Australian Ethical
Annual Report
Year ended 30 June 2013
1800 021 227 | australianethical.com.au
Contents
Chair and Managing Director’s Report ...............................................................................................3
Financial Summary .............................................................................................................................6
2013 Community Grants ...................................................................................................................8
Directors’ Report ..............................................................................................................................11
Remuneration Report 2013 ..............................................................................................................20
Corporate Governance Statement 2013 ..........................................................................................28
Auditor’s Independence Declaration ................................................................................................34
Financial Statements ........................................................................................................................35
Independent Auditor’s Report ..........................................................................................................72
Shareholder Information ...................................................................................................................74
Shareholder Calendar
AGM ......................................................................................................................19 November 2014
Interim Results Announcement ............................................................................... 28 February 2014
Record date for Interim Dividend ................................................................................ 14 March 2014
Payment date for Interim Dividend .............................................................................. 28 March 2014
Annual Results Announcement .................................................................................. 29 August 2014
These dates may change at the company’s discretion.
Contact Us
Phone:
Fax:
Email:
Web:
Post:
Registered address:
1800 021 227
02 9252 1987
enquiries@australianethical.com.au
australianethical.com.au
Australian Ethical Investment Ltd
GPO Box 2435, Canberra ACT 2601
Australian Ethical Investment Ltd
Level 7
207 Kent Street
Sydney NSW 2000
2
Chair and Managing Director’s
Report
Dear shareholder,
The past 12 months has been one of the busiest
but most satisfying for Australian Ethical from
many perspectives. The external environment has
been characterised by numerous themes that have
highlighted the strong ethical leadership of our
investments, financial markets that are stronger
but still volatile and the continuation of one of
the most significant periods of regulatory change
affecting the financial services industry for many
years. Internally we have begun to see the fruit of
many of the improvements we have made to the
business over the past few years.
The key highlights for the year include:
Significant improvement in profits
Our profits for the financial year to 30 June 2013
have shown a significant improvement over the
previous year due to a number of factors including
improved market conditions, a continued focus
on cost management and steadily improving
new business and flows. Moreover, the strong
result was achieved despite a number of fee
reductions in order to make our funds more
competitive and better value for our clients, a
significant investment in the business to improve
our systems and strengthen compliance, a further
impairment on our building in Canberra and the
impairment to listed securities held in respect of
our Advocacy fund.
The changes to the business over the past few
years have set us up for a healthy and sustainable
future. More detail on the financial results is set
out on page 7.
Competitive returns from ethical investment
It has been five years since the commencement
of the global financial crisis and financial markets
in Australia and overseas continue to be volatile
and unpredictable. However, over the past
year we have seen an overall increase in global
markets with the Australian market up some 16%
(as measured by the All Ordinaries Index). This
has had a positive impact on our funds under
management and hence our revenues.
The investment performance of our funds
continues to be strong over the long term with
most of them having performed in line with or
above the median fund in their relevant Mercer
surveys . Our Larger Companies Trust was ranked
in the top 4 retail and wholesale All Growth Funds
returning 28% for the year whilst our International
Trusts return of 32% was above the median.
The long term performance of our flagship Smaller
Companies Trust remains well above benchmark
returning 9.4% per annum (net of fees) for the last
10 years versus the Small Industrial Index of 6.3%,
ranking it 7th in the Australian Equity (All Caps)
Mercer Survey.
Our ethical leadership
A number of themes have attracted headlines
throughout the year which have highlighted
the leadership position of our products when it
comes to our strong conviction to ethics. These
have included tobacco (a number of major funds
took the step of selling out), climate risk (reports
throughout the year have highlighted that the
risk may be greater than previously thought) and
human rights (supply chain issues following the
factory collapse in Bangladesh).
The climate risk of superannuation funds and their
exposure to fossil fuels has been a particular area
of interest and an issue that was given oxygen
by the visit to Australia by Bill McKibben plus
other local group’s campaigning efforts. It has
highlighted the strong conviction that we have in
our investment decisions with no exposure to coal,
oil or gas extraction. This unique position in the
market, especially in superannuation, has led to
increased interest in our fund for those wishing to
avoid investing in those areas. A survey by Market
Forces suggested that one in four super members
would switch funds to avoid coal and coal seam
gas and we are busy trying to convert each and
every one of them!
During the year we took a public stand with
regard to the new tobacco exposure of Tomra,
a Norwegian company in which we have
successfully invested over a number of years.
1800 021 227 | australianethical.com.au 3
australianethical Photos from our 2013 Community Grant recipients (see page 9). Left: Free to Shine, Middle: Street Swags, Right: Asylum Seeker Centre
Photos from our 2013 Community Grant recipients (see page 9). Left: Free to Shine, Middle: Street Swags, Right: Asylum Seeker Centre
Our ethical leadership
Amongst other efficient and sustainable products,
Tomra make reverse vending machines - you
A number of themes have attracted headlines
put the bottles in and receive money back.
throughout the year which have highlighted
Unfortunately Tomra bought a company last year
the leadership position of our products when it
which made tobacco sorting machines. After
comes to our strong conviction to ethics. These
the company refused our request to exit what
have included tobacco (a number of major funds
is a small part of their business, we engaged
took the step of selling out), climate risk (reports
other international institutional shareholders and
throughout the year have highlighted that the
put forward a resolution to their annual general
risk may be greater than previously thought) and
meeting requiring them to stop selling these
human rights (supply chain issues following the
machines. In the course of the engagement with
factory collapse in Bangladesh).
other investors we learned just how deep our
analysis is as most of those investors were not
The climate risk of superannuation funds and their
even aware of the tobacco exposure.
exposure to fossil fuels has been a particular area
of interest and an issue that was given oxygen
Finally, the incidents of this year in Bangladesh
by the visit to Australia by Bill McKibben plus
highlighted the need for companies and investors
other local group’s campaigning efforts. It has
to take more care with their supply chains,
highlighted the strong conviction that we have in
something we have been incorporating into our
our investment decisions with no exposure to coal,
investment process for many years.
oil or gas extraction. This unique position in the
market, especially in superannuation, has led to
There is an ever-increasing trend of wider
increased interest in our fund for those wishing to
consumer consciousness and advocacy towards
avoid investing in those areas. A survey by Market
brands and businesses that care for the planet
Forces suggested that one in four super members
and we are asking people to make the same
would switch funds to avoid coal and coal seam
connection with their long term investments. Our
gas and we are busy trying to convert each and
wealth is a large part of who we are and to invest
every one of them!
other than in accordance with our values is simply
inconsistent. Collectively our combined wealth
During the year we took a public stand with
has a significant influence on helping to shape a
regard to the new tobacco exposure of Tomra, a
better world.
Norwegian company in which we have successfully
invested over a number of years. Amongst
Refreshed brand, website
other efficient and sustainable products, Tomra
and communications
make reverse vending machines - you put the
bottles in and receive money back. Unfortunately
During the year we introduced our refreshed
Tomra bought a company last year which made
brand identity, our new website and significantly
tobacco sorting machines. After the company
improved new client engagement processes using
refused our request to exit what is a small part of
more upbeat and interactive communications
their business, we engaged other international
with a focus on sharable content. The aim has
institutional shareholders and put forward a
been to make clients’ involvement with Australian
resolution to their annual general meeting requiring
Ethical a positive and engaging experience and to
them to stop selling these machines. In the course
emphasise the positive impact their investments
of the engagement with other investors we learned
are having on society and the planet, whilst
giving them the means and desire to share their
experience with others.
just how deep our analysis is as most of those
Our new business flows, increased conversion
investors were not even aware of the tobacco
of prospects and strong growth of our online
exposure.
(especially social media) community has shown
this effort to be a great success.
Finally, the incidents of this year in Bangladesh
highlighted the need for companies and investors
New business and flows
to take more care with their supply chains,
something we have been incorporating into our
As a result of improved awareness and focus on
investment process for many years.
more strategic sales and marketing activities,
our monthly new clients are at record levels. New
There is an ever-increasing trend of wider
clients for the month of June were 269 compared
consumer consciousness and advocacy towards
to 146 last year, an increase of 84%. Equally, new
brands and businesses that care for the planet
default or registered employers, a key focus of our
and we are asking people to make the same
sales and product improvement efforts, increased
connection with their long term investments. Our
significantly over the past year.
wealth is a large part of who we are and to invest
other than in accordance with our values is simply
Whilst new business across superannuation takes
inconsistent. Collectively our combined wealth has
longer to impact revenues as members build up
a significant influence on helping to shape a better
their balances over time, our superannuation
world.
inflows remain strong and our managed funds
flows are improving as confidence in financial
Refreshed brand, website
markets, especially shares, returns.
and communications
Regulatory changes and other
During the year we introduced our refreshed
business improvements
brand identity, our new website and significantly
improved new client engagement processes using
The past few years has seen the most intensive
more upbeat and interactive communications
regulatory change in financial services in decades.
with a focus on sharable content. The aim has
It has been estimated that some $1.5 billion has
been to make clients’ involvement with Australian
been spent by the industry in preparation for
Ethical a positive and engaging experience and to
these changes. A lot of our focus over the past
emphasise the positive impact their investments
12 months has been on preparing for the new
are having on society and the planet, whilst
superannuation regime which commenced on
giving them the means and desire to share their
1 July 2013. We have been preparing for MySuper
experience with others.
and adjusting our managed fund products to be
compliant with FoFA (Future of Financial Advice).
Our new business flows, increased conversion
of prospects and strong growth of our online
Over the course of the financial year we
(especially social media) community has shown
have also further invested in other business
this effort to be a great success.
improvements, including:
• we changed the administrator of our
superannuation fund in order to provide
our members with an improved service at a
lower cost
4 4
australianethical
• we introduced new and improved insurance
New business and flows
for our superannuation members which is
now some of the most competitive in the
As a result of improved awareness and focus on
superannuation industry.
more strategic sales and marketing activities,
our monthly new clients are at record levels. New
The changes are to ensure that we remain not only
clients for the month of June were 269 compared
the most ethical of funds but that we continuously
to 146 last year, an increase of 84%. Equally, new
improve the financial and client service aspects of
default or registered employers, a key focus of our
our products.
sales and product improvement efforts, increased
significantly over the past year.
Business Changes
Whilst new business across superannuation takes
In September we implemented a business
longer to impact revenues as members build
restructure involving the substantial reduction of
up their balances over time, our superannuation
our Canberra operations, the outsourcing of parts
inflows remain strong and our managed funds
of the business and a restructuring of certain
flows are improving as confidence in financial
functions. This was done because the industry
markets, especially shares, returns.
has changed considerably over the past few years
and we have to continue to provide our clients with
Regulatory changes and other
competitively priced ethical investment products
business improvements
and a high quality client experience. It is critical
that we operate as effectively and efficiently
The past few years has seen the most intensive
as possible.
regulatory change in financial services in decades.
It has been estimated that some $1.5 billion has
been spent by the industry in preparation for these
changes. A lot of our focus over the past 12 months
has been on preparing for the new superannuation
regime which commenced on 1 July 2013. We
have been preparing for MySuper and adjusting
our managed fund products to be compliant with
FoFA (Future of Financial Advice).
Over the course of the financial year we
have also further invested in other business
improvements, including:
• we changed the administrator of our
superannuation fund in order to provide our
members with an improved service at a lower
cost
Board changes
• we introduced new and improved insurance
for our superannuation members which is
Over the year, we welcomed a number of new
now some of the most competitive in the
board members in Mara Bun, Tony Cole and Kate
superannuation industry.
Greenhill, continuing the company’s commitment
to a board comprising the strong mix of skills and
The changes are to ensure that we remain not only
experience required for a highly regulated and
the most ethical of funds but that we continuously
rapidly changing environment.
improve the financial and client service aspects of
our products.
André Morony retired as Chair in February after
two years in the role and has recently announced
Board changes
that he will not be re-standing for election at
the upcoming Annual General Meeting. André's
Over the year, we welcomed a number of new
contribution to the board over 5 years has
board members in Mara Bun, Tony Cole and Kate
been invaluable, particularly the guidance and
Greenhill, continuing the company’s commitment
commitment he provided as Chair over the past
to a board comprising the strong mix of skills and
two years.
experience required for a highly regulated and
rapidly changing environment.
As foreshadowed at the 2012 Annual General
Meeting, Justine Hickey retired from the board in
André Morony retired as Chair in February after
March after 6 years of service. We thank Justine
two years in the role and has recently announced
for her enormous contribution and insight over
that he will not be re-standing for election at
that time.
the upcoming Annual General Meeting. André's
contribution to the board over 5 years has
Steve Newnham recently retired from the Board
been invaluable, particularly the guidance and
after securing a full time executive role with
commitment he provided as Chair over the past
another organisation. Steve’s experience, insight
two years.
and relationships particularly in the areas of
retail sales and distribution were significant and
As foreshadowed at the 2012 Annual General
greatly appreciated.
Meeting, Justine Hickey retired from the board in
March after 6 years of service. We thank Justine for
her enormous contribution and insight over that time.
Steve Newnham recently retired from the Board
after securing a full time executive role with
another organisation. Steve’s experience, insight
and relationships particularly in the areas of retail
sales and distribution were significant and greatly
appreciated.
Phillip Vernon
Phil Vernon
Managing Director
Managing Director
Steve Gibbs
Steve Gibbs
Chairman
Chairman
1800 021 227 | australianethical.com.au 5
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australianethical
Financial Summary
Financial Summary
Profit After Tax ($m)
Return On Equity (%)
1.2
1.0
1.1
1.1
14.8
15.0
15.4
12.5
0.4
5.7
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Year ending 30 June
Year ending 30 June
Funds Under Management ($m)
Basic Earnings Per Share ($)
630
654
599
669
708
1.22
1.03
1.13
1.05
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
As at 30 June (before distribution)
Year ending 30 June
0.40
Revenue ($m)
Dividends Paid ($)
13.1
14.1
15.7
14.8
16.4
2.00
1.70
1.47
0.85
0.60
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Year ending 30 June
Year ending 30 June
New Clients (by quarter)
Funds Under Management
t rend
Managed
Funds
$249.7m
Super
$457.9m
6 6
ordinaryordinaryspecialspecial Financial results
Profit
Revenue
Operating expenses
Abnormals, tax and community grants
Net Profit After Tax (NPAT)
Adjustments
Add back employment restructure expenses
Add back property revaluation
Add back legal costs for shareholder actions
Add back revaluation of listed securities
Tax on adjustments
Underlying Net Profit After Tax (UPAT)1
2012
($000)
14,793
13,789
602
402
319
210
125
-
(197)
859
2013
($000)
16,378
13,708
1,607
1,063
%
change
10.7%
(0.6%)
164%
-
436
85
117
(26)
1,675
95%
1 This table has
been prepared in
accordance with the
Australian Institute of
Company Directors
(AICD)/Finsia
principles for reporting
underlying profit and
ASIC’s Regulatory
Guide 230 Disclosing
non-IFRS financial
information. Underlying
profit after tax has
not been reviewed or
audited by our external
auditors, however
the adjustments to
net profit have been
extracted from the
books and records that
have been audited.
Funds Under Management
2012 ($m)
2013 ($m)
% change
Opening FUM
Super flows (net)
Managed Funds flows (net)
Net Flows
Market movement
Closing FUM
Dividends
Interim (fully franked)
Final (fully franked)
Total dividend
Notes to Results
644
19
(24)
(5)
(13)
627
627
18
(17)
1
80
708
(2.6%)
(7%)
31%
12.9%
2012
(cents per share)
2013
(cents per share)
% change
25
35
60
40
45
85
42%
Key factors impacting the results are:
Higher market values – the All Ordinaries Index
increased by 16% over the financial year. This
overall increase in the market impacted on our
funds under management. As our revenues are
primarily related to funds under management this
had a consequent impact on our revenues.
More competitive fees – during the previous
financial year we made a number of adjustments
to our fees all of which were effective from 1 July
2012. These changes were aimed at making our
products more competitive and better value for
our clients.
Cost management – operating expenses reduced
by 0.6% for the year due to lower staff numbers
and a general focus on efficiency. This was
despite investment in more robust compliance
infrastructure and project resources supporting
major projects throughout the year.
Impairment to building – we incurred a further
noncash impairment charge of $436k with respect
to our property in Canberra.
Impairment to value of listed securities – we
incurred an impairment on the value of listed
securities of $117k. These securities are held in
respect of the Advocacy Fund (previously the
Climate Advocacy Fund) where shares were
bought on balance sheet to support advocacy
activities against certain companies. Due to a
sustained reduction in the value of these securities
an impairment was necessary.
Dividend
In arriving at the final dividend determination, the
board took account of the following factors:
• Regulatory considerations
• Market uncertainty
• Future potential strategic requirements
1800 021 227 | australianethical.com.au 7
australianethical 2013 Community Grants
2013 Community Grants
As prescribed in Australian Ethical’s constitution,
As prescribed in Australian Ethical’s constitution,
10% of our profit is donated to charitable,
10% of our profit is donated to charitable,
benevolent and conservation purposes as part
benevolent and conservation purposes as part
of our contribution to a positive and sustainable
of our contribution to a positive and sustainable
society. This is one of the highest levels of
society. This is one of the highest levels of
corporate giving in Australia based on percentage
corporate giving in Australia based on percentage
of profits. It is something that the shareholders,
of profits. It is something that the shareholders,
staff and directors should be very proud of.
staff and directors should be very proud of.
This year, grant applications were received by an
This year, grant applications were received by an
excess of 300 organisations across a range of
excess of 300 organisations across a range of
humanitarian, environmental and animal welfare
humanitarian, environmental and animal welfare
organisations. The majority of the applications
organisations. The majority of the applications
were of high quality, suited our selection criteria,
were of high quality, suited our selection criteria,
and adhered to our Australian Ethical Charter
and adhered to our Australian Ethical Charter
and therefore made the task of determining a
and therefore made the task of determining a
short list, for voting by staff and shareholders,
short list, for voting by staff and shareholders,
extremely hard.
extremely hard.
Image from 2013 community
grant recipient, Free to Shine
Voting was again strong and this year leaned
Voting was again strong and this year leaned
heavily towards humanitarian projects (in stark
heavily towards humanitarian projects (in
contrast to last year’s skew to wildlife conservation).
stark contrast to last year’s skew to wildlife
Australian Ethical will be donating $117,300 to a
conservation). Australian Ethical will be donating
total of 11 organisations, bringing the total amount
$117,300 to a total of 11 organisations, bringing
donated over the past 13 years to almost $1.5
the total amount donated over the past 13 years to
million.
almost $1.5 million.
