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8
QV 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
Annual Report
Year ended 30 June 2018
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)
Secretary
Zac Azzi
Investment Manager
Investors Mutual Limited
Level 24, 25 Bligh Street
Sydney NSW 2000
(AFSL 229988)
Registered Office
Level 24, 25 Bligh Street
Sydney NSW 2000
Telephone: (02) 9232 7500
Fax: (02) 9232 7511
Email: info@qvequities.com
Website: www.qvequities.com
ABN 64 169 154 858
Share Registrar
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
2
| QV Equities Limited Annual Report 2018
Contents
Contents
Financial Highlights
Chairman’s Letter
Investment Manager’s Report
Directors’ Report
Auditor’s Independence Declaration
Financial Statements for the year ended 30 June 2018
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
4
6
8
11
19
21
22
23
25
26
44
46
50
Corporate Governance Statement
The Board of Directors of QV Equities Limited (“the 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: www.qvequities.com
QV Equities Limited Annual Report 2018 | 3
Xxxxxxx
Financial Highlights
Year in Summary FY2018
Profit after tax
$11,143,913
($8,497,402 in FY17)
Management Expense Ratio
0.99%
(1.01% in FY17)
Earnings
Per Share (cents)
4.05 Basic
(3.61 in FY17)
Dividends
5.2 cps
Fully Franked (declared for FY 2018)
(4.0cps in FY17)
Net Assets
$326,002,469
($320,401,651 in FY17)
Historical NTA Growth
Portfolio Return (Pre-tax)*
+6.0%
Portfolio Return (Post-tax)*
+5.6%
Portfolio Return
(Pre-tax) since inception
+9.6% p.a.
Benchmark*#
+15.9%
ASX 300*
+13.2%
Benchmark#
Return since inception
+11.9% p.a.
Net Tangible Assets (NTA)
1.23 (pre-tax cum div) 1.18 (post tax cum div)
All data as at 30 June 2018
*Returns are measured for the 2018 financial year
# S&P/ASX300 ex20 index
Historical Dividend Growth
QVE Dividend Payments
1.5
1.5
1.8
2.0
2.0
2.1
3.1
1.0
2.1
E
R
A
H
S
R
E
P
S
T
N
E
C
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0.5
FY15
Interim
FY15
Final
FY16
Interim
FY16
Final
FY17
Interim
FY17
Final
FY18
Interim
FY18 Final
& Special
4
| QV Equities Limited Annual Report 2018
August -14$1.30$1.25$1.20$1.15$1.10$1.05$1.00$0.95$0.90NTA PER SHAREOctober -14December -14February -15April-15June-15August -15October-15December-15February -16April-16June-16August -16October -16December-16February-17April-17June-17August-17October-17December-17February-18April-18June-18QVE Pre-tax NTA
QV Equities 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 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 52% of the S&P/ASX 300 Index by market capitalisation and has a high, 71% concentration in the Financial and Resource
sectors as at 30 June 2018.
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 to 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 for over 20 years.
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 2018 | 5
Chairman’s Letter
Dear Shareholders,
This is the fourth annual report to shareholders, since the Company listed on the Australian Stock Exchange (‘ASX’) on
22 August 2014.
Our objective
The Company’s key objective remains unchanged - to deliver both long-term capital growth and income to our
shareholders. We do this by investing in a quality, diversified portfolio of securities listed on the ASX, excluding those in
the S&P/ASX top 20 Index.
The Australian sharemarket, as measured by the ASX 300 Index, is highly weighted towards the twenty largest entities.
The top 20 Index is heavily concentrated in the volatile Financial and Resources sectors and accordingly may not provide
investors with an opportunity to diversify their portfolios.
In comparison, the remaining part of the market (ex-20), where the QVE portfolio is invested, offers investors the
opportunity for greater diversification across various sectors and stocks. The ex-20 segment is less researched than the
larger companies listed on the ASX and as such, offers investors an enhanced opportunity to gain the long-term capital
growth and income they are seeking.
In October 2017, the Company was named as one of three finalists for the Listed Investment Company of the Year in the
Professional Planner/Zenith Fund Awards for 2017. We are proud of this achievement and the independent recognition of
the Company as a high-quality listed investment company.
Our portfolio of securities is managed by Investors Mutual Limited (the “Manager”), a multi award-winning and experienced
fund manager with an excellent track record of 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.
2018 marks the 20th year in which Investors Mutual has been successfully managing investors’ funds. During the year
Investors Mutual joined Natixis Investment Managers, a Global group that has ownership in fund managers world-wide.
Under Natixis, Investors Mutual retains its autonomy, investment philosophy and culture and benefits from the support of a
global group which has a track record of successful ownership in investment management companies around the world.
Market overview
The ASX300 Accumulation Index enjoyed a solid year returning +13.2% and finishing at its highest level in a decade. The
main drivers of returns were the Resources sector which gained +40% over the financial year and the Consumer Staples
sector which gained +30%. The Healthcare sector also continued its strong run returning +26.6% over the year. Conversely,
in the Telecommunication sector, competition continued to intensify with the NBN rollout contributing to a negative return
of 28.3% for the year. It was also a challenging year for the Financials sector with the Royal Commission fallout leading to a
flat return for the sector.
Fiscal year 2018 was fairly eventful for global markets. The positive mood in the first half turned into a more cautious one in
the second half as investors responded to US interest rate rises and tax cuts as well as geopolitical events around the world,
notably North Korea’s nuclear threat, US/China trade tariffs, higher oil prices and the re- emergence of nationalist politics in
Europe.
Investment performance
For the 12 months to 30 June 2018, the Company’s portfolio returned +6.0% before tax, whilst a solid outcome, it lagged the
ASX ex 20’s return of +15.9% primarily as a result of the portfolio’s low weighting to the volatile Resources sector which had
a strong year.
The past 12 months has been challenging with upward momentum in the market taking many companies’ valuations
beyond their fundamentals. On behalf of shareholders, the Manager continues to adhere to its disciplined investment
strategy which has defined its approach to investing for the past 20 years – through all market cycles.
6
| QV Equities Limited Annual Report 2018
Chairman’s Letter (continued)
With the market at ten year highs, the Manager is investing with caution. The Manager has provided details of the Company’s
investment performance and an overview of holdings and activity in the Investment Manager’s Report on pages 8 to 10.
Financial results
For the year ended 30 June 2018, the Company delivered a net after-tax profit of $11.1 million. On an earnings per share
basis, the FY 2018 result equates to after-tax earnings of 4.05 cents, up 12.19% from FY2017.
A fully franked interim dividend of 2.1 cents per share was paid on 4 April 2018. A final fully franked dividend for the 2018
financial year, of 2.1 cents and a special dividend of 1.0 cents per share, will be paid on 31 October 2018 (the ex-dividend
date for the final dividend will be 1 October 2018). This represents an increase of 30% on the declared dividends for FY2017.
Pleasingly, this means that shareholders who subscribed four years ago to the IPO in August 2014, have now been paid a
total of 11.4cps in fully franked dividends in addition to the growth in the NTA.
AGM
Shareholders are invited to attend our fourth Annual General Meeting to be held on Wednesday 24 October at 10am, in the
Adelaide Room of the Sofitel Wentworth in Sydney. Following the AGM, the Manager will provide an Investor Update. For
those not able to attend, a webinar will be held later in the day. Further details regarding the AGM proceedings will be sent
to shareholders shortly.
