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Annual Report
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 16, Tower 2 Darling Park, 201 Sussex Street,
Sydney NSW 2000
Stock Exchange
Australian Securities Exchange (ASX)
ASX code: QVE Ordinary shares
2
| QV Equities Limited Annual Report 2019
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 2019
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 2019 | 3
Xxxxxxx
Financial Highlights
Profit After Tax
(excluding special dividends and
adjusted for retrospective tax changes)
$8,473,067 ($8,415,596 in FY18)
Profit After Tax
$9,387,628
($11,143,913 in FY18)
Earnings Per Share
(cents) 3.40 Basic
(4.05 in FY18)
Dividends 4.4 cps
Fully Franked (declared for FY19)
(4.2cps plus 1.0cps special in FY18)
Management Expense Ratio 1.03%
(0.99% in FY18)
Portfolio Return
(Pre-tax)* - 0.4%
Portfolio Return
(Post-tax)* - 0.1%
Benchmark*#
+ 7.7%
ASX 300*
+ 11.4%
Portfolio Return
(Pre-tax) since inception
+ 7.5% p.a.
Benchmark#
Return since inception
+ 11.0% p.a.
Net Assets $311,749,767
($326,002,469 in FY18)
Net Tangible Assets (NTA)
$1.15 (pre-tax cum div) $1.13 (post tax cum div)
All data as at 30 June 2019 unless otherwise specified. *Returns are measured for the 2019 financial year. # S&P/ASX300 ex20 index
QVE Pre-tax NTA
Historical
NTA Growth
(cid:26)
(cid:25)
(cid:22)
(cid:23)
(cid:24)
(cid:28)
(cid:25)
(cid:26)
(cid:27)
(cid:29)
(cid:30)
(cid:31)
(cid:28)
$1.30
$1.25
$1.20
$1.15
$1.10
$1.05
$1.00
$0.95
$0.90
August-14
February-15
August-15
February-16
August-16
February-17
August-17
February-18
August-18
February-19
QVE Dividend Payment (Fully Franked)
QVE Special Dividend
Historical
Dividend Growth
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
e
r
a
h
S
r
e
P
s
t
n
e
C
0.5
1.5
1.5
1.8
2.0
2.0
2.1
3.1
1.0
2.1
2.2
2.2
FY15
Interim
FY15
Final
FY16
Interim
FY16
Final
FY17
Interim
FY17
Final
FY18
Interim
FY18
Final &
Special
FY19
Interim
FY19
Final
4
| QV Equities Limited Annual Report 2019
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 higher than the S&P/ASX 300 Accumulation Index,
excluding that part of the return generated by S&P/ASX 20 Accumulation Index securities.
Foundation of the Company’s Investment Strategy
The Australian sharemarket is heavily concentrated in larger entities both in terms of market capitalisation and industry
sector weighting in the broader market’s main index. The S&P/ASX 20 Index – representing the 20 largest entities by
market capitalisation on the ASX – accounts for 57% of the S&P/ASX 300 Index by market capitalisation and has a high, 66%
concentration in the Financial and Resource sectors as at 30 June 2019.
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 21 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 2019 | 5
A letter from the Chairman, Peter McKillop
Dear Shareholders,
Our objective is to provide you with steadily growing returns achieved by both increases to the underlying net tangible
assets (NTA) of the Company and, where possible, the payment of fully franked dividends. The portfolio is managed by
Investors Mutual Limited (the Manager), a proven value fund manager. The investment portfolio has given you a total return
of +7.5% per annum since inception.
The Company’s total return to shareholders for the year ended 30 June 2019 was -0.4% compared to its benchmark’s
(ASX 300 ex20 Accumulation Index) return of +7.7%. Technology stocks, Real Estate Investment Trusts (REITs) and certain
Resources companies were the main drivers of overall Australian sharemarket gains for the year ended 30 June 2019.
Some technology stocks more than doubled over the year, while REITs rose as investors sought higher yields given record
low interest rates on savings. Higher commodity prices, especially iron ore and gold, were responsible for gains to many
Resources stocks.
The Manager considers many stocks in these sectors to be, not only overvalued, but have higher risk in the event of an
economic downturn. For these reasons, they were excluded from the investment portfolio. Also, certain stocks in the
Company’s portfolio that had been performing well suffered setbacks to their earnings forecasts over the financial year.
These included Pact Group, Mayne Pharma and Caltex. However in the opinion of the Manager, these companies represent
good value over the next three to five years.
The Board of the Company and the Manager remain steadfast that the best strategy for growing wealth over the long term
is identifying companies which are undervalued, well managed, with strong competitive advantages, and provide both
earnings and dividend growth.
Financial results
For the year ended 30 June 2019, the Company delivered a net after-tax profit - excluding special dividends and
retrospective tax changes - of $8.5 million, up 0.7% compared to financial year 2018. The net after-tax profit (including
special dividends and retrospective tax changes) was $9.4 million, down 15.8% compared to the prior financial year. On an
earnings per share basis, the FY2019 result equates to after-tax earnings of 3.40 cents per share.
The financial results for financial year 2018 included a special dividend of $2.3 million, resulting from the takeover of Tox
Free Solutions by Cleanaway, while the results for the year ended 30 June 2019 included a special dividend of $1.3 million,
resulting from the Caltex off market buy-back.
In August 2018, the Government increased the corporate tax rate from 27.5% to 30% for listed investment companies,
including the Company. The 30% tax rate was backdated to apply to the financial year ended 30 June 2018. However,
the Board had already announced the dividend and financial results for the year ended 30 June 2018 after applying the
corporate tax rate of 27.5%. Accordingly, an additional income tax charge of $0.4 million was included in the financial results
for the year ended 30 June 2019.
The management expense ratio (MER) rose modestly due to the lower average investment portfolio value over the year.
