Presentation to Shareholders
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. 2
Agenda Topics Page 1. Listed Investment Company 4 2. BKI Overview 9 3. BKI Portfolio 17 4. BKI Performance 23 5. Appendix 26 3
1. Listed Investment Company
Listed Investment Company What is a Listed Investment Company (LIC) Listed on the Australian Securities Exchange (BKI.ASX) BKI is an investment vehicle that invests ina diversifiedifi d portfolio of Australian shares, trusts and interest bearing securities. BKI is a company as opposed to a managed trust. BKI is internally managed and thus does not charge external portfolio management or performance fees. 5
Advantages of a Listed Investment Company Simplicity An investment in BKI.ASX provides administration simplicity. Single shareholding; Two dividend statements per annum. Liquidity Buy/Sell shares on the Australian Securities Exchange. Settlement in T+3 Days. BKI has over 13,000 shareholders. Transparency and Compliance Top 25 investments disclosed monthly. ASX Listing Rules, Continuous Disclosure requirements. 6
Advantages of a Listed Investment Company Cost and Structure BKI is a Company with Internalised Management. Management Expense Ratio (MER) of only 0.17%. Diversification An investor in BKI.ASX gains exposure to most sectors of the market through well managed, dividend paying companies. Size and Strength BKI s Market Capitalisation is $860m as at 30 April 2014. BKI has no Debt. 7
Advantages of a Listed Investment Company Performance BKI has delivered sound long term shareholder and portfolio performance. Dividend History Interim Ordinary Dividends have grown by 64% from 2.10cps in 1H2005 to 3.45cps in 1H2014. Capital Management In the 10 years of listing, BKI has distributed 5 Fully Franked SpecialDividends to shareholders. 8
2. BKI Overview
Business Overview BKI is a research driven, active equities manager investing for the long term in profitable, high yielding, well managed companies. We are a closed end company and do not charge external portfolio management or performance fees. Our aim is to create wealth for BKI shareholders, through an increasing fully franked dividend and capital growth. BKI s 1HFY2014 Result included increased Profits, Dividend Distribution and Portfolio Valuation. The MER was reduced further and we grew the Investment Team. 10
Premium/Discount Analysis as at 30 April 2014 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 35.0% 25.0% 15.0% 5.0% -5.0% 50% -15.0% -25.0% Prem/Disc % Pre Tax NTA BKI Share Price 11
Dividend Distributions 2004-2014 4.0 3.5 1 0.5 Cents per Sha are 3.0 2.5 2.0 1.5 1.0 2 2.1 1 25 25 26 3 3 3 3 2.5 2.5 2.6 2.7 2.2 0.5 0.5 2.5 2.75 3 3 3.2 3.2 3.25 3.4 3.45 0.5 0.0 Ordinary Dividends Special Dividends 12
Dividends + Franking Credits Dividends and Franking Credits received from a $10,000 000 Investment in 2004 V s Bank Quarterly Interest. Highlights the opportunity of a fully franked dividend in a falling interest rate environment. 1,600 1,400 $ Austra alian Dollars 1,200 1,000 800 600 400 200 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 BKI Dividend BKI Franking Interest Source: BKI Investment Company Limited; IRESS. 13
Management Expense Ratio 0.80% 0.70% BKI MER history since inception 0.69% 0.71% 0.60% 0.56% 0.50% 0.46% 0.46% 0.40% 0.30% 0.31% BKI Internally Managed 0.20% 0.19% 0.18% 0.18% 0.19% 0.17% 0.10% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Dec 14
Experience and Alignment Team Member Qualifications Position Robert Millner FAICD Chairman Investment Committee David Hall, AM FCA, FAICD Non Executive Director Chairman Audit Committee Alex Payne B.Comm, Dip Cm, FCPA, Non Executive Director FCIM Investment Committee Investment Tenure Equity Experience With BKI Ownership 1 30 yrs 10 yrs 8,156,936 34 yrs 10 yrs 268,906 26 yrs 10 yrs 277,130 Ian Huntley BA Non Executive Director Investment Committee 36 yrs 5 yrs 11,224,980 Tom Millner B.Des (Ind), GDipAppFin, F.Fin, GAICD CEO Investment Committee 12 yrs 10 yrs 7,233,717 Will Culbert B.Bus, GDipAppFin, Senior Investment Analyst F.Fin, M.Comm Jaime Pinto B.Comm, CA Company Secretary 15 yrs 05 0.5 yrs 73,277 16 yrs 2 yrs 32,296 TOTAL 27,267,242 1 Common to R.Millner and T.Millner are 6,954,579 shares held in related companies and trusts in which both hold beneficial interests. 15
