Cadence Capital Limited
Annual Report 2016

Plain-text annual report

2016 ANNUAL REPORT CADENCE CAPITAL LIMITED A.B.N. 17 112 870 096 CONTENTS Company Particulars Manager’s Report Top 20 Positions Directors’ Report to Shareholders Auditor’s Independence Declaration Corporate Governance Statement Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information 3 4 6 7 13 14 17 18 19 20 21 39 40 42 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 - A.B.N. 17 112 870 096 1 This page has intentionally been left blank CADENCE CAPITAL LIMITED A.B.N. 17 112 870 096 DIRECTORS Karl Siegling James Chirnside Wayne Davies Ronald Hancock SECRETARY Wayne Davies MANAGER OF THE COMPANY Cadence Asset Management Pty Limited ABN: 68 106 551 062 REGISTERED OFFICE Level 11, 131 Macquarie Street, Sydney, NSW, 2000 CONTACT DETAILS Level 11, 131 Macquarie Street, Sydney, NSW, 2000 Telephone: (02) 8298 2444 Fax: (02) 8298 2499 Email: info@cadencecapital.com.au Website: www.cadencecapital.com.au COMPANY PARTICULARS PRIME BROKERS AND CUSTODIANS OF THE COMPANY Deutsche Bank AG Winchester House,1 Great Winchester Street London EC2N 2DB The Bank of New York Mellon 160 Queen Victoria Street, London EC4V 4LA SHARE REGISTRAR Boardroom Pty Limited Mail Address: GPO Box 3993 Sydney, NSW, 2001 Telephone: (02) 9290 9600 Fax: (02) 9279 0664 For all enquiries relating to shareholdings, dividends (including participation in the Dividend Reinvestment Plan) and related matters, please contact the share registrar. AUDITORS Pitcher Partners Level 22 MLC Centre 19 Martin Place Sydney NSW 2000 ASX CODE Cadence Capital Limited Ordinary Shares (CDM) For enquiries regarding net asset backing (as advised each month to the Australian Securities Exchange) refer to asx.com.au or call (02) 8298 2444 COUNTRY OF INCORPORATION Australia CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 3 MANAGER’S REPORT SUMMARY OF RESULTS 4.0 cents fully franked final dividend, • • Annualised yield of 7.1% fully franked (10.1% grossed-up), • Fund’s gross performance was down 12.19% during the year giving the Company a net loss after tax of $30.8 million SHAREHOLDER PERFORMANCE Performance* to 30th June 2016 CDM** All Ords Outperformance 1 Month 1 Year 3 Years 5 Years 8 Years 10 Years Since Inception (10.8 years) Since Inception Annualised (10.8 years) -5.76% -12.19% 14.40% 47.42% 177.56% 240.05% 352.44% 15.08% -2.28% 2.01% 26.81% 42.24% 41.34% 61.85% 82.76% 5.77% -3.48% -14.20% -12.41% +5.18% +136.22% +178.20% +269.68% +9.31% * Before Management and Performance Fees **These numbers include the franking value of the substantial RHG dividend received in May 2011 For the financial year ended 30 June 2016, Cadence Capital Limited produced a negative gross performance of 12.19% compared to an increase in the All Ordinaries Accumulation Index of 2.01%. Over the past few years the portfolio has benefitted from falling resource prices, a falling Australian dollar and the strength of diversified financial services companies on the back of falling interest rates. During the last half of the financial year each of these trends reversed and our portfolio underperformed the market by 15.94% over this six-month period. Stock positions that performed well for the Company in 2016 were Apiam Animal Health Ltd., IPH Ltd., Melbourne IT Ltd., TPG Telecom Ltd., Visa Inc. and Woodside Petroleum Ltd. Stock positions that underperformed for the Company in 2016 were Australia and New Zealand Banking Group, Gilead Sciences Inc., Henderson Group Plc., Luxottica Group SPA, Macquarie Group Ltd. and Softbank Group Corp. DIVIDENDS During the year the Company declared a 9.0 cents per share fully franked dividend which equates to a 7.1% annual fully franked yield, or a 10.1% gross yield (grossed up for franking credits) based on the CDM share price on the date of writing this report of $1.27. Given the record low interest rate environment in Australia, we are pleased that the Company has once again delivered a healthy fully franked yield. 4 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 MANAGER’S REPORT CONT’D DIVIDENDS (Continued) Calendar Year Interim Final Special Total Gross (Inc. Franking) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2.0c 2.5c - 2.0c 3.0c 4.0c 5.0c 5.0c 5.0c 5.0c 2.0c 2.2c* 2.0c 2.0c 3.0c 4.0c 5.0c 5.0c 5.0c 4.0c 2.0c - - - 3.0c 4.5c 1.0c - 1.0c TOTAL 33.5c 34.2c 11.5c 6.0c 4.7c 2.0c 4.0c 9.0c 12.5c 11.0c 10.0c 11.0c 9.0c 79.2c 8.6c 5.8c 2.9c 5.7c 12.9c 17.8c 15.7c 14.3c 15.7c 12.9c 112.3c * Off market Equal access buy back SUMMARY AND OUTLOOK The volatility in share prices in this calendar year has been high, but over time trends re-emerge, and as always, present new investment opportunities. In July and August we have seen the first tentative signs of recovery in markets and uncertainty has eased. Cadence continues to enter new positions in new emerging trends, and stocks, following the Cadence Investment Process, which over time has proven to outperform the market. As the largest shareholder in the Fund the negative performance, and the underperformance against the All Ordinaries Accumulation Index, has not been pleasant. We remain committed to outperforming the All Ordinaries Accumulation Index and to producing longer term risk adjusted returns in excess of what the broader equity market provides. I would like to take this opportunity to thank our investors for their continued support. Karl Siegling Managing Director Cadence Asset Management Pty Limited CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 5 TOP 20 POSITIONS AS AT 30 JUNE 2016 LONG AND SHORT POSITIONS Long Positions Company Name MQG MLB AIO HGG Macquarie Group Ltd Melbourne IT Ltd Asciano Ltd Henderson Group Plc GOOG US Alphabet Inc RFG MA US FB US 9984 JP SHV 5930 JP AIG US IPH CBA GILD US LUX IM ANZ Retail Food Group Mastercard Inc Facebook Inc Softbank Group Corp Select Harvest Ltd Samsung Electronics Co Ltd American International Group IPH Ltd Commonwealth Bank of Australia Gilead Sciences Inc Luxottica Group SPA Australia and New Zealand banking Group Exposure $ % Of Equity $42,743,011 13.33% $25,760,078 $20,967,638 $17,530,563 $12,976,294 $12,960,866 $12,578,942 $11,449,473 $10,726,511 $9,756,157 $8,201,334 $7,141,661 $6,963,536 $6,562,706 $5,772,807 $5,298,260 $5,293,901 8.03% 6.54% 5.47% 4.05% 4.04% 3.92% 3.57% 3.35% 3.04% 2.56% 2.23% 2.17% 2.05% 1.80% 1.65% 1.65% Short Positions Company Name WPL MYO RIO Woodside Petroleum Ltd MYOB Group Ltd Rio Tinto Ltd Exposure $ $7,241,996 $5,989,8499 $5,576,092 % Of Equity 2.26% 1.87% 1.74% Total Top 20 Long and Short Positions $ 203,875,801 63.59% TOTAL PORTFOLIO POSITIONS: Portfolio Net Exposure Long Positions Portfolio Net Exposure Short Positions Total Portfolio Net Exposure $ 274,959,635 85.77% $ 19,317,558 6.03% $ 255,642,077 79.74% 6 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 The Directors of Cadence Capital Limited (“the Company’) submit herewith their report together with the financial report of Cadence Capital Limited for the financial year ended 30 June 2016. PRINCIPAL ACTIVITY The principal activity of the Company was investing primarily in securities listed globally. The Company may take short positions and may also deal in derivatives for hedging purposes. No significant changes in the nature of these activities occurred during the financial year. OPERATING RESULTS Investment operations over the year resulted in an operating loss before tax of $47,064,148 (2015: operating profit before tax of $24,702,344) and an operating loss after tax of $30,882,043 (2015: operating profit after tax of $19,348,194). REVIEW OF OPERATIONS Investments are valued continuously to market value. For the year ended 30 June 2016, net investments were valued at $294,079,451 (2015: $280,018,162). Further information regarding the performance of the entity during the reporting period is provided in the Manager’s Report, which precedes this report. FINANCIAL POSITION The net asset value of the Company for the current financial period ended was $320,589,447 (2015: $315,829,479). SIGNIFICANT CHANGES IN STATE OF AFFAIRS In January 2014 the Company issued for free 159,194,579 Options (1 for 1 bonus issue) exercisable at $1.43 on or before 31st August 2015. During the past financial year 28,594,486 Options were exercised. (2015: 46,461,705 Options were exercised). On the 28th September 2015 the Company issued 12,793,415 Shares at $1.43 in a placement of the Options shortfall. As at 30 June 2016 the Company had no Options on issue (2015: 109,602,077 Options). DIVIDENDS PAID OR RECOMMENDED The Board have declared a 4.0 cent per share fully franked final dividend payable on 27th October 2016. The Ex-Date for the dividend is 18th October 2016. Dividends paid are as follows: $ Fully franked 2016 interim dividend of 5.0 cents per share was paid on 12 May 2016 Fully franked 2015 final dividend of 5.0 cents per share was paid on 29 October 2015 Fully franked 2015 special dividend of 1.0 cents per share was paid on 29 October 2015 Fully franked 2015 interim dividend of 5.0 cents per share was paid on 10 April 2015 Fully franked 2014 final dividend of 5.0 cents per share was paid on 30 September 2014 13,419,163 13,285,506 2,657,101 11,111,185 9,898,166 DIRECTORS The following persons were Directors of the Company during the financial year and up to the date of this report: Karl Siegling James Chirnside Wayne Davies Ronald Hancock CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 7 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ INFORMATION ON DIRECTORS Karl Siegling (Chairman) Karl Siegling has over 20 years investment experience in the financial sector both in Australia and overseas. He holds a Bachelor of Commerce and a Law degree from the University of Melbourne and an MBA specialising in Finance and Entrepreneurial Endeavours from INSEAD in France. Karl has also completed the Post Graduate Diploma in Finance with the Securities Institute of Australia. He commenced work in the Financial Services sector in Australia with Deutsche Morgan Grenfell, trading overnight currencies, bonds and bond options