Milton
Annual Report 2019

Plain-text annual report

Annual Report 2019 Company Profile Milton Corporation Limited Milton was established as a private investment company 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 company for 27,000 shareholders and is listed on the ASX under the code MLT. Investment philosophy Milton is predominantly a long term investor in companies and trusts listed on the ASX 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 also holds liquid assets such as cash and term deposits as well as real property development through joint ventures. Milton aims to pay increasing fully franked dividends to shareholders over time. Benefits of investing Shareholders receive fully franked dividends semi-annually. Ordinary fully franked dividends are paid out of profit after tax excluding special investment revenue and costs associated with the acquisition of subsidiaries. Dividends have been paid every year since listing and they have been fully franked since the introduction of franking. Special fully franked dividends may be paid out of special investment revenue. The investment portfolio provides shareholders with exposure to diversified assets. Milton’s $3.1 billion equity investment portfolio comprises interests in companies and trusts which are listed on the Australian Securities Exchange and are expected to deliver increased investment revenue over the long term. Consistent application of this investment philosophy over many years has created a portfolio that is not aligned with any securities exchange index. Shareholders have an investment in a low cost, efficiently managed company with total administration costs that represent 0.14% per annum of total assets. Milton’s board oversees the performance of its executives who are employed by the company to manage its investments for the benefit of shareholders. Important Dates Final Dividend Ex date: Payment date: DRP application closing date: 8 August 2019 3 September 2019 12 August 2019 Annual General Meeting Meeting date: Sofitel Sydney Wentworth Level 4, Adelaide Room, 61-101 Phillip Street, Sydney Company Briefing Melbourne: State Library of Victoria Adelaide: Intercontinental Adelaide 10 October 2019 at 3.00pm 16 October 2019 at 10.30am 17 October 2019 at 10.30am i Company ProfileMilton Corporation LimitedMilton Corporation Limited Annual Report 2019Key Highlights Net Profit after tax A$ 147.7m 9 up 13.6% Underlying Operating Profit* A$ 133.6m 9 up 3.7% Basic Earnings Per Share Underlying Earnings Per Share cents per share cents per share 22.2 9 up 12.1% 20.1 9 up 2.4% Fully Franked Total Dividends Fully Franked Ordinary Dividends Contents Directors Report Operating and Financial Review Dividends Five Year Financial Summary Portfolio Performance Review of Investments Top 25 Investments Classification of Investments Management Expense Ratio (MER) Premium and Discount to NTA Acquisitions of Unlisted Investment Companies 2020 Financial Year Outlook Board of Directors and Company Secretary Remuneration Report cents per share cents per share Auditor’s Independence Declaration 2 2 2 4 5 6 6 7 8 8 8 8 9 12 19 21.9 9 up 15.3% Total Assets A$ 3.3Bn 9 up 6.2% 19.4 9 up 2.1% Management Expense Ratio 0.14% Same as 2018 * Underlying operating profit excludes special investment revenue and acquisition costs net of tax. Milton Corporation Foundation 20 Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Directory ASX Information 21 48 49 53 54 Corporate Governance Statement Our Corporate Governance Statement is available on the company website at milton.com.au/corporate-governance.html and is lodged with ASX with this Report. www.milton.com ASX: MLT 1 Directors Report for the year ended 30 June 2019 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 2019 and the independent auditor’s report thereon. 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 Financial Highlights 2019 was a strong year for Milton Corporation with record net profit after tax of $147.7 million, including special dividends received of $14.1 million, an increase of 13.6% on the prior year and representing 22.19 cents per share. Underlying profit after tax for 2019, which excludes special dividends received, was $133.6 million, an increase of 3.7% on the prior year. Milton’s Board primarily uses underlying profit when determining ordinary dividends to enhance their reliability. Underlying earnings per share increased by 2.4% to 20.08 cents per share. Dividend income received by Milton on its diversified $3.1 billion portfolio of Australian listed companies increased by 13.7% in 2019, led by sharply increased special dividend income. Special dividends were received from companies including BHP, RIO, Telstra, Wesfarmers and Dulux. The large resource companies are enjoying favourable trading conditions and elected to return the capital generated to shareholders. Wesfarmers and Dulux paid special dividends due to corporate restructuring. Telstra continues to treat NBN revenue as non-recurring with the income returned to shareholders as special dividends. Ordinary dividend income received in 2019 increased by 4.2% to $138.1 million. Increased dividends were received from 60% of Milton’s portfolio including material increases from BHP, RIO, Woodside Petroleum and Macquarie Group. Reduced dividends were received from AMP and Vicinity Centres as the positions were sold during the period. NAB and Telstra reduced their ordinary dividends due to earnings pressure. The Australian market continues to have a relatively high dividend payout ratio with Boards and company management teams aware of the importance of dividends to investors. Dividends have traditionally formed a large part of the total returns of Australian equity investors and it is our expectation that this will continue. Dividends Milton’s Board of Directors have declared a final dividend of 10.4 cents per share increasing full year ordinary dividends to 19.4 cents per share, up 2.1% from 19.0 cents per share in 2018. Additionally Milton paid a special dividend of 2.5 cents per share in the second half of 2019. Total dividends declared in relation to the 2019 earnings are a record 21.9 cents per share, an increase of 15.3% on 2018. All 2019 dividends were fully franked and Milton has $98.9 million of remaining franking credits after the payment of the final dividend. Dividends paid or declared by Milton to members since the end of the previous financial year are shown in the table opposite. Dividend Reinvestment Plan (DRP) The Board is encouraged by the increased participation rate in Milton’s successful DRP program. The DRP will be available for the final dividend. The last day for receipt of an election to participate is 12 August 2019. 2 Milton Corporation Limited Annual Report 2019Dividends Declared and paid during the year Final 2018 ordinary fully franked Interim 2019 ordinary fully franked Special 2019 ordinary fully franked Declared after end of year and not provided for at 30 June 2019 Cents per share ¢ Total amount $’000 Date of payment 10.2 9.0 2.5 67,133 59,844 16,724 4 September 2018 5 March 2019 30 April 2019 Final 2019 ordinary fully franked 10.4 69,572 3 September 2019 No LIC capital gain was included in the above dividends. Growing Earnings and Dividends over 10 Years Dividends per share (DPS) Earnings per share (EPS) www.milton.com ASX: MLT 3 5.07.09.011.013.015.017.019.021.023.02010201120122013201420152016201720182019MLT DPSMLT EPSCents Per ShareFive Year Financial Summary Underlying operating profit after tax1 ($m) Underlying earnings per share (cents) Profit after tax ($m) Earnings per share (cents) Management Expense Ratio (%) Interim dividend (cps) Final dividend (cps) Full year ordinary dividend (cps) Special dividend (cps) 2019 2018 2017 2016 2015 133.6 20.1 147.7 22.2 0.14 9.0 10.4 19.4 2.5 128.8 122.0 126.4 125.0 19.6 18.7 19.5 19.6 130.0 122.4 127.9 128.0 19.8 0.14 8.8 10.2 19.0 – 18.8 0.12 8.7 10.0 18.7 – 19.8 0.13 8.7 9.9 18.6 – 20.1 0.12 8.5 9.9 18.4 0.4 Net assets2 at 30 June ($m) 3,292 3,114 2,939 2,746 2,811 NTA per share pre-tax2 at 30 June ($) NTA per share post-tax3 at 30 June ($) Last sale price at 30 June ($) 4.92 4.30 4.71 4.73 4.16 4.61 4.51 3.99 4.51 4.22 3.79 4.28 4.39 3.90 4.50 All Ordinaries Index at 30 June 6,699 6,290 5,764 5,310 5,451 Ten year TSR (% per annum) Five year TSR (% per annum) Shares on issue (million) Number of shareholders 9.7 5.2 6.5 9.1 4.7 12.9 5.3 11.4 8.0 12.1 669.0 658.2 651.9 649.9 640.2 26,995 25,864 24,726 23,729 22,514 Notes 1 Underlying operating profit after tax excludes special investment revenue and costs associated with the acquisition of subsidiaries. 2 Before provision for tax on unrealised capital gains and before providing for the ordinary final dividend. 3 After provision for tax on unrealised capital gains and before providing for the ordinary final dividend. 