Shareholder communication
We are committed to engaging shareholders with regular and consistent communication through a variety of formats:
y Monthly NTA reports, including investment commentary
y
y
y
y
Regular investment videos
Investment insights from the Manager
Annual shareholder briefings in major cities
Regular webinars
We would encourage shareholders to subscribe to receive these updates and invitations via the Company’s website
www.qvequities.com.
In summary
The Board continues to believe that a carefully selected holding of ex-20 stocks, managed by Investors Mutual Limited,
will provide good opportunities for shareholders going forward. The Company’s investment portfolio remains prudently
positioned in good quality companies, underpinned by reasonable valuations – with upside potential, sustainable earnings
from a diverse range of sectors, solid and consistent levels of franked dividends and cash ready to take advantage of market
volatility.
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 24 October.
Yours sincerely,
Peter McKillop, Chairman
15 August 2018
QV Equities Limited Annual Report 2018 | 7
Investment Manager’s Report
Investors Mutual Limited (‘IML’) is pleased to deliver its fourth investment report for QV Equities Limited.
Synchronised global economic growth and continued low interest rates pushed markets higher over FY 2018 with many
company valuations pushed above their fundamentals. As such, IML has remained cautious and prudent in managing
the QVE portfolio of stocks outside the ASX top 20.
IML continues to maintain strict adherence to the investment mantra which has defined its approach to investing for
the past 20 years through all market cycles. IML looks to invest in companies at an attractive entry price, which possess
the following four clear quality characteristics:
y
y
y
y
a competitive advantage over their peers;
recurring predictable earnings;
a capable management team; and
the ability to grow earnings and dividends over time.
As at 30 June 2018, the Company’s portfolio was made up of 42 listed securities spread across various ASX sectors. Some
of the top holdings of the Company include well-known companies such as Caltex, Crown and Orica as well as other lesser
known but quality companies such as Pact Group, Spark Infrastructure and Steadfast.
Portfolio Allocation as at 30 June 2018
Consumer Staple
Information Technology
Real Estate
Industrials
Cash
Energy
Utilities
Health Care
Materials
Financial
Consumer Discretionary
8
| QV Equities Limited Annual Report 2018
Investment Manager’s Report (continued)
Key Equity Investments
Description
Holding weight*
Pact Group
Sonic Healthcare
Caltex Australia
Clydesdale Bank
Amcor Limited
Crown Resorts
Rigid plastics packaging company
Global pathology company
Petrol retailer and refinery company
UK retail bank
Global packaging company
Entertainment and gaming company
Fletcher Building
NZ building materials company
Spark Infrastructure
Owner of electricity distribution and transmission assets
Orica
Steadfast
Manufacturer of commercial grade explosives & chemicals
Insurance broker
Bank of Queensland
Australian regional bank
Mayne Pharma
Global Pharmaceutical company
Skycity Entertainment
Entertainment and gaming company
Ansell
Global glove manufacturer
Integral Diagnostics
Radiology company
Aurizon
GWA
Australian rail company
Owner & importer of bathroom brands incl. Caroma
Southern Cross Media
Radio, television and digital assets company
Z Energy
Genesis Energy
NZ Petrol retailer and refinery company
NZ electricity generation, natural gas & LPG retailing company
*Holding weight as at 30 June 2018
The complete portfolio is shown on pages 50 to 51 of this financial report.
4.28%
4.06%
4.05%
3.99%
3.92%
3.78%
3.77%
3.71%
3.34%
2.99%
2.86%
2.44%
2.19%
2.07%
2.05%
2.05%
2.01%
1.94%
1.86%
1.53%
For the 12 months to 30 June 2018 the QVE portfolio returned +6.0% before tax and after fees. While a solid outcome,
it lagged the ASX ex 20’s return of +15.9% primarily as a result of the portfolio’s low weighting to the volatile Resources
sector which had a strong year. The portfolio benefited from its exposure to holdings such as Tox Free Solutions, Integral
Diagnostics and Crown Resorts which all performed well. The Resource sector rallied strongly, mainly on the back of a
stronger oil price with companies such as Santos, Whitehaven Coal, Beach Energy and WorleyParsons all performing
strongly. These are stocks which do not fit the four quality criteria that we look for in companies. Their earnings, dividends
and share prices can be very unpredictable and volatile over time.
One of the best performers for QVE over 2018 was Tox Free Solutions. Tox is a leader in hazardous, industrial and healthcare
waste with its licences, treatment facilities across Australia and scale creating significant barriers to entry. With waste
removal and disposal an essential service, the revenues of Tox are highly recurring and defensive. The increasing diversion
of waste away from landfill as well as a number of strategic acquisitions over the last few years has also supported a solid
growth outlook over the medium term. Given this defensive and growing profile, it was little surprise when listed peer
Cleanaway emerged as a bidder for the company at a 30% premium at $3.48 per share in late calendar 2017, a bid which
we accepted thereby realising very good capital gains for QVE.
Crown Resorts was another strong contributor over the year, gaining +21%. Crown is the owner of strong and exclusive
casino franchises in Melbourne and Perth, and has also commenced construction of the Crown Sydney Hotel Resort at the
new Barangaroo South precinct in Sydney. The barriers to entry to Crown’s businesses are high as the company is
the owner of long term exclusive casino licences in desirable locations in central Melbourne and Perth and that enjoy
strong incumbency benefits. Crown has addressed market concerns over future funding of Crown Sydney in recent times by
divesting its stake in Melco Crown in Macau, exiting out of its development project in Las Vegas, and selling its
CrownBet bookmaking business. Focusing on its core Australian operations has allowed the company to repair its balance
sheet, undertake capital management by paying an 83cps special dividend to shareholders and undertaking a $500m
on-market buyback.
QV Equities Limited Annual Report 2018 | 9
Investment Manager’s Report (continued)
Looking forward, while global growth has improved, risks to the outlook remain. High consumer debt levels in most
developed economies means that earnings growth for many companies remains difficult to achieve. While the outlook for
interest rates in most parts of the world remains benign, the Federal Reserve in the US and other central banks are moving
towards normalising cash rates. Australia’s inflation rate remains low at around 2%, and with household debt at record
levels, interest rates in Australia look set to remain low for some time as there is little incentive for the RBA to raise the cash
rate from its current record low of 1.5% in the near term.
IML remains cautious on the outlook for markets. Given the low alternative rates of return from cash and bonds many equity
valuations remain elevated as investors have bid up share prices in search of income and growth. Markets, which repriced
higher on the back of the Trump election victory in late 2016, have remained buoyant as US economic and labour data has
remained robust. Global indices now sit at record levels. As a consequence, we continue to hold a reasonably high cash
weighting, reflecting the high valuation of many companies. In what is a volatile and variable growth environment going
forward, IML remains focused on investing in companies that we believe are reasonably valued and that can grow through
their own initiatives rather than relying on general economic tailwinds.
IML continues 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, such as Pact Group; companies growing market share,
such as GWA Group; companies restructuring their business, such as Caltex and Crown Resorts; or companies that have
contracted revenue growth, such as Spark Infrastructure and Shopping Centres Australasia.
It remains our pleasure to continue to apply IML’s quality and value investment philosophy and approach to the Company’s
portfolio for another year. The ex-20 sector of the market is a sector which has delivered good returns for our investors over
many years, and which we believe continues to offer investors good opportunities while also diversifying their exposure
away from the ASX top 20.