This year’s grants range in size from $4,000 to
This year’s grants range in size from $4,000 to
$30,000 and over half of the projects will be fully
$30,000 and over half of the projects will be fully
funded by Australian Ethical. Recipient groups
funded by Australian Ethical. Recipient groups
have a strong focus on efficiently delivering
have a strong focus on efficiently delivering
tangible outcomes.
tangible outcomes.
In addition to their grant, all recipients will receive
In addition to their grant, all recipients will receive
a free two-year subscription to the Centre for
a free two-year subscription to the Centre for
Sustainable Leadership’s (CSL) Leadership
Sustainable Leadership’s (CSL) Leadership
Rewired online training package. In addition, we
Rewired online training package. In addition, we
plan to work with our clients to help crowdsource
plan to work with our clients to help crowdsource
the remaining funding for the grant recipients that
the remaining funding for the grant recipients that
we were unable to fully fund.
we were unable to fully fund.
8 8
2013 Grant Allocation
Street Swags
Free to shine
80 street swags
$4,800
Project fully funded
Scholarship for girls at risk
$9,000
Project fully funded
Asylum Seeker Centre
Employment assistance program
$30,000
Project fully funded
East Timor Women Australia
Fair futures for women & girls in Timor-
Leste
$30,000
Partially funded
Kokoda Track Foundation
Lighting Up Papua New Guinea
$10,000
Project fully funded
Communities @ Work
The Yellow Van food rescue
$4,000
Project fully funded
Inanna
Comforting kids
$5,000
Project fully funded
40K Foundation Aust
40K PLUS
Australian Conservation
Foundation
100% renewable ready - clearing the
barriers to change
$7,250
$7,250
Partially funded
Partially funded
Primary Ethics
Delivery of ethics classes
$5,000
Partially funded
The Orangutan Project
Wildlife Protection Units
$5,000
Partially funded
Street Swags – 80 Street Swags
Our grant will help fund the
supply of waterproof sleeping
swags to the homeless
because shelters do not have
enough beds, so better than
turning away with no shelter
at all. Swags are sewn by
prisoners in Qld and WA
gaols, for which they gain TAFE qualifications.
School kids roll and pack the swags.
http://www.streetswags.org
Free to Shine Ltd – Scholarship for
girls at risk
Free to Shine works to
empower Cambodian girls
through education to end
sex slavery by providing
scholarships. Poverty
stricken rural villages struggle
to feed children; most don’t
go to secondary school and
teenage girls with no education are high risk being
targeted by traffickers.
http://www.free-to-shine.org
Asylum Seeker Centre – Employment
assistance scheme
This project will assist asylum
seekers to find meaningful
and fairly paid employment
aligned with their skills and
experience. A grant will be
used to employ an officer to
train and support a team of
skilled volunteers coaching
asylum seekers. Part of it will also be used for
microfinance loans to members of the community.
www.asylumseekerscentre.org.au
East Timor Women Australia (ETWA)–Fair
futures for women & girls in Timor-Leste
ETWA aim to empower women involved in
producing naturally dyed hand-woven textiles in
Timor-Leste. This project will establish fair trade
standards, sustainable cultivation of organic
cotton and dye plants, supply-chain sustainability,
weaving school and design collaboration.
http://www.etwa.org.au
1800 021 227 | australianethical.com.au 9
australianethical Kokoda Track Foundation – Lighting Up
Papua New Guinea
Lighting Up PNG is
a project to provide
four micro-loans to
women’s groups to
assist in the training
and establishment
of solar-shops which
will provide 800 solar
LED lights for families in the Kokoda region. This
will result in successful distribution, growth in
solar shops, and improvement in living conditions.
http://www.kokodatrackfoundation.org
Communities @ Work – The Yellow Food Van
Communities@Work continue
to rescue and deliver over
20 tonnes of good food,
from 160 local businesses,
providing over 60,000 meals
to disadvantaged people,
reducing 16m litres of water
used in food production, and
saving good food from landfill. Our grant will help
expand this program.
https://commsatwork.org
40K Foundation Australia – 40K PLUS
A project to set up 34 centres
(or pods) in pre-existing
buildings in villages to
provide up to 1000 children
living in poverty in India
with a dynamic learning
space for two hours every
weekday. The outcomes will
be increased education level, high attendance,
parental attendance, and upskilling women
in villages.
http://40k.com.au
Australian Conservation Foundation–100%
renewable ready–clearing the barriers
to change
ACF will undertake a
comprehensive assessment
highlighting the top five
existing market, regular
and financial barriers that
are preventing a move to
100% renewable energy in
Australia. They will use our
grant to produce five videos to communicate
these barriers, engage supporters and monitor
their impact.
Inanna Inc – Comforting Kids
http://www.acfonline.org.au
When women and children escape domestic
violence they often take few possessions. This
project enables kids to personalise and decorate
their room in the transition home to feel more
comfortable (eg. linen, lamps, pictures). They then
can take these items with them when they leave
the home.
http://www.inanna.org.au
Primary Ethics Ltd – Ethics Classes
Grant will assist with paying
full time employee to drive
recruitment of volunteers–
broadening delivery of ethics
classes into 110 new schools
in lower socio-economic
areas of NSW.
http://www.primaryethics.com.au
The Orangutan Project – Wildlife
Protection Units
Our grant will help establish,
train and maintain WPUs to
secure released Sumatran
orangutan populations and
habitat at Bukit Tigapuluh.
The project also aims to
prevent illegal logging,
assist in reintroduction of
orangutans and collect wildlife data.
http://www.orangutan.org.au
10
Directors’ Report
The Directors present their report together with
the consolidated financial report of Australian
Ethical Investment Limited and its controlled
entity, Australian Ethical Superannuation Pty
Limited (the Company), for the year ended 30 June
2013 and the auditor’s report thereon.
Directors
Other career highlights for Stephen include his
personal invitation from the then UN General
Secretary to join the steering committee and
investor group which developed what became
the United Nations Principles of Responsible
Investment–UNPRI and membership of the ASX
Corporate Governance Council from its inception
until 2008.
The Directors of the Company at any time during
or since the end of the financial year are:
André Morony
Non-Executive Director
BEc (Hons), MEc
André joined the Board of Australian Ethical
as a Non-Executive Director in June 2008.
André stepped down as the Chairman on
4 February 2013. He is a member of the People,
Remuneration and Nominations Committee and
the Investment Committee.
André is a highly regarded and experienced
individual within the Government and finance
industry. His career spans over 40 years and
started at the Commonwealth Treasury where
he worked in a number of financial policy areas.
He also represented Australia for three years at
the Organisation for Economic Cooperation and
Development (OECD) in Paris.
After leaving Government in 1986, Andre's roles
included Chief Economist and Chief
Investment Officer at Bankers Trust Australia
(now BT) and Chief Investment Officer for the
Commonwealth Governmentʼs superannuation
scheme (ARIA).
Stephen Newnham
Executive Director
BA, LLB, DFP
Stephen joined the Board in December 2010 as a
Non-Executive Director and in 2012, he became
an Executive Director, focussed on for sales
and marketing.
Stephen resigned as a Director on 26 July 2013.
Stephen Gibbs,
Chairman and Non-Executive Director
André Morony, Non-Executive Director
Stephen Newnham, Executive Director
Mara Bun, Non-Executive Director
Tony Cole, Non-Executive Director
Kate Greenhill, Non-Executive Director
Phil Vernon,
Executive Director and Managing Director
Justine Hickey, Non-Executive Director
Louise Herron, Non-Executive Director
Director’s Particulars
Stephen Gibbs
Chairman and Non-Executive Director
BEc, MBA
Stephen joined the Board in July 2012 as a
Non-Executive Director and on 4 February 2013
was appointed Chairman. He Chairs the People,
Remuneration & Nominations committee, is on
the Audit, Compliance & Risk and is a director of
Australian Ethical Superannuation Pty Limited.
Stephen is a director of Hastings Funds
Management and was formerly Chair of
the Responsible Investment Academy
Advisory Council.
From early 2000 he was CEO of ARIA, the trustee
of the PSS and CSS – the superannuation
schemes for federal government employees.
When Stephen left ARIA in January 2008 it had
close to $A20 billion under management. Prior
to ARIA Stephen was the Executive Officer
of the Australian Institute of Superannuation
Trustees (AIST). His earlier career was in the trade
union movement.
1800 021 227 | australianethical.com.au 11
australianethical Mara Bun
Non-Executive Director
BA
Kate Greenhill
Non-Executive Director
BEc FCA GAICD
Kate was appointed as a Non-Executive
Director on 22 February 2013. Kate is a
member of the Audit, Compliance & Risk
committee and the People, Remuneration and
Nominations Committee.
Kate was formerly a Partner with
PricewaterhouseCoopers assisting clients with
advice and assurance in relation to financial
statement audit opinions, accounting and
regulatory developments, capital raisings,
accounting for complex transactions, due
diligence, valuations, compliance, risk
management, organisational structure and the
operation of controls.
Kate is a director, and member of the finance
committee, for a not for profit organisation.
Phil Vernon
Executive Director and Managing Director
BEc, MCom, MBA, FCPA, GAICD
Phil joined the Company as Chief Executive Officer
in December 2009 and was appointed Managing
Director in July 2010. He is also a director of
Australian Ethical Superannuation Pty Limited.
Phil has 25 years experience in financial services
including funds management and superannuation.
Prior to joining the Company he was a member
of the Executive Committee of Perpetual
Limited. He has extensive experience in strategy,
people management and leadership, corporate
governance and industry regulation.
Phil is a Director of Planet Ark, an environmental
not for profit organisation. He is also a Director
and Treasurer of the Responsible Investment
Association of Australia and a member of the
Advisory Board of the Association for Sustainable
& Responsible Investment in Asia.
Mara was appointed as a Non-Executive Director
on 4 February 2013. Mara has more than 20 years
of business and community experience.
Mara was the founding CEO of Green Cross
Australia when it was established in 2007. Green
Cross International was founded in 1993 by
former Soviet statesman Mikhail Gorbachev to
create a new approach to solving the world's
most pressing environmental challenges by
reconnecting humanity to the environment.
Mara has previously worked for The Wilderness
Society, Greenpeace Australia, Choice, the CSIRO
and a number of financial organisations both in
Australia and the US. She was a Director on the
Board of Bush Heritage Australia for eight years
and a member of the NSW Sustainable Energy
Development Authority Advisory Council for
six years.
Tony Cole
Non-Executive Director
AO, BEc
Tony was appointed as a Non-Executive Director
on 4 February 2013. Tony is a member of the
Investment Committee.
For the past 17 years he has been a senior
investment consultant and executive in Mercer’s
Investment Consulting business, including heading
the business in the Asia Pacific region for more
than five years. Tony remains a Senior Partner in
Mercer working on a part time basis.
Prior to joining Mercer, Tony held several senior
positions in the Commonwealth Public Service,
including Secretary to the Treasury, Secretary of
the Department of Health and Social Security,
Deputy Secretary to the Department of the Prime
Minister and Cabinet and Chairman of the Industry
Commission (now the Productivity Commission).
Tony served as an Alternative Director of the World
Bank and was Treasurer Paul Keating’s principal
economic adviser and head of office in the early
years of the Hawke-Keating government.
Tony is currently a Trustee Director of the
Commonwealth Superannuation Corporation and
a member of the Advisory Board of the Northern
Territory Treasury Corporation. He Chaired the
Advisory Board of the Melbourne Institute for
10 years and was a longstanding member of
the Australian Office of Funds Management
Advisory Board.
12
Directors Who Resigned
During the Period
Justine Hickey
Non-Executive Director
BCom, SAFin, GAICD, ASIP
Appointed as Non-Executive Director in March
2007. After Justine was re elected as a director at
the AGM on 22 November 2012 she advised that
she would not serve a full term. On 26 April 2013
Justine resigned as a director.
Listed company directorships held during the past
three financial years:
• Hyperion Flagship Investments Limited
Louise Herron
Non-Executive Director
BA, LLB, LLM
Appointed as Non-Executive Director on 20
February 2012 and resigned on 25 July 2012
following her appointment as CEO of the Sydney
Opera House.
Company secretary
Tom May
BA, LLB, MBA
Tom has experience in the superannuation and
distribution aspects of financial services law. He
has been a lawyer since 1990 when he was a legal
officer in the federal government. He subsequently
worked in house with funds management and life
insurance companies before working in private
practice in London and Tokyo.
Subsidiary Board directors and
Board committee members
Ruth Medd
Chair and Non-Executive Director, Australian
Ethical Superannuation Pty Limited
BSc, Dip Comp Science, CPA, MAICD
Ruth is Chair of the Company’s wholly owned
subsidiary Australian Ethical Superannuation
Pty Limited and also chairs the Company’s
Audit, Compliance & Risk committee. Ruth is
currently on the board of the NFAW Ltd (National
Foundation for Australian Women) and WOB Pty
Ltd (Women on Boards). Ruth started in IT in the
1970s. Since then she has been a senior public
servant, a broadcasting regulator, the inaugural
Company Secretary at Telstra and the Executive
Director of an industry association.
Les Coleman
Non-Executive Director, Australian Ethical
Superannuation Pty Limited
B.Eng.(Hons), B.Sc.(Hons), M.Ec., PhD
Les is a member of the Audit, Compliance & Risk
committee and is also a director of Australian
Ethical Superannuation Pty Limited. Les has been
a trustee of two superannuation funds, and a
director of ten companies involved in finance, retail
and distribution. He has over 20 years experience
in senior operational, planning and finance roles in
Australia and overseas. He is currently a member
of the investment committee of United Funds
Management (a subsidiary of IOOF Holdings
Limited), and since 2004 has taught in the Finance
Department of the University of Melbourne.
Philip George
Executive Director, Australian Ethical
Superannuation Pty Limited
BSc, LLB, ACIS
Philip was on the board of Australian Ethical
Superannuation Pty Limited until his resignation
on 29 August 2012.
Principal activities
The principal activities of the Company during the
financial year was to be the responsible entity for a
range of public offer ethically managed investment
schemes and as the Trustee of the Australian
Ethical Retail Superannuation Fund. Included in
these activities are funds management, portfolio
management, investment administration and
custody. Other than as described in this report,
there were no significant changes in the nature of
the controlling entity’s activities during the year.
Changes in the state of affairs
There were no significant changes in the state of
affairs of the Company that occurred during the
year not otherwise disclosed in this report or the
financial statements.
Review of Operations
For the financial year to 30 June 2013, Australian
Ethical reported a net profit after tax of $1,063,037
compared to the net profit after tax for the
financial year to 30 June 2012 of $402,155.
1800 021 227 | australianethical.com.au 13
australianethical In looking at the consolidated entity’s performance
during 2013, the following are the key points:
Funds Under Management and Revenue
• Funds under management increased by
$81.0m, $79.7m due to market movements
in addition to net inflows of $1.3m. Funds
under management as at 30 June 2013 was
$707.6m which is the highest for the Company
since inception.
• Net inflows of $1.3m are made up of positive
inflows of $18.0m (down from $19.4m last year)
into our superannuation fund offset by net
outflows of $16.7m from our managed funds
($24.3m net outflow last year). Whilst this net
outflow from our managed funds continues to
be disappointing this is reflective of a shifting
of investor behaviour across the industry.
Despite this our net outflows from managed
funds have improved.
• Revenues increased by $1.59m representing
an increase of 11% over the previous year. The
main reason for the revenue increase was the
growth in equity markets during the year which
increased our funds under management.
• We made a number of adjustments to our fees
over the past year to make our products more
competitive and bring them in line with market
best practice. These were:
– Removal of all fees on contributions. These
fees have been uncommon in the market
for many years and were a key barrier to
many investors. This reduced revenue by
over $1m compared to the prior year;
–
Increasing the member account fee for our
superannuation product. We were under-
market in respect of this fee;
– Consistent with market practice we moved
to full cost recovery from the super fund
for the total costs incurred in relation to our
external administrator;
– Lowering the management fees
across all investment options of our
superannuation fund.
– Lowering the management fees for
our wholesale Smaller and Larger
Companies Trusts.
• From 9 March 2013 the structure of the fees
on the Superannuation fund were adjusted
in line with MySuper and StrongerSuper
requirements. These changes had an
insignificant impact on revenue for the year.
Expenses
• Operating expenses decreased by $0.08m, a
decrease of 0.6% over the previous year.
• Employment costs decreased by 1.9%
as a result of reduced staff numbers
(from 36 to 34). During the year we had
significant project related work arising from
regulatory change, product improvements
and improvements to our operations and
administration arrangements.
• Costs to outsource providers have increased
as a result of changing our expense recovery
process from the funds to now recover an
estimate of expenses on a monthly basis and
for the Company to pay all managed fund and
superannuation fund related expenses. This
method provides our customers with certainty
on the pricing of our funds and aligns to market
practice for retail funds.
• We entered into a lease on a new office in
Sydney in February allowing our staff to
operate from one location in Sydney. We
have balanced cost with sustainability and
secured space with a 4 star NABERS rating.
The building is owned by Investa, who are
well known for their sustainability credentials.
This allowed us to vacate the existing lease
in 25 Bligh St plus the temporary premises
we were occupying. The costs for 2013/14
are expected to be in line with those for the
current year.
• Amounts paid to consultants decreased by
$0.4m (2013 $0.4m, 2012 $0.8m) as a result
of utilisation of internal staff for major projects
this year.
• The effective tax rate of 45% was marginally
higher than the prior year, 44%. The
Company’s effective tax rate is impacted by
items that are not deductible for tax purposes
which are detailed in Note 5 of the attached
financial report.
Community Grants
• $117,291 has been provisioned for payment
to charitable and conservation organisations
under our community grants program. The
Company’s constitution requires that 10% of
operating profit, after notional tax, be paid to
non profit organisations involved in charitable,
benevolent or conservation purposes. Staff
and shareholders are actively involved in the
selection of the organisations that receive
community grants.
• $1.45m, including the amount above, has
now been paid by the Company to charitable
and conservation organisations under the
community grants program since inception.
14
Underlying Profit
Underlying profit is provided to assist
shareholders in understanding the Company’s
performance. Underlying profit excludes
certain items, as determined by the Board and
management, that are either significant by virtue of
their size and impact on Net Profit After Tax, or are
deemed to be outside normal operating activities.
