Annual Report
Year ended 30 June 2016
ABN: 64 169 154 858
Contents
Annual Report – 30 June 2016
Page number
Year in Summary
Corporate Directory
About the Company
Chairman’s Letter
Investment Manager’s Report
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flow
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Shareholders
Shareholder Information
1
2
3
4
6
9
19
22
23
24
26
27
46
47
49
Corporate Governance Statement
The Board of Directors of QV Equities Limited (‘Company’) is responsible for corporate governance. The Board has chosen
to prepare the Corporate Governance Statement (‘CGS’) in accordance with the third edition of the ASX Corporate
Governance Council’s Principles and Recommendations under which the CGS may be made available on a company’s
website. Accordingly, a copy of the Company’s CGS is available on the Company’s website.
Annual General Meeting
Investor Update
10am, Wednesday 26 October
Adelaide Room
Sofitel, Sydney
11:30am, Wednesday 26 October
Adelaide Room
Sofitel, Sydney
QV Equities Limited, ABN: 64 169 154 858
Year in Summary
Profit after tax
Management Expense Ratio
$5,717,941
1.09%
Earnings Per Share
(cents)
Portfolio Return
(Pre-tax)*
2.77 Basic
Dividends
+8.2%
Portfolio Return
(Post-tax)*
Benchmark**
+14.7%
ASX 300
+0.87%
3.3 cps Fully Franked
+6.7%
Net Assets
QVEO exercised***
$237,584,752
36,767,958
All data as at 30 June 2016
* Returns are measured for the 2016 financial year
** S&P/ASX300 ex20 index
*** Options exercised since listing 22 August 2014
QV Equities Limited Annual Report 2016 | 1
Corporate Directory
Directors
Peter McKillop (Independent Director, Chairman)
John McBain (Independent Director)
Jennifer Horrigan (Independent Director)
Anton Tagliaferro (Non-independent Director)
Simon Conn (Non-independent Director)
Company Secretary
Zac Azzi
Investment Manager
Registered Office
Share Registrar
Investors Mutual Limited
Level 24, 25 Bligh Street
Sydney NSW 2000
(AFSL 229988)
Level 24, 25 Bligh Street
Sydney NSW 2000
Telephone: (02) 9232 7500
Fax: (02) 9232 7511
Email: info@qvequities.com
Website: www.qvequities.com
Link Market Services Limited
1A Homebush Bay Drive
Rhodes NSW 2138
Telephone: 1800 868 464
Auditor
Pitcher Partners
Level 22 MLC Centre, 19 Martin Place
Sydney NSW 2000
Stock Exchange
Australian Securities Exchange (ASX)
ASX code: QVE Ordinary shares
QV Equities Limited, ABN: 64 169 154 858
2
| QV Equities Limited Annual Report 2016
About the Company
QVE Overview
QV Equities Limited (the “Company”) is a Listed Investment Company, established to invest in a diversified portfolio of ASX listed entities
outside the S&P/ASX 20 Index. The Company’s investment portfolio is managed by Investors Mutual Limited (IML).
Investment objective
The Company’s primary objective is to deliver long term value to shareholders through a combination of capital growth and income, by
investing in a diversified portfolio of good quality ASX listed entities outside the S&P/ASX 20 Index. The Company aims to achieve after-
fee returns over a five-year plus investment period that are higher than the S&P/ASX 300 Accumulation Index, excluding that part of the
return that is generated by the securities comprised in the S&P/ASX 20 Accumulation Index.
Foundation of the company’s investment strategy
The Australian sharemarket is heavily concentrated amongst the larger entities both in terms of market capitalisation and industry
sector. The S&P/ASX 20 Index (representing the 20 largest entities by market capitalisation on the ASX) accounts for 58% of the market
capitalisation of the S&P/ASX 300 Index and is heavily concentrated by industry sector with 71% of the S&P/ASX 20 Index dominated by
the Financial and Resource sectors as at 30 June 2016.
Investment strategy
The Company’s investment strategy is to create a diversified and balanced portfolio of ASX listed securities outside the S&P/ASX 20
index, aiming to capitalise on IML’s disciplined investment approach and intensive research process. When assessing investment
opportunities, IML’s team of highly experienced analysts undertake a comprehensive ‘bottom-up’ approach in identifying, researching
and valuing companies. IML’s approach in identifying opportunities for the portfolio is systematic, disciplined and focuses on finding
those entities that meet IML’s investment criteria and then determining an appropriate valuation for those entities. This is the same
approach that has been applied successfully by IML since 1998.
In addition to long term capital growth, IML is focused on long term income growth for the portfolio, seeking investment opportunities
that pay sustainable and growing dividends with attractive franking credits, with the portfolio being diversified across both industry
and individual securities.
QV Equities Limited Annual Report 2016 | 3
A letter from the Chairman, Peter McKillop
Dear Shareholders,
This is the second annual report to shareholders from QV Equities Limited (the “Company”) and the first report for a full financial year,
after the Company listed on the Australian Stock Exchange (‘ASX’) on 22 August 2014. It is also my first report to you as Chairman, after I
assumed the Chair from our inaugural Chairman Don Stammer late in the financial year.
Our objective
The Company’s key objective is to provide investors with the opportunity to invest successfully in a diversified portfolio of securities
listed on the ASX other than those included in the S&P/ASX top 20 index. Our objective is to deliver both long-term capital growth and
income to our shareholders.
The twenty largest entities listed on the ASX account for about two-thirds of the market capitalisation of the broader market as
measured by the ASX300 index – and is dominated by financial and resource companies.
In comparison, the ex-20 part of the market is much more diversified by market capitalisation and industry exposure. It is also a
segment which is less-researched than the larger companies listed on the ASX and it offers investors an enhanced opportunity to gain
the long-term capital growth and income they are seeking.
Our portfolio of securities is managed by Investors Mutual Limited (the “Manager”), a multi award-winning and experienced funds
manager with an excellent track record of successfully managing Australian equities since 1998.
The Manager seeks to target quality entities led by capable management, which have competitive advantages, a recurring and
predictable earnings stream which can grow over time, and whose securities can be bought at an attractive entry price.
The Australian share market
For the financial year ended 30 June 2016 the ASX 300 Accumulation index returned a modest +0.9%. Over the year the market
recorded extreme levels of volatility, falling mid way through the financial year as investors fretted over the outlook for US interest rates
as global growth in the economies of China and Emerging economies slowed. Following a recovery in sentiment, markets weakened
again late in the year following the surprise decision in a UK referendum to leave the EU.
The positive influences on Australian shares have been the steadily improving US
economy, the continuation of highly accommodating monetary policies by Central
Banks in all major economies with low interest rates encouraging investors to “hunt
for yield”. While the stimulus measures implemented in China helped commodity
prices stabilise despite continued oversupply in many commodities. The gold price
rose strongly as investors sought a safe haven in these uncertain times.
The negative influences on Australian shares have included recurring concerns
about the continued instability within the European Union, continued question
marks over the sustainability of Chinese growth in the years ahead as well as a
general increase in the intensity of competition in certain sectors of the Australian
economy such as the supermarket and telco sectors.
The QV Equities portfolio of shares
“…the ex-20 part of
the market is much
more diversified by
market capitalisation
and industry exposure”
Over the course of the year the Manager proceeded to cautiously invest, reducing the cash position from 25% at 30 June 2015 to 15%
by year end.
March saw the options which were issued at the time of the IPO expire. Some 27.9m options were exercised raising a further $27.9m for
the Company. At 30 June 2016 the Company’s portfolio had a market value of just under $250m.
4
| QV Equities Limited Annual Report 2016
A letter from the Chairman, Peter McKillop (continued)
The QV Equities investment performance
The concept of introducing an ex-20 LIC to the market was to provide investors with the opportunity to access a quality portfolio
of stocks and provide diversity away from the top 20 sector of the market. The top 20 is heavily concentrated in the Financials and
Resources sectors and accordingly does not provide investors with an opportunity to diversify their portfolios.
This diversity proved valuable as both the Financials and large Resource stocks struggled over the year. However, away from these
sectors many other companies’ share prices did increase, vindicating the original thesis for QVE.
The portfolio gained +8.2% before tax for the Financial year, a solid result and one that was well ahead of the ASX300 index, although
the Manager’s performance lagged the ex-20 index due to strong gains by several larger companies in the index that the Manager
deemed fully valued, such as Sydney Airport and Transurban. The Manager discusses this in more detail in the management report
on page 6.
Financial results
For the year ended 30 June 2016, the net profit after tax was $5.72 million.
On a per share basis, that translates as after-tax basic earnings of 2.77 cents.
A fully franked interim dividend of 1.5 cent per share was paid on 4 April. A final
fully franked dividend for the 2016 financial year, of 1.8 cents per share, will be
paid on 31 October 2016 (the ex-dividend date for the final dividend will be
6 October 2016).
“The diversity proved
valuable as both
the Financials and
large Resource stocks
struggled over the year”
In summary
Investment markets remain uncertain and volatile, however investors need to focus on the underlying companies in the portfolio.
Share prices may move through time, however the nature of the underlying companies’ operations do not necessarily change.
The Board continues to believe that a carefully-selected holding of ex-20 stocks, managed by Investors Mutual Limited, will provide
good opportunities for investors going forward. This portfolio should be able to deliver long-term capital growth and sustainable
income from a more diversified range of investments than is currently available from those companies that comprise the top-20 index.
I look forward to further discussing the results presented in this Annual Report and to meeting as many of our shareholders as possible
at the Annual General Meeting on 26 October 2016.
Yours sincerely,
Peter McKillop, Chairman
17 August 2016
QV Equities Limited Annual Report 2016 | 5
Investment Manager’s Report
Investment Manager’s Report
Investors Mutual Limited (‘IML’) is pleased to report its second investment report for QV Equities Limited and the first full financial year.
Given the uncertain economic conditions both in Australia and overseas over the last 12 months, IML has remained cautious and
prudent in managing the QVE portfolio of stocks outside the top 20.
IML’s approach to investing in the sharemarket has been consistent since our inception in 1998 and involves investing in companies at
an attractive entry price, which possess the following four clear quality characteristics:
• a competitive advantage over their peers;
recurring predictable earnings;
•
• a capable management team; and
•
the ability to grow earnings and dividends over time.
At the time of writing the Company’s portfolio was made up of 47 listed securities spread across various ASX sectors. Some of the top
holdings of the Company include some well-known companies such as: AGL Energy, Sonic Healthcare and Fletcher Building as well as
other lesser known, but quality companies such as Pact Group, Mayne Pharma and Ansell.
