of investments 278,786 (85,717) 351,997 (105,991) Other comprehensive income, net of tax 193,069 246,006 Total comprehensive income for the period attributable to the shareholders of Milton 313,363 357,223 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements. 23 Milton Corporation Limited Consolidated statement of financial position as at 30 June 2014 Current assets Cash Receivables Other financial assets Total current assets Non-current assets Receivables Investments Joint ventures – equity accounted Plant and equipment Deferred tax assets Total non-current assets Total assets Current liabilities Payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Shareholders’ equity Issued capital Capital profits reserve Asset revaluation reserve Retained profits Note 2014 $’000 2013 $’000 8 9a 10 9b 11 19c 12 13 14 116,193 22,758 10,046 148,997 3,409 2,574,965 20,644 50 466 2,599,534 114,804 23,170 14,410 152,384 2,925 2,202,530 19,664 52 538 2,225,709 2,748,531 2,378,093 882 1,122 61 2,065 309,177 439 309,616 311,681 834 1,112 60 2,006 223,282 412 223,694 225,700 2,436,850 2,152,393 1,462,552 78,815 718,044 177,439 1,384,438 91,332 512,458 164,165 Total equity attributable to shareholders of Milton 2,436,850 2,152,393 The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements. 24 Milton Corporation Limited Consolidated statement of changes in equity for the year ended 30 June 2014 Issued capital $’000 Capital profits reserve $’000 Asset revaluation reserve $’000 Retained profits $’000 Total equity $’000 Balance at 1 July 2013 1,384,438 91,332 512,458 164,165 2,152,393 Profit Other Comprehensive Income: Total comprehensive income Net realised losses Transactions with shareholders: Share issues Dividends paid Balance at 30 June 2014 - - - - - - - - 193,069 193,069 120,294 - 120,294 120,294 193,069 313,363 (12,517) 12,517 - - 78,114 - 1,462,552 - - 78,815 - - 718,044 - (107,020) 177,439 78,114 (107,020) 2,436,850 Balance at 1 July 2012 1,373,857 98,411 259,373 149,032 1,880,673 - - - - - - - - 246,006 246,006 111,217 - 111,217 111,217 246,006 357,223 (7,079) 7,079 - - Profit Other Comprehensive Income: Total comprehensive income Net realised losses Transactions with shareholders: Share issues Dividends paid Balance at 30 June 2013 1,384,438 91,332 512,458 10,581 - - - - - - (96,084) 164,165 10,581 (96,084) 2,152,393 The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements. 25 Milton Corporation Limited Consolidated statement of cash flows for the year ended 30 June 2014 Note Cash flows from operating activities Dividends and distributions received Interest received Distributions received from joint venture entities Other receipts in the course of operations Proceeds from sales of trading securities Payments for trading securities Other payments in the course of operations Income taxes paid Net cash provided by operating activities 18a Cash flows from investing activities Proceeds from disposal of investments Payments for investments in equities and trusts Payments for investments in joint ventures Cash on acquisition of subsidiaries Payments for acquisition of subsidiaries Payments for plant and equipment Loans repaid by other entities Loans advanced to other entities Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payments for issue of shares Ordinary dividends paid Net cash used in financing activities 2014 $’000 116,640 5,254 6,383 261 935 (150) (3,248) (5,483) 120,592 19,479 (94,407) (950) 118 (58) (15) 202 (689) (76,320) 64,363 (226) (107,020) (42,883) 2013 $’000 105,553 5,782 4,700 412 583 (202) (3,149) (5,496) 108,183 22,062 (36,470) (1,009) 67 (46) (5) 790 (284) (14,895) - (18) (96,084) (96,102) Net increase (decrease) in cash assets held 1,389 (2,814) Cash assets at the beginning of the year Cash assets at the end of the year 8 114,804 116,193 117,618 114,804 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. 26 Milton Corporation Limited Notes to the consolidated financial statements for the year ended 30 June 2014 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements include the consolidated entity (“Milton”) consisting of Milton Corporation Limited and its subsidiaries. a. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, Australian accounting interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. These financial statements have been prepared on an accruals basis and are based on the historical cost basis except as modified by the revaluation of certain financial assets and liabilities measured at fair value. Unless otherwise stated under the option available in ASIC Class Order 98/100, the financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'000). New and amended standards adopted: Milton adopted AASB-13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB-13 beginning on or after 1 January 2013. These standards were adopted for the half year reporting period commencing 1 July 2013 which explain how to measure fair value and enhance fair value disclosures. Although, there is no effect on the measurement of Fair Value of Milton’s assets and liabilities, Milton has enhanced its disclosures on fair value measurements of its quoted investments under note 1(g) below as per the requirements of these two new standards. which is mandatory for annual reporting periods AASB-9 Financial Instruments Standard which applies to annual reporting periods commencing on or after 1 January 2017 was early adopted by Milton since the 2010 financial year. No other new accounting standards and interpretations that are available for early adoption but not yet adopted at 30 June 2014, will result in any material change in relation to the financial statements of Milton. b. Basis of consolidation The consolidated financial statements include the financial statements of Milton, being the parent entity and its subsidiaries. The balances and effects of transactions between subsidiaries included in the consolidated financial statements have been eliminated in full. i) Subsidiaries The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Where entities have come under the control of the parent entity during the year, their operating results have been included in the group from the date control was obtained. Entities cease to be consolidated from the date on which control is transferred out of the group and the consolidated financial statements include the result for the part of the reporting period during which the parent entity had control. 