Diversified United Investment Limited

Transcription

1 Annual Financial Report 2010 Diversified United Investment Limited ABN

2 Directory Directors C B Goode AC Chairman G E Moir M K Myer AO R H Myer AM A R Burgess Company Secretary Andrew J Hancock FCA Registered Office Level Collins Street Melbourne VIC 3000 Tel: (613) Fax: (613) info@dui.com.au Website: Bankers Australia and New Zealand Banking Group Limited National Australia Bank Limited Auditors KPMG Chartered Accountants Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Tel: (612) Fax: (612) Securities Exchange The Company is listed on the Australian Securities Exchange Ltd. ASX Code: DUI Diversified United Investment Limited

3 Contents Page Chairman s Report 2 Corporate Governance Statement 5 Directors Report 8 Lead Auditor s Independence Declaration 14 Income Statement 15 Statement of Comprehensive Income 16 Balance Sheet 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements 20 Directors Declaration 32 Independent Audit Report 33 ASX Additional Information 35 List of Investments 37 Diversified United Investment Limited 1

4 Chairman s Report I present the eighteenth Annual Report of Diversified United Investment Ltd which is for the year ended 30 June The objective of the Company is to seek a mixture of income and longer term capital gain within an acceptable level of risk. The investment philosophy of the Company is to take a medium to long term view and to invest in Australian equities and short term deposits. Investments may also be made from time to time in listed property trusts, fixed interest securities, convertible notes or international equities. Operating profit after tax was $17,388,000 which is a decrease of 4% on the previous year or a decrease of 4.4% if special dividends received in both periods are excluded. The total result for the year is a profit of $16,260,000 after including realised losses after tax $1,128,000 ($5,979,000 last year). This year only realised gains and losses to the date of adoption of AASB 9 on 7 December 2009 are included in the income statement. After that date, under the new accounting standards, realised gains and losses are transferred directly to the Asset Realisation Reserve. The weighted average number of ordinary shares for the year was 154,954,340 as against 144,047,460 in the previous year, an increase of 7.6%. The operating earnings per share based on the weighted average number of shares on issue for the year was 11.2 cents per share (11.1 cents excluding the special dividends) compared to 12.6 cents for the year to 30 June 2009 (12.5 cents excluding special dividends). Income earned during the year was $22,366,000 comprising $21,048,000 from dividends and trust distributions and $1,318,000 from interest and options trading. The Company incurred operating expenses of $996,000 (before interest costs) which is equivalent to 0.20% of the average value of the portfolio. This year a special dividend totalling $150,000, after tax, was received from Washinton H Soul Pattinson & Company. In 2009, a special dividend of $105,000, after tax was received from St. George Bank. Leaving aside the special dividends, the year s result reflects a 3% increase in income from dividends and trust income, a significant decrease in interest and options trading income and a 20% higher interest expense. $22,931,877 of new equity was raised through the share placement in April this year of 7,211,282 new shares at $3.18 per share. Bank borrowings were $65 million at the end of the financial year (previous year $65 million) amounting to around 12% of the investment portfolio at market values. Cash on hand, cash on deposit and short term receivables were $7 million, or 1% of the investment portfolio at market values (previous year $56 million, or 12%). Annual interest expense was covered 5 times by investment revenue. The net asset backing per share before estimated tax on unrealised gains and before provision for the final dividend was $2.94 at 30 June 2010, compared to $2.67 at 30 June 2009, an increase of 10%. The year saw a recovery in world equities markets with the Australian S&P/ASX 200 price index rising 8.8%, the Dow Jones Index rising 15.7%, the Standard & Poors 500 rising 12.1% and the FTSE 100 rising 15.7%. However the Nikkei-225 fell by 5.8%. The Directors have declared a fully franked final dividend of 7 per share for the year to 30 June 2010, which with the interim dividend of 6 per share fully franked makes a total fully franked dividend of 13 per share for the year, unchanged from the previous year. The final dividend will not include a Listed Investment Company capital gain dividend. 2 Diversified United Investment Limited