4 Milton Corporation Limited Annual Report 2019 Directors Report continued Portfolio Performance Milton’s portfolio reflects the emphasis placed on investing in companies that pay increasing dividends over the long term from quality earnings streams. Milton’s portfolio is not aligned to any index so it may underperform broad market indices over the short term. Milton’s long term returns are shown below. The returns do not take into account the benefit of franking credits which may be utilised by some shareholders. Dividend and Investment Growth over 20 years If $10,000 invested in MLT in June 1999, and if dividends were re-invested over the 20 years, the value of the investment in June 2019 would be worth $63,718. Ordinary dividends increased from 8.20cps in FY1999 (adjusted for 5:1 split in Oct 2013) to 19.4cps in FY2019. Total Returns over Periods Up to 20 Years Total portfolio return (TPR) is the percentage change in Milton’s NTA per share plus dividends received by shareholders. Total shareholder return (TSR) is the percentage change in Milton’s share price plus dividends received by shareholders. TPR and TSR above do not take into account franking credits which may be of benefit to certain shareholders. www.milton.com ASX: MLT 5 010,00020,00030,00040,00050,00060,00070,0005101520252019201820172016201520142013201220112010200920082007200620052004200320022001200019990Ordinary dividendSpecial dividendInvestment value with dividends re-investedDividend (Cents per Share)Investment Value ($)2%4%6%8%10%1 Year3 Years (pa)5 Years (pa)10 Years (pa)20 Years (pa)15 Years (pa)MLT TPRMLT TSRPercent per annum8.817.119.857.876.995.169.629.719.499.758.468.47Directors Report continued Review of Investments Milton’s total assets increased to $3.3 billion from $3.1 billion over the 2019 financial year. Net Tangible Assets (NTA) per share before deferred tax liability increased by 4.0% to $4.92 per share. Milton’s portfolio of 85 listed companies benefited from the strong performance of the resources and telecommunications sectors. The banking sector was a drag on full year performance however performed well post the May 2019 federal election. Total portfolio return, combining Milton’s NTA per share movement and dividends received by shareholders was 8.81% for the year. It was another volatile year for the Australian equity market, with market weakness in the middle of the financial year giving way to a strong rise as central banks indicated a renewed willingness to lower official rates. Australia’s RBA cut official cash rates to 1% after a long period of stability and the market forecasts further decreases in the 2020 financial year. Company earnings and resultant dividend payments have remained robust for most of Milton’s portfolio in 2019. The resources sector is benefiting from high prices and supply tightness for many key commodities. The infrastructure sector remains active and is expected to be supported by the returned NSW state and federal governments. Property stocks exposed to office and industrial have seen prices continue to rise for their underlying assets. In the banking and financial sector the earnings environment remains challenging, revenue pressures and increased compliance costs lowering bank profitability. Milton sees increased risk of reduced bank earnings and dividends as evidenced by the NAB and Bank of Queensland dividend cuts in 2019. The Milton portfolio management team, with the support of the Investment Committee, continue to review and modify our portfolio on an ongoing basis. Milton’s portfolio reflects the emphasis we place on companies that pay increasing dividends over the long term from quality earnings streams. During the year $96.6 million of combined investments were made. Investments were increased in Macquarie Group, BHP, AGL and Transurban with new investments in Cleanaway, Altium and REA. 6 6 Milton Corporation Limited Annual Report 2019 Investments in Vicinity Centres and Unibail-Rodamco were completely sold due to revenue risks associated with the movement of retail spending online. Challenger Limited was exited as we expect annuity flows to be negatively impacted by a lower interest rate environment.Total portfolio sales over the 2019 financial year were $43.4 million. Table B. Top 25 investments at 30 June 2019 Westpac Banking Corporation Commonwealth Bank W H Soul Pattinson BHP Group Limited National Australia Bank CSL Limited Wesfarmers Limited Woolworths Limited ANZ Banking Group Macquarie Group Limited AGL Energy Limited Bank of Queensland Limited Rio Tinto Limited Transurban Group Bendigo and Adelaide Bank Telstra Corporation A P Eagers Limited Brickworks Limited Perpetual Limited Insurance Australia Group Ltd Woodside Petroleum Limited ASX Limited Suncorp Group ALS Limited Coles Group Limited Market Value $m 299.1 260.0 201.8 168.7 130.1 129.3 104.0 97.6 97.4 93.4 71.4 69.6 69.4 67.7 66.1 58.7 57.2 52.7 52.0 48.7 46.9 45.2 44.6 44.6 38.4 Total market value of Top 25 Total Assets 2,414.6 3,293.9 Classification of Investments by Sector The following asset classification table shows the composition of Milton’s assets by sector. Classification1 Bank Materials Consumer Staples Diversified Financials Energy Healthcare Insurance Transport Real estate Utilities Retailing Commercial services Telecommunications Capital goods Consumer services Media Other shares Total equity investments Liquids2 Property joint ventures Other assets Total Closing position $m 923.5 368.8 302.0 269.4 263.3 176.7 129.9 116.5 113.3 93.9 92.4 84.0 78.9 46.8 34.5 27.6 19.7 Additions3 Disposals Change in value Opening position 2019 Income Closing position weighting $m 5.9 26.3 3.8 20.9 4.2 3.6 4.6 11.3 19.6 11.6 – 10.3 0.5 – – 1.4 7.1 $m $m $m (3.3) (3.6) (2.9) (7.2) (0.3) (0.9) (1.3) (0.4) (21.5) – – (0.1) (2.2) (0.6) – – (0.2) 16.7 36.8 (12.6) 0.4 9.5 18.7 (4.9) 19.7 10.6 (6.2) 2.0 4.6 22.9 (1.4) 2.6 (2.4) 5.7 904.2 309.3 313.7 255.3 249.9 155.3 131.5 85.9 104.6 88.5 90.4 69.2 57.7 48.8 31.9 28.6 7.1 $m 57.2 23.4 14.3 12.9 8.5 2.8 6.4 4.7 4.7 5.0 3.1 2.4 3.0 1.5 1.0 1.0 0.3 % 28.0 11.2 9.2 8.2 8.0 5.4 3.9 3.5 3.4 2.9 2.8 2.5 2.4 1.4 1.0 0.8 0.6 3,141.2 131.1 (44.5) 122.7 2931.9 152.2 95.2 125.5 23.1 4.1 3,293.9 159.8 21.3 3.1 2.6 1.5 0.7 3.8 0.7 0.3 3,116.1 157.0 100.0 Investments are grouped according to their asset classes using the Global Industry Classification (“GICS”) codes. Notes 1 2 Liquids include cash, term deposits, hybrid securities and dividends receivable. 3 Includes acquisitions of two unlisted investment companies. 7 www.milton.com ASX: MLTDirectors Report continued Management Expense Ratio (MER) 2020 Financial Year Outlook Milton is fully internally managed, with no performance or management fees paid. Investment staff are focused on maximising net returns to shareholders. Milton’s MER for the 2019 year was 0.14% which is unchanged from 2018. Premium and Discount to NTA The Board notes that during the 2019 financial year the discount to NTA widened for an extended period. Milton traded at an average discount to NTA of 3.6% in 2019 compared to an average discount in 2018 of 0.4%. Movements in the discount to NTA primarily reflected investor concerns about proposed changes to franking credit policy. Milton, as a reliable distributor of fully franked dividends, is exposed to shifts in investor preferences. Acquisitions of Unlisted Investment Companies In August 2018 and February 2019 Milton acquired private investment companies with a combined net asset value of $40.1 million. These companies represent Milton’s 21st and 22nd acquisitions over our 81 year history. The companies were professionally managed with an income focused long-term investment approach taken with strong similarities to Milton. The underlying portfolios were highly complementary to Milton’s existing portfolio of Australian equities. Consideration for these accretive acquisitions was 8.4 million Milton shares. We welcome the vendors and their families to the Milton share register and thank them for their ongoing support. After a strong period for corporate profitability, Milton’s expectations for earnings and dividends are more modest for 2020. We remain particularly concerned about pressure on bank earnings and dividends due to compliance costs, slow loan growth and the impact of lower interest rates on bank margins. Milton expects that special dividends of the magnitude received in 2019 are unlikely to recur in the 2020 financial year. We note that stimulative Australian fiscal and monetary policy, and a relaxation of some of the more restrictive lending settings, may provide a boost to the domestic economy. Central banks globally have displayed a willingness to use monetary policy as a tool to stabilise markets. Australian equity valuations remain elevated against historical norms, with large dispersion between sectors. Declining official interest rates, however, are supporting share prices as investors search for alternate sources of income. We expect a strong earnings environment for businesses that benefit from lower funding costs, have highly predictable revenue streams and good visibility of a pipeline of future projects. The infrastructure sector, and parts of the real estate sector, fall into this category. Whilst more cyclical in nature, resource company earnings are expected to be supported over the long term by firm commodity prices. The resource companies have strong balance sheets, low leverage and historically high dividend yields. The impact of technology, climate policy and the rate of change in the business cycle continues to be a major factor for all companies. Milton’s investment team will continue to review our portfolio for structural disruption to existing business models. Milton’s strong balance sheet with no debt, available profit reserves and franking credits provides confidence that the fully franked dividend is well supported. A further update on the portfolio and underlying market conditions will be provided at Milton’s Annual General Meeting to be held on 10 October 2019. 8 Milton Corporation Limited Annual Report 2019Board of Directors and Company Secretary 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 Justine E. Jarvinen BE(Chem), F Fin, GAICD Independent non-executive director 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. Appointed a non-executive director of Milton since August 2017. Member of the Investment Committee. An Engineer with experience in equity markets and strategy development. 