27 1. Summary of significant accounting policies (continued) ii) Joint arrangements Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures based on rights and obligations arising from the joint arrangement rather than the legal structure of the joint arrangement. Milton has assessed the nature of its joint arrangements and determined that all current interests are joint ventures and thus accounted for using the equity method. c. Income tax The income tax expense is the tax payable on the current year’s taxable income based on the current income tax rate applicable for the year adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax is recognised using the balance sheet method. 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. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax balances attributable to revaluation amounts are recognised directly in equity through the asset revaluation reserve. Milton Corporation Limited (the parent entity) and its wholly-owned subsidiaries have formed an income tax consolidated group. Each entity in the group recognises its own current and deferred tax, except for any deferred tax assets arising from unused tax losses from subsidiaries, which are immediately assumed by the parent entity. The current tax liability of each group entity is subsequently assumed by the parent entity. There is no tax funding agreement between Milton Corporation Limited and its subsidiaries. d. Cash Cash includes cash at bank, deposits at call and term deposits, and is recognised at fair value. Interest from deposits and bank accounts is brought to account on an accruals basis as it is earned. e. Trading securities Trading securities are recognised initially at cost and subsequently measured at fair value. Changes in fair value are taken directly through the income statement. Dividends are brought to account on the date that the shares are traded "ex-dividend". 28 1. Summary of significant accounting policies (continued) f. Other liquid securities Other liquid securities include listed securities such as reset preference shares which are classified as equity instruments and may be realised within 12 months. Other liquid securities are recognised initially at cost and Milton has elected to present subsequent changes in fair value in other comprehensive income through the asset revaluation reserve after deducting a provision for the potential deferred capital gains tax liability. On disposal, the cumulative gain or loss, net of tax thereon, is transferred from the asset revaluation reserve to the capital profits reserve. Distribution income from these securities is brought to account on the day that these securities trade “ex-dividend”. g. Investments Subsidiaries Investments in subsidiaries are carried at net asset value which approximates fair value of the controlled entities. Income from dividends is brought to account when they are declared. Other companies Investments are recognised initially at cost and Milton has elected to present subsequent changes in fair value of equity instruments in other comprehensive income through the asset revaluation reserve after deducting a provision for the potential deferred capital gains tax liability as these investments are long term holdings of equity instruments. Quoted investments are valued continuously at fair value, which is determined by the unadjusted last- sale price quoted on the Australian Securities Exchange at the measurement date. Use of unadjusted last sale price in an active market such as the Australian Securities Exchange falls within the Level 1 fair value hierarchy of measuring fair value under AASB 13. When an investment is disposed, the cumulative gain or loss, net of tax thereon, is transferred from the asset revaluation reserve to the capital profits reserve. Dividends and distributions are brought to account on the date that the investment trades "ex- dividend". De-merger dividends arising from company de-consolidations are treated as a return of capital and not as a dividend. h. Employee benefits The provision for employee entitlements relates to amounts expected to be paid to employees for long service leave and annual leave (including on-costs) and is based on legal and contractual entitlements and assessments having regard to experience in relation to staff departures and leave utilisation. Employees are not paid on termination for untaken personal/carer’s leave. Under the Employee Share Plan, shares are acquired for employees as part of their remuneration and the cost of the shares is recorded in employee benefit expenses (refer note 17a). Under the Senior Staff Share Plan, shares are acquired for eligible employees as part of their remuneration and held on their behalf by the trustee of the Plan. The purchase of the Plan Shares is financed by a loan from Milton (refer note 17b). i. Operating segments The consolidated entity operates in Australia only and the principal activity is investment. j. Business Combinations The acquisition method of accounting has been used to account for all business combinations, regardless of equity instruments or other assets acquired. The business combinations have been accounted from the date Milton attained control of the subsidiaries. The considerations transferred for the acquisitions comprise of the fair values of the identifiable assets transferred and the liabilities assumed. Costs related to the acquisitions, other than those associated with the issue of equity securities, are expensed to the consolidated income statement as incurred. 