Placement and Non-Renounceable Rights Issue 5 September 2013

Transcription

1 Placement and Non-Renounceable Rights Issue 5 September 2013

2 Contents August 2013 Update 3 Details of Capital Raise 6 Why invest in BKI Investment t Company 10 About BKI Investment Company 21 Risk Factors 25 International Offer Restrictions 29 2

3 August 2013 Update 3

4 August Update As at 31 August 2013 Net Tangible Asset Backing (NTA) - The consolidated unaudited pre tax NTA at 31 August 2013 was $1.59 per share, up 2.8% on 31 July after adjusting for the $0.034 dividend paid in August. Dividend Yield - BKI s historical fully franked dividend yield as at 31 August 2013 was 4.6% (based on the rolling 12 month dividend and share price of $1.54). BKI s historical grossed up yield as at 31 August 2013 was 6.6% (based on a tax rate of 30%). Performance - BKI s Share Price Performance (including the reinvestment t of dividends) id d for the 12 months to 31 August 2013 was 34.5%, outperforming the S&P/ASX 300 Accumulation Index over the same period by 10.9%. Diversification + High Conviction - Benchmark Unaware BKI s long term strategy of investing in dividend paying stocks means the portfolio is not aligned with an index. Currently 52 Stocks within the portfolio. Low Turnover - Buy/hold strategy & true to label. Focus on profitable, high yielding, well managed companies. 5-year average turnover of 8.4%; Low turnover helps reduce costs and tax. High Value / Low Cost Opportunity to invest in an active, high conviction, closed end portfolio with a MER as at 30 June 2013 of only 0.19%. BKI does not charge external portfolio management fees or a performance fee. 4

5 BKI - Top 25 Investments % of Total Portfolio Index Weight 1 CBA Commonwealth Bank 10.3% 8.4% 2 NAB National Australia Bank 98% 9.8% 55% 5.5% 3 NHC New Hope Corporation 8.8% 0.0% 4 WBC Westpac Banking Corp 7.6% 7.0% 5 BHP BHP Billiton Limited 6.9% 8.2% 6 TLS Telstra Corporation 5.6% 4.3% 7 WES Wesfarmers Limited 4.8% 2.9% 8 WOW Woolworths Limited 3.8% 3.2% 9 ANZ ANZ Banking Group 3.8% 5.8% 10 AGK AGL Energy Limited 2.7% 0.6% 11 ALQ ALS Limited 2.6% 0.2% 12 WPL Woodside Petroleum Limited 2.3% 2.3% 13 TPM TPG Telecom Limited 22% 2.2% 0.2% 14 IVC Invocare Limited 1.5% 0.1% 15 ARP ARB Corporation 1.5% 0.1% 16 CCL Coca Cola Amatil Limited 1.4% 0.7% 17 MTS Metcash Limited 14% 1.4% 0.2% 18 APA APA Group 1.3% 0.4% 19 IAG Insurance Australia Group 1.2% 0.9% 20 BEN Bendigo and Adelaide Bank Limited 1.2% 0.3% 21 MLT Milton Corporation 1.1% 0.0% 22 QBE QBE Insurance Group 1.1% 1.3% 23 ASX ASX Limited 1.1% 0.5% 24 RHC Ramsay Healthcare 1.0% 0.5% 25 BXB Brambles Limited 1.0% 1.0% Cash & Cash Equivalents 2.8% 0.0% Total 88.7% 54.6% 5

6 Details of Capital Raise 6

7 Placement Successful Placement to sophisticated and professional investors raising approximately $59 million. Issue Price of $1.48 per New Share. Represents a 6.9% discount to 31 August 2013 pre-tax NTA of $1.59 and 3.9% discount to closing share price on 2 September :15 Non Renounceable Rights Issue Offered to all BKI shareholders in Australia and New Zealand on the register at Record Date being 17 September Issue Price of $1.48 per New Share to raise up to $48.1 million (before costs). Represents a 6.9% discount to 31 August 2013 pre-tax NTA. Top Up facility available (the Board reserves the right to allocate any shortfall). New BKI Shares to rank equally with existing BKI shares at the time of issue and be entitled to all dividends and franking credits declared by the BKI Board going forward. Washington H. Soul Pattinson committed to taking up their full entitlement. 1. Last closing share price prior to the announcement of the capital raise 7