5 Chairman s Report Dividends paid or payable for each of the last 5 financial years are as follows: 2005/ cents per share 2006/ cents per share 2007/ cents per share 2008/ cents per share 2009/ cents per share The Company s reported net tangible asset backing per share before provision for the final dividend (based on investments at market values and after provision for tax on net realised gains but not on unrealised gains) over the last 5 years was as follows: 30 June 2006 $3.32 (after one for five rights issue at $2.70, May 2006) 30 June 2007 $ June 2008 $3.54 (after placement of 15,350,000 shares at $3.46, March 2008) 30 June 2009 $2.67 (after share purchase plan 9,442,625 shares at $2.00, April 2009) 30 June 2010 $2.94 (after placement of 7,211,282 shares at $3.18, April 2010) The Australian equities portfolio is mainly in leading companies and at 30 June 2010 in terms of market values, 88% of the Australian equities portfolio was in the leading 50 companies (77% in the top 20 companies and 11% in the next 30 companies), with a further 5% invested in the second 50 companies and 7% invested in companies other than the largest 100 companies. The Company s performance in recent years (assuming all dividends were re-invested) is as follows: DUI Net Asset Backing DUI Share Price S&P ASX 300 Accumulation Accumulation Accumulation Index % p.a. % p.a. % p.a. 1 Year Years (7.4) (6.7) (8.1) 5 Years The following graph show the accumulation performance of the Company s net asset backing (before provision for tax on unrealised gains) assuming all dividends were re-invested, as compared to the S&P/ASX 300 Accumulation Index over the last five years. 2,000 1,800 DUI Accumulated Investment Return vs S&P/ASX 300 Accumulation Index 5 Years to 30 June 2010 DUI Share Price Accumulation DUI NTA Accumulation S&P/ASX 300 Accumulation 1,600 1,400 1,200 1, Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Source: JB Were Diversified United Investment Limited 3

6 Chairman s Report Market Value % of Market Value of Company $ 000 Total Investments 1. BHP Billiton Ltd 56, % 2. Woodside Petroleum Ltd 52, % 3. ANZ Banking Group Ltd 41, % 4. Commonwealth Bank of Australia Ltd 38, % 5. Rio Tinto Ltd 35, % 6. Westpac Banking Corporation Ltd 33, % 7. National Australia Bank Ltd 27, % 8. QBE Insurance Group Ltd 27, % 9. CSL Ltd 19, % 10. Woolworths Ltd 18, % 11. Westfield Group 18, % 12. Telstra Corporation Ltd 14, % 13. Wesfarmers Ltd PPS and Ordinary 12, % 14. Transurban Group 11, % 15. AGL Energy Ltd 11, % 16. Consolidated Media Holdings 9, % 17. Alumina Ltd 9, % 18. Mystate Ltd 8, % 19. Washington H Soul Pattinson & Co Ltd 7, % 20. Santos Ltd 6, % 21. Leighton Holdings Ltd 5, % 22. Perpetual Ltd 5, % 23. Australian Infrastructure Fund 5, % 24. Worley Parsons Ltd 5, % 25. Brambles Ltd 5, % 489, % Total Investments at Market Value, Cash and Receivables 531,977 Mr Graeme Moir has advised us of his intention to retire at the conclusion of the 2010 Annual General Meeting. Graeme has been a director since the Company was listed in 1991 and has made a significant contribution to the management of the Company s share portfolio. We thank him for his insightful views on the share market over many years and we wish him well in his retirement. Charles Goode Chairman 4 Diversified United Investment Limited

7 Corporate Governance Statement The Company has adopted corporate governance principles in accordance with the Australian Securities Exchange Corporate Governance Council s Good Corporate Governance Principles and Recommendations. Any material departures from the recommendations are referred to in this statement. 1. Accountability and Responsibility The Board is accountable to the shareholders and is responsible for: Setting strategic and financial objectives; Monitoring the Company s performance and financial position and overseeing the financial accounts and reporting; Identifying and managing business and compliance risks; Managing the Company s investment portfolio; Overseeing relationships with outside service providers; Appointing the Company Secretary, and setting and overseeing responsibilities delegated to the Company Secretary; and Setting ethical standards for the Company. 2. Composition The Board currently comprises 5 directors. The Company s constitution requires 3 to 6 directors. Other than the Company Secretary the Company has no executives or executive directors. If a vacancy arises the Nomination and Remuneration Committee chooses the best available candidate using professional advice if this is deemed necessary. An appointed director then submits themselves for election by shareholders at the next Annual General Meeting. Messrs C B Goode, M K Myer and R H Myer are associated with substantial shareholders. These directors bring significant relevant experience to the Board. However in that the Chairman of the Board is not independent and there is not a majority of independent directors, the Company departs from the Australian Securities Exchange Corporate Governance Council s Recommendations. A lead independent director is not considered necessary given the small size of the Board. Appointed directors must stand for election at the next Annual General Meeting. One third of directors stand for re-election at each Annual General Meeting. There is no set retirement age or term for directors. Extensive experience in the investment markets is valued. Directors are not required to own shares in the Company. Directors have agreed not to enter into any margin loans over their shareholdings in the Company. 3. Operation The Board usually meets eleven times each year and consults on investment matters between meetings. The Board has dayto-day responsibility for management of the investment portfolio. Transaction levels are low as the portfolio is held for the long term. The Board reviews financial statements, forecasts, the investment portfolio, the net asset backing per share, and compliance reports monthly. The Company Secretary is responsible for either providing the information or co-ordinating it from outside service providers. 4. Delegation The duties and responsibilities of the Company Secretary, the Company s only employee, are set out in a letter of engagement, which the Board approves. The Board also approves letters of engagement for the externally provided accounting, tax, custody and audit services. Share registry services are purchased on commercial terms. Diversified United Investment Limited 5