However, expenses were maintained at $3.3 million, the same level as last year.
A fully franked interim dividend of 2.2 cents per share was paid on 15 March 2019. A final fully-franked dividend for the 2019
financial year of 2.2 cents per share, will be paid on 20 September 2019 (the ex-dividend date for the final dividend will be
28 August 2019). This represents an increase of 4.8% on the declared dividends for FY2018 (excluding the special dividend in
relation to FY18).
This means that shareholders who subscribed five years ago to the Company’s IPO in August 2014 have now been paid a
total of 16.7cps in fully-franked dividends in addition to the growth in the NTA.
AGM
Shareholders are invited to attend our fifth Annual General Meeting to be held on Monday 21 October at 10am, in the
Adelaide Room of the Sofitel Sydney Wentworth Hotel. Following the AGM, the Manager will provide an Investor Update.
For those unable to attend, a webinar will be held later in the day. Further details regarding the AGM proceedings will be
sent shortly to shareholders.
6
| QV Equities Limited Annual Report 2019
Chairman’s Letter (continued)
Shareholder communication
I hope you continue to find our regular communication to shareholders informative and engaging. We deliver these through
a variety of formats:
y Monthly NTA reports, including investment commentary
y
y
y
y
Regular investment videos
Portfolio Updates and 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 ex20 stocks, managed by Investors Mutual Limited,
will provide good opportunities for shareholders going forward. Now is the time to remain disciplined and true to label
which is why the Company’s investment portfolio remains defensively positioned. The Manager continues to look for good,
quality companies, underpinned by reasonable valuations – with upside potential, sustainable earnings from a diverse
range of sectors, paying solid and consistent levels of franked dividends. In addition, the Manager has cash available to take
advantage of any 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 21 October.
Yours sincerely,
Peter McKillop, Chairman
14 August 2019
QV Equities Limited Annual Report 2019 | 7
Investment Manager’s Report
Investors Mutual Limited (‘IML’) is pleased to deliver its fifth investment report for QV Equities Limited.
Despite increasing trade tensions and slowing global economic growth, record low interest rates continued to push
markets higher over FY2019 with many companies’ valuations pushed above their fundamentals. As such, IML has remained
disciplined 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 21 years through all market cycles. IML looks to invest in companies which possess the following clear quality
characteristics:
y
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
an attractive entry price.
As at 30 June 2019, the Company’s portfolio was made up of 43 listed securities spread across various ASX sectors. Some of
the Company’s top holdings include well-known companies, such as Crown Resorts, Aurizon and Sonic Healthcare, as well as
other quality companies such as Spark Infrastructure, GWA and Steadfast.
Portfolio Allocation as at 30 June 2019
PORTFOLIO ALLOCATION AS AT 30 JUNE 2019
Real Estate
5.1%
Information Technology
0.7%
Communication Services
6.3%
Cash
17.5$%
Utilities
7.9%
Energy
8.1%
Health Care
8.6%
Consumer
Discretionary
13.7%
Industrials
9.5%
Financials
9.6%
Materials
13.0%
8
| QV Equities Limited Annual Report 2019
Investment Manager’s Report (continued)
Key Equity Investments
Principal activity
Crown Resorts
Australian based casino operator
Aurizon
Australian rail company
Sonic Healthcare
Global pathology company
Amcor
Steadfast
Global packaging company
Insurance broker
Caltex Australia
Importer, retailer and refiner of petroleum products
Spark Infrastructure
Owner of electricity distribution and transmission products
Pact Group
GWA
Rigid plastics packaging, contract manufacturing and pallet pooling company
Owner and importer of bathroom brands including Caroma
Bank of Queensland
Australian regional bank
Tabcorp
Orica
Wagering and lotteries company
Global manufacturer of commercial grade explosives and chemicals
Clydesdale Bank
UK retail bank
Southern Cross Media
Radio, television and digital assets company
Genesis Energy
NZ electricity generation, natural gas and LPG retailing company
Skycity Entertainment
NZ and Australian casino operator
Integral Diagnostics
Radiology company
Ruralco
Oil Search
Provision of merchandising services to Australian farmers
Oil and gas producer
AusNet Services
Owner of electricity distribution and transmission assets
*Holding weight as at 30 June 2019
The complete portfolio is shown on page 50 of this financial report.
Holding weight*
4.42%
4.24%
3.94%
3.90%
3.75%
3.50%
3.44%
3.24%
3.01%
2.84%
2.75%
2.69%
2.69%
2.36%
2.34%
2.26%
2.18%
2.09%
1.82%
1.77%
For the 12 months to 30 June 2019, the QVE portfolio returned -0.4% before tax and after fees. This was a disappointing
result when compared to the ASX ex20’s return of +7.7%.
Having said this the benchmark’s return was driven by sectors such as the IT and REITs sectors – sectors which we exercised
strong caution in given the excessive valuations. In addition, specific investments such as Pact Group, Mayne Pharma and
Caltex held back the portfolio’s return for the year. On the plus side, the portfolio benefited from its exposure to holdings
such as Amcor, Ruralco, Genesis Energy and Steadfast which all performed well.
Ruralco was a strong contributor to QVE over the year, gaining +36% in FY2019. Ruralco is a leading merchant and marketer
of rural merchandise, fertiliser and water products in Australia as well as a provider of rural agency services in relation to the
sale of livestock, wool and real estate. During the year, Ruralco was the recipient of a takeover offer from Canadian company
Nutrien at $4.40 per share, a 44% premium to its share price just before the offer. Nutrien is the world’s largest provider of
crop inputs and services and an existing player in the Australian rural merchandise sector through its Landmark branded
national network. The proposed takeover is currently under consideration by the Australian Competition & Consumer
Commission (ACCC).