It reflects an assessment of the result for the
ongoing business of the Group.
The reconciliation of net profit after tax to
underlying profit after tax for the 2013 financial
year is as follows:
30 June
2013
$’000
30 June
2012
$’000
Net profit after tax
1,063
402
Adjustments (gross)
Add: Employment
restructure expenses
Add: Legal costs for
shareholder actions
Add: Property
revaluation
Add: Available for Sale
assets revaluation
Tax on adjustments
Underlying profit
after tax
-
85
436
117
319
125
210
-
(26)
1,675
(196)
859
This table has been prepared in accordance with the Australian
Institute of Company Directors (AICD)/Finsia principles for
reporting underlying profit and ASIC’s Regulatory Guide 230
Disclosing non-IFRS financial information. Underlying profit after
tax has not been reviewed or audited by our external auditors,
however the adjustments to net profit have been extracted from
the books and records that have been audited.
Statement of Financial Position
(as at 30 June 2013)
Assets
• Total assets have increased by $1.64m to
$10.28m during the financial year ended
30 June 2013.
• Cash balances increased by $1.585m to
$3.895m primarily as a result of increased
revenue from our funds as funds under
management have grown. As a condition of the
Company’s Australian Financial Services (AFS)
Licence the Company is required to maintain
minimum Net Tangible Asset levels along with
a significant cash balance. At all times during
the financial year and as at 30 June 2013
the Company has met the conditions of its
AFS Licence.
• Trade and other receivables increased
by $0.758 million to $2.474 million. These
receivables primarily represent the accrual of
fees on our products for the previous month.
• Due to a weakening commercial property
market in Canberra the Company owned
property in Bruce, ACT was independently
re-valued resulting in an impairment charge
of $0.436 million. This impairment charge is a
non-cash charge to profit.
– Block E, Trevor Pearcey House is located
in Bruce, ACT and is the property in which
the Company operates the part of its
business that is located in Canberra. It
was purchased in 2006 and refurbished
throughout 2007 in order to achieve a 6 star
rating under the Green Building Council
Green Star program.
– Over the past few years the Company has
progressively restructured its business to
be predominantly based in Sydney. This
was necessary to be more accessible
to clients and investee companies and
to more easily access appropriately
skilled staff.
– The Board has taken the view that it is not
appropriate for the Company to hold real
estate on its balance sheet. Regulatory
requirements introduced in November 2012
require greater holdings in liquid reserves.
Real estate is an illiquid asset and does
not meet the required tests. As a result the
property is actively being marketed for sale
and consequently the building has been
reclassified as held for sale.
• Shares held by the Company to support the
advocacy activities of the Advocacy Fund fell
by $1,797. Cumulative unrealised losses in
respect of these shares amount to $113,332.
Due to the sustained drop in prices on some
of these securities an impairment charge of
$116,811 has been taken to the profit and loss.
The Company has changed its approach to its
Advocacy activities and in the future will not
be purchasing shares on its balance sheet to
obtain voting blocks in target companies.
• Excess capital of $300,000 that was invested
in the Australian Ethical Balanced Trust was
redeemed during the year in order to meet
the increased capital requirements of the
Company’s AFS Licence; a loss of $58,523
was realised.
1800 021 227 | australianethical.com.au 15
australianethical Liabilities
Equity
Equity has increased by $0.589 million due to net
profit after tax of $1.063 million offset by dividends
paid during the year.
Total liabilities increased by $1.051m to $2.982m
due to an increase in trade payables which
represents the change to the Company now
paying all fund related expenses. These expenses
are subsequently recovered from the funds. The
trade payables primarily consist of payments to
outsource service providers which are settled on a
monthly basis.
Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Declared and paid during the financial year
Final 2012
Interim 2013
Total
Cents per
share
Total
amount
$
Franked/
unfranked
Date of
payment
35
40
355,280 Franked
406,034 Franked
5 October
2012
28 March
2013
761,314
Declared after end of year
After balance sheet date, the directors declared the following dividend:
Final 2013
2 Planned payment date
Events subsequent to reporting date
The Company’s fees are primarily based on
its funds under management which in turn is
impacted by changes in equity markets. Between
30 June 2013 and the date of signing this report
the S&P/ASX All Ordinaries Index increased by
5.75% which is estimated would impact the net
profit after tax by $287,000 on a full year basis.
Other than as outlined in this report, no matters
or circumstances have arisen since the end of
the financial year which have or may significantly
affect the operations of the Company and its
controlled entity, the results of those operations
or the state of affairs of the Company in financial
years subsequent to the financial year ended
30 June 2013.
45
460,416 Franked
4 October
20132
Outlook–Likely developments and
business strategies
Over the past three years the Company has been
positioned to benefit from increasing awareness
of ethical investing through improvements in the
structure and price of products and a reduction in
the ongoing expenses.
Over the coming year it is planned to make further
reductions to our product fees in order to make
them more competitive.
The largest driver of total revenues is the value of
funds under management (FUM) which is in turn
influenced by the level of the Australian equity
market. We have estimated that a 1% change in
the S&P/ASX All Ordinaries index will have a full
year impact of $50,000 on net profit after tax.
Changes to the markets are monitored constantly
and where there are sustained drops action will be
taken to reduce variable expenses.
As noted in the Review of Operations section the
Board has taken the view that it is not appropriate
for the Company to hold real estate on its balance
sheet. The Company is attempting to sell the
property and the Board is yet to determine the
appropriate course of action for the sale proceeds.
16
Environmental Regulation
Insurance
The consolidated entity acts as a responsible
entity for the Australian Ethical Property Trust
and the Australian Ethical Balanced Trust both
of which own direct property assets. These
fiduciary operations are subject to environmental
regulations under both Commonwealth and State
legislation in relation to property developments.
Approvals for commercial property developments
are required by state planning authorities and
environmental protection agencies. The licence
requirements relate to air, noise, water and waste
disposal. The responsible entity is responsible
for compliance and reporting under the
government legislation.
The consolidated entity is not aware of any
material non-compliance in relation to these
licences during the financial year.
The consolidated entity has determined that it
is not required to register to report under the
National Greenhouse and Energy Reporting Act
2007, which is Commonwealth environmental
legislation that imposes reporting obligations on
entities that reach reporting thresholds during the
financial year.
The properties held in the Australian Ethical
Property Trust are required to have a minimum
of 5 Green star rated or be in respect to social
infrastructure. The properties held in the Australian
Ethical Balanced Trust do not have a minimum of
Green star rating.
Auditor’s Independence Declaration
A copy of the Auditor’s Independence
Declaration as required under section 307C of the
Corporations Act 2001 is set out on page 37.
Indemnification of Directors’ and officers
The Company and its controlled entity indemnify
the current Directors and officers of the Company
against all liabilities to another person (other than
the Company or a related body corporate) that
may arise from their position as Directors of the
consolidated entity, except where the liabilities
arise out of conduct involving a lack of good faith.
The Company and its controlled entity will meet
the full amount of any such liabilities, including
costs and expenses.
The constitution of the Company provides a
general indemnity for officers of the company
against liabilities incurred in that capacity,
including costs and expenses in successfully
defending legal proceedings.
During the financial year, the company paid a
premium to insure the directors (named above),
the company secretary and all officers of the
company and of any related body corporate
against a liability incurred as a director, secretary
or officer to the extent permitted by the
Corporations Act 2001. The contract of insurance
prohibits disclosure of the nature of the liability
and the amount of the premium.
During the year the company entered into or
maintained deeds of indemnity, insurance and
access (Deed) with directors and officers which
provides a general indemnity against liabilities
incurred in that capacity to the extent permitted by
the Corporations Act 2001.
The Deed obligates the company to use its
reasonable endeavours to obtain and maintain
insurance for the benefit of a director or officer
of the company and any subsidiary, to the extent
that such coverage is available in the market on
terms which the company reasonably considers
financially prudent and on terms consistent with
the practice of comparable companies operating
in similar markets.
The Deed also provides that the company will pay
on behalf of the director or officer or lend to the
director or officer the amount necessary to pay
the reasonable legal costs incurred by the director
or officer in defending an action for a liability
incurred as a director or officer of the company
or a subsidiary on such terms as the company
reasonably determines. The director or officer
must repay to the company such legal costs if
they become legal costs for which the company
was not permitted by law to indemnify the director
or officer. The company need not pay or provide a
loan to the director or officer to the extent that the
director or officer is actually reimbursed for legal
costs as they fall due under an insurance policy
or otherwise.
The company has not otherwise, during or
since the financial year, indemnified or agreed
to indemnify a director, officer or auditor of
the company or of any related body corporate
against a liability incurred as such director, officer
or auditor.
1800 021 227 | australianethical.com.au 17
australianethical Director’s meetings
The number of Directors’ meetings (including meetings of committees of directors of which not all
directors are members) and number of meetings attended by each of the directors of the controlling entity
during the financial year are set out below.
Director
Board
Investment
People,
remuneration
and nominations
Audit,
compliance
and risk
Eligible
Attend Eligible
Attend Eligible
Attend Eligible
Attend
Stephen Gibbs
André Morony
Stephen Newnham
Mara Bun
Tony Cole
Kate Greenhill
Phil Vernon
Justine Hickey
Louise Herron
Ruth Medd
Les Coleman
8
9
9
4
4
4
9
8
1
-
-
8
8
7
3
3
4
9
8
1
-
-
-
3
-
-
1
-
-
3
-
-
-
-
3
-
-
1
-
-
3
-
-
-
2
3
-
-
-
-
-
3
-
-
-
2
3
-
-
-
-
-
3
-
-
-
6
-
-
-
-
3
-
-
-
7
7
6
-
-
-
-
3
-
-
-
7
7
Directors’ relevant interests in securities of the Company
Parent entity directors
Fully paid
ordinary shares
Share options
Performance rights
2013
2012
2013
2012
2013
2012
Stephen Gibbs
André Morony
Stephen Newnham
Mara Bun
Tony Cole
Kate Greenhill
Phil Vernon
Justine Hickey
Louise Herron
Ruth Medd
Les Coleman
-
-
-
-
-
1,474
1,200
-
-
-
-
-
-
-
-
-
1,200
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,933
5,744
-
-
-
-
-
-
-
-
18
Directors’ holdings in registered schemes
made available by the Company
None of the current Directors have holdings
in the registered schemes made available by
the Company.
Several Directors are members of the Australian
Ethical Retail Superannuation Fund.
Rights as at the date of this report
Rights over unissued shares as at the date of this
report are as follows:
Performance rights
reference
Number of rights
on issue
AEFAY
AEFAA
AEFAC
AEFAD
8,393
9,411
20,144
7,095
All performance rights are over unissued shares
in the Company. Performance rights expire if
the performance conditions are not met at the
end of the performance period. No holder of
performance rights is entitled, by virtue of holding
the performance rights, to participate in any other
share issue of the Company or of any other entity.
Further details on rights over unissued shares
are provided in Note 27 of the attached
financial report.
Shares issued upon the exercise of
share rights
12,051 ordinary shares of the Company were
issued during the year ended 30 June 2013 on the
conversion of performance rights granted under
the Company’s employee share ownership plan.
No further shares have been issued since 30 June
2013 to the date of this report. No amounts are
unpaid on any of the shares.
1800 021 227 | australianethical.com.au 19
australianethical Remuneration Report 2013
This report sets out the remuneration
arrangements for all key management personnel
(KMP) for the year. KMP is defined under the
Corporations Act as persons having authority
and responsibility for planning, directing and
controlling the activities of the entity, directly
or indirectly, including any director (whether
executive or otherwise) of that entity. The
information contained in the Remuneration
Report has been audited by the Company’s
external auditor and named directors and
executives are key management personnel of the
consolidated entity.
At the 2012 Annual General Meeting, the
Remuneration Report received 33.84% of the vote
against it. This result constituted a ‘second strike’
and the spill meeting motion was required. 68.67%
voted against a spill motion meaning a spill
meeting was not required. There were no specific
comments at the Meeting criticising any aspect
of the remuneration report. The directors are of
the view that the vote received against the 2012
Remuneration Report was once again, not about
the remuneration of KMP’s, but rather, as a result
of a campaign to remove certain directors.
Remuneration Policy
and Structure
Australian Ethical Investment Limited’s
remuneration policy is designed to create a
motivating environment for staff where they
feel appropriately paid and incentivised for the
contribution they make to the performance of
the company.
The remuneration philosophy is consistent with
the principles of the Australian Ethical Charter and
Constitution. In particular:
•
•
it is designed to ensure that Australian Ethical
facilitates “the development of workers
participation in the ownership and control of
their work organisations and places” (Charter
element (a))
it is designed so as to not “exploit people
through the payment of low wages or the
provision of poor working conditions” (negative
Charter element (ix))
•
the incentive structure meets the requirements
of Rule 15.1(c) of the AEI Constitution which
provides that:
– prior to recommending or declaring
any dividend, provision must be made
for a bonus or incentive for staff to be
paid of up to 30 percent (30%) of what
the profit for that year would have been
had not the bonus or incentive payment
been deducted;
–
–
these bonuses may be in cash or
shares; and
this rule applies only to any staff bonus
described below. The other schemes
outlined in this document are part of the
remuneration structure.
Principles guiding the design of the remuneration
structure are as follows:
• pay people fairly for the work that they do
• build long term ownership in the company
amongst employees
•
reward people according to their contribution
to the company’s performance
• align shareholder interests and the company’s
capacity to pay
• attract and retain talented people
• promote the values of the Charter
Changes to Remuneration
Structure in 2012/13
In 2012, the Company’s remuneration structure
went through some change to ensure we
strengthened the alignment of performance-based
remuneration to shareholders’ interests and the
Company’s strategic plan. The improvements
made to the structure included:
• better alignment of incentive programs with the
Company’s capacity to pay
• better alignment of individual and company
performance to short term incentive plans
• balancing of reward options including cash and
performance rights
•
reducing retention risk through the provision
of market-based incentive programs for
identified staff
20
i) Non-executive Directors
A review of Non-executive Directors remuneration
is undertaken annually, taking into account
recommendations from the People, Remuneration
and Nominations Committee. The review includes
the positions of Chairman and Non-executive
Directors, duties undertaken, accountability
and market rates. Non-executive Directors’
remuneration has been consistently below that
of comparative companies and the annual review
in June 2013 saw an increase to Non-executive
Director remuneration by $12,000 pa, the first
increase since 2008, effective from the first full
pay period on or after 1 July 2013. The increases
awarded remain within the pool approved by
shareholders at the 2010 Annual General Meeting.
Non-executive Director remuneration is still well
below comparative companies.
In addition to fixed remuneration, Non-executive
Directors are entitled to be paid reasonable
expenses, remuneration for additional services
and superannuation contributions. They also
receive payment for serving on board committees.
Committee payments have not increased since
July 2008.
Non-executive Director’s are not eligible to
participate in staff incentive plans.
ii) Key Management Personnel (KMP)
The Board seeks to reward KMP’s based on
positive contributions and Company results.
The remuneration structure for KMP’s is based
on a number of factors including position in the
Company, the scope and impact of an individual’s
contribution to the performance of the Company
and the achievement of agreed objectives. All
remuneration for KMP’s is reviewed against
market rates for roles requiring similar skills
and experience.
Managing Director and KMP Performance
An annual assessment of the Managing Director
is completed by the Chairman and is overseen
by the Board, with input from the People,
Remuneration and Nominations Committee.
The review includes a 360 review process,
measurement of performance against agreed
KPI’s and Company performance.
The bonus received by the Managing Director
during 2012/13 is shown in Table 1: Remuneration
Elements and relates to the previous financial year
of 2011/2012. This flows from a formula linking
the bonus to year on year profit changes and
reflects a decrease in the results for that previous
financial year. The bonus paid in 2012/2013 is
lower reflecting the lower profits of the previous
financial year.
In turn, the Managing Director is responsible for
reviewing the performance of senior management
and whether performance requirements are
met. Both quantitative and qualitative data is
used to determine whether performance criteria
are achieved.
Performance-based
Remuneration
The Company seeks to reward employees for
results and ongoing commitment through the
provision of cash and equity based schemes
as follows:
a) Staff Bonus Plan
Under the Company’s Constitution, before the
Directors recommend or declare a dividend to be
paid out of profits of any one year provision must
be made for a bonus or incentive for staff.
Historically, all staff across the organisation,
irrespective of position (and including KMP),
received the same bonus paid in cash under
this constitutional provision. From 1 July 2012
the eligibility for this bonus plan changed and
employees who had access to the Short Term
Incentive Program were removed from the Plan.
In 2012/13 eligible employees received a cash
bonus of $3,000 each in respect of the 2011/12
financial year. The bonus is pro-rated for
permanent part-time staff and staff who have not
completed a full year with the company.
A further change to the Plan for the 2012/13
performance year (paid in 2013/14) was that
payment will be based on the relative performance
of the employee during the performance year, not
a flat rate for each employee.
b) Employee Share Incentive Schemes
Under the employee share incentive schemes
(ESIS), a pool of performance rights which
would, if exercised, amount to less than 5%
per annum of the company’s existing ordinary
share capital, is made available. This scheme
was originally approved by members at the 2008
Annual General Meeting. The ESIS is split into
two categories: general (now referred to as the
Long Term Incentive Program, LTI) and individual
(now referred to as the Short Term Incentive
Program, STI).
1800 021 227 | australianethical.com.au 21
australianethical The performance rights that have been issued
during the current year are subject to the terms
and conditions of the scheme rules.
i) Short Term Incentive Program
The Short Term Incentive Program (STI) is
provided to senior management and eligible
investment and sales staff. The outcome of
any reward is based on company performance,
individual performance and the achievement of
agreed KPI’s. Rewards are paid as 50% cash
and 50% performance rights.
Performance objectives are chosen to
provide consistency and alignment with the
Company’s strategy.
Performance rights issued under the STI are
linked to the performance of the Company’s
managed funds for eligible investment staff
and are notionally reinvested back into an
employee appropriate fund for 12 months.
The following attributes determine whether
the performance rights convert into
ordinary shares:
• For all STI participants, employment must
continue until a specified date.
• For the management, sales and marketing
teams vesting occurs in 1 year.
• For investment staff, the number of shares
issued to each employee in respect
of their performance rights under this
category will be adjusted up or down
by a maximum 20%, depending on the
absolute performance of the company’s
managed investment schemes for which
the employee has responsibility or
provides significant input. The nominated
managed investment scheme is agreed
between the Company and the employee
and the performance is measured over
the relevant performance period. The
value of this deferred incentive will vary
as if the amounts were directly invested
in actual investment units, giving the
portfolio manager an effective exposure to
the performance of the units. This builds
alignment with clients.