8 Corporate Governance Statement 5. Directors Terms of Appointment, Remuneration and Performance Directors fees are reviewed annually by the Nomination and Remuneration Committee in the light of the Company s activity, changing responsibilities and in comparison to fee levels of a peer group of companies. Independent remuneration advice may be sought. The maximum total of directors fees is set by the shareholders in general meeting. Details of directors remuneration are set out in the Remuneration Report in the Annual Report. Each director appointed before October 2006 entered into a Retirement Agreement at that time to convert accrued retirement benefits into shares in the Company to be held until retirement in the Non-Executive Directors 2006 Accrued Entitlements Share Plan, as approved by shareholders. Each director has entered into a Deed of Access, Indemnity and Insurance with the Company and is covered by the Company s Directors and Officers Liability Insurance. The duties of directors are as set out in the Corporations Law and in this statement. In addition to board meetings directors are expected to attend committee meetings where applicable, for no additional fee. They are expected to make a pro-active contribution to the management of the Company s investment portfolio from their reading, research, and information collected outside of board meetings. After prior discussion with the Chairman, directors are entitled to seek independent advice at the expense of the Company, which advice will then be made available to all other directors. Directors are entitled to unlimited access to the Company s records. The Board reviews its performance annually by discussion and by individual communication with the Chairman and by reference to generally accepted Board performance standards. The Board also conducts an annual review of the performance of the Board Committees, the Company Secretary, and outside service providers. 6. Board Committees The Board has a Nomination and Remuneration Committee comprising all directors and an Audit Committee comprising A R Burgess, M K Myer and G E Moir. The Audit Committee meets at least twice and the Nomination and Remuneration Committee at least once per annum. The Charter of each committee is reviewed by the Board annually. The Audit Committee Charter includes inter-alia, appointment of the auditor, assessing their independence, managing the audit relationship, and overseeing risk management. The external audit partner rotates every 5 years. The Audit Committee has an independent Chairman and a majority of independent directors. All members are non-executive. The Committee is considered to have sufficient relevant expertise and to comply with the Australian Securities Exchange Corporate Governance Council s Recommendations and Australian Securities Exchange listing rule The Nomination and Remuneration Committee considers and makes recommendations to the Board regarding Board composition and remuneration of the directors and the Company Secretary. The Company Secretary s remuneration is paid on a fee for services basis and is disclosed in the Remuneration Report in the Annual Report. No additional fees are paid to members of the Board committees. Committee Members qualifications and attendance at meetings are set out in the Directors Report in the Annual Report. 7. Disclosure Procedures and Share Trading The Company has established procedures to ensure compliance with the Australian Securities Exchange listing rule disclosure requirements including monthly disclosure of the Company s net tangible asset backing per share. Directors and the Company Secretary are prohibited from dealing in the Company s securities (other than to participate in the Dividend Reinvestment Plan or any Share Purchase Plan or rights issue) from 1 January to the day after the announcement of the Company s half year results and interim dividend, and from 1 July to the day after the announcement of the Company s financial year results and final dividend. 6 Diversified United Investment Limited

9 Corporate Governance Statement 8. Shareholder Communication The Company communicates with shareholders through: The annual report The half year report The website, including contact. Telephone availability of the Company Secretary at the representative office. Annual General Meeting including Chairman s address and question time. Mailing of Chairman s Address to all shareholders and posting to website. The external auditor is to be available for questioning at the Annual General Meeting. 9. Risk Management The Audit Committee reviews the internal control system and the management of risk half yearly after receiving reports from the Company Secretary on these matters and makes appropriate recommendations to the Board. The Board receives a letter half yearly from the Company s external accountants regarding their procedures, and reporting that the financial records have been properly maintained and the financial statements comply with the Accounting Standards. Based on his review of the internal control systems, management of risk and the letter from the Company s external accountants, the Company Secretary provides half yearly the declarations required by Section 295A of the Corporations Act and confirms that in his opinion the financial statements and accompanying notes comply with the Accounting Standards and give a true and fair view Details of the Company s financial risk management are set out in the notes to the financial statements in the Annual Report. 10. Ethical Conduct The Company has no executives or executive directors other than the Company Secretary. Each director and the Company Secretary is expected to adopt high ethical standards in acting for the Company and in the interests of the shareholders. Directors are required to disclose potential conflicts of interest and to refrain from involvement in Board decisions, or leave the room, during discussion of the conflicted matter. Diversified United Investment Limited 7