The last 18 months has been challenging for value investors such as IML. Companies exposed to the latest theme or fad are
being aggressively bid up, despite what are often poor fundamentals or a lack of sustainable earnings. We remain focused
on investing in companies with strong fundamentals that are trading at reasonable valuations. With the market willing to
pay ever higher multiples for growth, we continue to believe that portfolios such as QVE’s which are underpinned by value
and quality stocks remain the best place to be.
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 predominantly from the dividends paid by the companies in
which we invest. As true-to-label value investors we refuse to be carried away with the latest fads, concepts or momentum
plays.
Together with the investment team, we look forward to meeting shareholders either at the upcoming AGM or any of the
investor forums which we will be holding early in 2019.
Anton Tagliaferro
Investment Director
Investors Mutual Limited
15 August 2018
Simon Conn
Senior Portfolio Manager
Investors Mutual Limited
15 August 2018
10 | QV Equities Limited Annual Report 2018
Directors’ Report
The Directors present their report together with the financial report of QV Equities Limited (“the Company”) for the year
ended 30 June 2018.
Directors
The following persons were Directors of the Company from their appointment date and up to the date of this report:
Name
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Position
Appointment date
Independent Director (Chairman)
Independent Director
Independent Director
Non-independent Director
Non-independent Director
17 April 2014
17 April 2014
26 April 2016
30 April 2014
14 June 2016
Principal activities
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 in the future.
Dividends
Dividends paid to shareholders were as follows:
2018
Ordinary shares – interim 2018
Ordinary shares – final 2017
2017
Ordinary shares – interim 2017
Ordinary shares – final 2016
Dividend
Per Share
2.1 cents
2.0 cents
2.0 cents
1.8 cents
Total amount
Date of payment
$5,780,957
$5,501,410
$4,430,175
$3,984,999
04/04/2018
31/10/2017
03/04/2017
31/10/2016
%
Franked
100%
100%
100%
100%
Since year end, the Directors have declared a final fully franked dividend of 2.1 cents and a special dividend of 1.0 cent per
fully paid ordinary share both to be paid on 31 October 2018.
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.
QV Equities Limited Annual Report 2018 | 11
Directors’ Report (continued)
Review of operations (continued)
Listed below is the Company’s performance for the past 6 and 12 months:
PERFORMANCE
12 months to 30 June 2018
31 December 2017 to 30 June 2018
Increase in QVE's NTA
BENCHMARK Return
+5.6%
+1.9%
+15.9%
+3.9%
Note: these figures are calculated net of IML’s management fee.
Investment operations for the year ended 30 June 2018 resulted in an operating profit before tax of $11,658,676 (2017:
$9,222,156) and an operating profit after tax of $11,143,913 (2017: $8,497,402).
Net Tangible Assets (NTA) for each ordinary share as at 30 June 2018 (calculated on market value less realisation costs and
before applicable taxes and before provision of dividends) amounted to $1.23 (2017: $1.21) per share. NTA after provision for
tax and before provision for dividends was $1.18 (2017: $1.16) per share.
Further information on the operating and financial review of the Company is contained in the Chairman’s letter on pages
6 to 7 of the Annual Report.
Financial position
The net asset value of the Company at 30 June 2018 was $326,002,469 (2017: $320,401,651).
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 2018.
Matters subsequent to the end of the period
Since the end of the financial year, the Directors declared a fully franked final dividend of 2.1 cents and a special dividend of
1.0 cent per fully paid ordinary share both payable on 31 October 2018.
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 8 to 10 of the Annual Report.
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.
12 | QV Equities Limited Annual Report 2018
Directors’ Report (continued)
Information on Directors
Peter McKillop
Independent Director, Chairman
Experience and expertise
Other current directorships
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.
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
$4.6 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.
Peter McKillop is a Director of the Advisory Board of the
Australian Dental Health 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.
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.
QV Equities Limited Annual Report 2018 | 13
Directors’ Report (continued)
Information on Directors (continued)
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.
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).
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.
14 | QV Equities Limited Annual Report 2018
Other current directorships
Jennifer Horrigan is a Director of APN Funds Management,
Industria REIT (ASX: IDR), Convenience Retail REIT (ASX:CRR)
and Chairman of Redkite (national children’s cancer charity)
and a Director of Breast Cancer Trials.
Former directorships in last 3 years
Jennifer Horrigan was formerly a Director of Generation
Healthcare (ASX: GHC)
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.
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 and holds equity interests in
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.
Directors’ Report (continued)
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.
Information on Directors (continued)
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 QBE 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.
Zac Azzi
Company Secretary
Zac Azzi has over 20 years’ 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.
QV Equities Limited Annual Report 2018 | 15
Directors’ Report (continued)
Meeting of Directors
The numbers of meetings of the Company’s Board of Directors and each Board committee held during the year ended
30 June 2018, and the numbers of meetings attended by each Director were:
Directors’ Meetings
Audit
Nomination
Meeting of committees
A
6
6
6
3
6
B
6
6
6
6
6
A
5
5
5
-
-
B
5
5
5
-
-
A
3
3
3
-
-
B
3
3
3
-
-
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year
The Company has not established a Remuneration Committee as it has no paid employees. The services of Zac Azzi (COO
and Company Secretary), Anton Tagliaferro (Executive Director) and Simon Conn (Executive Director) are provided to the
Company without additional charge as part of the arrangements with the Investment Manager.
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
2018 and 30 June 2017.
2018
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Total key management personnel compensation
2017
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Total key management personnel compensation
16 | QV Equities Limited Annual Report 2018
Short term employee
benefits Directors’ fees
$
Post-employment
benefits Superannuation
$
15,000
27,397
27,397
69,794
25,000
2,603
2,603
30,206
Short term employee
benefits Directors’ fees
$
Post-employment
benefits Superannuation
$
9,132
27,397
27,397
63,926
30,868
2,603
2,603
36,074
Total
$
40,000
30,000
30,000
100,000
Total
$
40,000
30,000
30,000
100,000
Directors’ Report (continued)
Remuneration report (audited) (continued)
(a) Details of remuneration (continued)
Directors receive a superannuation guarantee contribution required by the government, which was 9.5% of individual
benefits for financial year 2018 and did not receive any other retirement benefits. Directors may also elect to salary
sacrifice their fees into superannuation.
(b) Director related entity remuneration
All transactions with related entities were made on normal commercial terms and conditions.
Anton Tagliaferro is a Director and holds equity interest in 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 $2,974,146 (2017: $2,550,828) inclusive of GST. The amount expensed in the
Statement of Comprehensive Income after allowing for the reduced input tax credit is $2,771,364 (2017: 2,376,908).
As at 30 June 2018, the balance payable to the manager was $249,642 (2017: $246,307).
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 and Zac Azzi as employees of the Manager 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 2018 and 30 June 2017, the Company’s Directors and their related parties held the following interests in
the Company:
Ordinary Shares Held
2018
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 as at
1 July 2017
418,542
206,247
-
5,710,000
150,000
6,484,789
Acquisitions
Disposals
6,803
7,015
-
-
-
-
90,000
1,200,000*
-
-
103,818
1,200,000
* Investors Mutual Limited initial capital contribution reduction
2017
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 as at
1 July 2016
400,000
200,000
-
6,000,000
150,000
6,750,000
Acquisitions
Disposals
18,542
6,247
-
10,000
-
34,789
-
-
-
300,000*
-
300,000
Balance as at
30 June 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
Balance as at
30 June 2017
418,542
206,247
-
5,710,000
150,000
6,484,789
* Investors Mutual Limited initial capital contribution reduction.
