2020
Annual Report
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Corporate Directory
Directors
Peter McKillop (Independent Director, Chairman)
John McBain (Independent Director, resigned 30 August 2019)
Jennifer Horrigan (Independent Director)
Eamonn Roles (Independent Director, appointed 30 August 2019)
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 2020
Contents
Contents
Financial Highlights
Chairman's Letter
Investment Manager’s Report
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flow
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Shareholders
Shareholder Information
4
6
8
11
20
21
21
22
23
25
26
41
43
47
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 2020 | 3
Xxxxxxx
Financial Highlights
Profit After Tax
$10,478,231 ($9,387,628 in FY19)
Management Expense Ratio 1.05%
(1.03% in FY19)
Earnings Per Share (cents)
3.85 Basic
(3.40 in FY19)
Dividends 4.4 cps
Fully Franked (declared for FY20)
(4.4 cps in FY19)
Portfolio Return
(Pre-tax)* -14.5%
Benchmark*#
-5.3%
Portfolio Return
(Post-tax)* -9.3%
ASX 300*
-7.6%
Net Assets $260,389,742
($311,749,767 in FY19)
Net Tangible Assets (NTA)
$0.94 (pre-tax cum div) $0.98 (post tax cum div)
All data as at 30 June 2020 unless otherwise specified. *Returns are measured for the 2020 financial year. # S&P/ASX300 ex20 index
Historical NTA Growth
Historical Dividend Growth
Source: Investors Mutual; 30 June 2020
4
| QV Equities Limited Annual Report 2020
$0.75 $0.85 $0.95 $1.05 $1.15 $1.25August-14January-15June-15November-15April-16September-16February-17July-17December-17May-18October-18March-19August-19January-20June-20NTA PER SHARE QVE Pre-tax NTA0.51.51.51.82.02.02.13.12.12.22.22.22.20.00.51.01.52.02.53.03.5FY15 InterimFY16 InterimFY17 InterimFY18 InterimFY19 InterimFY19 FinalFY20 InterimFY20 FinalFY18 Final & SpecialFY15 FinalFY16 FinalFY17 FinalCENTS PER SHAREQVE Dividend Payment (Fully Franked)QVE Special Dividend 1.0 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/ASX20 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/ASX20 Index. The Company
aims to achieve after-fee returns over a five-year-plus investment period higher than the S&P/ASX300 Accumulation Index,
excluding that part of the return generated by S&P/ASX20 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/ASX20 Index – representing the 20 largest entities by
market capitalisation on the ASX – accounts for 55% of the S&P/ASX300 Index by market capitalisation and has a high,
60% concentration in the Financial and Resource sectors as at 30 June 2020.
Investment Strategy
The Company’s investment strategy is to create a diversified and balanced portfolio of ASX-listed securities outside the
S&P/ASX20 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 undertakes a comprehensive ‘bottom-up’
approach to identifying, researching and valuing companies. IML’s approach to identifying opportunities for the portfolio is
systematic and 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 IML has applied successfully for over 22 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 industries and individual securities.
QV Equities Limited Annual Report 2020 | 5
Chairman's Letter
Dear Shareholders,
Financial year 2020 was a very challenging year for investors with the COVID-19 pandemic affecting people’s health, the
state of and outlook for the economy and sharemarkets around the world.
Following record highs set by sharemarkets during February 2020, world sharemarkets corrected significantly at the end of
the March quarter as the COVID-19 pandemic caused governments around the world to implement shutdowns across many
sectors, together with travel bans. The resulting economic downturn prompted considerable central bank intervention and
fiscal stimulus by governments around the world. This assisted sharemarkets to rally over the June quarter and finish the
financial year on a positive note, despite the uncertain outlook.
The objective of the Company remains the same, 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 with a 22- year track
record. Over recent years, value-style investing has experienced challenges in investment performance, when compared to
the high levels of speculative activity in the Australian sharemarket. However, at some stage the sharemarket will begin to
value companies according to their intrinsic fundamentals, and that correspondingly, investors in the Company will benefit
from the Manager’s consistent, value and quality- focused approach to investing in Australian companies. This approach has
rewarded investors over longer timeframes.
The Company’s portfolio return to shareholders for the year ended 30 June 2020 was a negative 14.5% compared to the
portfolio’s benchmark (ASX 300 ex20 Accumulation Index) return of a negative 5.3%. This was a disappointing result and
while the Company’s investment performance was broadly in line with the benchmark during the March quarter correction,
the portfolio’s performance did not match the sharemarket’s subsequent strong gains in the June quarter.
The Manager’s caution concerning many highly valued and cyclical sectors such as Technology and Resources affected
relative performance as the market rallied significantly. The Manager considers many stocks in these sectors to have
higher risks in the current uncertain economic environment. For these reasons, they were excluded from the investment
portfolio. In addition certain stocks in the Company’s portfolio, such as Tabcorp, Crown Resorts and Event Hospitality and
Entertainment, were directly affected by the COVID-19 lockdowns during the March quarter correction even though all
these companies occupy leading positions in their field of operation and have strong balance sheets.
The Board of the Company and the Manager remain confident 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 2020, the Company earned a net after-tax profit of $10.48 million, up 11.6% compared to the
prior financial year. On an earnings per share basis, the FY2020 result equates to after-tax earnings of 3.85 cents per share.
The management expense ratio (MER) rose modestly due to the lower average investment portfolio value over the year.
However, expenses were reduced to $3.0 million.
Dividends
A fully-franked interim dividend of 2.2 cents per share was paid on 17 March 2020. A final fully-franked dividend for the 2020
financial year of 2.2 cents per share will be paid on 18 September 2020 (the ex-dividend date for the final dividend will be
26 August 2020).
Your Board recognises that these are uncertain times for investors particularly with many companies suspending or
cancelling dividends. Accordingly, the Board recently announced its intention to maintain dividend payments to you for
financial year 2021 at 4.4 cents per share - as were paid in financial year 2020. These payments will be conditional on the
Company maintaining sufficient profit reserves and there being no material changes or unforeseen events.
6
| QV Equities Limited Annual Report 2020
Chairman's Letter (continued)
On Market Buy-Back
On 22 August 2019 your Board announced the implementation of an on-market buy-back facility to buy back up to 10% of
the Company’s issued shares. This facility will continue whenever the Company’s shares are trading at an excessive discount
to the underlying Net Tangible Assets per share. Since that announcement the Company has purchased 16.9 million shares
at a cost of $14.9 million.
Annual General Meeting
Shareholders are invited to attend our Annual General Meeting (AGM) on Wednesday 28 October 2020 at 10.30am (AEST).
Following the AGM, Investors Mutual will provide an update for shareholders on the Company’s portfolio. We are closely
monitoring government advice regarding corporate events before deciding on the format of this year’s AGM. The health
and safety of our staff and shareholders remains our priority and we intend to provide the opportunity to join the event
online. Further details regarding the AGM proceedings and the meeting, will be sent to shareholders in September.
Shareholder Communication
I hope you continue to find our regular communication informative and engaging. This information is delivered through a
variety of formats:
y Weekly Net Tangible Assets (NTA) reports
y Monthly 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
I encourage you to subscribe to receive these updates and invitations through the Company’s website www.qvequities.com.
Summary
Your Board continues to believe that a carefully selected holding of ex-20 stocks, managed by Investors Mutual Limited, will
provide you with good investment opportunities in these uncertain economic times. Now is the time for caution, which is
why the Company’s investment portfolio remains defensively positioned. The Manager remains disciplined and true to label,
and as always seeks to invest in good quality companies, underpinned by reasonable valuations, with upside potential,
sustainable earnings from a diverse range of sectors, and paying solid and consistent levels of franked dividends. In addition,
the Manager has cash available to take advantage of the continued market volatility.