10 Directors Report The directors present their report together with the financial report of Diversified United Investment Limited for the financial year ended 30 June 2010 and the auditors report thereon. Directors The directors of the Company at any time during or since the end of the financial year are: Charles Goode AC, B.Com (Hons) (Melb), MBA (Columbia), Hon LLD (Melb), Hon LLD (Mon). Non Executive Chairman Age 71 Appointed Chairman September Mr Goode is the Chairman of the Boards of Australian United Investment Company Limited (since 1990), The Ian Potter Foundation Limited (governor since 1987) and Grosvenor Australia Properties Pty Limited (since 2008). Formerly Mr Goode was a director of Australia and New Zealand Banking Group Limited ( , Chairman ) and Woodside Petroleum Limited ( , Chairman ). Graeme Moir B.Com (Univ. of NZ), ACA (NZ), ACIS. Non-Executive Director Age 78 Appointed September Mr Moir is the principal of the investment management firm Moir s Investment Service Pty. Ltd. (since 1965), and is a director of Graeme Moir and Associates Pty. Ltd. (since 1965), and Australian United Investment Company Limited (since 1976). Martyn Myer AO, B.Eng, MESc.(Mon), MSM (MIT), FIE (Aust). Non-Executive Director Age 52 Appointed September Mr Myer is Chairman of CogState Ltd (since 1999), a director of The Myer Family Company Ltd (since 2007), and he is a member of the council of the University of Melbourne (since 2009). Formerly Mr Myer was a director of Coles Group Ltd ( ), SP AusNet Group ( ) and the Florey Neuroscience Institutes ( ), and was President of the Howard Florey Institute ( ). Rupert Myer AM, B.Com (Hons) (Melb), MA Cantab. Non-Executive Director Age 51 Appointed November Mr Myer is a director of AMCIL Limited (since 2000). He serves as Chairman of The Myer Family Company Ltd (since 2004 and a director since 1991) and the National Gallery of Australia (since 2005), and is a director of Myer Holdings Ltd (since 2006). Anthony Burgess ASA, B.Com (Hons) (Melb), MBA (Dist n) (Harvard). Non-Executive Director Age 51 Appointed September Mr Burgess has 28 years experience in corporate finance in Melbourne, London and New York. He is currently Chief Executive of Flagstaff Partners, an independent corporate finance advisory firm. He was formerly Global Co-Head of Mergers and Acquisitions at Deutsche Bank AG, based in London. He is a Director of the St. Vincent s Institute Foundation. He is Chairman of the Company s Audit Committee. 8 Diversified United Investment Limited

11 Directors Report Company Secretary Andrew Hancock FCA, B.Ec (Mon), Grad. Dip. CDP (RMIT). Company Secretary, Age 58 Appointed 23 September Mr Hancock is also Company Secretary of Australian United Investment Company Ltd (since 1995), has served as Chairman and is currently Secretary of the Australian Listed Investment Companies Association and is Chairman or a director of a number of private investment companies. Principal Activity The principal activity of the Company is that of investment. The directors have sought to invest in a diversified portfolio of investments with the objective of obtaining current income and longer term capital gain within an acceptable level of risk. Results and Review of Operations For the year ended 30 June 2010 the Company earned an operating profit after tax before net gains and losses on the investment portfolio of $17,388,000 (compared to $18,134,000 in 2009) a decrease of 4%. Operating profit after tax excluding special dividends received, and before net gains and losses on the investment portfolio, decreased 4.4%. The operating profit includes $150,000 of special dividends and distributions received. In 2009, the operating profit after tax included $105,000 of special dividends and distributions received. The weighted average number of ordinary shares for the year was 154,954,340 as against 144,047,460 in the previous year, an increase of 7.6% The basic and diluted earnings per share before net realised gains on investment portfolio and special dividends was 11.1 cents compared to 12.5 cents for the previous year. The net tangible asset backing of each of the Company s shares at 30 June 2010 was $2.94 (2009: $2.67). This net tangible asset backing calculation is based on investments at market value and is after the tax effect of net realised gains and losses, before estimated tax on unrealised gains and losses and before the final dividend. The Company is a long-term investor and does not intend disposing of its total portfolio. If, however, estimated tax on unrealised portfolio gains were to be deducted, the net tangible asset backing per share would be $2.63 (2009: $2.43). On 8 April 2010 the Company issued 7,211,282 fully paid shares in accordance with a capital raising announced on 29 March The issue raised $22,931,877 (before costs) at the placement price of $3.18 per share, which represented a 5% discount to the Net Tangible Asset Backing per share of the Company as at 28 February 2010 adjusted for the general share market movement to 24 March Borrowings as at 30 June 2010 were $65 million (2009: $65 million) amounting to around 12% of the investment portfolio at market values (2009: 14%). Cash on hand, cash deposits and short term receivables were $7 million, or 1% of the investment portfolio at market values (2009 $56 million, or 12%). Diversified United Investment Limited 9