Orica also performed well rising +14% for the year. Orica is the largest manufacturer of explosives globally with operations
in key markets around the world. Orica also develops and sells detonation systems, with its development of wireless
detonators representing industry-leading technology. The outlook for the company is strong over the next 3-5 years due
to the increasing uptake of their wireless blasting devices, along with the expected improvement in explosive prices from
current depressed levels.
Amcor also did well for QVE over FY2019, gaining over +12%. Amcor is a global leader in the packaging industry serving a
wide range of customers in the defensive food, beverage, pharmaceutical, home and personal care end- markets. The recent
acquisition of Bemis is significant for Amcor as it gives the company enhanced scale in the US flexible packaging market.
There is also the potential for significant value creation from the realisation of synergies in the areas of procurement and
operational improvement. The business continues to be a very strong generator of free cash flow, which underpins its ability
to pay an attractive dividend, while the solid balance sheet provides ample flexibility to fund future growth opportunities.
QV Equities Limited Annual Report 2019 | 9
Investment Manager’s Report (continued)
Regarding Pact Group, Mayne Pharma and Caltex, we continue to follow these companies closely. While the results, share
price performances and contribution to the QVE portfolio to date from these companies have been below expectations,
we continue to hold these companies in the QVE portfolio. We are of the view that their share prices will recover over the
medium term as, based on our analysis, we expect the earnings of these companies to improve in the next few years. In
addition, we believe that these companies’ share prices significantly underestimate the improvement and turnaround that
we see on the horizon. We also believe that all the bad news is more than captured in their depressed share prices.
In terms of the macro-economic environment, we are conscious of the risk that slowing global growth presents to the
overall sharemarket outlook in the medium term. Thus, we continue to hold a healthy cash weighting in the QVE portfolio.
High consumer debt levels in most developed economies means that earnings growth for many companies remains
difficult to achieve. Conversely the outlook for interest rates in most parts of the world remains benign, with central banks
in the US, Australia and the EU all looking to see how much further they can ease monetary policy as well as using other
unconventional methods to stimulate overall economic growth.
IML remains cautious on the outlook for markets. Given the low rates of return from alternatives such as cash and bonds,
many equity sectors’ valuations have become overstretched, in our view, as investors have bid up share prices in search
of income and growth. With many stocks’ valuations now sitting at elevated levels and with the economic and earnings
outlook remaining clouded we continue to hold a higher cash weighting. We remain focused on investing in companies
that we believe are reasonably valued and that can grow their long-term earnings through their own initiatives rather than
relying on economic tailwinds.
These initiatives include companies capable of making accretive bolt-on acquisitions, such as Integral Diagnostics;
companies growing market share, such as GWA Group; companies restructuring their business, such as Nine Entertainment;
companies that are on track for revenue growth, such as Genesis Energy; or companies that are actively taking costs out of
their operations, such as Clydesdale Bank and Pact Group.
It remains a privilege, that we do not take for granted, to apply IML’s quality and value investment philosophy and approach
to the QVE portfolio for another year. The ex20 sector of the market is one which has delivered good returns for our
investors over many years and which we believe continues to offer investors good opportunities while diversifying their
exposure away from the ASX top 20 stocks.
The last 24 months have 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 solid fundamentals that in our view are trading at reasonable valuations. With the market
willing to pay ever higher multiples for short term earnings growth, we continue to believe that portfolios such as QVE,
which are underpinned by value and quality stocks, remain the best place to be for steady capital and income growth over
the longer term, particularly when markets are volatile as we’ve seen recently.
Our objective is clear: to deliver reasonable, long-term growth over time through a steadily growing NTA, whilst paying a
healthy dividend to QVE’s shareholders sourced 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 current fads, concepts or momentum plays because we know
from decades of experience that the value approach to portfolio management best serves QVE’s investors.
Together with the investment team, we look forward to meeting shareholders at the upcoming AGM or any of the investor
forums which we will be holding in early 2020.
Anton Tagliaferro
Investment Director
Investors Mutual Limited
14 August 2019
Simon Conn
Senior Portfolio Manager
Investors Mutual Limited
14 August 2019
10 | QV Equities Limited Annual Report 2019
Directors’ Report
The Directors present their report together with the financial report of QV Equities Limited (“the Company”) for the year
ended 30 June 2019.
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:
2019
Ordinary shares – interim 2019
Ordinary shares – final 2018
Special dividend – final 2018
2018
Ordinary shares – interim 2018
Ordinary shares – final 2017
Dividend
Per Share
2.2 cents
2.1 cents
1.0 cents
2.1 cents
2.0 cents
Total amount
Date of payment
$6,071,893
$5,786,275
$2,755,365
$5,780,965
$5,501,410
29/03/2019
31/10/2018
31/10/2018
04/04/2018
31/10/2017
%
Franked
100%
100%
100%
100%
100%
Since year end, the Directors have declared a final fully franked dividend of 2.2 cents per fully paid ordinary share to be paid
on 20 September 2019.
Review of operations
The Board is pleased with the performance of the Company since listing in August 2014. Our Investment Manager (“the
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 2019 | 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 2019
31 December 2018 to 30 June 2019
Increase in QVE's NTA
Benchmark return
-0.1%
+6.2%
+7.7%
+19.7%
Note: these figures are calculated net of IML’s management fee.
Investment operations for the year ended 30 June 2019 resulted in an operating profit before tax of $10,824,206 (2018:
$11,658,676) and an operating profit after tax of $9,387,628 (2018: $11,143,913).
Net Tangible Assets (NTA) for each ordinary share as at 30 June 2019 (calculated on market value less realisation costs and
before applicable taxes and before provision for dividends) amounted to $1.15 (2018: $1.23) per share. NTA after provision for
tax and before provision for dividends was $1.13 (2018: $1.18) 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 2019 was $311,749,767 (2018: $326,002,469).
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 2019.