QV Equities Limited Annual Report 2018 | 17
Directors’ Report (continued)
Remuneration report (audited) (continued)
Directors and Director-related entities acquired ordinary shares in the Company on the same terms and conditions available
to other shareholders.
Options Held
2018
The directors did not hold or exercise any options during the current financial year.
2017
The directors did not hold or exercise any options during the current financial year.
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:
y
y
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 McKilllop, Chairman
15 August 2018
18 | QV Equities Limited Annual Report 2018
Auditor’s Independence Declaration
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 2018, 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
Pitcher Partners
Sydney
15 August 2018
An independent New South Wales Partnership. ABN 17 795 780 962.
Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000
Liability limited by a scheme approved under Professional Standards Legislation
Pitcher Partners is an association of independent
firms Melbourne | Sydney | Perth | Adelaide | Brisbane|
Newcastle An independent member of Baker Tilly
International
QV Equities Limited Annual Report 2018 | 19
Financial Statements for the year ended 30 June 2018
Statement of Comprehensive Income
Notes
30 June 2018
$
30 June 2017
$
Investment income
Dividend income
Interest income
Realised gains on options
Unrealised (losses) on options
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
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
Earnings per share
12,923,731
10,760,296
1,146,036
962,874
(175,934)
73,115
941,302
313,419
(22,017)
27,696
14,929,822
12,020,696
2,771,364
100,000
85,866
119,501
194,415
2,376,908
100,000
88,819
121,618
111,195
3,271,146
2,798,540
5
11,658,676
514,763
11,143,913
9,222,156
724,754
8,497,402
5,172,870
16,316,783
17,960,106
26,457,508
Basic and diluted earnings per share (cents per share)
13
4.05
3.61
The Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2018 | 21
Financial Statements (continued)
Statement of Financial Position
Notes
30 June 2018
$
30 June 2017
$
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 liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Asset revaluation reserve
Capital profits reserve
Profits reserve
Total equity
6
7
8
5
10
5
9
5
11
12
12
55,310,602
865,640
55,730
56,231,972
284,256,550
340,072
284,596,622
340,828,594
1,558,248
3,205,655
1,001,920
5,765,823
9,060,302
9,060,302
14,826,125
326,002,469
281,680,091
21,810,925
15,899,401
6,612,052
326,002,469
75,657,537
814,228
33,375
76,505,140
259,247,833
564,565
259,812,398
336,317,538
2,359,882
3,262,102
374,650
5,996,634
9,919,253
9,919,253
15,915,887
320,401,651
281,113,681
24,595,350
10,294,914
4,397,706
320,401,651
The Statement of Financial Position should be read in conjunction with the accompanying notes.
22 | QV Equities Limited Annual Report 2018
Financial Statements (continued)
Statement of Changes in Equity
Issued
capital
$
Asset
revalued
reserve
$
Capital
profits
reserve
$
Notes
Profits
reserve
$
Retained
profits
$
Total
$
281,113,681
24,595,350
10,294,914
4,397,706
-
320,401,651
Balance at 1 July 2017
Profit for the year
Other comprehensive
income:
Net revaluation of investments
Total comprehensive income
for the year
Transactions with equity
holders in their capacity as
owners:
Shares issued from dividend
reinvestment plan
Dividends provided for or paid
Other
Realised profits on sale of
investments transferred to
capital profits reserve
Transfer to profits reserve
-
-
5,172,870
-
5,172,870
-
-
-
-
-
-
-
-
(2,352,808)
(8,929,567)
11,143,913
11,143,913
-
5,172,870
11,143,913
16,316,783
-
-
-
566,410
(11,282,375)
-
-
-
-
-
11
14
12
12
566,410
-
-
-
(7,957,295)
7,957,295
-
-
-
11,143,913
(11,143,913)
Balance at 30 June 2018
281,680,091
21,810,925
15,899,401
6,612,052
- 326,002,469
The Statement of Changes in Equity should be read in conjunction with the accompanying note.
QV Equities Limited Annual Report 2018 | 23
Financial Statements (continued)
Statement of Changes in Equity
Issued
capital
$
Asset
revalued
reserve
$
Capital
profits
reserve
$
Notes
Profits
reserve
$
Retained
profits
$
Total
$
216,339,116
17,252,345
1,216,678
2,776,613
-
237,584,752
-
-
17,960,106
17,960,106
-
-
-
-
-
-
-
-
-
-
-
-
(1,538,865)
(6,876,309)
-
-
-
-
Balance at 1 July 2016
Profit for the year
Other comprehensive income:
Net revaluation of
investments
Total comprehensive income
for the year
Transactions with equity
holders in their capacity
as owners:
Costs of issued capital
Shares issued
Shares issued from
dividend reinvestment plan
Dividends provided for or paid
Other
Realised profit on sale of
investments transferred to
capital profits reserve
Transfer to profits reserve
Balance at 30 June 2017
-
11
11
14
12
12
(719,863)
65,160,968
333,460
-
-
-
8,497,402
8,497,402
-
17,960,106
8,497,402
26,457,508
-
-
-
-
-
(719,863)
65,160,968
333,460
(8,415,174)
-
-
(10,617,101)
10,617,101
-
-
-
8,497,402
(8,497,402)
281,113,681
24,595,350
10,294,914
4,397,706
-
320,401,651
The Statement of Changes in Equity should be read in conjunction with the accompanying notes.
24 | QV Equities Limited Annual Report 2018
Financial Statements (continued)
Statement of Cash Flow
Cash flows from operating activities
Dividends/distributions received
Interest received
Net realised gains on exchange traded options
Payments for other expenses
Other income
Income tax paid
Net cash inflow from operating activities
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
Share issue transaction costs
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents held at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
30 June 2018
$
30 June 2017
$
12,795,401
1,146,896
1,414,210
(3,327,553)
73,115
(3,574,444)
8,527,625
(91,841,695)
73,683,092
(18,158,603)
(10,715,957)
-
-
(10,715,957)
(20,346,935)
75,657,537
55,310,602
10,990,770
1,039,069
214,077
(2,801,611)
31,384
(2,545,194)
6,928,495
(93,186,066)
72,702,502
(20,483,564)
(8,081,715)
65,160,968
(1,028,375)
56,050,878
42,495,809
33,161,728
75,657,537
6
6
The above Statement of Cash Flow should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2018 | 25
Notes to the Financial Statements for the year ended 30 June 2018
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 15 August 2018.
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 2018 have been prepared in accordance
with the Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board
and the Corporations Act 2001. The Company is a for-profit entity for financial reporting purposes under the Australian
Accounting Standards.
(i)
Compliance with IFRS
The financial statements of the Company 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.
26 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
Summary of significant accounting policies (continued)
2.
(b) Investments
(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 financial assets measured at fair value through
other comprehensive income 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 options. These derivative financial instruments are classified as financial assets at fair value
through profit and loss, changes in the fair value of options are recognised in profit or loss for the year.
(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.
QV Equities Limited Annual Report 2018 | 27
Notes to the Financial Statements (continued)
Summary of significant accounting policies (continued)
2.
(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.
(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.