Key Differentiators Key Differentiators Washington H Soul Pattinson and Company Limited (WHSP) - In 2009 WHSP increased their shareholding in BKI to become the largest shareholder (currently holding 11.9% of BKI shares). Listed in 1903, WHSP is the second oldest listed company on the ASX and holds investments worth in excess of $4.7bln. WHSP has a significant awareness and understanding of the business world through its diverse investment portfolio. WHSP s long term, patient investment philosophy is dispersed across many industries including, Building Products, Property, Metals, Mining, Energy, Logistics, Retail, Heathcare, Telecommunications, Financial Services, and Agriculture. 16 16
3. BKI Portfolio
Code Company Name % of Portfolio Top 25 Shareholdings 1 CBA Commonwealth Bank 9.3% 2 NAB National AustraliaBank 92% 9.2% 3 WBC Westpac Banking Corp 8.3% 4 BHP BHP Billiton Limited 6.3% 5 TLS Telstra Corporation 5.3% As at 30 April 2014 6 NHC New Hope Corporation 5.2% Diversification 7 ANZ ANZ Banking Corporation 4.9% 8 WES Wesfarmers Limited 4.5% 9 WOW Woolworths Limited 3.8% BKI s portfolio is comprised of dividend paying, well managed companies. Exposure to most sectors of the market. 13 WPL Woodside Corporation 2.1% High Conviction 10 TPM TPG Telecom Limited 3.0% 11 AGK AGL Energy Limited 2.3% 12 APA APA Group 2.3% 13 WPL Woodside Corporation 21% 14 ALQ ALS Limited 1.8% 15 IAG Insurance Australia Group 1.7% 16 SUN Suncorp Group Limited 1.4% d 18 ARP ARB Corporation 1.2% 19 BOQ Bank of Queensland 1.1% 20 BEN Bendigo Bank Limited 1.1% 21 CCL Coca Cola Amatil 1.1% 22 MLT Milton Corporation 1.0% 23 TCL Transurban Limited 1.0% 24 RHC Ramsay Healthcare 1.0% 25 PPT Perpetual Limited 1.0% Cash & Cash Equivalents 4.9% Total 86.1% Benchmark Unaware BKI s long term strategy 17 IVC Invocare Limited 1.3% of investing in dividend paying stocks means the portfolio is not aligned with an index. Transparency Top 25 and Cash account for ~86% of BKI s total portfolio. Disclosed monthly with NTA release to 24 RHC Ramsay Healthcare 1.0% the ASX.
Sector Over/Underweights 6.0% BKI Portfolio: Active Weight by Sector 4.0% 2.0% 0.0% 5.1% 4.9% 3.9% 3.1% 1.9% 1.4% 0.7% 2.0% 0.9% 1.0% 1.9% 4.0% 6.0% 8.0% 6.9% 10.0% 10.2% 12.0% 19 Cash Financials Utilities Telco Energy Consumer Staples Industrials Info Tech Consumer Disc Health Care Real Estate Materials
Portfolio Valuation 1,000 900 800 700 600 $ Millions 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 April Investment Portfolio Cash 20
Stock Selection 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 21
Purchases / Sales Recent Purchases BKI raised $107.0m through a Placement and Entitlement Offer in Sept/Oct 2013. During the first half of FY2014 major investments have included: ANZ Bank Insurance Australia Group Westpac Bank National Australia Bank APA Group Suncorp Group Telstra Corporation Wesfarmers Limited New Positions Duet Group IOOF Holdings Maxitrans Industries Primary Health Care Toll Holdings Recent Sales QBE Insurance Group Recall Holdings Tabcorp Holdings Metcash Limited 22
4. Performance
BKI Performance as at 30 April 2014 BKI Performance 1 Year 3 Yrs 5 Yrs 7 Yrs 10 Yrs as at 30 April 2014 (pa) (pa) (pa) (pa) BKI Portfolio Returns are measured after all operating expenses, provision and payment of income and capital gains tax. S&P/ASX 300 ACC INDEX (XKOAI) 10.1% 8.8% 12.3% 2.6% 9.4% BKI Total Shareholder Returns 14.9% 15.3% 16.0% 7.2% 10.8% BKI Share Price Outperformance V's XKOAI 48% 4.8% 65% 6.5% 37% 3.7% 46% 4.6% 14% 1.4% BKI Portfolio Performance 5.9% 9.5% 12.2% 4.0% 9.2% BKI Portfolio Outperformance V's XKOAI -4.2% 0.7% -0.1% 1.4% -0.2% 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 t of dividends. id d Past performance is not indicative of future performance. 24
Total Shareholder Returns as at 30 April 2014 Total Shareholder Returns exclude the benefit of franking credits being passed on from BKI to Shareholders. 25
5. Appendix
27 BKI Fact Sheet www.bkilimited.com.au ASX Code BKI.ASX Listing Date December 2003 Mandate Aust Listed Equities Investment Sectors Diversified Benchmark S&P/ASX 300 Acc Index Total Assets $861m Debt Nil Management Expense Ratio 0.17% Performance Fee Nil Historical Dividend Yield 4.2% Percentage Franked 100% Grossed Up Yield 6.0% Dividend Distribution Frequency Half Yearly Dividend Payout Policy 90% 95% Dividend Reinvestment Plan Share Purchase Plan Active Inactive Research Coverage Approved Product List Model Portfolio Investment Menu Morningstar Morgan Stanley Bell Potter Evans and Partners Baillieu Holst Dixon Advisory Baillieu Holst Morgan Stanley Dixon Advisory Baillieu Holst AIOFP MLC Wrap Super MasterKey Custom Super
For more information: www.bkilimited.com.au 28