I look forward to discussing the results presented in this Annual Report further at the Annual General Meeting on
28 October. Thank you again for your continuing support of QVE.
Yours sincerely,
Peter McKillop, Chairman
19 August 2020
QV Equities Limited Annual Report 2020 | 7
Investment Manager’s Report
Investors Mutual Limited (‘IML’) is pleased to deliver its investment report for QV Equities Limited for the financial year ended
30 June 2020.
Global sharemarkets endured one of the most turbulent 12-month periods on record over the course of financial year
2020. From record highs in mid-February, most sharemarkets collapsed from late February to late March as the coronavirus
pandemic forced the shutdown of economies across the globe. However, unprecedented government stimulus together
with ongoing record low interest rates and investor exuberance continued to support markets, with many companies’ share
prices recovering strongly over the June quarter.
This environment has been a very challenging one for value-style fund managers such as IML. However, we remain
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 through
all market cycles for the past 22 years. IML looks to invest in well established companies which possess the following clear
quality characteristics:
y
y
y
y
y
a competitive advantage over their peers;
a recurring earnings stream;
a capable management team;
the ability to grow earnings and dividends over time; and
an attractive entry price.
The Company’s portfolio at 30 June 2020 was made up of 43 listed securities spread across various ASX sectors. The
Company’s top holdings included well-known companies such as Amcor, Aurizon and Coles, as well as other good quality
companies such as Crown Resorts, Sonic Healthcare and Spark Infrastructure.
Portfolio Allocation as at 30 June 2020
8
| QV Equities Limited Annual Report 2020
Materials20%Cash18%Consumer Discretionary12%Energy10%Health Care9%Utilities9%Communication Services6%Industrials5%Real Estate5%Consumer Staples3%Financials2%Information Technology1% Investment Manager’s Report (continued)
Key Equity Investments
Principal activity
Holding weight*
Amcor
Ampol (Caltex)
Crown Resorts
Aurizon
AusNet
Global packaging company
Importer, retailer and refiner of petroleum products
Australian-based casino operator
Australian rail company
Owner of electricity distribution and transmission assets
Sonic Healthcare
Global pathology company
Orica
Tabcorp
Pact Group
Global manufacturer of commercial grade explosives and chemicals
Wagering and lotteries company
Rigid plastics packaging, contract manufacturing and pallet pooling company
SkyCity Entertainment
NZ and Australian casino operator
Incitec Pivot
Manufacturer and distributor of industrial chemicals, fertilisers and explosives
Spark Infrastructure
Owner of electricity distribution and transmission products
Coles
Australian supermarket retailer
Southern Cross Media
Radio, television and digital assets operator
Mayne Pharma
Genesis Energy
Pharmaceutical company
NZ electricity generation, natural gas and LPG retailing company
Virgin Money UK
UK retail bank
Integral Diagnostics
Radiology company
Oil Search
Origin Energy
Oil and gas producer
Australian energy retailer
4.91%
4.75%
4.33%
4.28%
4.02%
3.90%
3.89%
3.66%
3.51%
2.64%
2.63%
2.60%
2.47%
2.32%
2.32%
2.13%
2.12%
1.88%
1.80%
1.62%
*Holding weight as at 30 June 2020
The complete portfolio is shown on page 47 of this financial report.
Portfolio Performance
The QVE portfolio returned -14.5% before tax and after fees for the 12 months to 30 June 2020, compared to the benchmark
ASX ex-20 Index’s return of -5.3%.
This was a disappointing outcome, however to provide some perspective on QVE’s result, the benchmark’s return was driven
by sectors such as the IT and Medical Technology sectors, and many companies in these sectors have little or no earnings
and business models which remain unproven. Specific investments also held back the portfolio’s return for the year,
including Crown Resorts, SkyCity Entertainment and Tabcorp. These companies’ earnings were severely affected by the
COVID-19 lockdowns although the long-term licences, and the potential to generate good cashflows when things normalise
in future, all remain in place. The share prices of media companies Southern Cross Media and oOh!media fell heavily as
advertising spend fell heavily. Positively, the portfolio benefited from its exposure to holdings such as Sonic Healthcare,
Ampol, Pro-Pac Packaging, Integral Diagnostics, and Bunnings Warehouse (BWP) Trust, which all performed well.
Ampol was a strong contributor to QVE over the year, gaining +22% in FY2020. Previously known as Caltex, Ampol is a leading
convenience retailer and supplier and merchant of transport fuels. During the year, Ampol was the recipient of rival bids for
the business. Canadian company Alimentation Couche-Tard (ATD) made a conditional and non-binding bid at $34.50 per
share in November that was later revised upwards to $35.25 per share. In February, UK-based convenience store operator EG
Group proposed a scheme of arrangement entailing a purchase of the Ampol convenience retail business for $3.9bn, with the
remainder of the business to remain listed on the ASX. While Ampol’s board dismissed EG Group’s offer as undervaluing the
company, the decision was made to engage further with ATD on an exclusive basis. Following due diligence, ATD subsequently
decided not to proceed with its proposal given the high level of economic uncertainty caused by the COVID-19 pandemic.
Pro-Pac Packaging, the number two player in flexible packaging in Australia, enjoyed a strong year after issuing FY20 EBITDA
guidance of +7% growth to $30m, no mean feat given elevated uncertainty clouding the outlook for many companies. This followed
strong trade through the COVID-19 lockdowns, driven by an improved agricultural season and end market exposure to the food and
beverage sectors. Importantly, strong cashflow performance over the year has resulted in net debt reducing significantly to end the
year at $60m. Further, Pro- Pac announced a site rationalisation program to occur over FY21 which will deliver $7m of cost benefits,
supporting future margin expansion. These factors should help support the resumption of dividend payments from 1H21.
QV Equities Limited Annual Report 2020 | 9
Investment Manager’s Report (continued)
Integral Diagnostics was also a strong contributor to the portfolio with its share price increasing +30% over FY2020.
Integral is the fourth-largest diagnostic imaging company across Australia and New Zealand. An ageing demographic, a
focus on preventative medicine and developments in technology provide strong and sustainable tailwinds to the sector.
Integral continues to generate sector-leading margins, with its focus on higher end modalities and specialist areas in breast,
prostate and spinal imaging. The company continued to operate throughout the COVID-19 lockdowns as an essential
service, albeit with elective procedures affected. However, coming out of lockdowns, volumes have recovered relatively
quickly. At the same time, the company has continued to act as aggregator in what is a fragmented industry, acquiring
Imaging Queensland and Ascot Radiology in New Zealand over the course of the year.
Regarding Crown Resorts, SkyCity Entertainment, and Tabcorp, we continue to follow these companies closely. While
their share price performances and contributions to the QVE portfolio to date have been below expectations, we continue
to hold these companies. We are of the view that their share prices will recover over the medium term as the impact of the
COVID-19 lockdowns abates and these companies’ earnings recover in the next few years. We believe that these companies’
share prices significantly underestimate the improvement that we will see in the medium to longer term.
Outlook
In terms of the macroeconomic environment, we are conscious of the risk that the challenging growth outlook presents to
the overall sharemarket in the medium term. We therefore continue to hold a healthy cash weighting in the QVE portfolio.
In our view, sharemarkets will be more volatile in the coming months as investors grapple with what the ‘new normal’ will
look like following the anticipated reduction in stimulus and supports as we head into 2021. While some commentators
are predicting a sharp V-shaped recovery, conditions are likely to remain challenging as various travel bans and lockdowns
persist. Many companies are also looking to reduce their labour costs and cut their capital expenditure plans in anticipation
of lower future demand, further reinforcing our view of focusing on positioning the QVE portfolio defensively.