12 Directors Report The composition of the operating profit after income tax and before net realised and unrealised losses on the investment portfolio was as follows: $ 000 $ 000 Revenue from investment portfolio Dividends 18,373 17,256 Trust Distributions 2,675 3,095 Interest 1,048 2,797 Profit/ (Loss) on Options Trading ,366 23,148 Expenses Administration and other expenses: Accounting and Custody Fees Audit Share Registry Directors Fees ASX Fees Company Secretary Fees Insurance Office rent, printing and other Finance Costs: Interest 4,218 3,514 5,214 4,440 Operating profit before income tax benefit/ (expense) and net gains and losses on investment portfolio 17,152 18,708 Income tax benefit/ (expense) 236 (574) Net operating profit before net gains and losses on investment portfolio 17,388 18,134 Expenses (excluding finance costs) were 0.20% of the average market value of the investment portfolio (2009: 0.19%) 10 Diversified United Investment Limited

13 Directors Report Dividends Dividends paid or declared by the Company to members since the end of the previous financial year were: $ 000 Paid or declared during the year A final dividend in respect of the year ended 30 June 2009 of 7.0 per share fully franked paid on 21 September ,630 An interim dividend in respect of the year ended 30 June 2010 of 6.0 per share fully franked paid on 16 March ,190 Paid or declared after end of year A final dividend in respect of the year ended 30 June 2010 of 7.0 per share fully franked payable on 24 September ,281 Directors Meetings The number of directors' meetings held (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year were: Nomination & Remuneration Directors Meetings Audit Committee Meetings Committee Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings Director attended eligible attended eligible attended eligible Charles Goode * 2* 1 1 Graeme Moir Martyn Myer Rupert Myer * 2* 1 1 Anthony Burgess The Audit Committee comprises Mr A R Burgess (Chairman), Mr G E Moir, and Mr M K Myer. All members of the board are members of the Nomination and Remuneration Committee. * In attendance not a committee member. Directors Interests As at the date of this report the relevant interest of each director in the issued capital of the Company as notified by the directors to the Australian Securities Exchange in accordance with Section 205G(1) of the Corporations Act 2001 is as follows:- SHARES Charles Goode 1,351,815 2,201, ,000 Graeme Moir 130,000-70,000 Martyn Myer 1, ,010 70,000 Rupert Myer 7, ,563 14,000 Anthony Burgess - 100,000 - Note: 1. Beneficial in own name 2. Held by an entity/related party in which the director has a relevant interest 3. Held for the Director in accordance with the terms of the Non-Executive Directors 2006 Accrued Entitlements Share Plan Diversified United Investment Limited 11

14 Directors Report Except as stated, no director - (a) (b) (c) (d) has any relevant interest in shares of the Company or a related body corporate; has any relevant interests in debentures of, or interests in a registered scheme made available by, the Company or a related body corporate; has any rights or options over shares in, debentures of, or interests in a registered scheme made available by, the Company or a related body corporate; is a party to a contract, or is entitled to a benefit under a contract, that confers a right to call for or deliver shares in, or debenture of or interests in a registered scheme made available by the Company or a related body corporate. Remuneration Report (audited) Non-executive Directors Fees (1), (2) $ $ Charles Goode 140, ,000 Graeme Moir 70,000 70,000 Martyn Myer 70,000 70,000 Rupert Myer 70,000 70,000 Anthony Burgess 70,000 56,477 Total 420, ,477 (1) Directors fees include superannuation contributions elected by Directors to be paid to their nominated superannuation fund. (2) No additional fees are paid to members of the board committees. The Nomination and Remuneration Committee reviews and makes recommendations to the board on remuneration packages and policies applicable to the Company Secretary and directors of the Company including superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies. Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors. The Nomination and Remuneration Committee may seek independent advice on the appropriateness of remuneration packages, given trends in comparative companies and in light of Company activity and changing responsibilities. The remuneration structures are designed to attract suitably qualified candidates, and to effect the broader outcome of increasing the Company s net profit. Directors fees are fixed and reviewed annually and the maximum total of directors fees is set by the shareholders in general meeting. Each director has entered into a Deed of Access, Indemnity and Insurance with the Company and is covered by the Company s Directors and Officers Liability Insurance. Amounts disclosed for Directors remuneration exclude insurance premiums of $44,597 paid by the Company in respect of Directors and Officers liability insurance as the contracts do not specify premiums paid in respect of individual directors and officers. Refer to Note 16 of the financial statements for information relating to the insurance contracts and the cessation of directors entitlement benefits in 2006 and conversion of accrued entitlements at that date into shares in the Company to be held until retirement. The Company Secretary, Mr Andrew J Hancock, received $70,000 (2009: $70,000) for services provided to the Company. Events Subsequent to Balance Date There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company, in future financial years. 12 Diversified United Investment Limited

15 Directors Report Non-audit services During the year KPMG, the Company s auditor, has provided taxation services in addition to their statutory duties. They received fees of $9,350 for these services. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Likely Developments The directors do not anticipate any particular developments in the operations of the Company which will affect the results of future financial years other than the value of the investment portfolio is expected to fluctuate broadly in line with market movements. State of Affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Company that occurred during the financial year under review other than the value of the investment portfolio fluctuated broadly in line with market movements. Environmental Regulation The Company s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. Indemnification Details of directors indemnification are set out in Note 16 to the financial statements. Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 The lead auditor s independence declaration is set out on page 14 and forms part of the Directors report for the year ended 30 June Rounding Of Amounts The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report and directors report have been rounded off to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the directors: Charles Goode Director Melbourne 12th August 2010 Diversified United Investment Limited 13