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: Hunter Hall Global Value Limited from April to June 2017 Graeme L. Crampton B.Ec, FCA, FAICD Independent non-executive director Director of Milton Corporation Limited since 2009. Chairman of the Audit & Risk Committee and a member of the Remuneration Committee. A Chartered Accountant and former partner of a major firm of Chartered Accountants for more than 28 years and has extensive experience in the investment industry. Kevin J. Eley CA, F Fin, FAICD Independent non-executive director Director of Milton Corporation Limited since 2011. Member of the Investment and Audit & Risk Committees. A Chartered Accountant and has extensive experience in the investment industry. Other current directorships: Director of EQT Holdings Limited since 2011 and HGL Limited since 1985. Director of Pengana Capital Group Limited since 2017 (formerly Hunter Hall International Limited from 2015 to 2017). Brendan J. O’Dea B.Ec, M.Bus, CA, MAICD Managing Director Managing Director of Milton Corporation Limited with effect from 1 August 2018. Member of the Investment Committee. A Chartered Accountant and has extensive investing and business management experience with over 22 years at a global investment bank as a Managing Director. 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 & Risk and Remuneration Committees. An Actuary and over 42 years of involvement in the investment industry. Former directorships in the last three years: Billabong International Limited from 2012 to 2018, SCA Property Group from 2012 to 2018. Francis G. Gooch B.Bus, CPA Managing director (Retired 1 August 2018). Managing Director of Milton Corporation Limited from 2004 to 2018 and chief executive from 1999 to 2018. Member of the Investment Committee till 1 August 2018. A Certified Practising Accountant and over 33 years’ experience in the finance and investment industries. Other current directorships: Director of Pengana International Equities Limited since June 2017 and appointed Chairman in December 2017. 9 www.milton.com ASX: MLTDirectors Report continued Company Secretary Directors’ relevant interests Nishantha Seneviratne MBA, ACMA, CGMA, CPA, AICM, AGIA, ACIS Appointed Company Secretary and Chief Financial Officer in December 2012. Mr. Seneviratne joined Milton as the Senior Accountant in March 2010 and also held the position of Assistant Company Secretary from March 2012. Prior to joining Milton, he has held a number of senior managerial roles with private companies as Finance Controller for over six years and prior to that in the banking and financial services sector for over four years. He is an associate member of the Governance Institute of Australia (GIA) and Institute of Chartered Secretaries and Administrators (ICSA). 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 are shown in Table D below. Table D. Directors’ Meetings 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 17 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 G.L. Crampton K.J. Eley B.J. O’Dea J.E. Jarvinen I.A. Pollard Number of Shares 13,037,096 169,172 120,879 335,475 15,000 91,129 Director R.D. Millner G.L. Crampton K.J. Eley F.G. Gooch(1) B. O’Dea(2) I.A. Pollard J.E. Jarvinen Directors’ Meetings Investment Committee Meetings Audit & Risk Committee Meetings Nomination Committee Meetings Remuneration Committee Meetings A 6 8 8 1 7 7 8 B 8 8 8 1 7 8 8 A 19 * 20 1 20 * 20 B 20 * 20 1 20 * 20 A * 5 5 * * 5 * B * 5 5 * * 5 * A 1 1 1 - 1 * 1 B 1 1 1 - 1 * 1 A 1 1 * - * 1 * B 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. 1 F.G. Gooch retired on 1 August 2018 2 B.J. O’Dea appointed as a director on 1 August 2018 10 Milton Corporation Limited Annual Report 2019Non-audit services During the year, Pitcher Partners, 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 19 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: a a All non-audit services were subject to the corporate governance procedures adopted by Milton and have been reviewed and approved by the Audit & Risk 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 19. Rounding off The company is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, and in accordance with that legislative instrument, amounts in the Directors’ Report and financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. 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 2019. 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. 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. 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. 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. Directors report contains information relating to Milton’s past performance, review of operations and outlook. Environmental regulations There are no significant environmental regulations that apply directly to Milton. 11 www.milton.com ASX: MLTRemuneration Report for the year ended 30 June 2019 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) 2019 $ 2018 $ Chairman base fee 143,764 140,257 Director base fee 71,882 70,128 Chairman of the Audit & Risk Committee fee Member of the Audit & Risk Committee fee Member of the Investment Committee fee 6,361 6,206 3,606 3,518 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 2019 is $100,905 (2018: $100,905). Remuneration of executives Executive remuneration is a key element of the 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 its 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: a a 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; a market trends in remuneration in terms of both 6,361 6,206 quantum and structure; and The total remuneration paid to non-executive directors in 2019 was $463,946 (2018: $557,993). In October 2011 shareholders approved an increase in the maximum non-executive directors’ total remuneration to $700,000. a 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. 12 Milton Corporation Limited Annual Report 2019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 18a 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 on the following page. At Milton’s 2018 Annual General Meeting, shareholders supported the remuneration report for the 2018 financial year with 83.9% 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 2018. 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. Average cash bonus paid was 17% of TECP for 2019. The equity component of the remuneration package encourages executives to have an investment in Milton to align their interests with shareholders. 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 18b 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. 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. www.milton.com ASX: MLT 13 Remuneration Report continued Key performance indicators Profitability 2019 2018 2017 2016 2015 Underlying operating profit ($ million) 133.6 128.8 122.0 126.4 125.0 Growth (Decline) in underlying operating profit (%) Underlying earnings per share (cents) Growth (Decline) 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 pre-tax(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 (TSR) Ten year Total Portfolio Return (TPR) Ten year accumulation return of the All Ordinaries Index (XAOAI) 1 Before provision for tax on unrealised capital gains 3.7 20.1 2.4 19.4 2.1 2.5 4.92 4.0 3,292 9.7 9.6 10.0 5.6 19.6 4.7 19.0 1.6 - 4.73 4.9 3,114 6.5 6.9 6.2 (3.5) 18.7 (4.1) 18.7 0.5 - 4.51 6.9 1.1 19.5 (0.4) 18.6 1.1 - 4.22 (3.9) 2,939 2,746 4.7 4.2 3.5 5.3 5.6 4.9 6.5 19.6 4.3 18.4 4.5 0.4 4.39 0.9 2,811 8.0 7.3 7.0 14 Milton Corporation Limited Annual Report 2019 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 2018 and 2019 are set out in the following tables. Non-executive directors of Milton Corporation Limited Non- executive directors Short Term Benefits – Fees Post Employment Super- annuation Retirement Benefits paid R.D. Millner Chairman 2019 J.F. Church(2) Director G.L. Crampton Director K.J. Eley Director I.A. Pollard Director J.E. Jarvinen Director Total remuneration 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 $ $ 137,100 133,756 – 19,841 54,242 52,334 74,747 72,924 68,938 67,257 71,453 63,902 406,480 410,014 13,025 12,707 – 1,885 24,000 24,000 7,101 6,928 6,549 6,389 6,788 6,070 57,463 57,979 $ – – – 90,000 – – – – – – – – – 90,000 1 The directors’ retirement benefits have been capped at the balance provided at 30 June 2003 2 J.F. Church retired 12 October 2017 Total Paid $ Retirement Provision(1) $ 150,125 146,463 – 111,726 78,242 76,334 81,848 79,852 75,487 73,646 78,241 69,972 55,905 55,905 – – – – – – 45,000 45,000 – 463,943 557,993 100,905 100,905 www.milton.com ASX: MLT 15 Remuneration Report continued Managing director and executives of Milton Corporation Limited and its subsidiaries Managing director and executives B.J. O’Dea(5) Managing Director F.G. Gooch Former MD D.N. Seneviratne CFO, secretary Total remuneration 2019 2018 2019 2018 2019 2018 2019 2018 Short Term Benefits Salary Cash Bonus(1) $ 572,672 125,000 241,885 62,897 560,287 190,062 174,141 35,000 49,723 70,000 30,000 29,000 825,631 204,723 Non- monetary benefits(2) $ – – – 4,508 – – – Post Employ- ment Super- annuation $ 23,995 17,317 18,795 19,008 17,438 15,859 Other long term benefits(3) Share based payments(4) Total $ – – $ 42,490 764,157 – 294,202 219,357 11,291 362,063 19,196 134,924 807,923 7,317 3,333 34,180 278,997 29,115 251,448 60,228 226,674 87,961 1,405,217 976,313 134,000 4,508 52,184 22,529 164,039 1,353,573 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 and long service leave paid. 4 5 Represents the notional value of interest on loans provided to acquire Milton shares under the Senior Staff Share Plan. B.J. O’Dea appointed Deputy CEO on 22 January 2018 and appointed the CEO and Managing Director on 1 August 2018 upon retirement of Mr F.G. Gooch. The relative proportions of total remuneration of above key management personnel that are fixed or related to performance are as follows: Fixed remuneration Performance-related STI Performance-related LTI 2019 2018 2019 2018 2019 2018 B.J. O’Dea F.G. Gooch D.N. Seneviratne 78.1% 83.1% 77.0% 88.1% 74.6% 76.9% 16.4% 13.7% 10.8% 11.9% 8.7% 11.5% 5.5% 3.2% 12.2% – 16.7% 11.6% 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 Milton Corporation Limited Annual Report 2019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 B.J. O’Dea Managing Director F.G. Gooch Former Managing Director D.N. Seneviratne CFO, secretary 2019 2018 2019 2018 2019 2018 Opening Balance Shares Received as Remuneration Shares Closing Balance Shares – – 1,005,000 945,000 152,500 127,500 200,000 200,000 – – 60,000 25,000 25,000 – – 1,005,000 177,500 152,500 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: B.J. O’Dea Managing Director F.G. Gooch Former Managing Director D.N. Seneviratne CFO, secretary 2019 2018 2019 2018 2019 2018 Net change $ Closing balance $ Highest balance in the year Notional Interest(1) $ $ 915,186 915,186 932,600 42,490 Opening Balance $ – – 2,556,592 (2,556,592) – – – – 2,556,592 2,429,142 127,450 2,556,592 2,695,104 562,971 471,968 89,342 91,003 652,313 562,971 679,546 582,785 – 11,291 134,924 34,180 29,115 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 5.24% (2018: 5.23%). Apart from the loan balances shown above, there were no loans outstanding to key management personnel. Terms and conditions of the loans are referred to in note 18b to the financial statements. 