IML remains cautious about the outlook for sharemarkets. Given the low rates of return from alternatives such as cash and
bonds, and the unprecedented levels of government stimulus, several equity sectors’ valuations are now looking overstretched
in our view, as investors have bid up share prices in search of growth. With many valuations now sitting at elevated levels, and
with the economic and earnings outlook remaining highly uncertain, we continue to hold a healthy 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 strong economic growth. These initiatives include companies
capable of making accretive bolt-on acquisitions, such as Amcor; companies growing market share, such as Integral
Diagnostics; companies restructuring their business, such as Orora; companies that are on track for revenue growth, such
as AusNet; or companies that are actively taking costs out of their operations, such as Coles and Pro-Pac Packaging.
It remains a privilege, that we do not take for granted, to apply IML’s quality and value investment philosophy and approach
to investing the QVE portfolio for another year. While over the more recent past in particular the portfolio’s performance has
been disappointing, we still believe that a good quality portfolio of well established companies in the ex-20 sector of the
market will yield solid returns in the future as well as offering investors a good opportunity to diversify their exposure away
from the ASX top 20 stocks.
We hope to meet as many of you as possible at our shareholder events in early 2021, health conditions and government
regulations permitting.
Thank you for the trust you continue to place in us to invest on your behalf.
Anton Tagliaferro
Investment Director
Investors Mutual Limited
19 August 2020
Simon Conn
Senior Portfolio Manager
Investors Mutual Limited
10 | QV Equities Limited Annual Report 2020
Directors’ Report
The Directors present their report together with the financial report of QV Equities Limited ("the Company") for the year
ended 30 June 2020.
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
Eamonn Roles
Anton Tagliaferro
Simon Conn
Position
Appointment date
Independent Director (Chairman)
17 April 2014
Independent Director
Independent Director
Independent Director
Non-independent Director
Non-independent Director
17 April 2014, resigned 30 August 2019
26 April 2016
30 August 2019
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:
2020
Ordinary shares – interim 2020
Ordinary shares – final 2019
2019
Ordinary shares – interim 2019
Ordinary shares – final 2018
Special dividend – final 2018
Dividend
Per Share
2.2 cents
2.2 cents
2.2 cents
2.1 cents
1.0 cents
Total amount
Date of payment
$5,956,380
$6,079,577
$6,071,893
$5,786,275
$2,755,365
17/03/2020
20/09/2019
15/03/2019
31/10/2018
31/10/2018
%
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 18 September 2020.
Review of operations
Our Investment Manager ("the Manager"), Investors Mutual Limited ("IML") has patiently built a portfolio of 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 2020 | 11
Directors’ Report (continued)
Review of operations (continued)
Listed below is the Company’s performance for the past 6 and 12 months:
Performance
1 July 2019 to 30 June 2020
31 December 2019 to 30 June 2020
Increase in QVE's NTA
Benchmark return
-9.3%
-10.5%
-5.3%
-11.1%
Note: these figures are calculated net of IML’s management fee.
Investment operations for the year ended 30 June 2020 resulted in an operating profit before tax of $11,899,749 (2019:
$10,824,206) and an operating profit after tax of $10,478,231 (2019: $9,387,628).
Net Tangible Assets (NTA) for each ordinary share as at 30 June 2020 (calculated on market value less realisation costs and
before applicable taxes and before provision for dividends) amounted to $0.94 (2019: $1.15) per share. NTA after provision for
tax and before provision for dividends was $0.98 (2019: $1.13) per share.
The decrease in the NTA during the financial year was primarily driven by the decline in the investment portfolio.
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 2020 was $260,389,742 (2019: $311,749,767).
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 2020.
Matters subsequent to the end of the year
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 18 September 2020.
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 2020
Information on Directors
Peter McKillop
Independent Director, Chairman
Experience and expertise
Peter McKillop has over 30 years' experience in the funds
management, financial planning and superannuation
industry. Peter was Managing Director of State Super
Financial Services from 1990 until his retirement in 2011.
During his time with State Super Financial Services,
Peter was responsible for the overall management of
the Company’s activities, including compliance with all
legislative requirements and ensuring that the product
range remained appropriate to clients needs.
Prior to joining State Super Financial Services, Peter was
the Group Manager Investment Services at Perpetual
Funds Management Limited (Perpetual) where he
engineered the launch of Perpetual’s in-house funds
into the retail area in 1987, including Perpetual’s highly
successful Industrial Share Fund.
Peter is a Fellow of the Chartered Accountants Australia &
New Zealand and holds a Bachelor of Economics from the
University of Sydney.
Peter was appointed as the Chairman of the Board on
14 June 2016.
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).
Directors’ Report (continued)
Other current directorships
Peter McKillop does not hold other directorships of listed
companies.
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
Jennifer Horrigan is a Director of APN Funds Management,
Yarra Funds Management Ltd, APN Industria REIT (ASX: ADI),
APN Convenience Retail REIT (ASX:AQR) and Chairman of
Redkite (national children’s cancer charity).
Former directorships in last 3 years
Jennifer Horrigan was formerly a Director of Generation
Healthcare (ASX: GHC) and Breast Cancer Trials.
Special responsibilities
Chair of the Audit and Risk Committee.
Interests in shares and options of the Company
Details of Jennifer Horrigan’s interest in shares of the
Company are included later in this report.
Interests in contracts
Jennifer Horrigan has no interests in contracts of the Company.
QV Equities Limited Annual Report 2020 | 13
Directors’ Report (continued)
Information on Directors (continued)
Eamonn Roles
Independent Director
Experience and expertise
Other current directorships
Eamonn Roles has over 25 years’ experience in
the funds management and financial advisory
industries incorporating Product Development &
Management, Marketing, Strategy and Business
Planning, and Operations. He commenced his career at
PricewaterhouseCoopers in Ireland before joining the
Australian firm.
Eamonn Roles does not hold other directorships of listed
companies.
Former directorships in last 3 years
Eamonn Roles has not held any other directorships of listed
companies.
Special Responsibilities
Eamonn is a Chartered Accountant and holds a Graduate
Diploma in Applied Finance from Finsia.
Eamonn Roles is Chairman of the Nominations and Corporate
Governance Committee.
Interests in shares and options of the Company
Details of Eamonn Roles` interest in shares of the Company
are included later in this report.
Interests in contracts
Eamonn Roles 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.
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.
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 2020
Directors’ Report (continued)
Other current directorships
Simon Conn has not held any other directorships of listed
companies.
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 establish and manage their Australian
operations.
Zac subsequently joined SFG Australia Limited where he
helped 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 2020 | 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 2020, and the numbers of meetings attended by each Director were:
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Eamonn Roles
Anton Tagliaferro
Simon Conn
Directors’ meetings
Audit
Nomination
Meeting of committees
A
7
1
7
6
6
7
B
7
1
7
6
7
7
A
5
1
5
4
-
-
B
5
1
5
4
-
-
A
3
1
3
2
-
-
B
3
1
3
2
-
-
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 $100,000 per annum. Directors do not receive bonuses nor are they issued
options on securities. Directors’ fees cover all main Board activities and membership of committees. Under the ASX Listing
Rules, the maximum fees paid to Directors may not be increased without the approval from the Company at a general
meeting. Directors seek approval from time to time as appropriate.