8 Objectives of Capital Raising Offer existing shareholders the chance to increase their investment in BKI without paying brokerage and other charges. Introduce new shareholders to the BKI shareholder register. Increase liquidity in BKI shares. Reduce BKI s Management Expense Ratio. The net proceeds from the Capital Raising will be used by BKI to expand its investment portfolio in accordance with its investment policy. 8

9 Timetable Event Date Announcement of Placement and Entitlement Offer 5 September 2013 Last day for shareholders h to purchase shares cum rights 10 September 2013 Ex-date 11 September 2013 Placement shares trade on the ASX 12 September 2013 Record date for the Entitlement Offer 17 September 2013 Offer document despatch date / Opening date 23 September 2013 Closing date 16 October 2013 Announce results of Offer 21 October 2013 Allotment date 24 October

10 Why invest in BKI Investment Company? 10

11 Philosophy, h Style, Process Objective - Our aim is to create wealth for all BKI shareholders, h throughh an increasing fully franked dividend and capital growth. Investment Strategy - Research driven, active equities manager investing for the long term in profitable, high yielding, well managed companies. Stock selection is bottom up, focusing on the merits of individual companies rather than market and economic trends. Investment Style High Conviction. BKI is benchmark unaware and has no specific sector or stock investment limitations. BKI has the ability to have overweight or underweight positions in certain stocks or sectors. Efficient Structure - Closed end company (as opposed to a managed trust), not beholden to fund flows. BKI does not charge external portfolio management fees or a performance fee. 11

12 History of Performance as at 31 August 2013 BKI Performance 1 Year 3 Yrs 5 Yrs 7 Yrs 9 Yrs as at 31 August 2013 (pa) (pa) (pa) (pa) BKI Portfolio Returns are measured after ate all operating expenses, provision and payment of income and capital gains tax. S&P/ASX 300 ACC INDEX (XKOAI) 23.6% 9.8% 4.5% 4.4% 8.7% BKI Total Shareholder Returns 34.5% 15.9% 8.9% 7.5% 10.6% BKI Share Price Outperformance V's XKOAI 10.9% 6.1% 4.4% 3.1% 1.9% BKI Portfolio Performance 23.5% 11.5% 6.6% 6.4% 9.2% BKI Portfolio Outperformance V's XKOAI -0.1% 1.7% 2.1% 2.0% 0.5% Source: BKI Investment Company Limited, IRESS. Portfolio Returns are measured by change in pre tax NTA and are after all operating expenses, provision and payment of both income and capital gains tax and the reinvestment of dividends. Total Shareholder Returns include reinvestment of dividends. Past performance is not necessarily indicative of future performance. 12

13 Portfolio Valuation as at 31 August $ Millions AUG 2013 Investment Portfolio Cash 13

14 Consistency in Dividends Paid (2H 04 2H 13) Cents per Sha are Ordinary Dividends Special Dividends 14

15 Yield for all Seasons Dividends + Franking Credits received from a $10,000 investment in BKI at inception vs Bank Quarterly Interest. Highlights the opportunity of receiving a fully franked dividend in a falling interest rate environment. 1,400 Dollars $ Australian 1,200 1, FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 BKI Dividend id d BKI Franking Interest t Source: BKI; IRESS. An investor who spent the equivalent of $10,000 to purchase BKI shares upon listing in December 2003 would now be receiving fully franked dividends of $1,019pa. The franking credits enhance the income by a further $437 (total income of $1,456). The same investment in a term deposit (based on the cash rate) would be earning $494pa with no franking credits. Figures include reinvestment of dividends and cash. Ignores capital appreciation of BKI shares. Assumes tax rate of 30%. 15