17 www.milton.com ASX: MLTRemuneration Report continued Share holdings of key management personnel and their related parties – Number of shares held Opening Balance Shares Received as Remuneration Other Acquisitions Shares Shares B.J. O’Dea Managing Director F.G. Gooch Former Managing Director D.N. Seneviratne CFO, secretary 2019 2018 2019 2018 2019 2018 50,000 200,000 – 1,310,110 1,250,025 153,907 128,907 – – 60,000 25,000 25,000 2,141 50,000 – 85 – – Closing Balance Shares 252,141 50,000 – 1,310,110 178,907 153,907 Signed in accordance with a resolution of the directors. R.D. MILLNER Chairman Sydney, 1 August 2019 18 Milton Corporation Limited Annual Report 2019Auditor’s Independence Declaration Auditor’s Independence Declaration to the Directors of Milton Corporation Limited ABN 18 000 041 421 I declare that to the best of my knowledge and belief, during the year ended 30 June 2019 there have been no contraventions of: i) the auditor’s independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii) any applicable code of professional conduct in relation to the audit. This declaration is in respect of Milton Corporation Limited and the entities it controlled during the year. M.A. ALEXANDER Partner 1 August 2019 19 www.milton.com ASX: MLT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 2019 to $2.3 million. Milton Foundation’s assets can now support annual distributions of over $100,000. In 2019, a total of $118,000 was distributed to eighteen organisations, which provide much needed support for the disadvantaged in society in Australia. The Foundation has provided $2.36 million of assistance to the community since its establishment. Shareholders can support the Foundation by either: Forwarding a cheque to: The Trustees Milton Corporation Foundation PO Box R1836 Royal Exchange NSW 1225 or Direct deposit into the bank account: Account Name: Milton Corporation Foundation BSB: 082-067 Account No: 038263869 20 The Foundation is a deductible gift recipient registered with the Australian Charities and Not-for-profits Commission (ACNC) and donations of $2 or more are tax deductible. J.F. CHURCH Chairman of Trustees Sydney, 1 August 2019 Milton Corporation Limited Annual Report 2019Financial Statements Contents Financial Statements Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash flows Notes to the financial statements Key Numbers 1. 2. 3. 4. 5. 6. Assets 7. 8. 9. Revenue Tax Earnings Per Share Dividends Paid Dividend Franking Account Listed Investment Company capital gain account Investments in equity instruments Investment in joint venture entities Cash 10. Receivables Capital Management: 11. 12. Share Capital Reserves 22 23 24 25 26 37 37 38 39 40 42 42 43 44 45 45 45 46 27 28 30 30 31 31 32 33 34 35 36 36 Risk 13. 14. 15. Critical accounting estimates, judgements and assumptions Management of financial risk Capital risk management Group Structure 16. Subsidiaries Other Information 17. 18. 19. Related party transactions Share Based Payments Auditor’s Remuneration 20. Parent entity disclosures 21. 22. 23. 24. 25. Summary of other accounting policies Cash flow information Contingent liabilities Events subsequent to reporting date Holdings at Fair Value through Other Comprehensive Income at 30 June 2019 www.milton.com ASX: MLT 21 Consolidated Income Statement for the year ended 30 June 2019 Ordinary dividends and distributions Interest Net gains on trading portfolio Other revenue Operating Revenue Share of net profits of joint ventures – equity accounted Special dividends and distributions Income from operating activities Administration expenses Acquisition related costs of subsidiaries Profit before income tax expense Note 1a 1c 1d 8a 1b 2019 $’000 138,070 2,629 169 551 2018 $’000 132,540 2,677 807 847 141,419 136,871 1,504 14,115 388 1,275 157,038 138,534 (4,220) (124) (4,116) (90) 152,694 134,328 Income tax expense thereon 2a (5,042) (4,321) Profit attributable to shareholders of Milton 147,652 130,007 Basic and diluted earnings per share Note 3 2019 Cents 22.19 2018 Cents 19.80 The Consolidated Income Statement is to be read in conjunction with the Notes to the Consolidated Financial Statements. 22 Milton Corporation Limited Annual Report 2019 Consolidated Statement of Comprehensive Income for the year ended 30 June 2019 Profit Other comprehensive income Items that will not be reclassified to profit and loss Revaluation of investments Provision for tax (expense) benefit on revaluation of investments Other comprehensive income, net of tax Total comprehensive income for the year attributable to the shareholders of Milton 2019 $’000 2018 $’000 147,652 130,007 123,000 (37,458) 139,282 (43,518) 85,542 95,764 233,194 225,771 The Consolidated Statement of Comprehensive Income is to be read in conjunction with the Notes to the Consolidated Financial Statements. 23 www.milton.com ASX: MLTConsolidated Statement of Financial Position as at 30 June 2019 Current assets Cash Receivables Prepayments Total current assets Non-current assets Investments Joint ventures – equity accounted Receivables 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 9 10a 7 8b 10b 2c 2019 $’000 110,306 15,187 275 2018 $’000 131,815 27,829 144 125,768 159,788 3,141,236 2,931,879 23,125 3,431 37 294 21,389 2,605 68 360 3,168,123 3,293,891 2,956,301 3,116,089 1,182 280 68 1,530 1,135 349 248 1,732 2d 416,657 378,769 258 258 416,915 418,445 379,027 380,759 2,875,446 2,735,330 11 12b 12a 1,633,055 1,582,431 66,148 969,156 207,087 51,651 898,111 203,137 Total equity attributable to shareholders of Milton 2,875,446 2,735,330 The Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Consolidated Financial Statements. 24 Milton Corporation Limited Annual Report 2019Consolidated Statement of Changes in Equity for the year ended 30 June 2019 Issued capital $’000 Capital profits reserve $’000 Asset revaluation reserve Retained profits $’000 $’000 Total equity $’000 Balance at 1 July 2018 1,582,431 51,651 898,111 203,137 2,735,330 Profit Other comprehensive income Total comprehensive income Net realised gains Transactions with shareholders: Share issues Dividends paid – – – – 147,652 85,542 – 147,652 85,542 85,542 147,652 233,194 14,497 (14,497) 50,624 – – – – – – – – 50,624 (143,702) (143,702) Balance at 30 June 2019 1,633,055 66,148 969,156 207,087 2,875,446 Issued capital $’000 Capital profits reserve $’000 Asset revaluation reserve Retained profits $’000 $’000 Total equity $’000 Balance at 1 July 2017 1,553,896 59,545 794,453 196,159 2,604,053 Profit Other comprehensive income Total comprehensive income Net realised losses Transactions with shareholders: Share issues Dividends paid – – – – 130,007 95,764 – 130,007 95,764 95,764 130,007 225,771 (7,894) 7,894 28,535 – – – – – – – – 28,535 (123,029) (123,029) – – – – – – – – Balance at 30 June 2018 1,582,431 51,651 898,111 203,137 2,735,330 The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Consolidated Financial Statements. 25 www.milton.com ASX: MLTConsolidated Statement of Cash Flows for the year ended 30 June 2019 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 Note 2019 $’000 2018 $’000 162,171 132,644 2,818 2,500 465 169 – (4,557) (4,637) 2,923 3,086 732 1,018 (211) (4,078) (2,853) Net cash provided by operating activities 22a 158,929 133,261 Cash flows from investing activities Proceeds from disposal of investments Proceeds from redemption of other financial assets Payments for investments in equities and trusts Payments for investments in joint ventures Payments for acquisition related costs of subsidiaries Cash on acquisition of subsidiaries Payments for plant and equipment Loans repaid by other entities Loans advanced to other entities 7c 44,168 1,153 (96,674) (2,731) (124) 5,016 (2) 3,177 (1,258) 59,719 6,011 (70,184) (1,188) (90) – (25) 415 (862) Net cash used in investing activities (47,275) (6,204) Cash flows from financing activities Payments for issue of shares Ordinary dividends paid Net cash used in financing activities Net (decrease) increase in cash assets held Cash assets at the beginning of the year (90) (28) (133,073) (113,590) (133,163) (113,618) (21,509) 131,815 13,439 118,376 Cash assets at the end of the year 9 110,306 131,815 The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Consolidated Financial Statements. 