29 1. Summary of significant accounting policies (continued) k. Critical accounting estimates and judgments Judgements, estimates and assumptions are required to prepare financial statements. (i) Offset deferred tax assets from realised capital losses against deferred tax liabilities from unrealised capital gains: Deferred tax liabilities have been recognised for capital gains tax on the unrealised gains in the investment portfolio at current tax rates. As Milton does not intend to dispose of the investment portfolio this tax may not be payable at the amount disclosed in note 13. Any tax liability that may arise on disposal of investments is subject to tax legislation relating to the treatment of capital gains and the applicable tax rate at the time of disposal. Deferred tax assets have been recognised relating to carried forward capital losses, based on current tax rates. Utilisation of the tax losses requires the realisation of capital gains in subsequent years and the ability to satisfy certain tests at the time the losses are recouped. The deferred tax assets related to carried forward capital losses have been offset against the related deferred tax liabilities as disclosed in note 13. (ii) Classification of joint arrangements as joint ventures: Milton engages in property development joint ventures through its wholly owned subsidiaries. It has non controlling interests in three property development joint venture partnerships through separate joint venture entities. Each joint venture partnership agreement provides that partners have rights to the net assets of the partnership. Accordingly, the directors have determined that each joint venture partnership is to be classified as a joint venture and accounted for using the equity method. Apart from (i) and (ii) above, there are no key assumptions or sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 30 2. Revenue a. Ordinary dividends and distributions from Investments held in portfolio at 30 June Investments sold during the year b. Special dividends and distributions from Investments held in portfolio at 30 June 3. Income tax expense Prima facie income tax expense calculated at 30% on the profit before income tax expense Increase (decrease) in income tax expense due to: Tax offset for franked dividends Non taxable distributions (Over)/Under provision in prior year Other differences Income tax expense on profit 4. Auditor’s remuneration Auditors of the company Audit and review services Related practice of the auditor Due diligence Liquidation of non-operating subsidiary 5. Ordinary and special fully franked dividends a. Recognised in the current year A final ordinary dividend of 43(1) cents per share in respect of the 2013 year paid on 4 September 2013 (2012: an ordinary final dividend in respect of the 2012 year of 40 (1) cents per share paid on 34 September 2012) A special dividend of 2.5(1) cents per share in respect of 2013 year paid on 4 September 2013 (2012: Nil) An ordinary interim dividend of 8.2 cents per share paid on 4 March 2014 (2013: 7.8(2) cents per share paid on 6 March 2013) b. Not recognised in the current year Since the end of the financial year, the directors declared an ordinary final dividend in respect of the 2014 year of 9.4 cents per share and special dividend of 0.4 cents per share payable on 3 September 2014 (2013: ordinary final dividend of 8.6 (2) cents per share and special dividend of 0.5(2) cents per share paid on 4 September 2013) 2014 $’000 2013 $’000 114,104 177 114,281 3,050 3,050 105,620 219 105,839 2,744 2,744 37,845 35,003 (31,892) - (148) 51 5,856 (29,148) (412) 10 8 5,461 107 19 2 128 104 10 - 114 52,523 48,650 3,054 - 51,443 107,020 47,434 96,084 61,821 55,577 (1)Dividends paid on the number of shares prior to the share split. (2)Comparatives adjusted to reflect the increase in number of shares as a result of the share split. 31 5. Ordinary and special fully franked dividends (continued) c. Dividend franking account The amount of franking credits available to shareholders for the subsequent financial year, adjusted for franking credits that will arise from the payment of the current tax liability Subsequent to year end, the franking account will be reduced by the proposed final and special dividends to be paid on 3 September 2014 (2013: final and special dividends) 2014 $’000 2013 $’000 116,757 111,550 (26,495) 90,262 (23,819) 87,731 The franking account balance would allow Milton to frank additional dividend payments up to an amount of $210,611,044 (2013:$204,705,527) which represents 33 cents per share (2013: 34 cents per share(1)). 6. Listed Investment Company capital gain account Balance of the Listed Investment Company (LIC) capital gain account available to shareholders for the subsequent financial year 1,255 1,190 Distributed LIC capital gains may entitle certain shareholders to a special deduction in their income tax return. LIC capital gains available for distribution are dependent upon the disposal of investment portfolio holdings which qualify for LIC capital gains and the receipt of LIC capital gain distributions. 7. Earnings per share Basic earnings per share Profit attributable to shareholders of the parent entity cents 19.27 $’000 120,294 cents 18.26(1) $’000 111,217 No. No. Weighted average number of ordinary shares used in the calculation of basic earnings per share 624,416,028 609,021,193(1) Diluted earnings per share figures are the same because there are no potential dilutive ordinary shares. 8. Cash Cash at bank Deposits at call Term deposits $’000 $’000 2,257 29,718 84,218 116,193 2,782 16,224 95,798 114,804 The weighted average interest rate for cash and deposits at call as at 30 June 2014 is 3.1% p.a. (2013: 3.3% p.a.). Term deposits have an average maturity date of September 2014 (2013: August 2013) and an average interest rate of 3.5% (2013: 4.2% pa). (1) Comparatives adjusted to reflect the increase in number of shares as a result of the 5:1 share split in October 2013. 32 9. a. Receivables Receivables – current Income receivable Sundry debtors b. Receivables – non-current 2014 $’000 22,754 4 22,758 2013 $’000 23,166 4 23,170 Senior staff share plan loans (refer note 17b) 3,409 2,925 c. Terms and conditions Sundry debtors are due within 30 days and no interest is charged. 10. Other financial assets Other liquid securities - at fair value Prepaid expenses 11. Investments – non-current Quoted investments - at fair value Unquoted investments - at fair value a. Included in quoted investments are: Shares in other corporations Stapled securities in other corporations Units in trusts b. Included in unquoted investments are: Units in trusts c. Investments disposed of during the year Fair value at disposal date Equity investments Loss on disposal after tax Equity investments 9,857 189 10,046 14,205 205 14,410 2,574,894 2,202,504 71 26 2,574,965 2,202,530 2,487,638 2,136,433 67,322 19,934 45,164 20,907 2,574,894 2,202,504 71 71 26 26 17,811 20,306 (12,517) (7,179) The disposals occurred in the normal course of Milton’s operations as a listed investment company or as a result of takeovers or mergers. 