Portfolio allocation as at 30 June 2016
3%
5%
16%
5%
6%
9%
9%
10%
11%
Cash
Financials
Utilities
Industrials
Materials
14%
Consumer Discretionary
Health Care
Listed Property Trusts
Energy
Telecommunication Services
Information Technology
13%
6
| QV Equities Limited Annual Report 2016
Investment Manager’s Report (continued)
Key equity investments
Fletcher Building Limited
Steadfast Group Limited
Bank of Queensland Limited
Sonic Healthcare Limited
AGL Energy Limited
Pact Group Holdings Ltd
AusNet Services Limited
Orica Limited
ASX Limited
Chorus Limited
Mayne Pharma Group Limited
GWA Group Limited
Clydesdale Bank PLC
Duet Group
Aurizon Holdings Limited
Spark Infrastructure Group
Asciano Limited
Tox Free Solutions Limited
Ansell Limited
Shopping Centres Australasia Property Group
*Holding weight as at 30 June 2016
Holding weight*
4.24
3.61
3.36
3.32
3.10
2.94
2.93
2.75
2.71
2.62
2.57
2.55
2.54
2.54
2.34
2.33
2.16
2.10
2.07
2.04
The complete portfolio is shown on page 49 of this financial report.
In March, the options issued at the time of the IPO expired. During the 2016 financial year 27.9m options were exercised which saw an
additional $27.9m raised for the Company. IML took advantage of any pullback in share prices to invest these additional funds so that at
the date of writing the Company is around 85% invested in equity holdings. We remain alert to opportunities in periods of weakness to
add to the Company’s holdings. Given the strong increase recorded by many share prices we have also looked to exit positions that look
fully valued.
For the 12 months to 30 June 2016, the QVE portfolio enjoyed another solid year, returning +8.2% before tax, however this return
lagged the benchmark. The benchmark return reflects strong gains by the cyclical Materials sector, with gold miners also rallying
strongly following an increase in the gold price, while stocks such as iron ore miner Fortescue were also strong performers over the
15/16 financial year. Also boosting the benchmark were gains posted by the property stocks, such as Goodman Group, GPT and
Stockland and infrastructure stocks Transurban (now top 20) and Sydney Airport. We believe these stocks do not represent good value
and we continue to find better long term value elsewhere.
The current global environment remains a difficult one for investors. Since the GFC investors have been buffeted by two competing
forces – low global growth and high consumer debt levels in most developed economies meaning organic earnings growth for
many companies remains difficult to achieve. However, investors also face the prospect of the current low interest rate environment
continuing for many years to come. Australia’s inflation rate has recently fallen to 1.3%, which saw the RBA cut our cash rate to a record
low of 1.5% while Australian 10 year bonds recently hit a record low of 1.82%. Given the low alternative rates of return from cash and
bonds many equity valuations have been bid up to previously uncontemplated valuations as investors have gone in search of income.
QV Equities Limited Annual Report 2016 | 7
Investment Manager’s Report (continued)
With many of the larger stocks on the ASX suffering from a lack of growth or an uncertain earnings outlook we have seen valuations
outside of these stocks bid up fairly aggressively. In this environment we have attempted to skew the portfolio towards those
companies which we believe remain reasonably priced, yet which can continue to generate earnings growth and pay healthy dividends
in the years ahead.
One of the most important contributors to QVE’s performance over 2016 was top 10 holding AGL. AGL is one of Australia’s leading
electricity and gas retailers (and the second oldest company on the ASX), serving both household and commercial & industrial
customers. The company is vertically integrated and operates some of the lowest cost electricity generation assets in the National
Electricity Market, following the acquisition of Macquarie Generation in late 2014 for a very attractive price. The share price has rallied
on the back of firmer wholesale electricity prices, and with new management in place the results have also benefited from cost savings
and improved retail margins.
Pact Group was also a strong contributor over the year, gaining +34%. Whilst not a household name, Pact is a leader in its industry
being Australia and New Zealand’s largest rigid plastic packaging manufacturer. The company operates from 70 sites spread across 7
countries, producing over 22,000 different products for over 6,000 customers. The packaging solutions the company provides are used
in everyday life, with over 70% of their revenues derived from consumer staple products. This underpins a very recurring and stable
revenue stream. The company has a history of generating very good cashflow which they have reinvested prudently over time to make
accretive acquisitions. We believe Pact can continue to grow in future by continuing to execute further acquisitions, whilst placing a
renewed focus on organic growth under a newly appointed management team.
IML’s outlook for the sharemarket is that it will remain volatile, with the global and Australian economies continuing in a period of
subdued growth. Generally low commodity prices will continue to weigh on our economy, whilst high levels of household debt
means a broad-based consumer boom is unlikely. However, the lower Australian dollar has provided a benefit to many of our import
competing industries and also to our exporters and is helping to rebalance our economy away from the slowdown in the mining sector.
In this low growth environment, IML remains focused on investing in companies that we believe can grow through their own initiatives
rather than relying on a general economic uptick.
As we have for some time, IML will continue to focus on companies that can grow their earnings through identified ‘self-help’ initiatives.
These initiatives include: companies capable of making accretive bolt-on acquisitions; companies taking market share; companies
taking costs out of their business or companies that have contracted revenue growth, such as many regulated utility companies for
example Ausnet, Duet and Spark Infrastructure, and REIT’s such as Shopping Centres Australia and Hotel Property Investments.
It has been a pleasure to be able to bring IML’s investing skills to the Company’s portfolio for another year and we and the investment
team look forward to meeting shareholders either at the upcoming AGM or any of the investor education forums which we will be
holding later in the year. The ex-20 sector of the market is a sector in which IML has delivered good returns for its investors over many
years.
Our objective is clear: to deliver reasonable, long-term growth over time through a steadily growing NTA, whilst also paying a healthy
dividend to the Company’s shareholders sourced from the accumulation of dividends paid by our investee companies.
Anton Tagliaferro
Investment Director
Investors Mutual Limited
Simon Conn
Senior Portfolio Manager
Investors Mutual Limited
17 August 2016
17 August 2016
8
| QV Equities Limited Annual Report 2016
Directors’ Report
The Directors present their report together with the financial report of QV Equities Limited (“the Company”) for the year ended
30 June 2016.
Directors
The following persons were Directors of the Company from their appointment date and up to the date of this report:
Name
Position
Don Stammer
Peter McKillop
John McBain
Jennifer Horrigan
Graham Hook
Anton Tagliaferro
Simon Conn
Principal activities
Independent Director (Resigned 14 June 2016)
Independent Director (Chairman)
Independent Director
Independent Director
Non-independent Director (Resigned 26 April 2016)
Non-independent Director
Non-independent Director
Appointment
date
17 April 2014
17 April 2014
17 April 2014
26 April 2016
17 April 2014
30 April 2014
14 June 2016
The principal activity of the Company is making investments in a diversified portfolio of entities listed on the Australian Securities
Exchange which are not included in the S&P/ASX 20 Index. The primary objective is to provide both long term capital growth and
income. No change in this activity took place during the year or is likely to in the future.
Dividends
Dividends paid to shareholders were as follows:
2016
Ordinary shares – interim 2016
Ordinary shares – final 2015
2015
Dividend
rate
Total
amount
Date of
payment
%
Franked
1.5 cents
1.5 cents
$3,320,685
04/04/2016
$3,002,999
06/11/2015
100%
100%
Ordinary shares – interim 2015
0.5 cents
$941,993
02/04/2015
100%
Since year end, the Directors have declared a final fully franked dividend of 1.8 cents per fully paid ordinary share to be paid on
31 October 2016.
QV Equities Limited Annual Report 2016 | 9
Directors’ Report (continued)
Review of operations
The Board is pleased with the performance of the Company since listing in August 2014. Our investment manager, Investors Mutual
Limited (IML) has patiently built a portfolio of good quality ex 20 shares which IML believe are well placed to deliver the Company’s
objectives of long term capital growth and consistent income.
Listed below is the Company’s performance for the past 6 and 12 months:
Performance
QVE’s NTA
Benchmark
12 months to 30 June 2016
31 December 2015 to 30 June 2016
+6.7%
+3.6%
+14.7%
+9.4%
Note: these figures are calculated net of IML’s management fee.
Investment operations for the year ended 30 June 2016 resulted in an operating profit before tax of $6,467,548 (2015: $4,456,018) and
an operating profit after tax of $5,717,941 (2015: $3,751,543).
Net Tangible Assets (NTA) for each ordinary share as at 30 June 2016 (calculated on market value less realisation costs and all applicable
taxes and before provision of dividends) amounted to $1.11 (2015: $1.05) per share. NTA after provision for tax on realised gains but
before tax on unrealised gain was $1.07 (2015: $1.03) per share.
On 21 August 2014, the Company issued options to acquire ordinary shares in the Company at an exercise price of $1.00 with an expiry
date of 15 March 2016. During the year 27,869,309 options were exercised.
Further information on the operating and financial review of the Company is contained in the Chairman’s letter on pages 4 to 5 of the
Annual Report.
Financial position
The net asset value of the Company at 30 June 2016 was $237,584,752 (2015: $200,334,933).
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the Company during the year ended 30 June 2016.
Matters subsequent to the end of the period
Since the end of the financial year, the Directors declared a fully franked final dividend of 1.8 cents per fully paid ordinary share payable
on 31 October 2016.
Subsequent to year end the Board of QV Equities has announced the introduction of a Dividend Reinvestment Plan (DRP) as part of
QVE’s ongoing capital management strategy. The DRP allows eligible shareholders to reinvest part or all their dividends into new QVE
shares. QVE expects the DRP will be available for the final dividend of 2016 and will apply for subsequent dividends unless notice is
given for its suspension or termination.
No other matter or circumstance other than those mentioned above, has occurred subsequent to the end of the financial year that has
significantly affected, or may significantly affect the operations of the Company, the results of those operations or the state of affairs of
the Company in subsequent financial years.
Likely developments and expected results of operations
The Company will continue to pursue its primary objective of providing long term capital growth and income through a diversified
portfolio of the ASX listed entities outside of the S&P/ASX 20 index.
Further information on the Company’s business strategies and results is contained in the Investment Manager’s Report on pages 6 to 8
of the Annual Report.
10 | QV Equities Limited Annual Report 2016
Directors’ Report (continued)
Environmental regulation
The Company is not affected by any significant environmental regulation in respect of its operations.