28 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
Summary of significant accounting policies (continued)
2.
(l) Earnings per share
(i)
Basic earnings per share
Basic earnings per share is calculated by dividing:
y
y
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:
y
y
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
In accordance with ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191, the amounts in the
directors’ report and in the financial report have been rounded to the nearest dollar unless otherwise stated.
(n) Functional and presentation currency
The functional and presentation currency of the Company is Australian dollars.
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 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 for 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)
Price risk
The Company is exposed to equities securities price risk. This arises from investments held by the Company and
classified in the Statement of Financial Position as financial assets held at fair value through equity reserves 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.
QV Equities Limited Annual Report 2018 | 29
Notes to the Financial Statements (continued)
Financial risk management (continued)
3.
(a) Market risk (continued)
(i)
Price risk (continued)
The Company’s industry sector weighting of investments including
options as at 30 June 2018 and 30 June 2017 is listed below:
Industry sector
Financials
Materials
Health Care
Utilities
Consumer Discretionary
Industrials
Energy
Listed property trust
Consumer Staple
Information Technology
Cash
2018
%
11.1
16.7
10.6
9.1
14.3
5.8
6.9
4.5
1.1
0.6
80.7
19.3
100.0
2017
%
13.8
11.9
10.2
9.7
9.1
8.1
6.7
4.7
-
1.1
75.3
24.7
100.0
As at 30 June 2018, no individual securities (including options) represent over 5% of the long term investment portfolio.
Sensitivity analysis
A sensitivity analysis relating to 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 81% (2017: 75%) of gross assets at year end. The following table illustrates the effect on
the Company’s equity from possible changes in price risk that were reasonably possible based on the risk the
Company was exposed to at reporting date, assuming a flat tax rate of 27.5% (2017: 30%).
Increase 5%
Decrease 5%
Increase 10%
Decrease 10%
Impact on Total
Comprehensive income
2018
$
10,267,980
(10,267,980)
20,535,961
(20,535,961)
2017
$
9,060,561
(9,060,561)
18,121,123
(18,121,123)
(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.
30 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
Financial risk management (continued)
3.
(a) Market risk (continued)
(ii) Cash flow and fair value interest rate risk (continued)
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 2018
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
$
55,310,602
-
4,163,550
59,474,152
-
-
-
-
865,640
280,093,000
280,958,640
(1,558,248)
(1,001,920)
(2,560,168)
55,310,602
865,640
284,256,550
340,432,792
(1,558,248)
(1,001,920)
(2,560,168)
Net exposure to interest rate risk
59,474,152
278,398,472
337,872,624
Floating interest
rate
$
Non-interest
bearing
$
30 June 2017
Financial Assets
Cash and cash equivalents
Receivables
Long term equity investments
Financial Liabilities
Trade creditors and other payables
Financial liabilities held at fair value
75,657,537
-
4,038,500
79,696,037
-
-
-
Net exposure to interest rate risk
79,696,037
-
814,228
255,209,333
256,023,561
(2,359,882)
(374,650)
(2,734,532)
253,289,029
Total
$
75,657,537
814,228
259,247,833
335,719,598
(2,359,882)
(374,650)
(2,734,532)
332,985,066
Sensitivity analysis
At 30 June 2018, if interest rates had increased/decreased by 75 basis points (2017: 75 basis points) from the period
end rates with all other variables held constant, post-tax profit for the period would have been $347,388 (2017:
$253,465) higher/$347,388 (2017: $253,465) 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.
QV Equities Limited Annual Report 2018 | 31
Notes to the Financial Statements (continued)
Financial risk management (continued)
3.
(b) Credit risk (continued)
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 2018 is 1.45% (2017: 1.45%).
Receivables
The majority of the Company’s receivables arise from dividends and distributions yet to be received. None of these
assets exposed to credit risk are overdue or considered to be impaired.
(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, expenses paid and dividends 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:
y
y
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.
32 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
4.
Fair value measurement (continued)
(i)
Recurring fair value measurements
The following table presents the Company’s assets measured and recognised at fair value as at 30 June 2018
and 30 June 2017.
As at 30 June 2018
Financial assets
Long term equity
investments:
Listed equities
Listed unit trusts
Floating rate notes
Unlisted equities
Total
Financial liabilities
Financial liabilities held for
trading:
Options
Total
As at 30 June 2017
Financial assets
Long term equity
investments:
Listed equities
Listed unit trusts
Floating rate notes
Unlisted equities
Total
Financial liabilities
Financial liabilities held for
trading:
Options
Total
Level 1
$
Level 2
$
Level 3
$
Total
$
249,810,000
29,161,000
4,163,550
-
283,134,550
-
-
-
1,122,000
1,122,000
1,001,920
1,001,920
Level 1
$
228,362,790
26,272,000
4,038,500
258,673,290
-
-
Level 2
$
-
-
-
574,543
574,543
374,650
374,650
-
-
-
-
-
-
-
-
-
Level 3
$
-
-
-
-
-
-
-
249,810,000
29,161,000
4,163,550
1,122,000
284,256,550
1,001,920
1,001,920
Total
$
228,362,790
26,272,000
4,038,500
574,543
259,247,833
374,650
374,650
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.
During the year $574,543 (2017: $3,181,350) has been transfered from Level 2 to Level 1. 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.
QV Equities Limited Annual Report 2018 | 33
Notes to the Financial Statements (continued)
4.
Financial risk management (continued)
(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.
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 27.5%
(2017: 30%)
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
(Over)/under provisions in previous year
Tax expense composition:
Current tax expense
Movement in deferred tax liabilities
Movement in deferred tax assets
(Over)/under provisions in previous year
30 June 2018
$
30 June 2017
$
3,206,136
2,766,646
913,088
(3,320,321)
66,208
(240,758)
(109,590)
514,763
297,326
72,337
224,493
(79,393)
514,763
783,474
(2,611,579)
81,892
(272,975)
(22,704)
724,754
436,847
41,356
258,988
(12,437)
724,754
Effective tax rate is:
4.42%
7.86%
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.
(b) Deferred tax assets
This balance comprises temporary differences attributable to:
Accruals
Share issue costs capitalised
Movements
Opening balance
Share issue costs capitalised
Charged to statement of comprehensive income
The rate used at 30 June 2018 is 27.5% (30 June 2017: 27.5%)
34 | QV Equities Limited Annual Report 2018
30 June 2018
$
30 June 2017
$
9,499
330,573
340,072
564,565
-
(224,493)
340,072
16,539
548,026
564,565
540,750
282,803
(258,988)
564,565
Notes to the Financial Statements (continued)
Taxation (continued)
5.
(c) Current tax liabilities
Balance at beginning of year
Current year income tax on operating profit
Realised capital gain
Net income tax paid
Over provisions in previous year
(d) Deferred tax liabilities
This balance comprises temporary differences attributable to:
Fair value adjustment on equity investments
Revaluation of options
Income receivable not assessable for tax until receipt
Tax deferred distributable income
Prepayments
Other
Movements
Opening balance
Charged to statement of comprehensive income
Other
The rate used at 30 June 2018 is 27.5% (30 June 2017: 27.5%)
30 June 2018
$
30 June 2017
$
3,262,102
297,326
3,220,671
(3,574,444)
-
3,205,655
703,492
436,847
4,678,091
(2,545,194)
(11,134)
3,262,102
30 June 2018
$
30 June 2017
$
8,680,055
(58,248)
36,336
402,159
-
-
9,641,659
(9,866)
26,123
282,474
9,178
(30,315)
9,060,302
9,919,253
9,919,253
72,337
(931,288)
9,060,302
7,933,898
(41,356)
2,026,711
9,919,253
QV Equities Limited Annual Report 2018 | 35
Notes to the Financial Statements (continued)
6.