Performance against individual objectives
is determined by the Managing Director.
Performance against investment targets is
measured by the Chief Investment Officer and
reviewed by the People, Remuneration and
Nominations Committee in consultation with
the Managing Director. Performance against
flow objectives is determined by actual inflows
and outflows during the period and reviewed
by the Managing Director.
ii) Long Term Incentive Program
All permanent employees, including KMP,
participate in the Long Term Incentive Program
(LTI). The number of performance rights issued
to each staff member is based on their relative
remuneration.
Performance rights issued under the this
category have two hurdles. Firstly, they are
subject to a three year employment condition
and secondly, shares will only be issued in
respect of the performance rights where return
on equity meets the established levels.
The following attributes determine whether
shares will be issued in respect of the rights:
• Employment must continue until a
specified date.
• The Average Return on Equity (AROE)
must exceed 15% per annum or no
shares shall be awarded at the end of the
performance period.
•
•
If the AROE exceeds 15% per annum
but is less than 20% per annum, half
the maximum number of shares shall
be awarded.
If the AROE is equal to or greater than 20%
per annum the maximum number of shares
shall be awarded.
• AROE is determined as the average of
return on equity over each six month
period calculated using audited half-year
financial statements.
• The performance is measured over a rolling
three year period.
Conditions of Employment
a) Employment Contracts
All KMP’s have formal contracts of employment
and are permanent employees of the Company.
The Managing Director’s contract is for a fixed
term, concluding on 30 March 2016. Prior to
12 weeks before the Contract expiry date, the
Managing Director may resign by giving the
company 12 weeks’ notice in writing. Prior to
52 weeks before the Contract expiry date, the
Company may terminate the Managing Directors
employment by giving 52 weeks’ notice in writing.
In the event the Contract has less than 52 weeks
to run before the expiry date, the Company may
terminate the Managing Directors employment by
giving notice to the expiry date.
22
All other KMP’s have no pre-determined duration
of employment or a termination date. The
contracts for service between the company and
these KMP’s are on a continuing basis. All KMP’s
have a 12 week notice period in their employment
contract and no termination provisions are
provided other than the payout of accrued
entitlements and notice period. No changes to
the contractual arrangements are expected in the
immediate future.
b) Consultancy Agreements
The Company maintained a consultancy
agreement with Morse Consulting Pty Limited
for the provision of management services to
the Company’s finance team by performing the
role of Chief Financial Officer. The agreement
commenced on 19 April 2012 and concluded on
30 June 2013. Costs incurred for the reporting
period amount to $393,733.
Company Performance and
Remuneration
One of the Company’s remuneration guiding
principles is that the remuneration structure
should align value creation for shareholders,
clients and employees.
As outlined earlier in this report, STI rewards for
KMPs are based on a range of key performance
measures. Depending on the position these
include a portion linked to current year profit,
for the investment team a portion linked to
the performance of the investment funds for
which they’re responsible, and for the sales and
marketing team a portion linked to net flows.
The profit portion of these will relate to the
previous year to which it is paid. Other elements
(eg: investment performance and net flows) are
focussed on building long term value and will
impact profit performance over the longer term.
LTI rewards are subject to average Return on
Equity performance hurdles over the three year
vesting period. If these are not met the shares are
written back to profit at the end of the third year.
The following table shows the Company’s five-year performance.
Five Year Performance
Statutory net profit after tax ($’000)
UPAT reported ($’000)
Ordinary dividend per share declared
with respect to the year ($)
Basic earnings per share ($)
Closing share price ($)
Return on Equity
Average Return on Equity over
prior three years
30 June
2009
30 June
2010
30 June
2011
30 June
2012
30 June
2013
1,203
1,020
1.47
1.22
22.00
14.8%
-
1,023
1,543
2.00
1.03
23.20
12.5%
-
1,125
981
2.45
1.13
19.10
15.0%
14.1%
402
859
0.60
0.40
17.50
5.7%
11.1%
1,063
1,639
0.85
1.05
19.50
15.4%
12.0%
Performance rights issued under the LTI in 2010
did not meet the minimum 15% average return
of equity over three year hurdle and have lapsed.
Performance rights issued under the general ESIS
outstanding as at 30 June 2013 are:
Issued year
Amount Outstanding
2012
2013
26,871
37,474
1800 021 227 | australianethical.com.au 23
australianethical KMP Compensation
Short term employment benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total Compensation
Hedging Policy
Directors and executives participating in the
company’s equity-based plans are prohibited from
entering into any transaction which would have
the effect of hedging or otherwise transferring
to any other person the risk of any fluctuation
in the value of any unvested entitlement in the
company’s securities.
2013
$
2012
$
1,391,480
1,817,102
121,613
21,313
-
150,310
1,684,716
170,705
34,939
221,528
151,310
2,395,584
24
Table 1: Remuneration Elements
The following table illustrates the proportion of
remuneration that was performance and non-
performance based, and the proportion of remuneration
received in the form of performance rights during the
financial year.
Non-executive Directors receive their total remuneration
as cash or superannuation contributions. No element is
dependent on performance. Non-executive Director’s
are not eligible to participate in staff incentive plans.
1800 021 227 | australianethical.com.au 25
australianethical Table 2: Rights and Shares held by KMP
26
Equity based remuneration consisting of rights
under the Company’s employee share incentive
scheme are provided above and in Note 27 of the
attached financial report.
1) "Net change other" incorporates changes
resulting from purchases, sales, forfeitures
during the year
2) Shares issued are fully paid
3) Balance represents shareholdings by key
management personnel including their related
parties as required by AASB 124 Related
Party Disclosures
Table 3: Remuneration Received
The following table sets out the actual remuneration received by executives at the Company including cash
paid and the value of equity vested.
Table 4: KMP Loans
Remuneration Report
Table 4: KMP Loans
Start of year
balance
$
Interest
charged
$
Interest not
charged
$
Write-off
$
End of year
balance
$
No. of
KMP’s at
end of year
2013
2012
Start of year
balance
7,455
Interest
charged
12,250
204
Interest not
778
charged
Write-off
-
-
End of year
balance
-
-
-
No. of
KMPʼs at
end of year
7,455
-
1
The loan was repaid in full in December 2012.
$
7,455
12,250
$
204
778
$
-
-
2013
2012
$
-
-
$
-
7,455
-
1
The loan was repaid in full in December 2012.
This directors’ report, incorporating the remuneration report, is signed in accordance with a resolution of
the Board of Directors.
This directorsʼ report, incorporating the remuneration report, is signed in accordance
with a resolution of the Board of Directors.
Stephen Gibbs
Stephen Gibbs
Chairman
Chairman
Dated: 29 August 2013
Dated: 29 August 2013
1800 021 227 | australianethical.com.au 27
australianethical Corporate Governance
Statement 2013
Australian Ethical
Investment Limited
This statement has been prepared under the
ASX Corporate Governance Principles and
Recommendations with 2010 Amendments (2nd
edition) (“Principles and Recommendations”) and
discloses the extent to which Australian Ethical
Investment Ltd (“Company”) has followed the
Principles and Recommendations during the
reporting period.
This statement will be posted to the ‘About Us’
section of the Company’s website.
Principle 1–Lay solid foundations
for management and oversight
The Company has formalised the functions
reserved to the Board and those delegated
to management.
Board responsibilities
The Board is directly responsible for the
following activities.
• Setting the strategic direction of
Australian Ethical
• Annual appraisal of the Board
• Approval of Board committee fees
• Approval of the issue of shares and options
• Approval of significant changes to unit trust
fees, including discount programs
• Approval of significant changes to products or
product offerings
• Approval of the constitutional bonus and
community grant amounts
• Approval of the terms and conditions for any
employee share ownership scheme, or if
shareholder approval is required, approval of
recommendations to shareholders
• Approval of employee performance based
remuneration programs
• Approval of dividend payments and any DRP
• Authorisation of the issue of the Trust PDS
• Review of key risks and approval of risk
management and compliance programs
• Approval of significant Company policies
• Approval of indemnity, crime, director and
officer and similar insurance programs
• Protection and promotion of the Australian
Ethical Charter
The following general delegations are also
in place.
The Chair of the Board – is delegated with
all necessary authority to carry out the
following functions:
• Recommendation to shareholders on the
aggregate level of directors’ fees
Inside the boardroom
• Approval of individual director fees
• Appointment and removal of the CEO
• Annual appraisal of the CEO
• Approval of the annual operational and capital
expenditure budget and any material revisions
• Approval of major contracts, acquisitions or
disposals which have not been approved in
the budget
• Authorisation of Board project expenditure
• Acting as the link between the Board and the
Company when the CEO is unable to perform
this role;
• Establishing and maintaining an effective
working relationship with the CEO;
• Setting the tone for the Board, including the
establishment of a common purpose;
• Chairing Board meetings efficiently and
shaping the agenda in relation to goals,
strategy, budget and executive performance;
• Acceptance and sign-off of the annual
audited accounts and directors’ report for the
Australian Ethical group
• Work with the Company Secretary and CEO
to ensure that appropriate information is
presented to the Board;
28
• Ensuring contributions by all Board
members and reaching consensus when
making decisions;
• Motivating Board members and where
appropriate dealing with underperformance;
• Oversee the process for appraising Board
members individually and the Board as
a whole;
• Overseeing conducting and finalising
negotiations for the CEO’s employment and
evaluating the CEO’s performance;
• Assisting with the selection of Board
committee members.
Outside the boardroom
• Communicating with shareholders on matters
of corporate governance;
• Chairing shareholder meetings – annual
and extraordinary general meetings (AGMs
and EGMs);
• Ensuring compliance with ASX Listing Rules
and continuous disclosure requirements;
• Speaking with large investors;
•
In conjunction with the CEO, communicating
Board views to staff.
Board Committees – are delegated with all
necessary authority to carry out their functions as
set out in Board committee charters.
The CEO – is delegated with all necessary
authority to run Australian Ethical on an ongoing,
day to day basis other than those responsibilities
reserved to the Board and delegations (general
or specific) made by the Board to the Chair,
Board committees, Directors or other senior
executives. Specifically the CEO is delegated with
responsibility and authority for the following:
•
•
Implementing the strategic direction set by
the Board;
Implementing the risk management and
compliance programs approved by the Board;
• Approval and maintenance of Expenditure and
Payment Guidelines;
• Approval and maintenance of
Employee Authorisations;
• Employment, termination and suspension
of staff;
• Employee remuneration;
• Employee policies and procedures.
The above responsibilities and delegations are
made public through the publication of this
statement and its inclusion in the corporate
governance section of the Company’s website.
Evaluating the performance of
senior executives
Executive performance is evaluated in
accordance with the Company’s performance
review guidelines. The Chair conducts the CEO’s
performance review. The CEO conducts the
performance reviews of other senior executives.
In relation to senior executives the CEO completes
a draft performance review and discusses it with
the relevant executive. The discussion also covers:
• objectives for the coming year, aspirations and
areas for improvement;
•
the executives competencies and qualifications
to ensure they remain applicable. If not, a
training program is developed to bring the
executive to the appropriate level; and
• where remuneration is subject to performance
hurdles, the achievement of those hurdles is
reviewed and the amount of any performance
based remuneration is determined.
In relation to the CEO, the process is for the Chair
to conduct the review and present the results of
the review to the Board. The Board then has an
opportunity to provide feedback to the CEO and to
consider recommendations from the Chair on the
CEO’s remuneration package.
An evaluation of the CEO and senior executives
was undertaken in the financial year in accordance
with the processes described above.
Principle 2–Structure the board
to add value
Independent directors
A director is an independent director if they are a
non executive director and:
• not a substantial shareholder (as defined in the
Corporations Act) or an officer of, or otherwise
associated directly with, a substantial
shareholder of the Company;
• have not within the last three years been
employed in an executive capacity by the
Company or another group member, or
been a director after ceasing to hold any
such employment;
1800 021 227 | australianethical.com.au 29
australianethical • within the last three years have not been
a principal or employee of a material
professional adviser or a material consultant
to the Company or another group member, or
an employee materially associated with the
service provided;
• are not a material supplier or customer of the
Company or other group member, or an officer
of or otherwise associated directly or indirectly
with a material supplier or customer;
• have no material contractual relationship with
the Company or another group member other
than as a director of the Company;
• have not served on the Board for more than
9 years;
• are free from any interest and any business
or other relationship which could, or could
reasonably be perceived to, materially interfere
with the director’s ability to act in the best
interests of the Company.
The list reflects the relationships set out in the
Principles and Recommendations.
Unless there are specific qualitative factors
relevant to the relationship, the Board is generally
of the view that a quantitative materiality threshold
arises at 10% of the relevant amount – considered
from both the Company’s perspective and that of
the other party.
The classification of directors who held office during or since the end of the financial year is set out below.
Director
Status
Stephen Gibbs
(Chair)
André Morony
Mara Bun
Tony Cole, AO
Kate Greenhill
Phillip Vernon
Non independent
Non Executive Director
Appointed 25 July 2012; elected on 20 November
2012; appointed Chair on 1 March 2013
Independent
Non Executive Director
André’s term expires at the end of the 2013 AGM; he
has indicated that he will not offer himself for the office
of director.
Independent
Non Executive Director
Independent
Non Executive Director
Independent
Non Executive Director
Non independent
Executive director
Mara was appointed by the Board on 4 February 2013.
Tony was appointed by the Board on 4 February 2013.
Kate was appointed by the Board on 22 February 2013.
Phillip is the Managing Director and CEO.
Stephen Newnham
Non independent
Executive Director
Steve resigned on 24 July 2013 after accepting a
position with another financial services organisation.
Justine Hickey
Louise Herron
Independent
Non Executive Director
Justine resigned on 26 April 2013; in accordance with
her statement to the 2012 AGM.
Independent
Non Executive Director
Louise resigned on 25 July 2012 to take up an
appointment as the CEO of the Sydney Opera House.
On 30 June 2012 the Board was comprised of
three independent non executive directors and
two executive directors.
Steve Gibbs was appointed as a director by the
Board on 25 July 2013 and was voted into office at
the 2012 AGM by 99.8% of the approximately 69%
of shares voted. Steve was the Chair of CAER Pty
Ltd, a major supplier of ethical research services
to the Company. Consequently, Steve, as a former
officer of a material supplier, is classified as a non
independent / non executive director. Steve was
appointed Chair with effect from 1 March 2013.
Over the course of the reporting year three
new independent non executive directors were
appointed; two directors resigned; one director
indicated that he will not offer himself for re
election at the 2013 AGM; and, shortly after the
end of the year, a director resigned.
As a result of these changes the Board is
now dominated by independent directors.
This is consistent with the Principles and
Recommendations and the Board’s intention is to
keep this balance as it represents best corporate
governance and alignment with the Australian
Ethical Charter.
30
Independent legal and other
professional advice
Subject to the qualifications below director’s
have a right to seek independent legal and other
professional advice at the Company’s expense
on any aspect of the Company's operations or
undertakings in order to fulfil their duties and
responsibilities as directors. The right of directors
to seek independent legal and other professional
advice at the Company’s expense is subject to
them complying with the following requirements.
• They must have the prior approval of the Chair
to seek the specific independent legal and
other professional advice.
• They must ensure that the costs
are reasonable.
• Any advice received must be made available to
the rest of the Board unless either the Chair or
the Board agree that the rest of the Board does
not need to see the advice.
Chair of the Board
André Morony, the Chair during the majority of the
reporting period (July to February), is considered
an independent director.
Steve Gibbs, the Chair since 1 March 2013 is
considered to be a non independent director.
Steve’s former role as Chair of CAER, means
that he is not considered to be independent even
though he resigned this position before being
appointed to the Australian Ethical Board.
Nomination Committee
The Board has a People, Remuneration and
Nominations Committee. André Morony, Justine
Hickey and Louise Herron were the members
of the Committee at the commencement of the
reporting period. Following Louise’s resignation
on 25 July 2012 Steve Gibbs was appointed
and Kate Greenhill was appointed after Justine
Hickey’s departure.
Attendance at meetings is detailed in the directors’
report. A summary of the Committee’s Charter is
available from the corporate governance section
of the Company’s website.
Board and director evaluation
A formal Board evaluation was not undertaken
in the relevant period given the extent of change
during the year. The Board has assessed the skills
and experience of the directors and the Board
has been renewed through the appointment of 4
new directors during the reporting period. It is the
Board’s intention to conduct a board evaluation in
the current year.
Director skills and experience
The time in office, skills, experience and expertise
of each director in office during the year is
included in the directors’ report.
Selection and appointment of directors and
re-appointment of incumbents
The People, Remuneration and Nominations
Committee has the following responsibilities:
• assess the necessary and desirable
competencies of directors;
• ensure the directors have the appropriate
mix of competencies to enable the Board to
discharge its responsibilities effectively;
• develop Board succession plans to ensure
an appropriate balance of skills, diversity,
experience and expertise is maintained;
• make recommendations to the Board relating
to the appointment and retirement of directors.
The People, Remuneration and Nominations
Committee considers the above responsibilities,
the current Board composition, any nominations
or suggestions for directorship and the
assessment of incumbent directors when making
recommendations to the Board on composition on
an annual basis.
Principle 3 – Promote ethical and
responsible decision making
The Company is an ethical investment company
that manages money in accordance with the
Australian Ethical Charter. The Charter is in the
Company’s constitution and informs all aspects
of the Company’s operations. The Charter is
available on the Company’s website.
Code of conduct
The Company has a code of conduct that applies
to directors and staff. It is available on the
Company’s website.
Share trading
The Company has a share trading policy that
applies to directors and staff.
1800 021 227 | australianethical.com.au 31
australianethical Diversity
The Company has a diversity policy that includes
measurable objectives for achieving gender
diversity and requires annual assessment against
the objectives and progress in achieving them.
The Diversity Policy States:
“AEI’s Board of Directors will establish measurable
objectives for achieving gender diversity in the
workplace and will undertake a review of progress
against these objectives annually.”
The following Gender Diversity Targets have
been adopted:
Target
Date
30 June
2013
Target
• 25% of the AEI Board will
be female
• 25% of Management at AEI will
be female
31
December
2016
• 40% of the AEI Board will
be female
• 40% of Management at AEI will
be female
While this policy is aimed at increasing female
representation at no time will AEI have more than:
• 75% of either gender up to 31 December 2016;
or
• 60% of either gender after 31 December 2016.