To the extent that any environmental regulation may have an incidental impact on the Company’s operations, the Directors of the
Company are not aware of any breach by the Company of those regulations.
Information on Directors
Peter McKillop
Independent Director, Chairman
Experience and expertise
Peter McKillop has over 30 years’ experience in the funds management, financial planning and superannuation industry. Peter was
Managing Director of State Super Financial Services from 1990 until his retirement in 2011. During his time with State Super Financial
Services, Peter was responsible for the overall management of the company’s activities, including compliance with all legislative
requirements and ensuring that the product range remained appropriate to clients needs.
Prior to joining State Super Financial Services, Peter was the Group Manager Investment Services at Perpetual Funds Management
Limited (Perpetual) where he engineered the launch of Perpetual’s house funds into the retail area in 1987, including Perpetual’s highly
successful Industrial Share Fund.
Peter is a fellow of the Institute of Chartered Accountants of Australia and holds a Bachelor of Economics from the University of Sydney.
Peter was appointed as the Chairman of the Board on 14 June 2016.
Other current directorships
Peter McKillop is a Director of the Advisory Board of the Australian Dental Foundation.
Former directorships in last 3 years
Peter McKillop has not held any other directorships of listed companies within the last three years.
Special responsibilities
Chairman of the Board.
Interests in shares and options of the Company
Details of Peter McKillop’s interest in shares of the Company are included later in this report.
Interests in contracts
Peter McKillop has no interests in contracts of the Company.
QV Equities Limited Annual Report 2016 | 11
Directors’ Report (continued)
John McBain
Independent Director
Experience and expertise
John McBain has over 19 years’ experience in the funds management industry. John is currently the Chief Executive Officer and Executive
Director of Centuria Capital Limited (Centuria), an ASX listed specialist investment manager with $2.0 billion in assets under management.
In 1999 John formed Century Property Funds, a dedicated unlisted property fund manager and in 2006 he arranged the merger of unlisted
property fund manager Century Funds Management Pty Limited with Centuria Capital Limited. John oversees the core operations of
Centuria namely, listed and unlisted property funds management and tax effective investment bond management. John is a director of
Centuria Life Limited and sits on the investment committees of both Centuria Life and Over Fifty Guardian friendly societies.
Prior to his roles with Century and Centuria, John held senior positions in a number of property investment and consulting companies
in Australia, New Zealand and the United Kingdom. John holds a Diploma in Urban Valuation from Auckland University.
Other current directorships
John McBain is a Director of Centuria Capital Limited and Centuria Life Limited.
Former directorships in last 3 years
John McBain has not held any other directorships of listed companies within the last three years.
Special responsibilities
Chairman of Nomination and Corporate Governance Committee.
Interests in shares and options of the Company
Details of John McBain’s interest in shares of the Company are included later in this report.
Interests in contracts
John McBain has no interests in contracts of the Company.
Jennifer Horrigan
Independent Director
Experience and expertise
Jennifer Horrigan has more than 25 years’ experience across investment banking, financial communications, investor relations and
strategic communications. She was most recently the Chief Operating Officer in Australia of the independent investment bank Greenhill
& Co. She has extensive experience in enterprise management, including the supervision and management of compliance, HR and
financial management.
Jennifer holds a Bachelor of Business from the Queensland University of Technology, a Graduate Diploma in Applied Finance from Finsia
and a Graduate Diploma in Management from the Australian Graduate School of Management (AGSM).
Other current directorships
Jennifer Horrigan is a Director of APN Funds Management, Generation Healthcare (ASX: GHC), Industria REIT (ASX: IDR), Redkite
(national children’s cancer charity) and the Breast Cancer Institute of Australia/ Australia and New Zealand Breast Cancer Trails Group.
Former directorships in last 3 years
Jennifer Horrigan has not held any other directorships of listed companies within the last three years.
Special responsibilities
Chair of the Audit Committee
Interests in shares and options of the Company
Jennifer Horrigan has no interests in shares in the Company.
Interests in contracts
Jennifer Horrigan has no interests in contracts of the Company.
12 | QV Equities Limited Annual Report 2016
Directors’ Report (continued)
Anton Tagliaferro
Non-independent Director
Experience and expertise
Anton Tagliaferro has over 30 years’ experience in the financial services industry. Anton founded the Manager, Investors Mutual Limited
in March 1997 and holds the position of Chief Investment Officer and Investment Director.
Anton commenced his professional year with Deloitte Haskins and Sells in London, where he gained the status of Chartered
Accountant. From 1988 to 1992 Anton was Group Investment Manager and Equities Manager at Perpetual Trustees Australia Ltd
(Perpetual). At Perpetual, Anton was responsible for running Perpetual’s Industrial Share Fund which during his time, continually
outperformed in the Australian equities market and was highly rated in Money Management’s annual Australian Equity Manager
surveys for four years in a row.
Anton holds a Bachelor of Arts (Honours) in Accountancy from the Metropolitan University in London, is a member of the Institute of
Chartered Accountants and a member of the Financial Services Institute of Australasia.
Other current directorships
Anton Tagliaferro is a Director of Investors Mutual Limited.
Former directorships in last 3 years
Anton Tagliaferro has not held any other directorships of listed companies outside the Company.
Interests in shares and options of the Company
Details of Anton Tagliaferro’s interest in shares of the Company are included later in this report.
Interests in contracts
Details of Anton Tagliaferro’s interest contracts of the Company are included later in this report.
Simon Conn
Non-independent Director
Experience and expertise
Simon Conn has served as part of the Manager’s investment team since June 1998 and has over 12 years’ experience as a Senior
Portfolio Manager in the small cap sector. While employed with the Manager, Simon is responsible for analysing stocks from a wide
range of industry sectors which have given him the broad grounding to manage the Manager’s small cap portfolios.
In 1992 Simon commenced his career at KPMG as a tax and investment consultant. In 1995 Simon joined the investment division of QVE
Insurance Group where he was employed as an analyst across a range of asset classes including equities.
Simon holds a Bachelor of Economics and Bachelor of Laws from the University of Sydney. Simon is a qualified solicitor and is a Fellow
of the Financial Services Institute of Australasia.
Simon was appointed to the Board on 14 June 2016.
Other current directorships
Simon Conn has not held any other directorships of listed companies outside the Company.
Former directorships in last 3 years
Simon Conn has not held any other directorships of listed companies within the last three years.
Interests in shares and options of the Company
Details of Simon Conn’s interest in shares of the Company are included later in this report.
Interests in contracts
Details of Simon Conn’s interest contracts of the Company are included later in this report.
QV Equities Limited Annual Report 2016 | 13
Directors’ Report (continued)
Zac Azzi
Company secretary
Zac Azzi has over 20 years’ of financial services experience covering asset management, custody, platform and advice. Zac started his
career in corporate accounting at AMP and then St George Bank. In 2003 Zac joined Old Mutual Australia Limited (Skandia) in the role of
Head of Finance and Operations, and subsequently Chief Operating Officer (COO), helping them establish and manage their Australian
operations.
Zac subsequently joined SFG Australia Limited where he helped them established their funds management and platform businesses
before joining Investors Mutual Limited (the Manager) in August 2015 where he was appointed as COO and Company Secretary.
Zac holds a Bachelor of Commerce from the Macquarie University, a Masters of Business Administration from the Australian Graduate
School of Management and is also a Certified Practicing Accountant.
Meeting of Directors
The numbers of meetings of the Company’s Board of Directors and each Board committee held during the period ended 30 June 2016,
and the numbers of meetings attended by each Director were:
Directors
Directors’ meetings
Meeting of committees
Audit
Nomination
Don Stammer
(Chair, resigned 14 June 2016)
Peter McKillop
John McBain
Jennifer Horrigan
Graham Hook
Anton Tagliaferro
Simon Conn
A = Number of meetings attended
A
7
6
7
2
5
5
4
B
7
7
7
2
5
7
7
A
4
4
4
1
–
–
–
B
4
4
4
1
–
–
–
A
3
3
3
–
–
–
–
B
3
3
3
–
–
–
–
B = Number of meetings held during the time the Director held office or was a member of the committee during the year
The Company has not established a Remuneration Committee as it has no paid employees. The services of Zac Azzi (COO and Company
Secretary), Graham Hook (CEO until 26 April 2016), Anton Tagliaferro (Executive Director), Simon Conn (Executive Director) and
Linda Kwong (CFO and Company Secretary until 22 February 2016) are provided to the Company without additional charge as part of
the arrangements with the Investment Manager.
14 | QV Equities Limited Annual Report 2016
Directors’ Report (continued)
Remuneration report (audited)
This report details the nature and amount of remuneration for each Director of QV Equities Limited in accordance with the Corporations
Act 2001.
Fees and payments to Directors reflect the demands that are made on and the responsibilities of the Directors and are reviewed
annually by the Board. The Company determines the remuneration levels and ensures they are competitively set to attract and retain
qualified and experienced Directors.
Directors’ base fees are set at a maximum of $100,000 per annum. Directors do not receive bonuses nor are they issued options on
securities. Directors’ fees cover all main Board activities and membership of committees. Under the ASX Listing Rules, the maximum
fees paid to Directors may not be increased without the approval from the Company at a general meeting. Directors seek approval from
time to time as appropriate.
A. Details of remuneration
The following table shows details of the remuneration paid by the Company to the Directors for the year ended 30 June 2016.
2016
Non-executive Directors
Don Stammer
Peter McKillop
John McBain
Jennifer Horrigan
Total key management
personnel compensation
Short term employee benefits
Directors’ fees
$
Post-employment benefits
superannuation
$
36,530
27,397
27,397
–
91,324
3,470
2,603
2,603
–
8,676
Total
$
40,000
30,000
30,000
–
100,000
The Manager agreed to pay Jennifer Horrigan’s remuneration ($7,500) during the transition period between the appointment of
Ms. Horrigan and the retirement of Don Stammer. This transition period was designed to enable an appropriate and orderly handover
between the Directors. Directors’ base fees paid by the Company remain capped at $100,000 per annum.
2015
Non-executive Directors
Don Stammer
Peter McKillop
John McBain
Total key management
personnel compensation
Short term employee benefits
Directors’ fees
$
Post-employment benefits
superannuation
$
36,530
20,548
27,397
84,475
3,470
9,452
2,603
15,525
Total
$
40,000
30,000
30,000
100,000
Directors receive a superannuation guarantee contribution required by the government, which was 9.5% of individual benefits
for financial year 2016 and did not receive any other retirement benefits. Directors may also elect to salary sacrifice their fees into
superannuation.