26 Milton Corporation Limited Annual Report 2019Notes to the Consolidated Financial Statements for the year ended 30 June 2019 Key Numbers 1. Revenue Milton’s revenue is derived from dividends, distributions, interest income, profit from joint ventures and income arising from the trading portfolio. a. Ordinary dividends and distributions Milton receives ordinary dividend income and trust distributions from its long term investments in companies and trusts listed on the Australian Securities Exchange. Investments held in portfolio at 30 June Investments sold during the year b. Special dividends and distributions This special investment revenue is received on an ad hoc basis and cannot be relied upon each year. Investments held in portfolio at 30 June Investments sold during the year 2019 $’000 2018 $’000 137,059 1,011 130,860 1,680 138,070 132,540 14,111 4 14,115 1,275 – 1,275 Dividends and distributions are brought to account on the dates that the securities trade ex-dividend. Demerger dividends arising from company de-consolidations are treated as a return of capital and not as a dividend. c. Interest Milton earns interest on its cash, term deposits and other liquid assets. Interest from deposits and cash Interest income from other liquid securities 2,629 – 2,629 2,630 47 2,677 Interest on cash and term deposits is brought to account on an accruals basis. Interest on other liquid securities is recognised on the date these securities trade ex-dividend. d. Net gains from trading portfolio Net gains from trading portfolio 169 807 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 from trading securities are brought to account on the dates the securities trade ex-dividend. www.milton.com ASX: MLT 27 2. Tax This note provides analysis of Milton’s income tax expense, shows amounts that are recognised directly in equity and how the tax expense is affected by non-assessable and non-deductible items. The note also details the deferred tax assets and liability balances and their movements. a. Reconciliation of Income Tax Expense to prima facie tax payable Profit before income tax 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 (Over) provision in prior year Other differences Income tax expense on profit b. Tax expense composition Current tax on profits for the year (Over) provision in prior year Decrease in deferred tax assets (note 2c) Increase in deferred tax liabilities (note 2d) c. Deferred tax assets The balance comprises temporary differences attributable to: Provisions Share issue expenses Other Total deferred tax assets Movements: Balance at 1 July (Charged) credited to the income statement (Charged) to equity Balance at 30 June To be recovered within 12 months To be recovered after more than 12 months 28 2019 $’000 2018 $’000 152,694 134,328 45,808 40,298 (40,392) (35,527) (804) 430 5,042 5,358 (804) 58 430 5,042 274 4 16 294 360 (58) (8) 294 42 252 294 (553) 103 4,321 4,735 (553) 36 103 4,321 338 12 10 360 388 (36) 8 360 108 252 360 Notes to the Consolidated Financial Statements continuedKey NumbersMilton Corporation Limited Annual Report 2019d. 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: Gains on scrip for scrip rollovers Income receivable which is not assessable for tax until receipt Movements: Balance at 1 July Charged to income statement Charged to other comprehensive income Balance at 30 June To be settled beyond 12 months 2019 $’000 2018 $’000 423,999 (23,800) 392,620 (30,156) 16,043 415 16,043 262 416,657 378,769 378,769 430 37,458 335,148 103 43,518 416,657 378,769 416,657 378,769 The income tax expense for the year 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 and any unused tax losses. 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 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. 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. Deferred tax balances attributable to revaluation amounts are recognised directly in equity through the asset revaluation reserve. e. Offsetting deferred tax balances: Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities. Deferred tax assets from realised capital losses are offset 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 2d above. 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. 29 www.milton.com ASX: MLTDeferred tax assets relating to carried forward capital losses have been recognised 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 2d. 3. Earnings Per Share Basic earnings per share 2019 Cents 22.19 2018 Cents 19.80 $’000 $’000 Profit attributable to shareholders of the parent entity 147,652 130,007 No. of Shares No. of Shares Weighted average number of ordinary shares used in the calculation of basic earnings per share 665,320,270 656,714,660 Diluted earnings per share and basic earnings per share are the same because there are no potential dilutive ordinary shares. 4. Dividends Paid a. Recognised in the current year An ordinary final dividend of 10.2 cents per share in respect of the 2018 financial year paid on 4 September 2018 (2018: Ordinary final dividend of 10 cents per share paid on 5 September 2017) An ordinary interim dividend of 9.0 cents per share paid on 5 March 2019 (2018: 8.8 cents per share paid on 1 March 2018) A special dividend of 2.5 cents per share paid on 30 April 2019 (2018: No special dividend paid) Dividends paid in cash Dividends reinvested in shares 2019 $’000 2018 $’000 67,133 65,196 59,844 57,833 16,725 – 143,702 123,029 133,073 10,629 113,590 9,439 143,702 123,029 30 Notes to the Consolidated Financial Statements continuedKey NumbersMilton Corporation Limited Annual Report 2019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 2019 year of 10.4 cents per share payable on 3 September 2019 (2018: ordinary final dividend of 10.2 cents per share per share paid on 4 September 2018) 5. 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 dividend to be paid on 3 September 2019 (2018: final dividend paid on 4 September 2018) 2019 $’000 2018 $’000 69,572 67,133 2019 $’000 2018 $’000 128,692 125,101 (29,817) (28,771) 98,875 96,330 The franking account balance would allow Milton to frank additional dividend payments up to an amount of $230,709,861 (2018: $224,770,224) which represents 34 cents per share (2018: 34 cents per share). 6. Listed Investment Company capital gains account Balance of the Listed Investment Company (LIC) capital gain account available to shareholders for the subsequent financial year 2019 $’000 2018 $’000 1,481 1,352 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. 31 www.milton.com ASX: MLTNotes to the Consolidated Financial Statements continued Assets 7. Investment in equity instruments Milton is predominantly a long term investor in companies and trusts listed on the Australian Securities Exchange. 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 2019 $’000 2018 $’000 3,140,850 2,931,529 386 350 3,141,236 2,931,879 2,927,525 213,325 – 2,763,344 146,096 22,089 3,140,850 2,931,529 386 350 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. Listed 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. c. Investments disposed of during the year The disposals occurred in the normal course of Milton’s operations as a listed investment company or as a result of takeovers or mergers. Fair value at disposal date Equity investments Gain (Loss) on disposal after tax Equity investments 2019 $’000 2018 $’000 44,168 59,719 14,497 (7,894) 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 as disclosed in Note 12. 32 Milton Corporation Limited Annual Report 20198. Investment in joint venture entities Milton has a long history of investing in property development joint ventures. Wholly owned subsidiaries of Milton have investments in separate joint venture entities that have non-controlling interests in three property development joint venture partnerships. a. 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 (2018: 33.33%) 23.33% interest in The Mews Joint Venture contribution to operating profit before tax (2018: 23.33%) 50% interest in the LWP Huntlee Syndicate No 2 Joint Venture (2018: 50%) Share of net profits of joint ventures b. Consolidated interest in the assets and liabilities of the joint venture entities Current assets Non-current assets Current liabilities Non-current liabilities Provision for diminution in value Net assets 2019 $’000 2018 $’000 1,561 74 (131) 1,504 14,741 19,968 (3,333) (7,708) 23,668 (543) 23,125 808 113 (533) 388 16,984 17,055 (2,906) (9,201) 21,932 (543) 21,389 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. Each joint venture partnership agreement provides that partners have rights to the net assets of the partnership. Accordingly, 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’. Under the ‘Equity Method’, Milton’s investments in joint ventures are valued initially at cost and periodically adjusted for changes in value due to Milton’s share in the joint ventures’ income or losses, distributions and any call payments. 33 www.milton.com ASX: MLTNotes to the Consolidated Financial Statements continued Assets c. Contingencies and capital commitments i) Guarantee facility by parent company to support prepayments of joint venture $11 million guarantee facility provided by Milton to support prepayments received by a joint venture in which LWP Syndicate No 2 has a 23.75% interest was cancelled during the year and hence no contingent liability remaining as at 30 June 2019 (30 June 2018: $11 million). ii) Interest servicing guarantee facility by parent company Milton agreed to provide an interest servicing guarantee facility capped at a total of $10 million to cover interest outstanding on a loan obtained by a joint venture in which LWP Huntlee Syndicate No 2 has a 23.75% interest. The guarantee is for a period of four years commencing from 12 March 2019; and Milton’s maximum liability will reduce to $3.66 million at the end of eighth quarter by the amount of interest paid by Huntlee. At the end of each of the ninth to sixteenth quarters, Milton’s maximum liability will reduce by the amount (if any) of interest paid by Milton. This facility, which is on commercial terms, is secured by a second ranking mortgage over the real property of the joint venture as well as guarantees provided by other related entities of the joint venture. At 30 June 2019, Milton’s maximum liability amounted to $10 million (30 June 2018: $nil). Other than the above, the directors are not aware of any material contingent liabilities, contingent assets or capital commitments as at 30 June 2019. 