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 12 21 22 22 23 24 25 26 44 45 49 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 fourth 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. Financial Highlights Year in Summary FY2022 Profit After Tax $6,148,699 ($5,633,706 in FY21) Management Expense Ratio 1.14% (1.11% in FY21) Earnings Per Share (cents) 2.64 Basic (2.26 in FY21) Portfolio Return (Pre-tax)* +1.6% Benchmark*# -9.0% Dividends 4.8 cps Fully Franked (declared for FY22) (4.4 cps in FY21) Portfolio Return (Post-tax)* +2.4% ASX 300* -6.8% Net Assets** $243,126,059 ($263,369,217 in FY21) Net Tangible Assets (NTA) $1.04 (pre-tax cum div) $1.06 (post tax cum div) All data as at 30 June 2022 unless otherwise specified. *Returns are measured for the 2022 financial year. #S&P/ASX300 ex 20 index. **Whilst the portfolio had a positive return of 2.4% the reduction in Net Assets are mainly due to the share buybacks and dividend payments. Historical Net Tangible Assets $1.25 $1.15 $1.05 $0.95 $0.85 $0.75 Aug 14 Apr 15 Dec 15 Aug 16 Apr 15 Dec 17 Aug 18 Apr 19 Dec 19 Aug 20 Historical Dividends Apr 21 Jun 22 Source: QV Equities; 30 June 2022 Dec 21 6.0 5.0 4.0 3.0 2.0 1.0 0.0 QVE Dividend Payment (Fully Franked) 1.0 2.1 2.0 2.2 2.2 2.0 2.1 2.2 2.2 1.8 1.5 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 FY16 FY17 FY18 FY19 FY20 FY21 FY22 1.5 0.5 FY15 ■ Interim ■ Interim ■ Interim ■ Final ■ Special Source: QVE Annual Reports & QVE ASX Announcements 4 | QV Equities Limited Annual Report 2022 NTA PER SHARE QVE Pre-tax NTACLIENTS PER SHARE 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 61% of the S&P/ASX300 Index by market capitalisation and had a 37% concentration in the Financial and Resource sectors at 30 June 2022. 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 nearly 25 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 2022 | 5 A letter from the Chairman, Peter McKillop Dear Shareholders, After reaching new all-time highs in the first half of the financial year, concerns over high inflation and rising interest rates, as well as the Russian invasion of Ukraine, led to a reversal in stock markets around the world. Many fell very heavily, including the US sharemarket, which had its worst performance in the first half of a calendar year since 1970. The Australian sharemarket, as measured by the S&P/ASX 300 Accumulation Index, finished the financial year down 6.8% – this was only the second negative return recorded in the last ten years. The falls were broad-based, but worst affected were many speculative companies, including some previously high-flying technology companies, that reached unprecedented levels as sharemarkets rose to record highs in 2021. Despite the volatility and uncertainty over this period, I am pleased to inform you that the Company’s portfolio delivered a positive return of 1.6% to shareholders for the year ended 30 June 2022 which compares very favourably to the portfolio’s benchmark (ASX300 ex-20 Accumulation Index) return of negative 9.0%. It was pleasing to see that the portfolio’s value held up relatively well in what was a challenging environment and we can attribute this to the sound fundamentals that underpin the stocks held in the QVE portfolio – which, as we have often repeated, is made up of what QVE’s investment manager, Investors Mutual, considers are well-established and well-managed, sound companies. Also, the Board is delighted to be able to recognise the achievement of QVE Portfolio Manager, and Investors Mutual Founder, Anton Tagliaferro who received the Medal of the Order of Australia (OAM) in the Queen’s Birthday 2022 Honours List. Anton was recognised for his services to charitable organisations and the investment sector over the last two decades. Financial Results The Company earned a net after-tax profit of $6.1 million for the year ended 30 June 2022, up 9.1% from the prior financial year. On an earnings per share basis, the FY2022 result equates to after-tax earnings of 2.64 cents per share. The increase in profit was due primarily to an increase in dividends received this year. This is a return to more normal levels, after many companies reduced or cancelled their dividends last financial year due to Covid. Dividends In a volatile investment environment, your Board realises the importance of a regular income stream and is committed to continuing its policy of paying quarterly dividends, and where prudent, increasing dividend payments. Your Board recognises the importance of maintaining adequate reserves to allow these regular dividend payments and to this end had $29 million of capital profits and profits reserves at the end of FY22 prior to the payment of the final dividend. A final fully-franked dividend for the 2022 financial year of 1.2 cents per share will be paid on 2 September, 2022 (the ex-dividend date for the final dividend will be 15 August, 2022). This is in addition to the fully-franked interim dividends of 1.2 cents that were paid for the September 2021, December 2021 and March 2022 quarters. This takes total dividends per share to 4.8 cents for the financial year 2022, 9.1% higher than the previous financial year. On Market Buyback Your Board continues to take active steps to reduce the discount between the net tangible assets (NTA) per share and the Company’s sharemarket price. An on-market share buyback has been in place since September 2019. Apart from supporting the Company’s share price, the main advantage of the buyback is that the shares are being purchased at a discount to NTA. On purchase the shares are cancelled, thereby increasing the NTA per share for remaining shareholders. Since the buyback commenced, the Company has purchased 47.7 million shares at a cost of 43.6 million to 17 August 2017. 6 | QV Equities Limited Annual Report 2022 Chairman’s Letter (continued) Annual General Meeting It is our intention to hold the Annual General Meeting (AGM) in person, subject to government Covid regulations. You are invited to attend the AGM on Wednesday, 26 October 2022 at 10am (AEDT) at the Radisson Blu Plaza Hotel, 27 O’Connell St, Sydney. Following the AGM, Investors Mutual will provide an update on the Company’s portfolio. This investment update will also be held the following day via a webinar, for those of you that are unable to attend in person. You will receive further information about the AGM in September including how to RSVP. Shareholder Communication I trust 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 Shareholder briefing events Regular webinars I encourage you to subscribe to receive these updates and invitations through our website www.qvequities.com. Your Board continues to believe that a carefully selected holding of ex-20 stocks, managed by Investors Mutual Limited, will provide you with reliable income and long-term capital growth. The Manager remains disciplined and true to label, and as always seeks to invest in profitable, well-established companies, underpinned by reasonable valuations, with growth potential and sustainable earnings from a diverse range of sectors. We are particularly focused on paying consistent levels of fully franked dividends in these volatile investment times. I look forward to discussing the results in this Annual Report further at the Annual General Meeting. Thank you for your continuing support of QVE. Yours sincerely Peter McKillop, Chairman 17 August 2022 QV Equities Limited Annual Report 2022 | 7 Investment Manager’s Report Investors Mutual Limited (‘IML’) is pleased to deliver its investment report for QV Equities Limited (‘QVE’) for the financial year ended 30 June 2022. The year to 30 June 2022 was a year of two distinct parts with world sharemarkets continuing to hit record highs in the first half spurred on by optimism about the economic outlook as interest rates remained at all-time lows in many parts of the world. However, we saw a reversal of fortunes in the second half as the emergence of inflation caused Central Banks to tighten monetary policy by increasing interest rates and we also saw the withdrawal of unprecedented government and central bank stimulus. This prompted significant investor concerns that many economies around the world may fall into recession later in 2022 or in early 2023. Consequently, we saw a broad-based sell off in sharemarkets, but especially in economically sensitive sectors such as in the Media