As at 30 June 2013, 33% of the Board and 22%
of AEI’s Management were female compared to
30 June 2012 when 40% of the Board and 11% of
AEI’s Management were female.
Principle 4–Safeguard integrity
in financial reporting
Audit Committee
Throughout the period, the Board had an Audit
Committee consisting of at least three members
being one external member (Ruth Medd, Chair of
the Audit Committee and also independent Chair
of the Company’s subsidiary, Australian Ethical
Superannuation Pty Ltd) and two independent non
executive directors.
The qualifications of those appointed to the Audit
Committee are provided in the directors’ report, as
are the number of meetings of the committee and
attendances at those meetings.
A summary of the Audit Committee’s Charter is on
the Company’s website.
As the Chair of the Audit Committee is not a
director of the Company, it does not strictly
speaking comply with recommendation 4.2
“consists solely of non executive directors”.
However, the Board is of the view that
notwithstanding this the structure of the Audit
Committee is consistent with the spirit of the
recommendations and the Committee is able
to perform its functions with independence and
diligence. In particular it is noted that:
•
•
the Audit Committee is comprised only of non
executives, is chaired by an independent chair
who is not the Chair of the Board and currently
has three other members;
the Audit Committee speaks directly to the
external auditor in the absence of executive
management at meetings and as required at
other times.
The Audit Committee considers the performance
and independence of the external auditor over
the course of a reporting period. In selecting an
external auditor the Board seeks competence,
industry experience, integrity and independence.
In normal circumstances, appointment of the
external auditor will typically continue for a
significant number of years. Rotation of external
audit engagement partners occurs in accordance
with the rotation requirements of the Corporations
Act 2001.
A significant change for the Company was the
appointment by the AGM in November 2013 of
KPMG as auditors of the Company, its subsidiary,
the registered managed investment schemes and
the Superannuation Fund .
Principle 5–Make timely and
balanced disclosure
The Company has written policies and
procedures designed to ensure compliance with
the ASX Listing Rule disclosure requirements
and accountability at senior executive level
for compliance. The disclosure policy appears
in the corporate governance section on the
Company’s website.
32
The CEO and risk management officer certify
to the Board that its internal control and risk
management systems are operating efficiently and
effectively throughout the group.
CEO and CFO sign-off of financial reports
The Company requires the CEO and the CFO
to state in writing to the Board that the financial
reports present a true and fair view, in all material
respects, of the Company’s financial condition
and operating results and are in accordance with
relevant accounting standards.
The CEO and CFO certify to the Board that the
integrity of the financial statements is founded
on a sound system of risk management and
internal control, and that the system is operating
effectively in all material respects in relation to
financial reporting risks.
Principle 8–Remunerate fairly
and responsibly
People, Remuneration and
Nominations Committee
The Board has a People, Remuneration and
Nominations Committee. Details of attendance
at meetings of the committee are provided in the
directors’ report. A summary of the Committee’s
Charter is available in the corporate governance
section of the Company’s website.
Details of remuneration
Details of remuneration paid to directors and
key management personnel during the reporting
period are set out in the directors’ report. The
report distinguishes the structure of non executive
director remuneration and that of executive
directors. Non executive directors receive fees for
serving as a director in the form of cash payments,
plus superannuation contributions. They do not
participate in bonus or equity schemes designed
for the remuneration of executives.
Principle 6–Respect the rights
of shareholders
The Company does not have a separately
documented policy for shareholder
communication. To address shareholder needs:
•
•
the website includes comprehensive
and informative sections which provide
shareholders (and others) with up-to-date
information about corporate activities,
including Company announcements;
the website also provides shareholders with
guidance on a range of issues concerning the
management of their shareholdings;
• a facility is available to shareholders to be
advised via e-mail when announcements
are made;
•
the Company has a regular sequence of
communication points with investors and
members including a newsletter, Good Money,
for trust and superannuation investors;
• since listing the Company has also produced a
shareholder newsletter;
•
•
the Board recently resolved to hold AGM’s in
various locations to promote participation and
dissemination of information to all shareholders
not just those based in Canberra;
the Company also produces a sustainability
report using Global Reporting Initiative
guidelines. The sustainability report is available
on the Company’s website; and
•
the Company complies with the corporate
governance guidelines for notices of meeting.
Principle 7–Recognise and
manage risk
Policies for the oversight and management
of material business risks and
internal controls
The Company has established policies for the
oversight and management of material business
risks. The Company’s risk management guide is
available from the corporate governance section
of its website.
The Board has required management to
implement a risk management system consistent
with the Company’s risk management guide. The
Board has required management to report to
it on whether material business risks are being
appropriately managed. During the relevant
period, management has reported to the Board’s
Audit, Compliance and Risk Committee.
1800 021 227 | australianethical.com.au 33
australianethical Auditor’s Independence
Declaration
34
Financial Statements
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Consolidated statement of financial position
as at 30 June 2013
Notes
8
9
10
14
11
21
12
13
10
14
15
16
17
15
16
17
Consolidated entity
30 June
2013
$
3,894,666
2,474,109
107,150
-
220,039
2,519,599
30 June
2012
$
2,309,587
1,715,999
350,412
19,156
173,598
-
9,215,563
4,568,752
620,110
94,573
-
348,165
3,621,747
17,746
33,757
396,685
1,062,848
4,069,935
10,278,411
8,638,687
1,936,805
409,094
259,298
1,512,720
-
283,589
2,605,197
1,796,309
253,632
30,896
92,061
25,453
35,087
74,117
376,589
134,657
2,981,786
1,930,966
7,296,625
6,707,721
18
19
20
6,278,225
349,328
669,072
6,038,301
302,071
367,349
7,296,625
6,707,721
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets
Current tax assets
Other current assets
Assets classified as held for sale
Total current assets
Non-current assets
Property, plant & equipment
Intangible assets
Financial assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Short-term provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Other long-term provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
The accompanying notes form part of these Financial Statements.
1800 021 227 | australianethical.com.au 35
26
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Consolidated statement of profit or loss and other comprehensive income
for the year ended 30 June 2013
Revenue
Commissions paid to advisers
External services expense
Employee benefits expense
Depreciation and amortisation expense
Occupancy expenses
Marketing & Communication costs
Fund related expenses
Other expenses
Loss on disposal of assets
Impairment of available-for-sale securities
Impairment of property, plant and equipment
10
12
Community grants expense
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Net gain/(loss) on revaluation of available-sale-investments, net of tax
Reclassification adjustments relating to available-for-sale financial assets
disposed of during the year, net of tax
Reclassification adjustments relating to available-for-sale financial assets
impaired during the year, net of income tax
Total items that may be reclassified subsequently to profit or loss
Consolidated entity
30 June
2013
$
30 June
2012
$
4
16,378,387
14,792,790
-
( 146,750)
( 3,183,776)
( 3,469,806)
( 6,626,560)
( 6,753,962)
( 392,436)
( 426,395)
( 435,937)
( 276,680)
( 643,932)
( 729,448)
( 1,329,929)
( 867,646)
( 1,095,943)
( 1,118,285)
( 63,308)
( 17,865)
( 116,811)
-
( 436,000)
( 210,000)
( 117,291)
( 53,327)
1,936,464
722,626
5
( 873,427)
( 320,471)
1,063,037
402,155
( 1,259)
( 50,172)
5,924
116,811
121,476
-
-
( 50,172)
Other comprehensive income/(loss) for the year, net of tax
121,476
( 50,172)
Total comprehensive income for the year
Profit attributable to members of the parent entity
1,184,513
351,983
1,063,037
402,155
Total comprehensive income attributable to members of the parent entity
1,184,513
351,983
Earnings per share
Basic (cents per share),
Diluted (cents per share)
The accompanying notes form part of these Financial Statements.
7
7
104.84
102.37
40.10
39.40
27
36
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Consolidated statement of changes in equity
for the year ended 30 June 2013
Consolidated entity
Balance at 1 July 2011
Profit attributable to members of the consolidated entity
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Shares Issued during the year
Dividends paid or provided for
Transfer from share-based payment reserve to retained earnings
Share-based payment expense
Note
Issued
Capital Revaluation
Reserve
$
Asset Share-based
Payment
Reserve
$
Ordinary
$
5,915,219
-
-
-
(67,257)
-
(50,172)
(50,172)
1,199,161
-
-
-
Retained
Earnings
$
581,689
402,155
-
402,155
Total
$
7,628,812
402,155
(50,172)
351,983
18
6
123,082
-
-
-
-
-
-
-
(123,082)
-
(888,057)
231,478
-
(1,504,552)
888,057
-
-
(1,504,552)
-
231,478
Balance at 30 June 2012
6,038,301
(117,429)
419,500
367,349
6,707,721
Balance at 1 July 2012
Profit attributable to members of the consolidated entity
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Shares Issued during the year
Dividends paid or provided for
Share-based payment expense
6,038,301
(117,429)
419,500
-
-
-
-
121,476
121,476
-
-
-
367,349
1,063,037
-
1,063,037
6,707,721
1,063,037
121,476
1,184,513
18
6
239,924
-
-
-
-
-
(239,924)
-
165,705
-
(761,314)
-
-
(761,314)
165,705
Balance at 30 June 2013
6,278,225
4,047
345,281
669,072
7,296,625
The accompanying notes form part of these Financial Statements.
28
1800 021 227 | australianethical.com.au 37
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Consolidated statement of cash flows
for the year ended 30 June 2013
Cash flows from operating activities
Receipts from operations
Payment to suppliers & employees
Interest/distributions received
Income tax paid
Community grants paid
Consolidated entity
30 June
2013
$
30 June
2012
$
16,046,911
(13,455,797)
93,699
(452,908)
(53,325)
15,869,290
( 13,896,620)
95,589
( 550,692)
( 152,801)
Net cash provided by operating activities
24(b)
2,178,580
1,364,766
Cash flows from investing activities
Purchase of property, plant & equipment
Reimbursement for the purchase of property, plant & equipment
Proceeds from sale of investments
Purchase of investments
Purchase of intangibles
Proceeds from loan repayments
(335,997)
320,601
230,645
-
(99,550)
52,114
( 201,218)
-
100,306
( 33,564)
-
29,160
Net cash provided by/(used in) investing activities
167,813
( 105,316)
Cash flows from financing activities
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash held
Cash at 1 July 2012
Cash at 30 June 2013
( 761,314)
( 1,504,552)
( 761,314)
( 1,504,552)
1,585,079
( 245,102)
2,309,587
2,554,689
24(a)
3,894,666
2,309,587
The accompanying notes form part of these Financial Statements.
29
38
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 1 - Reporting entity
Australian Ethical Investment Limited (the 'Company') is a company domiciled in Australia. The
consolidated financial report of the Company as at and for the year ended 30 June 2013 comprises the
Company and its wholly owned subsidiary, Australian Ethical Superannuation Pty Limited (together
referred to as the 'Group' and individually as 'Group entities'). The Group is a for-profit entity for the
purposes of preparing financial statements. Australian Ethical Investment Limited is the Responsible
Entity (RE) for a range of ethically managed investment schemes. Australian Ethical Superannuation Pty
Limited is the Registrable Superannuation Entity (RSE) of Australian Ethical Retail Superannuation Fund.
The consolidated annual report for the consolidated entity as of and for the year ended 30 June 2013 is
available at www.australianethical.com.au.
The consolidated financial statements were authorised for issue by the directors on 29 August 2013.
Note 2 - Statement of significant accounting policies
i) Statement of compliance
These consolidated financial statements are general purpose financial statements which have been
prepared in accordance with Australian Accounting Standards (AASB's) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act 2001 . The consolidated financial
statements comply with International Financial Reporting Standards (IFRS) as adopted by the
International Accounting Standards Board (IASB).
ii) Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis, except for the
property and financial instruments which are measured at fair value or amortised cost, as explained in
the accounting policies below.
The consolidated financial statements are presented in Australian dollars, which is the Group's functional
currency.
The following is a summary of the material accounting policies adopted by the consolidated entity in the
preparation of the financial statements. The accounting policies have been consistently applied, unless
otherwise stated.
iii) Business combinations
Subsidiaries are entities controlled by the consolidated entity. Control exists when the consolidated entity
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights presently exercisable are taken into account.
Financial statements of subsidiaries are included in the consolidated financial statements from the date
of control commences until the date control ceases.
All intra-group balances and transactions between entities in the consolidated entity, including any
unrealised income and expenses, have been eliminated on consolidation.
iv) Income tax
a) Current income tax expense
The charge for current income tax expenses is based on the profit for the year adjusted for any non-
assessable or disallowed items and any adjustment to tax payable in respect to previous years. It is
calculated using tax rates that have been enacted or are substantively enacted by the reporting date.
30
30
1800 021 227 | australianethical.com.au 39
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
iv) Income tax (continued)
b) Deferred tax asset
Deferred tax is accounted for using the statement of financial position liability method in respect of
temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the financial statements. No deferred income tax will be recognised from the initial recognition of an
asset or liability, excluding a business combination, where there is no effect on accounting or taxable
profit or loss.
Deferred tax is calculated at the tax rates that are expected to be applied to the temporary differences
when they reverse. Deferred tax is credited in the consolidated statement of profit or loss and other
comprehensive income except where it relates to items that may be credited directly to equity, in which
case the deferred tax is adjusted directly against equity.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will
be available against which temporary differences can be utilised.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be
available against which temporary differences can be utilised. Deferred tax assets are reviewed at each
balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as
the liability to pay the related dividend is recognised.
c) Tax group
Australian Ethical Investment Limited and its wholly owned entity Australian Ethical Superannuation Pty
Limited have formed an income tax consolidated group under the Tax Consolidation System. Australian
Limited have formed an income tax consolidated group under the Tax Consolidation System. Australian
Ethical Investment Limited is responsible for recognising the current and deferred tax assets and
liabilities for the tax consolidated group.
The tax consolidated group has a tax sharing agreement whereby each company in the Group
contributes to the income tax payable in proportion to their contribution to the net profit before tax of the
tax consolidated group.
Under the tax sharing agreement Australian Ethical Superannuation Pty Limited agrees to pay its share
of the income tax payable to Australian Ethical Investment Limited on the same day that Australian
Ethical Investment Limited pays the ATO for group tax liabilities.
31
31
40
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
v) Property, plant and equipment
a) Recognition and measurement
Property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses (see accounting policy (vii(f)).
Cost includes expenditures that are directly attributable to the acquisition of the asset. Cost of self-
constructed assets includes cost of materials, direct labour, an appropriate proportion of overheads, and
where relevant, the initial estimates of the costs of dismantling and removing the items and restoring the
site on which they are located. Purchased software that is integral to the functionality of the related
equipment is capitalised as part of that equipment.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing
the proceeds from disposal with the carrying amount of property, plant and equipment. When revalued
assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.
b) Subsequent costs
The consolidated entity recognises the cost of replacing part of an item of property, plant and equipment
in the carrying amount of that item when the cost is incurred, it is probable that future economic benefits
embodied within the item will flow to the consolidated entity and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit
or loss as an expense when incurred.
c) Impairment of tangible assets
At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to
At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any).
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects the current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately
in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been recognised for the
asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
32
32
1800 021 227 | australianethical.com.au 41
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
v) Property, plant and equipment (continued)
d) Depreciation
The depreciable amount of all fixed assets including buildings, is depreciated over their estimated useful
lives on a straight-line basis to the consolidated entity commencing from the time the asset is held ready
for use. Leasehold improvements are depreciated over the period of the lease or estimated useful life,
whichever is the shorter, using the straight line method.
The estimated useful lives for current and comparative periods are as follows:
Class of fixed asset Estimated Useful Life
Buildings
Plant & Equipment
5 - 40 years
2.6 - 10 years
The assetsʼ residual values and useful lives are reviewed, and adjusted if appropriate, annually.
e) Intangible assets
The development of the Group's website has been capitalised as an intangible asset and carried at cost
less accumulated amortisation and accumulated impairment losses. Additional developments were
made to the website during the year ended 2013. Amortisation is recognised on a straight-line basis over
the estimated useful life of two and a half years. The estimated useful life and amortisation method are
reviewed at the end of each annual reporting period, with the effect of any changes in estimates being
accounted for on a prospective basis.
vi) Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits held at call with banks.
vii) Financial instruments
vii) Financial instruments
a) Recognition
The Group initially recognises loans and receivables, trade and other payables at fair value on the date
that they are originated. All other financial instruments are initially recognised on trade date, which is the
date the Group becomes party to the contractual rights or obligations. Subsequent to initial recognition
these instruments are measured as set out below.
b) Available-for-sale financial assets
The Group holds available-for-sale financial assets, which are financial assets not classified as assets
held at fair value through profit or loss, loans and receivables or held-to-maturity investments. Available-
for-sale financial assets are initially recognised at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition they are measured at fair value other than impairment losses and
are recognised in other comprehensive income and presented in the Asset Revaluation Reserve in
equity.
c) Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payables that are not
quoted in an active market are classified as 'loans and receivables' subsequent to initial recognition.
Loans and receivables are measured at amortised cost using the effective interest method, less any
impairment. Interest income is recognised by applying the effective interest rate, except for short-term
receivables when the effect of discounting is immaterial.
33
33
42
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
vii) Financial instruments (continued)
d) Fair value
Fair value is determined based on current bid prices for all quoted investments. Investments in unlisted
unit trusts are valued at the redemption price as reported by the fund's responsible entity.
e) Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees on points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through the
expected life of the financial asset, or, where appropriate, a shorter period.
f) Impairment
At each reporting date, the Group assesses whether there is objective evidence that a financial
instrument has been impaired. In the case of available-for sale financial instruments, a significant or
prolonged decline in the value of the instrument is considered to determine whether an impairment has
arisen. Impairment losses are recognised in the consolidated statement of profit or loss and other
comprehensive income.
viii) Other Financial liabilities
Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair
value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest
method, with interest expense recognised on an effective yield basis.
ix) Employee benefits
ix) Employee benefits
a) Wages, salaries, annual leave, sick leave and non-monetary benefits
Liability for employee benefits for wages, salaries and annual leave expected to be settled within 12
months of the reporting date represent present obligations resulting from employees' services provided to
the reporting date. These liabilities are calculated at undiscounted amounts based on wage and salary
rates that the consolidated entity expects to pay as at the reporting date including related on-costs, such
as workers compensation insurance and payroll tax.
