Finding opportunities in small and medium sized companies Half-Year Review to 31 December 2012 For personal use only Contents 1 About the Company 2 Half-Year in Summary 4 Review of Operations and Activities 9 Top 20 Investments 10 Income Statement 11 Balance Sheet 12 Statement of Changes in Equity 13 Holdings of Securities 22 Major Changes to the Investment Portfolio 24 Company Particulars 25 Shareholder Meetings For personal use only Mirrabooka Investments Limited ABN 31 085 290 928 About the Company Mirrabooka is a listed investment company specialising in investing in small and medium sized companies located within Australia and New Zealand. Our general definition of small and medium sized companies is those companies which fall outside the top 50 listed companies, by market capitalisation, on the Australian Securities Exchange (ASX) or are in the S&P/ASX Mid Cap 50s or Small Ordinaries Index. The primary goals of Mirrabooka are: To provide medium to long term investment gains through holding core investments in selected small and medium sized companies. To provide attractive dividend returns to shareholders from these investments. For personal use only Mirrabooka Investments Limited Half-Year Review to 31 December 2012 1 Half-Year in Summary Mirrabooka’s portfolio return over the PROFIT FOR THE HALF-YEAR six months to 31 December 2012 was 12.0 per cent against the combined small and mid cap sectors, which were up 10.9 per cent over the same period. $6.3m Mirrabooka’s profit for the half-year to 31 December 2012 was $6.3 million Down 9.0% from 2011 versus $6.9 million last half-year. This decline was primarily due to movements in the valuation of Hastings Diversified Utilities NET OPERATING RESULT Fund and a change in the composition of the portfolio that resulted in a slight reduction in dividend income. $4.3m The net operating result, which measures the underlying income generated by the portfolio, was $4.3 million, down from Down 4.4% from 2011 $4.5 million. The interim dividend has been maintained FULLY FRANKED INTERIM DIVIDEND at 3.5 cents per share fully franked. 3.5¢ Same as 2011 For personal use only 2 TOTAL 6 MONTH PORTFOLIO RETURN MANAGEMENT EXPENSE RATIO +12.0 % 0.76 % Annualised Combined Index +10.9% 0.84% in 2011 TOTAL 6 MONTH SHAREHOLDER RETURN TOTAL PORTFOLIO $282.6m +23.6% Including cash of $24m Share price plus dividend $242.9m in 2011 For personal use only Mirrabooka Investments Limited Half-Year Review to 31 December 2012 3 Review of Operations and Activities Chairman’s Comments Figure 1 highlights the relative performance of different sectors over the half-year. Australian equity markets have experienced good returns over the six months to The investment approach that Mirrabooka 31 December 2012. The combined small takes is also reflected in the long term and mid cap sectors that are reflective of performance of the portfolio, which has Mirrabooka’s investment universe were up been very pleasing. The 10 year return 10.9 per cent over this period. Mirrabooka’s on the portfolio to 31 December 2012 portfolio return was 12.0 per cent and was 11.8 per cent per annum versus is after tax paid on realised gains and 8.5 per cent for combined small and mid expenses. For the 12 month period cap sector Index as shown in Figure 2. Mirrabooka‘s portfolio return was 18.6 per cent compared with the combined Index, Mirrabooka’s share price has also which was up 9.7 per cent. performed strongly over the period as investors seek to gain exposure to the The outperformance was driven in large mid and small cap sectors of the market part by the takeover of Hastings Diversified in which the Company focuses its Utilities Fund by APA Group and the investment activities and given it offers proposed asset sale and cash return to a fully franked dividend yield of 4.6 per security holders of Australian Infrastructure cent. The six month share price return Fund. Other stocks in the portfolio that to 31 December 2012 was 23.6 per cent, performed strongly were IRESS, Tox Free which was ahead of the portfolio return Solutions and Austbrokers. as the share price moved from a discount of 3 per cent in July to a premium The strong performance was also against a of 7 per cent by half-year end. background of a general underperformance of small and mid cap stock to the larger stocks by market capitalisation. The fall in interest rates over the year meant investors sought out high yielding companies that are typically more prevalent in the larger end of the market. For personal use only 4 FIGURE 1: COMPARATIVE INDICES 20% 15% 10% 5% 0% -5% -10% Jul 12 Oct 12 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Aug 12 Sep 12 Nov 12 Dec 12 % 50 Leaders % Mid Cap 50 % Small Ordinaries FIGURE 2: PORTFOLIO RETURN PERCENTAGE