and Consumer Discretionary sectors and also in many speculative companies which, despite very little earnings or cash flow, had risen to unprecedented levels. The QVE portfolio held up well in what was a challenging environment in the second half of FY 22. IML’s strict adherence to its investment mantra, which has defined its approach to investing through all market cycles for the past 24 years, held the portfolio in good stead. IML has always looked to invest in well-established companies which possess the following clear 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 2022 was made up of 47 listed securities spread across various ASX sectors. The Company’s top holdings include well-known quality companies such as Amcor, Sonic Healthcare, Aurizon, Ampol and Orica. Portfolio Allocation at 30 June 2022 I.T. 1% Utilities 2% Communication Services 6% Materials 17% Consumer Staples 7% Real Estate 7% Financials 8% Energy 8% Cash 15% Consumer Discretionary 10% Health Care 9% Industrials 10% 8 | QV Equities Limited Annual Report 2022 Source: Investors Mutual Investment Manager’s Report (continued) Key Equity Investments Principal activity Holding weight* Amcor Aurizon Orica Ampol Coles Global packaging company Australian rail company Global manufacturer of commercial grade explosives and chemicals Importer, retailer and refiner of petroleum products Australian supermarket retailer Pact Group Rigid plastics packaging, contract manufacturing and pallet pooling company The Lottery Corporation Lotteries company (formerly part of Tabcorp) Skycity Entertainment New Zealand/Australian casino operator Sonic Healthcare Global pathology company Brambles IAG Metcash Santos Global supplier of reusable pallets and containers General insurance provider Distributor of food, liquor and hardware Oil and gas producer Origin Energy Australian energy retailer & LNG producer Charter Hall REIT Australian REIT focused on Daily Needs retailers Suncorp TPG Telecom Mayne Pharma Australian insurance, banking and finance operator Telecommunications company Pharmaceutical company Homeco Daily needs REIT Australian REIT focused on Daily Needs retailers Southern Cross Media Radio and television operator 6.1% 5.7% 5.5% 4.7% 3.7% 3.7% 3.4% 3.3% 3.1% 2.7% 2.4% 2.3% 2.2% 2.2% 2.1% 1.8% 1.8% 1.7% 1.5% 1.5% The complete portfolio is shown on page 49–50 of this financial report. * Holding weight as at 30 June 2022 Portfolio Performance The QVE portfolio returned +1.6% before tax and after fees for the 12 months to 30 June 2022, compared to the benchmark ASX300 ex-20 Index’s return of -9.0%. This was a good result, with the portfolio benefiting from its avoidance of highly speculative and over-priced technology stocks and from its low exposure to highly cyclical sectors such as the Resources and Consumer Discretionary sectors. The portfolio benefited over the year from its exposure to holdings such as AusNet Services, Amcor, Orica, Ampol and New Hope, which all performed strongly. The share prices of energy-related companies including Origin Energy and New Hope Coal all improved as oil, gas and coal prices moved higher on the back of sanctions and disrupted supply stemming from the Russian invasion of Ukraine. AusNet Services was a strong performer in FY2022, gaining +51% over the year as it accepted a takeover offer from asset manager Brookfield at $2.65 a share. AusNet is a large, diversified energy network business in Victoria, which owns and operates over $11 billion of regulated and contracted assets. QVE was attracted to AusNet due to its resilient and recurring earnings and its ability to grow revenues over time, as well as its hard to replicate asset base. The bid for AusNet was a continuation of the upsurge in corporate activity that we saw emerging over the second half of financial year 2021. This was caused by record low interest rates and increased confidence in the outlook for Australia’s economy, combined with the low valuations of certain ASX-listed companies. QV Equities Limited Annual Report 2022 | 9 Investment Manager’s Report (continued) QVE also benefited over the year from takeover bids for Spark Infrastructure Group, Australian Pharmaceutical Industries, Crown Resorts and Z Energy. Over IML’s history we have often held companies which have received takeover bids and we see it as an important part of our role to extract full value in these situations. This occurs when we identify an opportunity, or see value, where the market does not. All of these companies own strategic assets, the full value of which were not reflected in the share prices, which created the opportunity for a suitor to acquire these companies. We believe there are many other companies in the QVE portfolio that could be recipients of takeover approaches in the years ahead as we believe they are significantly undervalued, including Mayne Pharma, Integral Diagnostics and Clearview. Amcor, a global leader in the development and production of rigid and flexible packaging for the Consumer and Health Care sectors, performed well for QVE, up +23% in FY2022. Its underlying earnings have continued to grow despite the uncertainty of the last three years, highlighting the resilient end-markets of its portfolio of assets, which are focused on food, medicine and other daily essentials. The company has also demonstrated its ability to maintain margins in a rising cost environment by rapidly passing on higher input costs to its customers. Amcor is also a strong generator of free cash which has allowed the company to reinvest in growth while paying its shareholders an attractive and growing dividend over time. Another very strong performer for QVE was Ampol, which increased +27% over FY2022. Ampol supplies Australia’s largest branded petrol and convenience network, as well as refining, importing and marketing fuels and lubricants. The company is also a significant operator in New Zealand, now accounting for approximately 40% of all fuel volumes in that market after completing its acquisition of Z Energy late in financial year 2022. The acquisition will result in a trans-Tasman network of 2,350 sites supplying 25 billion litres of fuel per annum, offering synergy savings of NZ$60-80 million per annum largely through fuel procurement and overhead cost reductions. Ampol enjoyed significantly higher refining margins over the last financial year in conjunction with recovering fuel volumes following the end of lockdowns and solid fuel retailing margins. The Fuel Security Services Payment program Ampol signed with the federal government was a major development for the company, this arrangement will support a base level of refinery earnings and cash flow, while providing the opportunity to capture the full upside from improving conditions, as has occurred late in the year. There were a few disappointing performers over the year including Pact, Pro-Pac, Virgin Money UK and Southern Cross Media. In the case of Pact and Pro Pac, these companies’ earnings were impacted by rapidly increasing raw material costs which impacted margins. Pact and Pro-Pac remain significant players in the Australian packaging industry with Pact being the no. 1 player in the rigids plastic segment and Pro-Pac being the no2 player in the flexibles packaging segment. As such while recent results have disappointed , we believe both companies will recover as they pass on price increases to restore margins. Concerns over the strength of the UK economy weighed on Virgin Money UK while radio operator Southern Cross Media was sold down heavily towards year end over concerns about the future outlook for advertising spend. We believe both stocks have been sold down excessively and that their share prices are reflecting very dire outcomes. Both companies are generating good cashflows, paying dividends and are returning capital to shareholders via share buybacks. 