Half Year Result Presentation 6 months to 31 December 2013 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
Result Highlights 3
BKI Result Highlights 1H 2014 1H 2013 Growth Ordinary Dividend Income $18.2m $15.6m 17.1% Net Operating Result* $18.0m $15.4m 16.8% Earnings Per Share (excluding Special Dividends) 3.72cps 3.56cps 5.0% Total Dividends Per Share 3.45cps 3.25cps 6.2% MER 0.17% 0.18% -6.3% Portfolio Valuation $851m $644m 32% * Excluding Special Dividends 4
First Half Net Operating Results 1H2005 1H2014 $ Millions 20 18 16 14 12 10 8 6 4 2 0 1H 05 1H 06 1H 07 1H 08 1H 09 1H 10 1H 11 1H 12 1H 13 1H 14 Net Operating Result 5
Dividends Paid 2004 2014 4.0 3.5 1 0.5 Cents per Share 3.0 2.5 2.0 1.5 1.0 2 2.1 1 2.2 2.5 2.5 2.6 2.7 3 3 3 3 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 6
Portfolio Valuation As at 31 December 2013 900 800 700 600 $ Millions 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 Dec Investment Portfolio Cash 7
Management Expense Ratio 0.80% 0.70% 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 8
Performance 9
BKI Performance As at 31 December 2013 BKI Performance 1 Year 3 Yrs 5 Yrs 7 Yrs 10 Yrs as at 31 December 2013 (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) 19.7% 8.5% 12.3% 3.5% 9.5% BKI Total Shareholder Returns 19.7% 13.6% 16.4% 5.6% 9.9% BKI Share Price Outperformance V's XKOAI 0.0% 5.1% 4.1% 2.1% 0.4% BKI Portfolio Performance 17.9% 9.9% 13.0% 5.3% 9.5% BKI Portfolio Outperformance V's XKOAI -1.7% 1.5% 0.7% 1.9% 0.0% 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 generally not indicative of future performance. 10
Total Shareholder Returns As at 31 December 2013 Total Shareholder Returns exclude the benefit of franking credits being passed on from BKI to Shareholders. Source: BKI Investment Company Limited, IRESS. Total Shareholder Returns include reinvestment of dividends. Past performance is generally not indicative of future performance. 11
Yield for all Seasons Dividends + Franking Credits received from a $10,000 investment in BKI at inception V s Bank Quarterly Interest. Highlights the opportunity of receiving a fully franked dividend in a falling interest rate environment. 1,600 1,400 $ Australian 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; 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 $1,048pa. The franking credits enhance the income by a further $449 (total income of $1,498). The same investment in a term deposit (based on the cash rate) would be earning $441pa with no franking credits. Figures include reinvestment of dividends and cash, Ignores capital appreciation of BKI shares. Assumes tax rate of 30%. 12
10 Year Review 13
10 Year Review Liquidity BKI s shareholder base has grown from 7,832 in 2003 to 12,824 in 2014. Size BKI s Portfolio Valuation has increased from $171m upon listing in 2003 to $851m in 2014. 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 Special Dividends to shareholders. 14
10 Year Review Cost and Structure Internalised Management. MER reduced from 0.69% in 2003 to 0.17% in 2014. Company Awareness and Profile Lifted the company awareness and profile of BKI to Advisors, Brokers and SMSF s. Won the 2011 LIC of the Year Award. Performance Delivered sound long term shareholder and portfolio performance. Discount to NTA BKI s discount to NTA reduced from a peak of 20% in June 2008 to a premium in July 2013 (4% discount as at 31 Dec 2013). 15
BKI Portfolio 16