9. Cash Cash at bank Deposits at call Term deposits 2019 $’000 3,612 24,694 82,000 2018 $’000 6,092 21,723 104,000 110,306 131,815 The weighted average interest rate for cash and deposits at call as at 30 June 2019 is 1.4% p.a. (2018: 1.7% p.a.). Term deposits have an average maturity date of September 2019 (2018: August 2018) and an average interest rate of 2.1% (2018: 2.6% pa). 34 Milton Corporation Limited Annual Report 2019Capital Management 10. Receivables a. Receivables – current Dividends receivable Interest receivable Senior staff share plan loans (refer note 18b) Sundry debtors 2019 $’000 14,822 344 – 21 15,187 2018 $’000 24,729 525 2,557 18 27,829 b Receivables – non–current Senior staff share plan loans (refer note 18b) 3,431 2,605 c. Terms and conditions Sundry debtors are due within 30 days and no interest is charged. 35 www.milton.com ASX: MLT Notes to the Consolidated Financial Statements continued Capital Management Milton may offer shareholders the opportunity to increase their holdings by participation in the Share Purchase Plan and in the Dividend Reinvestment Plan. Milton may also increase its capital through renounceable rights issues and acquisition of investment companies with the consideration being the issue of Milton shares. 11. Share capital 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. Movement in share capital No. of Shares $’000 No. of Shares 2019 2019 2018 2018 $’000 Opening balance 658,170,815 1,582,431 651,963,627 1,553,896 Acquisition of unlisted investment companies Dividend Reinvestment Plan(1) Less: Transaction costs (net of tax) 8,444,554 2,347,723 – 40,060 10,627 (63) 4,114,776 2,092,412 – 19,117 9,437 (19) Closing balance 668,963,092 1,633,055 658,170,815 1,582,431 1 Milton’s Dividend Reinvestment Plan (DRP) offers shareholders the option to reinvest all or part of their dividend in new ordinary shares. In the 2019 financial year, Milton issued 1,188,729 new shares in September 2018 and 1,158,994 new shares in March 2019 under the DRP (2018: 1,113,757 issued in September 2017 and 978,655 issued in March 2018). 12. Reserves 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 7. Upon disposal of investments, the net gain or loss is transferred from the asset revaluation reserve to the capital profits reserve. 2019 $’000 2018 $’000 898,111 85,542 (14,497) 794,453 95,764 7,894 969,156 898,111 51,651 14,497 66,148 59,545 (7,894) 51,651 a. Asset revaluation reserve Opening balance Revaluation of investments net of provision for tax Net realised (gains) losses b. Capital profits reserve Opening balance Net realised gains (losses) 36 Milton Corporation Limited Annual Report 2019Risk This section of the notes discusses Milton’s exposure to various risks and shows how these could affect Milton’s financial position and performance. 13. Critical accounting estimates, judgements and assumptions Judgements, estimates and assumptions are required to prepare financial statements. Apart from the items mentioned below, 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. i) Deferred tax liabilities from unrealised capital gains are offset against deferred tax assets from realised capital losses as disclosed in Note 2e. ii) Classification of joint arrangements as joint ventures as disclosed in Note 8. 14. Management of financial risk The risks associated with the financial instruments, such as investments and cash, include credit, market and liquidity risks which could affect Milton’s future financial performance. The Board 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 & Risk Committee. a. 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 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. b. Market risk Market risk is the risk that changes in market prices will affect the fair value of the financial instrument. The fair value of the quoted investments is determined by the unadjusted last sale price quoted on the Australian Securities Exchange at the measurement date. 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. 37 www.milton.com ASX: MLTNotes to the Consolidated Financial Statements continued Risk Investments represent 95% (2018: 94%) 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 4.8% (2018: 4.7%) movement in the net assets before provision for tax on unrealised capital gains at 30 June 2019. The net asset backing before provision for tax on unrealised capital gains would move by 23 cents per share at 30 June 2019 (2018: 22 cents at 30 June 2018). Milton’s management continuously 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 directly exposed to foreign currency risk as all its investments are quoted in Australian dollars. The fair value of Milton’s other financial instruments are unlikely to be materially affected by a movement in interest rates as they generally have short dated maturities and variable interest rates. c. 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. 15. 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 renounceable rights issues and as consideration for acquisition of other investment companies. 38 Milton Corporation Limited Annual Report 2019Group Structure 16. 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. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. a. 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. 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. b. Milton Corporation Limited’s subsidiaries The following subsidiaries have been included in the consolidated accounts. The parent entity and all subsidiaries are incorporated in Australia: Percentage of Interest held 85 Spring Street Properties Pty Ltd Chatham Investment Co. Pty Limited Incorporated Nominees Pty Limited Milhunt Pty Limited ACN007531240 Pty Limited Kembar Pty Limited c. Acquisition of subsidiaries 2019 % 100 100 100 100 100 100 2018 % 100 100 100 100 – – During the year ended 30 June 2019, Milton acquired 100% of the shares of two unlisted investment companies with a total fair value of $40,059,628. New Milton shares were issued as consideration. Acquisition of ACN007531240 Pty Ltd completed on 17 August 2018: a 5,575,148 new Milton shares issued as consideration with a fair value of $26,677,282. Acquisition of Kembar Pty Ltd completed on 28 February 2019: a 2,869,406 new Milton shares issued as consideration with a fair value of $13,382,346. (2018: An unlisted investment company acquired in August 2017 for a consideration of 4,114,776 new Milton shares with a fair value of $19,117,239). d. Business Combinations The acquisition method of accounting has been used to account for all business combinations. The business combinations have been accounted from the date Milton attained control of the subsidiaries. The considerations transferred for the acquisitions comprise 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. 39 www.milton.com ASX: MLTNotes to the Consolidated Financial Statements continued Other Information 17. Related party transactions a. Directors and Key Management Personnel compensation Short–term benefits Other long–term benefits Post–employment benefits Share–based payments 2019 $’000 1,436 227 118 88 1,869 2018 $’000 1,526 112 110 164 1,912 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 12 to 18. b. Shareholdings of non–executive directors and their related parties – number of shares held Non–executive directors and their related parties held 5.6% (2018: 6.1%) of the voting power of Milton as at year end. All shares acquired by non–executive directors and their related parties during the year were purchased 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 2019. Number of shares at beginning of the year Acquired during the year Disposed of during the year Retiring director holdings Number of shares held at end of year 2019 2018 No of shares No of shares 40,387,579 75,090,508 10,000 12,000 (3,000,000) (5,192,116) – (29,522,813) 37,397,579 40,387,579 c. Loans to key management personnel and their related parties Details regarding loans outstanding at the reporting date to key management are as shown below. No loans were granted to related parties of any key management personnel. Balance at beginning of the year Loans advanced Loans repaid Balance at end of the year Notional interest 2019 $ 2018 $ 3,119,563 1,049,175 (2,601,239) 2,901,110 376,779 (158,326) 1,567,499 3,119,563 87,961 164,039 Notional interest is based on the applicable FBT benchmark interest rate for the year which averaged 5.24% (2018: 5.23%). 40 Milton Corporation Limited Annual Report 2019The loans are advanced to key management personnel in accordance with the Senior Staff Share Plan (SSSP) as disclosed in Note 18b. Loans to individual key management personnel are disclosed in the remuneration report on page 17. d. Other related party transactions All 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 Mr R.D. Millner and Dr I.A. Pollard. 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. e. Transactions with subsidiaries Dividends paid to parent f. Loans to and from subsidiaries 2019 $ – – 2018 $ 282,758 282,758 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. Amounts owed by subsidiaries at beginning of the year Loans advanced from subsidiaries Loan advanced to subsidiaries 2019 $ 2018 $ 27,034,039 28,312,165 (43,002,055) (3,263,224) 3,008,513 1,985,098 Amounts owed (to) by subsidiaries at end of the year (12,959,503) 27,034,039 g. Other arrangement with non–executive director There were no existing or new arrangements with non–executive directors during the year ended 30 June 2019 (2018: Mr J.F. Church, who was a non–executive director until October 2017, rented office space from Milton at commercial rates from 1 July 2017 to 31 December 2017 and rent received by Milton amounted to $6,786.) 