10 | QV Equities Limited Annual Report 2022 Investment Manager’s Report (continued) Outlook Global share markets, including Australia’s, have seen greater volatility as central banks wind back on stimulus and look to tighten monetary conditions in the face of rising inflation. While we believe the Australian share market will remain volatile, it now trades at more reasonable levels, and good value is emerging across a number of quality companies. We continue to be focused on investing in reasonably valued companies which 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 Sonic Healthcare; companies growing market share, such as Integral Diagnostics; companies restructuring and recovering from Covid-19 headwinds such as SkyCity Entertainment and A2B; companies that are on track for revenue growth, such as Amcor and that can benefit from higher interest rates, such as IAG and Aurizon. With increased volatility in markets, and investors exhibiting a greater level of caution, fundamentals are coming back into favour and this should continue to suit our investing style as can be seen by the way QVE has performed over the past year. It remains a privilege, that we do not take for granted, to apply IML’s quality and value investment philosophy and approach to investing to the QVE portfolio for another year. This approach has enabled us to deliver reliable income and long-term capital growth to our investors over IML’s 24 years of existence, while achieving returns which are more consistent and less volatile than the overall share market. We believe that a portfolio of well-established, profitable companies, with a strong market position and recurring earnings, in the ex-20 sector of the market, will yield regular income and solid returns in the future, as well as offering investors the opportunity to diversify their exposure away from the ASX top 20 stocks. We hope to meet as many of you as possible at our Annual General Meeting in October. Thank you for your continued support. Anton Tagliaferro Investment Director Investors Mutual Limited 17 August 2022 Simon Conn Senior Portfolio Manager Investors Mutual Limited QV Equities Limited Annual Report 2022 | 11 Directors’ Report The Directors present their report together with the financial report of QV Equities Limited (“the Company”) for the year ended 30 June 2022. Directors The following persons were Directors of the Company from their appointment date and up to the date of this report: Name Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn Principal activities Position Appointment date Independent Director (Chairman) Independent Director Independent Director Non-independent Director Non-independent Director 17 April 2014 26 April 2016 30 August 2019 30 April 2014 14 June 2016 The principal activity of the Company is making investments in a diversified portfolio of entities listed on the Australian Securities Exchange which are not included in the S&P/ASX 20 Index. The primary objective is to provide both long term capital growth and income. No change in this activity took place during the year or is likely in the future. Dividends Dividends paid to shareholders were as follows: 2022 Ordinary shares – interim 2022 Ordinary shares – interim 2022 Ordinary shares – interim 2022 Ordinary shares – final 2021 2021 Ordinary shares – interim 2021 Ordinary shares – interim 2021 Ordinary shares – interim 2021 Ordinary shares – final 2020 Dividend per share Total amount Date of payment % Franked 1.2 cents 1.2 cents 1.2 cents 1.1 cents 1.1 cents 1.1 cents 1.1 cents 2.2 cents $2,751,554 $2,765,752 $2,798,777 $2,646,839 $2,668,716 $2,697,591 $2,741,593 $5,689,883 03/06/2022 04/03/2022 03/12/2021 03/09/2021 04/06/2021 05/03/2021 04/12/2020 18/09/2020 100% 100% 100% 100% 100% 100% 100% 100% Since year end, the Directors have declared a final fully franked dividend of 1.2 cents per fully paid ordinary share to be paid on 2 September 2022. 12 | QV Equities Limited Annual Report 2022 Directors’ Report (continued) Review of operations Our Investment Manager (“the Manager”), Investors Mutual Limited (“IML”) has been diligently building 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. Listed below is the Company’s performance for the past 6 and 12 months: Performance Increase/(Decrease) in QVE’s NTA Benchmark return 1 July 2021 to 30 June 2022 +2.4% post-tax | +1.6% pre-tax 1 January 2022 to 30 June 2022 -3.7% post-tax | -6.1% pre-tax -9.0% -15.9% Note: these figures are calculated net of IML’s management fee. Investment operations for the year ended 30 June 2022 resulted in an operating profit before tax of $6,903,129 (2021: $6,606,332) and an operating profit after tax of $6,148,699 (2021: $5,633,706). Net Tangible Assets (NTA) for each ordinary share as at 30 June 2022 (calculated on market value before applicable taxes and before provision for dividends) amounted to $1.04 (2021: $1.09) per share. NTA after provision for tax and before provision for dividends was $1.06 (2021: $1.08) per share. Further information on the operating and financial review of the Company is contained in the Chairman’s letter on pages 6 to 7 of the Annual Report. Financial position The net asset value of the Company at 30 June 2022 was $243,126,059 (2021: $263,369,217). 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 2022. Matters subsequent to the end of the year Since the end of the financial year, the Directors declared a fully franked final dividend of 1.2 cents per fully paid ordinary share payable on 2 September 2022. The Company bought back 70,717 shares for $67,102 since 30 June 2022. Subsequent to 30 June 2022 to the date of this report there have been no other events specific to the Company of which the Directors are aware which have had a material effect on the Company or its financial position. 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. The outlook for corporate earnings remains uncertain with rising inflation, the Ukraine war, the ongoing presence of COVID-19 adding to the economic uncertainty. Further information on the Company’s business strategies and results is contained in the Investment Manager’s Report on pages 8 to 11 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. QV Equities Limited Annual Report 2022 | 13 Directors’ Report (continued) 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). 14 | QV Equities Limited Annual Report 2022 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 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 Chairman of Dexus Asset Management (includes Dexus Industria REIT (ASX: DXI) and Dexus Convenience Retail REIT (ASX: DXC) and a Director of Yarra Funds Management Ltd and A2B Australia Limited. Former directorships in last 3 years Jennifer Horrigan was formerly a Director of Generation Healthcare (ASX: GHC), Redkite (national children’s cancer charity) and Breast Cancer Trials. Special responsibilities Chair of the Audit and Risk Committee. Interests in shares 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. 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. 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. Anton emigrated to Sydney in 1984 and joined the funds management industry in 1986 when he joined Prudential Assurance. Anton went on to successfully manage Australian equity portfolios for Perpetual, County Natwest Investment Management and BNP Investment Management before he established Investors Mutual as specialist Australian Equities Manager in 1998 where he has been the Investment Director for the last 23 years. Anton holds a Bachelor of Arts (Honours) in Accountancy and a member of the Institute of Chartered Accountants and of the Financial Services Institute of Australasia. Interests in shares 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 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 in contracts with the Company are included later in this report. QV Equities Limited Annual Report 2022 | 15 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 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 with the Company are included later in this report. Directors’ Report (continued) 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 25 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. 