16 Historical Grossed up Yield % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% BKI Grossed Up Dividend Yield 90 Day Bank Bill Source: BKI Investment Company Limited; IRESS. Based on a closing share price of $1.54 on 31 August 2013, BKI s fully franked dividend yield was 4.6% (Includes FY2013 Interim Ordinary Dividend of 3.25cps, FY2013 Interim Special Dividend of 0.50cps and FY2013 Final Ordinary Dividend of 3.40cps) 1. BKI s Grossed up Yield as at 31 August 2013 was 6.6% (based on a tax rate of 30%). 16

17 Low Management Expense Ratio 0.80% 0.70% 0.69% 0.71% 0.60% 0.56% 0.50% 0.40% 0.30% 0.20% 0.46% 0.46% 0.31% BKI Internally Managed 0.19% 0.18% 0.18% 0.19% 0.10%

18 Experienced Investment Team Team Member Qualifications Position Robert Millner FAICD Chairman Investment Committee David Hall FCA, FAICD Non Executive Director Chairman Audit Committee Alex Payne B.Comm, Dip Cm, FCPA, FCIM Non Executive Director Investment Committee Ian Huntley BA Non Executive Director Investment Committee Investment Experience (Years) Tenure With BKI (Years) Equity Ownership (Shares) ,647, , , ,063,445 Tom Millner B.Des (Ind), GDipAppFin, F.Fin, GAICD Jaime Pinto B.Comm, CA Company Secretary CEO Investment Committee ,606, ,011 TOTAL 25,858, Common to R. Millner and T. Millner are 6,265,424 shares held in related companies and trusts in which both hold beneficial interests. 18

19 Benefits of Investing in BKI.ASX Dividends Predictable and growing fully franked income stream In 8 years BKI has increased Ordinary dividends paid to shareholders by 55% BKI has also paid 5 Special Dividends Franking Credits Performance 30% tax rate already paid on dividend income, tax credits passed on directly to shareholders Delivering sound, long term returns to shareholders All Dividends Fully Franked Grossed up Yield of 6.6% (as at 31 August 2013) 9 year Total Shareholder Returns of 10.6% pa (as at 31 August 2013) High Value at a One of the best value, lowest cost, MER of 0.19% professionally and actively managed Low Cost equity products in the market No Performance Fees Diversification Bottom up, actively managed portfolio. Exposure to most sectors via well managed, dividend paying companies BKI currently holds 52 companies within the portfolio 19

20 Benefits of Investing in BKI.ASX Diversified market exposure Administration Simplicity Two dividend statements per annum Easy monitoring of one shareholding All through BKI.ASX Structure Transparency BKI is a closed end LIC (Company), unlike an open ended fund manager (Managed Trust) Not beholden to fund inflows or fund outflows. High levels of transparency and compliance by being a publicly listed company Not a forced seller in bear markets Not a forced buyer in bull markets Low turnover; no portfolio churn ASX Listing Rules Continuous Disclosure Board of Directors AGM Monthly NTA s, Top 25 Investments Annual Reports 20

21 About BKI Investment Company 21

22 Investment Process BKI is a research driven, active equities manager investing for the long term in profitable, high yielding, well managed companies. Stock selection is bottom up, focusing on the merits of individual companies rather than market and economic trends. BKI is focused on investing in stocks using the 5 basic fundamentals below as part of the stock selection process: 1. Income - Dividend Yields, Franking Credits, Pay Out Ratios 2. Principal Activity - Sustainable Business Model, Competitive Advantage 3. Debt Levels - Gearing Ratios, Net Interest Coverage 4. Management and Board - Share Ownership, Board Meeting Attendance, History of Creating Shareholder Wealth 5. Earnings and Valuations - Earnings Profiles, PE Multiples, EV/EBITDA Multiples 22

23 BKI Result Highlights h FY 2013 FY2012 Growth Ordinary Dividend Income $32.0m $29.8m 7.4% Net Operating Result* $29.9m $27.7m 8.0% Net Operating Profit $33.6m $30.0m 12.1% Earnings Per Share (excluding Special Dividends) 6.81cps 6.51cps 4.7% Earnings Per Share (including Special Dividends) 7.65cps 7.04cps 8.7% Total Dividends Per Share 7.15cps 6.40cps 11.7% * Excluding Special Dividends 23