QV Equities Limited Annual Report 2016 | 15
Directors’ Report (continued)
B. Director related entity remuneration
All transactions with related entities were made on normal commercial terms and conditions.
Anton Tagliaferro is a Director and beneficial owner of Investors Mutual Limited (IML), the entity appointed to manage the investment
portfolio of QV Equities Limited. In its capacity as the Investment Manager, IML was paid a management fee of 0.90% p.a. (plus GST)
of the portfolio net asset value on the first $150 million and then 0.75% p.a. (plus GST) thereafter, amounting to $2,085,598 (2015:
$1,614,248) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after allowing for the reduced input tax
credit is $1,943,398 (2015: 1,504,186). As at 30 June 2016, the balance payable to the manager was $186,561 (2015: $158,852).
The Manager agreed to pay Jennifer Horrigan’s remuneration ($7,500) during the transition period.
Simon Conn is a Portfolio Manager of the Manager and holds equity interests in the Manager.
No Director has received or become entitled to receive a benefit (other than those detailed above) by reason of a contract made by the
Company or a related Company with the Director or with a firm of which he is a member or with a Company in which he has substantial
financial interest.
Directors’ fees are not directly linked to the Company’s performance. Further details of the Company’s performance are detailed in the
Chairman’s Letter and Investment Manager’s Report.
C. Remuneration of Executives
There are no Executives paid by the Company. IML, the Investment manager remunerated Anton Tagliaferro, Simon Conn, Zac Azzi,
Graham Hook and Linda Kwong as employees of the Company during the financial period. The Manager is appointed to provide the
day to day management of the Company and is remunerated as outlined above.
D. Equity instrument disclosures relating to Directors
As at 30 June 2016, the Company’s Directors and their related parties held the following interests in the Company:
2016 Ordinary shares held
Director
Position
Peter McKillop
Non-executive Director
John McBain
Non-executive Director
Jennifer Horrigan
Non-executive Director
Anton Tagliaferro
Executive Director
Simon Conn
Executive Director
Balance at
1 July 2015
Options
excercised
Disposals/
lapsed
Balance at
30 June 2016
200,000
100,000
–
2,500,000
100,000
200,000
100,000
–
1,000,000
50,000
2,900,000
1,350,000
–
–
–
–
–
–
400,000
200,000
–
3,500,000
150,000
4,250,000
16 | QV Equities Limited Annual Report 2016
Directors’ Report (continued)
2015 Ordinary shares held
Director
Position
Don Stammer
Chairman
Peter McKillop
Non-executive Director
John McBain
Non-executive Director
Graham Hook
Executive Director
Anton Tagliaferro
Executive Director
Simon Conn
Alternate Director
Balance at
17 April 2014
Acquisitions
Disposals
Balance at
30 June 2015
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
Directors and Director-related entities acquired ordinary shares in the Company on the same terms and conditions available to other
shareholders.
2016 Options held
Director
Position
Balance at
17 April 2014
Acquisitions
Disposals
Balance at
30 June 2015
Peter McKillop
Non-executive Director
John McBain
Non-executive Director
Jennifer Horrigan
Non-executive Director
200,000
100,000
–
200,000
100,000
–
–
–
–
Anton Tagliaferro
Executive Director
2,500,000
1,000,000
1,500,000
Simon Conn
Executive Director
100,000
50,000
50,000
2,900,000
1,350,000
1,550,000
–
–
–
–
–
–
2015 Options held
Director
Position
Balance at
17 April 2014
Acquisitions
Disposals
Balance at
30 June 2015
Don Stammer
Chairman
Peter McKillop
Non-executive Director
John McBain
Non-executive Director
Graham Hook
Executive Director
Anton Tagliaferro
Executive Director
Simon Conn
Executive Director
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
QV Equities Limited Annual Report 2016 | 17
Directors’ Report (continued)
Directors and Director-related entities acquired options in the Company on the same terms and conditions available to other
shareholders.
The Directors have not, during or since the end of the financial year, been granted options over unissued shares or interests in shares
of the Company as part of their remuneration.
End of Remuneration Report
Insurance and indemnification of Officers and Auditors
During the financial year, the Company paid a premium in respect of a contract to insure the Directors of the Company, the Company
Secretary and any related body corporate against liability incurred as such by a Director or Secretary to the extent permitted by the
Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
No indemnities have been given or insurance premiums paid during or since the end of the financial year, for any person who is or has
been an auditor of the Company.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the
Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the
Company for all or part of those proceedings.
Non-audit services
The Board of Directors, in accordance with the advice from the Audit Committee, is satisfied that the provision of non-audit services
during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The
Directors are satisfied that the services disclosed in Note 20 did not compromise the external auditor’s independence for the following
reasons:
• all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of
the auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 19.
This report is made in accordance with a resolution of the Board of Directors.
Peter McKillop, Chairman
17 August 2016
18 | QV Equities Limited Annual Report 2016
Directors’ Report (continued)
AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF QV EQUITIES LIMITED
ABN 64 169 154 858
In relation to the independent audit for the year ended 30 June 2016, to the best of my knowledge and belief there
have been:
(i) no contraventions of the auditor independence requirements of the Corporations Act 2001; and
(ii) no contraventions of any applicable code of professional conduct.
This declaration is in respect of QV Equities Limited.
S M Whiddett
Partner
17 August 2016
Pitcher Partners
Sydney
An independent New South Wales Partnership. ABN 17 795 780 962. Liability limited by a scheme approved under Professional Standards Legislation.
Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000
Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle
Pitcher Partners is an association of independent firms. An independent member of Baker Tilly International.
QV Equities Limited Annual Report 2016 | 19
This page is left blank intentionally.
Financial Statements
QV Equities Limited Annual Report 2016 | 21
Financial Statements For the year ended 30 June 2016
Statement of Comprehensive Income
Investment income
Dividend income
Interest income
Realised gains/(losses) on investments held for trading
Unrealised (losses)/gains on investments held for trading
Other income
Total investment income
Expenses
Management fees
Directors’ fees
ASX fees
Registry fees
Other expenses
Total expenses
Profit before income tax
Income tax expense
Profit after income tax
Notes
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
7,353,582
1,170,291
486,551
(228,632)
112,893
3,740,569
2,505,090
(95,679)
214,774
74,212
8,894,685
6,438,966
1,943,398
1,504,186
100,000
66,312
89,926
227,501
100,000
105,702
84,698
188,362
2,427,137
1,982,948
6,467,548
5
749,607
5,717,941
4,456,018
704,475
3,751,543
Other comprehensive income
Items that will not be reclassified to profit and loss
Movement in fair value of long term equity investments, net of tax
Total comprehensive income for the year, net of tax
9,986,252
9,055,576
15,704,193
12,807,119
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
13
13
2.77
2.77
2.81
2.78
The Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
22 | QV Equities Limited Annual Report 2016
Financial Statements (continued) For the year ended 30 June 2016
Statement of Financial Position
Assets
Current assets
Cash and cash equivalents
Receivables
Prepayments
Total current assets
Non-current assets
Long-term equity investments
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade creditors and other payables
Current tax liabilities
Financial liabilities held at fair value
Total current liabilities
Non-current liabilities
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Asset revaluation reserve
Capital profits reserve
Reserves
Total equity
Notes
30 June 2016
$
30 June 2015
$
6
7
8
5
10
5
9
33,161,728
52,397,844
980,456
41,807
710,151
50,239
34,183,991
53,158,234
216,791,950
155,210,278
540,750
709,155
217,332,700
155,919,433
251,516,691
209,077,667
4,842,574
3,974,230
703,492
451,975
449,441
291,330
5,998,041
4,715,001
5
7,933,898
7,933,898
4,027,733
4,027,733
13,931,939
8,742,734
237,584,752
200,334,933
11
12
12
216,339,116
188,469,807
17,252,345
8,781,011
1,216,678
2,776,613
274,565
2,809,550
237,584,752
200,334,933
The Statement of Financial Position should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2016 | 23
Financial Statements (continued) For the year ended 30 June 2016
Statement of Changes in Equity
For the year ended 30 June 2016
Notes
Issued capital
$
Profits
reserve
$
Asset
revaluation
reserve
$
Capital
profits
reserve
$
Retained
profits
$
Total
$
Balance at 1 July 2015
188,469,807
2,809,550
8,781,011
274,565
–
200,334,933
–
–
5,717,941
5,717,941
–
–
–
–
11
27,869,309
–
–
–
–
–
–
(5,750,878)
Profit for the year
Other comprehensive
income
Net revaluation
of investments
Total other
comprehensive
income for the year
Transactions with equity
holders in their capacity
as owners
Costs of issued capital
Shares issued on
options exercised
Dividends provided
for or paid
Other
Realised profits on sale of
investments transferred
to reserves
Transfer to profits reserve
14
12
12
9,986,252
9,986,252
–
–
–
–
–
–
–
(572,805)
–
9,986,252
5,717,941
15,704,193
–
–
–
–
–
27,869,309
(6,323,683)
–
–
–
–
–
(1,514,918)
1,514,918
5,717,941
–
–
(5,717,941)
Balance at 30 June 2016
216,339,116
2,776,613
17,252,345
1,216,678
–
237,584,752
The Statement of Changes in Equity should be read in conjunction with the accompanying notes.
24 | QV Equities Limited Annual Report 2016
Financial Statements (continued) For the year ended 30 June 2016
Statement of Changes in Equity
For the period from 17 April 2014 to 30 June 2015
Issued
capital
$
Profits
reserve
$
Asset
revaluation
reserve
$
Notes
Capital
profits
reserve
$
–
–
Retained
profits
$
–
Total
$
–
3,751,543
3,751,543
–
–
–
–
Balance at 17 April 2014*
Profit for the period
Other comprehensive
income
Net revaluation
of investments
Total other
comprehensive
income for the period
Transactions with equity
holders in their capacity
as owners
Shares issued on
incorporation
Shares issued under IPO
Costs of issued capital
Shares issued on
options exercised
Dividends provided
for or paid
Other
Realised profit on sale of
investments transferred
to reserves
Transfer to profits reserve
–
–
–
–
1
181,617,990
(2,046,833)
8,898,649
–
–
–
11
11
11
11
14
12
12
–
9,055,576
–
–
9,055,576
–
9,055,576
–
3,751,543
12,807,119
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
181,617,990
(2,046,833)
8,898,649
(941,993)
(941,993)
–
(274,565)
274,565
–
2,809,550
–
–
(2,809,550)
–
-
Balance at 30 June 2015
188,469,807
2,809,550
8,781,011
274,565
–
200,334,933
* For the year ended 30 June 2015, the Company early adopted AASB 9: Financial Instruments Standard which allows equity instruments realised gains
and losses to be recognised through a capital profits reserve and not through the profit and loss as previously required by AASB 139.