16 | QV Equities Limited Annual Report 2022 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 2022, and the numbers of meetings attended by each Director were: Directors’ meetings Audit and Risk Nominations and Corporate Governance Meeting of committees A 7 7 7 5 7 B 7 7 7 7 7 A 5 5 5 – – B 5 5 5 – – A 3 3 3 – – B 3 3 3 – – Directors Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year The Company has not established a Remuneration Committee as it has no paid employees. The services of Zac Azzi (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 $100,000 per annum. Directors do not receive bonuses nor are they issued options on securities. Directors’ fees cover all main Board activities and membership of committees. Under the ASX Listing Rules, the maximum fees payable to Directors may not be increased without the approval from the Company at a general meeting. Directors seek approval from time to time as appropriate. The following table reflects the Company’s performance and Directors’ remuneration over five years: Five Year Financial Summary Profit after tax ($m) Basic EPS (cents) Total dividends (cents per share) NTA per share post-tax at 30 June ($) Share price at 30 June ($) Total Directors remuneration ($) 2022 6.1 2.64 4.8 1.06 0.940 100,000 2021 5.6 2.26 4.4 1.08 0.995 100,000 2020 10.5 3.85 4.4 0.98 0.795 100,000 2019 9.4 3.40 4.4 1.13 1.030 100,000 2018 11.1 4.05 5.2 1.18 1.140 100,000 As outlined above, Directors’ fees are not directly linked to the Company’s performance. QV Equities Limited Annual Report 2022 | 17 Directors’ Report (continued) Remuneration report (audited) (continued) (a) Details of remuneration The following table shows details of the remuneration paid and payable by the Company to the Directors for the year ended 30 June 2022 and 30 June 2021. 2022 Non-Executive Directors Peter McKillop Jennifer Horrigan Eamonn Roles Total key management personnel compensation 2021 Non-Executive Directors Peter McKillop Jennifer Horrigan Eamonn Roles Total key management personnel compensation Short term employee benefits Directors’ fees $ Post-employment benefits su perannuation $ 12,501 27,242 27,242 66,985 27,499 2,758 2,758 33,015 Short term employee benefits Directors’ fees $ Post-employment benefits superannuation $ 9,132 27,366 27,366 63,864 30,868 2,634 2,634 36,136 Total $ 40,000 30,000 30,000 100,000 Total $ 40,000 30,000 30,000 100,000 Directors receive a superannuation guarantee contribution required by the government, which was 10% of individual benefits for financial year 2022 and did not receive any other retirement benefits. Directors may also elect to salary sacrifice their fees into superannuation. (b) Director related entity remuneration Anton Tagliaferro and Simon Conn are Directors and hold equity interests in IML, the entity appointed to manage the investment portfolio of QV Equities Limited. All transactions with related entities were made on normal commercial terms and conditions. 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 $2,390,503 (2021: $2,297,676) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after allowing for the reduced input tax credit was $2,227,514 (2021: $2,141,016). As at 30 June 2022, the balance payable to the Manager was $169,565 (2021: $185,890). No other 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. 18 | QV Equities Limited Annual Report 2022 Directors’ Report (continued) Remuneration report (audited) (continued) (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. (d) Equity instrument disclosures relating to Directors As at 30 June 2022, the Company’s Directors and their related parties held the following interests in the Company: Ordinary shares held 2022 Directors Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn Balance as at 30 June 2021 Acquisitions Disposals Balance as at 30 June 2022* 537,060 29,200 155,000 8,050,000 400,000 9,171,260 – – – 450,000 – 450,000 – – – – – – 537,060 29,200 155,000 8,500,000 400,000 9,621,260 * The Directors’ shareholding balances as at 30 June 2022 were the same at the date of the report. 2021 Directors Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn Balance as at 30 June 2020 Acquisitions Disposals Balance as at 30 June 2021 504,560 29,200 100,000 6,050,000 230,000 6,913,760 32,500 – 55,000 2,000,000 170,000 2,257,500 – – – – – – 537,060 29,200 155,000 8,050,000 400,000 9,171,260 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 QV Equities Limited Annual Report 2022 | 19 Directors’ Report (continued) Insurance and indemnification of Officers and Auditors During the financial year, the Company paid a premium in respect of a contract to insure the Directors of the Company, the Company Secretary and any related body corporate against liability incurred as such by a Director or Secretary to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. No indemnities have been given or insurance premiums paid during or since the end of the financial year, for any person who is or has been an auditor of the Company. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services The Board of Directors, in accordance with the advice from the Audit Committee, is satisfied that the provision of non- audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed in Note 20 did not compromise the external auditor’s independence for the following reasons: y y all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (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 21. This report is made in accordance with a resolution of the Board of Directors. Peter McKillop, Chairman 17 August 2022 20 | QV Equities Limited Annual Report 2022 Auditor’s Independence Declaration QV Equities Limited Annual Report 2022 | 21 Level 16, Tower 2 Darling Park201 Sussex StreetSydney NSW 2000Postal AddressGPO Box 1615Sydney NSW 2001p.+612 9221 2099e.sydneypartners@pitcher.com.auAdelaide Brisbane Melbourne Newcastle Perth SydneyPitcher Partners is an association of independent firms.An independent New South Wales Partnership. ABN 17 795 780 962.Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the membersof which are separate and independent legal entities.pitcher.com.auAuditor’s Independence DeclarationTo the Directors of QV EquitiesLimitedABN64 169 154 858In relation to the independent auditof QV Equities Limited for the year ended 30 June 2022,Ideclare that to the best of my knowledge and belief there have been:(i)no contraventions of the auditor’s independence requirements of the Corporations Act2001; and(ii)no contraventions of APES 110 Code of Ethics for Professional Accountants (includingIndependence Standards).C IChandranPartnerPitcher PartnersSydney17 August 2022 Financial Statements for the year ended 30 June 2022 Statement of Comprehensive Income Notes 30 June 2022 $ 30 June 2021 $ Investment income Dividend/distribution income Interest income Realised gains on options and futures Unrealised gains/(losses) on options Other income Total 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 attributable to owners Other comprehensive income Items that will not be recycled to profit and loss Movement in fair value of long term equity investments, net of tax Items that will be recycled to profit and loss Movement in fair value of floating rate notes, net of tax Other comprehensive (loss)/income, net of tax 8,089,828 144,482 614,754 994,218 23,591 9,866,873 2,227,514 100,000 70,312 75,113 308,436 182,369 6,548,716 147,613 2,702,658 (123,261) 84,070 9,359,796 2,141,016 100,000 72,370 75,889 261,701 102,488 2,963,744 2,753,464 6,903,129 754,430 6,148,699 6,606,332 972,626 5,633,706 (1,947,403) 30,154,715 138,454 22,801 (1,808,949) 30,177,516 15 5 Total comprehensive income for the year, net of tax attributable to owners 4,339,750 35,811,222 Earnings per share Basic and diluted earnings per share (cents per share) 13 2.64 2.26 The Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 22 | QV Equities Limited Annual Report 2022 Financial Statements (continued) Statement of Financial Position Notes 30 June 2022 $ 30 June 2021 $ Assets Current assets Cash and cash equivalents Receivables Prepayments Total current assets Non-current assets Financial assets at fair value 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 Total liabilities Net assets Equity Issued capital Asset revaluation reserve Capital profits reserve Profits reserve Total equity The Statement of Financial Position should be read in conjunction with the accompanying notes. 