Cash and cash equivalents
Cash at Bank
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 losses on options
(Increase)/Decrease in dividends/distributions receivable
Decrease in interest receivable
Decrease/(Increase) in other receivables
(Increase)/Decrease in prepayments
Increase/(Decrease) in sundry creditors and accruals
Decrease in deferred tax assets
Decrease in current tax provision
Increase in deferred tax liabilities
Net cash inflow from operating activities
7.
Receivables
Interest receivable
Dividends/distributions receivable
Other receivables
Total receivables
None of the receivables above are past the due date and are not impaired.
30 June 2018
$
55,310,602
55,310,602
30 June 2017
$
75,657,537
75,657,537
30 June 2018
$
11,143,913
30 June 2017
$
8,497,402
175,934
(128,330)
859
-
(22,355)
417,284
224,493
(3,356,510)
72,337
8,527,625
22,017
230,474
97,767
3,688
8,432
(112,517)
258,988
(2,119,112)
41,356
6,928,495
30 June 2018
$
30 June 2017
$
2,130
623,630
239,880
865,640
2,990
495,300
315,938
814,228
36 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
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 2018
$
284,256,550
Fair value
30 June 2017
$
259,247,833
The fair value of investments is based on the fair value measurement hierarchy disclosed in note 4(i).
The total dividends received on these investments, included in the Statement of Comprehensive Income were:
Dividend income:
Listed equity securities held at year-end
Listed equity securities sold during the year
Total dividend
2018
2017
7,641,395
5,282,336
12,923,731
7,724,872
3,035,424
10,760,296
This is in line with AASB 7 11(A) (d) dividends recognised during the period, showing separately those related to investments
derecognised during the reporting period and those related to investments held at the end of the reporting period.
During the year, the total fair value of investments sold in the normal course of the business and to preserve capital were:
Fair value at disposal date
Listed equity securities
Gain on disposal after tax
Listed equity securities
2018
73,606,880
2017
72,846,961
7,957,295
10,617,101
This is in line with AASB 7 11(B) (c) the net gains/losses recognised during the period, showing separately those related to
investments derecognised during the reporting period and those related to investments held at the end of the reporting
period.
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
Fair value 30 June
2018
$
Fair value 30 June
2017
$
790,111
211,809
1,001,920
338,774
35,876
374,650
QV Equities Limited Annual Report 2018 | 37
Notes to the Financial Statements (continued)
10. Trade creditors and other payables
Payable - investment creditors
Payable - other expenses
Total trade creditors and other payables
11.
Issued capital
(a) Share capital
30 June 2018
$
30 June 2017
$
1,122,000
436,248
1,558,248
1,889,735
470,147
2,359,882
Fully paid ordinary shares
275,536,547
30 June 2018
Number of Shares
30 June 2018
Total amount
$
281,680,091
30 June 2017
Number of Shares
275,070,493
30 June 2017
Total amount
$
281,113,681
(b) Movements in ordinary share capital
2018
Date
01/07/2017
Opening balance
Ordinary Shares issued under dividend
reinvestment plan - final 2017
Ordinary Shares issued under dividend
reinvestment plan - interim 2018
30/06/2018
Closing balance
2017
Date
01/07/2016
Opening balance
Ordinary Shares issued under dividend
reinvestment plan - final 2016
Ordinary Shares issued under dividend
reinvestment plan 2017
Ordinary Shares offered under Placement
Ordinary Shares offered under Share
Purchase Plan
Ordinary Shares offered under shortfall
Share issue cost
30/06/2017
Closing balance
(c) Fully paid ordinary shares
Number of Shares
275,070,493
213,177
252,877
275,536,547
Issue Price*
$
$1.29
$1.16
Total amount
$
281,113,681
274,241
292,169
281,680,091
Number of Shares
221,388,859
Issue Price*
$
Total amount
$
216,339,116
119,889
151,656
28,688,524
20,183,778
4,537,787
-
275,070,493
$1.21
$1.24
$1.22
$1.22
$1.22
145,705
187,756
34,999,999
24,624,868
5,536,100
(719,863)
281,113,681
* Rounded to two decimal places.
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.
38 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
Issued capital (continued)
11.
(d) 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.
12. Reserves
(a) Capital profits reserve
The capital profits reserve is made up of amounts transferred from the asset revaluation reserve for
future dividend payments.
Realised profit on sale of investments transferred to reserves
Movements:
Opening balance
Gain on sale of equities
Loss on sale of equities
Dividends provided for or paid
Closing balance
(b) Profits reserve
30 June 2018
$
7,957,295
30 June 2017
$
10,617,101
10,294,914
11,119,581
(3,162,286)
(2,352,808)
15,899,401
1,216,678
11,446,959
(829,858)
(1,538,865)
10,294,914
The profits reserve is made up of amounts transferred from retained earnings for future dividend
payments.
Profits reserves
Movements:
Opening balance
Transfer from retained earnings
Dividends provided for or paid
Closing balance
30 June 2018
$
6,612,052
30 June 2017
$
4,397,706
4,397,706
11,143,913
(8,929,567)
6,612,052
2,776,613
8,497,402
(6,876,309)
4,397,706
QV Equities Limited Annual Report 2018 | 39
Notes to the Financial Statements (continued)
13. Earnings per share
(a) Basic and diluted earnings per share
30 June 2018
cents
30 June 2017
cents
Total earnings per share attributable to the ordinary equity holders of the Company
4.05
3.61
(b) Weighted average number of shares used as denominator.
Weighted average number of shares used as the denominator in calculating basic
and diluted earnings per share is based on the average number of shares
as at 30 June 2018 and 30 June 2017.
275,273,384
235,279,798
Diluted earnings per share and basic earnings per share are the same as there are no potential dilutive ordinary shares.
14. Dividends
(a) Dividends paid during the year
Dividends paid fully franked at 27.5% (2017: 30%) tax rate.
Final dividend FY17: 2.0 cents per share fully franked paid 31 October 2017
(final dividend FY16: 1.8 cents)
lnterim dividend FY18: 2.1 cents per share fully franked paid 4 April 2018
(interim dividend FY17: 2.0 cents per share fully franked)
(b) Dividends not recognised at the end of the reporting period
In addition to the above dividends, since year end the Directors have recommended
the payment of a final dividend of 2.1 cents and a special dividend of 1.0 cent per
fully paid ordinary share, fully franked based on tax paid at 27.5%. The aggregate
amount of the proposed dividend expected to be paid on 31 October 2018 (2017: 31
October 2017) out of the profits of the Company at 30 June 2018 and 30 June 2017,
but not recognised as a liability at year end is:
30 June 2018
$
30 June 2017
$
5,501,410
3,984,999
5,780,957
11,282,367
4,430,175
8,415,174
30 June 2018
$
30 June 2017
$
8,541,633
5,501,410
40 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
14. Dividends (continued)
(c) Dividends franking account
The fully franked final dividend to be paid on 31 October 2018 will be franked out of existing franking credits or out of
franking credits arising from the payment of income tax in relation to the year ended 30 June 2018.