41 www.milton.com ASX: MLT Notes to the Consolidated Financial Statements continued Other Information 18. Share based payments Under the Employee Share Plan, shares are acquired for employees as part of their remuneration and the cost of the shares is recorded under employment costs. 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. a. 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 422 shares (2018:216 shares) were acquired by Milton on behalf of eligible employees under the ESP at a cost of $2,084 (2018: $1,039) with a total market value at 30 June 2019 of $1,988. 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 310,000 shares (2018: 160,000 shares) were acquired by the trustee of the plan on behalf of eligible employees under the SSSP at a cost of $1,445,530 (2018: $708,232). The loans to eligible employees are as disclosed in note 10b. The shares acquired by the trustee during the year had a market value of $1,460,100 at $4.71 per share as at 30 June 2019. 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. 19. Auditors Remuneration Auditors of the company Audit and review services Related practice of the auditor Agreed upon procedures Other services 42 2019 $’000 2018 $’000 115 43 9 167 113 15 – 128 Milton Corporation Limited Annual Report 201920. Parent entity disclosures In accordance with the Corporations Amendment (Corporate Reporting Reform) Act 2010 and the Corporations Act 2001 the summarised parent entity information is set out below. As at, and throughout, the financial year ended 30 June 2019 the parent entity is Milton Corporation Limited. Profit of the parent entity Profit for the year Total comprehensive income for the year 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 Issued capital Capital profits reserves Asset revaluation reserve Retained profits 2019 $’000 2018 $’000 146,560 232,741 129,734 225,770 126,015 3,309,553 (1,251) (434,107) 186,802 3,119,111 (1,616) (383,781) 2,875,446 2,735,330 1,633,055 74,733 1,024,131 143,527 1,582,431 60,229 952,001 140,669 Total equity attributable to shareholders of the parent entity 2,875,446 2,735,330 43 www.milton.com ASX: MLT Notes to the Consolidated Financial Statements continued Other Information 21. Summary of other accounting policies 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, the Corporations Act 2001 and complies with International Financial Reporting Standards (IFRS). Accounting policies adopted in the preparation of these financial statements 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. Milton is a ‘for–profit’ entity. 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. New and amended standards adopted: AASB 9 Financial Instruments Standard which applies to annual reporting periods commencing on or after 1 January 2018 was early adopted by Milton in the 2010 financial year. AASB 15 Revenue from Contracts with Customers is applicable to annual reporting periods beginning on or after 1 January 2018 and does not have a material impact on Milton’s financial statements. New and amended standards not adopted: AASB 16 Leases is applicable to annual reporting periods beginning on or after 1 January 2019 and replaces AASB 117 Leases. For lessees it will eliminate the classifications of operating leases and finance leases. Milton does not expect this standard to have a material impact on Milton’s 2020 financial statements. No other new accounting standards and interpretations that are available for early adoption but not yet adopted at 30 June 2019, will result in any material change in relation to the financial statements of Milton. b. Rounding of amounts Unless otherwise stated under the option available in ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, the financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000). c. Operating segments The consolidated entity operates in Australia and engages in investment as its principal activity. As such Milton considers the business to have a single operating segment. 44 Milton Corporation Limited Annual Report 201922. Cash flow information a. Reconciliation of net profit to net cash provided by operating activities Net profit Share of net profits of joint ventures – equity accounted Distributions received from joint venture entities Acquisition related costs of subsidiaries Depreciation of non-current assets Decrease (Increase) in receivables (Decrease) increase in payables and provisions Increase in income taxes payable Decrease in provisions 2019 $’000 2018 $’000 147,652 (1,504) 2,500 124 35 10,176 (287) 405 (172) 130,007 (388) 3,086 90 34 (925) (111) 1,468 – Net cash provided by operating activities 158,929 133,261 b. Non–cash financing and investing activities As described in Note 16c, Milton acquired two unlisted investment companies through the issue of 8,444,554 new Milton shares with a total fair value of $40,059,629 (2018: Milton acquired unlisted investment company through the issue of 4,114,776 new Milton shares with a fair value of $19,117,239). 23. Contingent liabilities Apart from the contingent liability relating to the interest servicing guarantee facility of $10 million provided on behalf of LWP Huntlee Syndicate No.2 joint venture as disclosed in Note 8c (ii), the directors are not aware of any other material contingent liabilities. 24. Events subsequent to reporting date Since the end of the financial year, the directors declared a fully franked ordinary final dividend of 10.4 cents per share payable on 3 September 2019. This financial report was authorised for issue in accordance with a resolution of directors on 1 August 2019. The directors have the power to amend and reissue the financial statements. 45 www.milton.com ASX: MLTNotes to the Consolidated Financial Statements continued Holdings 25. Holdings at Fair Value through Other Comprehensive Income at 30 June 2019 The following holdings are valued at fair value through Other Comprehensive Income. Investments in equity instruments Adelaide Brighton Ltd. AGL Energy Ltd. ALS Ltd. Altium Ltd. Amcor Ltd. A.P. Eagers Ltd. APA Group ARB Corporation Ltd. Argo Investments Ltd. ASX Ltd. AUB Group Ltd. Australia & New Zealand Banking Group Ltd. – ordinary shares – capital notes 2 Australian Foundation Investment Company Ltd. Auswide Bank Ltd. Automotive Holdings Group Ltd. Bank of Queensland Ltd. Bendigo & Adelaide Bank Ltd. BHP Billiton Ltd. BKI Investment Company Ltd. Blackmores Ltd. Boral Ltd. Brambles Ltd. Brickworks Ltd. Caltex Australia Ltd. Carlton Investments Ltd. Carsales.Com Ltd. Challenger Ltd. Charter Hall Group Charter Hall Long WALE REIT CIMIC Group Ltd. Cleanaway Waste Management Coca–Cola Amatil Ltd. Cochlear Ltd. Coles Group Ltd. Commonwealth Bank of Australia Computershare Ltd. CSL Ltd. Diversified United Investment Ltd. Dulux Group Ltd. EQT Holdings Ltd. Event Hospitality & Entertainment Ltd. Finbar Group Ltd. Flight Centre Travel Group Ltd. 2019 Market value $’000 12,033 71,439 44,623 6,105 25,362 57,164 22,440 16,581 15,272 45,218 13,499 97,402 – 5,765 1,172 9,706 69,627 66,118 168,712 1,921 33,147 10,697 18,444 52,691 9,752 11,274 14,098 – 23,025 16,855 35,424 12,815 10,849 6,991 38,413 259,968 373 129,258 569 15,426 14,821 12,637 3,060 3,336 Holding Shares 2,947,554 3,060,000 6,079,431 – 1,321,512 5,833,107 2,005,833 911,065 1,809,575 548,965 1,049,153 3,408,473 2,000 762,192 433,570 3,466,366 7,306,078 5,709,708 3,650,921 1,223,866 367,014 2,089,293 1,431,966 3,234,567 394,000 356,778 995,000 544,000 1,751,000 1,866,997 791,239 – 1,011,434 33,800 – 3,118,305 – 592,198 – 1,655,184 500,697 1,010,921 3,642,464 80,300 2018 Market value $’000 20,486 68,789 45,839 – 19,043 49,756 19,757 20,800 14,422 35,348 14,247 96,255 201 4,695 2,441 9,879 74,449 61,893 123,803 1,866 52,299 13,643 12,716 50,589 12,821 11,802 15,044 6,436 11,417 8,215 33,469 – 9,305 6,766 – 227,231 – 114,069 – 12,662 10,414 13,536 3,497 5,111 Holding Shares 2,978,554 3,570,141 6,079,431 178,500 1,566,512 5,833,107 2,077,766 911,065 1,880,841 548,965 1,292,991 3,452,751 – 922,398 228,557 3,466,366 7,306,078 5,709,708 4,098,921 1,223,866 368,664 2,089,293 1,431,966 3,234,567 394,000 356,778 1,042,000 – 2,126,000 3,364,212 791,239 5,500,000 1,061,584 33,800 2,877,375 3,140,470 23,000 601,198 130,607 1,655,184 500,697 1,010,921 3,642,464 80,300 46 Milton Corporation Limited Annual Report 2019 Investments in equity instruments Goodman Group GrainCorp Ltd. Gresham Private Equity Co–Investment Fund Growthpoint Properties Australia Insurance Australia Group Ltd. Incitec Pivot Ltd. InvoCare Ltd. IOOF Holdings Ltd. Janus Henderson Group PLC Lendlease Group Lindsay Australia Ltd. Link Administration Holdings Ltd. Macquarie Group Ltd. McMillan Shakespeare Ltd. MyState Ltd. National Australia Bank Ltd. New Hope Corporation Ltd. Orica Ltd. Origin Energy Ltd. Orora Ltd. Pendal Group Ltd. Perpetual Ltd. Premier Investments Ltd. QBE Insurance Group Ltd. Qube Holdings Ltd. Ramsay Health Care Ltd. REA Group Ltd. Reece Ltd. Regis Healthcare Ltd. Rio Tinto Ltd. Scentre Group Schaffer Corporation Ltd. Seven Group Holdings Ltd. – TELYS4 preference shares Sims Metal Management Ltd. Sonic Healthcare Ltd. Stockland Group Suncorp Group Ltd. Sydney Airport Tank Stream Ventures Technology One Ltd. Telstra Corporation Ltd. TPG Telecom Ltd. Transurban Group Treasury Wine Estates Ltd. Unibail–Rodamco–Westfield Vicinity Centres Washington H. Soul Pattinson & Company