Non-accumulating benefits, such as sick leave, are not provided for but are expensed as the benefits are
taken by the employees.
Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised
goods and services are expensed based on the net marginal cost to the consolidated entity as the
benefits are taken by the employees.
A provision is recognised for the amount expected to be paid under short-term bonus or profit-sharing
plans if the consolidated entity has a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee.
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1800 021 227 | australianethical.com.au 43
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
ix) Employee benefits (continued)
b) Long service leave
The liability for long service leave is recognised in the provision for employee benefits and expected
future payments are discounted based on period of service.
c) Share-based payment transactions
The grant-date fair value of share-based payment awards granted to employees is recognised as an
employee expense, with a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the awards.
The amount recognised as an expense is adjusted to reflect the number of awards for which the related
service and non-market performance conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that meet the related service and non-
market performance conditions at the vesting date.
For share-based payments with non-vesting conditions, the grant-date fair value of the share-based
payment is measured to reflect such conditions and there is no true-up for differences between expected
and actual outcomes.
d) Employee bonus
The Group recognises a liability and an expense for bonuses and profit-sharing based on a formula that
takes into consideration the profit attributable to the Group's shareholders after certain adjustments. The
Group recognises a provision where contractually obliged or where there is a past practice that has
created a constructive obligation.
x) Community grants expense
The Companyʼs Constitution states that the directors before recommending or declaring any dividend to
The Companyʼs Constitution states that the directors before recommending or declaring any dividend to
be paid out of the profits of any one year must have first:-
(i) paid or provisioned for payment to current employees, or other persons performing work for the
Group, a work related bonus or incentive payment, set at the discretion of the directors, but to be no
more than 30 percent (30%) of what the profit for that year would have been had not the bonus or
incentive payment been deducted.
(ii) gifted or provisioned for gifting an amount equivalent to ten percent (10%) of what the profit for
that year would have been had not the above mentioned bonus and amount gifted been deducted.
Provision for community grants expense has been made in the current year.
xi) Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of a past
event, for which it is probable that an outflow of economic benefits will result and that outflow can be
reliably measured.
35
35
44
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
xii) Revenue and income recognition
a) Revenue from the provision of services
Revenue is earned from provision of services to customers outside the consolidated entity. Revenue is
recognised when services are provided.
b) Investment income
Interest income is recognised as it accrues taking into account the effective yield of the financial asset.
Dividend income is recognised in profit or loss on the date the entity's right to receive payment is
established which, in the case of quoted securities, is the ex-dividend date.
Unit trust distributions are recognised in profit or loss as they are received.
c) Proceeds from sale of investments
Net gains or losses on disposal of non-current assets are included in profit or loss. The gain or loss
arising from disposal of an item of property, plant and equipment is determined as the difference
between net disposal proceeds, being the cash price equivalent where payment is deferred, and the
carrying amount of the item.
Profit or loss on disposal of assets is brought to account at the date of an unconditional contract of sale is
signed.
xiii) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of
GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is
recognised as part of the cost of acquisition of the asset or as part of an item of the expense.
Receivables and payables in the statement of financial position are shown inclusive of GST.
Receivables and payables in the statement of financial position are shown inclusive of GST.
Cash flows are presented in the statement of cash flows on a gross basis, except for the GST
component of investing and financing activities, which are disclosed as operating cash flows.
All revenue is stated net of the amount of goods and services tax (GST).
xiv) Earnings per share
The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares.
a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company,
by the weighted average number of ordinary shares outstanding during the financial year.
b) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to
take into account the after income tax effect of the interest and other financing costs associated with
dilutive potential ordinary shares and the weighted average number of shares assumed to have been
issued for no consideration in relation to dilutive potential ordinary shares.
36
36
1800 021 227 | australianethical.com.au 45
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
xv) Leases
For the current and prior financial year only operating leases have been held by the Group. Operating
lease payments are recognised as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed. Contingent rentals arising under operating leases are recognised as an
expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed.
xvi) Segment reporting
The consolidated entity determines and represents operating segments based on the information that
internally is provided to the Managing Director (MD), who is the consolidated entity's chief operating
decision maker.
An operating segments is a component of the consolidated entity that engages in business activities from
which it may earn revenues and incur expenses, including revenues and expenses that relate to
transactions with any of the consolidated entity's other components. All operating segments' operating
results are regularly reviewed by the consolidated entity's MD to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is
available.
Segment results are reported to the MD including items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets,
head office expenses, and income tax expenses, assets and liabilities.
head office expenses, and income tax expenses, assets and liabilities.
xvii) Comparative figures
Where required comparative figures have been adjusted to conform with changes in presentation for the
current financial year.
xviii) Critical accounting estimates and judgements
The preparation of the consolidated financial statements in conformity with IFRS requires management
to make judgements, estimates and assumptions that affect the application of accounting policies and
the reported amount of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimates are revised and in
any future period affected.
Information about significant areas of estimation, uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the consolidated
financial statements is discussed in:
Note 10 - Valuation of financial instruments
Note 12 - Valuation of property, plant and equipment
Note 16 - Recoverability of deferred tax assets
Note 17 - Provisions
Note 26 - Recognition and measurement of share based payments
37
37
46
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
xix) Application of new and revised accounting standards
a) Standards and interpretations affecting amounts reported in the current period
The following new and revised Standards and Interpretations have been adopted in the current year and
have affected the amounts reported in these financial statements.
Standards affecting presentation and disclosure
Amendments to AASB 101 'Presentation of Financial Statements:
The amendments to AASB 101 require items of other comprehensive income to be grouped into two
categories in the other comprehensive income section: (a) items that will not be reclassified
subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when
specific conditions are met. Income tax on items of other comprehensive income is required to be
allocated on the same basis - the amendments do not change the option to present items of other
comprehensive income either before tax or net of tax. The amendments have been applied
retrospectively, and hence the presentation of items of other comprehensive income has been modified
to reflect the changes. Other than the above mentioned presentation changes, the application of the
amendments to AASB 101 does not result in any impact on profit or loss, other comprehensive income
and total comprehensive income.
Standards and interpretations affecting the reported results or financial position
There are no new and revised Standards and Interpretations adopted in these financial statements
affecting the reporting results or financial position.
3838
1800 021 227 | australianethical.com.au 47
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 2 - Statement of significant accounting policies (continued)
xix) Application of new and revised accounting standards (continued)
b) Standards and interpretations in issue not yet adopted
A number of new accounting standards and amendments have been issued but are not yet effective. The
Australian Ethical Group has not elected to early adopt any of these new standards or amendments in this
Financial report. The impact on the financial position or performance of the Australian Ethical Group of these
new standards and amendments is currently being assessed by management.
Standard/Interpretation
AASB 9 ʻFinancial Instrumentsʼ, and the relevant
amending standards
AASB 10 'Consolidated Financial Statements' and AASB
2011-7 'Amendments to Australian Accounting Standards
arising from the consolidation and Joint Arrangements
standards'
AASB 12 'Disclosure of Interests in Other Entities' and
AASB 2011-7 'Amendments to Australian Accounting
Standards arising from the consolidation and Joint
Arrangements standards
AASB 127 'Separate Financial Statements (2011) and
AASB 2011-7 'Amendments to Australian Accounting
Standards arising from the consolidation and Joint
Arrangements standards'
AASB 13 'Fair Value Measurement' and AASB 2011-8
'Amendments to Australian Accounting Standards arising
from AASB 13.
AASB 119 'Employee Benefits' (2011) and AASB 2011-
10 'Amendments to Australian Accounting Standards
arising from AASB 119 (2011)'
AASB 2011-4 'Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements'
AASB 2012-2 'Amendments to Australian Accounting
Standards - Disclosures - Offsetting Financial Assets and
Financial Liabilities
AASB 2012-3 'Amendments to Australian Accounting
Standards - Offsetting Financial Assets and Financial
Liabilities
AASB 2012-5 'Amendments to Australian Accounting
Standards arising from Annual Improvements 2009-2011
Cycle'
Effective for annual
reporting periods
beginning on or after
Expected to be initially
applied in the financial
year ending
1 January 2015
30 June 2016
1 January 2013
30 June 2014
1 January 2013
30 June 2014
1 January 2013
30 June 2014
1 January 2013
30 June 2014
1 January 2013
30 June 2014
1 July 2013
30 June 2014
1 January 2013
30 June 2014
1 January 2014
30 June 2015
1 January 2013
30 June 2014
39
48
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 3 - Auditors' remuneration
Remuneration of the auditors for:
Audit services
Auditors of the Group
KPMG Australia
- Audit and review of consolidated and subsidiary financial statements
- Audit services in accordance with regulatory requirements
Audit services for non-consolidated trusts and superannuation fund:
KPMG Australia
- Audit and review of managed funds for which the consolidated entity acts as responsible entity1
- Audit and review of superannuation fund for which the subsidiary entity acts as responsible
superannuation entity1
- Audit services in accordance with regulatory requirements1
Total audit fee attributable to the audit of non-consolidated funds
Non-audit services
Auditors of the Group
- Tax and other accounting advice
Total
Consolidated entity
2013
$
2012
$
31,000
35,000
39,900
-
88,000
126,400
15,000
16,000
119,000
26,500
9,700
162,600
87,956
272,956
4,000
206,500
In October 2012 the Board approved the appointment of KPMG Australia as the auditor of Australian Ethical Investment Limited and controlled entity
(2012: Thomas Davis & Co).
1 These fees are incurred by the consolidated entity and are effectively recovered from the funds via management fees.
Other audit firms
NetBalance (Audit of the Sustainability Report)
Note 4 - Revenue
Operating activities
- Management & Trustee fees (net of rebates)
- Entry fees paid on products
- Member & Withdrawal Fees
- Reimbursed expenses from Trusts and superannuation fund
- Interest income
Cash and cash equivalents
Loans and receivables at amortised cost
- Distributions received
- Other revenue
Total revenue
16,623
18,311
11,386,962
-
1,348,303
3,419,530
86,927
2,491
-
134,174
16,378,387
10,088,675
1,010,122
775,276
2,668,095
79,524
6,325
7,164
157,609
14,792,790
40
1800 021 227 | australianethical.com.au 49
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 5 - Income tax expense
a) The components of tax expense comprise:
- Current tax
- Deferred tax expense/(benefit)
b) Reconciliation of income tax expenses to prima facie income tax payable
Profit Before Tax
Prima facie income tax expense calculated at 30% (2012: 30%)
Increase in income tax expense due to:
- Other non-deductible items
- Share based payment expense
- Under/(over) provision for income tax in prior year
- Effect of unrecognised non-deductible permanent differences
- Impairment loss on AFS securities
Decrease in income tax expense due to:
- Franking and foreign tax credits
Income tax expense attributable to profit for the year
Consolidated entity
2013
$
2012
$
$
824,368
49,059
873,427
87,992
232,479
320,471
1,936,464
722,626
580,939
216,788
25,476
53,837
( 15,668)
193,800
35,043
34,241
69,443
943
-
-
-
( 944 )
873,427
320,471
The applicable weighted average effective tax rates are as follows:
45%
44%
c) Current tax asset/(liability)
Deferred tax
Available-for-sale revaluation
Total income tax recognised directly in equity
539
539
21,502
21,502
The current tax asset/(liability) for the consolidated entity represents income taxes payable in respect of the current financial year. In accordance with
tax consolidation legislation, the Company, as head entity of the Australian tax-consolidated group, has assumed the current tax asset/(liability)
recognised by members in the tax consolidated group.
41
50
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 6 - Dividends
(a) Dividends paid
2013
Final 2012 ordinary
Interim 2013 ordinary
2012
Final 2011 ordinary
Special 2011 ordinary
Interim 2012 ordinary
Cents Per Share
Total Amount
35
40
75
100
25
25
150
355,280
406,034
761,314
1,003,036
250,758
250,758
1,504,552
Franked1/
UnFranked
Date of Payment
Franked
Franked
5 October 2012
28 March 2013
Franked
Franked
Franked
7 October 2011
7 October 2011
30 March 2012
1 All franked dividends declared or paid during the year were franked at a rate of 30 per cent and paid out of retained earnings.
(b) Subsequent Events
Since the end of the financial year, the directors declared the following dividend. The dividends have not been provided for and there are no tax
consequences.
Cents Per Share
Total Amount2
Franked1/
UnFranked Date of Payment3
Final 2013 ordinary
45
460,416
Franked
4 October 2013
1 All franked dividends declared or paid during the year were franked at a rate of 30 per cent and paid out of retained earnings.
2 Calculation based on the ordinary shares on issue as at 30 June 2013.
3 Planned payment date.
Note 7 - Earnings per share
Earnings per share
Basic earnings per share
Diluted earnings per share
2013
Cents per share
104.84
102.37
2012
40.10
39.40
The following reflects the income and share information used in calculating the basic and diluted earnings per share:
Net profit after tax
Weighted average number of ordinary shares used in calculation of basic EPS
Weighted average number of rights outstanding
Weighted average number of ordinary shares used in calculation of dilutive EPS
2013
$
1,063,037
1,013,963
24,435
1,038,398
2012
$
402,155
1,001,859
18,751
1,020,610
42
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australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 8 - Cash and cash equivalents
Cash on hand
Bank balances
Deposits at call
Consolidated entity
2013
$
300
1,310,004
2,584,362
3,894,666
2012
$
300
185,773
2,123,514
2,309,587
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Deposits at call is money invested in high interest bank account. Interest is calculated daily based on daily bank deposit rates
Note 9 - Trade and other receivables
Trade receivables
Other receivables
The average credit period is 30 days.
This note should be read in conjunction with Note 28(iii).
Note 10 - Financial assets
$
2,474,109
-
2,474,109
1,711,718
4,281
1,715,999
Assets and liabilities held for sale at 30 June 2013 comprise listed securities held to support the advocacy activities of the Advocacy Fund.
Available-for-sale financial assets carried at fair value
Loans carried at amortised cost
Current
Non-current
107,150
-
107,150
107,150
-
107,150
332,055
52,114
384,169
350,412
33,757
384,169
An impairment loss of $116,811 (2012: nil) has been recognised in the statement of profit or loss and other comprehensive income as a result of
significant and prolonged decline in the fair value relative to the cost of acquisition.
a) Available-for-sale financial assets comprise:
- Listed equity securities at fair value
- Unlisted units in unit trust at fair value
a) Loans comprise:
- Loans to other entity, at amortised cost
- Loans to staff, at amortised cost (refer to Note 26(d))
107,150
-
107,150
-
-
-
108,947
223,108
332,055
44,659
7,455
52,114
The loans to other entity was provided to an unrelated entity with a fixed interest rate of 9.0% and a maturity date of 1 August 2015. This loan was
fully repaid during the year.
Loans to staff was provided to one staff member with the Fringe Benefits Tax interest rate set by the ATO. The loan was fully repaid on 17
December 2012.
43
52
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Consolidated entity
Note 11 - Other current assets
Other current assets
Prepayments
Note 12 - Property, plant and equipment
Land and buildings
Leasehold land - At cost
Leasehold improvements - at cost
Accumulated depreciation
Buildings - at cost
Accumulated depreciation
Impairment loss2
Total land and buildings
Plant and equipment - at cost
Accumulated depreciation
Total plant and equipment
Total property, plant and equipment
Movements in carrying amounts
Land
Balance at the beginning of year
Reclassified as held for sale
Carrying amount at the end of year
Leasehold improvements
Balance at the beginning of year
Additions
Depreciation expense
Reclassified as held for sale
Carrying amount at the end of year
Buildings
Balance at the beginning of year
Depreciation expense
Impairment loss1
Reclassified as held for sale
Carrying amount at the end of year
2013
$
40,675
179,364
220,039
-
-
320,601
( 6,632)
313,969
-
-
-
-
2012
$
$
1,442
172,156
173,598
230,000
230,000
1,151,025
( 417,791)
733,234
2,784,117
( 440,241)
( 210,000)
2,133,876
313,969
3,097,109
1,619,935
( 1,313,794)
306,141
774,313
( 249,675)
524,638
620,110
3,621,747
230,000
( 230,000)
-
733,233
320,601
( 67,550)
( 672,315)
313,969
2,133,876
( 80,592)
( 436,000)
( 1,617,284)
-
230,000
-
230,000
810,581
-
( 77,349)
-
733,232
2,415,475
( 71,599)
( 210,000)
-
2,133,876
1 As at 30 June 2013 a valuation of the Property asset (land and buildings) was conducted in accordance with the Group's policy by Jones Lang
LaSalle and Knight Frank, independent valuers not related to the Group, to determine the fair value. Based on advice received from independent
valuers the directors determined that the value of the property was below its carrying value and have noted an impairment of $436,000. Valuers
Jones Lang LaSalle and Knight Frank are both members of the Institute of Valuers of Australia. The valuation was determined by reference to recent
market transactions on arm's length terms. Estimated selling costs of $80,401 including selling agents commission and associated legal costs were
deducted from the independent valuation to determine the carrying value.
2 As at 30 June 2012 a valuation of the Property asset (land and buildings) was conducted in accordance with the Group's policy by Jones Lang
LaSalle and Knight Frank, independent valuers not related to the Group, to determine the fair value. Based on advice received from independent
valuers the directors determined that the value of the property was below its carrying value and have noted an impairment of $210,000. Valuers
Jones Lang LaSalle and Knight Frank are both members of the Institute of Valuers of Australia. The valuation was determined by reference to recent
market transactions on arm's length terms. Estimated selling costs of $54,250 including selling agents commission and associated legal costs were
deducted from the independent valuation to determine the carrying value.