Code Company Name % of Portfolio Index Top 25 Shareholdings As at 31 December 2013 Diversification BKI s portfolio is comprised of dividend paying, well managed companies. Exposure to most sectors of the market. High Conviction Benchmark Unaware BKI s long term strategy of investing in dividend paying stocks means the portfolio is not aligned with an index. Transparency Top 25 and Cash account for ~87% of BKI s total portfolio. Disclosed monthly with NTA release to the ASX. 1 NAB National Australia Bank 9.5% 5.6% 2 CBA Commonwealth Bank 9.2% 8.6% 3 WBC Westpac Banking Corp 7.7% 7.0% 4 BHP BHP Billiton Limited 6.1% 8.4% 5 NHC New Hope Corporation 5.7% 0.0% 6 TLS Telstra Corporation 5.0% 4.4% 7 ANZ ANZ Banking Corporation 4.7% 6.1% 8 WES Wesfarmers Limited 4.3% 3.4% 9 WOW Woolworths Limited 3.5% 3.0% 10 TPM TPG Telecom Limited 2.8% 0.2% 11 AGK AGL Energy Limited 2.2% 0.6% 12 ALQ ALS Limited 2.0% 0.2% 13 APA APA Group 2.0% 0.4% 14 WPL Woodside Corporation 2.0% 2.2% 15 IAG Insurance Australia Group 1.7% 0.9% 16 IVC Invocare Limited 1.3% 0.1% 17 CCL Coca Cola Amatil 1.2% 0.6% 18 BEN Bendigo Bank Limited 1.2% 0.3% 19 BOQ Bank of Queensland 1.2% 0.3% 20 ARP ARB Corporation 1.2% 0.1% 21 MTS Metcash Corporation 1.1% 0.0% 22 MLT Milton Corporation 1.0% 0.2% 23 PPT Perpetual Limited 1.0% 0.1% 24 TCL Transurban Limited 1.0% 0.7% 25 RHC Ramsay Healthcare 0.9% 0.6% Cash & Cash Equivalents 7.8% 0.0% Total 87.2% 54.0%
Portfolio Movements Major Investments FY14 Forecast Dividend Yield Franking FY14 Forecast EPS Growth FY14 Forecast PE Multiple ANZ Banking Corporation 5.4% 100% 6.0% 13.0X Westpac Banking Corp 5.9% 100% 1.0% 13.7X APA Group 6.0% 0% 1.0% 26.0X Insurance Australia Group 5.3% 100% 0% 12.6X Duet Group 8.5% 0% 65.0% 21.9X National Australia Bank 5.8% 100% 5.0% 13.0X Primary Health Care 4.0% 100% 12.0% 14.8X Bank of Queensland 5.3% 100% 9.0% 14.0X Transurban Group 5.0% 21% 35.0% 42.4X Woolworths Limited 4.1% 100% 3.0% 17.2X S&P/ASX 300 Index 4.5% 7.5% 15.0X Source: BKI Investment Company, Bloomberg. 18
Portfolio Movements Major Divestments FY14 Forecast Dividend Yield Franking FY14 Forecast EPS Growth FY14 Forecast PE Multiple QBE Insurance Group 3.1% 100% -31.0% 15.3X Tabcorp Holdings Limited 4.5% 100% -61.0% 17.0X S&P/ASX 300 Index 4.5% 7.5% 15.0X Source: BKI Investment Company, Bloomberg. 19
Investing for the Future 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 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. Our investment process ensures we are focused on investing in stocks using the 5 basic fundamentals below as part of the stock selection process: 1. Income - Dividend Yields, Franking Credits, Payout 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 20
Investing for the Future TPG Telecom Limited Income - Dividend Yield of 1.7%, DPS expected to grow ~20%pa. 14cps 12cps 10cps 8cps 6cps 4cps 2cps 0cps Dividend Per Share 13 11 9 8 6 4 5 2010 2011 2012 2013 2014 2015 2016 Principle Activity TPG Telecom Limited wholesales bandwidth and other telecommunications services. The Company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations. 21
Investing for the Future TPG Telecom Limited Debt Levels - Net Debt/Equity -15%, Interest Cover of 23.9X 80% 69% Net Debt-to-Equity 60% 40% 20% 0% 42% 40% 22% 23% 11% 2% 2010 2011 2012 2013 2014 2015 2016 Management and Board - ~40% ownership. 100% Board Attendance Earnings and Valuation TPG is trading on a significant premium to the market, which is justified given forecast growth rates and free cash flow that is expected to be generated (EPS Growth of 11% expected in FY14, growing by a further 16% in FY15). We estimate DPS to continue its positive trajectory and increase to 9.0cps in FY14 and to 11.0cps in FY15 22