16 Lead Auditor s Independence Declaration Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 to the directors of Diversified United Investment Limited I declare that, to the best of my knowledge and belief in relation to the audit for the financial year ended 30 June 2011 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Michelle Somerville Partner Melbourne August Diversified United Investment Limited

17 Income Statement for the Year Ended 30 June Note $ 000 $ 000 Revenue from investment portfolio 2 22,366 23,148 Administration and other expenses (996) (926) Finance expenses 2 (4,218) (3,514) Operating profit before income tax benefit/ (expense) and net gains/ (losses) on investment portfolio 17,152 18,708 Income tax benefit/ (expense) ¹ 236 (574) Net operating profit before net gains/ (losses) on investment portfolio 17,388 18,134 Net realised losses on investment portfolio ² (1,561) (8,541) Income tax benefit thereon ¹ 433 2,562 (1,128) (5,979) Unrealised impairment losses on investment portfolio - (17,136) Income tax benefit/ (expense) thereon ¹ - 4,737 - (12,399) (1,128) (18,378) Profit/ (Loss) for the year 16,260 (244) ¹ Total income tax benefit 4(a) 669 6,725 ² Up to date of adoption of AASB 9 on 7 December 2009 Basic and diluted earnings per share (cents) 10.5 (0.2) Basic and diluted operating earnings per share (cents) before net realised and unrealised losses on investment portfolio are shown in Note 18. The income statement is to be read in conjunction with the notes to the financial statements set out on pages 20 to 31. Diversified United Investment Limited 15

18 Statement of Comprehensive Income for the Year Ended 30 June $ 000 $ 000 Profit/ (Loss) for the Year 16,260 (244) Other Comprehensive Income Revaluation/ (devaluation) of investment portfolio for the year 40,025 (119,636) Provision for tax (expense)/ benefit on revaluation/ (devaluation) of investment portfolio for the year (12,425) 35,472 Net realised losses on investments transferred to the income statement from the asset revaluation reserve ² 1,128 5,979 Net unrealised impairment losses transferred to the income statement from the asset revaluation reserve - 12,399 Other comprehensive income/ (loss) net of income tax 28,728 (65,786) Total comprehensive income ¹ 44,988 (66,030) ¹ This is the Company s total net return for the year, which includes the net operating profit plus the net realised and unrealised gains and loses on the Company s investment portfolio ² Up to date of adoption AASB 9 on 7 December 2009 The statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 20 to Diversified United Investment Limited

19 Balance Sheet as at 30 June Note $ 000 $ 000 Assets Cash assets 6 3,200 18,416 Receivables 7 3,763 2,970 Investments 8-35,000 Other Current tax refundable 4(a) Total current assets 7,261 56,386 Investment portfolio 8 524, ,852 Other Total non current assets 524, ,852 Total assets 531, ,238 Liabilities Current tax liability 4(a) Payables Total current liabilities 113 1,044 Borrowings interest bearing 11 64,794 64,629 Deferred tax liability 4(b) 43,467 31,130 Total non-current liabilities 108,261 95,759 Total liabilities 108,374 96,803 Net assets 423, ,435 Equity Issued capital 13(a) 282, ,392 Reserves 141, ,043 Total equity 423, ,435 The balance sheet is to be read in conjunction with the notes to the financial statements set out on pages 20 to 31. Diversified United Investment Limited 17

20 Statement of Changes in Equity for the Year Ended 30 June 2010 Issued Revaluation Realisation Impairment Retained Total Capital Reserve Reserve Reserve Earnings Equity $'000 $'000 $'000 $'000 $'000 $'000 Prior Period: Balance at 1 July , ,019 23,961-37, ,833 Comprehensive income Devaluation of investment portfolio - (119,636) (119,636) Tax benefit on revaluation - 35, ,472 Net realised and unrealised losses on investment portfolio - 25,677 - (17,136) (8,541) - Tax benefit on net realised and unrealised losses - (7,299) - 4,737 2,562 - Net operating profit for the period ,134 18,134 Realised losses transferred after tax - - (12,334) 6,355 5, (65,786) (12,334) (6,044) 18,134 (66,030) Transactions with shareholders Share purchase plan (net of costs) 18, ,802 Dividend reinvestment plan 5, ,099 Dividends paid - - (8,970) - (9,299) (18,269) 23,901 - (8,970) - (9,299) 5,632 Balance at 30 June 2009 (Refer Note 1b) 253,392 73,233 2,657 (6,044) 46, ,435 Current Period: Balance at 1 July 2009 (as reported) 253,392 76,619 2,657 (9,430) 46, ,435 Adoption of AASB 9 (Refer Note 1b) - (3,386) - 3, Balance at 1 July 2009 (restated) 253,392 73,233 2,657 (6,044) 46, ,435 Comprehensive Income Revaluation of investment portfolio - 40, ,025 Tax expense on revaluation - (12,425) (12,425) Net realised gains and losses on investment portfolio - 1, (1,561) 2 - Tax expense or benefit on net realised gains and losses - (24) (409) Net operating profit for the period ,388 17,388 Realised losses transferred after tax - - (7,172) 6,0443 1, ,684 (7,128) 6,044 17,388 44,988 Transactions with shareholders Share placement (net of costs) 22, ,896 Dividend reinvestment plan 6, ,104 Dividends paid (19,820) (19,820) 29, (19,820) 9,180 Balance at 30 June , ,917 (4,471) - 43, ,603 ¹ Net realised gains/ (losses) after 7 December 2009 and tax thereon transferred directly to realisation reserve. ² Net realised gains/ (losses) before 7 December 2009 and tax thereon. ³ Impairment realised on investments sold in the period prior to 7 December 2009 transferred to realisation reserve. The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on page 20 to Diversified United Investment Limited