44
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australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 12 - Property, plant and equipment (continued)
Plant and equipment
Balance at the beginning of year
Additions
Disposals
Depreciation expense
Carrying amount at the end of year
Total
Note 13 - Intangible Assets
Capitalised Website development - at cost
Accumulated amortisation
Total intangibles
Capitalised Website development
Balance at the beginning of year
Additions
Disposals
Amortisation expense
Carrying amount at the end of year
Note 14 - Tax assets
Current tax assets
Tax refund receivable due to income tax overpayment
Deferred tax assets
The balance comprises temporary differences
attributable to:
Amounts recognised in profit or loss
Employee benefits
Community grants
Loss on sale of financial instrument
Building impairment
Audit fees
Amounts recognised directly in equity
Financial asset revaluations
Movements
Opening balance at 1 July
Credited/(charged) to the consolidated statement
of profit or loss and other comprehensive income
Credited/(charged) to equity
Closing balance at 30 June
Note 15 - Trade and other payables
a) Current
Trade payables
Unearned income
Sundry payables and accrued expenses
Employee bonus payable
b) Non-current
Unearned income
Consolidated entity
2013
$
2012
$
524,638
15,396
( 6,284)
( 227,609)
306,141
584,691
193,588
( 3,966)
( 249,675)
524,638
620,110
3,621,747
99,550
( 4,977)
94,573
17,746
99,550
( 6,038)
( 16,685)
94,573
69,560
( 51,814)
17,746
45,355
7,630
( 7,467)
( 27,772)
17,746
-
-
19,156
19,156
276,897
35,187
17,225
-
18,856
348,165
-
348,165
252,295
15,998
1,930
63,000
13,136
346,359
50,326
396,685
396,685
607,503
( 49,059)
539
348,165
( 232,320)
21,502
396,685
242,676
80,155
1,547,048
66,926
1,936,805
243,197
15,750
1,154,430
99,343
1,512,720
253,632
25,453
45
54
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 16 - Tax liabilities
Current tax liabilities
Income tax payable
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Stamp duty on leasehold property
Tax deferred income
Movements
Opening balance at 1 July
Credited/(charged) to the consolidated statement
of profit or loss and other comprehensive income
Credited/(charged) to equity
Closing balance at 30 June
Note 17 - Provisions
Current
Employee benefits - long service leave
Onerous lease provision (see below)
Non-Current
Employee benefits - long service leave
Onerous lease provision
Balance at 1 July
Additional provisions recognised
Balance at 30 June
Consolidated entity
2013
$
409,094
409,094
2012
$
-
-
30,896
-
30,896
30,896
4,191
35,087
35,087
34,926
( 4,191)
30,896
214,803
44,495
259,298
92,061
92,061
-
44,495
44,495
161
-
35,087
283,589
-
283,589
74,117
74,117
-
-
-
The provision for onerous lease contracts represents the present value of the future lease payments that the Consolidated entity is presently
obligated to make under non-cancellable onerous operating lease contracts, less revenue expected to be earned on the lease, including
estimated future sub-lease revenue, where applicable. The unexpired term of the lease is 2 years.
Note 18 - Contributed equity
Share Capital: 1,015,086 (2012 1,003,035) ordinary shares
i) Movements in Share Capital
2013
$
6,278,225
2012
$
6,038,301
2013
2012
Balance at the beginning of the year
Shares issued:
Employee share ownership plan
Number of Shares
1,003,035
$
6,038,301
Number of Shares
997,913
$
5,915,219
12,051
239,924
5,122
123,082
Balance at end of year
1,015,086
6,278,225
1,003,035
6,038,301
At 30 June 2013 there were 1,015,086 fully paid ordinary shares which have no par value. The Company does not have authorised capital or par
value in respect of its issued shares.
46
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australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 18 - Contributed equity (continued)
ii) Rights
(a) For detailed information relating to the Australian Ethical Investment Limited employee share ownership plan, including details of rights issued,
exercised and lapsed during the financial year and the rights outstanding at year-end, refer to Note 27 Share-based payments.
(b) For information related to rights issued to key management personnel during the financial year refer to the remuneration report contained
within the Directors' report.
iii) Ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At the
shareholders meeting each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of
hands.
iv) Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from 2012.
The capital structure of the Group consists of equity of the Group (comprising issued capital, reserves, and retained earnings).
Management effectively manages the Group's capital by assessing the Group's financial risks and adjusting its capital structure in response to
changes in these risks and in the market. These responses include the management of distributions to shareholders and share issues. The Group
has external capital requirements and at all times during the year the Group has met all externally imposed capital requirements. Further details
on the external capital requirements are contained in Note 28(v)(b).
Note 19 - Reserves, net of tax
Consolidated entity
Asset revaluation reserve
Balance 1 July
Unrealised gains/ (losses) from revaluation
Cumulative unrealised loss reclassified to profit or loss on impairment of available-
for-sale financial assets
Cumulative unrealised loss reclassified to profit or loss on sale of available-for-
sale financial assets
Balance 30 June
Share-based payments reserve
Balance 1 July
Shares issued during the year
Share based payment expense
Transfer to retained earnings
Balance 30 June
Total Reserves
2013
$
( 117,429)
( 1,259)
116,811
5,924
4,047
419,500
( 239,924)
165,705
-
345,281
2012
$
$
( 67,257)
( 50,172)
-
-
( 117,429)
1,199,161
( 123,082)
231,478
( 888,057)
419,500
349,328
302,071
47
56
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 19 - Reserves (continued)
i) Nature and purpose of reserves
a) Asset revaluation reserve
The asset revaluation reserve represents the cumulative gains and loses arising on the revaluation of available-for-sale financial assets that have
been recognised in other comprehensive income, net of amounts reclassified to the consolidated statement of profit or loss and other comprehensive
income when those assets have been disposed of or are determined to be impaired.
b) Share-based payment reserve
The share-based payment reserve relates to rights granted by the Group to its employees under its share-based payment arrangement. Items
included in the share-based payment reserve will not be reclassified subsequently to profit or loss. Further information about share-based payments
to employees is set out in Note 27.
Note 20 - Retained earnings
Balance 1 July
Profit for the period
Transfer from share-based payment reserve
Dividends
Balance 30 June
Note 21 - Assets classified as held for sale
Land and buildings1
Consolidated entity
2013
$
367,349
1,063,037
-
(761,314)
669,072
2012
$
581,689
402,155
888,057
(1,504,552)
367,349
2,519,599
-
1 As at the balance sheet date, the consolidated entity intends to dispose of its property it currently occupies. A search is underway for a buyer,
with the Directors approving the sale program.
Note 22 - Commitments and contingencies
i) Leasing arrangements
Operating leases relate to leases of office premises for a term of 5 years. The Group does not have an option to purchase the premises at the expiry
of the lease period.
Payments recognised as an expense
Minimum lease payments
Non-cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Liabilities recognised in respect of non-cancellable operating leases
Lease incentives
Current
Non current
Consolidated entity
2013
$
2012
$
186,474
74,007
296,196
937,056
1,233,252
80,155
253,632
333,787
-
197,500
197,500
16,472
25,453
41,925
During the year, the Group entered into a five year lease for office premises in Sydney CBD. The lease terms allow for annual rent increases of
4.25% together with a market review in year three of the lease.
The existing leased premises which expire in January 2015 were sub-leased on 29 July 2013 to the end of the lease term.
ii) Guarantees
In entering into the operating lease, the Group has provided a guarantee for $221,733 over the rental of building premises.
iii) Other commitments
The Group has no other commitments.
48
1800 021 227 | australianethical.com.au 57
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 23 - Operating segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors and chief operating
decision makers in assessing performance and determining the allocation of resources.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 2. Segment profit represents the
profit before tax earned by each segment without allocation of central administration costs and directors' salaries, investment income, and finance costs.
This is the measure reported to the chief operating decision marker for the purposes of resource allocation and assessment of segment performance.
Reportable segments disclosed are:
1) public offer managed funds (managed funds); and
2) public offer retail superannuation fund (super)
i) Segment performance
Revenue
External revenue
Inter-segment revenue
Interest revenue
Distribution revenue
Total segment revenue
Inter-segment eliminations
Total Group revenue
30 June 2013
30 June 2012
Managed funds Super
Total
Managed funds Super
Total
$
$
$
$
$
$
6,027,500
6,004,825
75,258
-
12,107,583
10,261,469
-
14,160
-
10,275,629
16,288,969
6,004,825
89,418
-
22,383,212
(6,004,825)
16,378,387
5,781,860
6,403,976
77,065
7,164
12,270,065
8,917,917
-
8,784
-
8,926,701
14,699,777
6,403,976
85,849
7,164
21,196,766
(6,403,976)
14,792,790
Impairment on available-for-sale financial assets
Impairm ent on property plant and equipment
116,811
436,000
-
-
116,811
436,000
-
210,000
-
-
-
210,000
Segment net profit before tax
Reconciliation of segment result to
Group net profit/loss after tax
Income tax expense
Unallocated items
- Depreciation and amortisation
- Other corporate overheads *
Group net profit after tax
841,107
1,838,215
2,679,322
1,214,839
304,833
1,519,672
(321,758)
(551,669)
(873,427)
(229,015)
(91,456)
(320,471)
(392,436)
(350,422)
1,063,037
(426,395)
(370,651)
40 2,155
* Other corporate overheads includes staff bonus, community grants expense and staff options/rights expense.
ii) Segment assets and liabilities
Assets
Inter-segment eliminations
Total Group assets
Segment liabilities
Liabilities
Inte r-segment eliminations
Total Group liabilities
30 June 2013
30 June 2012
Managed funds Super
Total
Managed funds Super
Total
$
$
7,991,191
2,603,220
2,105,827
875,959
$
10,594,411
(316,000)
10,278,411
2,981,786
-
2,981,786
$
$
8,099,560
893,714
1,516,554
453,000
$
8,993,274
(354,587)
8,638,687
1,969,554
(38,588)
1,930,966
Economic dependence
The consolidated entity is dependent upon management fees received in its capacity as responsible entity of the Australian Ethical Trusts and as trustee
of the Australian Ethical Retail Superannuation Fund.
49
58
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Consolidated entity
2013
2012
$
$
$
Note 24 - Cash flow information
(a) Reconciliation of cash
Cash at the end of the financial year as shown in
the cash flow statement is reconciled to the
related items in the balance sheet as follows:
Cash on hand
Cash at bank
Deposits at call
(b) Reconciliation of cash flow from operations with net profit from ordinary activities after
income tax expense
Net profit from ordinary activities after income tax
expense
Non-cash flows in operating profit
Depreciation and amortisation
Loss on disposal of property, plant & equipment
Loss on sale of investment
Tax effect on sale of investments recognised in financing activities
Share rights expensed
Impairment loss
Recognition of unearned income
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables
(Increase)/decrease in other current assets
(Increase)/decrease in deferred tax assets
Increase/(decrease) in trade and other payables
Decrease in provisions
Increase/(decrease) in current tax liability
(Decrease)/increase in deferred tax liability
300
1,310,004
2,584,362
3,894,666
300
185,773
2,123,514
2,309,587
1,063,037
402,155
392,436
12,322
50,985
( 52,060)
165,705
552,811
( 28,017)
( 758,110)
( 46,441)
48,520
359,680
( 6,347)
428,250
( 4,191)
426,395
11,433
6,432
-
231,478
210,000
-
1,529,355
58,709
232,320
( 612,336)
( 668,633)
( 462,702)
160
Net cash provided by (used in) operating activities
2,178,580
1,364,766
50
1800 021 227 | australianethical.com.au 59
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 25 – Related party transactions
Australian Ethical Investment Limited is the ultimate parent entity and owns 100% of Australian Ethical Superannuation Pty Limited.
Australian Ethical Investment Limited acts as the responsible entity for the Australian Ethical Trusts (Australian Ethical Balanced Trust, Australian
Ethical Smaller Companies Trust, Australian Ethical Cash Trust, Australian Ethical Larger Companies Trust, Australian Ethical International
Equities Trust, Australian Ethical World Trust, Australian Ethical Property Trust, Australian Ethical Fixed Interest Trust and the Advocacy Fund).
Australian Ethical Superannuation Pty Limited acts as trustee for the Australian Ethical Retail Superannuation Fund.
Transactions between related parties are on commercial terms and conditions no more favourable than those available to other parties unless
otherwise stated.
i) Australian Ethical Trusts
Transactions between Australian Ethical Investment Limited, as responsible entity, and the Australian
Ethical Trusts during the financial year consisted of:
a) Transactions whereby Australian Ethical Investment Limited provides investment services to and
seeks expense reimbursement from the Australian Ethical Trusts in accordance with the trust deed.
b) Transactions whereby Australian Ethical Investment Limited provides accounting services to the
Australian Ethical Trusts.
c) Transactions whereby Australian Ethical Investment Limited seeks expense reimbursement from the
Australian Ethical Trusts in accordance with the trust deed.
d) Transaction whereby Australian Ethical Investment Limited received a distribution payment from the
Australian Ethical Balanced Trust and Advocacy Fund.
e) Outstanding balances at balance date:
i) Amounts receivable from the Australian Ethical Trusts
ii) Value of units held by Australian Ethical Investment Limited in the Australian Ethical
Balanced Trust
iii) Distribution receivable from Australian Ethical Balanced Trust
ii) Australian Ethical Retail Superannuation Fund
Consolidated entity
2013
$
2012
$
$
11,174,132
773,886
587,184
1,894,209
886,829
( 982,551)
-
1,170,980
-
-
2,883
4,281
223,108
4,281
a) Transactions whereby Australian Ethical Superannuation Pty Limited provides investment services/
(rebate of investment services) to the Australian Ethical Retail Superannuation Fund.
( 6,717,098)
( 206,395)
b) Transactions whereby Australian Ethical Superannuation Pty Limited provides
Administration/Trustee services to the Australian Ethical Retail Superannuation Fund.
c) Transactions whereby Australian Ethical Superannuation Pty Limited seeks reimbursement of
contribution fee from the Australian Ethical Retail Superannuation Fund.
d) Transactions whereby Australian Ethical Superannuation Pty Limited provides Member
Administration services to the Australian Ethical Retail Superannuation Fund.
e) Transactions whereby Australian Ethical Superannuation Pty Limited seeks reimbursement of
expenses from the Australian Ethical Retail Superannuation Fund.
f) Amounts receivable from the Australian Ethical Retail Superannuation Fund.
6,929,928
55,939
-
959,687
1,348,303
6,139,279
1,945,517
1,303,228
1,070,471
654,021
Terms and conditions
No provision for doubtful debts has been raised in relation to any outstanding balances and no expense has been recognised in respect of bad or
doubtful debts due from related parties.
Outstanding balances are unsecured and are repayable in cash.
51
60
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 26 - Key management personnel compensation
i) Key management personnel
Names and positions of key management personnel (directors and named executives) at any time during the financial year
Parent entity directors
Name
Stephen Gibbs
André Morony
Stephen Newnham
Mara Bun
Tony Cole
Kate Greenhill
Phillip Vernon
Departed Parent entity directors
Justine Hickey
Louise Herron
Howard Pender
Other key management personnel
Name
Adam Kirk
Paul Smith
David Macri
Departed other key management personnel
Phillip George
Gary Leckie
Tim Xirakis
James Jordan
ii) Key management personnel compensation
Short term employment benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total compensation
Position
Chairperson, non-executive
Director, non-executive
Director, Business Development, executive
Director, non-executive
Director, non-executive
Director, non-executive
Managing Director ,executive
Director, non-executive
Director, non-executive
Director, executive
Position
General Manager, Business Development
General Manager, Strategy & Communications
Chief Investment Officer
Head of Product & Client Services
CFO
Head of Distribution
Chief Investment Officer
2013
$
1,391,480
121,613
21,313
-
150,310
1,684,716
2012
$
1,817,102
170,705
34,939
221,528
151,310
2,395,584
Further key management personnel remuneration details are included in the Remuneration Report section of the Directors' Report.
52
1800 021 227 | australianethical.com.au 61
australianethical Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 26 - Key management personnel compensation (continued)
iii) Equity instrument disclosures relating to key management personnel
a) Option Holdings
Number of options held by key management personnel.
Movements during the year
Balance at
beginning of
year
Granted
Expired
Vested &
exercised
Balance at
end of year
Vested at
end of
year
Vested &
exercisable
at end of
year
Vested & un-
exercisable
at end of
year
KMP Options Holdings
Departed Parent Entity Directors
Howard Pender
Option Class
2013 Total
2012 Total
-
1,326
-
-
-
(1,326)
Departed Named executives (including other key management personnel)
Philip George
2013 Total
2012 Total
2013 Total
2012 Total
2013 Total
2012 Total
2013 Total
2012 Total
-
2,169
-
1,919
-
1,895
-
1,243
-
-
-
-
-
-
-
-
-
(2,169)
-
(1,919)
-
(1,895)
-
(1,243)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Number of rights held by key management personnel.
Movements during the year
Balance at
beginning of
year
Rights Class
Granted
Expired
Vested &
exercised
Balance at
end of year
Vested at
end of
year
Vested &
exercisable
at end of
year
Vested & un-
exercisable
at end of
year
Gary Leckie
Tim Xirakis
James Jordan
b) Rights Holdings
KMP Rights Holdings
Parent Entity Directors
Phil Vernon
AEFAD
AEFAC
AEFAB
AEFAA
AEFAY
AEFAW
2013 Total
2012 Total
Departed Parent Entity Directors
Howard Pender
AEFAY
AEFAW
2013 Total
2012 Total
-
-
1,474
1,472
2,481
317
5,744
2,798
736
320
1,056
1,056
608
2,432
-
-
-
-
3,040
2,946
-
-
-
-
-
-
-
-
-
(317)
(317)
-
-
(320)
(320)
-
-
(1,474)
-
-
-
(1,474)
-
-
-
-
-
608
2,432
-
1,472
2,481
-
6,993
5,744
736
-
736
1,056
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53
62
Paul Smith
David Macri
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 26 - Key management personnel compensation (continued)
iii) Equity instrument disclosures relating to key management personnel (continued)
b) Rights Holdings (continued)
Movements during the year
Granted
KMP Rights Holdings
Named executives (including other key management personnel)
Adam Kirk
Rights Class
Balance at
beginning of
year
Expired
Vested &
exercised
Balance at
end of year
Vested at
end of
year
Vested &
exercisable
at end of
year
Vested & un-
exercisable
at end of
year
Departed named executives (including other key management personnel)
Philip George
AEFAD
AEFAC
2013 Total
2012 Total
AEFAD
AEFAC
2013 Total
2012 Total
AEFAD
AEFAC
AEFAB
AEFAA
AEFAY
AEFAW
2013 Total
2012 Total
AEFAD
AEFAC
AEFAB
AEFAA
AEFAY
AEFAW
2013 Total
2012 Total
-
-
-
-
-
-
-
-
-
2,362
827
666
150
4,005
816
-
-
390
1,105
985
501
2,981
1,486
-
-
1,514
646
646
1,475
-
-
1,277
378
1,142
1,520
-
289
968
1,257
-
1,790
1,379
-
-
-
-
3,169
3,189
474
1,270
-
-
-
-
1,744
1,495
-
-
1,830
-
-
646
-
-
3,260
-
-
-
-
-
-
-
-
-
-
(100)
-
-
(150)
(250)
-
(474)
(1,270)
-
(1,105)
(985)
(501)
(4,335)
-
-
-
(3,344)
-
-
(1,475)
-
-
(4,537)
-
-
-
-
-
-
-
-
-
-
(2,262)
-
-
-
(2,262)
-
-
-
(390)
-
-
-
(390)
-
-
-
-
(646)
(646)
-
-
-
-
378
1,142
1,520
-
289
968
1,257
-
1,790
1,379
-
827
666
-
4,662
4,005
-
-
-
-
-
-
-
2,981
-
-
-
-
-
646
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Gary Leckie
Tim Xirakis
James Jordan
2013 Total
2012 Total
AEFAB
2013 Total
2012 Total
2013 Total
2012 Total
54
1800 021 227 | australianethical.com.au 63
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 26 - Key management personnel compensation (continued)
iii) Equity instrument disclosures relating to key management personnel (continued)
c) Share Holdings
Number of Shares held by key management personnel.