6 7 8 5 10 5 9 11 12 12 12 32,092,735 19,027,433 2,089,625 143,890 954,841 152,513 34,326,250 20,134,787 206,870,930 246,182,122 10,667,089 217,538,019 251,864,269 4,202,090 250,384,212 270,518,999 1,892,072 5,719,638 1,126,500 8,738,210 8,738,210 1,144,653 4,856,094 1,149,035 7,149,782 7,149,782 243,126,059 263,369,217 239,449,478 253,069,464 (25,545,039) 25,549,403 3,672,217 (9,730,977) 17,094,620 2,936,110 243,126,059 263,369,217 QV Equities Limited Annual Report 2022 | 23 Financial Statements (continued) Statement of Changes in Equity Issued capital $ Asset revaluation reserve $ Capital profits reserve $ Notes Profits reserve $ Retained profits $ Total $ Balance at 1 July 2021 253,069,464 (9,730,977) 17,094,620 2,936,110 – 263,369,217 – – – – (13,619,986) – (1,808,949) (1,808,949) – – – – – – – – 6,148,699 6,148,699 – (1,808,949) 6,148,699 4,339,750 (5,550,330) (5,412,592) – (10,962,922) – – (13,619,986) Profit for the year Other comprehensive income: Net revaluation of investments Total comprehensive income gains for the year Transactions with equity holders in their capacity as owners: Dividends provided for or paid Shares buyback – redemption Other Realised gains/(losses) on sale of investments transferred to capital profits reserve 14 11 12 – (14,005,113) 14,005,113 – – – Transfer to profits reserve – – – 6,148,699 (6,148,699) Balance at 30 June 2022 239,449,478 (25,545,039) 25,549,403 3,672,217 – 243,126,059 Issued capital $ Asset revaluation reserve $ Capital profits reserve $ Notes Profits reserve $ Retained profits $ Total $ Balance at 1 July 2020 272,103,428 (29,628,264) 13,392,726 4,521,852 – 260,389,742 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: Dividends provided for or paid Share buyback – redemption Other Realised gains/(losses) on sale of investments transferred to capital profits reserve Transfer to profits reserve 14 11 12 – – – – (19,033,964) – – – 30,177,516 30,177,516 – – – – – – – – 5,633,706 5,633,706 – 30,177,516 5,633,706 35,811,222 (6,578,335) (7,219,448) – – – – (13,797,783) (19,033,964) – – (10,280,229) 10,280,229 – – 5,633,706 (5,633,706) Balance at 30 June 2021 253,069,464 (9,730,977) 17,094,620 2,936,110 – 263,369,217 The Statement of Changes in Equity should be read in conjunction with the accompanying note. 24 | QV Equities Limited Annual Report 2022 – – – – Statement of Cash Flow Cash flows from operating activities Dividends/distributions received Interest received Net realised gains on exchange traded options Other income Payments for other expenses 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 from investing activities Cash flows from financing activities Dividends paid Payments for share buyback Net cash (outflow) from financing activities Notes 30 June 2022 $ 30 June 2021 $ 7,758,337 60,137 1,571,905 20,056 (2,941,650) (5,568,789) 899,996 6,506,141 147,729 2,241,290 97,448 (2,848,071) (1,499,483) 4,645,054 (85,773,519) (68,126,016) 122,450,935 36,677,416 84,596,052 16,470,036 (10,962,922) (13,797,783) (13,549,188) (19,494,494) (24,512,110) (33,292,277) Net increase/(decrease) in cash and cash equivalents 13,065,302 (12,177,187) Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year 6 19,027,433 32,092,735 31,204,620 19,027,433 The above Statement of Cash Flow should be read in conjunction with the accompanying notes. QV Equities Limited Annual Report 2022 | 25 Financial Statements (continued) Notes to the Financial Statements for the year ended 30 June 2022 1. General information QV Equities Limited (“the Company”) is a listed investment company domiciled in Australia. The Company was established with the primary objective of providing long term capital growth and income, through a diversified portfolio of the ASX listed entities outside of the S&P/ASX 20 Index. The portfolio is managed by Investors Mutual Limited. The Company was registered with the Australian Securities Commission (“ASIC”) on 17 April 2014 and commenced operations on 22 August 2014. The financial statements were authorised for issue by the Board on 17 August 2022. 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 2022 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 There are no new standards or interpreations applicable that would have a material impact for 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 Financial assets are recognised initially at fair value including transaction costs. Financial liabilities are recognised initially at fair value. (ii) Classification and subsequent 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 derecognition 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 accumulates in the asset revaluation reserve. On derecognition the cumulative gain/loss on these securities are recycled to the profit or loss. The Company holds options which are derivative 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 2022 Notes to the Financial Statements (continued) 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 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 ATO, are presented as operating cash flows. QV Equities Limited Annual Report 2022 | 27 Notes to the Financial Statements (continued) 2 Summary of significant accounting policies (continued) (g) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash which are subject to an insignificant risk to changes in value. (h) Receivables Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit losses. Receivables may include interest, 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 were 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. Costs directly attributable to the buy back are recognised as a deductible from equity. 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/(loss) attributable to owners of the Company. 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. 28 | QV Equities Limited Annual Report 2022 Notes to the Financial Statements (continued) 2 Summary of significant accounting policies (continued) (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 and tax losses only if the Company considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 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 financial assets 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. QV Equities Limited Annual Report 2022 | 29 Notes to the Financial Statements (continued) 3 Financial risk management (continued) (a) Market risk (continued) (i) Price risk (continued) The Company’s industry sector weighting of investments including options as at 30 June 2022 and 30 June 2021 is listed below: Industry sector Financials Materials Health Care Utilities Consumer Discretionary Industrials Energy Listed Property Trusts Communication Services Consumer Staple Information Technology Cash Sensitivity analysis 2022 % 7.8 16.8 9.2 1.9 9.8 9.6 8.3 7.3 6.0 6.5 1.3 84.5 15.5 100.0 2021 % 4.7 19.2 9.7 8.6 13.4 6.4 6.8 7.0 9.1 4.4 0.0 89.3 10.7 100.0 A sensitivity analysis relating to price risk was performed on investments held by the Company at the end of the reporting year. The sensitivity assumes all other variables remain constant. Investments represent 82% (2021: 91%) 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% (2021: 30%). Impact on Total Comprehensive income 2022 $ 7,201,055 (7,201,055) 14,402,110 2021 $ 8,576,158 (8,576,158) 17,152,316 (14,402,110) (17,152,316) Increase 5% Decrease 5% Increase 10% Decrease 10% 30 | QV Equities Limited Annual Report 2022 3 Financial risk management (continued) (a) Market risk (continued) (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 performance, 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. Floating interest rate $ Non-interest bearing $ Total $ 30 June 2022 Financial assets Cash and cash equivalents 32,092,735 – 32,092,735 Receivables – 2,089,625 2,089,625 Financial assets at fair value 4,179,130 202,691,800 206,870,930 36,271,865 204,781,425 241,053,290 Financial liabilities Trade creditors and other payables Financial liabilities at fair value – – – (1,892,072) (1,126,500) (3,018,572) (1,892,072) (1,126,500) (3,018,572) Net exposure to interest rate risk 36,271,865 201,762,853 238,034,718 30 June 2021 Financial assets Cash and cash equivalents Receivables Financial assets at fair value Financial liabilities Trade creditors and other payables Financial liabilities at fair value 19,027,433 – 3,976,590 23,004,023 – – – – 954,841 242,205,532 243,160,373 (1,144,653) (1,149,035) (2,293,688) 19,027,433 954,841 246,182,122 266,164,396 (1,144,653) (1,149,035) (2,293,688) Net exposure to interest rate risk 23,004,023 240,866,685 263,870,708 The weighted average interest rate of the Company’s interest bearing financial assets at 30 June 2022 is 0.51% (2021: 0.61%). Sensitivity analysis At 30 June 2022, if interest rates had increased/decreased by 75 basis points (2021: 75 basis points) from the year end rates with all other variables held constant, post-tax profit for the year would have been $150,226 (2021: $127,822) higher and $150,226 lower (2021: $127,822), mainly as a result of higher/lower interest income from interest bearing financial assets. QV Equities Limited Annual Report 2022 | 31 Notes to the Financial Statements (continued) Notes to the Financial Statements (continued) 3 Financial risk management (continued) (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 receives 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 for the purchase of securities, expenses 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. 