33 12. Deferred tax assets The balance comprises temporary differences attributable to : Revenue tax losses carried forward Provisions Retirement benefit obligations Share issue expenses Other Total deferred tax assets Movements: Balance at 1 July (charged) to the income statement Credited to equity Balance at 30 June To be recovered within 12 months To be recovered after more than 12 months 13. Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised directly in equity: Revaluation of investments Realised capital losses Amounts recognised in profit: Realised capital gains Income receivable which is not assessable for tax until receipt Movements: Balance at 1 July Charged to income statement Charged to other comprehensive income (Credited) to equity Balance at 30 June To be settled within 12 months To be settled beyond 12 months 2014 $’000 3 255 57 37 114 466 538 (140) 68 466 130 336 466 2013 $’000 12 247 57 6 216 538 786 (253) 5 538 128 410 538 310,440 (18,499) 223,521 (17,348) 832 832 16,404 309,177 223,282 178 85,717 - 309,177 - 16,277 223,282 116,901 459 105,991 (69) 223,282 - 309,177 223,282 34 14. Issued capital a. Movement in share capital Balance at 1 July 2013 Share Purchase Plan Shares issued as consideration for acquisition Dividend Reinvestment Plan Less : Transaction costs (net of tax) Balance at 30 June 2014 b. Movement in number of shares Balance at 1 July 2013 Share purchase plan Share Split(1) Shares issued as consideration for acquisition Dividend Reinvestment Plan Balance at 30 June 2014 2014 $’000 2013 $’000 1,384,438 1,373,857 63,563 13,910 799 (158) - 10,594 - (13) 1,462,552 1,384,438 Number of shares Number of shares 122,147,119 121,625,655 3,324,432 501,886,204 3,280,382 187,207 - - 521,464 - 630,825,344 122,147,119 (1) The 125,471,551 shares held on 18 October 2013 were split on the basis of 5 shares for each existing share resulting in the increase of 501,886,204 shares. b. Ordinary shares All capital consists of fully paid ordinary shares which are listed on the ASX and carry one vote per share and the right to receive dividends. 15. Nature and purpose of reserves Changes in fair value of investments are presented in other comprehensive income through the asset revaluation reserve as referred to in note 1g. Upon disposal of investments, the net gain or loss is transferred from the asset revaluation reserve to the capital profits reserve as referred to in note 1g. 16. Management of financial risk The risks associated with the financial instruments, such as investments and cash, include market risk, credit risk and liquidity risk. The Audit Committee has approved policies and procedures to manage these risks. The effectiveness of these policies and procedures is continually reviewed by management and annually by the Audit Committee. a. Financial instruments’ terms, conditions and accounting policies Milton’s significant accounting policies are included in note 1, and the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the reporting date, are included under the appropriate note for that instrument. b. Net fair values The carrying amounts of financial instruments in the consolidated statement of financial position approximate their net fair value. 35  c. Credit risk exposures Milton’s principal credit risk exposures arise from the investment in liquid assets, such as cash, bank term deposits and income receivable. 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 Milton’s financial assets, excluding investments, is the carrying amount of those assets. Individual bank limits have been approved by the board for the investment of cash. Income receivable comprises 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. All financial assets and their recoverability are continuously monitored by management and reviewed by the board on a quarterly basis. d. Market risk Market risk is the risk that changes in market prices will affect the fair value of the financial instrument. Milton is exposed to market risk through the movement of the security prices of the companies and trusts in which it is invested. The market value of individual companies fluctuates daily and the fair value of the portfolio changes continuously, with this change in the fair value recognised through the asset revaluation reserve. Investments represent 94% (2013: 93%) of total assets. A 5% movement in the market value of investments in each of the companies and trusts within the portfolio would result in a 4.7% (2013: 4.6%) movement in the net assets before provision for tax on unrealised capital gains at 30 June 2014 (2013: 30 June 2013). The net asset backing before provision for tax on unrealised capital gains would move by 20 cents per share at 30 June 2014 (2013: 18 cents at 30 June 2013). Milton’s management regularly monitors the performance of the companies within its portfolio and makes portfolio recommendations which are considered by the Investment Committee. The Milton board reviews the portfolio on a quarterly basis. Milton is not exposed to foreign currency risk as all its investments are quoted in Australian dollars. The fair value of Milton’s other financial instruments is unlikely to be materially affected by a movement in interest rates as they generally have short dated maturities and variable interest rates. e. Liquidity risk Liquidity risk is the risk that Milton is unable to meet its financial obligations as they fall due. Milton manages liquidity risk by monitoring forecast and actual cashflows. f. Capital risk management The parent entity invests its equity in a diversified portfolio of assets that generates 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 may be increased through the issue of shares under the Share Purchase Plan and the Dividend Reinvestment Plan. Shares may also be issued through rights issues and as consideration for acquisition of unlisted companies. g. Fair value measurement Financial instruments carried at fair value are comprised of investments and other financial assets. The fair value of these financial instruments is the quoted prices (unadjusted) in active markets for identical assets. The Australian Securities Exchange is the active market for all financial instruments. 