Matters subsequent to the end of the period
Since the end of the financial year, the Directors declared a fully franked final dividend of 2.2 cents per fully paid ordinary
share payable on 20 September 2019.
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 2019
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 25 years’ experience in the funds
management industry. John is currently the joint Chief
Executive Officer and Executive Director of Centuria Capital
Limited (Centuria), an ASX listed specialist investment
manager with $6.2 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 jointly 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 committee of Centuria Life.
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 2019 | 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 IML in June
1998 and holds the position of 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
the Group Investment Manager and the Equities
Manager at Perpetual Trustees Australia Ltd (Perpetual).
At Perpetual, Anton was responsible for running
Perpetual’s Industrial Share Fund which during his time,
continually outperformed in the Australian equities market
and was highly rated in Money Management’s annual
Australian Equity Manager surveys for four years in a row.
Anton holds a Bachelor of Arts (Honours) in Accountancy
from the Metropolitan University in London, is a member
of the Institute of Chartered Accountants and a member
of the Financial Services Institute of Australasia.
14 | QV Equities Limited Annual Report 2019
Other current directorships
Jennifer Horrigan is a Director of APN Funds Management,
Yarra Funds Management Ltd, 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 and Risk 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.
Other current directorships
Anton Tagliaferro is a Director and holds equity interests
in IML.
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 15 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 24 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 IML in August 2015
where he was appointed as COO and Company Secretary.
Zac holds a Bachelor of Commerce from Macquarie
University, a Masters of Business Administration from the
Australian Graduate School of Management and is also a
Certified Practising Accountant.
QV Equities Limited Annual Report 2019 | 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 2019, and the numbers of meetings attended by each Director were:
Directors’ meetings
Audit
Nomination
Meeting of committees
A
7
7
7
7
6
B
7
7
7
7
7
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 IML.
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
2019 and 30 June 2018.
2019
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Total key management personnel compensation
2018
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Total key management personnel compensation
16 | QV Equities Limited Annual Report 2019
Short term employee
benefits Directors’ fees
$
Post-employment
benefits superannuation
$
18,265
27,397
27,397
73,059
21,735
2,603
2,603
26,941
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
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 2019 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 IML, the entity appointed to manage the investment
portfolio of QV Equities Limited. In its capacity as the 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
$2,872,964 (2018: $2,974,146) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after
allowing for the reduced input tax credit is $2,677,080 (2018: 2,771,364). As at 30 June 2019, the balance payable to the
Manager was $236,008 (2018: $249,642).
Simon Conn is a Portfolio Manager of the Manager, and he 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 payments made to the Executives by the Company. IML 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 2019 and 30 June 2018, the Company’s Directors and their related parties held the following interests in
the Company:
Ordinary Shares Held
2019
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
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
* IML initial capital contribution reduction
Balance as at
1 July 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
Balance as at
1 July 2017
418,542
206,247
-
5,710,000
150,000
6,484,789
Acquisitions
Disposals
10,550
10,880
-
450,000
-
471,430
-
-
-
-
-
-
Acquisitions
Disposals
6,803
7,015
-
90,000
-
103,818
-
-
-
1,200,000*
-
1,200,000
Balance as at
30 June 2019
435,895
224,142
-
5,050,000
150,000
5,860,037
Balance as at
30 June 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
QV Equities Limited Annual Report 2019 | 17
Directors’ Report (continued)
Remuneration report (audited) (continued)
(d) Equity instrument disclosures relating to Directors (continued)
Directors and Director-related entities acquired ordinary shares in the Company on the same terms and conditions available
to other shareholders.
Options Held
2019
The Directors did not hold or exercise any options during the current financial year.
2018
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
14 August 2019
18 | QV Equities Limited Annual Report 2019
Auditor’s Independence Declaration
QV Equities Limited Annual Report 2019 | 19
Level 16, Tower 2 Darling Park201 Sussex StreetSydney NSW 2000Postal AddressGPO Box 1615Sydney NSW 2001p.+612 9221 2099e.sydneypartners@pitcher.com.auAdelaide Brisbane Melbourne Newcastle Perth SydneyPitcher Partners is an association of independent firms.An independent New South Wales Partnership. ABN 17 795 780 962.Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the membersof which are separate and independent legal entities.pitcher.com.auAuditor’s Independence Declaration To the Directors of QV Equities Limited ABN 64 169 154 858 In relation to the independent audit of QV Equities Limited for the year ended 30 June 2019, I declare that to the best of my knowledge and belief there have been: (i)no contraventions of the auditor’s independence requirements of the Corporations Act2001; and(ii)no contraventions of any applicable code of professional conduct in relation to the audit.S M Whiddett Partner Pitcher Partners Sydney 14 August 2019
Financial Statements for the year ended 30 June 2019
Statement of Comprehensive Income
Notes
30 June 2019
$
30 June 2018
$
Investment income
Dividend/distribution 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 (loss)/income for the year, net of tax
Earnings per share
12,736,833
1,106,387
350,131
(74,097)
4,471
14,123,725
12,923,731
1,146,036
962,874
(175,934)
73,115
14,929,822
2,677,080
2,771,364
100,000
83,297
133,480
305,662
100,000
85,866
119,501
194,415
3,299,519
3,271,146
5
10,824,206
1,436,578
9,387,628
11,658,676
514,763
11,143,913
(9,876,330)
(488,702)
5,172,870
16,316,783
Basic and diluted earnings per share (cents per share)
13
3.40
4.05
The Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2019 | 21
Financial Statements (continued)
Statement of Financial Position
Notes
30 June 2019
$
30 June 2018
$
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
40,070,290
954,094
85,542
41,109,926
279,725,315
134,635
279,859,950
320,969,876
1,165,335
1,631,044
1,835,635
4,632,014
4,588,095
4,588,095
9,220,109
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
311,749,767
326,002,469
282,529,624
9,189,720
15,019,704
5,010,719
311,749,767
281,680,091
21,810,925
15,899,401
6,612,052
326,002,469
The Statement of Financial Position should be read in conjunction with the accompanying notes.