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. 32 | QV Equities Limited Annual Report 2022 4 Fair value measurement (continued) (i) Recurring fair value measurements The following table presents the Company’s assets measured and recognised at fair value as at 30 June 2022 and 30 June 2021. As at 30 June 2022 Financial assets Financial assets at fair value: Listed equities Listed unit trusts Floating rate notes Total Financial liabilities Financial liabilities held for trading: Options Total As at 30 June 2021 Financial assets Financial assets at fair value: Listed equities Listed unit trusts Floating rate notes Total Financial liabilities Financial liabilities held for trading: Futures Options Total Level 1 $ Level 2 $ Level 3 $ Total $ 185,996,300 16,695,500 4,179,130 206,870,930 1,126,500 1,126,500 – – – – – – – – – – – – 185,996,300 16,695,500 4,179,130 206,870,930 1,126,500 1,126,500 Level 1 $ Level 2 $ Level 3 $ Total $ 220,407,856 21,797,676 3,976,590 246,182,122 5,000 1,144,035 1,149,035 – – – – – – – – – – – – – – 220,407,856 21,797,676 3,976,590 246,182,122 5,000 1,144,035 1,149,035 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 closing prices at the end of the reporting year. During the year $nil (2021: $nil) 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. QV Equities Limited Annual Report 2022 | 33 Notes to the Financial Statements (continued) 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% (2021: 30%) 2,070,939 1,981,900 Increase/(decrease) in income tax expense due to: 30 June 2022 $ 30 June 2021 $ 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 Cash flow boost received Under/(over) provisions in previous year Share buyback costs raised directly in equity Tax expense composition: Current tax expense Movement in deferred tax liabilities Movement in deferred tax assets Under provision in previous year Share buyback costs raised directly in equity Effective tax rate is: 550,927 420,710 (1,836,421) (1,402,367) 10,162 (33,875) (10,800) – 7,988 (4,490) 754,430 208,459 543,437 (964) 7,988 (4,490) 754,430 3,779 (12,598) 1,227 (3,000) (3,000) (14,025) 972,626 819,801 93,480 73,357 13 (14,025) 972,626 The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or non-deductible items. It is calculated using the tax rates that have been enacted or are substantially enacted by the end of the current financial year. 10.93% 14.72% 34 | QV Equities Limited Annual Report 2022 5 Taxation (continued) (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 Transfer from deferred tax liabilities The rate used at 30 June 2022 is 30% (2021: 30%) (c) Current tax liabilities Balance at beginning of the year Current year income tax on operating profit Current year realised capital gain Net income tax paid Under/(over) provision of income tax in previous year 30 June 2022 $ 30 June 2021 $ 13,398 15,367 10,638,324 10,667,089 10,890 16,261 4,174,939 4,202,090 4,202,090 12,765,887 650 964 6,463,385 10,667,089 14,025 (73,357) (8,504,465) 4,202,090 30 June 2022 $ 30 June 2021 $ 4,856,094 203,970 6,215,211 (5,568,789) 13,152 5,719,638 939,610 822,814 4,596,166 (1,499,483) (3,013) 4,856,094 QV Equities Limited Annual Report 2022 | 35 Notes to the Financial Statements (continued) Notes to the Financial Statements (continued) 5 Taxation (continued) (d) Deferred tax liabilities This balance comprises temporary differences attributable to: Fair value adjustment on equity investments (11,113,902) (3,961,403) 30 June 2022 $ 30 June 2021 $ 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 Under provision Transfer to deferred tax assets* The rate used at 30 June 2022 is 30% (2021: 30%) * Debit balance on deferred tax liabilities transferred to deferred tax assets. 213,531 34,320 227,727 10,638,324 – – 543,437 (7,014,810) 7,988 (84,732) 16,875 (145,679) 4,174,939 – – 93,480 8,410,972 13 6,463,385 (8,504,465) – – 36 | QV Equities Limited Annual Report 2022 6 Cash and cash equivalents Cash at bank Total cash and cash equivalents Reconciliation of operating profit after tax to cash inflows from operating activities Net profit after income tax Changes in operating assets and liabilities Unrealised (gains)/losses on options Dividend/distribution income reinvested (Increase) in dividends/distributions receivable (Increase)/decrease in interest receivable (Increase) in other income receivable Decrease/(increase) in prepayments Increase/(decrease) in sundry creditors and accruals (Increase)/decrease in deferred tax assets (Decrease) in current tax liabilities Increase in deferred tax liabilities Net cash inflow from operating activities 7 Receivables Receivables – unsettled trades Interest receivable Dividends/distributions receivable Other receivables Total receivables None of the receivables are past the due date or impaired. 30 June 2022 $ 32,092,735 32,092,735 30 June 2021 $ 19,027,433 19,027,433 30 June 2022 $ 30 June 2021 $ 6,148,699 5,633,706 (994,218) (164,296) (167,195) (84,346) (3,535) 8,623 970,623 (1,615) (5,356,181) 543,437 (5,248,703) 899,996 30 June 2022 $ 1,351,967 84,346 604,160 49,152 2,089,625 123,261 – (42,575) 116 – (61,945) (480,651) 59,332 (679,670) 93,480 (988,652) 4,645,054 30 June 2021 $ 472,257 – 436,965 45,619 954,841 QV Equities Limited Annual Report 2022 | 37 Notes to the Financial Statements (continued) Notes to the Financial Statements (continued) 8 Financial assets at fair value Financial assets held at fair value through other comprehensive income include the following: Listed securities 30 June 2022 $ 30 June 2021 $ 206,870,930 246,182,122 The fair value of investments is based on the fair value measurement hierarchy disclosed in note 4(i). The total dividends received on these investments, included in the Statement of Comprehensive Income were: Dividend income: Listed securities held at year-end Listed securities sold during the year Total dividend 2022 $ 6,520,876 1,568,952 8,089,828 2021 $ 6,115,184 433,532 6,548,716 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 2022 $ 2021 $ 136,297,618 85,068,309 14,005,113 10,280,229 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 – unsettled trades Payable – share buyback Payable – other expenses Total trade creditors and other payables 38 | QV Equities Limited Annual Report 2022 30 June 2022 $ 30 June 2021 $ 1,838,279 (711,779) 1,126,500 866,595 282,440 1,149,035 30 June 2022 $ 30 June 2021 $ 1,496,875 76,477 318,720 1,892,072 833,725 – 310,928 1,144,653 11 Issued capital (a) Share capital 30 June 2022 Number of shares 30 June 2022 Total amount $ 30 June 2021 Number of shares 30 June 2021 Total amount $ Fully paid ordinary shares 229,049,493 239,449,478 242,506,634 253,069,464 (b) Movements in ordinary share capital 2022 Date 01/07/2021 Opening balance Share buyback 30/06/2022 Closing balance 2021 Date 01/07/2020 Opening balance Share buyback 30/06/2021 Closing balance * Rounded to two decimal places. (c) Fully paid ordinary shares Number of shares 242,506,634 (13,457,141) 229,049,493 Number of shares 264,818,778 (22,312,144) 242,506,634 Share price* $ 1.01 – Total amount $ 253,069,464 (13,619,986) 239,449,478 Share price* $ Total amount $ 0.85 – 272,103,428 (19,033,964) 253,069,464 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. There are no separate classes of shares and each share has the same rights attaching to it as all other shares of the Company. (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 future dividend payments purposes. (b) Asset revaluation reserve Changes in the fair value of long term investments are presented in other comprehensive income through the assets revaluation reserve. Upon disposal of long term investment the realised gain or loss is transferred from the asset revaluation reserve to the capital profits reserve. (c) Profits reserve Retained earnings are transferred to the profit reserve for future dividend payments. QV Equities Limited Annual Report 2022 | 39 Notes to the Financial Statements (continued) Notes to the Financial Statements (continued) 13 Earnings per share 30 June 2022 cents 30 June 2021 cents (a) Basic and diluted earnings per share Total earnings per share attributable to the ordinary equity holders of the Company 2.64 2.26 (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 issues during the year. Diluted earnings per share and basic earnings per share are the same as there are no potential dilutive ordinary shares. 