36 17. a. Employee entitlements Employee Share Plan The Employee Share Plan ("ESP") is available to all eligible employees to acquire ordinary shares in Milton in lieu of a cash bonus of up to $1,000 per year as part of the employee’s remuneration. The transaction and administration costs of acquiring the shares and administering the plan are paid by Milton. During the year, 250 shares (2013: 252 shares) were acquired by Milton on behalf of eligible employees under the ESP at a cost of $4,925 (2013: $3,999) with a total market value at 30 June 2014 of $5,675. Any shares acquired cannot be disposed of or transferred until the earlier of 3 years from the date of issue or acquisition or on the date that the employee's employment ceases with Milton. b. Senior Staff Share Plan The Senior Staff Share Plan ("SSSP") was approved by shareholders at Milton's Annual General Meeting on 9 October 2001. Eligible employees are given the opportunity to apply for Plan Shares in Milton which are subscribed for or acquired and held on their behalf by the trustee of the plan. The purchase of these Plan Shares is financed by an interest-free limited recourse loan from Milton with recourse only to Plan Shares. The loan will be repaid partially from any dividends received. Milton administers the SSSP and meets the transactional and administration costs. During the year, 162,500 (1) shares (2013: 90,000 (1) shares) were acquired by the trustee of the plan on behalf of eligible employees under the SSSP at a cost of $638,857 (2013: $283,583). The loans to eligible employees are as disclosed in note 9b. The shares acquired by the trustee during the year had a market value of $737,750 at $4.54 per share as at 30 June 2014. Any shares acquired are held in the name of the trustee and classified as Restricted Shares which cannot become Unrestricted Shares until the earlier of 3 years from the date of issue to the trustee or acquisition by the trustee or on the date that the employee’s employment ceases with Milton. The trustee may transfer Unrestricted Shares to the participant provided that any outstanding loan has been repaid in full. No shares were disposed by the trustee during the year. (2013: 237,500 (1) shares were disposed by the trustee and proceeds of $646,086 were applied to fully repay loans of the retiring executive). (1)Shares issued adjusted to account for the increase in number of shares as a result of the share split. 18. Note to the cash flow statements a. Reconciliation of net profit to net cash provided by operating activities Profit Share of net profits of joint ventures – equity accounted Distributions received from joint venture entities Depreciation of non-current assets Acquisition related costs of subsidiaries Increase in receivables Increase in payables and provisions Increase/(decrease) in income taxes payable Net cash provided by operating activities 2014 $’000 2013 $’000 120,294 (6,412) 6,383 17 58 (155) 34 373 111,217 (5,013) 4,700 19 46 (2,798) 46 (34) 120,592 108,183 b. Non-cash financing and investing activities As described in note 21.b Milton acquired an unlisted investment company through the issue of 3,280,382 new Milton shares with a fair value of $13,909,832 (2013: Issued 521,464 shares to acquire an unlisted investment company with a fair value of $9,913,031). 37 19. a. Investment in joint venture entities Details of joint venture entities Companies in the consolidated entity have entered into joint ventures to develop real property. These joint ventures which are held by subsidiaries have been accounted for using the equity accounting principles. b. Contribution from joint venture entities Milton has interests in the following joint venture entities: 33.33% interest in the Ellenbrook Syndicate Joint Venture contribution to operating profit before tax (2013:33.33%) 23.33% interest in the Mews Joint Venture contribution to operating profit before tax (2013:23.33%) 50% interest in the LWP Huntlee Syndicate No 2 Joint Venture (2013 : 50%) Share of net profits of joint ventures c. Consolidated interest in the assets and liabilities of the joint ventures Current assets Non-current assets Current liabilities Non-current liabilities Provision for diminution in value Net assets 2014 $’000 6,010 682 (280) 6,412 21,750 11,639 (3,578) (8,624) 21,187 (543) 20,644 2013 $’000 4,610 415 (12) 5,013 19,060 13,106 (1,866) (10,093) 20,207 (543) 19,664 d. Contingent liabilities and commitments Each venturer is liable for its share of the debts of the joint ventures. The finance facilities have recourse only to the assets of the joint ventures. The LWP Huntlee Syndicate No 2 Joint Venture was formed in June 2010 and Milton is committed to providing further capital of $0.831 million over the next year (2013: $1.188 million). Apart from this commitment there are no further financial commitments. 20. Parent entity disclosures In accordance with the Corporations Amendment (Corporate Reporting Reform) Act 2010 and the Corporations Act 2001 the following summarised parent entity information is set out below. As at, and throughout, the financial year ended 30 June 2013 the parent entity is Milton Corporation Limited. Profit of the parent entity Profit for the year Total comprehensive income for the year $’000 115,801 308,870 $’000 107,715 353,720 38 20. Parent entity disclosures (continued) Financial position of the parent entity as at 30 June Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising of Issued capital Capital profits reserves Asset revaluation reserve Retained profits Total equity attributable to shareholders of the parent entity 21. Particulars in relation to subsidiaries a. Milton Corporation Limited’s subsidiaries The following subsidiaries have been included in the consolidated accounts: 85 Spring Street Properties Pty Ltd Chatham Investment Co. Pty Limited Incorporated Nominees Pty Limited Milhunt Pty Limited The parent entity and all subsidiaries are incorporated in Australia. 2014 $’000 2013 $’000 141,319 2,829,893 80,929 393,043 152,301 2,463,731 85,020 311,338 2,436,850 2,152,393 1,462,552 1,384,438 87,394 765,020 121,884 99,911 554,940 113,104 2,436,850 2,152,393 Interest held % 100 100 100 100 100 100 100 100 b. Acquisition of subsidiaries During the year ended 30 June 2014, Milton acquired 100% of the shares of an unlisted investment company for a consideration of 3,280,382 new Milton shares with a fair value of $13,909,832. c. Disposal of subsidiaries The unlisted investment company acquired during the year was placed into voluntary liquidation in June 2014. (2013: Unlisted investment company acquired during 2013 year was placed into voluntary liquidation). 