The Statement of Changes in Equity should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2016 | 25
Financial Statements (continued) For the year ended 30 June 2016
Statement of Cash Flow
Cash flows from operating activities
Dividends/distributions received
Interest received
Net realised gains/(losses) on exchange traded options
Payments for other expenses
Other income
Income tax paid
Notes
30 June 2016
$
For the period
from
17 April 2014 to
30 June 2015
$
7,124,548
1,245,251
3,243,828
2,329,372
418,563
(95,679)
(2,592,946)
(1,981,869)
109,205
(992,186)
74,212
–
Net cash inflow from operating activities
6
5,312,435
3,569,864
Cash flows from investing activities
Payments for investments
Proceeds from sale of investments
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid
Proceeds from issue of ordinary shares
Shares issued on options exercised
Share issue transaction costs
Net cash inflow from financing activities
(76,562,091)
(144,468,959)
30,467,914
5,769,066
(46,094,177)
(138,699,893)
(6,323,683)
(941,933)
–
181,617,990
27,869,309
8,898,649
–
(2,046,833)
21,545,626
187,527,873
Net (decreaase)/increase in cash and cash equivalents
(19,236,116)
52,397,844
Cash and cash equivalents held at the beginning of the year
52,397,844
–
Cash and cash equivalents at the end of the year
6
33,161,728
52,397,844
The Statement of Cash Flow should be read in conjunction with the accompanying notes.
26 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements For the year ended 30 June 2016
1 General Information
QV Equities Limited (“the Company”) is a listed investment company domiciled in Australia. The Company was established with the
primary objective of providing long term capital growth and income, through a diversified portfolio of the ASX listed entities outside of
the S&P/ASX 20 Index. The portfolio is managed by Investors Mutual Limited.
The Company was registered with the Australian Securities Commission (ASIC) on 17 April 2014 and commenced operations on
22 August 2014.
The financial statements were authorised for issue by the Board on 17 August 2016.
2 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. The annual financial
statements are for the entity QV Equities Limited.
(a) Basis of preparation
These general purpose annual financial statements for the year ended 30 June 2016 have been prepared in accordance with the
Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations
Act 2001. QV Equities Limited is a for-profit entity for financial reporting purposes under the Australian Accounting Standards.
(i) Compliance with IFRS
The financial statements of the QV Equities Limited also comply with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).
(ii) New accounting standards and Interpretations
The Australian Accounting Standards Board has issued new accounting standards and interpretations that have mandatory
application for future reporting periods, some of which are relevant to the Company. The Directors have assessed these new
standards and interpretations.
The Company has elected to early adopt AASB 9 Financial Instruments Standard which applies to annual reporting periods
beginning from 1 January 2018. AASB 9 Financial Instruments addresses the classification, measurement and derecognition of
financial assets and liabilities. These requirements improve and simplify the approach for the classification and measurement of
financial assets and liabilities compared to the requirements of AASB 139 Financial Instruments: Recognition and Measurement.
AASB 9 allows investments in equity instruments, which were previously classified as available for sale financial assets, to be
classified as equity instruments revalued through other comprehensive income. Investments continue to be valued at fair value
with changes in value being recognised in the asset revaluation reserve.
Under AASB 9 there is no recycling of the realised gains and losses to the income statement as was previously required by
AASB 139. There is also no requirement to test the Company’s investments for impairment so there is no transfer of unrealised
impairment losses from the asset revaluation reserve to the income statement.
(iii) Standards issued but not yet effective
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in
the current or future reporting periods and on foreseeable future transactions.
(b)
Investments
Revenue is measured at the fair value of the consideration received or receivable.
(i) Recognition and initial measurement
Long term equity investments and investments held for sale are recognised initially at cost.
(ii) Classification and subsequent measurement
The Company designates all long term equity investments as available for sale financial assets and therefore records
subsequent changes in fair value of equity investments in the Statement of Comprehensive Income through the asset
revaluation reserve, not to be reclassified to profit and loss, after deducting a provision for the potential deferred capital gains
tax liability.
The Company holds call option derivative financial instruments are held for trading which are mandatorily classified as at fair
value through profit and loss, changes in the fair value of options are recognised in profit or loss for the period.
QV Equities Limited Annual Report 2016 | 27
2 Summary of significant accounting policies (continued)
(b)
Investments (continued)
(iii) Derecognition
Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to
another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated
with the asset. Gains or losses on long term equity investments are transferred from the asset revaluation reserve to the capital
profits reserve.
(iv) Valuation
All investments are classified and measured as being at fair value, please refer to note 4 for more information on the Company’s
policy for measuring fair value.
(c) Revenue
(i)
Interest income
Interest income is recognised as it accrues, taking into account the effective yield on the financial asset.
(ii) Dividend income
Dividend income is recognised in the profit or loss on the day on which the relevant investment is first quoted on an
“ex-dividend” basis.
(d) Expenses
All expenses, including management fees, are recognised in the profit and loss on an accruals basis.
(e) Income tax
The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate, adjusted by changes in the deferred tax assets and liabilities attributable to temporary differences, unused tax
losses and the adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are
recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets
recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying
amount to be recovered.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities.
Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends to either to
settle on a net basis, or to realise the asset and settle the liability simultaneously.
(f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), unless GST incurred is not
recoverable from the Australian Taxation Office (ATO). In this case it is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from,
or payable to, the tax authority is included in other receivables or other payables in the Statement of Financial Position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which
are recoverable from, or payable to the Australian Taxation Office (ATO), are presented as operating cash flows.
(g) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that are readily convertible to known amounts of cash which are
subject to an insignificant risk to changes in value.
28 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 2 Summary of significant accounting policies (continued)
(h) Receivables
Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment.
Receivables may include interest and dividends. Interest and dividends are accrued in accordance with the policy note set out in
note 2(c) and note 2(b)(iv).
All receivables, unless otherwise stated are non interest bearing, unsecured and generally received in 30 days of being recorded as
a receivable.
(i) Trade creditors and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the reporting date which was unpaid.
These amounts are unsecured and are usually paid within 30 days of recognition. Purchases of securities and investments that are
unsettled at the reporting date are included in payables and are normally settled within 2 business days of trade dates.
(j) Share Capital
Ordinary shares will be classified as equity. Costs directly attributable to the issue of ordinary shares will be recognised as a
deduction from equity, net of tax effects.
(k) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the
entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
It is the Boards’ policy that all dividends paid will be franked to the maximum extent possible.
(l) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares.
• by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in
ordinary shares issued during the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
• the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and;
• the weighted average number of ordinary shares that would have been outstanding assuming the conversion of options.
(m) Rounding of amounts
Amounts in the financial statements have been rounded to the nearest dollar.
(n) Functional and presentation currency
The functional and presentation currency of the Company is Australian dollars.
(o) Comparatives
Comparatives are for the period 17 April 2014, being the date of incorporation to 30 June 2015, whereas the current year balances
are for the year ended 30 June 2016.
QV Equities Limited Annual Report 2016 | 29
Notes to the Financial Statements (continued) For the year ended 30 June 2016
3 Financial risk management
The Company’s financial instruments consist of deposits with banks, listed and unlisted investments, trade and other receivables and
trade and other payables. The main risks the Company is exposed to through its financial instruments are market risk - consisting of
interest rate risk and other price risk - credit risk and liquidity risk.
Under delegation from the Board, the Manager has the responsibility for assessing and monitoring for the financial market risk of the
Company. The Manager monitors these risks daily.
(a) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. By its nature, as a listed investment company that invests in tradable securities, the Company will always be subject to
market risk as it invests its capital in securities which are not risk free as the market price of these securities can fluctuate.
The Manager seeks to reduce market risk of the Company by diversification of the investment portfolio across numerous stocks
and multiple industry sectors. The relative weightings of the individual securities and market sectors are reviewed daily by the
Investment Manager.
(i) Other price risk
The Company is exposed to equities securities other price risk. This arises from investments held by the Company and classified
in the Statement of Financial Position as financial assets and financial liabilities at fair value through profit and loss.
The Company seeks to manage and constrain other price risk by diversification of the investment portfolio across multiple
stocks and industry sectors. The portfolio is maintained by the Investment Manager within a range of parameters governing the
levels of acceptable exposure to stocks and industry sectors. The relative weightings of the individual securities and relevant
market sectors are reviewed on a daily basis such that risk can be managed by reducing exposure where necessary.
The Company’s industry sector weighting of investments as at 30 June 2016 and 30 June 2015 is listed below:
Industry sector
Financials
Utilities
Industrials
Materials
Consumer Discretionary
Health Care
Listed property trust
Energy
Telecommunications
Information Technology
Cash
2016
%
14.2
13.3
11.2
10.4
9.3
9.1
5.8
5.3
3.5
2.4
84.5
15.5
100.0
2015
%
11.2
14.7
8.6
9.2
8.5
7.4
5.8
5.6
3.3
–
74.3
25.7
100.0
As at 30 June 2016, no individual securities represent over 5% of the long term investment portfolio.
30 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 3 Financial risk management (continued)
(a) Market risk (continued)
(i) Other price risk (continued)
Sensitivity analysis
A sensitivity analysis relating to other price risk was performed on investments held by the Company at the end of the
reporting period. This analysis demonstrates the effect on current year equity as a result from a reasonable possible change in
the risk variable. The sensitivity assumes all other variables remain constant.
Investments represent 85% (2015: 74%) of gross assets at year end. The following table illustrates the effect on the Company’s
equity from possible changes in other price risk that were reasonably possible based on the risk the Company was exposed to
at reporting date, assuming a flat tax rate of 30%.
Impact on total comprehensive income
2016
$
2015
$
7,571,899
5,422,163
(7,571,899)
(5,422,163)
15,143,798
10,844,326
(15,143,798)
(10,844,326)
Increase 5%
Decrease 5%
Increase 10%
Decrease 10%
(ii) Cash flow and fair value interest rate risk
The Company’s interest bearing financial assets expose it to risks associated with the effects of fluctuations in the prevailing
levels of market interest rates on its financial position and cash flows. The risk is measured using sensitivity analysis.