22 | QV Equities Limited Annual Report 2019
Financial Statements (continued)
Statement of Changes in Equity
Issued
capital
$
Asset
revaluation
reserve
$
Capital
profits
reserve
$
Notes
Profits
reserve
$
Retained
profits
$
Total
$
281,680,091
21,810,925
15,899,401
6,612,052
- 326,002,469
9,387,628
9,387,628
Balance at 1 July 2018
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
11
14
12
12
849,533
-
-
-
-
-
(9,876,330)
-
(9,876,330)
-
-
-
-
-
-
-
-
(3,624,572)
(10,988,961)
-
-
-
-
-
-
-
(9,876,330)
(488,702)
849,533
(14,613,533)
-
-
(2,744,875)
2,744,875
-
-
-
9,387,628
(9,387,628)
Balance at 30 June 2019
282,529,624
9,189,720
15,019,704
5,010,719
-
311,749,767
The Statement of Changes in Equity should be read in conjunction with the accompanying note.
QV Equities Limited Annual Report 2019 | 23
Financial Statements (continued)
Statement of Changes in Equity (continued)
Issued
capital
$
Asset
revaluation
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 profit on sale of
investments transferred to
capital profits reserve
Transfer to profits reserve
11
14
12
12
566,410
-
-
-
-
-
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)
-
-
(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 notes.
24 | QV Equities Limited Annual Report 2019
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
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents held at beginning of the year
Cash and cash equivalents at the end of the year
Financial Statements (continued)
Notes
30 June 2019
$
30 June 2018
$
12,726,188
1,088,576
1,111,126
(3,335,661)
4,471
(4,267,198)
7,327,502
(102,644,408)
93,840,594
(8,803,814)
(13,764,000)
(13,764,000)
(15,240,312)
55,310,602
40,070,290
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
6
6
The above Statement of Cash Flow should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2019 | 25
Notes to the Financial Statements for the year ended 30 June 2019
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 IML.
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 14 August 2019.
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 2019 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 adopted AASB15 Revenue from Contracts with Customers.
The Company’s main sources of income are interest, dividends and gains on financial instruments held at fair
value. All of these are outside the scope of the new revenue standard. Accordingly, the new revenue recognition
rules do not have a significant impact on the Company’s accounting policies or the amounts recognised in the
financial statements.
(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 2019
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, derivative financial instruments are classified as financial liabilities 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. Realised 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 2019 | 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 expected credit losses.
Receivables may include interest and dividends. Interest and dividends are accrued in accordance with the policy note
set out in note 2(c).
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 2019
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies (continued)
(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 is responsible for the daily monitoring and risk assessment of the Company
financial market risk.
(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 Manager reviews the relative weightings of the individual securities
and market sectors daily.
(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 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 2019 | 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 2019 and 30 June 2018
is listed below:
Industry sector
Financials
Materials
Health Care
Utilities
Consumer Discretionary
Industrials
Energy
Listed Property Trust
Communication Services
Consumer Staple
Information Technology
Cash
2019
%
9.6
13.0
8.6
7.9
13.7
9.5
8.1
5.1
6.3
-
0.7
82.5
17.5
100.0
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
As at 30 June 2019, 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 83% (2018: 81%) 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 30% (2018: 27.5%).
Increase 5%
Decrease 5%
Increase 10%
Decrease 10%
Impact on Total
Comprehensive income
2019
$
9,726,139
(9,726,139)
19,452,278
(19,452,278)
2018
$
10,267,980
(10,267,980)
20,535,961
(20,535,961)
(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 2019
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 2019
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
$
40,070,290
-
4,194,710
44,265,000
-
-
-
-
954,094
275,530,605
276,484,699
(1,165,335)
(1,835,635)
(3,000,970)
Net exposure to interest rate risk
44,265,000
273,483,729
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
$
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)
Net exposure to interest rate risk
59,474,152
278,398,472
Total
$
40,070,290
954,094
279,725,315
320,749,699
(1,165,335)
(1,835,635)
(3,000,970)
317,748,729
Total
$
55,310,602
865,640
284,256,550
340,432,792
(1,558,248)
(1,001,920)
(2,560,168)
337,872,624
The weighted average interest rate of the Company’s cash and cash equivalents at 30 June 2019 is 1.37% (2018: 1.45%).
Sensitivity analysis
At 30 June 2019, if interest rates had increased/decreased by 75 basis points (2018: 75 basis points) from the period
end rates with all other variables held constant, post-tax profit for the period would have been $225,679 (2018:
$347,388) higher/$225,679 (2018: $347,388) 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 2019 | 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.
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 2019
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 2019 and 30
June 2018.
Level 1
$
Level 2
$
Level 3
$
Total
$
As at 30 June 2019
Financial assets
Long term equity investments:
Listed equities
Listed unit trusts
Floating rate notes
Total
Financial liabilities
Financial liabilities held for trading:
Options
Total
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
259,379,605
16,151,000
4,194,710
279,725,315
1,835,635
1,835,635
Level 1
$
249,810,000
29,161,000
4,163,550
-
283,134,550
-
-
-
-
-
-
-
-
-
-
-
-
Level 2
$
Level 3
$
-
-
-
1,122,000
1,122,000
-
-
-
-
-
-
-
259,379,605
16,151,000
4,194,710
279,725,315
1,835,635
1,835,635
Total
$
249,810,000
29,161,000
4,163,550
1,122,000
284,256,550
1,001,920
1,001,920
1,001,920
1,001,920
-
-
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 as at 30 June 2018 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 $1,122,000 (2018: $574,543) has been transferred 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.
(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.