22. a. Related parties Directors and Key Management Personnel compensation Short-term benefits Other long-term benefits Post-employment benefits Share-based payments $’000 1,089 15 100 124 1,328 $’000 1,140 23 99 163 1,425 Information regarding individual directors’ and executives’ compensation and equity instruments disclosures, as permitted by Corporations Regulations 2M.3.03, are provided in the Remuneration Report section of the Directors’ Report on pages 14 to 17. 39 22. Related parties (continued) b. Shareholdings of non-executive directors and their related parties – number of shares held Non-executive directors and their related parties held 12.5% (2013:12.8%) of the voting power of Milton as at year end. A number of non-executive directors and their related parties acquired shares in Milton during the year on an arm’s length basis. Movements in the number of shares held are given below. There were no amounts outstanding from or due to any non-executive director or their related parties as at 30 June 2014. Number of shares at beginning of the year Adjustment for Share Split in October 2013 Acquired during the year Disposed during the year Number of shares held at end of year 2014 No of shares 2013 No of shares 15,639,656 62,777,040 164,604 15,655,002 - 20,369 - (35,715) 78,581,300 15,639,656 c. Loans to key management personnel and their related parties Details regarding loans outstanding at the reporting date to key management are as given below. No loans were granted to related parties of any key management personnel. Balance at beginning of the year Loans advanced Loan Repaid Balance at end of the year 2014 $ 1,888,841 432,460 (101,763) 2,219,538 2013 $ 2,400,391 236,332 (747,882) 1,888,841 Notional interest 124,151 162,008 Terms and conditions of the loans are referred to in note 17b and details of loans to individual key management personnel are disclosed on the remuneration report on page 17. d. Other related party transactions All non-executive directors have entered into the Deed of Indemnity, Insurance and Access that was approved at the Annual General Meeting held on 10 October 2000. Milton has a Remuneration and Retirement Benefits Deed with each of the non-executive directors except Messrs G.L Crampton and K.J. Eley. During the 30 June 2004 year, Milton and the directors varied the Remuneration and Retirement Benefits Deed, whereby the maximum retirement benefit payable to a non-executive director on retirement will be the provision for the director as at 30 June 2003. Apart from the details disclosed in this note no director has entered into a material contract with the parent entity or Milton since the end of the previous financial year and there were no material contracts involving directors’ interests subsisting at the end of the year. 40 Loans to and from subsidiaries Loans have been made between the parent entity (and) wholly owned subsidiaries for capital transactions. The loans between the parent and its subsidiaries have no fixed date of repayment and are non-interest bearing. Balance at beginning of the year Loans advanced from subsidiaries Loan advanced to subsidiaries Balance at end of the year 2014 $ 84,521,583 6,466,875 (11,544,331) 79,444,127 2013 $ 72,149,885 13,387,148 (1,015,450) 84,521,583 Other arrangement with non executive director Mr J.F. Church rented office space from Milton at commercial rates from 1 July 2013 to 30 June 2014 and rental income received by Milton during the financial year was $12,971 (2013: $13,726). 23. Contingencies At the reporting date the directors are not aware of any material contingent liabilities. 24. Events subsequent to reporting date Since the end of the financial year, the directors declared an ordinary fully franked final dividend of 9.4 cents per share and a special fully franked dividend of 0.4 cents per share payable on 3 September 2014. This financial report was authorised for issue in accordance with a resolution of directors on 7 August 2014. 41 25. Holdings at Fair Value through Other Comprehensive Income at 30 June 2014 The following holdings are valued at fair value through Other Comprehensive Income. 2014 $’000 Investments in equity instruments Adelaide Brighton Limited AGL Energy Limited ALS Limited Alumina Limited Amalgamated Holdings Limited Amcor Limited AMP Limited A.P. Eagers Limited APA Group APN News & Media Limited ARB Corporation Limited Argo Investments Limited Arrium Limited ASX Limited Austbrokers Holdings Limited Australand Property Group Australia & New Zealand Banking Group Limited - ordinary shares - convertible preference shares - capital notes 2 Australian Foundation Investment Company Limited Automotive Holdings Group Limited Aveo Group (formerly FKP Property Group) Bank of Queensland Limited Bendigo & Adelaide Bank Limited BHP Billiton Limited BKI Investment Company Limited Blackmores Limited Boral Limited Bradken Limited Brambles Limited Brickworks Limited BWP Trust Cardno Limited Carlton Investments Limited Carsales.com Limited CFS Retail Property Trust Group Coca-Cola Amatil Limited Cochlear Limited Commonwealth Bank of Australia - ordinary shares - PERLS V Commonwealth Property Office Fund Crown Resorts Limited CSL Limited David Jones Limited Diversified United Investment Limited Dulux Group Limited Equity Trustees Limited Finbar Group Limited Fletcher Building Limited Fairfax Media Limited FKP Property Group Fleetwood Corporation Limited Goodman Group Goldman Sachs JB Were Collateral Mezzanine Fund 42 8,135 37,012 99,542 - 7,291 12,459 11,242 33,307 11,753 - 9,116 7,521 3,380 17,712 11,058 3,697 99,021 2,007 208 8,002 8,188 3,086 89,061 69,658 121,418 2,013 10,282 8,749 3,141 11,772 44,217 3,928 7,614 9,669 3,516 16,006 13,872 2,085 245,315 102 - 4,042 39,411 1,403 1,364 2,236 9,265 4,535 6,570 - - 532 3,264 - 2013 $’000 6,925 33,373 103,855 485 6,125 11,897 9,015 23,741 6,492 327 8,490 5,227 3,116 14,939 11,170 2,898 82,597 1,975 199 7,095 4,270 - 57,053 57,497 102,213 1,629 10,184 6,852 3,475 10,909 41,079 3,068 4,646 7,486 - 15,942 17,377 1,962 209,482 101 1,897 3,237 36,151 908 811 312 3,509 1,481 5,735 1,600 1,223 821 902 5 25. Holdings at Fair Value through Other Comprehensive Income at 30 June 2014 (continued) Graincorp Limited Gresham Private Equity Co-Investment Fund GWA Group Limited Insurance Australia Group Limited - ordinary shares - convertible preference shares IAG Finance(NZ) Limited Perpetual Reset Exchangeable Notes Incitec Pivot Limited InvoCare Limited IOOF