Departed Parent Entity Directors
Howard Pender
Justine Hickey
Balance at
beginning
of year
Acquired / Granted as
Remuneration
On exercise of options/
rights
Net
Change
other (1)
Balance at end of year
"(2) and (3)"
49,882
50,683
1,200
1,200
- -
-
- -
- -
-
900
(801)
-
-
50,782
49,882
1,200
1,200
Named executives (including other key management personnel)
2013
Phil Vernon
2012
2013
2012
David Macri
-
-
-
-
1,474
-
- -
-
2,262
- -
Departed Named executives (including other key management personnel)
Philip George
1,104
1,104
25
25
-
909
-
390
- -
646 -
- -
- -
- -
Tim Xirakis
James Jordan
-
-
(1,996)
-
1,474
-
266
-
(700)
-
-
-
-
(909)
794
1,104
671
25
-
-
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
(1) "Net change other" incorporates changes resulting from purchases, sales, forfeitures during the year.
(2) Shares issued are fully paid
(3) Balance represents shareholdings by key management personnel including their related parties as required by AASB 124 Related Party Disclosures
d) Key Management Personnel Loans
Loans with key management personnel at the start and end of the year.
Balance at beginning of
year
Interest
charged
Key Management Personnel
2013
2012
$
7,455
12,250
$
204
778
On exercise of
options/ rights
$
-
-
Net Change
other
$
-
-
Balance at end of
year
$
-
7,455
No. of
Individuals
1
1
(a) The loan was fully repaid on 17 December 2012.
(b) In the 2012/13 reporting period, there were no loans to individuals that exceeded $100,000 at any time.
55
64
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 27 - Share based payments
The following share-based payment arrangements existed at 30 June 2013:
During this reporting period, Australian Ethical Investment Limited issued 12,051 ordinary shares on conversion of 12,051 AEFAB
performance rights for nil consideration granted under its employee share incentive scheme in December 2011. This conversion of
performance rights resulted in an increase in ordinary shares of 12,051.
During the 2011 reporting period, 25,432 performance rights in two classes (identifiers: AEFAY and AEFAZ) were granted.
During the 2012 reporting period 33,837 performance rights in two classes (identifiers: AEFAA and AEFAB) were granted.
During the 2013 reporting period 30,926 performance rights in two classes (identifiers: AEFAC and AEFAD) were granted.
Under the Australian Ethical Investment Limited employee share incentive scheme (ESIS) participants are granted performance rights to
ordinary shares, subject to meeting specified performance criteria over the performance period. The number of shares that the participant
will ultimately receive will depend on the extent to which the performance criteria are met by the Group and the individual employee. These
rights were issued for nil consideration. These rights hold no voting or dividend rights. Subject to the terms and conditions of the ESIS rules,
the performance rights have the following attributes determining whether shares will be issued in respect of the rights.
ASX Code
AEFAC
Number Granted Attributes
23,357
i) employment must continue until 30 June 2015.
ii) the average return on equity over the performance period (ʻAROEʼ) must exceed 15%
p.a. or no shares shall be awarded at the end of the performance period;
- if the AROE exceeds 15% p.a. but is less than 20% p.a., half the maximum number of
shares shall be awarded;
- if the AROE is equal to or greater than 20% p.a. the maximum number of shares shall
be awarded.
AROE is determined as the average of return on equity over six month periods calculated
using audited half-year financial statements.
- The performance period is the financial years 2012/13, 2013/14 and 2014/15.
i) employment must continue until 1 July 2013;
ii) the number of shares that will be issued to each employee in respect of their
performance rights under this category will be adjusted up or down by a maximum 20%,
dependent on the absolute performance of one of the Group's managed investment
schemes, for which the employee has responsibility or provides significant input; a
managed investment scheme has been agreed between the Group and the employee.
Performance will be measured over a performance period of 1 July 2012 to 30 June 2013.
AEFAD
7,569
i) Performance rights reconciliation
Consolidated Entity
2013
Number of
2012
Number of
Outstanding at the beginning of the financial
year
Granted
Forfeited
Exercised
Expired
Outstanding at year-end
41,513
30,926
(11,939)
(12,051)
(3,406)
45,043
32,416
34,199
(19,980)
(5,122)
-
41,513
Exercisable at year-end
-
-
56
1800 021 227 | australianethical.com.au 65
australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 27 - Share based payments (continued)
ii) Performance rights summary
Rights Class
AEFAW
AEFAY
AEFAA
AEFAB
AEFAC
AEFAD
Fair value - Rights
Performance
Year
FY10 - FY12
FY11 - FY13
FY12 - FY14
FY12
FY13 - FY15
FY13
Grant Date Vesting Date No. granted
10,819
20,582
19,195
14,642
23,357
7,569
30/06/2013
30/06/2013
30/06/2014
30/06/2012
30/06/2015
30/06/2013
2010
2011
2012
2012
2013
2013
No.
forfeited
No.
vested
No.
expired Balance
(7,413)
(12,189)
(9,784)
(2,591)
(3,213)
(474)
-
-
-
(12,051)
-
-
(3,406)
-
-
-
-
-
-
8,393
9,411
-
20,144
7,095
All rights were calculated at grant date based on the underlying share prices minus estimated net present value of future dividends that the
holders of rights are not entitled for.
Weighted average fair value - Options
Consolidated Entity
2013
2012
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
$
Weighted
Average
Exercise
Price
$
Outstanding at the beginning of the financial
year
Granted
Forfeited
Exercised
Expired
Outstanding at year-end
Exercisable at year-end
There were no options outstanding at 30 June 2013.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32,394
-
-
-
(32,394)
-
32.27
-
-
-
32.27
-
-
-
Included under employee benefits expense in the consolidated statement of profit or loss and other comprehensive income is:
a) $0 (2012: $14,070) relating to options issued under the employee share ownership plan.
b) $165,705 (2012: $217,407 ) relating to rights issued under the employee share ownership plan.
Note 28 - Financial risk management
The Group has exposure to the following risks arising from financial instruments:
- Market Risk
- Credit risk
- Liquidity risk
i) Risk management framework
The Group recognises that risk is part of doing business and that the ongoing management of risk is critical to its success. The approach to
managing risk is articulated in the Risk Appetite Statement. The Risk & Compliance Manager is responsible for the design and maintenance
of the risk and compliance framework, establishing and maintaining group wide risk management policies, and providing regular risk
reporting to the Board, the Audit, Compliance & Risk Committee (ACRC). The Board regularly monitors the overall risk profile of the group
and sets the risk appetite for the group, usually in conjunction with the annual planning process.
The Board is responsible for ensuring that management have appropriate processes in place for managing all types of risk, ranging from
financial risk to operational risk. To assist in providing ongoing assurance and comfort to the Board, responsibility for risk management
oversight has been delegated to the ACR. The main functions of this Committee are to oversee the consolidated entityʼs accounting policies
and practices, the integrity of financial statements and reports, the scope, quality and independence of external audit arrangements, the
monitoring of the internal audit function, the effectiveness of risk management policies and the adequacy of insurance programs. This
Committee is also responsible for monitoring overall legal and regulatory compliance.
The activities of the consolidated entity expose it to the following financial risks: credit risk, liquidity risk and market risk. These are distinct
from the financial risks borne by customers which arise from financial assets managed by the consolidated entity in its role as fund
manager, trustee and responsible entity.
The following discussion relates to financial risks exposure of the consolidated entity in its own right.
57
66
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 28 - Financial risk management (continued)
ii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's
income or the value of its holdings in financial instruments. The objective of market risk management is to manage and control market
exposure. The Group is only exposed to interest rate and price risk through its cash and cash equivalents, loans and available-for-sale
investments.
a) Currency risk
The exposure to currency risk, as defined in AASB 7 Financial Instruments: Disclosures, arises when financial instruments are
denominated in a currency that is not the functional currency of the entity and are of a monetary nature. Hence the gains/(losses) arising
from the translation of the controlled entitiesʼ financial statements into Australian dollars are not considered in this note.
All of the monetary financial instruments held by the consolidated entity, being liquid assets, receivables, interest-bearing liabilities and
payables are denominated in Australian dollars. Hence fluctuations in exchange rates do not impact the profit/(loss) for the year or
shareholdersʼ equity.
b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The consolidated entityʼs exposure to interest rate risk arises predominantly on cash balances held with banks. In order to
manage the interest rate risk relating to bank deposits the CFO reviews the interest rates on those deposits on a regular basis.
At the end of the reporting period, the Group had the following exposure to interest rate risk:
Cash and cash equivalents
Loans to staff
Total
2013
$
3,894,666
-
3,894,666
2012
$
2,309,587
5,202
2,314,789
An increase of 1% in interest rates at the end of the period would have increased equity and profit for the year by $38,947 (2012: $23,096).
A decrease of 1% would have an equal and opposite effect.
c) Market risks arising from Funds Under Management
The Groupʼs revenue is significantly dependent on Funds Under Management (ʻFUMʼ) which is influenced by equity market movements.
Management calculates the expected impact on revenue for each 1 per cent movement in the S&P/ASX All Ordinaries Index. Based on the
level of the S&P/ASX All Ordinaries Index at the end of 30 June 2013, a 1 per cent movement in the market changes annualised revenue
by approximately $70,000. It is worth noting this movement is not linear to the overall value of the market. This means that as the market
reaches higher or lower levels, a 1 per cent movement may have a larger or smaller effect on revenue as FUM and FUA are comprised of
both equity market and non-equity market-sensitive asset classes.
d) Equity price risk
The Group is exposed to equity price risk through its investments held in listed securities and investments in unlisted unit trusts. Market
securities are held to support its advocacy activities. In order to manage the risk of adverse price movements securities are only held for
the period in which the Group is engaging with the target company.
At the end of the reporting period, the Group had the following exposure to market securities price risk:
Listed securities
Units in unit trusts
2013
$
107,150
-
107,150
2012
$
108,947
223,108
332,055
An increase of 10% of market prices at the end of the period would have increased equity by $10,715 (2012: $33,206). A decrease of 10%
would have an equal and opposite effect. The impact on the profit or loss of the Group would be immaterial.
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australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 28 - Financial risk management (continued)
iii) Credit Risk
Credit risk is the risk of financial loss from a counterparty failing to meet its contractual commitments. The Group is predominantly exposed
to credit risk on its deposits with banks and financial institutions, outstanding receivables and committed transactions. The maximum
exposure of the Group to credit risk on financial assets which have been recognised on the balance sheet is the carrying amount, net of any
provision for doubtful debts.
The Group manages this risk by settling the receivables from the managed investment schemes and superannuation funds on a monthly
basis and holding cash and cash equivalents at financial institutions with a Standard & Poorʼs rating of ʻAʼ or higher.
The table below outlines the Groupʼs maximum exposure to credit risk as at reporting date.
Cash and cash equivalents
Trade and other receivables
Loans
Total
2013
$
3,894,666
2,474,109
-
6,368,775
2012
$
2,309,587
1,715,999
52,114
4,077,700
There is currently no past due receivables as at 30 June 2013 (2012: nil).
iv) Liquidity risk
Liquidity risk is the risk that the financial obligations of the Group cannot be met as and when they fall due without incurring significant
costs. The Groupʼs approach to managing liquidity is to maintain a level of cash or liquid investments sufficient to meet its ongoing financial
obligations. The Group manages liquidity risk by continually monitoring forecast and actual cash flows, and by matching the maturity profiles
of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. In
addition, a twelve month forecast of liquid assets, cash flows and balance sheet is reviewed by the Board annually as part of the budget
process to ensure there is sufficient liquidity within the Group.
Trade and other payables have the following remaining contractual maturities at the end of the reporting period of financial liabilities:
Less than 6 months
6 months to 1 year
Group
2013
$
1,564,843
291,807
1,856,650
2012
$
1,193,671
303,299
1,496,970
59
68
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 28 - Financial risk management (continued)
v) Capital management
a) Capital requirements
The Group manages its capital to ensure that the level of financial conservatism is appropriate for the Companyʼs businesses including
acting as custodian and manager of clientsʼ assets. Capital is managed to provide business stability and accommodate the growth needs of
the Group.
Part of the capital management of the Company is to determine the dividend policy. Dividends paid to shareholders are typically in the
range of 80–100 per cent of the Groupʼs net profit after tax attributable to members of the Company, which is in line with the historical
dividend range paid to shareholders. In certain circumstances, the Board may declare a dividend outside that range.
As at year end the Company had no long term debt arrangements.
b) External requirements
In connection with operating a funds management business in Australia the Group is required to hold an Australian Financial Services
Licence (AFSL). As a holder of an AFSL, the Australian Securities & Investment Commission (ASIC) requires the Group to:
- prepare 12-month cash-flow projections which must be approved at least quarterly by directors, and reviewed annually by auditors;
- hold at all times minimum Net Tangible Assets (NTA) the greater of:
- $150,000
- 0.5% of the average value of scheme property (capped at %=$5 million); or
- 10% of the average responsible Entity (RE) revenue (uncapped).
The Group must hold at least 50% of its minimum NTA requirement as cash or cash equivalents and hold at least $50,000 in Surplus Liquid
Funds (SLF).
The Group has complied with these requirements at all times during the year.
vi) Fair value measurements
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable.
(cid:127) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
(cid:127) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
(cid:127) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Available-for-sale financial assets
- Listed securities at fair value
Available-for-sale financial assets
- Listed securities at fair value
- Units in unit trust at fair value
Level 1
Level 2
Level 3
Total
2013
107,150
107,150
-
-
2012
Level 1
Level 2
Level 3
108,947
-
108,947
-
223,108
223,108
-
-
-
-
-
107,150
107,150
Total
108,947
223,108
332,055
There were no transfers between Level 1 and 2 in the year.
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australianethical
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Notes to the consolidated financial statements for the year ended 30 June 2013
Note 29 - Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as
those applied in the consolidated financial statements. Refer to note 2 for a summary of the significant accounting policies relating to the
Group.
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued capital
Retained earnings
Reserves
Total equity
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income/(loss)
Parent Entity
30 June
2013
$
4,092,743
3,898,448
7,991,191
30 June
2012
$
3,715,141
4,384,419
8,099,560
1,982,870
122,957
2,105,827
1,407,350
109,204
1,516,554
6,278,225
(742,189)
349,328
5,885,364
6,038,301
242,634
302,071
6,583,006
Parent entity
30 June
2013
$
(223,509)
121,476
(102,033)
30 June
2012
$
188,778
(50,172)
138,606
Note 30 - Subsidiaries
Details of the Group's subsidiaries at the end of the reporting period are as follows.
Name of the subsidiary
Principal activity
Place of incorporation and
operation
Proportion of ownership interest
and voting power held by the
Group
Australian Ethical
Superannuation Pty Limited
Trustee of the Australian Ethical
Retail Superannuation Fund
Australia
30 June
2013
30 June
2012
100%
100%
61
70
Australian Ethical Investment Limited A.B.N. 47 003 188 930 and controlled entity
Directors' Declaration
1.
In the opinion of the directors of Australian Ethical Investment Limited (ʻthe Companyʼ):
(a)
the consolidated financial statements and notes that are set out on pages 30 to 61 and the Remuneration
report in pages 14 to 23 in the Directorsʼ report, are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the Groupʼs financial position as at 30 June 2013 and of its performance,
for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
2.
3.
4.
There are reasonable grounds to believe that the Company and the group entities identified in Note 30 will be
able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of
Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418.
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the
chief executive officer and chief financial officer for the financial year ended 30 June 2013.
The directors draw attention to Note 2(i) to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Phillip Vernon
Managing Director
Dated this 29 August 2013
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australianethical Independent Auditor’s Report
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1800 021 227 | australianethical.com.au 73
australianethical Shareholder Information
%
Yes
Yes
Yes
Yes
Top 20 Holdings of fully paid ordinary shares at 11 October 2013
Holdings Ranges
SELECT MANAGED FUNDS PTY LTD
CITICORP NOMINEES PTY LIMITED
JAMES ANDREW THIER
HOWARD PENDER
CAROLINE MARGARET LE COUTEUR
TREVOR ROLAND LEE
JUDITH MARGARET BOAG
ERIC Y W & PATTY B Y TSE
BRUCE ALLAN MCGREGOR & MRS ANN MARION
MCGREGOR
HB SARJEANT & ASSOC PTY LTD
GARRETT SMYTHE LTD
DAISY THIER
JUDITH INGROUILLE AJANI
DR EDWARD ARTHUR ICETON
ANTHONY SCOTT COOK
MICHEL & ANN BEUCHAT
RODNEY MATTHEW MYER
UBS WEALTH MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
JAMES GROESSLER
ROGER W SAWKINS & GARY R Y GEE
Holders
Total Units
196,472
19.203
96,820
51,367
49,852
49,436
36,933
33,683
26,525
24,447
20,140
17,169
15,297
13,000
12,000
10,562
9,667
7,332
7,160
6,622
5,756
9.463
5.020
4.872
4.832
3.610
3.292
2.592
2.389
1.968
1.678
1.495
1.271
1.173
1.032
0.945
0.717
0.700
0.647
0.563
Total IC
690,240
1,023,147
67.462
Analysis of Holdings as at 11 October 2013
Security Classes
Fully Paid Shares
Holdings Ranges
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,000+
Totals
Holders
Total Units
655
74
7
14
1
164,251
158,370
46,823
457,231
196,472
%
16.054
15.479
4.576
44.689
19.203
751
1,023,147
100.000
74
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