QV Equities Limited Annual Report 2019 | 33
Notes to the Financial Statements (continued)
5.
Taxation
(a)
Income tax expense
The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax expense as follows:
Prima Facie tax on profit from ordinary activities before income tax of 30% (2018: 27.5%)
3,247,262
Increase/(decrease) in income tax expense due to:
30 June 2019
$
Gross up of imputation credits received
Imputation credits on dividends received
Gross up of foreign income tax offsets
Foreign income tax offsets
Under/(over) provisions in previous year
Impact of retrospective tax change
Tax expense composition:
Current tax expense
Movement in deferred tax liabilities
Movement in deferred tax assets
Under/(over) provisions in previous year
Impact of retrospective tax change
874,004
(2,913,346)
76,937
(256,457)
-
408,178
1,436,578
545,113
246,795
236,353
-
408,317
1,436,578
30 June 2018
$
3,206,136
913,088
(3,320,321)
66,208
(240,758)
(109,590)
-
514,763
297,326
72,337
224,493
(79,393)
-
514,763
Effective tax rate is:
13.27%
4.42%
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
Charged to statement of comprehensive income
Impact of retrospective tax change
The rate used at 30 June 2019 is 30% (30 June 2018: 27.5%)
30 June 2019
$
30 June 2018
$
11,230
123,405
134,635
340,072
(236,353)
30,916
134,635
9,499
330,573
340,072
564,565
(224,493)
-
340,072
34 | QV Equities Limited Annual Report 2019
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
Under provision of income tax in previous year
Impact of retrospective tax change
(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
Movements
Opening balance
Charged to statement of comprehensive income
Impact to other comprehensive income
Impact of retrospective tax change
The rate used at 30 June 2019 is 30% (30 June 2018: 27.5%)
30 June 2019
$
30 June 2018
$
3,205,655
545,113
1,503,284
(4,267,198)
2,130
642,060
1,631,044
3,262,102
297,326
3,220,671
(3,574,444)
-
-
3,205,655
30 June 2019
$
30 June 2018
$
4,430,042
(85,772)
5,280
238,545
8,680,055
(58,248)
36,336
402,159
4,588,095
9,060,302
9,060,302
246,795
(5,540,536)
821,534
4,588,095
9,919,253
72,337
(931,288)
-
9,060,302
QV Equities Limited Annual Report 2019 | 35
Notes to the Financial Statements (continued)
6.
Cash and cash equivalents
Cash at Bank
Short term deposits
Total cash and cash equivalents
Reconciliation of operating profit after tax to cash inflows from operating activities
Net profit after income tax
Changes in operating assets and liabilities
Unrealised losses on options
Increase in dividends/distributions receivable
(Increase)/decrease in interest receivable
Increase in prepayments
Increase 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 2019
$
25,070,290
15,000,000
40,070,290
30 June 2018
$
55,310,602
-
55,310,602
30 June 2019
$
9,387,628
30 June 2018
$
11,143,913
74,097
(10,645)
(17,811)
(29,812)
754,666
205,437
(3,282,853)
246,795
(2,060,126)
7,327,502
175,934
(128,330)
859
(22,355)
417,284
224,493
(3,356,510)
72,337
(2,616,288)
8,527,625
30 June 2019
$
30 June 2018
$
19,941
634,275
299,878
954,094
2,130
623,630
239,880
865,640
36 | QV Equities Limited Annual Report 2019
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 and include
the following:
Listed equity securities
Fair value
30 June 2019
$
279,725,315
Fair value
30 June 2018
$
284,256,550
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 sold, 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
2019
2018
11,200,163
1,536,670
12,736,833
7,641,395
5,282,336
12,923,731
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
2019
2018
78,905,807
73,606,880
2,744,875
7,957,295
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
2019
$
Fair value 30 June
2018
$
1,549,729
285,906
1,835,635
790,111
211,809
1,001,920
QV Equities Limited Annual Report 2019 | 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 2019
$
30 June 2018
$
740,631
424,704
1,165,335
1,122,000
436,248
1,558,248
Fully paid ordinary shares
276,344,417
30 June 2019
Number of shares
30 June 2019
Total amount
$
282,529,624
30 June 2018
Number of shares
30 June 2018
Total amount
$
275,536,547
281,680,091
(b) Movements in ordinary share capital
2019
Date
Number of shares
Issue price*
01/07/2018
Opening balance
Ordinary shares issued under dividend
reinvestment plan - final 2018
Ordinary shares issued under dividend
reinvestment plan - interim 2019
30/06/2019
Closing balance
275,536,547
458,570
349,300
276,344,417
$1.08
$1.01
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
* Rounded to two decimal places.
(c) Fully paid ordinary shares
Number of shares
Issue price*
275,070,493
213,177
252,877
275,536,547
$1.29
$1.16
Total amount
$
281,680,091
495,030
354,503
282,529,624
Total amount
$
281,113,681
274,241
292,169
281,680,091
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 2019
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 2019
$
2,744,875
30 June 2018
$
7,957,295
15,899,401
6,622,560
(3,877,685)
(3,624,572)
15,019,704
10,294,914
11,119,581
(3,162,286)
(2,352,808)
15,899,401
The profits reserve is made up of amounts transferred from retained earnings for future dividend payments.
Profits reserve
Movements:
Opening balance
Transfer from retained profits
Dividends provided for or paid
Closing balance
30 June 2019
$
5,010,719
30 June 2018
$
6,612,052
6,612,052
9,387,628
(10,988,961)
5,010,719
4,397,706
11,143,913
(8,929,567)
6,612,052
QV Equities Limited Annual Report 2019 | 39
Notes to the Financial Statements (continued)
13. Earnings per share
(a) Basic and diluted earnings per share
30 June 2019
cents
30 June 2018
cents
Total earnings per share attributable to the ordinary equity holders of the Company
3.40
4.05
(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 2019 and 30 June 2018.