21 Statement of Cash Flows for the Year Ended 30 June Note $ 000 $ 000 Cash flows from operating activities Interest received 1,108 2,834 Dividends and trust distributions received 20,193 21,028 Other income Administration and other expenses paid (1,046) (891) Finance costs paid (4,053) (3,765) Income taxes paid (691) (4,440) Net cash from operating activities 17(b) 15,781 14,766 Cash flows from investing activities Proceeds from sale of investments 66,190 30,965 Purchases of investments (106,367) (65,901) Net cash used in investing activities (40,177) (34,936) Cash flows from financing activities Proceeds from share placement net of costs 22,896 - Proceeds from share purchase plan net of costs - 18,802 Dividends paid (13,716) (13,170) Proceeds from borrowings - 25,000 Net cash from financing activities 9,180 30,632 Net (decrease)/ increase in cash held (15,216) 10,462 Cash and cash equivalents at 1 July 17(a) 18,416 7,954 Cash and cash equivalents at 30 June 17(a) 3,200 18,416 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 20 to 31. Diversified United Investment Limited 19

22 Notes to the Financial Statements for the Year Ended 30 June Statement of significant accounting policies Diversified United Investment Limited (the 'Company') is a company domiciled in Australia. The financial report was authorised for issue by the directors on 12 August (a) Statement of compliance This financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards ( AASBs ) (including Australian Interpretations) adopted by the Australian Accounting Standards Board ('AASB') and the Corporations Act The financial report of the Company also complies with International Financial Reporting Standards ( IFRSs ) and interpretations adopted by the International Accounting Standards Board. (b) Basis of preparation The financial report is presented in Australian dollars. The accounting policies set out below have been applied consistently to all periods presented in these financial statements. AASB 101 (revised): Presentation of Financial Statements With effect from 1 July 2009 the Company has adopted AASB 101 (revised) which requires the presentation of a new Statement of Comprehensive Income separate from changes in equity arising from transactions with shareholders. The adoption of this new standard changes the presentation of the financial statements by disclosing the unrealised gains and losses on the investment portfolio in the Statement of Comprehensive Income rather than the Statement of Changes in Equity. The Company has not applied any Australian Accounting Standards or UIG Interpretations that have been issued as at balance date but are not yet operative for the year ended 30 June 2010 ( the inoperative standards ) with the following exceptions: AASB 9: Financial Instruments The Company has early adopted AASB 9 Financial Instruments (AASB 9) with initial application from 7 December 2009 (being the earliest available date of application). The standard has been applied retrospectively to investments held at 7 December 2009 and comparative amounts have been restated. In accordance with AASB 9 the Company has designated its investments in equity securities, that were formerly designated as available-for-sale, as fair value through other comprehensive income as disclosed below. This results in all realised and unrealised gains and losses from the investment portfolio being recognised directly in equity through other comprehensive income in the Statement of Comprehensive Income. Dividend income is recognised in the income statement. Realised net gains and losses from the investment portfolio arising from transactions prior to 7 December 2009 are recognised in the income statement. Realised net gains and losses from the investment portfolio arising from transactions after 7 December 2009 are recognised as other comprehensive income. There is no longer a requirement to assess individual investments for impairment under AASB 9. The impact of this has been to restate net profit, asset revaluation reserve and impairment reserve for the period to 30 June 2009 to remove impairment losses that were booked in previous periods against investments that were held in the portfolio at 7 December This has also resulted in a restatement of earnings per share for the comparative period as disclosed in note 18. The adoption of this standard has no impact on the valuation of the Company s investments and therefore has no impact on the Company s net assets. 20 Diversified United Investment Limited