on the Sydney Futures Exchange. Then he worked within the Equities Research Division of Deutsche Morgan Grenfell before moving to the Equities Division of Goldman Sachs in London. Upon returning to Australia, Karl was the Managing Director of eFinancial Capital Limited (a subsidiary of Challenger International Limited), which was a private equity fund with Pooled Development Fund status, focused on investing early stage and expansion capital. The fund invested in financial services and Australian internet based technology companies. For two and a half years Karl worked as a consultant for Wilson Asset Management (International) Pty Limited researching stocks for the Wilson group of funds. He is also the managing director of the manager, Cadence Asset Management Pty Limited. Karl has been a Director of the Company for the past 11.5 years. James Chirnside (Non-executive Director) James has worked in financial markets for 32 years - mainly as an equities fund manager across a broad range of markets and sectors. James is currently Chairman and Managing Director of ASX listed Dart Mining NL. Dart is a junior mining and exploration company with operations in North-east Victoria. The principle focus and activities include Gold, Lithium, and base metals. Historically James has worked as a fund manager, proprietary metals trader, and derivatives broker in Sydney, Hong Kong, London, and Melbourne. James operated Asia Pacific Asset Management between 2002 and 2012. APAM was an Australian and Asian equities fund manager. From 2000-2001 James worked for Challenger Financial Group in Sydney as a product manager, responsible for hedge fund development and investments. During the 1990’s James managed frontier and emerging market hedge funds in Hong Kong and London for Regent Fund Management (now known as Charlemagne Capital). He was primarily focussed in the resources sector spanning Russia and Eastern Europe as well as more developed markets in Asia including Japan. Between 1988 and 1992 James ran a Proprietary trading book for County NatWest Investment Bank, based in London. At County he was focussed on closed-end Country Funds, Energy products and derivative arbitrage strategies. James also worked for Bell Commodities in Melbourne and London and commodity trader - NYSE listed - Bunge Inc. James Chirnside is also a director of WAM Capital Limited (WAM), Mercantile Investment Company Ltd (MVT), and Ask Funding Ltd (ASK). James has been a Director of the Company for the past 11.5 years. Ronald Hancock (Non-executive Director) Ronald Hancock is a fellow of the Institute of Chartered Accountants Australia with extensive experience in the financial services industry. He was the Managing Director of Wide Bay Australia Limited, which has moved to a full banking license and now trades as Auswide Bank Ltd, and retired in February 2013. He was a foundation Director and Manager of the Burnett Permanent Building Society formed in 1966, which subsequently merged with other Queensland societies to form Wide Bay Capricorn Building Society Ltd, subsequently Wide Bay Australia Ltd. Ronald Hancock was a practising Chartered Accountant and continued to practise during the establishment period of the Society. He retired from accountancy in 1994 after 32 years and is also a Director of several private companies. Ronald has been a Director of the Company for the past 3.3 years. Wayne Davies (Non-executive Director and Company Secretary) Wayne Davies has over 14 years funds management experience in Equity Long/Short Funds both in Australia and overseas. He is both a member of the South African Institute of Chartered Accountants and the Chartered Institute of Management Accountants. Wayne Davies is a founding member of the Cadence Asset Management team and has been the Chief Operating Officer of Cadence Asset Management for the past 8 years. Wayne Davies worked with Theorema Asset Management in London and still remains a director of Theorema Europe Fund and Theorema Europe Fund Plus. Wayne has been a Director of the Company for the past 3.5 years. 8 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ COMPANY SECRETARY Wayne Davies held the position of Company Secretary at the end of the financial year. DIRECTORS’ MEETINGS Karl Siegling James Chirnside Wayne Davies Ronald Hancock AUDIT COMMITTEE MEETINGS Karl Siegling James Chirnside REMUNERATION REPORT (AUDITED) No. eligible to attend Attended 4 4 4 4 4 4 4 4 No. eligible to attend 2 2 Attended 2 2 This report details the nature and amount of remuneration for each Director of Cadence Capital Limited. (a) Remuneration There are no executives that are paid by the Company. Cadence Asset Management Pty Limited provides day to day management of the Company and is remunerated as outlined below. 2016 Short-term Employee Benefits - Directors Fees: Cash Salary $ Superannuation $ James Chirnside Ronald Hancock Wayne Davies 27,397 27,397 13,699 68,493 2,603 2,603 1,301 6,507 2015 Short-term Employee Benefits - Directors Fees: Cash Salary $ Superannuation $ James Chirnside Ronald Hancock Wayne Davies 27,397 27,397 13,699 68,493 2,603 2,603 1,301 6,507 Total $ 30,000 30,000 15,000 75,000 Total $ 30,000 30,000 15,000 75,000 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 9 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ REMUNERATION REPORT (AUDITED) (Continued) (b) Director Related Entities Remuneration All transactions with related entities were made on normal commercial terms and conditions. Karl Siegling is the sole Director and a beneficial owner of Cadence Asset Management Pty Limited, the entity appointed to manage the investment portfolio of Cadence Capital Limited. Wayne Davies is also a beneficial owner of Cadence Asset Management Pty Limited. In its capacity as Manager, Cadence Asset Management Pty Limited was paid a management fee of $3,535,646 (inclusive of GST) (2015: $3,019,310). This is equivalent to 0.08333% of the value of the portfolio calculated on the last business day of each month. Over a full year, the monthly management fee will be comparable to a fee of 1% of the gross value of the portfolio per annum. As at 30 June 2016, the balance payable to the manager was $120,354 (inclusive of GST) (2015: $161,957). The duties of the manager are to manage the portfolio and to manage and supervise all investments, maintain the corporate and statutory records of the Company, liaise with the ASX with respect to compliance with the ASX listing rules, liaise with ASIC with respect to compliance with the Corporations Act and liaise with the share registrar of the Company. In addition, Cadence Asset Management Pty Limited is to be paid, annually in arrears, a performance fee, being 20% of: • where the level of the All Ordinaries Accumulation Index has increased over that period, the amount by which the level of the portfolio exceeds this increase, or • where the All Ordinaries Accumulation Index has decreased over that period, the amount of the increase in the value of the portfolio. No performance fee is payable in respect of any performance period, where the portfolio has decreased in value over that period. For the year ended 30 June 2016 no performance fee (2015: $2,778,884, inclusive of GST) was payable to Cadence Asset Management Pty Limited. As at 30 June 2015, the balance payable to the manager was $2,778,884 (inclusive of GST). Cadence Asset Management Pty Limited employs accounting personnel to provide accounting services to Cadence Capital Limited. These services are provided on commercial terms and include a standard charge of $1,375 (inclusive of GST) per month and an additional charge of $3,500 (inclusive of GST) is charged for preparing the half year and full year financial statements. (c) Compensation Practices The Board from time to time determines remuneration of Non-Executive Directors within the maximum amount approved by the shareholders. Non-Executive Directors are not entitled to any other remuneration. Fees and payments to Non-Executive Directors reflect the demands that are made on and the responsibilities of, the Directors and are reviewed annually by the Board. The Company determines the remuneration levels and ensures they are competitively set to attract and retain appropriately qualified and experienced Directors. Directors’ base fees are presently limited to a maximum of $80,000 per annum between the four directors. Non- Executive Directors do not receive bonuses nor are they issued options on securities. Directors’ fees cover all main board activities and membership of committees. Directors’ fees are not linked to the performance of the Company. 10 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ REMUNERATION REPORT (AUDITED) (Continued) (d) Shareholdings As at the date of this Report, the Company’s key management personnel indirectly held the following shares in the Company: Shareholdings Karl Siegling Wayne Davies Ronald Hancock James Chirnside Balance at 1 July 2015 9,833,185 416,447 279,860 26,851 10,556,343 Acquisitions Disposals 9,126,398 306,613 120,140 - 9,553,151 - - - - - As at the date of this Report 18,959,583 723,060 400,000 26,851 20,109,494 As at the date of this report, the Company’s key management personnel indirectly held the following options in the Company: Optionholdings Karl Siegling Wayne Davies Ronald Hancock James Chirnside Balance at 1 July 2015 8,113,666 309,442 279,860 25,932 8,728,900 Options Exercised 8,113,666 250,000 120,140 - 8,483,806 Options Lapsed - 59,442 159,720 25,932 245,094 As at the date of this Report - - - - - End of Remuneration Report. EVENTS AFTER THE REPORTING PERIOD The Board have declared a 4.0 cent per share fully franked final dividend payable on 27th October 2016. The Ex-Date for the dividend is 18th October 2016. Other than the above there has not arisen in the interval between the end of the financial year and the date of this report any other item, transaction or event of material and unusual nature likely, in the opinion of the Company, to significantly affect the operations of the entity, the results of those operations, or the state of affairs of the entity, in future financial years. FUTURE DEVELOPMENTS The Company will continue to pursue its policy of investment during the next financial year. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 11 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ ENVIRONMENTAL ISSUES The Company’s operations are not regulated by any environmental regulation under a law of the Commonwealth or of a State or Territory. ROUNDING OF AMOUNTS In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the directors’ report and in the financial report have been rounded to the nearest dollar. INDEMNIFICATION AND INSURANCE OF OFFICERS OR AUDITORS During the year the Company did pay a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and any related body corporate against liability incurred as such by a Director or Secretary to the extent permitted by the Corporations Act 2001. No indemnities have been given or insurance premiums paid during or since the end of the financial period, for any person who is or has been an auditor of the Company. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. NON-AUDIT SERVICES During the year Pitcher Partners, the Company’s auditor, did not perform any other services in addition to their statutory duties for the Company. Related entities of Pitcher Partners, performed taxation services for the Company. Details of the amounts paid to the auditors and their related parties are disclosed in Note 2 to the financial statements. The Board of Directors, in accordance with advice from the Audit Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed in Note 2 did not compromise the external auditor’s independence for the following reasons: • • all non-audit services do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with the APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. 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 13 of this Annual Report. Signed in accordance with a resolution of the Board of Directors of the Company: Karl Siegling Director Dated in Sydney, this 30 September 2016 12 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 AUDITOR’S INDEPENDENCE DECLARATION AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF CADENCE CAPITAL LIMITED ABN 17 112 870 096 In relation to the independent audit for the year ended 30 June 2016, I declare that to the best of my knowledge and belief there have been: (i) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (ii) no contraventions of any applicable code of professional conduct. This declaration is in respect of Cadence Capital Limited. S M WHIDDETT Partner PITCHER PARTNERS Sydney 30 September 2016 An independent New South Wales Partnership. ABN 17 795 780 962. Pitcher Partners is an association of independent firms Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000 Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle Liability limited by a scheme approved under Professional Standards Legislation An independent member of Baker Tilly International CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 13 CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 A description of the Company’s corporate governance practices are set out below. All these practices, unless otherwise stated, were in place the entire year and comply with the 3rd Edition of the Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations of the ASX Corporate Governance Council (“ASX Principles and Recommendations”). BOARD OF DIRECTORS AND ITS COMMITTEES Subject at all times to any written guidelines issued by the Board of Directors of Cadence Capital Limited, the day-to-day management and investment of funds is carried out by Cadence Asset Management Pty Limited (the “Manager”) pursuant to a management agreement. The Board is responsible for the overall Corporate Governance of the Company including the strategic direction, establishing goals for the appointed Manager and monitoring the achievement of these goals. The Board reviews the reports of its Manager on the financial performance of the Company. The board aims to ensure that all directors and the Manager act with the utmost integrity and objectivity, and endeavours to enhance the reputation of the Company. The board should act in a manner designed to create and build sustainable value for shareholders. COMPOSITION OF THE BOARD The skills, experience and expertise relevant to the position of each director who is in office at the date of the Annual Report and their term in office are detailed in the Directors’ Report. The independent directors of the Company are James Chirnside and Ronald Hancock. The Board comprises of the Chairman and three other non-executive Directors who consider the composition of the Board and appointment of new Directors. The Board identifies suitable candidates to fill vacancies as they arise. The performance of each Director is reviewed by the Chairman periodically. Each Director must not hold office as a Director after the third annual general meeting held after the Director was last appointed or elected or 3 years after the date on which the Director was last appointed or elected, whichever is the longer. Shareholder approval is required on the composition of the Board. The Board is 50% independent. Whilst the Company agrees with the benefits of a majority of independent Directors, it believes that it can better achieve the results of the Company with the current Board’s level of expertise and without burdening shareholders with the potentially significant costs associated with adding further independent Directors. The Chairman is not independent. The Company believes that an independent Chairman does not necessarily improve the function of the Board. The Company believes that when the Chairman is a significant driver behind the business and is a sizeable shareholder, it adds value to the Company. An independent director is considered to be a director: (a) who is not a member of management; (b) who has not within the last three years been employed in an executive capacity by the Company or been a professional adviser or consultant to the Company; (c) is not a significant supplier to the Company; (d) has no material contractual relationship with the Company other than as a director; and (e) is free from any interest or business or other relationship which could materially interfere with the director’s ability to act in the best interests of the Company. As the Company’s operations are primarily conducted through Cadence Asset Management Pty Limited, the Company does not presently have any full time employees and hence the Board considers setting measureable diversity objectives is not appropriate. Given the size of the Board a nomination committee has not been formed. The Board as a whole considers the composition of the Board and appointment of new Directors. The Board identifies suitable candidates to fill vacancies as they arise. 14 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ REMUNERATION OF DIRECTORS AND EXECUTIVES The maximum total remuneration of the Directors of the Company has been set at $80,000 per annum to be divided in such proportions as they agree. The scope of the Company’s operations, and the frequency of Board meetings are principal determinants of the fee level. Further detail is provided in the Directors’ Report. No separate Remuneration Committee has been established by the Company as the Company does not believe that this adds any value to its Corporate Governance. The Chairman of Cadence Capital Limited is the sole Director of Cadence Asset Management Pty Limited. Further detail is provided in the Directors’ Report and Note 15 of the financial statements. AUDIT COMMITTEE The Company has formed an Audit Committee consisting of: James Chirnside Chairman Karl Siegling Non-Executive Director The Audit Committee consists of 2 members and is only 50% independent. Whilst the Company agrees with the benefits of a larger Audit Committee and also of it consisting of a majority of independent Directors, due to both the size of the Board and of the Company, it believes that the current Audit Committee has both the level of expertise and independence that it requires. The Committee’s responsibilities are to: (a) oversee the existence and maintenance of internal controls and accounting systems; (b) oversee the financial reporting process; (c) review the annual and half-year financial reports and recommend them for approval by the Board of Directors; (d) nominate external auditors; and (e) review the existing external audit arrangements. The external audit firm partner responsible for the Company’s audit attends Audit Committee meetings by invitation and presents to the Audit Committee twice per year. The Audit Committee formally reports to the Board after each of its meetings. EXTERNAL AUDITOR The Company and Audit Committee policy is to appoint an external auditor who clearly demonstrates quality and independence. It is Pitcher Partners’ policy to rotate audit engagement partners on listed companies in accordance with the Corporations Act 2001. The external auditor is requested to attend the AGM and to be available to answer shareholder questions about the conduct of the audit and the preparation of the audit report. MAKE TIMELY AND BALANCED DISCLOSURES The Company will operate under the continuous disclosure requirements of the ASX Listing Rules.The Company will disclose: • price sensitive information to the ASX as soon as it becomes aware of that information; • ensure that the information is not false, misleading or deceptive so as to avoid creating what would constitute a false market; and • ensure that the information is disclosed clearly (expressed objectively), accurately and is complete. In doing so the Company will ensure compliance with Listing Rule 15.7 that requires an entity not to release information to anyone until it has given the information to the ASX and has received an acknowledgement from the ASX that the information has been released to the market. The Company Secretary is responsible for ensuring Cadence Capital Limited complies with its continuous disclosure obligations. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 15 CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ RISK MANAGEMENT POLICY The Board acknowledges that it is responsible for the overall system of internal control but recognises that no cost effective internal control system will preclude all errors and irregularities. The Board has delegated the responsibility for reviewing the risk profile and reporting on the operation of the internal control system to the Audit Committee. Risks are identified and assessed by the Company’s Board as well as by the Company’s auditors. Controls are implemented to deal with risks based on the assessment of: • the nature and extent of the risk facing the Company; • the extent and categories of risks which the board considers acceptable to bear; • the likelihood of the risk materialising; • the Company’s ability to minimize the risk of incident and its resultant impact on the business should a particular risk materialise; and • the sorts of operating particular controls relative to the benefit obtained by managing the relevant risk. The Manager, Cadence Asset Management Pty Ltd, as well as by the Company’s auditors will report any instances of control or policy failure or breach to enable the Board to consider whether relevant controls require reassessment, strengthening or improvement and whether the level of monitoring by the board is adequate. ETHICAL STANDARDS The Board aims to ensure that all Directors and its Manager act with the utmost integrity and objectivity and endeavour to enhance the reputation of the Company. THE ROLE OF SHAREHOLDERS The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders through the Annual Report, quarterly webcasts, monthly investment update and asset backing data, monthly estimated NTA’s and Half- Year Financial Report lodged with the Australian Stock Exchange. The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. BOARD’S POLICY ON DEALING IN SHARES Subject to them not being in possession of undisclosed price sensitive information, Directors may deal in shares of the Company when appropriate. As Cadence Capital Limited is an investment company announcing its estimated NTA’s, exposures and its top holdings on a monthly basis, the Board believes the shareholders are generally fully informed. INDEPENDENT PROFESSIONAL ADVICE AND ACCESS TO COMPANY INFORMATION Each Director has the right to access all relevant information and subject to prior consultation with the Chairman, may seek independent professional advice at the entity’s expense. A copy of advice received by the Director is made available to all other members of the Board. CONFLICT OF INTEREST In accordance with the Corporations Act 2001, the Directors must keep the Board advised, on an ongoing basis, of any interests that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. 16 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 INCOME Net realised and unrealised (loss)/ gain on investments (50,540,928) 20,910,998 NOTE 2016 $ 2015 $ Dividends received Interest received Other income Total Income EXPENSES Finance costs Management fees Performance fees Assignment fees Directors fees Dividends on short positions Stock loan fees Brokerage expenses on share purchases ASX fees Registry fees Legal fees Custody fees Audit and taxation fees Other expenses from ordinary activities Total Expenses 2 11,712,017 2,263,109 25,252 9,515,790 2,035,499 13,950 (36,540,550) 32,476,237 (1,795,854) (3,294,579) - (139,063) (75,000) (3,669,676) (252,503) (854,814) (134,099) (178,144) (7,299) (19,165) (54,294) (49,108) (683,116) (2,813,448) (2,589,415) (228,052) (75,000) (212,479) (62,244) (575,514) (158,926) (157,704) (23,334) (88,474) (60,850) (45,337) (10,523,598) (7,773,893) (Loss)/Profit before income tax (47,064,148) 24,702,344 Income tax benefit/(expense) 3(a) 16,182,105 (5,354,150) (Loss)/Profit attributable to members of the Company 11 (30,882,043) 19,348,194 Other comprehensive income Other comprehensive income for the period, net of tax - - Total comprehensive (loss)/income for the period (30,882,043) 19,348,194 Basic (loss)/earnings per share Diluted (loss)/earnings per share 13 13 (11.6) cents 9.5 cents (11.6) cents 9.5 cents The accompanying notes form part of these financial statements. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 17 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 ASSETS Cash and cash equivalents Trade and other receivables Financial assets Current tax asset Deferred tax asset TOTAL ASSETS LIABILITIES Cash overdrafts Trade and other payables Financial liabilities Current tax liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Profits reserve Accumulated losses TOTAL EQUITY Note 2016 $ 2015 $ 12(a) 159,496,725 32,673,014 5 6 3(c) 3(b) 3,615,294 5,279,525 354,014,790 293,689,355 1,558,190 - 24,415,617 4,670,150 543,100,616 336,312,044 12(a) 160,807,769 2,596 7 8 3(c) 1,768,061 3,384,369 59,935,339 13,671,193 - 3,424,407 222,511,169 20,482,565 320,589,447 315,829,479 9 10 11 367,999,928 302,996,147 6,425,738 22,708,886 (53,836,219) (9,875,554) 320,589,447 315,829,479 The accompanying notes form part of these financial statements. 18 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Note Issued Capital $ Accumulated Losses $ Profits Reserve Total Equity $ $ Balance at 1 July 2014 231,197,359 (3,752,837) 18,247,325 245,691,848 Profit for the year Transfer to profits reserve Other comprehensive income for the year Transactions with owners: Shares issued via dividend reinvestment plan Shares issued via exercise of options 11 10 9 9 - - - 5,358,550 66,440,238 Dividends paid 4(a) - 19,348,194 - 19,348,194 (25,470,911) 25,470,911 - - 5,358,550 66,440,238 - - - (21,009,351) (21,009,351) - - - - Balance at 30 June 2015 302,996,147 (9,875,554) 22,708,886 315,829,479 Loss for the year Transfer to profits reserve Other comprehensive income for the year Transactions with owners: Shares issued via dividend reinvestment plan Shares issued via placement Shares issued via exercise of options Capitalised share issue costs, net of tax 11 10 9 9 9 9 - - - 6,103,927 18,294,586 40,890,115 (284,847) Dividends paid 4(a) - (30,882,043) (13,078,622) - - - - - - - (30,882,043) 13,078,622 - - - - - - - 6,103,927 18,294,586 40,890,115 (284,847) (29,361,770) (29,361,770) Balance at 30 June 2016 367,999,928 (53,836,219) 6,425,738 320,589,447 The accompanying notes form part of these financial statements. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 19 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from the sale of investments Payments for the purchase of investments Dividends received Interest received Other income received Management fees paid Performance fees paid Brokerage expenses on share purchases Interest paid Dividends paid on shorts Payments for administration expenses Income tax paid Note 2016 $ $ 2015 $ $ 766,842,447 540,473,533 (828,605,701) (653,026,793) 10,510,401 2,263,109 25,252 (3,332,702) (2,778,882) (854,814) (1,795,854) (2,429,752) (921,018) 8,761,126 2,035,499 13,950 (2,784,335) (12,800) (575,514) (683,116) (242,449) (707,717) (8,423,886) (5,196,425) NET CASH USED IN OPERATING ACTIVITIES 12(b) (69,501,400) (111,945,041) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Share issue transaction costs, gross of tax Proceeds from shares issued NET CASH PROVIDED BY FINANCING ACTIVITIES NET DECREASE IN CASH HELD (23,257,843) (15,650,799) (406,920) - 59,184,701 66,440,227 35,519,938 50,789,428 (33,981,462) (61,155,613) CASH AND CASH EQUIVALENTS AS AT BEGINNING OF THE FINANCIAL YEAR CASH AND CASH EQUIVALENTS AS AT END OF THE FINANCIAL YEAR 32,670,418 93,826,031 12(a) (1,311,044) 32,670,418 NON-CASH TRANSACTIONS: Shares issued via dividend reinvestment plan 6,103,927 5,358,550 The accompanying notes form part of these financial statements. 20 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Cadence Capital Limited (“the Company”) is a listed public company, incorporated and domiciled in Australia. BASIS OF PREPARATION These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations, issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. The financial statements have been prepared under the historical cost convention, except for, where applicable, cash flow information, “held-for-trading” financial assets and certain other financial assets and liabilities, which have been measured at fair value. The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 1(j). The financial report was authorised for issue on 30 September 2016, by the Board of Directors. ACCOUNTING POLICIES (a) Investments i) Classification Investments consist of shares in publicly listed and unlisted companies and fixed interest securities. It is considered that the information needs of shareholders in a company of this type are better met by stating investments at fair value rather than historical cost and by presenting the profit or loss on a liquidity basis. The Company makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of that security, or it may use short sales for various arbitrage transactions. Short sales are classified as financial liabilities at fair value through the profit or loss. ii) Recognition and Initial Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Trade date is the date on which the Company commits to purchase or sell the assets. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to the profit or loss immediately. Financial assets are classified and measured at fair value with changes in value being recognised in the profit or loss. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 21 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (a) Investments (Continued) iii) Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in the profit or loss. iv) Valuation All investments are classified and measured at fair value, being market value, including the potential tax charges that may arise from the future sale of the investments. These fair value adjustments are recognised in the profit or loss. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions and reference to similar instruments. v) Investment income Dividend income is recognised in the profit or loss on the day on which the relevant investment is first quoted on an “ex-dividend” basis. Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset. vi) Derivative Instruments Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the profit or loss. vii) Financial Liabilities Borrowed stock is classified as financial liabilities at fair value through the profit or loss. Realised and unrealised gains and losses arising from changes in fair value are included in the profit or loss in the year in which they arise. (b) Income Tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable entity or different taxable entity’s which intend to settle simultaneously. 22 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short- term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within the current liabilities on the statement of financial position. (d) Trade and Other Receivables Trade and other receivables relate to outstanding settlements as well as accrued income in relation to interest and dividends receivable. Trade receivables are generally due for settlement within 30 days. (e) Trade and Other Payables These amounts represent liabilities for outstanding settlements as well as services provided to the Company prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. (f) Impairment of Assets At each reporting date, the Company reviews the carrying values of its non-financial assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the profit or loss. (g) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), unless GST incurred is not recoverable from the Australian Taxation Office (ATO). In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the Statement of Financial Position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. (h) Segment Reporting The Company has only one segment. The Company operates predominately in Australia and in one industry being the securities industry, deriving revenue from dividend income, interest income and from the sale of its financial assets at fair value through profit or loss, however the Company has foreign exposures as it invests in companies which operate internationally. (i) Comparative Figures Where required by accounting standards, comparative figures have been adjusted to conform with changes in presentation for the current financial year. (j) Critical Accounting Estimates and Judgements The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Company. Income tax The entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 23 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Critical Accounting Estimates and Judgements (Continued) Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Company considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. There are no estimates or judgements that have a material impact on the Company’s financial results for the year ended 30 June 2016. All material financial assets are valued by reference to quoted prices and therefore no significant estimates or judgements are required in respect of their valuation. (k) Issued Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (l) Profits Reserve The profits reserve is made up of amounts transferred from current and retained earnings that are preserved for future dividend payments. (m) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. (n) New Accounting Standards and Interpretations not yet mandatory or early adopted The Australian Accounting Standards Board has issued a number of new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods, some of which are relevant to the Company. The Company has decided not to adopt any of the new and amended pronouncements. A new and amended pronouncement that is relevant to the Company, but applicable in future reporting periods is AASB 9: Financial Instruments and its associated amending standards. This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 (AASB 139) - Financial Instruments: Recognition and Measurement. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. The accounting for financial liabilities continues to be measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. The Company has not early adopted AASB 9. This is not expected to have a significant impact on the Company’s financial statements as the Company does not expect to elect any investments as not held for trading 2. AUDITOR’S REMUNERATION Remuneration of the auditor of the Company for: Auditing or reviewing the financial report Other assurance services Non-audit services Other services provided by a related practice of the auditor: Taxation services 2016 $ 2015 $ 38,564 1,045 14,685 54,294 38,170 4,334 14,960 57,464 24 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 3. TAXATION (a) Current Income Tax (Benefit)/Expense 2016 $ 2015 $ The prima facie tax on (loss)/profit from ordinary activities before income tax is reconciled to the income tax expense as follows: Prima facie tax (benefit)/ expense on (loss)/profit from ordinary activities before income tax at 30% Imputation credit gross up Franked dividends receivable – prior year Franked dividends receivable – current year Franking credits on dividends received Other (14,119,244) 7,410,703 726,546 551,369 783,265 323,071 (918,956) (551,369) (2,421,820) (2,610,882) - (638) (16,182,105) 5,354,150 Effective tax rate 34.4% 21.7% The effective tax rate for FY2016 is 34.4%, reflecting the benefit to the company of franking credits received on dividend income during the year in addition to the tax benefit received on the loss before income tax. Total income tax (benefit)/expense results in a: Current tax expense Movement in deferred tax liabilities Movement in deferred tax assets (b) Deferred Tax Assets Provisions Capitalised share issue costs Fair value adjustments Tax losses Movement in deferred tax assets Balance at the beginning of the period Credited to the profit or loss Under provision from prior year Charged directly to equity (c) Current Tax (Assets)/Liabilities Movement in current tax (assets)/liabilities Balance at the beginning of the period Current year income tax on operating profit Income tax paid Under provision from prior year At reporting date 3,441,289 7,674,405 - (1,599,995) (19,623,394) (16,182,105) (720,260) 5,354,150 7,590 345,237 20,729,677 3,333,113 24,415,617 4,670,150 19,623,394 - 122,073 496 421,915 914,626 3,333,113 4,670,150 3,880,442 720,260 69,448 - 24,415,617 4,670,150 3,424,407 3,441,289 20,571 7,674,405 (8,423,886) (5,196,425) - (1,558,190) 925,856 3,424,407 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 25 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 4. DIVIDENDS (a) Dividends paid Dividends paid by the Company 2016 Dividends paid by the Company for the year ended 30 June 2016 Interim 2016 Ordinary Final 2015 Ordinary Final 2015 Special Total Amount 2016 $ 2015 $ 29,361,770 21,009,351 Cents per share 5.0 5.0 1.0 Date of payment 12 May 16 29 October 15 29 October 15 Tax rate for franking credit % Franked Total Amount $ 30% 30% 30% 100% 100% 100% 13,419,163 13,285,506 2,657,101 29,361,770 The Board have declared a 4.0 cent per share fully franked final dividend payable on 27th October 2016. The Ex- Date for the dividend is 18th October 2016. 2015 Dividends paid by the Company for the year ended 30 June 2015 Interim 2015 Ordinary Final 2014 Ordinary Total Amount (b) Dividend franking account Cents per share 5.0 5.0 Date of payment 10 April 15 30 September 14 Tax rate for franking credit % Franked Total Amount $ 30% 30% 100% 100% 11,111,185 9,898,166 21,009,351 Balance of franking account at year end adjusted for franking credits and debits, arising from receipts of income tax receivables and credits arising dividends recognised as receivables and franking credits that may be prevented from distribution in subsequent financial years. 2016 $ 2015 $ 2,440,138 9,069,012 Subsequent to the reporting period, the franking account would be reduced by the proposed dividend disclosed in (a) above as well as the current tax asset which is refundable to the company. The Company’s ability to continue to pay franked dividends is dependent upon the receipt of franked dividends from investments and the Company paying tax. 5. TRADE AND OTHER RECEIVABLES Trade debtors Income receivable Sundry debtors 322,571 3,063,153 229,570 3,615,294 3,100,293 1,861,537 317,695 5,279,525 Terms and Conditions Trade debtors relate to outstanding settlements, are non-interest bearing and are secured by the Australian Securities Exchange – National Guarantee Fund. They are settled within 2 days of the purchase being executed. Income receivable relates to accrued income, it is non-interest bearing and is unsecured. 26 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 6. FINANCIAL ASSETS Long positions - held for trading financial assets: Investments at fair value Total financial assets 7. TRADE AND OTHER PAYABLES Trade creditors Sundry creditors - related parties Dividends payable on shorts Sundry creditors – other NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 2016 $ 2015 $ 354,014,790 293,689,355 354,014,790 293,689,355 116,583 123,834 1,239,924 287,720 1,768,061 55,342 2,944,341 - 384,686 3,384,369 Trade creditors relate to outstanding settlements. They are non-interest bearing and are secured by the Australian Securities Exchange – National Guarantee Fund. They are settled within 2 days of the purchase being executed. Sundry creditors – other, are settled within the terms of payment offered, which is usually within 30 days. Sundry creditors – related parties, includes fees payable of $123,834 (inclusive of GST) (2015: $2,944,341) to the manager, Cadence Asset Management Pty Limited. 