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
Adjustment for tax payable on the current period profits
Adjusted for dividends declared subsequent to reporting period 27.5% (2017: 27.5%)
Adjusted franking account balance
30 June 2018
$
30 June 2017
$
1,674,953
3,316,867
3,574,444
(4,279,521)
(2,438)
4,284,305
3,205,655
(3,239,930)
4,250,030
124,683
2,611,579
2,545,194
(3,606,503)
-
1,674,953
3,262,102
(2,086,742)
2,850,313
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.
Under recent changes to the corporate tax legislation, the final dividend must be franked using the expected tax rate
for 2018-19 of 27.5%.
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:
Peter McKillop
John McBain
Independent Director (Chairman)
Independent Director
Jennifer Horrigan
Independent Director
Anton Tagliaferro
Non-Independent Director
Simon Conn
Non-Independent Director
QV Equities Limited Annual Report 2018 | 41
Notes to the Financial Statements (continued)
15. Key management personnel disclosures (continued)
(a) Remuneration
Detailed remuneration disclosures are provided in the Remuneration Report of the Directors’ Report on page 16
Short term employee benefits - Directors fees
Post employment benefits - Superannuation
30 June 2018
$
30 June 2017
$
69,794
30,206
100,000
63,926
36,074
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 related parties, are set out below:
2018
Ordinary shares held
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Balance as at
30 June 2017
418,542
206,247
-
5,710,000
150,000
6,484,789
Acquisitions
Disposals
6,803
7,015
-
90,000
-
103,818
-
-
-
1,200,000*
-
1,200,000
* Investors Mutual Limited initial capital contribution reduction
2017
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Balance as at
30 June 2016
400,000
200,000
-
6,000,000
150,000
6,750,000
Acquisitions
Disposals
18,542
6,247
-
10,000
-
34,789
-
-
-
300,000*
-
300,000
* Investors Mutual Limited initial capital contribution reduction.
Options Held
2018
The directors did not hold or exercise any options during the current financial year.
2017
The directors did not hold or exercise any options during the current financial year.
Balance as at
30 June 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
Balance as at
30 June 2017
418,542
206,247
-
5,710,000
150,000
6,484,789
42 | QV Equities Limited Annual Report 2018
Notes to the Financial Statements (continued)
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 holds equity interest in 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
$2,974,146 (2017: $2,550,828) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after
allowing for the reduced input tax credit is $2,771,364 (2017: 2,376,908). As at 30 June 2018, the balance payable to the
Manager was $249,642 (2017: $246,307).
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.
Simon Conn is a Portfolio Manager of the Manager and holds equity interests in the Manager.
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 2018 and 30 June 2017.
19. Events occurring after the reporting period
Since the end of the financial year, the Directors declared a fully franked final dividend of 2.1 cents and a special dividend of
1.0 cent per fully paid ordinary share both payable on 31 October 2018.
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
Non-assurance services:
Tax services
30 June
2018
$
30 June
2017
$
39,250
41,910
9,600
48,850
15,180
57,090
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 of the related entity of the audit firm, to ensure that they do not compromise independence.
QV Equities Limited Annual Report 2018 | 43
Directors’ Declaration
In the Directors’ opinion,
(1) the financial statements and notes set out on pages 21 to 43 are in accordance with the Corporations Act 2001 including:
(a)
(b)
(c)
complying with the Accounting Standards, the Corporations Regulations 2001 and any other mandatory professional
reporting requirements; and
complying with International Financial Reporting Standards as issued by the International Accounting Standards
Board as described in note 2 to the financial statements; and
giving a true and fair view of the Company’s financial position as at 30 June 2018 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
15 August 2018
44 | QV Equities Limited Annual Report 2018
Independent Auditor’s Report to the Shareholders
Independent Auditor’s Report
to the Members of QV Equities Limited
A.B.N. 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 2018, the statement of
comprehensive income, the statement of changes in equity and the statement of cash flows
for the year then ended, notes comprising a summary of significant accounting policies and
other explanatory information and the directors’ declaration.
Opinion
In our opinion, 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 2018
and of its performance for the year ended on that date; and
ii.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis of Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibility section of our report.
We are independent of the Company in accordance with the Corporations Act 2001 and the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110
Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report of the current year. We have communicated the
key audit matters to the Audit Committee, but they are not a comprehensive reflection of all
matters that were identified by our audit and that were discussed with the Committee. These
matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
An independent New South Wales Partnership. ABN 17 795
780 962. Level 22 MLC Centre, 19 Martin Place, Sydney NSW
2000
Liability limited by a scheme approved under Professional Standards
Legislation
Pitcher Partners is an association of independent
firms Melbourne | Sydney | Perth | Adelaide | Brisbane|
Newcastle An independent member of Baker Tilly
International
46 | QV Equities Limited Annual Report 2018
Independent Auditor’s Report to the Shareholders (continued)
Key audit matter
How our audit addressed the matter
Measurement of Financial Instruments
Refer to Note 4 Fair Value Measurement, Note 8: Long Term Equity Investments and
Note 9: Financial Liabilities held at fair value
We focused our audit effort on the
existence and valuation of the
Company’s financial assets and
financial liabilities as they are its
largest asset and liability and
represent the most significant impact
of the Company’s net tangible
assets and profits.
The quantum of level 1
investments held inherently makes
financial assets and financial
liabilities a key audit matter.
Therefore, we focused on whether
the investments were owned by the
Company and whether the financial
assets and liabilities had been
appropriately valued to market price
in an active market at the period
end.
Our procedures included, amongst others:
! Obtaining an understanding of the
investment management process and
controls;
! Reviewing and evaluating the independent audit
report on internal controls (ASAE 3402 Assurance
Reports on Controls at a Service Organisation) for
the Custodian;
! Reviewing and evaluating the independent audit
report on internal controls (ASAE 3402 Assurance
Reports on Controls at a Service Organisation) for
the Administrator;
! Making enquiries as to whether there have been
any changes to these controls or their effectiveness
from the periods to which the audit reports relate
and where necessary performing additional
procedures;
! Obtaining a confirmation of the investment
holdings directly from the Custodian;
! Assessing the valuation of individual investment
holdings to independent sources of information to
determine an acceptable range of valuations of
securities held at 30 June 2018, and compared this to
the valuations recorded by the Company;
! Evaluating the accounting treatment of revaluations
of financial instruments to ensure current /deferred
tax and unrealised gains or losses arising from
revaluations have been appropriately accounted for;
! Assessing the adequacy of disclosures in the
financial statements.
Other information
The Directors are responsible for the other information. The other information comprises the
information in the Company’s annual report for the year ended 30 June 2018, but does not
include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially consistent
with the financial report or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing
to report in this regard.
QV Equities Limited Annual Report 2018 | 47
Independent Auditor’s Report to the Shareholders (continued)
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 controls as the Directors
determine are necessary to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our responsibility is to express an opinion on the financial report based on our audit. Our
objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Australian Auditing Standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the related disclosures in the
financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to cease to continue as a
going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Company to express an opinion on the financial
report. We are responsible for the direction, supervision and performance of the Company
audit. We remain solely responsible for our audit opinion.