PER YEAR TO 31 DECEMBER 2012* 18.6% 12.0% 10.9% 11.8% 9.7% 8.2% 8.5% 1.7% -1.2% -6.6% 6 months 1 year 3 years 5 years 10 years MIR net asset per share growth plus dividends S&P/ASX Mid Cap 50 and Small Ordinaries Accumulation Indices For personal use only Note: Mirrabooka’s net asset per share growth plus dividend series is calculated after management fees, income tax and capital gains tax on realised sales of investments. It should be noted that Index returns for the market do not include the impact of management expenses and tax on their performance. This chart does not include the benefit of franking credits attached to dividends paid by Mirrabooka and any LIC capital gain distributions made. * All figures are annualised other than six month returns. Mirrabooka Investments Limited Half-Year Review to 31 December 2012 5 Review of Operations and Activities continued Profit and Dividend Portfolio Mirrabooka’s profit for the half-year to In adjusting the portfolio through the 31 December 2012 was $6.3 million versus period, Mirrabooka acquired new holdings $6.9 million last half-year, a decrease of in Vocus Communications, Bega Cheese, 9.0 per cent. This decline was primarily Brickworks, Seek, BlueScope Steel, due to movements in the valuation of Horizon Oil and JB Hi-Fi: Hastings Diversified Utilities Fund and a • Vocus Communications provides a change in the composition of the portfolio range of telecommunications services that resulted in a slight reduction in dividend including fibre connection, data centre income. The net operating result, which storage, and internet undersea cable measures the underlying income generated capacity from Australia and New Zealand by the portfolio, was down 4.4 per cent to to the USA. These services are provided $4.3 million from $4.5 million last half-year. to Internet Service Providers (ISPs) on a wholesale basis and direct to corporate Earnings per share based on the profit customers. for the half-year was 4.6 cents per share and 3.1 cents per share based on the net • Bega Cheese operates in four core operating result. The interim dividend has areas: manufacturing dairy products been maintained at 3.5 cents per share fully for dairy ingredients and food service franked. The Dividend Reinvestment Plan markets; cutting, packaging and was in operation with pricing based on a processing retail cheese products; 5 cent discount to the average selling price licensing the Bega brand to Fonterra of shares traded on the Australian Securities for a royalty stream; and manufacturing Exchange in the five business days from nutritional food products including the day the shares begin trading on an infant formula for both domestic and ex-dividend basis. overseas markets. These activities are conducted in five production facilities Mirrabooka will typically fund part of its in New South Wales and Victoria. dividend from realised gains, which often • Brickworks is a diversified group of occurs because of takeovers and/or as companies that engages in manufacturing other adjustments are made to the portfolio and distribution of clay and concrete through sales of particular holdings. building products, property development, and investment through its large interest Figure 3 details earnings per share in associate Washington H Soul Pattinson. and dividends per share. For personal use only 6 FIGURE 3: EARNINGS PER SHARE AND DIVIDENDS PER SHARE 10.0¢ 10.0¢ 10.0¢ 2.2¢ 5.6¢ 6.8¢ 6.1¢ 5.2¢ ¢ 3.1¢ 3.5 -0.1¢ -1.8¢ 2010 2011 2012 2013 Half-Year Dividends per share Net operating result per share Realised gains per share • Seek operates the leading Australian • Horizon Oil is an oil and gas exploration, employment classifieds website development and production company seek.com.au; has investments in focused on the producing Maari field employment classifieds websites offshore New Zealand and assets in China, Brazil, Mexico and under development in both the Western South East Asia; and is a provider forelands area onshore Papua New of online and classroom education Guinea and the Beibu Gulf offshore China. and training services. • JB Hi-Fi is a specialty discount retailer • BlueScope Steel is a steel company of branded home entertainment products. based principally in Australia, New The Group’s products particularly focus Zealand, North America and Asia. on consumer electronics, electrical goods It manufactures and distributes flat steel and software including music, games products and steel building products, and movies. The Company primarily as well as metallic coated and painted operates from stand-alone destination For personal use only steel products. It also designs and sites, shopping centre locations and an manufactures pre-engineered steel online store in Australia and New Zealand.