The table below summarises the Company’s exposure to interest rate risks. It includes the Company’s assets and liabilities at fair
value, categorised by the earlier of contractual repricing or maturity dates
30 June 2016
Financial assets
Cash and cash equivalents
Receivables
Long-term equity investments
Financial liabilities
Trade creditors and other payables
Financial liabilities held at fair value
Floating interest
rate
$
Non- interest
bearing
$
Total
$
33,161,728
–
33,161,728
–
–
980,456
980,456
216,791,950
216,791,950
33,161,728
217,772,406
250,934,134
–
–
–
(4,842,574)
(4,842,574)
(451,975)
(451,975)
(5,294,549)
(5,294,549)
Net exposure to interest rate risk
33,161,728
212,477,857
245,639,585
QV Equities Limited Annual Report 2016 | 31
Notes to the Financial Statements (continued) For the year ended 30 June 2016
3 Financial risk management (continued)
(a) Market risk (continued)
(ii) Cash flow and fair value interest rate risk (continued)
30 June 2015
Financial assets
Cash and cash equivalents
Receivables
Long-term equity investments
Financial liabilities
Trade creditors and other payables
Financial liabilities held at fair value
Floating interest
rate
$
Non- interest rate
$
Total
$
52,397,844
–
52,397,844
–
–
710,151
710,151
155,210,278
155,210,278
52,397,844
155,920,429
208,318,273
–
–
–
(3,974,230)
(3,974,230)
(291,330)
(291,330)
(4,265,560)
(4,265,560)
Net exposure to interest rate risk
52,397,844
151,654,869
204,052,713
Sensitivity analysis
At 30 June 2016, if interest rates had increased/decreased by 75 basis points (2015: 75 basis points) from the period end rates with
all other variables held constant, post-tax profit for the period would have been $214,630 (2015: $473,375) higher/$214,630
(2015: $473,375) lower, mainly as a result of higher/lower interest income from cash and cash equivalents.
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation.
Market prices generally incorporate credit risk assessments into valuations and risk of loss is implicitly provided for in the carrying
value of assets and liabilities as they are marked to market at balance date.
The total credit risk for assets is therefore limited to the amount carried in the Statement of Financial Position.
The Manager is responsible for ensuring there is appropriate diversification across counterparties and that they are of a sufficient
quality rating. The Manager minimises the Company’s concentration of credit risk by undertaking transactions in ASX listed
securities with a large number of approved brokers. Payment is only made once a broker has received securities and delivery of
securities only occurs once the broker received payment.
Cash
The majority of the Company’s short term deposits are invested with financial institutions that have a Standard and Poor’s AA or A1
credit rating. The majority of maturities are within three months.
The weighted average interest rate of the Company’s cash and cash equivalents at 30 June 2016 is 1.98% (2015: 2.33%).
Receivables
The majority of the Company’s receivables arise from dividends yet to be received.
None of these assets exposed to credit risk are overdue or considered to be impaired.
32 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 3 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The Company’s cash receipts depend on the level of dividends and interest received and the exercise of options that may be on
issue. The Company’s cash payments are the purchase of securities and dividend that are paid to shareholders.
The Manager monitors the Company’s cash flow requirements daily by reference to known purchase and sale of securities,
dividends and interest received. Should these decrease by a material amount the Company can alter its cash outflows as
appropriate. The Company also holds a portion of its portfolio in cash and term deposits sufficient to ensure that it has cash readily
available to meet all payments. Finally, the assets of the Company are largely in the form of tradable securities which can be sold on
market if necessary.
The Company is not exposed to material liquidity risk.
4 Fair value measurement
The Company measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Long term equity investments
• Financial liabilities held for trading
Fair value hierarchy
AASB 13: Fair value measurement requires disclosure of fair value measurements by level of the fair value hierarchy:
Level 1 – measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – measurements based on inputs other than quoted prices included in level 1 that are observable for the asset or liability; and
Level 3 – measurements based on unobservable inputs from the asset or liability.
(i) Recurring fair value measurements
The following table presents the Company’s assets measured and recognised at fair value as at 30 June 2016 and 30 June 2015.
Level 1
$
Level 2
$
Level 3
$
Total
$
As at 30 June 2016
Financial assets
Long-term equity investments:
Listed equities
Listed unit trusts
Floating rate notes
Unlisted equities
Total
Financial liabilities
177,647,250
33,566,500
2,396,850
–
–
–
–
3,181,350
213,610,600
3,181,350
–
–
–
–
–
–
–
177,647,250
33,566,500
2,396,850
3,181,350
216,791,950
451,975
451,975
Financial liabilities held for trading:
Options
Total
451,975
451,975
–
–
QV Equities Limited Annual Report 2016 | 33
Notes to the Financial Statements (continued) For the year ended 30 June 2016
4 Fair value measurement (continued )
(i) Recurring fair value measurements (continued)
As at 30 June 2015
Financial assets
Long-term equity investments:
Listed equities
Listed unit trusts
Floating rate notes
Total
Financial liabilities
Financial liabilities held for trading:
Options
Total
Level 1
$
Level 2
$
Level 3
$
Total
$
131,077,896
21,952,132
2,180,250
155,210,278
291,330
291,330
–
–
–
–
–
–
–
–
–
–
–
–
131,077,896
21,952,132
2,180,250
155,210,278
291,330
291,330
Included within Level 1 of the hierarchy are listed investments. The fair value of these financial assets and liabilities have been
based on the last close prices at the end of the reporting year.
The investments included in Level 2 of the hierarchy include amounts in relation to entitlement offers and placements to which
the Company has subscribed to during the year. These investments have not listed on the Australian Securities Exchange as at
year end and therefore represent investments in an inactive market. In valuing these unlisted investments, included in Level 2
of the hierarchy, the fair value has been determined using the valuation technique of quoted prices for similar assets and the
amount of securities subscribed for by the Company under the relevant offers.
There were no transfers between levels 1 and 2 for recurring fair value measurements during the year, relating to the listing of
the unlisted equity securities as at year end. There were no transfers in and out of level 3.
The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting
period.
(ii) Disclosed fair values
The carrying amounts of receivables and payables other than tax items are reasonable approximations of their fair values due
to their short-term nature.
34 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 5 Taxation
(a) Income tax expense
The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax expense as follows:
Prima Facie tax on profit from ordinary activities before income tax of 30%
1,940,264
1,336,805
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
Increase/(decrease) in income tax expense due to:
Gross up of imputation credits received
Imputation credits on dividends received
Gross up of foreign income tax offsets
Foreign income tax offsets
Other
Tax expense composition
Current tax expense
Movement in deferred tax liability
Movement in deferred tax asset
Under provisions in previous year
425,590
(1,418,633)
64,824
(216,079)
(46,359)
749,607
539,996
35,430
168,405
5,776
749,607
247,952
(821,299)
–
(58,983)
–
704,475
331,770
204,272
168,433
–
704,475
Effective tax rate
11.59%
15.8%
The charge for current income tax expense is based on the profit for the year
adjusted for any non-assessable or disallowed items. It is calculated using the tax
rates that have been enacted or are substantially enacted by the end of the current
financial year.
QV Equities Limited Annual Report 2016 | 35
Notes to the Financial Statements (continued) For the year ended 30 June 2016
5 Taxation (continued)
(b) Deferred tax asstes
This balance comprises temporary differences attributable to:
Accruals
Share issue costs capitalised
At reporting date
Movements
Opening balance
Share issue costs capitalised
Charged to statement of comprehensive income
Other
(c) Current tax liabilities
Balance at beginning of year
Current year income tax on operating profit
Realised capital gain
Net income tax paid
Other
At reporting date
(d) Deferred tax liabilities
This balance comprises temporary differences attributable to:
Fair value adjustment on equity investments
Revaluation of investments held for trading
Income receivable not assessable for tax until receipt
Tax deferred distributable income
Prepayments
At reporting date
Movements
Opening balance
Charged to statement of comprehensive income
Other
36 | QV Equities Limited Annual Report 2016
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
14,196
526,554
540,750
709,155
–
(168,405)
–
540,750
449,441
539,996
692,332
(992,186)
13,909
703,492
7,345
701,810
709,155
–
877,327
(168,433)
261
709,155
–
331,770
117,671
–
–
449,441
7,694,195
3,823,460
(4,158)
49,217
182,102
12,542
64,434
83,915
40,853
15,071
7,933,898
4,027,733
4,027,733
35,430
3,870,735
7,933,898
–
204,273
3,823,460
4,027,733
Notes to the Financial Statements (continued) For the year ended 30 June 2016 6 Cash and cash equivalents
Cash at bank
Short term deposits
Total cash and cash equivalents
Reconciliation of operating profit after tax to cash inflows from operating activities.
Net profit after income tax
Changes in operating assets and liabilities
Unrealised gains on investments held for trading
Increase in dividends/distributions receivable
Decrease/(Increase) in interest receivable
Increase in other receivables
Decrease/(Increase) in prepayments
(Decrease)/Increase in sundry creditors and accruals
Increase in deferred tax assets
Increase in current tax provision
(Decrease)/Increase in deferred tax liability
Net cash inflow from operating activities
Prior year comparatives have been restated to conform with current year presentation.
7 Receivables
Interest receivable
Dividends/distributions receivable
Other receivables
Total receivables
30 June 2016
$
30 June 2015
$
8,161,728
7,397,844
25,000,000
45,000,000
33,161,728
52,397,844
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
5,717,941
3,751,543
(228,632)
(229,033)
74,960
(143,094)
10,450
(219,791)
168,405
196,659
(35,430)
(214,774)
(496,741)
(175,717)
(528,291)
(50,238)
579,606
168,433
331,770
204,273
5,312,435
3,569,864
30 June 2016
$
30 June 2015
$
100,757
725,774
153,925
980,456
175,717
496,741
37,693
710,151
None of the receivables above are past the due date and are not impaired.
QV Equities Limited Annual Report 2016 | 37
Notes to the Financial Statements (continued) For the year ended 30 June 2016
8 Long term equity investments
Financial assets held at fair value through other comprehensive income are all held as long term investments include the following:
Listed equity securities
Fair value
30 June 2016
$
Fair value
30 June 2015
$
216,791,950
155,210,278
The fair value of investments is based on the fair value measurement hierarchy disclosed in note 4(i).