48 | QV Equities Limited Annual Report 2018
Independent Auditor’s Report to the Shareholders (continued)
We communicate with the Directors regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of
most significance in the audit of the financial report of the current period and are therefore key
audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
REPORT ON THE REMUNERATION REPORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 16 to 18 of the Directors’
Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of QV
Equities Limited for the year ended 30 June 2018, complies with section 300A of the
Corporations Act 2001.
Responsibilities
The Directors of QV Equities Limited are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
S M Whiddett
Partner
15 August 2018
Pitcher Partners
Sydney
QV Equities Limited Annual Report 2018 | 49
Shareholder Information
The shareholder information set out below was applicable as at 30 June 2018.
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 2018
Ordinary Shares, Trust Units or Stapled Securities
Abacus Property Group
AGL Energy Limited
Amcor Limited*
Ansell Limited
AusNet Services Limited
ASX Limited*
Aurizon Holdings Limited*
BWP Trust
Bank of Queensland Limited
Cabcharge Australia Limited
Caltex Australia Limited
Charter Reit
Clearview Wealth Limited
Coca- cola Amatil
Contact Energy Limited
Crown Resorts Limited
Cybg PLC
Event Hospitality and Entertaiment Ltd
Fairfax Media Limited
Fletcher Building Limited
Flight Centre Travel Group Limited
FlexiGroup Limited
Genesis Energy Limited
GWA Group Limited
Hotel Property Investments
Integrated Research Limited
Integral Diagnostics Limited
IPH Limited
Link Administration Holdings Limited
Mayne Pharma Group Limited
Mirvac Group
Myer Holdings Limited
MyState Limited
Pinnacle Investment Management Group Limited
2018
2017
Holding
Units
Fair Value
$
Holding
Units
Fair Value
$
400,000
250,000
1,508,000
5,620,000
1,000,000
14,410,000
300,000
2,500,000
50,000
1,600,000
600,000
950,000
1,600,000
430,000
700,000
1,350,000
550,000
700,000
1,000,000
2,400,000
350,000
5,000,000
2,000,000
-
-
2,300,000
2,000,000
1,000,000
-
2,300,000
500,000
300,000
9,500,000
1,000,000
5,000,000
-
-
8,157,000
4,012,500
3,219,500
6,928,000
1,950,000
9,680,500
3,840,000
13,992,200
2,933,000
1,566,000
5,060,000
3,766,000
13,500,000
13,512,000
4,686,500
3,750,000
12,740,000
-
-
5,175,000
6,800,000
3,160,000
-
6,946,000
2,225,000
2,199,000
8,265,000
2,170,000
1,850,000
-
-
1,000,000
220,000
650,000
440,000
4,000,000
140,000
1,200,000
900,000
900,000
1,500,000
320,000
-
3,240,000
5,610,000
10,536,500
10,441,200
6,940,000
7,505,400
6,432,000
2,682,000
10,305,000
3,795,000
10,115,200
-
1,200,000
1,740,000
-
-
800,000
3,960,000
-
-
2,250,000
10,597,500
280,000
3,000,000
1,400,000
100,000
1,200,000
2,300,000
2,500,000
1,100,000
450,000
2,400,000
-
272,727
7,000,000
-
4,200,000
480,000
900,000
900,000
3,743,600
3,300,000
10,654,000
3,830,000
2,190,000
5,313,000
7,875,000
3,300,000
1,449,000
3,984,000
-
2,154,543
7,595,000
-
3,507,000
2,328,000
2,610,000
6,138,000
Oil Search Limited
800,000
7,120,000
50 | QV Equities Limited Annual Report 2018
Shareholder Information (continued)
A.
Long term equity investments (continued)
Orica Limited*
Pact Group Holdings Ltd
Pro-Pac Packaging Limited
Ruralco Holdings Limited
Shopping Centres Australasia Property Group
Skycity Entertainment Group Limited
Sonic Healthcare Limited
Southern Cross Media Group Limited
Spark Infrastructure Group
Steadfast Group Limited
Trade Me Group Limited
Tox Free Solutions Limited
Tatts Group Limited
Tabcorp Holding Limited
Salmat Limited
Z Energy Limited
Floating Rate Notes
Crown Resorts Limited unsecured sub floating rate note
Total equities
Cash
Total Portfolio
2018
Holding
Units
650,000
2,750,000
12,800,000
1,600,000
2,000,000
2,000,000
Fair Value
$
11,537,500
14,492,500
4,637,000
4,912,000
4,900,000
7,400,000
560,000
13,736,800
5,000,000
5,500,000
3,600,000
6,550,000
12,540,000
10,116,000
-
-
-
-
-
-
500,000
2,230,000
-
-
900,000
6,300,000
2017
Holding
Units
450,000
Fair Value
$
9,306,000
1,800,000
10,782,000
-
1,445,000
3,000,000
900,000
500,000
4,500,000
4,000,000
3,600,000
400,000
4,000,000
173,000
-
2,000,000
800,000
-
4,262,750
6,570,000
3,492,000
12,110,000
5,602,500
10,480,000
9,576,000
2,024,000
9,600,000
723,140
-
770,000
6,040,000
Holding
Units
4,100,000
Fair Value
$
Holding
Units
Fair Value
$
4,163,550
4,100,000
4,038,500
284,256,550
259,247,833
55,310,602
75,657,537
339,567,152
334,905,370
* Part or all of the security was subject to call options written by the company.
There were 448 (2017: 461) investment transactions during the financial year. The total brokerage paid on these transactions
was $299,787 (2017: $297,325).
B. Distribution of equity securities
Analysis of numbers of shareholders by size of holding as at 30 June 2018:
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Class of equity security ordinary shares
No. of shareholders
201
785
1,136
4,789
297
7,208
Shares
70,649
2,751,640
9,246,583
154,074,785
109,392,890
275,536,547
Percentage
0.03
1.00
3.35
55.92
39.70
100.00
There were 116 holders of less than a marketable parcel of ordinary shares holding a total of 7,656 shares.
QV Equities Limited Annual Report 2018 | 51
Shareholder Information (continued)
C.
Equity security holders
Twenty largest shareholders - ordinary shares:
Name
Citicorp Nominees Pty Limited
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited
Bennamon Pty Ltd
AKAT Investments Pty Ltd
Austair Pilots Pty Ltd
ZEBPLAND Pty Ltd
Netwealth Investments Limited
Australian Executor Trustees
Netwealth Investments Limited
Citicorp Nominees Pty Limited
Mr Christoper Peter Jones and Mrs Linda Jones
Australian Academy Of Science
Investors Mutual Ltd
IOOF Investment Management Ltd
Magnet Investments Pty Ltd
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
Beth Maclaren Smallwood Foundation P/L
Meroma Pty Limited
Substantial shareholders
D.
There are currently no substantial shareholders of QV Equities Limited.
Ordinary Shares
Percentage of Numbers Held issued shares
17,857,029
8,143,462
8,079,173
3,154,982
3,045,795
2,500,000
2,460,441
2,000,000
1,797,945
1,437,964
1,335,422
1,054,065
1,013,626
1,000,000
1,000,000
909,688
856,719
835,501
800,000
712,295
6.48
2.96
2.93
1.15
1.11
0.91
0.89
0.73
0.65
0.52
0.48
0.38
0.37
0.36
0.36
0.33
0.31
0.30
0.29
0.26
52 | QV Equities Limited Annual Report 2018
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QV Equities Limited Annual Report 2018 | 53
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QV 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
Annual Report
Year ended 30 June 2018