24 Strong Growth in Net Operating Result (FY2004 FY2013) 35 Millions $

25 Risk Factors 25

26 Key Risks The operations and financial performance and prospects of listed investment companies such as BKI are driven by a number of factors, including, but not limited to, domestic and international economic growth, the performance of domestic and international financial markets, domestic and international political events and relevant regulation in Australia and overseas. The risks set out below are not listed in order of importance and do not constitute an exhaustive list of the risks faced by BKI or by investors in BKI. If any of the following risks materialise, BKI's business, financial condition and operational results are likely to suffer. Nothing in this presentation is financial product advice and this document has been prepared without taking into account your investment objectives or personal circumstances. You should also consider consulting your financial or legal adviser so as to ensure you understand fully the terms of the Offer and the inherent risks. GENERAL INVESTMENT RISKS Economic Conditions The future earnings of the Company and the value of the investments of the Company may be influenced by various general domestic and international economic factors including, but not limited to: economic growth; interest rates; inflation; currency exchange rates; employment levels; consumer and business sentiment; and market volatility. Material adverse changes to general economic conditions may have an adverse impact on the operations and financial performance and position of BKI. ASX market volatility The ASX price of BKI securities will fluctuate due to various factors including general movements in interest rates, the Australian and international investment markets, international economic conditions, global geo-political events and hostilities, investor perceptions and other factors that may affect BKI's financial performance and position. 26

27 General Investment Risks Legal and regulatory environment As a listed investment company, changes in laws, regulations and government policy may affect the Company and the attractiveness of an investment in the Company positively or negatively. The Company cannot predict the impact of future legislative or regulatory change on its business. In addition, if the amount and complexity of new regulation increases, so too may the cost of compliance and the risk of non-compliance. Changes to tax or accounting policies A change to the current taxation regime in Australia or overseas may affect the Company and its Shareholders. Personal tax liabilities are the responsibility of each individual investor. The Company is not responsible either for taxation or penalties incurred by investors. Similarly, Australian accounting standards are set by the Australian Accounting Standards Board ( AASB ) and are outside the Directors and the Company s control. Changes to accounting standards d issued by AASB could adversely affect the financial i performance and position reported in the Company s financial i statements. RISKS SPECIFIC TO BKI Key personnel risk The Company depends on the talent and experience of its personnel as its primary asset. There can be no guarantee that BKI will be able to retain their key directors and executives or, if those persons cease to be employed by BKI, that the Company will be able to attract and retain personnel of sufficient experience and expertise to manage its investments. Additionally, any key personnel of the Company who leave to work for a competitor may adversely impact the Company. In summary, the Company s ability to attract, motivate and retain personnel will have a direct bearing upon its ability to deliver its commitments and achieve forecast revenues. Additionally, increases in recruitment and wage costs may adversely impact upon the financial performance of the Company. Litigation risk Exposure to litigation brought by third parties such as investors, regulators, employees or business associates could negatively impact the Company s operations and financial performance and position through increased costs, payment of damages and damage to reputation. 27

28 Risks relating to the Offer Investment risk Some of the entities in which BKI may invest may have a limited trading history or small capital base. Investment in these entities involves risks that are greater than investment in larger capitalised entities or entities in other market sectors. While the development of sound risk management procedures and proper analysis of proposed investments can minimise the risks of investment in such companies, the risks are material and significant. Business risk The profitability and success of BKI is highly dependent on the ability of their directors and/or the BKI investment committee to assess business risks and make appropriate investments. It cannot be expected nor is there any guarantee that an investment or investment decision of BKI and/or its investment committees will prove to be the correct decision or prove to be profitable. BKI may accordingly incur significant losses in carrying out their investment objectives and investment strategy. As a result, no guarantee can be given in respect of the future earnings of BKI or the earnings and capital appreciation of its investments. RISKS RELATING TO THE OFFER Market risk The market price of BKI shares may rise or fall between the date that the Entitlement Offer opens and the date that the shares are issued to you under the Entitlement Offer. This means that the issue price that you pay for the new shares under the Entitlement Offer may be either higher or lower than the share price at the time you apply for the shares under the Entitlement Offer or at the time the new shares are issued to you pursuant to the Entitlement Offer. No assurances can be given that the new shares to be issued under the Entitlement Offer will trade at or above the offer price under the Entitlement Offer. None of BKI, its Board or any other person guarantees the market performance of the new shares to be issued under the Entitlement Offer Dilution Risks You should note that if you do not take up all or part of shares offered to you under the Entitlement Offer, then your percentage shareholding in BKI will be diluted by not participating to the full extent in the Entitlement Offer and you will not be exposed to future increases or decreases in BKI's share price in respect of those new shares which would have been issued to you had you taken up all of your entitlement. 28