9 Financial liabilities held at fair value
Financial liabilities held at fair value through profit or loss are held for trading and include the following :
Exchange traded options
Exchange traded options revaluation
Total financial liabilities held at fair value
10 Trade creditors and other payables
Payable – investment creditors
Uncleared options
Payable – other expenses
Total trade creditors and other payables
11 Issued capital
(a) Share capital
Fair value
30 June 2016
$
Fair value
30 June 2015
$
438,116
13,859
451,975
506,104
(214,774)
291,330
30 June 2016
$
30 June 2015
$
4,380,496
3,356,930
–
462,078
240,000
337,300
4,842,574
3,974,230
30 June 2016
Number of
shares
30 June 2016
Total amount
$
30 June 2015
Number of
shares
30 June 2015
Total amount
$
Fully paid ordinary shares
221,388,859
216,339,116
193,519,550
188,469,807
38 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 11 Issued capital (continued))
(b) Movements in ordinary share capital
2016 Date
01/07/2015
Opening balance
Options exercised
30/06/2016
Closing balance
2015 Date
17/04/2014
Opening balance
Shares issued on incorporation
Shares issued under IPO
Options exercised
Cost of issued capital
30/06/2015
Closing balance
(c) Fully paid ordinary shares
Number of
shares
193,519,550
27,869,309
221,388,859
Total amount
Issue price
$
–
188,469,807
$1.00
27,869,309
216,339,116
Number of
shares
Issue price
Total amount
$
–
1
184,620,900
8,898,649
–
193,519,550
–
$1.00
$0.98
$1.00
$1.00
–
1
181,617,990
8,898,649
(2,046,833)
188,469,807
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a
poll each share is entitled to one vote.
(d) Shares under IPO
The Company issued a Prospectus on 23 June 2014 for the offer of up to 200,000,000 fully paid ordinary shares at an offer price of
$1.00 per share to raise up to $200,000,000, together with 1 option to acquire 1 ordinary share exercisable at $1.00 per option on
or before 15 March 2016. On 21 August 2014, the Company issued 184,620,900 full paid ordinary shares under this initial public
offering at $1.00 per share.
(e) Options
As part of the IPO the Company issued options to acquire ordinary shares in the Company at an exercise price of $1.00.
The options expired on 15 March 2016. As at that date 27,869,309 options were excercised during the period.
(f) Capital management
The Company’s objectives in managing capital is to continue to provide shareholders with dividends and capital appreciation over
the longer term.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
There were no changes in the Company’s approach to capital management during the year. The Company is not subject to any
externally imposed capital requirements.
QV Equities Limited Annual Report 2016 | 39
Notes to the Financial Statements (continued) For the year ended 30 June 2016
12 Reserves
(a) Capital profits reserve
The capital profits reserve is made up of amounts transferred from asset revaluation reserve for future dividend payments.
Realised profit on sale of investments transferred to reserves
1,514,918
274,565
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
Movements
Opening balance
Gain on sale of equities
Loss on sale of equities
Dividends provided for or paid
Closing balance
274,565
4,405,918
(2,891,000)
(572,805)
1,216,678
–
308,585
(34,020)
–
274,565
(b) Profits reserve
The profits reserve is made up of amounts transferred from retained earnings for future dividend payments.
Profits reserve
Movements
Opening balance
Transfer from retained earnings
Dividends provided for or paid
Closing balance
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
2,776,613
2,809,550
2,809,550
5,717,941
(5,750,878)
–
2,809,550
–
2,776,613
2,809,550
40 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 13 Earnings per share
30 June 2016
cents
Period from
17 April 2014 to
30 June 2015
cents
(a) Basic earnings per share
Total earnings per share attributable to the ordinary equity holders of the Company
2.77
2.81
(b) Diluted earnings per share
Total diluted earnings per share attributable to the ordinary equity holders of the
Company
(c) Weighted average number of shares used as denominator
Weighted average number of shares used as the denominator in calculating basic
earnings per share is based on the average number of shares as at 30 June 2016 and
30 June 2015
Weighted average number of shares used as the denominator in calculating diluted
earnings per share is based on the average number of shares as at to 30 June 2016 and
30 June 2015, plus the weighted average number of unexercised options as at 30 June
2016 and 30 June 2015.
2.77
$
2.78
$
206,797,006
133,630,413
206,797,006
134,869,304
14 Dividends
(a) Dividends paid during the year
Dividends paid fully franked at 30% tax rate.
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
Final dividend FY15: 1.5 cents per share fully franked paid 6 November 2015 (final
dividend FY14: Nil)
3,002,998
–
lnterim dividend FY16: 1.5 cents per share fully franked paid 4 April 2016 (interim
dividend FY15: 0.5 cents per share fully franked)
3,320,685
6,323,683
941,993
941,993
QV Equities Limited Annual Report 2016 | 41
Notes to the Financial Statements (continued) For the year ended 30 June 2016
14 Dividends (continued)
(b) Dividends not recognised at the end of the reporting period
30 June 2016
$
Period from
17 April 2014 to
30 June 2015
$
In addition to the above dividends, since year end the Directors have recommended
the payment of a final dividend of 1.8 cents per fully paid ordinary share, fully
franked based on tax paid at 30%. The aggregate amount of the proposed dividend
expected to be paid on 31 October 2016 (2015: 6 November 2015) out of the profits
of the Company at 30 June 2016 and 30 June 2015, but not recognised as a liability
at year end is:
3,984,999
2,976,303
(c) Dividends franking account
The fully franked final dividend to be paid on 31 October 2016 will be franked out of existing franking credits or out of franking
credits arising from the payment of income tax in the year ending 30 June 2017.
Opening balance of franking account
Franking credits on dividends received
Tax paid during the period
Franking credits on ordinary dividends paid
Franking credits lost under 45 day rule
Closing balance of franking account
30 June 2016
$
424,015
1,421,890
992,186
Period from
17 April 2014 to
30 June 2015
$
–
823,755
–
(2,710,151)
(397,284)
(3,257)
124,683
(2,456)
424,015
Adjustment for tax payable on the current period profits
703,492
449,441
Adjusted for dividends declared subsequent to reporting period
(1,707,857)
(1,275,558)
Adjusted franking account balance
(879,682)
(402,102)
The Company’s ability to continue to pay franked dividends is dependent upon the receipt of franked dividends from investments
and the payment of tax.
42 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 15 Key management personnel disclosures
The names and position held of the Company’s key management personnel (including Directors) in office at any time during the
financial year are:
Name
Position
Don Stammer
Peter McKillop
John McBain
Jennifer Horrigan
Graham Hook
Anton Tagliaferro
Simon Conn
(a) Remuneration
Independent Director (Resigned 14 June 2016)
Independent Director (Chairman)
Independent Director
Independent Director
Non-Independent Director (Resigned 26 April 2016)
Non-Independent Director
Non-Independent Director
Detailed remuneration disclosures are provided in the Remuneration Report of the Directors’ Report on page 15.
Short term employee benefits – Directors fees
Post employment benefits – Superannuation
30 June 2016
$
Period from 17 April
2014 to 30 June 2015
$
91,324
8,676
100,000
84,475
15,525
100,000
(b) Share and option holdings of Directors
The number of ordinary shares in the Company that were held during the financial year by each Director of the Company including
their personally related parties, are set out below:
2016 Ordinary shares held
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Balance as at
30 June 2015
Options
exercised
Disposals
Balance at
30 June 2016
200,000
100,000
–
200,000
100,000
–
2,500,000
1,000,000
100,00
50,000
2,900,00
1,350,000
–
–
–
–
–
–
400,000
200,000
–
3,500,000
150,000
4,250,000
QV Equities Limited Annual Report 2016 | 43
Notes to the Financial Statements (continued) For the year ended 30 June 2016
15 Key management personnel disclosures (continued)
(b) Share and option holdings of Directors (continued)
2015 Ordinary shares held
Directors
Don Stammer
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
2016 Options held
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
2015 Options held
Directors
Don Stammer
Peter McKillop
John McBain
Graham Hook
Anton Tagliaferro
Simon Conn
Balance as at
17 April 2014
Acquisitions
Disposals
Balance at
30 June 2015
–
–
–
–
–
–
–
Balance as at
30 June 2015
200,000
100,000
–
2,500,000
100,000
2,900,000
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
Options
exercised
200,000
100,000
–
1,000,000
50,000
1,350,000
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
Disposals/
lapsed
Balance at
30 June 2015
–
–
–
1,500,000
50,000
1,550,000
–
–
–
–
–
–
Balance as at
17 April 2014
Acquisitions
Disposals
Balance at
30 June 2015
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
–
–
–
–
–
–
–
350,000
200,000
100,000
–
2,500,000
100,000
3,250,000
Directors and Director related entities disposed of and acquired ordinary shares and options in the Company on the same terms
and conditions available to other shareholders. The Directors have not, during or since the end of the financial year, been granted
options over unissued shares or interests in shares of the Company as part of their remuneration.
44 | QV Equities Limited Annual Report 2016
Notes to the Financial Statements (continued) For the year ended 30 June 2016 16 Related party transactions
All transactions with related entities were made on commercial terms and conditions no more favorable than those available to other
parties unless otherwise stated.
Anton Tagliaferro is a Director and owner of Investors Mutual Limited (IML), the entity appointed to manage the investment portfolio of
QV Equities Limited. In its capacity as Manager, IML was paid a management fee of 0.90% p.a. (plus GST) on the portfolio net asset value
for the first $150 million and then 0.75% (plus GST) thereafter, amounting to $2,085,598 (2015: $1,614,248) inclusive of GST. The amount
expensed in the Statement of Comprehensive Income after allowing for the reduced input tax credit is $1,943,398 (2015: 1,504,186). As
at 30 June 2016, the balance payable to the Manager was $186,561 (2015: $158,852).
The Manager agreed to pay Jennifer Horrigan’s remuneration ($7,500) during the transition period.
No Director has received or become entitled to receive a benefit (other than those detailed above) by reason of a contract made by the
Company or a related Company with the Director or with a firm of which he is a member or with a Company in which he has substantial
financial interest.
17 Segment information
The Company has only one reportable segment. The Company is engaged solely in investment activities conducted in Australia,
deriving revenue from dividend income, interest income, and from the sale of its investments.
18 Contingencies and commitments
The Company had no contingent liabilities as at 30 June 2016 and 30 June 2015.
19 Events occurring after the reporting period
Since the end of the financial year, the Directors declared a fully franked final dividend of 1.8 cents per fully paid ordinary share payable
on 31 October 2016.
No matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly affect, the
operations of the Company, the results of those operations or the state of affairs of the Company in subsequent financial periods.