Company performance
The following table reflects the Company's performance and Directors' remuneration over five years:
Five Year Financial Summary
2020
2019
2018
2017
2016
Profit after tax ($m)
Basic EPS (cents)
Total dividends (cents per share)
NTA per share post-tax at 30 June ($)
10,478,231
9,387,628
11,143,913
8,497,402
5,717,941
3.85
4.4
0.98
3.40
4.4
1.13
4.05
5.2
1.18
3.61
4.0
1.16
2.77
3.3
1.07
Total Directors remuneration ($)
100,000
100,000
100,000
100,000
100,000
16 | QV Equities Limited Annual Report 2020
Directors’ Report (continued)
Remuneration report (audited) (continued)
(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
2020 and 30 June 2019.
2020
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Eamonn Roles
Total key management personnel compensation
2019
Non-executive Directors
Peter McKillop
Jennifer Horrigan
John McBain
Total key management personnel compensation
Short term employee
benefits Directors’ fees
$
Post-employment
benefits superannuation
$
27,397
27,397
4,566
22,831
82,191
12,603
2,603
434
2,169
17,809
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
Total
$
40,000
30,000
5,000
25,000
100,000
Total
$
40,000
30,000
30,000
100,000
Directors receive a superannuation guarantee contribution required by the government, which was 9.5% of individual
benefits for financial year 2020 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
$2,611,265 (2019: $2,872,964) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after
allowing for the reduced input tax credit was $2,433,224 (2019: $2,677,080). As at 30 June 2020, the balance payable to
the Manager was $188,491 (2019: $236,008).
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 year. The Manager is appointed to provide the day to day
management of the Company and is remunerated as outlined above.
QV Equities Limited Annual Report 2020 | 17
Directors’ Report (continued)
Remuneration report (audited) (continued)
(d) Equity instrument disclosures relating to Directors
As at 30 June 2020, the Company’s Directors and their related parties held the following interests in the Company:
Ordinary Shares Held
2020
Director
Peter McKillop
Jennifer Horrigan
John McBain*
Eamonn Roles
Anton Tagliaferro
Simon Conn
2019
Director
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Balance as at
1 July 2019
435,895
-
224,142
-
5,050,000
150,000
5,860,037
Balance as at
1 July 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
Acquisitions
Disposals
68,665
29,200
-
100,000
1,000,000
80,000
1,277,865
-
-
-
-
-
-
-
Acquisitions
Disposals
10,550
10,880
-
450,000
-
471,430
-
-
-
-
-
-
Balance as at
30 June 2020
504,560
29,200
n/a
100,000
6,050,000
230,000
6,913,760
Balance as at
30 June 2019
435,895
224,142
-
5,050,000
150,000
5,860,037
*John McBain resigned from the Company effective 30 August 2019 and his shareholding balance as at 30 June 2020 is not included.
Directors and Director-related entities acquired ordinary shares in the Company on the same terms and conditions
available to other shareholders.
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.
18 | QV Equities Limited Annual Report 2020
Directors’ Report (continued)
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 (including Independence Standards).
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors’ Report) Instrument 2016/191,
issued by the Australian Securities and Investment Commission, relating to ‘rounding off’. Amounts in this report have been
rounded off in accordance with that Corporation Instrument to the nearest dollars unless otherwise stated.
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 20.
This report is made in accordance with a resolution of the Board of Directors.
Peter McKilllop, Chairman
19 August 2020
QV Equities Limited Annual Report 2020 | 19
Auditor’s Independence Declaration
20 | QV Equities Limited Annual Report 2020
Financial Statements for the year ended 30 June 2020
Statement of Comprehensive Income
Notes
30 June 2020
$
30 June 2019
$
Investment income
Dividend/distribution income
Interest income
Realised gains on options and futures
Unrealised gains/(losses) on options
Other income
Net investment income
Expenses
Management fees
Directors' fees
ASX fees
Registry fees
Insurance 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
Items that will be reclassified to profit and loss
Movement in fair value of floating rate notes, net of tax
Other comprehensive income, net of tax
11,185,636
500,649
3,086,218
121,523
41,375
12,736,833
1,106,387
350,131
(74,097)
4,471
14,935,401
14,123,725
2,433,224
100,000
78,496
70,097
178,001
175,834
2,677,080
100,000
83,297
133,480
118,705
186,957
3,035,652
3,299,519
11,899,749
1,421,518
10,478,231
10,824,206
1,436,578
9,387,628
(39,203,368)
(9,899,518)
(172,735)
(39,376,103)
23,188
(9,876,330)
5
Total comprehensive loss for the year, net of tax
(28,897,872)
(488,702)
Earnings per share
Basic and diluted earnings per share (cents per share)
13
3.85
3.40
The Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2020 | 21
Statement of Financial Position
Notes
30 June 2020
$
30 June 2019
$
Assets
Current assets
Cash and cash equivalents
Receivables
Prepayments
Total current assets
Non-current assets
Long-term investments
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade creditors and other payables
Current tax liabilities
Financial liabilities 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
31,204,620
40,070,290
453,501
90,568
954,095
85,541
31,748,689
41,109,926
220,112,578
12,765,887
232,878,465
264,627,154
1,805,457
939,610
1,492,345
4,237,412
-
-
4,237,412
260,389,742
272,103,428
(29,628,264)
13,392,726
4,521,852
260,389,742
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
311,749,767
282,529,624
9,189,720
15,019,704
5,010,719
311,749,767
The Statement of Financial Position should be read in conjunction with the accompanying notes.
22 | QV Equities Limited Annual Report 2020
Financial Statements (continued) Statement of Changes in Equity
Issued
capital
$
Asset
revaluation
reserve
$
Capital
profits
reserve
$
Notes
Profits
reserve
$
Retained
profits
$
Total
$
282,529,624
9,189,720
15,019,704
5,010,719
-
311,749,767
Transactions with equity holders in their capacity as owners:
Balance at 1 July 2019
Profit for the year
Other comprehensive income:
Net revaluation of investments
Total comprehensive income
for the year
Shares issued from dividend
reinvestment plan
Dividends provided for or paid
Share buyback - redemption
Other
Realised profits/(losses) on
sale of investments transferred
to capital profits reserve
Transfer to profits reserve
11
14
11
12
-
-
-
-
(39,376,103)
(39,376,103)
365,149
-
(10,791,345)
-
-
-
-
-
-
-
-
-
-
-
(1,068,859)
(10,967,098)
-
-
-
10,478,231
10,478,231
-
(39,376,103)
10,478,231
(28,897,872)
-
-
-
-
365,149
(12,035,957)
(10,791,345)
-
-
558,119
(558,119)
-
-
-
-
10,478,231
(10,478,231)
Balance at 30 June 2020
272,103,428
(29,628,264)
13,392,726
4,521,852
-
260,389,742
The Statement of Changes in Equity should be read in conjunction with the accompanying notes.
QV Equities Limited Annual Report 2020 | 23
Financial Statements (continued)
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
Statement of Changes in Equity
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 profit on sale of
investments transferred to
capital profits reserve
Transfer to profits reserve
11
14
12
849,533
-
-
-
-
-
-
-
(9,876,330)
(9,876,330)
-
-
-
-
-
-
-
-
(3,624,572)
(10,988,961)
-
-
9,387,628
9,387,628
-
(9,876,330)
9,387,628
(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 notes.
24 | QV Equities Limited Annual Report 2020
Financial Statements (continued) Statement of Cash Flow
Cash flows from operating activities
Dividends/distributions received
Interest received
Net realised gains on exchange traded options
Payments for other expenses
Other income
Income tax paid
Net cash inflow from operating activities
6
Cash flows from investing activities
Payments for investments
Proceeds from sale of investments
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Dividends paid
Payments for share buyback
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
6
Non-cash transactions:
Shares issued via dividend reinvestment plan
The above Statement of Cash Flow should be read in conjunction with the accompanying notes.