29 International Offer Restrictions 29

30 International Offer Restrictions The laws of some countries prohibit or make impracticable participation in the Entitlement Offer by certain overseas BKI shareholders. Shareholders who are not resident in Australia or New Zealand will not be able to participate i t in the Entitlement t Offer. This presentation does not constitute an offer of any shares in BKI to any person to whom, or in any jurisdiction in which, it would not be lawful to make such an offer. No action has been taken to register or qualify the offer, or shares in BKI, or otherwise permit a public offering outside Australia or New Zealand. The distribution of this presentation outside Australia and New Zealand is restricted by law and the issue of new shares in BKI may not be offered or sold in any country outside Australia or New Zealand. New Zealand The Entitlement Offer is being made in New Zealand only to existing New Zealand resident BKI Shareholders, pursuant to the Securities Act (Overseas Companies) Exemption Notice This presentation is not a prospectus or investment statement for the purposes of the New Zealand Securities Act 1978 and has not been lodged d with any New Zealand regulatory authority. United States This presentation may not be released or distributed in the United States. The shares to be issued under the Entitlement Offer have not been and will not be registered under the US Securities Act of 1933 (the Securities Act ) or the securities laws of any state or other jurisdiction of the United States. Shares in BKI may not be offered, sold or resold in the United States except in a transaction exempt from, or not subject to, the registration requirements of the Securities Act and the applicable securities laws of any state or other jurisdiction in the United States. 30

31 31 BKI Fact Sheet ASX Code BKI.ASX Research Coverage Morningstar Listing Date December 2003 Mandate Aust Listed Equities Investment Sectors Diversified Benchmark S&P/ASX 300 Acc Index Total Assets $714m Debt Nil Management Expense Ratio 0.19% Performance Fee Nil Rolling 12 Month Dividend* 7.15cps Historical Dividend Yield** 4.6% Percentage Franked 100% Grossed Up Yield # 6.6% Dividend Distribution Frequency Half Yearly Dividend Payout Policy 90% 95% 95% Dividend Reinvestment Plan Active Approved Product List Model Portfolio Investment Menu Contact Morgan Stanley Bell Potter Evans and Partners Baillieu/Holst Dixon Advisory Baillieu Holst Morgan Stanley Dixon Advisory Baillieu/Holst Morgan Stanley AIOFP MLC Wrap Super MasterKey Custom Super Tom Millner or * Includes FY2013 Interim Ordinary Dividend of 3.25cps, FY2013 Interim Special Dividend of 0.50cps and FY2013 Final Ordinary Dividend of 3.40cps ** Based on share price as at 31 August 2013 of $1.54 # Grossed up yield based on a tax rate of 30%. 31

32 Disclaimer This material has been prepared by BKI Investment Company Limited. The information within this document is not intended to provide advice to investors or take into account an individual s financial circumstances or investment objectives. This is general investment advice only and does not constitute advice to any person. The opinions within this document are not intended to represent recommendations to investors, they are the view of BKI Investment Company Limited as of this date and are accordingly subject to change. Information related to any company or security is for information purposes only and should not be interpreted as a solicitation of offer to buy or sell any security. The information on which this presentation is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. Investors should consult their financial adviser in relation to any material within this document. 32