Investing for the Future Primary Healthcare Limited Income - Dividend Yield of 4.0%, FY14 DPS expected to grow 14% and a further 12% in FY15. 30cps 25cps 20cps 25 Dividend Per Share 18 20 22 24 15cps 10cps 5cps 8 11 0cps 2010 2011 2012 2013 2014 2015 2016 Principle Activity Primary Health Care Limited provides services to the healthcare industry in Australia. Services are provided to general practitioners, specialists and other health care providers who conduct their own practices and businesses at its medical centres, licensed day surgeries, eye clinics, and specialist clinics. The Company also provides pathology services and healthcare software. 23
Investing for the Future Primary Healthcare Limited Debt Levels - Net Debt/Equity 33%, Interest Cover of 4.4X Management and Board Share ownership of $129m. 97% Board Attendance Earnings and Valuation Given gearing of 33% and intangibles of $3.3bln, a conservative 10% discount has been applied on an EV/EBITDA basis, and a market multiple on a PE basis. Target Price is based on a combination of PE and EV/EBITDA multiples. FY14 grossed up yield expected to be 5.8%, growing to 6.4% in FY15. 24
25 Sector Performance 12 Months to 31 December 2013 (BKI.ASX V s S&P/ASX300 Accumulation Indexes) 45% 40% 35% 30% 25% 20% 15% 10% BKI Investment Company (BKI.ASX) S&P/ASX 300AI 5% 0% -5% 25
26 Sector Performance 12 Months to 31 December 2013 (BKI Top 20 V s S&P/ASX300 Accumulation Indexes) 100% TPG 80% BOQ 60% 40% 20% 0% -20% ARP CCL NAB WBC IAG BEN ANZ CBA TLS IVC BKI Investment Company (BKI.ASX) S&P/ASX 300AI WES WOW ALQ WPL AGK NHC APA BHP 26
Appendix 27
Experienced Investment Team Team Member Qualifications Position Robert Millner FAICD Chairman Investment Committee David Hall, AM FCA, FAICD Non Executive Director Chairman Audit Committee Investment Experience Tenure With BKI Equity Ownership 1 30 yrs 10 yrs 7,944,166 34 yrs 10 yrs 268,906 Alex Payne B.Comm, Dip Cm, FCPA, FCIM Non Executive Director Investment Committee 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 7,040,523 Will Culbert B.Bus, GDipAppFin, F.Fin, M.Comm Senior Investment Analyst Jaime Pinto B.Comm, CA Company Secretary 15 yrs 0 yrs 55,025 16 yrs 2 yrs 31,619 TOTAL 26,842,349 1. Common to R.Millner and T.Millner are 6,771,809 shares held in related companies and trusts in which both hold beneficial interests 28
29 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 $851m Debt Nil Management Expense Ratio 0.17% Performance Fee Nil Rolling 12 Month Dividend* 6.85cps Historical Dividend Yield** 4.3% Percentage Franked 100% Grossed Up Yield # 6.2% Dividend Distribution Frequency Half Yearly Dividend Payout Policy 90% 95% Dividend Reinvestment Plan Active Research Coverage Morningstar Morgan Stanley Bell Potter Evans and Partners Baillieu/Holst Approved Product List Dixon Advisory Baillieu Holst Morgan Stanley Model Portfolio Dixon Advisory Baillieu/Holst Morgan Stanley AIOFP Investment Menu MLC Wrap Super MasterKey Custom Super Contact Registered Office 02 9238 0522 Tom Millner 0408 754 180 Will Culbert 0410 627 378 * Includes FY2013 Final Ordinary Dividend of 3.40cps and FY2014 Interim Ordinary Dividend of 3.45cps ** Based on share price as at 29 January 2014 of $1.59. # Grossed up yield based on a tax rate of 30%.
For more information: www.bkilimited.com.au 30