Notes
30 June 2020
$
30 June 2019
$
11,425,521
520,474
2,864,451
(3,101,464)
41,375
(2,174,792)
9,575,565
12,726,188
1,088,576
1,111,126
(3,335,661)
4,471
(4,267,198)
7,327,502
(80,360,574)
(102,644,408)
83,920,962
3,560,388
93,840,594
(8,803,814)
(11,670,808)
(10,330,815)
(22,001,623)
(8,865,670)
40,070,290
31,204,620
(13,764,000)
-
(13,764,000)
(15,240,312)
55,310,602
40,070,290
365,149
849,533
QV Equities Limited Annual Report 2020 | 25
Financial Statements (continued)
Notes to the Financial Statements for the year ended 30 June 2020
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 19 August 2020.
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 2020 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 current and future reporting periods, some of which are relevant to the Company.
The Directors have assessed these new standards and interpretations to have no material impact to the Company.
(iii) Standards issued but not yet effective
There are no other standards that have been issued but not yet effective and that would be expected to have a
material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
(b) Investments
(i) Recognition and initial measurement
Long term equity investments and investments held for sale are recognised initially at cost. Financial liabilities are
recognised initially at cost.
(ii) Classification and sub sequent measurement
The Company classifies its investments based on its business model for managing those financial assets and the
contractual cash flow characteristics of the investments.
For long term equity securities, the contractual cash flows do not represent solely payments of principal and
interest and they are not held for trading. Therefore, the Company has made an irrevocable election to present fair
value movements on these securities in other comprehensive income which accumulates in the asset revaluation
reserve. On decognition the cumulative gain /loss on these securities are transferred to the capital profits reserve.
For floating rate securities, the contractual cash flows are solely payments of principal and interest and the business
model objective is achieved by both collecting contractual cash flows and selling these financial assets. Therefore,
the Company mandatorily presents these securities in other comprehensive income which accumulated in the asset
revaluation reserve. On derecognition the cumulative gain/loss on these securities are recycled to the profit or loss.
The Company holds call options which are derivatives financial instruments 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.
26 | QV Equities Limited Annual Report 2020
2. Summary of significant accounting policies (continued)
(b) Investments (continued)
(iii) Derecognition
Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is
transferred to another party whereby the Company 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 year is the tax payable on the current year’s taxable income based on the
applicable income tax rate, adjusted by changes in the deferred tax assets and liabilities attributable to temporary
differences, unused tax losses and the adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the
assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred
tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available
for the carrying amount to be recovered.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and
intends to either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), unless GST incurred is
not recoverable from the Australian Taxation Office (ATO). In this case it is recognised as part of the cost of acquisition of
the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the Statement of
Financial Position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the Australian Taxation Office (ATO), are presented as operating cash flows.
(g) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash
which are subject to an insignificant risk to changes in value.
QV Equities Limited Annual Report 2020 | 27
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies (continued)
(h) Receivables and unsettled sale of shares
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, dividends and trust distributions. Interest, dividends and trust distributions 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. Shares bought back will be recognised as a reduction to ordinary shares.
(k) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion
of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period.
It is the Boards’ policy that all dividends paid will be franked to the maximum extent possible.
(l) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
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 shares
bought back 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.
(o) Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements.
Apart from the items mentioned below, there are no key judgements, estimates and assumptions that have a risk of
causing material adjustment to the carrying amount of assets and liabilities within the next financial year.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the Company considers it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
28 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued) 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’s
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 long term investments and financial liabilities at fair value.
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.
The Company’s industry sector weighting of investments including options as at 30 June 2020 and 30 June 2019 is
listed below:
Industry sector
Financials
Materials
Health Care
Utilities
Consumer Discretionary
Industrials
Energy
Listed Property Trust
Communication Services
Consumer Staple
Information Technology
Cash
2020
%
2.3
19.7
9.3
8.8
12.2
4.9
10.3
4.5
6.2
2.8
1.0
82.0
18.0
100.0
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
As at 30 June 2020, 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 year. 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.
QV Equities Limited Annual Report 2020 | 29
Notes to the Financial Statements (continued)
3. Financial risk management (continued)
(a) Market risk (continued)
(i) Price risk (continued)
Investments represent 82% (2019: 83%) 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% (2019: 30%).
Increase 5%
Decrease 5%
Increase 10%
Decrease 10%
Impact on Total
Comprehensive income
2020
$
2019
$
7,651,708
9,726,139
(7,651,708)
15,303,416
(9,726,139)
19,452,278
(15,303,416)
(19,452,278)
(ii) Cash flow and fair value interest rate risk
The Company’s interest bearing financial assets expose it to risks associated with the effects of fluctuations in
the prevailing levels of market interest rates on its financial position and cash flows. The risk is measured using
sensitivity analysis.
The table below summarises the Company’s exposure to interest rate risk. It includes the Company’s assets and
liabilities at fair value, categorised by the earlier of contractual repricing or maturity dates.
30 June 2020
Financial assets
Cash and cash equivalents
Receivables
Long term investments
Financial liabilities
Trade creditors and other payables
Financial liabilities at fair value
Floating
interest rate
$
Non-interest
bearing
$
Total
$
31,204,620
-
31,204,620
-
453,501
453,501
3,944,200
216,168,378
220,112,578
35,148,820
216,621,879
251,770,699
-
-
-
(1,805,457)
(1,805,457)
(1,492,345)
(1,492,345)
(3,297,802)
(3,297,802)
Net exposure to interest rate risk
35,148,820
213,324,077
248,472,897
30 June 2019
Financial assets
Cash and cash equivalents
Receivables
Long term investments
Financial liabilities
Trade creditors and other payables
Financial liabilities at fair value
40,070,290
-
40,070,290
-
954,094
954,094
4,194,710
275,530,605
279,725,315
44,265,000
276,484,699
320,749,699
-
-
-
(1,165,335)
(1,835,635)
(3,000,970)
(1,165,335)
(1,835,635)
(3,000,970)
Net exposure to interest rate risk
44,265,000
273,483,729
317,748,729
The weighted average interest rate of the Company’s cash and cash equivalents at 30 June 2020 is 1.06% (2019: 1.37%).
30 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued)
3. Financial risk management (continued)
(a) Market risk (continued)
(ii) Cash flow and fair value interest rate risk (continued)
Sensitivity analysis
At 30 June 2020, if interest rates had increased/decreased by 75 basis points (2019: 75 basis points) from the year
end rates with all other variables held constant, post-tax profit for the year would have been $237,150 (2019:
$225,679) higher/$237,150 (2019: $225,679) lower, mainly as a result of higher/lower interest income from cash and
cash equivalents.
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation.
Market prices generally incorporate credit risk assessments into valuations and risk of loss is implicitly provided for in
the carrying value of assets and liabilities as they are marked to market at balance date.
The total credit risk for assets is therefore limited to the amount carried in the Statement of Financial Position.
The Manager is responsible for ensuring there is appropriate diversification across counterparties and that they are of a
sufficient quality rating. The Manager minimises the Company’s concentration of credit risk by undertaking transactions
in ASX listed securities with a large number of approved brokers. Payment is only made once a broker has received
securities and delivery of securities only occurs once the broker has 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. Payables are due within less than 6 months. In the case of call options, there are no contractual
cash flows as if the option is exercised the contract will be settled in the securities over which the option is written.
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.
QV Equities Limited Annual Report 2020 | 31
Notes to the Financial Statements (continued)
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 investments
Financial liabilities held for trading
Fair value hierarchy
AASB 13: Fair value measurement requires disclosure of fair value measurements by level of the fair value hierarchy:
Level 1 – measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – measurements based on inputs other than quoted prices included in level 1 that are observable for the asset or liability; and
Level 3 – measurements based on unobservable inputs from the asset or liability.