Holdings Limited Leighton Holdings Limited Lend Lease Group Lindsay Australia Limited Macquarie Group Limited McMillan Shakespeare Limited Metcash Limited MyState Limited National Australia Bank Limited - ordinary shares - convertible preference shares New Hope Corporation Limited Noni B Limited Orica Limited Origin Energy Limited Orora Limited Perpetual Limited Premier Investments Limited QBE Insurance Group Limited Qube Holdings Limited Ramsay Health Care Limited Reece Australia Limited Rio Tinto Limited Santos Limited Scentre Group Schaffer Corporation Limited Sedgman Limited Select Harvests Limited Seven Group Holdings Limited – TELYS4 preference shares Seven West Media Limited Sims Group Limited Sonic Healthcare Limited Stockland Group Suncorp Group Limited Sydney Airport Tankstream Ventures Tatts Group Limited Telstra Corporation Limited Toll Holdings Limited TPG Telecom Limited Transfield Services Limited Transurban Group Treasury Wine Estates Limited The Trust Company Limited UGL Limited 43 2014 $’000 3,043 21 5,983 28,114 319 1,284 4,671 18,571 5,897 14,953 6,090 1,088 27,808 917 10,686 2,065 144,380 31 3,457 343 3,681 9,199 1,702 64,403 5,017 28,462 5,855 6,982 4,024 33,665 20,317 5,336 408 1,011 832 617 3,155 7,677 10,674 8,346 41,632 6,134 50 7,272 70,909 6,688 20,561 1,648 20,271 5,279 - 9,926 2013 $’000 4,235 21 5,460 20,577 306 1,234 4,375 19,295 3,298 11,709 3,743 280 20,689 1,618 16,395 1,887 130,200 - 4,606 520 3,903 4,866 - 29,174 2,573 41,398 2,278 3,758 3,167 23,822 17,630 - 298 1,071 529 593 3,076 6,550 9,012 7,485 33,768 1,461 - 3,528 63,347 6,015 13,135 1,170 14,582 5,955 16,143 10,042 25. Holdings at Fair Value through Other Comprehensive Income at 30 June 2014 (continued) Washington H. Soul Pattinson & Company Limited WDS Limited Wesfarmers Limited - ordinary shares - partially protected shares Westfield Corporation Westfield Group Westfield Retail Trust Westpac Banking Corporation Wide Bay Australia Limited Woodside Petroleum Limited Woolworths Limited Worley Parsons Limited Other liquid securities AMP Limited – notes APT Pipelines Limited Bank of Queensland Limited – convertible preference shares Colonial Group – subordinated notes Commonwealth Bank of Australia - Perls III Goodman Funds Management – perpetual listed unsecured securities Macquarie CPS Trust – convertible preference shares Westpac Banking Corporation - preference shares (stapled preferred securities) Woolworths Limited notes II 2014 $’000 135,326 1,006 119,791 - 5,434 - - 354,090 2,385 33,815 95,991 6,896 2,574,965 - 1,074 5,425 1,032 977 1,139 - - 210 9,857 2013 $’000 120,123 - 103,235 10,516 - 7,688 2,433 301,729 2,276 28,749 86,322 4,923 2,202,530 2,678 1,052 5,257 1,018 926 1,064 1,000 1,000 210 14,205 44 DIRECTORS’ DECLARATION 1. In the opinion of the directors of Milton Corporation Limited: (a) the consolidated financial statements and notes that are set out on pages 22 to 44 and the Remuneration report, that is set out on pages 14 to 17 in the Directors’ report are in accordance with the Corporations Act 2001, including: (i) giving a true view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that Milton Corporation Limited will be able to pay its debts as and when they become due and payable. 2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2014. Signed in accordance with a resolution of the directors. R. D. MILLNER Chairman Sydney, 7 August 2014 45 Level 15, 135 King Street Sydney NSW 2000 T +61 (0)2 8236 7700 F +61 (0)2 9233 4636 www.moorestephens.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MILTON CORPORATION LIMITED We have audited the accompanying financial report of Milton Corporation Limited and its Controlled Entities (the consolidated entity), which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising Milton Corporation Limited and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of Milton Corporation Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) 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 is free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Moore Stephens Sydney ABN 90 773 984 843. *Other than for the acts or omissions of financial services licensees. An independent member of Moore Stephens International Limited - members in principal cities throughout the world The Sydney Moore Stephens firm is not a partner or agent of any other Moore Stephens firm. Liability limited by a scheme approved under Professional Standards Legislation* 46 Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion, the financial report of Milton Corporation Limited and its Controlled Entities is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of Milton Corporation Limited’s consolidated financial position as at 30 June 2014 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. Report on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 17 of the directors’ report for the year ended 30 June 2014. The directors of Milton Corporation 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. Auditor’s Opinion In our opinion the Remuneration Report of Milton Corporation Limited for the year ended 30 June 2014, complies with section 300A of the Corporations Act 2001. Matters Relating to the Electronic Publication of the Audited Financial Report the consolidated entity for the year ended 30 June 2014 This auditor’s report relates to the financial report of included on Milton Corporation Limited ’s website. The company’s directors are responsible for the integrity of Milton Corporation Limited’s website. We have not been engaged to report on the integrity of the Milton Corporation Limited’s website. The auditor’s report refers only to the subject matter described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report to confirm the information contained in this website version of the financial report. Moore Stephens Sydney Chartered Accountants Martin J. (Joe) Shannon Partner Dated in Sydney this 7th day of August 2014. 