Ltd. Wesfarmers Ltd. Westpac Banking Corporation Whitefield Ltd. Woodside Petroleum Ltd. Woolworths Group Holding Shares 1,475,376 – 100,000 – 5,896,948 1,663,689 1,950,914 2,009,086 229,500 972,539 13,341,599 27,907 744,490 662,538 – 4,868,831 1,290,107 188,987 190,301 – 1,546,643 1,231,982 590,321 1,949,375 6,113,243 225,283 8,769 1,167,950 1,856,076 669,120 5,079,474 68,999 – 452,368 710,707 3,844,940 3,314,232 3,184,629 50,341 1,515,000 15,236,961 3,148,725 4,592,153 1,206,363 – – 9,174,640 2,877,375 10,545,458 149,373 1,288,838 2,936,973 2019 Market value $’000 22,175 – 23 – 48,709 5,673 31,195 10,387 6,952 12,643 4,603 140 93,352 8,090 – 130,095 3,496 3,831 1,391 – 11,058 52,039 8,955 23,061 18,585 16,274 842 11,399 4,881 69,428 19,505 941 – 4,913 19,260 16,033 44,643 25,605 363 11,938 58,662 20,278 67,688 17,999 – – 201,750 104,046 299,069 726 46,862 97,596 Holding Shares 1,475,376 362,290 100,000 403,010 5,847,282 1,610,689 1,950,914 2,009,086 217,500 969,539 12,843,330 – 659,990 662,538 444,992 4,821,472 1,290,107 188,987 – 1,094,512 1,046,643 1,231,982 590,321 1,949,375 5,994,164 225,283 – 1,167,950 1,856,076 583,618 2,669,474 68,999 7,000 452,368 659,425 3,589,940 3,314,232 2,944,629 50,341 1,370,000 15,065,253 3,530,984 3,797,811 1,194,085 317,520 6,168,335 9,174,640 2,835,533 10,490,827 – 1,222,911 2,903,973 2018 Market value $’000 14,193 2,782 18 1,455 49,877 5,847 26,806 18,062 9,057 19,207 4,880 – 81,608 10,601 2,229 132,157 3,857 3,355 – 3,907 10,372 51,250 9,965 18,987 14,446 12,161 – 14,775 6,088 48,697 11,719 914 556 7,274 16,176 14,252 48,355 21,084 332 5,823 39,471 18,255 45,460 20,765 4,658 15,976 189,823 139,962 307,381 – 43,364 88,629 3,141,236 2,931,879 www.milton.com ASX: MLT 47 Directors’ Declaration for the year ended 30 June 2019 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 47 and the Remuneration report, that is set out on pages 12 to 18 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 2019 and of its performance for the financial year ended on that date; (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (iii) complying with International Accounting Standards as issued by the International Accounting Standards Board as described in Note 21a to the financial statements; 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 2019. Signed in accordance with a resolution of the directors. R. D. MILLNER Chairman Sydney, 1 August 2019 48 Milton Corporation Limited Annual Report 2019Independent Auditor’s Report Independent Auditor’s Report to the Members of Milton Corporation Limited ABN 18 000 041 421 Report on the Audit of the Financial Report Opinion We have audited the financial report of Milton Corporation Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 30 June 2019, 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, and notes to the financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants “the Code” that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the Directors of the Company, would be in the same terms if given to the Directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 49 www.milton.com ASX: MLTIndependent Auditor’s Report continued Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the matter Ownership and accurate recording of investments in equity instruments and related movement in reserves Refer to Note 2(d): Deferred tax liabilities, Note 7 Investments in equity instruments and Note 12 Reserves At 30 June 2019, the Group’s statement of financial position includes investments in equity instruments of $3,141,236,000, an asset revaluation reserve of $969,156,000 and a deferred tax liability recognised in relation thereto of $416,657,000. Listed investments are valued continuously at fair value, which is determined by the unadjusted last-sale price quoted on the Australian Securities Exchange. Changes in fair value of equity instruments are recognised in other comprehensive income through the asset revaluation reserve after deducting a provision for the potential deferred capital gains tax liability, as investments are long term holdings of equity instruments. Given the significance of the balances, the key audit matter for us was whether the Group has accurately recorded the above balances and the movement in the past 12 months and has ownership of the investments at year end. Our procedures included, amongst others: a Documenting our understanding of management’s processes and relevant controls. a Testing relevant controls to ensure that review and analysis by management is performed regularly. a Confirming the recording and ownership of a sample of investments and transactions during the year by agreeing the SRN/HIN numbers to share registry holding statements online and to the books and records of the Group. a a Analysing and testing the movement in investments. Testing management’s calculation of the revaluation of investments and the corresponding deferred income tax effect. Other Information The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 50 Milton Corporation Limited Annual Report 2019Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: a Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. a Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. a Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. a Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. a Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. a Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 51 www.milton.com ASX: MLTIndependent Auditor’s Report continued From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 18 of the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Milton Corporation Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company 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. M. A. ALEXANDER Partner 1 August 2019 PITCHER PARTNERS Sydney 52 Milton Corporation Limited Annual Report 2019Corporate Directory Milton Corporation Limited Directors R. D. MILLNER Chairman G. L. CRAMPTON K. J. ELEY J. E. JARVINEN I. A. POLLARD Management B. J. O’DEA CEO and Managing Director D.N. SENEVIRATNE CFO and Secretary Registered Office & Principal Place of Business Level 4, 50 Pitt Street Sydney NSW 2000 Phone: Fax: Email: Website: www.milton.com.au (02) 8006 5357 (02) 9251 7033 general@milton.com.au Auditors Pitcher Partners Level 16, Tower 2 201 Sussex Street Sydney NSW 2000 Website: www.pitcher.com.au Share Registry Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 (02) 8280 7111 (02) 9261 8489 Phone: Fax: Toll free: 1800 641 024 Email: milton@linkmarketservices.com.au Website: www.linkmarketservices.com.au 53 www.milton.com ASX: MLTASX Information ASX Code: MLT Top 20 shareholders as at 30 June 2019 Name Higlett Pty Ltd Washington H Soul Pattinson & Company Limited HSBC Custody Nominees (Australia) Limited Argo Investments Limited Australian Foundation Investment Company Limited Griffinna Pty Ltd Bortre Pty Limited Danwer Investments Pty Ltd JBF Holdings Pty Ltd Jamama Nominees Pty Limited J S Millner Holdings Pty Ltd Macdawley Proprietary Limited Hexham Holdings Pty Limited Millane Pty Limited T N Phillips Investments Pty Ltd A V L Investments Proprietary Limited Chickenfeed Pty Ltd John E Gill Trading Pty Ltd David Burns Pty Limited Isomet Pty Ltd Djaldar Pty Ltd Shares Held 25,000,000 22,216,178 19,864,192 17,108,251 10,841,468 6,230,000 6,079,504 6,079,504 5,253,920 4,195,685 3,743,514 3,479,615 3,230,079 3,165,269 3,046,748 2,979,080 2,828,449 2,814,074 2,724,955 2,683,615 2,545,000 % 3.74 3.32 2.97 2.56 1.62 0.93 0.91 0.91 0.79 0.63 0.56 0.52 0.48 0.47 0.46 0.45 0.42 0.42 0.41 0.40 0.38 On 30 June 2019, there were 26,995 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 $500 (106 shares) 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 248 and the total brokerage paid or accrued was $448,229. 54 3,650 7,567 5,448 9,642 688 636 Milton Corporation Limited Annual Report 2019Share Issues History Share Purchase Plan history Acquisition of unlisted companies Date 10.11.1999 13.11.2000 13.11.2001 08.11.2002 31.10.2003 29.10.2004 21.10.2005 16.10.2006 19.10.2007 03.10.2008 09.10.2009 30.09.2013 22.10.2013 01.10.2014 02.10.2015 Issue price per share $ 8.75 8.86 10.79 11.70 13.21 14.10 17.11 19.60 22.48 17.85 16.08 19.12 5 for 1 share split 4.45 4.18 Date 21.06.2002 31.12.2002 11.03.2004 01.04.2004 17.08.2006 23.08.2006 28.08.2006 21.09.2006 10.11.2006 23.03.2007 14.05.2007 20.06.2007 24.09.2007 19.02.2009 26.02.2010 26.02.2010 20.08.2010 21.02.2013 24.02.2014 22.08.2017 17.08.2018 28.02.2019 Acquisition of listed investment companies Date Company 31.12.2001 16.12.2010 Cambooya Investments Limited Choiseul Investments Limited Dividend Reinvestment Plans Share Split Shares issued 2,287,200 1,739,112 2,742,777 496,809 1,000,322 1,476,254 382,404 278,103 1,888,353 1,895,976 2,424,582 252,477 1,223,252 3,555,958 1,016,370 3,116,341 2,446,521 521,464 3,280,382 4,114,776 5,575,148 2,869,406 Shares issued 8,273,505 23,803,854 Date 04.03.2014 03.09.2014 03.03.2015 03.09.2015 03.03.2016 02.09.2016 02.03.2017 05.09.2017 01.03.2018 04.09.2018 05.03.2019 Shares issued 187,207 698,365 712,273 998,879 921,511 1,086,782 953,908 1,113,757 978,655 1,188,729 1,158,994 Price $ 4.27 4.55 4.56 4.39 4.19 4.28 4.34 4.44 4.59 4.66 4.39 Date Ratio Notes 22.10.2013 Five shares for one The number of shares issued prior to this date have not been adjusted for the share split. A full list of issues to shareholders since commencement of Capital Gains Tax in September 1985 can be found on the company’s website at www.milton.com.au 55 www.milton.com ASX: MLTAn Australian Listed Investment Company since 1958 ABN: 18 000 041 421 Level 4, 50 Pitt Street, Sydney NSW 2000 T: (02) 8006 5357 F: (02) 9251 7033 E: general@milton.com.au www.milton.com.au 

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