(i) Recurring fair value measurements
The following table presents the Company’s assets measured and recognised at fair value as at 30 June 2020 and
30 June 2019.
As at 30 June 2020
Financial assets
Long term investments:
Listed equities
Listed unit trusts
Floating rate notes
Total
Financial liabilities
Financial liabilities held for trading:
Options
Total
As at 30 June 2019
Financial assets
Long term investments:
Listed equities
Listed unit trusts
Floating rate notes
Total
Financial liabilities
Financial liabilities held for trading:
Options
Total
Level 1
$
Level 2
$
Level 3
$
Total
$
198,249,379
17,918,999
3,944,200
220,112,578
1,492,345
1,492,345
-
-
-
-
-
-
-
-
-
-
-
-
198,249,379
17,918,999
3,944,200
220,112,578
1,492,345
1,492,345
Level 1
$
Level 2
$
Level 3
$
Total
$
259,379,605
16,151,000
4,194,710
279,725,315
1,835,635
1,835,635
-
-
-
-
-
-
-
-
-
-
-
-
259,379,605
16,151,000
4,194,710
279,725,315
1,835,635
1,835,635
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.
During the year $nil (2019: $1,122,000) has been transferred from Level 2 to Level 1. There were no transfers in and out of
Level 2 and 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.
32 | QV Equities Limited Annual Report 2020
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% (2019: 30%)
3,569,925
3,247,262
30 June 2020
$
30 June 2019
$
Increase/(decrease) in income tax expense due to:
Gross up of imputation credits received
Imputation credits on dividends received
Gross up of foreign income tax offsets
Foreign income tax offsets
Franked dividend income receivable
Tax deferred and income from trust distributions
Impact of retrospective tax change
Under/(over) provisions in previous year
Capital raising costs raised directly in equity
Tax expense composition:
Current tax expense
Movement in deferred tax liabilities
Movement in deferred tax assets
Under/(over) provision in previous year
Capital raising costs raised directly in equity
Impact of retrospective tax change
Effective tax rate is:
798,392
874,004
(2,661,307)
(2,913,346)
62,694
(208,979)
(5,427)
(167,708)
-
42,328
(8,400)
76,937
(256,457)
-
-
408,178
-
-
1,421,518
1,436,578
1,463,524
(141,276)
65,342
42,328
(8,400)
-
1,421,518
545,113
246,795
236,353
-
-
408,317
1,436,578
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.
11.95%
13.27%
(b) Deferred tax assets
This balance comprises temporary differences attributable to:
Accruals
Share issue costs capitalised
Transfer from deferred tax liabilities
Movements
Opening balance
Share issue costs capitalised
Charged to statement of comprehensive income
Impact of retrospective tax change
Transfer from deferred tax liabilities
The rate used at 30 June 2020 is 30% (30 June 2019: 30%)
30 June 2020
$
30 June 2019
$
18,061
68,422
12,679,404
11,230
123,405
-
12,765,887
134,635
134,635
8,400
(65,342)
8,790
12,679,404
12,765,887
340,072
-
(236,353)
30,916
-
134,635
QV Equities Limited Annual Report 2020 | 33
Notes to the Financial Statements (continued)
5. Taxation (continued)
(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
30 June 2020
$
30 June 2019
$
1,631,044
1,463,524
-
(2,174,792)
19,834
-
939,610
3,205,655
545,113
1,503,284
(4,267,198)
2,130
642,060
1,631,044
30 June 2020
$
30 June 2019
$
This balance comprises temporary differences attributable to:
Fair value adjustment on equity investments
(12,500,525)
4,430,042
Revaluation of options
Income receivable not assessable for tax until receipt
Tax deferred distributable income
Transfer to deferred tax assets*
Movements
Opening balance
Charged to statement of comprehensive income
Impact to other comprehensive income
Impact of retrospective tax change
Under/(over) provision
Transfer to deferred tax assets*
The rate used at 30 June 2020 is 30% (30 June 2019: 30%)
*Debit balance on deferred tax liabilities transferred to deferred tax assets.
6. Cash and cash equivalents
Cash at bank
Short term deposits
Total cash and cash equivalents
(49,315)
33,642
(163,206)
12,679,404
(85,772)
5,280
238,545
-
-
4,588,095
4,588,095
(141,276)
9,060,302
246,795
(16,931,180)
(5,540,536)
-
821,534
(195,043)
12,679,404
-
-
-
4,588,095
30 June 2020
$
30 June 2019
$
31,204,620
-
31,204,620
25,070,290
15,000,000
40,070,290
34 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued)
6. Cash and cash equivalents (continued)
Reconciliation of operating profit after tax to cash inflows from operating activities
Net profit after income tax
Changes in operating assets and liabilities
Unrealised (gains)/losses on options
(Increase)/decrease in dividends/distributions receivable
Decrease/(increase) in interest receivable
Increase in prepayments
(Decrease)/increase in sundry creditors and accruals
Decrease in deferred tax assets
Decrease in current tax provision
(Decrease)/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 are past the due date or impaired.
8. Long term investments
30 June 2020
$
30 June 2019
$
10,478,231
9,387,628
(121,523)
239,885
19,825
(5,026)
(282,553)
48,152
(465,107)
(336,319)
(902,666)
9,575,565
74,097
(10,645)
(17,811)
(29,812)
754,666
205,437
(3,282,853)
246,795
(2,060,126)
7,327,502
30 June 2020
$
30 June 2019
$
116
394,390
58,995
453,501
19,942
634,275
299,878
954,095
Financial assets held at fair value through other comprehensive income are all held as long term investments and include
the following:
Listed securities
Fair value
30 June 2020
$
Fair value
30 June 2019
$
220,112,578
279,725,315
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 securities held at year-end
Listed securities sold during the year
Total dividend
2020
$
2019
$
7,005,622
4,180,014
11,185,636
11,200,163
1,536,670
12,736,833
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.
QV Equities Limited Annual Report 2020 | 35
Notes to the Financial Statements (continued)
8. Long term investments (continued)
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 securities
Gain on disposal after tax
Listed securities
2020
$
2019
$
83,694,166
78,905,807
558,119
2,744,875
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 at fair value
10. Trade creditors and other payables
Payable - investment creditors
Payable - share buyback
Payable - other expenses
Total trade creditors and other payables
11. Issued capital
(a) Share capital
Fair value
30 June 2020
$
Fair value
30 June 2019
$
1,327,962
164,383
1,492,345
1,549,729
285,906
1,835,635
30 June 2020
$
30 June 2019
$
995,096
460,530
349,831
1,805,457
740,631
-
424,704
1,165,335
Fully paid ordinary shares
264,818,778
272,103,428
276,344,417
282,529,624
30 June 2020
Number of
shares
30 June 2020
Total amount
$
30 June 2019
Number of
shares
30 June 2019
Total amount
$
(b) Movements in ordinary share capital
2020
Date
01/07/2019
Opening balance
Ordinary shares issued under dividend reinvestment
plan - final 2019
Share buyback - redemption
30/06/2020
Closing balance
Number of
shares
276,344,417
380,059
(11,905,698)
264,818,778
Issue price*
$
Total amount
$
0.96
0.91
282,529,624
365,149
(10,791,345)
272,103,428
36 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued) 11. Issued capital (continued)
(b) Movement in ordinary share capital (continued)
2019
Date
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
* Rounded to two decimal places.
(c) Fully paid ordinary shares
Number of
shares
275,536,547
458,570
349,300
276,344,417
Issue price*
$
Total amount
$
$1.08
$1.01
281,680,091
495,030
354,503
282,529,624
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.