20 Remuneration of auditors
Audit and other assurance services
Audit and review of financial report
Fees in relation to Investigating Accountants Report for the prospectus
Non-assurance services
Tax services
30 June 2016
$
Period from
17 April 2015 to
30 June 2015
$
40,590
–
23,100
63,690
61,570
46,420
53,304
161,294
The Company’s Audit Committee oversees the relationship with the Company’s external auditors. The Audit Committee reviews the
scope of the audit and the proposed fee. It also reviews the cost and the scope of the other tax compliance services the related entity
of the audit firm, to ensure that they do not compromise independence.
QV Equities Limited Annual Report 2016 | 45
Notes to the Financial Statements (continued) For the year ended 30 June 2016
Directors’ declaration
In the Directors’ opinion,
(1) the financial statements and notes set out on pages 22 to 45 are in accordance with the Corporations Act 2001 including:
(a) complying with the Accounting Standards, the Corporations Regulations 2001 and any other mandatory professional reporting
requirements; and
(b) complying with International Financial Reporting Standards as issued by the International Accounting Standards Board as
described in note 2 to the financial statements; and
(c) giving a true and fair view of the Company’s financial position as at 30 June 2016 and of its performance for the year end on that
date.
(2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by S295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Peter McKillop, Chairman
17 August 2016
46 | QV Equities Limited Annual Report 2016
Independent Auditor’s Report to the Shareholders
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF QV EQUITIES LIMITED
ABN 64 169 154 858
Report on the Financial Report
We have audited the accompanying financial report of QV Equities Limited (the Company), which comprises
the statement of financial position as at 30 June 2016, the statement of comprehensive income, the statement
of changes in equity and the statement of cash flow for the year then ended, notes comprising a summary of
significant accounting policies and other explanatory information and the directors’ declaration of the Company.
Directors’ Responsibility for the Financial Report
The directors of QV Equities Limited are responsible for the preparation and fair presentation 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 is free from material misstatement, whether due to fraud or error. In Note 2(a), the directors also state that, in
accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements
comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit
in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks
of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments,
the auditor considers internal controls relevant to the entity’s preparation of the financial report that gives a true
and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
An independent New South Wales Partnership. ABN 17 795 780 962. Liability limited by a scheme approved under Professional Standards Legislation.
Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000
Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle
Pitcher Partners is an association of independent firms. An independent member of Baker Tilly International.
QV Equities Limited Annual Report 2016 | 47
Independent Auditor’s Report to the Shareholders (continued)
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF QV EQUITIES LIMITED
ABN 64 169 154 858
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Opinion
In our opinion:
(a) the financial report of QV Equities Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s financial position as at 30 June 2016 and of its performance for
the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a).
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 15 to 18 of the directors’ report for the year ended 30
June 2016. 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.
Opinion
In our opinion, the Remuneration Report of QV Equities Limited for the year ended 30 June 2016 complies with
section 300A of the Corporations Act 2001.
S M Whiddett
Partner
17 August 2016
Pitcher Partners
Sydney
An independent New South Wales Partnership. ABN 17 795 780 962. Liability limited by a scheme approved under Professional Standards Legislation.
Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000
Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle
Pitcher Partners is an association of independent firms. An independent member of Baker Tilly International.
48 | QV Equities Limited Annual Report 2016
Shareholder Information For the year ended 30 June 2016
The shareholder information set out below was applicable as at 30 June 2016.
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report,
is listed below:
A. Long term equity investments
QV Equities Limited Portfolio as at 30 June 2016.
Ordinary Shares, Trust Units or Stapled Securities
Abacus Property Group
AGL Energy Limited*
ALS Limited
Amaysim Australia Ltd
Amcor Limited*
Ansell Limited
2016
2015
Holding
units
Fair value
$
Holding
units
Fair value
$
780,000
2,457,000
540,000
10,416,600
300,000
1,467,000
725,000
550,000
–
2,117,000
8,552,500
–
1,300,000
2,171,000
1,515,000
2,727,000
130,000
1,940,900
–
–
280,000
5,087,600
220,000
5,299,800
AusNet Services Limited
4,400,000
7,216,000
3,400,000
4,743,000
Asciano Limited
ASX Limited
Aurizon Holdings Limited*
Bank of Queensland Limited
Cabcharge Australia Limited
Caltex Australia Limited
Chorus Limited
Contact Energy Limited
Crown Resorts Limited
Clydesdale Bank
Duet Group
600,000
5,322,000
175,000
8,008,000
1,400,000
6,748,000
780,000
8,260,200
900,000
2,871,000
–
145,000
750,000
520,000
–
–
5,785,500
3,847,500
6,640,400
–
130,000
4,147,000
110,000
3,503,500
1,600,000
6,448,000
1,550,000
3,983,500
580,000
2,827,500
-
-
–
–
220,000
2,684,000
1,500,000
6,255,000
–
–
2,500,000
6,250,000
1,000,000
2,310,000
Energy Developments Limited
–
–
Event Hospitality and Entertainment Ltd
220,000
3,196,600
960,000
240,000
7,008,000
3,009,600
ERM Power Limited
Fairfax Media Limited
Fletcher Building Limited
–
–
1,700,000
3,944,000
3,300,000
3,069,000
–
–
1,280,000
10,444,800
850,000
6,128,500
Flight Centre Travel Group Limited
80,000
2,526,400
–
–
Generation Healthcare REIT
Genesis Energy Limited
GWA Group Limited
580,000
1,276,000
580,000
956,832
1,500,000
3,075,000
1,000,000
1,570,000
3,000,000
6,270,000
2,750,000
6,270,000
QV Equities Limited Annual Report 2016 | 49
Shareholder Information (continued) For the year ended 30 June 2016
A. Long term equity investments (continued)
2016
2015
Holding
units
Fair value
$
Holding
units
Fair Value
$
Hotel Property Investments
1,100,000
3,421,000
1,100,000
2,827,000
IPH Limited
Integral Diagnostics Limited
Integrated Research Limited
Link Administration Holdings Limited
–
–
238,095
1,119,047
2,000,000
2,900,000
450,000
1,012,500
600,000
4,902,000
–
–
–
–
–
–
Mayne Pharma Group Limited
3,320,000
6,324,600
2,150,000
2,117,750
Medibank Private Limited
MyState Limited
Myer Holdings Limited
Orora Limited
Orica Limited
Oil Search Limited
Pact Group Holdings Ltd
Ruralco Holdings Limited
–
–
480,000
1,982,400
2,200,000
2,464,000
–
–
550,000
6,781,500
750,000
5,002,500
1,200,000
7,236,000
480,000
460,000
–
750,000
400,000
620,000
900,000
964,800
2,221,800
–
1,567,500
8,512,000
4,420,600
4,212,000
1,000,000
3,400,000
1,000,000
3,500,000
Shopping Centres Australasia Property Group
2,200,000
5,016,000
2,160,000
4,600,800
Steadfast Group Limited
Sonic Healthcare Limited*
Skycity Entertainment Group Limited
4,500,000
8,887,500
4,200,000
6,783,000
400,000
8,620,000
950,000
4,142,000
370,000
800,000
7,906,900
3,000,000
Spark Infrastructure Group
2,350,000
5,734,000
1,100,000
2,150,500
Salmat Limited
Santos Limited
360 Capital Group
Trade Me Group Limited
Tox Free Solutions Limited
Wilson Group
1,600,000
704,000
3,200,000
2,304,000
–
–
270,000
2,114,100
2,300,000
2,196,500
2,100,000
2,247,000
900,000
3,978,000
1,000,000
3,020,000
2,000,000
5,180,000
1,350,000
4,077,000
2,000,000
2,900,000
–
–
Z Energy Limited Total Equities
500,000
3,860,000
440,000
2,283,600
Total equities
61,205,000
214,395,100
43,873,095
153,030,029
50 | QV Equities Limited Annual Report 2016
Shareholder Information (continued) For the year ended 30 June 2016
A. Long term equity investments (continued)
2016
2015
Holding
units
Fair value
$
Holding
units
Fair Value
$
Ordinary Shares, Trust Units or Stapled Securities
Crown Resorts Limited unsecured sub floating rate
2,850,000
2,396,850
2,250,000
2,180,250
Total equities
Total portfolio
2,850,000
2,396,850
2,250,000
2,180,250
216,791,950
155,210,279
* Part or all of the security was subject to call options written by the company.
There were 394 investment transactions during the financial year. The total brokerage paid on these transactions was $179,719.
B. Distribution of equity securities
Analysis of numbers of shareholders by size of holding as at 11 August 2016:
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
No. of shareholders
Shares
Percentage
103
835
1047
3,708
209
5,902
60,410
3,194,523
9,466,112
127,725,584
80,942,230
221,388,859
0.03
1.44
4.28
57.69
36.56
100.00
There were 30 holders of less than a marketable parcel of ordinary shares holding a total of 1,263 shares.
QV Equities Limited Annual Report 2016 | 51
Shareholder Information (continued) For the year ended 30 June 2016
Ordinary shares
Numbers
held
Percentage of
issued shares
7,741,929
4,193,707
3,949,910
3,033,500
2,800,000
2,500,000
2,500,000
2,079,582
2,036,163
2,000,000
1,775,245
1,320,309
1,062,150
1,000,000
878,700
808,718
800,000
776,000
700,000
593,239
3.50
1.89
1.78
1.37
1.26
1.13
1.13
0.94
0.92
0.90
0.80
0.60
0.48
0.45
0.40
0.37
0.36
0.35
0.32
0.27
C. Equity security holders
Twenty largest shareholders - ordinary shares:
Name
Navigator Australia Ltd
Nulis Nominees (Australia) Limited A/C>
UBS Nominees Pty Ltd
Bennamon Pty Ltd
Citicorp Nominees Pty Limited
AKAT Investments Pty Ltd
Investors Mutual Ltd
Austair Pilots Pty Ltd
Netwealth Investments Limited
ZEBPLAND Pty Ltd
Netwealth Investments Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Australian Academy Of Science
Australian Executor Trustees
Mr Christoper Peter Jones and Mrs Linda Jones
Beth Maclaren Smallwood Foundation P/L
Avanteos Investments Limited
Meroma Pty Limited
Takita Exploration Pty Limited
D. Substantial shareholders
There are currently no substantial shareholders of QV Equities Limited.
52 | QV Equities Limited Annual Report 2016
QVE Equities Limited
ABN 64 169 154 858
Level 24, 25 Bligh Street
Sydney NSW 2000
Corporate Enquiries:
1300 552 895
Investment and General Enquiries:
1800 868 464
info@qvequities.com
qvequities.com