233,106,211 249,046,600 14 Dividends (a) Dividends paid during the year Dividends paid fully franked at 30% (2021: 30%) tax rate. Final dividend FY21: 1.1 cents per share fully franked paid 3 September 2021 (Final dividend FY20: 2.2 cents per share fully franked paid 18 September 2020) Interim dividend FY22: 1.2 cents per share fully franked paid 3 December 2021 2,798,777 (Interim dividend FY21: 1.1 cents per share fully franked paid 4 December 2020) Interim dividend FY22: 1.2 cents per share fully franked paid 4 March 2022 2,765,752 (Interim dividend FY21: 1.1 cents per share fully franked paid 5 March 2021) Interim dividend FY22: 1.2 cents per share fully franked paid 3 June 2022 2,751,554 (Interim dividend FY21: 1.1 cents per share fully franked paid 4 June 2021) 10,962,922 (b) Dividends not recognised at the end of the reporting period 30 June 2022 $ 2,646,839 30 June 2021 $ 5,689,883 2,741,593 2,697,591 2,668,716 13,797,783 In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend of 1.2 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 2 September 2022 (2021: 3 September 2021) out of the profits of the Company at 30 June 2022 and 30 June 2021, but not recognised as a liability at year end is: 2,748,594 2,667,573 30 June 2022 $ 30 June 2021 $ 40 | QV Equities Limited Annual Report 2022 14 Dividends (continued) (c) Dividends franking account The fully franked final dividend to be paid on 2 September 2022 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 2022. Opening balance of franking account Franking credits on dividends received Tax paid during the period 30 June 2022 $ 30 June 2021 $ 1,311,938 1,836,421 5,568,789 4,323,424 1,402,367 1,499,483 Franking credits on ordinary dividends paid (4,698,395) (5,913,336) Closing balance of franking account Adjustment for tax payable on the current period profits Franking credits available for use in subsequent reporting periods Adjusted for dividends declared subsequent to reporting period 30% (2021: 30%) Adjusted franking account balance 4,018,753 5,719,638 9,738,391 (1,177,969) 8,560,422 1,311,938 4,856,094 6,168,032 (1,143,246) 5,024,786 The Company’s ability to continue to pay franked dividends is dependent upon the receipt of franked dividends from investments and the payment of tax. 15 Key management personnel 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 Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn (a) Remuneration Independent Director (Chairman) Independent Director Independent Director Non-Independent Director Non-Independent Director Detailed remuneration disclosures are provided in the Remuneration Report of the Directors’ Report on page 17 to 19. Short term employee benefits - Directors fees Post employment benefits - Superannuation 30 June 2022 $ 30 June 2021 $ 66,985 33,015 100,000 63,864 36,136 100,000 QV Equities Limited Annual Report 2022 | 41 Notes to the Financial Statements (continued) Notes to the Financial Statements (continued) 15 Key management personnel (continued) (b) Share 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 2022 Directors Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn 2021 Directors Peter McKillop Jennifer Horrigan Eamonn Roles Anton Tagliaferro Simon Conn Balance as at 30 June 2021 537,060 29,200 155,000 8,050,000 400,000 9,171,260 Balance as at 30 June 2020 504,560 29,200 100,000 6,050,000 230,000 6,913,760 Acquisitions Disposals – – – 450,000 – 450,000 – – – – – – Acquisitions Disposals 32,500 – 55,000 2,000,000 170,000 2,257,500 – – – – – – Balance as at 30 June 2022 537,060 29,200 155,000 8,500,000 400,000 9,621,260 Balance as at 30 June 2021 537,060 29,200 155,000 8,050,000 400,000 9,171,260 16 Related party transactions Anton Tagliaferro and Simon Conn are Directors and hold equity interests in IML, the entity appointed to manage the investment portfolio of QV Equities Limited. All transactions with related entities were made on commercial terms and conditions no more favorable than those available to other parties unless otherwise stated. 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 $2,390,503 (2021: $2,297,676) inclusive of GST. The amount expensed in the Statement of Comprehensive Income after allowing for the reduced input tax credit was $2,227,514 (2021: $2,141,016). As at 30 June 2022, the balance payable to the Manager was $169,565 (2021: $185,890). 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. 42 | QV Equities Limited Annual Report 2022 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 and options. 18 Contingencies and commitments The Company had no commitments or contingent liabilities as at 30 June 2022 and 30 June 2021. 19 Events occurring after the reporting period Since the end of the financial year, the Directors declared a fully franked final dividend of 1.2 cents per fully paid ordinary share payable on 2 September 2022. The Company bought back 70,717 shares for $67,102 since 30 June 2022. Subsequent to 30 June 2022 to the date of this report there have been no other events specific to the Company of which the Directors are aware which have had a material effect on the Company or its financial position. 20 Remuneration of auditors Audit and other assurance services: Audit and review of financial report Non-assurance services: Tax services 30 June 2022 $ 30 June 2021 $ 47,700 44,600 11,100 58,800 10,400 55,000 The Company’s Audit Committee oversees the relationship with the Company’s external auditors. The Audit Committee reviews the scope of the audit and the proposed fee. It also reviews the cost and the scope of the other tax compliance services of the related entity of the audit firm, to ensure that they do not compromise independence. QV Equities Limited Annual Report 2022 | 43 Notes to the Financial Statements (continued) Directors’ Declaration In the Directors’ opinion, (1) the financial statements and notes set out on pages 22 to 43 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 2022 and of its performance for the year ended on that date. (2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by S295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Peter McKillop, Chairman 17 August 2022 44 | QV Equities Limited Annual Report 2022 Independent Auditor’s Report to the Shareholders QV Equities Limited Annual Report 2022 | 45 Level 16, Tower 2 Darling Park201 Sussex StreetSydney NSW 2000Postal AddressGPO Box 1615Sydney NSW 2001p.+612 9221 2099e.sydneypartners@pitcher.com.auAdelaide Brisbane Melbourne Newcastle Perth SydneyPitcher Partners is an association of independent firms.An independent New South Wales Partnership. ABN 17 795 780 962.Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the membersof which are separate and independent legal entities.pitcher.com.auIndependent Auditor’s ReportTo the Members of QV Equities LimitedABN 64 169 154 858Report on the Audit of the Financial ReportOpinion We have audited the financial report of QV Equities Limited(“the Company”), which comprises the statement of financial position as at 30 June 2022, the statement of comprehensive income, the statement of changes in equity and the statement of cash flow 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 theCorporations Act 2001, including:i.giving a true and fair view of the Company’s financial position as at 30 June 2022and of its financial performance for the year then ended; andii.complying with Australian Accounting Standards and the CorporationsRegulations 2001.Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Reportsection of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001and 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 theindependence 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 haveobtained is sufficient and appropriate to provide a basis for our opinion. 