(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, buyback shares or sell assets to reduce debt.
The Company is not subject to any externally imposed capital requirements.
12. Reserves
(a) Capital profits reserve
Realised gains or losses on long term equity investments are transferred from the asset revaluation reserve to the
capital profits reserve for dividend payments.
Realised (loss)/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) Asset revaluation reserve
30 June 2020
$
30 June 2019
$
(558,119)
2,744,875
15,019,704
10,231,410
(10,789,529)
(1,068,859)
13,392,726
15,899,401
6,622,560
(3,877,685)
(3,624,572)
15,019,704
Changes in the fair value of long term investments are presented in other comprehensive income through the assets
revaluation reserve. Upon disposal of a long term investment the realised gain or loss is transferred from the asset
revaluation reserve to the capital profits reserve.
QV Equities Limited Annual Report 2020 | 37
Notes to the Financial Statements (continued)
13. Earnings per share
(a) Basic and diluted earnings per share
Total earnings per share attributable to the ordinary equity holders of the Company
3.85
3.40
30 June 2020
cents
30 June 2019
cents
(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 weighted average number of shares on issue
during the year.
272,040,430
275,945,196
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% (2019: 30%) tax rate.
Final dividend FY19: 2.2 cents per share fully franked paid 20 September 2019 (final
dividend FY18: 2.1 cents per share fully franked)
Special dividend FY19: nil cents per share fully franked (special dividend FY18: 1.0 cents)
lnterim dividend FY20: 2.2 cents per share fully franked paid 17 March 2020 (interim
dividend FY19: 2.2 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 18 September 2020 (2019: 20 September 2019) out of the profits of the Company at
30 June 2020 and 30 June 2019, but not recognised as a liability at year end is:
30 June 2020
$
30 June 2019
$
6,079,577
-
5,956,380
12,035,957
5,786,275
2,755,365
6,071,893
14,613,533
30 June 2020
$
30 June 2019
$
5,826,013
6,079,577
(c) Dividends franking account
The fully franked final dividend to be paid on 18 September 2020 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 2020.
Opening balance of franking account
Franking credits on dividends received
Tax paid during the period
Franking credits on ordinary dividends paid
Impact of retrospective tax changes
Closing balance of franking account
Adjustment for tax payable on the current period profits
Franking credits available for use in subsequent reporting periods
30 June 2020
$
30 June 2019
$
4,645,592
2,661,307
2,174,792
4,284,305
2,913,346
4,267,198
(5,158,267)
(6,262,943)
-
4,323,424
939,610
5,263,034
(556,314)
4,645,592
1,631,044
6,276,636
Adjusted for dividends declared subsequent to reporting period 30% (2019: 30%)
(2,496,863)
(2,605,533)
Adjusted franking account balance
2,766,171
3,671,103
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.
38 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued) 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
Eamonn Roles
Independent Director
Anton Tagliaferro
Non-Independent Director
Simon Conn
Non-Independent Director
(a) Remuneration
Detailed remuneration disclosures are provided in the Remuneration Report of the Directors’ Report on page 16 and 17.
Short term employee benefits - Directors fees
Post employment benefits - Superannuation
30 June 2020
$
30 June 2019
$
82,191
17,809
100,000
73,059
26,941
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
2020
Directors
Peter McKillop
Jennifer Horrigan
John McBain*
Eamonn Roles
Anton Tagliaferro
Simon Conn
2019
Directors
Peter McKillop
John McBain
Jennifer Horrigan
Anton Tagliaferro
Simon Conn
Acquisitions
Disposals
Balance as at
30 June 2019
435,895
-
224,142
68,665
29,200
-
-
100,000
5,050,000
1,000,000
150,000
80,000
5,860,037
1,277,865
Balance as at
30 June 2018
425,345
213,262
-
4,600,000
150,000
5,388,607
Acquisitions
Disposals
10,550
10,880
-
450,000
-
471,430
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance as at
30 June 2020
504,560
29,200
n/a
100,000
6,050,000
230,000
6,913,760
Balance as at
30 June 2019
435,895
224,142
-
5,050,000
150,000
5,860,037
*John McBain resigned from the Company effective 30 August 2019 and his shareholding balance as at 30 June 2020 is not included.
QV Equities Limited Annual Report 2020 | 39
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
$2,611,265 (2019: $2,872,964) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after
allowing for the reduced input tax credit was $2,433,224 (2019: $2,677,080). As at 30 June 2020, the balance payable to the
Manager was $188,491 (2019: $236,008).
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 commitments or contingent liabilities as at 30 June 2020 and 30 June 2019.
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 18 September 2020.
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 2020
$
30 June 2019
$
43,300
42,000
10,200
53,500
9,900
51,900
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.
40 | QV Equities Limited Annual Report 2020
Notes to the Financial Statements (continued) Directors’ Declaration
In the Directors’ opinion,
(1)
the financial statements and notes set out on pages 21 to 40 are in accordance with the Corporations Act 2001 including:
(a) complying with the Accounting Standards, the Corporations Regulations 2001 and any other mandatory professional
reporting requirements;
(b) complying with International Financial Reporting Standards as issued by the International Accounting Standards
Board as described in note 2 to the financial statements; and
(c) giving a true and fair view of the Company’s financial position as at 30 June 2020 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
19 August 2020
QV Equities Limited Annual Report 2020 | 41
Independent Auditor’s Report to the Shareholders
Level 16, Tower 2 Darling Park
201 Sussex Street
Sydney NSW 2000
Postal Address
GPO Box 1615
Sydney NSW 2001
p. +61 2 9221 2099
e. sydneypartners@pitcher.com.au
Independent 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 2020, 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.
ii.
giving a true and fair view of the Company’s financial position as at 30 June 2020
and of its financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations
Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Report section of our report. We are independent of the
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 (including Independence
Standards) (“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.
Adelaide Brisbane Melbourne Newcastle Perth Sydney
Pitcher 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 members of which
are separate and independent legal entities.
pitcher.com.au
QV Equities Limited Annual Report 2020 | 43
Independent Auditor’s Report to the Shareholders (continued)
Independent Auditor’s Report
To the Members of QV Equities Limited
ABN 64 169 154 858
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
Existence and Valuation of Financial Assets
Refer to Note 8: Financial Assets
We focused our audit effort on the existence and
valuation of the Company’s financial assets as
they represent the most significant driver of the
Company’s Net Tangible Assets and Profit.
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, these investments are classified
under Australian Accounting Standards as
“Level 1” (i.e. where the valuation is based on
quoted prices in active markets).
Our procedures included, amongst others:
▪ Obtaining an understanding of and
evaluating the investment management
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 Custodians;
▪ 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;
▪ Obtaining confirmations of the investment
holdings directly from the Custodians;
▪ Assessing and recalculating the Company’s
valuation of individual investment holdings
using independent pricing sources;
▪ Evaluating the accounting treatment of
revaluations of financial assets for
current/deferred tax and unrealised gains or
losses; and
▪ Assessing the adequacy of disclosures in
the financial statements.
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
44 | QV Equities Limited Annual Report 2020
Independent Auditor’s Report to the Shareholders (continued)
Independent Auditor’s Report
To the Members of QV Equities Limited
ABN 64 169 154 858
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 2020 but
does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report in this
regard.
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.
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
QV Equities Limited Annual Report 2020 | 45
Independent Auditor’s Report to the Shareholders (continued)
Independent Auditor’s Report
To the Members of QV Equities Limited
ABN 64 169 154 858
Auditor’s Responsibilities for the Audit of the Financial Report (Continued)
• Conclude on the appropriateness of the Directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the
financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including
the disclosures, and whether the financial report represents the underlying transactions
and events in a manner that achieves fair presentation.