47 DIRECTORY DIRECTORS MANAGEMENT R. D. MILLNER - Chairman F.G. GOOCH - Managing director J. F. CHURCH G.L. CRAMPTON K.J. ELEY F. G. GOOCH - Managing director I. A. POLLARD D.N. SENEVIRATNE - CFO, secretary REGISTERED OFFICE AUDITORS LEVEL 4, 50 PITT STREET MOORE STEPHENS SYDNEY SYDNEY NSW 2000 CHARTERED ACCOUNTANTS PHONE: (02) 8006 5357 LEVEL 15 FAX: (02) 9251 7033 135 KING STREET EMAIL: general@milton.com.au SYDNEY NSW 2000 INTERNET: www.milton.com.au INTERNET: www.moorestephens.com.au SHARE REGISTRY LINK MARKET SERVICES LIMITED LOCKED BAG A14 SYDNEY SOUTH NSW 1235 PHONE: (02) 8280 7111 FAX: (02) 9261 8489 TOLL FREE: 1800 641 024 EMAIL: milton@linkmarketservices.com.au INTERNET: www.linkmarketservices.com.au 48 TOP 20 SHAREHOLDERS AS AT 31 JULY 2014 ASX INFORMATION NAME Argo Investments Limited Washington H. Soul Pattinson & Company Limited Myora Pty Limited Australian Foundation Investment Company Limited Griffinna Pty Ltd Danwer Investments Pty Limited Bortre Pty Limited Otterpaw Pty Ltd JBF Holdings Pty Ltd Chickenfeed Pty Ltd Jamama Nominees Pty Limited J S Millner Holdings Pty Limited Macdawley Proprietary Limited Gartfern Pty Limited Hexham Holdings Pty Limited Millane Pty Limited A V L Investments Proprietary Limited Ms Julia Jane Drew Redemptorists T N Phillips Investments Pty Ltd Questor Financial Services Limited SHARES HELD 38,426,060 33,589,220 22,777,030 14,402,925 6,355,020 6,072,545 6,072,545 5,777,235 5,253,920 4,211,490 4,195,685 3,736,555 3,479,615 3,306,625 3,223,120 3,158,310 2,979,080 2,875,000 2,834,000 2,828,123 2,796,880 On 31 July 2014, there were 21,187 holders of ordinary shares in the capital of Milton. Holders of ordinary shares are entitled to one vote per share. Number of shares held Number of shareholders 1-1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over The number of holders of less than a marketable parcel of 25 shares % 6.09 5.32 3.61 2.28 1.01 0.96 0.96 0.92 0.83 0.67 0.67 0.59 0.55 0.52 0.51 0.50 0.47 0.46 0.45 0.45 0.44 2,444 5,518 4,272 8,358 595 550 SUBSTANTIAL SHAREHOLDINGS As at 31 July 2014 the names and holdings of substantial shareholders as disclosed in notices received by Milton are as follows:- Substantial shareholders Argo Investments Limited Washington H. Soul Pattinson & Company Limited Brickworks Limited(1) (1)(Technical relevant interest as a result of its holding in Washington H. Soul Pattinson & Company Limited) Date of Notice 20 December 2010 20 December 2010 7 January 2014 No. of shares 41,300,140 33,585,220 33,589,220 OTHER INFORMATION Milton is taxed as a public company. There is no current on-market buy-back. The total number of transactions in securities undertaken by Milton was 320 and the total brokerage paid or accrued was $352,146. 49 ISSUES TO SHAREHOLDERS SINCE 19TH SEPTEMBER, 1985 (Commencement of Capital Gains Tax) 1 for 10 Bonus Issue from Capital Profits Reserve Bonus in lieu of Dividend from Capital Profits Reserve 1 for 10 Bonus Issue from Capital Profits Reserve Bonus in lieu of Dividend from Capital Profits Reserve 1 for 20 Bonus from Share Premium Reserve 1 for 20 Bonus from Capital Profits Reserve - a fully franked dividend 1 for 20 Cash Issue at $3 per share 1 for 10 Bonus from Share Premium Reserve 1 for 20 Cash Issue at $3 per share 1 for 20 Cash Issue at $3 per share 1 for 10 Bonus from Capital Profits Reserve - a fully franked dividend 1 for 10 Cash Issue at $4 per share 1 for 10 Bonus from Share Premium Reserve 1 for 10 Cash Issue at $4.75 per share 1 for 10 Bonus from Share Premium Reserve 3 Milton shares for 10 Chatham shares at $7.756022 per Milton share 3 Milton shares for 10 Matine shares at $7.756022 per Milton share 9 Milton shares for 40 Milkirk shares at $7.756022 per Milton share 1 for 10 cash issue at $8.20 per share Share Purchase Plan at $8.75 per share Share Purchase Plan at $8.86 per share Share Purchase Plan at $10.79 per share 8,273,502 Milton shares issued for the acquisition of Cambooya Investments Limited 2,287,200 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $11.70 per share 1,739,112 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $13.21 per share 2,742,777 Milton shares issued for the acquisition of an unlisted investment company 496,809 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $14.10 per share Share Purchase Plan at $17.11 per share 1,000,322 Milton shares issued for the acquisition of an unlisted investment company 1,476,254 Milton shares issued for the acquisition of an unlisted investment company 382,404 Milton shares issued for the acquisition of an unlisted investment company 278,103 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $19.60 per share 1,888,353 Milton shares issued for the acquisition of an unlisted investment company 1,895,976 Milton shares issued for the acquisition of an unlisted investment company 2,424,582 Milton shares issued for the acquisition of an unlisted investment company 252,477 Milton shares issued for the acquisition of an unlisted investment company 1,223,252 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $22.48 per share Share Purchase Plan at $17.85 per share 3,555,958 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $16.08 per share 4,132,711 Milton shares issued for the acquisition of unlisted investment companies 2,446,521 Milton shares issued for the acquisition of an unlisted investment company 23,803,854 Milton shares issued for the acquisition of Choiseul Investments Limited 15.11.1985 19.05.1986 05.06.1987 05.06.1987 15.11.1988 15.11.1988 26.05.1989 10.11.1989 08.06.1990 24.05.1991 23.04.1992 11.05.1992 23.11.1994 12.12.1994 15.11.1995 06.07.1998 06.07.1998 06.07.1998 21.06.1999 10.11.1999 13.11.2000 13.11.2001 31.12.2001 28.06.2002 08.11.2002 31.12.2002 31.10.2003 11.03.2004 01.04.2004 29.10.2004 21.10.2005 17.08.2006 23.08.2006 28.08.2006 21.09.2006 16.10.2006 10.11.2006 23.03.2007 14.05.2007 20.06.2007 24.09.2007 19.10.2007 03.10.2008 19.02.2009 09.10.2009 26.02.2010 20.08.2010 16.12.2010 50 21.02.2013 30.09.2013 22.10.2013 24.02.2014 04.03.2014 521,464 Milton shares issued for the acquisition of an unlisted investment company Share Purchase Plan at $19.12 per share Share Split of 5 for 1 – number of issued shares increased by 501,886,204 3,280,382 Milton shares issued for the acquisition of an unlisted investment company 187,207 Milton shares issued under the DRP at $4.27 per share "CPI" FOR CAPITAL GAINS TAX 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 March - 74.4 81.4 87.0 92.9 100.9 105.8 107.6 108.9 110.4 114.7 119.0 120.5 120.3 121.8 June - 75.6 82.6 88.5 95.2 102.5 106.0 107.3 109.3 111.2 116.2 119.8 120.2 121.0 122.3 September 71.3 77.6 84.0 90.2 97.4 103.3 106.6 107.4 109.8 111.9 117.6 120.1 119.7 121.3 123.4 December 72.7 79.8 85.5 92.0 99.2 106.0 107.6 107.9 110.0 112.8 118.5 120.3 120.0 121.9 51 NOTES 52 

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