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. Our procedures included, amongst others: ▪ Obtaining an understanding of and evaluating the design of the investment management processes and controls; or other The Company’s investments are considered to be non-complex in nature with fair value based on readily observable data from the observable markets. ASX Consequently, investments are classified under Australian Accounting Standards as “Level 1” (i.e., where the valuation is based on quoted prices in an active market). these ▪ Reviewing and evaluating the independent auditor’s 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 for the period to which the auditor’s report relate to and obtaining bridging letters; ▪ Obtaining confirmations of the investment holdings directly from the Custodians; and valuation the Assessing individual Company’s investment holdings using independent pricing sources; recalculating of Evaluating the accounting treatment of for revaluations of current/deferred tax and unrealised gains or losses; and financial assets 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. 46 | QV Equities Limited Annual Report 2022 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 2022 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 2022 | 47 Independent Auditor’s Report to the Shareholders (continued) Independent Auditor’s Report To the Members of QV Equities Limited ABN 64 169 154 858 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 17 to 19 of the Directors’ Report for the year ended 30 June 2022. In our opinion, the Remuneration Report of QV Equities Limited, for the year ended 30 June 2022, 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. C I Chandran Partner 17 August 2022 Pitcher Partners Sydney Pitcher Partners is an association of independent firms. ABN 17 795 780 962. An independent New South Wales Partnership. 48 | QV Equities Limited Annual Report 2022 Shareholder Information The shareholder information set out below was applicable as at 30 June 2022. 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 2022: Ordinary shares, trust units or stapled securities A2B Australia Limited Abacus Property Group Alumina Ltd* Amcor Limited* Ampol Limited (formerly Caltex Australia) Aurizon Holdings Limited AusNet Services Limited Australian Clinical Labs Ltd Australian Pharmaceutical Industries Limited Bank of Queensland Limited Bega Cheese Ltd Best and Less Group Holdings Brambles Ltd* Charter Hall Retail REIT Cleanaway Waste Management Ltd Clearview Wealth Limited Codan Ltd Coles Group Limited* Crown Resorts Limited Event Hospitality and Entertainment Ltd G.U.D. Holdings Limited Hipages Group Holdings Ltd Home Consortium Homeco Daily Needs REIT Incitec Pivot Limited* Informedia Limited Insurance Australia Group Integral Diagnostics Limited Lottery Corporation 2022 Holding units Fair value $ Holding units 2,100,000 1,000,000 1,200,000 800,000 330,000 2,310,000 2,570,000 1,758,000 14,432,000 11,295,900 3,600,000 13,680,000 – – 480,000 2,203,200 2,100,000 500,000 1,000,000 900,000 380,000 2,900,000 6,200,000 650,000 – 3,500,000 2,467,900 2,292,000 250,000 – 2021 Fair value $ 2,646,000 1,575,000 1,645,000 13,617,000 10,719,800 10,788,000 10,850,000 2,210,000 3,902,500 2,277,500 – – 370,000 600,000 – 600,000 1,300,000 – 1,600,000 300,000 500,000 – – 400,000 1,600,000 300,000 2,800,000 500,000 600,000 1,300,000 1,100,000 1,800,000 – 164,609 355,555 6,426,000 4,901,000 – 1,088,000 2,088,000 8,905,000 – – 3,196,000 1,584,000 1,353,000 3,584,000 1,655,000 1,002,000 5,668,000 3,333,000 8,136,000 – 1,300,000 1,000,000 1,600,000 – 500,000 1,100,000 350,000 – 900,000 450,000 4,300,000 2,200,000 – 900,000 480,000 – – 4,940,000 2,640,000 800,000 – 8,545,000 13,101,000 4,424,000 – 2,691,000 2,448,000 6,020,000 5,236,000 – 4,644,000 2,496,000 – Mayne Pharma Group Limited 16,000,000 4,000,000 16,000,000 5,120,000 Medibank Private Ltd Metcash Limited* 425,000 1,300,000 1,381,250 5,512,000 – – 1,350,000 5,386,500 QV Equities Limited Annual Report 2022 | 49 Shareholder Information (continued) A Long term equity investments (continued) 2022 2021 Mirvac Group* National Storage REIT New Hope Corporation Limited Newcrest Mining Limited Nine Entertainment Co. Holdings Limited Oceanagold Corp Oil Search Limited Ooh Media Limited Orica Limited* Origin Energy Limited* Pact Group Holdings Ltd Pro-Pac Packaging Limited** Ramsay Health Care Ltd (preference shares) Regis Healthcare Limited Santos Ltd* Shopping Centres Australasia Property Group Skycity Entertainment Group Limited Sonic Healthcare Limited* Southern Cross Media Group Limited Spark Infrastructure Group Suncorp Group Ltd* Tabcorp Holding Limited TPG Telecom Ltd* United Malt Group Ltd Virgin Money UK PLC (formerly Cybg PLC)* Z Energy Limited Floating rate notes Fair value $ – 1,117,677 2,854,500 2,528,000 5,529,000 854,000 3,048,000 2,275,000 9,960,0 6,314,000 12,950,000 Holding units 500,000 – 1,000,000 100,000 1,900,000 – – Fair value $ 987,500 – 3,460,000 2,089,000 3,467,500 – – Holding units – 564,483 1,650,000 100,000 1,900,000 350,000 800,000 1,500,000 1,815,000 1,300,000 830,000 900,000 4,900,000 2,650,000 20,000 900,000 700,000 1,200,000 3,000,000 220,000 3,500,000 – 13,089,100 5,157,000 8,844,500 1,285,250 1,993,000 1,665,000 5,194,000 3,300,000 7,950,000 7,262,200 3,482,500 – 400,000 4,392,000 750,000 1,400,000 3,500,000 26,500,000 5,300,000 – – 1,200,000 2,340,000 – 1,000,000 1,750,000 – 2,520,000 5,687,500 300,000 11,520,000 3,500,000 2,500,000 – 7,315,000 5,625,000 – – 700,000 900,000 1,500,000 – – 2,400,000 12,432,000 4,179,000 2,943,000 3,315,000 – 350,000 550,000 1,500,000 1,100,000 2,191,000 2,464,000 5,520,000 2,783,000 Crown Resorts Limited unsecured sub floating rate note 41,000 4,179,130 41,000 3,976,590 Total equities Cash Total portfolio 206,870,930 246,182,122 32,092,735 19,027,433 238,963,665 265,209,555 * Part or all of the security was subject to call options written by the Company as at 30 June 2022. ** Pro-Pack Packaging had a one for 10 share consolidation during the year ended 30 June 2022. There were 677 (2021: 592) investment transactions during the financial year. The total brokerage paid on these transactions was $261,919 (2021: $289,564). 50 | QV Equities Limited Annual Report 2022 Shareholder Information (continued) B Distribution of equity securities Analysis of numbers of shareholders by size of holding as at 30 June 2022: Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of shareholders Ordinary shares Percentage 291 560 682 3,085 308 4,926 93,584 1,846,459 5,565,355 108,223,771 113,320,324 229,049,493 0.04 0.81 2.43 47.25 49.47 100.00 There were 210 holders of less than a marketable parcel of ordinary shares holding a total of 24,600 shares. C Equity security holders Twenty largest shareholders – ordinary shares: Name HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited AKAT Investments Pty LtdNavigator Australia Limited Nulis Nominees (Australia) Limited Bennamon Pty Ltd Netwealth Investments Limited J P Morgan Nominees Australia Pty Limited AKAT Investments Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Atrol Pty Ltd Investors Mutual Ltd TAG Family Foundation Pty Ltd Peter MacGill Investments Pty Ltd Australian Executor Trustees Limited
Mr Anthony Archer Australian Executor Trustees Limited Netwealth Investments Limited Pinetown Pty Ltd Fairview Investments Pty Limited Ordinary shares Numbers held 26,438,083 Percentage of issued shares 11.54 8,128,160 5,350,000 3,083,708 2,521,520 2,295,795 1,838,704 1,251,873 1,150,000 1,072,020 1,000,000 1,000,000 1,000,000 812,295 797,517 773,000 715,414 669,000 628,807 600,000 3.55 2.34 1.35 1.10 1.00 0.80 0.55 0.50 0.47 0.44 0.44 0.44 0.35 0.35 0.34 0.31 0.29 0.27 0.26 26.69 D. Substantial shareholders 1607 Capital Partners LLC (“1607”) held 10.045% of the shares in QVE on 25 October 2021. QV Equities Limited Annual Report 2022 | 51 This page is left intentionally blank Corporate Directory Directors Peter McKillop (Independent Director, Chairman) Jennifer Horrigan (Independent Director) Eamonn Roles (Independent Director) Anton Tagliaferro (Non-independent Director) Simon Conn (Non-independent Director) Secretary Zac Azzi Investment Manager Investors Mutual Limited Level 24, 25 Bligh Street Sydney NSW 2000 (AFSL 229988) Registered Office Level 24, 25 Bligh Street Sydney NSW 2000 Telephone: (02) 9232 7500 Fax: (02) 9232 7511 Email: info@qvequities.com Website: www.qvequities.com 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 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 Q V E Q U I T I E S L I M I T E D A N N U A L R E P O R T 2 0 2 2