8. FINANCIAL LIABILITIES Short positions: Listed investments at fair value – held for trading Swap positions – held for trading Total financial liabilities 44,520,500 15,414,839 59,935,339 13,322,291 348,902 13,671,193 The Company’s Financial Assets and Cash are used as collateral for its Financial Liabilities. Refer to Note 14(b) for further information on Credit Risk. 9. ISSUED CAPITAL (a) Paid-up Capital Ordinary shares fully paid Capitalised share issue costs Deferred tax asset on capitalised share issue costs 370,419,123 305,130,495 (3,455,993) (3,049,073) 1,036,798 914,725 367,999,928 302,996,147 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 27 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 9. ISSUED CAPITAL (Continued) (a) Paid-up Capital (Continued) 2016 Date Balance at the beginning of the year July 2015 August 2015 September 2015 30 September 2015 29 October 2015 12 May 2016 2015 Date Details of the issue Share Price $ No. of Shares Issue Value $ Exercise of Options Exercise of Options Exercise of Options Placement DRP DRP $1.4300 $1.4300 $1.4300 $1.4300 $1.40607 $1.23317 224,322,211 305,130,495 2,416,113 3,455,042 23,226,136 33,213,374 2,952,237 4,221,699 12,793,415 18,294,586 2,673,157 1,901,807 3,758,672 2,345,255 270,285,076 370,419,123 Details of the issue Share Price $ No. of Shares Issue Value $ Balance at the beginning of the year 173,967,657 233,331,707 July 2014 August 2014 September 2014 30 September 2014 October 2014 November 2014 December 2014 January 2015 February 2015 March 2015 April 2015 10 April 2015 Exercise of Options Exercise of Options Exercise of Options DRP Exercise of Options Exercise of Options Exercise of Options Exercise of Options Exercise of Options Exercise of Options $1.4300 $1.4300 $1.4300 $1.37049 $1.4300 $1.4300 $1.4300 $1.4300 $1.4300 $1.4300 326,419 466,779 5,209,414 7,449,462 18,459,823 26,397,547 1,808,346 2,478,320 50,100 78,669 9,580 29,495 71,643 112,497 13,699 42,178 165,435 236,572 22,118,770 31,629,841 Exercise of Options $1.4300 14,000 20,020 DRP $1.38173 2,084,503 2,880,230 224,322,211 305,130,495 As at 30 June 2016 the Company had no Options on issue (2015: 109,602,077 Options). The outstanding one for one Bonus Options that were issued to Shareholders for free on 20 January 2014, giving Option holders the right to acquire Ordinary Shares in the Company at $1.43 per Ordinary Share expired on 31 August 2015. Holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at shareholder meetings, otherwise each member present at a meeting or by proxy has one vote on a show of hands. In the event of the winding up of the Company, ordinary shareholders rank after creditors and share in any proceeds on winding up in proportion to the number of shares held. 28 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 9. ISSUED CAPITAL (Continued) (b) Capital Management Management controls the capital of the Company in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Company can fund its operations and continue as a going concern. The Company’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. Management effectively manages the Company’s capital by assessing the Company’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 debt levels, distributions to shareholders and share issues. There has been no change in the strategy adopted by the Board to control the capital of the Company since the prior year. The Company is not subject to any externally imposed capital requirements. 10. PROFITS RESERVE Profits Reserve Movement in Profits Reserve Opening balance Transfer from retained earnings Dividends paid (Note 4) 2016 $ 2015 $ 6,425,738 22,708,886 22,708,886 13,078,622 18,247,326 25,470,911 (29,361,770) (21,009,351) 6,425,738 22,708,886 The Profit Reserve is made up of amounts transferred from current and retained earnings that are preserved for future dividend payments. 11. ACCUMULATED LOSSES Opening balance (Loss)/Profit attributable to members of the Company Transfer to profits reserve (9,875,554) (30,882,043) (3,752,837) 19,348,194 (13,078,622) (25,470,911) (53,836,219) (9,875,554) 12. CASH FLOW INFORMATION (a) Reconciliation of cash Cash at the end of the period as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows: Cash and cash equivalents Cash overdrafts 159,496,725 32,673,014 (160,807,769) (2,596) (1,331,044) 32,670,418 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 12. CASH FLOW INFORMATION (Continued) The weighted average interest rate for cash and cash equivalents as at June 2016 is 1.42% (June 2015: 2.12%). The weighted average interest rate for cash overdrafts as at June 2016 is 1.47% (June 2015: 1.59%). The Company has Prime Brokerage lending facilities and Custody arrangements with Deutsche Bank AG and Bank of New York Mellon. The Prime Brokerage lending facilities are secured by a first charge over the financial assets of the Company. The Company has granted a charge over all of the Company’s right, title and interest in the assets transferred to the Prime Broker. This includes those transferred to the Custodians and sub-custodians in accordance with Prime Brokerage Agreements, and any right which arises after the date of the charges to receive cash or return of property from the parties under the Prime Brokerage Agreement, as security for payments and performance by the Company of all of its obligations to the Prime Brokers under the Prime Brokerage Agreement. (b) Reconciliation of Operating Profit after Income Tax 2016 $ 2015 $ Operating profit after income tax (30,882,043) 19,348,194 Fair value net gains on financial assets and liabilities (14,061,289) (142,282,592) Changes in assets and liabilities: Decrease in receivables Increase in deferred tax assets Decrease in trade and other payables Decrease in deferred tax liabilities (Decrease)/ Increase in current tax liabilities Net cash used in Operating Activities 1,664,231 (19,623,394) (1,616,308) - (4,982,597) 13,611,621 (789,708) (2,779,989) (2,456,403) 3,403,836 (69,501,400) (111,945,041) (c) Non-cash Financing Activities During the financial year the Company issued the following shares through its Dividend Reinvestment Plan: - 2,673,157 shares at $1.40607 on 29 October 2015 - 1,901,807 shares at $1.23317 on 12 May 2016 During the previous financial year the Company issued the following shares through its Dividend Reinvestment Plan: - 1,808,337 shares at $1.37049 on 30 September 2014 - 2,084,503 shares at $1.38174 on 10 April 2015 30 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 13. EARNINGS PER SHARE Basic (loss)/earnings per share (Loss)/ Profit after income tax used in the calculation of earnings per share 2016 Cents Per Share 2015 Cents Per Share (11.6) 2016 $ 9.5 2015 $ (30,882,043) 19,348,194 No. No. Weighted average number of ordinary shares outstanding during the year used in calculation of basic earnings per share 265,511,543 202,656,107 Weighted average number of ordinary shares and options outstanding during the year used in calculation of diluted earnings per share Reconciliation of weighted average number of shares: 265,511,543 203,648,089 Weighted average number of ordinary shares used in calculation of basic earnings per share 265,511,543 202,656,107 Add: Weighted average number of potential ordinary shares used in the calculation of diluted earnings per share - 991,982 Weighted average number of shares used in the calculation of diluted earnings per share 265,511,543 203,648,089 14. FINANCIAL RISK MANAGEMENT Financial Risk Management Policies The Company’s financial instruments consist of money market instruments, short and long term investments, accounts receivable and payable. Financial Risk Exposures and Management The main risks the Company is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and market risk. (a) Terms, Conditions and Accounting Policies The Company’s accounting policies are included in Note 1, while the terms and conditions including interest rate risk of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at balance date are included under the appropriate note for that instrument. (b) Credit Risk The Company takes on exposure to credit risk, which is the risk that a counterparty (prime broker, custodian, sub-custodian and broker) will be unable to pay amounts in full when due. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period excluding the value of any collateral or other security held, is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 14. FINANCIAL RISK MANAGEMENT (Continued) (b) Credit Risk (Continued) All transactions in listed securities are settled /paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet their obligation. There are risks involved in dealing with custodians or prime brokers who settle trades. Under certain circumstances, including certain transactions where the Company’s assets are pledged as collateral for leverage from a prime broker/custodian, or where the Company’s assets are held at a prime broker, custodian or sub- custodian, the securities and assets deposited with the prime broker/custodian may be exposed to a credit risk with regards to such parties. In addition, there may be practical or timing problems associated with enforcing the Company’s rights to its assets in case of an insolvency of any such party. The Company maintains Prime Brokerage lending facilities and custody accounts with its prime broker and custodian Deutsche Bank AG and Bank of New York Mellon. There is no guarantee that these or any sub- custodian that Deutsche Bank AG may use or any other prime broker or custodian that the Company may use from time to time, will not become insolvent. In the event of an insolvency or liquidation of a prime broker/ custodian that has custody of the Company’s assets, there is no certainty that the Company would not incur losses due to its assets being unavailable for a period of time or ultimately less than full recovery of its assets, or both. As substantially all of the Company’s assets may be held by a prime broker, custodian or sub-custodian and in some cases a major Australian bank, such losses could be significant and materially impair the ability of the Company to achieve its investment objective. Any cash held by Deutsche Bank is not treated as client money, but rather held as collateral and is not subject to the client monies protections conferred by the Financial Conduct Authority rules relating to client money. As a consequence, the Company’s money is held by the Prime Broker as banker