23 Notes to the Financial Statements for the Year Ended 30 June 2010 Restatement of comparatives: 30 June 2009 Reversal of As reported impairment Restated $ 000 $ 000 $ 000 Asset revaluation reserve 76,619 (3,386) 73,233 Loss for the year (3,630) 3,386 (244) Cents Cents Cents Earnings per share (2.5) 2.3 (0.2) The impact of other inoperative standards has been assessed and the impact has been identified as not being material. The Company only intends to adopt other inoperative standards at the date at which their adoption becomes mandatory. The financial report is prepared on a historical cost basis except that financial instruments classified as available-for-sale are stated at their fair value. The preparation of financial statements requires management to make judgements, estimates and assumptions that effect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. (c) Investments The Company is a long term investor. Under IFRS, investments are classified as fair value through other comprehensive income. After initial recognition at fair value (being cost), investments are measured at fair value. Unrealised gains or losses on investments are recognised in the Asset Revaluation Reserve until the investment is sold, collected or otherwise disposed of, at which time the cumulative gain or loss is transferred to the Asset Realisation Reserve. The Company derecognises an investment when it is sold or it transfers the investment and the transfer qualifies for derecognition in accordance with AASB 139. Upon derecognition, unrealised gains/losses net of tax relating to the investment are transferred from the revaluation reserve to the realisation reserve. Interest bearing investments are recognised at fair value and then measured at amortised cost. Amortised cost is calculated with any difference between cost and redemption value being recognised in the income statement over the period of the investment on an effective interest basis. (d) Revenue from investment portfolio The activity of the Company is that of an investment company, returns being in the form of dividends, interest income, trust income, option premiums and sub-underwriting income. Dividend income is recognised in the income statement at exdividend date and all other income is recognised on an accruals basis. (e) Taxation The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the company tax rate adjusted by changes in deferred tax assets and liabilities which arise from items being brought to account in different periods for income tax and accounting purposes. The expected tax on disposal of securities in the investment portfolio is recognised directly in equity and as a deferred tax liability. Where the Company disposes of such securities, tax is calculated on gains made according to the particular parcels allocated to the sale for tax purposes and offset against any capital losses carried forward. At this time, the tax recognised directly in the Revaluation Reserve is transferred to the Realisation Reserve and adjusted for income tax expense. The associated deferred tax liability is similarly adjusted and transferred to current tax payable. When Capital Gains Tax rollover relief is elected on the disposal of securities, tax is still calculated on gains made (even though the income tax liability has been deferred until subsequent disposal of the replacement securities) and recognised in income tax expense for accounting purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Diversified United Investment Limited 21

24 Notes to the Financial Statements for the Year Ended 30 June 2010 (f) Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowing on an effective interest basis. (g) Share Capital Ordinary Shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. 2. Revenue and Expenses $ 000 $ 000 (a) Revenue Dividends received or due and receivable 18,373 17,256 Trust distributions received or due and receivable 2,675 3,095 Interest received or due and receivable 1,048 2,797 Profit/ (Loss) on Options Trading ,366 23,148 (b) Expenses Finance expenses: - Interest 4,218 3, Auditor s Remuneration $ $ During the year KPMG, the Company s auditor, received the following remuneration (including GST): - Audit and review of financial reports 46,000 48,087 - Taxation related services 9,350 6, Diversified United Investment Limited

25 Notes to the Financial Statements for the Year Ended 30 June Taxation $ 000 $ 000 (a) Income Tax Expense (i) Recognised in the income statement Current tax expense/(benefit) Current year (refundable)/payable (255) 584 Adjustments for prior years (112) (31) Current year tax paid (149) 581 Deferred Tax Expense Tax benefit of capital losses carried forward (2,558) (4,502) Tax benefit of excess imputation credits (90) - Impairment losses now realised 2, Temporary differences 3 (7) Recognition of CGT rollover relief - (785) Tax benefit on impairment loss - (2,125) (520) (7,306) Total income tax benefit in income statement (669) (6,725) (ii) Reconciliation between tax expense and pre-tax net profit Prima facie tax expense/ (benefit) calculated at 30% on the profit for the year 4,677 (2,091) Increase in tax expense due to: Franking/ withholding tax credits gross up on dividends received 1,987 1,982 Sundry items Decrease in tax expense due to: Tax deferred distributions received (402) (419) Franking/ withholding tax credits on dividends received (6,534) (6,606) Sundry items (285) - Tax benefit on operating profit (557) (6,694) Over provision prior year (112) (31) Tax benefit attributable to Profit for the year (669) (6,725) (iii) Deferred tax liability recognised directly in equity (Increase)/ Decrease in provision for tax on unrealised gains on investment portfolio (12,425) 35,472 (b) Deferred Tax Assets and Liabilities Recognised deferred tax assets and liabilities Liabilities Revaluation reserve - Provision for tax on unrealised gains on investment portfolio (50,195) (35,620) Other 76 (12) Tax benefit of capital losses carried forward 6,652 4,502 Net tax assets/(liabilities) (43,467) (31,130) Diversified United Investment Limited 23