275,945,196
275,273,384
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 30% (2018: 27.5%) tax rate.
Final dividend FY18: 2.1 cents per share fully franked paid 31 October 2018
(final dividend FY17: 2.0 cents per share fully franked)
Special dividend FY18: 1.0 cents per share fully franked paid 31 October 2018
(special dividend FY17: nil cents)
lnterim dividend FY19: 2.2 cents per share fully franked paid 29 March 2019
(interim dividend FY18: 2.1 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 2.2 cents per fully paid ordinary share, fully
franked based on tax paid at 30%. The aggregate amount of the proposed dividend
expected to be paid on 20 September 2019 (2018: 31 October 2018) out of the profits
of the Company at 30 June 2019 and 30 June 2018, but not recognised as a liability
at year end is:
30 June 2019
$
30 June 2018
$
5,786,275
5,501,410
2,755,365
6,071,893
14,613,533
-
5,780,965
11,282,375
30 June 2019
$
30 June 2018
$
6,079,577
8,541,633
40 | QV Equities Limited Annual Report 2019
Notes to the Financial Statements (continued)
14. Dividends (continued)
(c) Dividends franking account
The fully franked final dividend to be paid on 20 September 2019 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 2019.
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
Impact of retrospective tax changes
Closing balance of franking account
Adjustment for tax payable on the current period profits
Adjusted for dividends declared subsequent to reporting period 30% (2018: 27.5%)
Adjusted franking account balance
30 June 2019
$
30 June 2018
$
4,284,305
2,913,346
4,267,198
(6,262,943)
-
(556,314)
4,645,592
1,631,044
(2,605,533)
3,671,103
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
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.
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 2019 | 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 2019
$
30 June 2018
$
73,059
26,941
100,000
69,794
30,206
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:
Ordinary shares held
2019
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
2018
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
* IML initial capital contribution reduction
Options held
2019
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
Acquisitions
Disposals
10,550
10,880
-
450,000
-
471,430
-
-
-
-
-
-
Acquisitions
Disposals
6,803
7,015
-
90,000
-
103,818
-
-
-
1,200,000*
-
1,200,000
Balance as at
30 June 2019
435,895
224,142
-
5,050,000
150,000
5,860,037
Balance as at
30 June 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
The Directors did not hold or exercise any options during the current financial year.
2018
The Directors did not hold or exercise any options during the current financial year.
42 | QV Equities Limited Annual Report 2019
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, the entity appointed to manage the
investment portfolio of QV Equities Limited. In its capacity as the 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
$2,872,964 (2018: $2,974,146) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after
allowing for the reduced input tax credit is $2,677,080 (2018: 2,771,364). As at 30 June 2019, the balance payable to the
Manager was $236,008 (2018: $249,642).
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 he 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 2019 and 30 June 2018.
19. Events occurring after the reporting period
Since the end of the financial year, the Directors declared a fully franked final dividend of 2.2 cents per fully paid ordinary
share payable on 20 September 2019.
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
2019
$
30 June
2018
$
42,000
39,250
9,900
51,900
9,600
48,850
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 2019 | 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 2019 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
14 August 2019
44 | QV Equities Limited Annual Report 2019
Independent Auditor’s Report to the Shareholders
46 | QV Equities Limited Annual Report 2019
Level 16, Tower 2 Darling Park201 Sussex StreetSydney NSW 2000Postal AddressGPO Box 1615Sydney NSW 2001p.+612 9221 2099e.sydneypartners@pitcher.com.auAdelaide Brisbane Melbourne Newcastle Perth SydneyPitcher Partners is an association of independent firms.An independent New South Wales Partnership. ABN 17 795 780 962.Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the membersof which are separate and independent legal entities.pitcher.com.auIndependent Auditor’s Report To the Members of QV Equities Limited ABN 64 169 154 858 Report on the Audit of the Financial Report Opinion We have audited the financial report of QV Equities Limited (“the Company”), which comprises the statement of financial position as at 30 June 2019, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of 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 2019and of its financial performance for the year then ended; andii.complying with Australian Accounting Standards and the CorporationsRegulations 2001.Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the Directors of the Company, would be on the same terms if given to the Directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditor’s Report to the Shareholders (continued)
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report of the current year. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the matter
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 valuation and
existence of the Company’s financial assets and
financial liabilities as they represent the most
significant driver of the Company’s Net Tangible
Assets and Profits.
Our procedures included, amongst others:
▪ Obtaining an understanding of and
investment management
▪
investments
The majority of the Company’s investments are
considered to be non-complex in nature with fair
value based on readily observable data from the
ASX or other observable markets. Consequently,
classified under
these
Australian Accounting Standards as either “level
1” (i.e. where the valuation is based on quoted
prices in the market) and “level 2” (i.e. where key
inputs to valuation are based on observable
prices in the market).
are
evaluating the
processes and controls;
Reviewing and evaluating the independent
audit reports on the design and operating
effectiveness of internal controls (ASAE
3402 Assurance Reports on Controls at a
Service Organisation) for the Administrator
and Custodian;
▪
▪ 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 to and where necessary
obtaining bridging letters and confirmations
from the Administrator and Custodian;
▪ Obtaining confirmations of the investment
holdings directly from the Custodian;
Recalculating the Company’s valuation of
individual
investment holdings using
independent pricing sources;
Evaluating the accounting treatment of
revaluations of financial assets and financial
liabilities for current/deferred tax and
unrealised gains or losses; and
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 included in the Company’s Annual Report for the year ended 30 June 2019, but
does not include the financial report and our auditor’s report thereon.
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
QV Equities Limited Annual Report 2019 | 47
Independent Auditor’s Report to the Shareholders (continued)
Our opinion on the financial report does not cover the other information and accordingly we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report in
this regard.