and not as a trustee or agent and the Prime Broker will not be required to place the Fund’s money in a segregated client account, and the Company will therefore rank equally with Deutsche Bank’s other account holders in relation thereto. (c) Liquidity Risk Liquidity risk represents the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s major cash outflows are the purchase of securities and dividends paid to shareholders, the levels of which are managed by the Board and the management company. The Company’s inward cash flows depend upon the level of sales of securities, dividends, interest received and any exercise of options that may be on issue. The Company monitors its cashflow requirements daily by reference to known transactions to be paid or received. The Company may hold a portion of its portfolio in cash and short-term fixed interest securities sufficient to ensure that it has cash available to meet all payments. Alternatively, the Company can increase its level of sales of the readily tradeable securities it holds to increase cash inflows or it can use its lending facility with its Prime Broker. (d) Market Risk Market risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. By its nature, as an investment company that invests in tradeable securities, the Company will always be subject to market risk as it invests its capital in securities which are not risk free as the market price of these securities can fluctuate. The Company can seek to reduce market risk by not being overly exposed to one company or one particular sector of the market. The Company does not have set parameters as to a minimum or maximum amount of the portfolio that can be invested in a single company or sector. 32 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 14. FINANCIAL RISK MANAGEMENT (Continued) (e) Foreign Currency Risk The Company undertakes certain transactions and holds assets and liabilities denominated in currencies other than Australian Dollar (AUD), the reporting currency of the Company. The Company is therefore exposed to currency risk, as the value of the assets and liabilities denominated in other currencies will fluctuate due to changes in exchange rates. The following table summarises the net amount of assets and liabilities which are denominated in currencies that the Company is significantly exposed to: United States Dollar: Net Denominated Net Assets AUD/USD Exchange Rate: $0.7437 (2015: $0.7707) Euro: Net Denominated Net Assets AUD/EURO Exchange Rate: $0.6698 (2015: $0.6914) 2016 $ 2015 $ 11,040,512 85,185,201 2,814,483 21,576,892 (f) Interest Rate Risk Any excess cash and cash equivalents of the Company are invested at short-term market interest rates. Floating rate instruments expose the Company to cash flow risk, whereas short term fixed rate instruments expose the Company to interest rate risk. Excess cash and cash equivalent balances are monitored closely and can be moved into short-term bank bills or fixed term deposits. (g) Financial instrument composition and maturity analysis The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as the Company’s expectations of the settlement period for all other financial instruments. As such, the amounts may not reconcile to the Statement of Financial Position. 2016 Assets Weighted Average Interest Rate Interest bearing Less than 90 days $ More than 1 year $ Non-interest bearing $ Total $ Financial assets - - Cash and cash equivalents 1.42% 159,496,725 Other receivables - - Total assets Liabilities 159,496,725 Financial liabilities - - Cash overdrafts 1.47% 160,807,769 Balances due to brokers Other payables Total liabilities - - - - 160,807,769 - - - - - - - - - 354,014,790 354,014,790 - 159,496,725 3,615,294 3,615,294 357,630,084 517,126,809 59,935,339 59,935,339 - 160,807,769 116,583 116,583 1,651,478 1,651,478 61,703,400 222,511,169 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 14. FINANCIAL RISK MANAGEMENT (Continued) (g) Financial instrument composition and maturity analysis (Continued) 2015 Assets Weighted Average Interest Rate Interest bearing Less than 90 days $ More than 1 year $ Non-interest bearing $ Total $ Financial assets - - Cash and cash equivalents 2.12% 32,673,014 Other receivables Total assets - - 32,673,014 Liabilities Financial liabilities Cash overdrafts Balances due to brokers Other payables Total liabilities - 1.59% - - - 2,596 - - 2,596 Other payables are expected to be paid as follows: - Less than 6 months - 6 months to one year (h) Financial Instruments Measured at Fair Value - - - - - - - - - 293,689,355 293,689,355 - 32,673,014 5,279,525 5,279,525 298,968,880 331,641,894 13,671,193 13,671,193 - 55,342 2,596 55,342 3,329,027 3,329,027 17,055,562 17,058,158 2016 $ 2015 $ 1,651,478 3,329,027 - - AASB 13: Fair Value Measurement requires the disclosure of fair value information using a fair value hierarchy reflecting the significance of the inputs in making the measurements. The fair value hierarchy consists of the following levels: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). Level 3: Inputs for the asset or liability are not based on observable market data (unobservable inputs). Included within Level 1 of the hierarchy are listed investments. The fair values of these financial assets and liabilities have been based on the closing quoted last prices at the end of the reporting period, excluding transaction costs. Investments included in Level 2 of the hierarchy include amounts in relation to Initial Public Offerings and Placements in which the Company has subscribed to during the year. These investments have not listed on the Australian Stock Exchange as at 30 June 2016 and therefore represent investments in an inactive market. In valuing unlisted investments, included in Level 2 of the hierarchy, the fair value has been determined using the valuation technique of the quoted subscription price and the amount of securities subscribed for by the Company under the relevant offers. 34 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 14. FINANCIAL RISK MANAGEMENT (Continued) (h) Financial Instruments Measured at Fair Value (Continued) 30 June 2016 Financial assets Level 1 $ Level 2 $ Level 3 $ 352,659,765 1,355,025 Financial liabilities (59,935,339) - Total 292,724,426 1,355,025 - - - 30 June 2015 Financial assets Level 1 $ 293,195,255 Financial liabilities (13,671,193) Level 2 $ 494,100 - Total 279,524,062 494,100 Level 3 $ - - - Total $ 354,014,790 (59,935,339) 294,079,451 Total $ 293,689,355 (13,671,193) 280,018,162 (i) Sensitivity Analysis The Company has performed a sensitivity analysis relating to its exposure to interest rate risk, and market risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis The sensitivity analyses below have been determined based on the Company’s exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant through the reporting period. The effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in profit before tax - Increase in interest rate by 1% - Decrease in interest rate by 1% Change in equity - Increase in interest rate by 1% - Decrease in interest rate by 1% 2016 $ 296,613 (296,613) 296,613 (296,613) 2015 $ 578,804 (578,804) 578,804 (578,804) Foreign Currency Risk Sensitivity Analysis At 30 June 2016, the effect on profit and equity as a result of changes in the foreign currency risk, with all other variables remaining constant would be as follows: Change in profit before tax - Depreciation of the AUD by 2% - Appreciation of the AUD by 2% Change in equity - Depreciation of the AUD by 2% - Appreciation of the AUD by 2% 321,705 (321,705) 321,705 (321,705) 2,145,691 (2,145,691) 2,145,691 (2,145,691) CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 14. FINANCIAL RISK MANAGEMENT (Continued) (i) Sensitivity Analysis (Continued) Market Risk Sensitivity Analysis At 30 June 2016, the effect on profit and equity as a result of changes in the market risk, with all other variables remaining constant would be as follows: Change in profit before tax - Increase in market price by 2% - Decrease in market price by 2% Change in equity - Increase in market price by 2% - Decrease in market price by 2% 2016 $ 2015 $ 5,115,195 5,607,341 (5,115,195) (5,607,341) 3,580,637 3,925,138 (3,580,637) (3,925,138) 15. KEY MANAGEMENT PERSONNEL COMPENSATION The names and position held of the Company’s key management personnel (including Directors) in office at any time during the financial year are: Karl Siegling Wayne Davies Ronald Hancock James Chirnside Chairman Non-Executive Director and Company Secretary Non-Executive Director Non-Executive Director (a) Remuneration There are no executives that are paid by the Company. Cadence Asset Management Pty Limited, the investment manager of the Company, remunerates Karl Siegling as a consultant and as a director of the Company. The manager also provides day to day management of the Company and is remunerated as outlined in Note 16 – Related Party Transactions. Short-term Employee Benefits - Directors’ Fees Post-employment Benefits - Superannuation 2016 $ 68,493 6,507 75,000 2015 $ 68,493 6,507 75,000 (b) Compensation Practices The Board from time to time determines remuneration of Non-Executive Directors within the maximum amount approved by the shareholders. Non-Executive Directors are not entitled to any other remuneration. Fees and payments to Non-Executive Directors reflect the demands that are made on, and the responsibilities of, the Directors and are reviewed annually by the Board. The Company determines the remuneration levels and ensures they are competitively set to attract and retain appropriately qualified and experienced Directors. Directors’ base fees are presently limited to a maximum of $80,000 per annum between the three Directors. Non-Executive Directors do not receive bonuses nor are they issued options on securities. Directors’ fees cover all main board activities and membership of committees. Directors’ fees are not linked to the performance of the Company. 