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, actions taken to eliminate threats or safeguards applied.
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 2020.
In our opinion, the Remuneration Report of QV Equities Limited, for the year ended 30 June
2020, 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.
Pitcher Partners
Sydney
C I Chandran
Partner
19 August 2020
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
46 | QV Equities Limited Annual Report 2020
Shareholder Information
The shareholder information set out below was applicable as at 30 June 2020.
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 2020:
Ordinary shares, trust units or stapled securities
A2B Australia Limited
Abacus Property Group
AGL Energy Limited
Ampol Limited (formerly Caltex Australia)*
Amcor Limited*
Australian Pharmaceutical Industries Limited
Ansell Limited
AusNet Services Limited
Alumina Limited*
Aurizon Holdings Limited*
BWP Trust
Bank of Queensland Limited
Coles Group Limited*
Charter Hall Retail REIT
Clearview Wealth Limited
Crown Resorts Limited*
Event Hospitality and Entertainment Ltd
Fletcher Building Limited
Genesis Energy Limited
GWA Group Limited
Hotel Property Investments
Integral Diagnostics Limited
Iluka Resources Limited*
Incitec Pivot Limited
Link Administration Holdings Limited
Mirvac Group*
Metcash Limited*
Mayne Pharma Group Limited
Newcrest Mining Limited*
Myer Holdings Limited
Nine Entertainment Co. Holdings Limited
New Hope Corporation Limited
Oil Search Limited*
Ooh Media Limited
Orica Limited*
Orora Limited
Origin Energy Limited*
2020
2019
Holding
units
Fair value
$
Holding
units
Fair value
$
1,800,000
1,458,000
1,700,000
-
-
430,000
1,000,000
1,700,000
-
6,000,000
1,000,000
2,500,000
800,000
-
600,000
1,200,000
1,600,000
1,220,000
390,000
750,000
2,000,000
-
-
1,200,000
150,000
3,500,000
600,000
500,000
500,000
15,000,000
101,172
-
2,500,000
1,500,000
1,460,000
1,800,000
600,000
800,000
700,000
-
-
12,607,600
14,480,000
1,946,500
-
10,020,000
1,625,000
12,300,000
3,064,000
200,000
100,000
450,000
3,000,500
820,000
2,001,000
11,137,500
1,000,000
16,190,000
-
150,000
3,000,000
-
-
4,027,500
5,625,000
-
2,500,000
13,500,000
-
-
-
950,000
9,053,500
10,302,000
4,020,000
432,000
11,797,400
3,279,900
2,587,500
5,320,000
-
-
4,680,000
1,281,000
6,562,500
2,460,000
1,085,000
1,360,000
5,775,000
3,189,953
-
3,450,000
2,047,500
4,628,200
1,638,000
9,984,000
2,032,000
4,088,000
-
750,000
1,400,000
1,130,000
400,000
850,000
2,300,000
2,800,000
1,000,000
2,200,000
-
1,300,000
450,000
-
-
-
3,277,500
924,000
14,068,500
5,000,000
3,961,000
7,452,000
9,576,000
3,440,000
6,952,000
-
4,433,000
2,250,000
-
-
10,000,000
5,100,000
-
5,000,000
2,200,000
-
801,500
900,000
600,000
-
-
2,725,000
4,125,000
-
5,666,605
3,510,000
12,162,000
-
650,000
4,751,500
QV Equities Limited Annual Report 2020 | 47
Shareholder Information (continued)
2020
2019
Holding
units
Fair value
$
Holding
units
Fair value
$
4,000,000
22,000,000
700,000
-
1,500,000
390,000
2,950,000
-
3,000,000
300,000
33,035,000
-
-
-
8,760,000
3,960,000
987,000
-
3,270,000
11,867,700
6,578,500
-
6,480,000
1,272,000
5,781,125
-
-
-
2,700,000
3,200,000
1,300,000
9,126,000
5,296,000
3,289,000
3,700,000
15,000,000
900,000
1,600,000
2,100,000
560,000
2,000,000
250,000
4,500,000
-
6,000,000
3,400,000
500,000
350,000
2,000,000
2,500,000
700,000
10,323,000
1,725,000
2,367,000
6,656,000
5,019,000
15,176,000
7,180,000
2,715,000
10,935,000
-
7,500,000
11,934,000
4,020,000
3,594,500
8,900,000
8,550,000
4,207,000
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
Sonic Healthcare Limited*
Skycity Entertainment Group Limited
Sims Metal Management Limited
Spark Infrastructure Group
Spark New Zealand Limited
Southern Cross Media Group Limited
Steadfast Group Limited
Sydney Airport
Unibail Rodamco Westfield CDI
Tabcorp Holding Limited
Virgin Money UK PLC (formerly Cybg PLC)
Z Energy Limited
Floating rate notes
Crown Resorts Limited unsecured sub floating rate note
4,100,000
3,944,200
4,100,000
4,194,710
Total equities
Cash
Total portfolio
220,112,578
279,725,315
31,204,620
251,317,198
40,070,290
319,795,605
* Part or all of the security was subject to call options written by the Company as at 30 June 2020.
There were 561 (2019: 429) investment transactions during the financial year. The total brokerage paid on these transactions
was $305,661 (2019: $298,229).
B. Distribution of equity securities
Analysis of numbers of shareholders by size of holding as at 30 June 2020:
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
240
660
985
4,313
301
6,499
77,690
2,295,711
8,005,973
138,824,306
115,615,098
264,818,778
0.03
0.86
3.01
52.60
43.50
100.00
There were 180 holders of less than a marketable parcel of ordinary shares holding a total of 24,921 shares.
48 | QV Equities Limited Annual Report 2020
Shareholder Information (continued)
C. Equity security holders
Twenty largest shareholders - ordinary shares:
Name
Ordinary shares
HSBC Custody Nominees (Australia) Limited
Nulis Nominees (Australia) Limited
Navigator Australia Limited
AKAT Investments Pty Ltd
Citicorp Nominees Pty Limited
Bennamon Pty Ltd
Netwealth Investments Limited
Austair Pilots Pty Ltd
Australian Executor Trustees
Investors Mutual Ltd
Netwealth Investments Limited
Australian Executor Trustees
AKAT Investments Pty Ltd
J P Morgan Nominees Australia Pty Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv. Ltd DRP
TAG Family Foundation Pty Ltd
HUIC Noms Pty Ltd
Perpetual Corporate Trust Ltd
Pension Holdings Pty Ltd C/- LE Cornu Lewis Hancock
RW & CL King Pty Ltd
D. Substantial shareholders
1607 Capital Partners LLC (“1607”) held 11.09% of the shares in QVE on 7 July 2020.
Numbers
held
31,810,575
6,681,922
6,519,543
3,550,000
3,186,637
3,045,795
1,286,002
1,283,000
1,033,299
1,000,000
907,318
889,710
800,000
781,148
720,532
700,000
565,888
514,721
500,000
500,000
Percentage of
issued shares
12.01%
2.52%
2.46%
1.34%
1.20%
1.15%
0.49%
0.48%
0.39%
0.38%
0.34%
0.34%
0.30%
0.29%
0.27%
0.26%
0.21%
0.19%
0.19%
0.19%
25.00%
QV Equities Limited Annual Report 2020 | 49
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QV Equities Limited
ABN 64 169 154 858
Level 24, 25 Bligh Street, Sydney NSW 2000
Corporate Enquiries: 1300 552 895
Investment and General Enquiries: 1800 868 464
info@qvequities.com
qvequities.com