Responsibilities of the Directors for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal controls as the Directors determine is necessary
to enable the preparation of the financial report that gives a true and fair view and is free from
material misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the ability of the
Company 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 objectives are to obtain reasonable assurance about whether the financial report as a
whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with the Australian Auditing
Standards will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We also:
• 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
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
48 | QV Equities Limited Annual Report 2019
Independent Auditor’s Report to the Shareholders (continued)
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.
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
the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 16 to 18 of the Directors’
Report for the year ended 30 June 2019. In our opinion, the Remuneration Report of QV
Equities Limited, for the year ended 30 June 2019, complies with section 300A of the
Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
S M Whiddett
Partner
14 August 2019
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
Pitcher Partners
Sydney
QV Equities Limited Annual Report 2019 | 49
Shareholder Information
The shareholder information set out below was applicable as at 30 June 2019.
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 2019
Ordinary shares, trust units or stapled securities
A2B Australia Limited**
Abacus Property Group
AGL Energy Limited*
Amcor PLC*
Ansell Limited*
AusNet Services Limited
ASX Limited
Aurizon Holdings Limited
BWP Trust
Bank of Queensland Limited
Caltex Australia Limited
Charter Hall Retail REIT
Clearview Wealth Limited
Coca Cola Amatil Limited
Contact Energy Limited
Crown Resorts Limited
Cybg PLC
Event Hospitality and Entertainment Ltd
Fairfax Media Limited
Fletcher Building Limited
Genesis Energy Limited
GWA Group Limited
Hotel Property Investments
Incitec Pivot Limited*
Integral Diagnostics Limited
IPH Limited
Link Administration Holdings Limited
Mayne Pharma Group Limited
Mirvac Group
Myer Holdings Limited
Nine Entertainment Co. Holdings Limited
Oil Search Limited*
Ooh Media Limited
Orica Limited*
Origin Energy Limited*
50 | QV Equities Limited Annual Report 2019
2019
2018
Holding
units
Fair value
$
Holding
units
Fair value
$
1,700,000
200,000
100,000
3,000,500
820,000
2,001,000
1,600,000
400,000
250,000
3,840,000
1,508,000
5,620,000
1,000,000
16,190,000
1,000,000
14,410,000
150,000
3,000,000
-
4,027,500
5,625,000
-
300,000
2,500,000
50,000
2,500,000
13,500,000
1,600,000
8,157,000
4,012,500
3,219,500
6,928,000
1,950,000
9,680,500
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
-
600,000
950,000
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
-
800,000
7,120,000
-
-
650,000
11,537,500
-
-
-
950,000
450,000
750,000
1,400,000
-
-
1,130,000
2,500,000
400,000
-
850,000
2,300,000
2,800,000
1,000,000
1,300,000
2,200,000
-
450,000
10,000,000
-
5,000,000
2,200,000
801,500
900,000
600,000
650,000
-
9,053,500
11,137,500
3,277,500
924,000
-
-
14,068,500
8,550,000
5,000,000
-
3,961,000
7,452,000
9,576,000
3,440,000
4,433,000
6,952,000
-
2,250,000
5,100,000
-
2,725,000
4,125,000
5,666,605
3,510,000
12,162,000
4,751,500
Shareholder Information (continued)
A.
Long term equity investments (continued)
Ordinary shares, trust units or stapled securities
Pact Group Holdings Ltd
Pro-Pac Packaging Limited
Regis Healthcare Limited
Ruralco Holdings Limited
Shopping Centres Australasia Property Group
Skycity Entertainment Group Limited
Sims Metal Management Limited*
Sonic Healthcare Limited*
Southern Cross Media Group Limited
Spark Infrastructure Group
Steadfast Group Limited
Sydney Airport
Unibail Rodamco Westfield
Tabcorp Holding Limited*
Z Energy Limited
Floating rate notes
2019
2018
Holding
units
Fair value
$
Holding
units
Fair value
$
3,700,000
10,323,000
2,750,000
14,492,500
15,000,000
900,000
1,600,000
2,100,000
2,000,000
250,000
560,000
6,000,000
4,500,000
3,400,000
500,000
350,000
2,000,000
700,000
1,725,000
2,367,000
6,656,000
5,019,000
7,180,000
2,715,000
15,176,000
7,500,000
10,935,000
11,934,000
4,020,000
3,594,500
8,900,000
4,207,000
12,800,000
4,637,000
-
1,600,000
2,000,000
2,000,000
-
-
4,912,000
4,900,000
7,400,000
-
560,000
13,736,800
5,000,000
5,500,000
3,600,000
-
-
500,000
900,000
6,550,000
12,540,000
10,116,000
-
-
2,230,000
6,300,000
Crown Resorts Limited unsecured sub floating rate note
4,100,000
4,194,710
4,100,000
4,163,550
Total equities
Cash
Total portfolio
279,725,315
284,256,550
40,070,290
55,310,602
319,795,605
339,567,152
* Part or all of the security was subject to call options written by the company.
** A2B Australia Limited formerly Cabcharge Australia Limited.
There were 429 (2018: 448) investment transactions during the financial year. The total brokerage paid on these transactions
was $298,229 (2018: $299,787).
B. Distribution of equity securities
Analysis of numbers of shareholders by size of holding as at 30 June 2019:
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
No. of shareholders
Ordinary shares
Percentage
222
741
1,073
4,846
299
7,181
74,353
2,575,313
8,680,807
155,378,009
109,635,935
276,344,417
0.03
0.93
3.14
56.23
39.67
100.00
There were 139 holders of less than a marketable parcel of ordinary shares holding a total of 10,583 shares.
QV Equities Limited Annual Report 2019 | 51
Shareholder Information (continued)
C.
Equity security holders
Twenty largest shareholders - ordinary shares:
Name
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Nulis Nominees (Australia) Limited
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