36 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 15. KEY MANAGEMENT PERSONNEL COMPENSATION (Continued) (c) Shareholdings As at 30 June 2016, the Company’s key management personnel indirectly held the following shares in the Company: Karl Siegling Wayne Davies Ronald Hancock James Chirnside Balance at 1 July 2015 Acquisitions Disposals Balance at 30 June 2016 9,833,185 416,447 279,860 26,851 10,556,343 9,126,398 306,613 120,140 - 9,553,151 - - - - - 18,959,583 723,060 400,000 26,851 20,109,494 As at 30 June 2016, the Company’s key management personnel indirectly held the following options in the Company: Balance at 1 July 2015 Karl Siegling Wayne Davies Ronald Hancock James Chirnside 8,113,666 309,442 279,860 25,932 8,728,900 Options Exercised 8,113,666 250,000 120,140 - 8,483,806 Options Lapsed - 59,442 159,720 25,932 245,094 Balance at 30 June 2016 - - - - - As at 30 June 2015, the Company’s key management personnel indirectly held the following shares in the Company: Balance at 1 July 2014 Acquisitions Disposals Balance at 30 June 2015 Karl Siegling Wayne Davies Ronald Hancock James Chirnside 8,792,686 353,989 279,860 26,851 9,453,386 1,040,499 62,458 - - 1,102,957 - - - - - 9,833,185 416,447 279,860 26,851 10,556,343 As at 30 June 2015, the Company’s key management personnel indirectly held the following options in the Company: Balance at 1 July 2014 Acquisitions Karl Siegling Wayne Davies Ronald Hancock James Chirnside 8,519,166 344,442 279,860 25,932 9,169,400 - - - - - Options Exercised 405,500 35,000 - - Balance at 30 June 2015 8,113,666 309,442 279,860 25,932 440,500 8,728,900 Directors and Director related entities disposed of and acquired ordinary shares and options in the Company on the same terms and conditions available to other shareholders. The Directors have not, during or since the end of the financial year, been granted options over unissued shares or interests in shares of the Company as part of their remuneration. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CONTD’ 16. RELATED PARTY TRANSACTIONS All transactions with related entities were made on normal commercial terms and conditions. Karl Siegling is the sole Director and a beneficial owner of Cadence Asset Management Pty Limited, the entity appointed to manage the investment portfolio of Cadence Capital Limited. Wayne Davies is also a beneficial owner of Cadence Asset Management Pty Limited. In its capacity as Manager, Cadence Asset Management Pty Limited was paid a management fee of $3,535,646 (inclusive of GST) (2015: $3,019,310). This is equivalent to 0.08333% of the value of the portfolio calculated on the last business day of each month. Over a full year, the monthly management fee will be comparable to a fee of 1% of the gross value of the portfolio per annum. As at 30 June 2016, the balance payable to the manager was $120,354 (inclusive of GST) (2015: $161,957). The duties of the manager are to manage the portfolio and to manage and supervise all investments, maintain the corporate and statutory records of the Company, liaise with the ASX with respect to compliance with the ASX listing rules, liaise with ASIC with respect to compliance with the Corporations Act and liaise with the share registrar of the Company. In addition, Cadence Asset Management Pty Limited is to be paid, annually in arrears, a performance fee, being 20% of: • where the level of the All Ordinaries Accumulation Index has increased over that period, the amount by which the level of the portfolio exceeds this increase, or • where the All Ordinaries Accumulation Index has decreased over that period, the amount of the increase in the value of the portfolio. No performance fee is payable in respect of any performance period, where the portfolio has decreased in value over that period. For the year ended 30 June 2016 no performance fee (2015: $2,778,884, inclusive of GST) was payable to Cadence Asset Management Pty Limited. As at 30 June 2015, the balance payable to the manager was $2,778,884 (inclusive of GST). Cadence Asset Management Pty Limited employs accounting personnel to provide accounting services to Cadence Capital Limited. These services are provided on commercial terms and include a standard charge of $1,375 (inclusive of GST) per month and an additional charge of $3,500 (inclusive of GST) is charged for preparing the half year and full year financial statements. 17. EVENTS AFTER THE REPORTING PERIOD The Board have declared a 4.0 cent per share fully franked final dividend payable on 27th October 2016. The Ex- Date for the dividend is 18th October 2016. Other than the above there has not arisen in the interval between the end of the financial year and the date of this report any other item, transaction or event of material and unusual nature likely, in the opinion of the Company, to significantly affect the operations of the entity, the results of those operations, or the state of affairs of the entity, in future financial years. 18. CONTINGENT LIABILITIES There were no material contingencies as at 30 June 2016 (2015: nil). 19. CAPITAL COMMITMENTS Capital commitments exist for placements entered into before 30 June 2016, which settle after year end. 2016 $ 1,826,929 2015 $ 930,776 20. SEGMENT REPORTING The Company has only one segment. The Company operates predominately in Australia and in one industry being the securities industry, deriving revenue from dividend income, interest income and from the sale of its financial assets at fair value through profit or loss, however the Company has foreign exposures as it invests in companies which operate internationally. 38 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 DIRECTORS’ DECLARATION The Directors of Cadence Capital Limited declare that: 1. The financial statements as set out in pages 17 to 38 and the additional disclosures included in the Directors’ Report designated as ‘Remuneration Report’, as set out on pages 9 to 11 are in accordance with the Corporations Act 2001, including: (a) complying with Australian Accounting Standards, which, as stated in Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS), the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (b) giving a true and fair view of the financial position of the Company as at 30 June 2016 and of its performance for the year ended on that date; 2. The Directors have been given declaration required by section 295A of the Corporations Act 2001 from the Manager, Cadence Asset Management Pty Limited declaring that: (a) the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; (b) the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view. 3. At the date of this declaration, in the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Karl Siegling Director Dated in Sydney, this 30th day of September 2016 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 39 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADENCE CAPITAL LIMITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADENCE CAPITAL LIMITED A.B.N 17 112 870 096 Report on the Financial Report We have audited the accompanying financial report of Cadence Capital Limited (the “Company”), which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration. Directors’ Responsibility for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state that, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements that the financial statements comply with International Financial Reporting Standards (IFRS). Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An independent New South Wales Partnership. ABN 17 795 780 962. Pitcher Partners is an association of independent firms Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000 Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle Liability limited by a scheme approved under Professional Standards Legislation An independent member of Baker Tilly International 40 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADENCE CAPITAL LIMITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADENCE CAPITAL LIMITED A.B.N 17 112 870 096 Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: a) the financial report of Cadence Capital Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 9 to 11 of the directors’ report for the year ended 30 June 2016. The directors of Cadence Capital Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Cadence Capital Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. S M WHIDDETT Partner 30 September 2016 PITCHER PARTNERS Sydney An independent New South Wales Partnership. ABN 17 795 780 962. Pitcher Partners is an association of independent firms Level 22 MLC Centre, 19 Martin Place, Sydney NSW 2000 Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle Liability limited by a scheme approved under Professional Standards Legislation An independent member of Baker Tilly International CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 41 ASX ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report. SHAREHOLDINGS Substantial shareholders (as at 31 August 2016) The following shareholder’s have advised that they are a substantial shareholder of Cadence Capital Limited. The holding of a relevant interest does not infer beneficial ownership. Where two or more parties have a relevant interest in the same shares, those shares have been included for each party. Substantial ordinary shareholders as at ex-date No. of shares % of total Esselmont Pty Ltd & associated entities 18,959,583 7.015 Yarandi Investments Pty Ltd & associated entities 14,261,375 5.276 Distribution of holdings (as at 31 August 2016) Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over No. of Shareholders 310 1,213 1,501 4,504 372 7,900 The number of shareholdings held in less than marketable parcels is 100. 42 CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 ASX ADDITIONAL INFORMATION Twenty largest shareholders - Ordinary shares (as at 31 August 2016) Number of ordinary shares held Percentage of issued capital held Esselmont Pty Ltd and associates Yarandi Investments Pty Ltd & associated entities HSBC Custody Nominees (Australia) Limited Avanteos Investments Limited Southern Steel Investments Pty Limited Mr Mark John & Mr Stephen William Toye Mr Victor John Plummer Mr Aengus Kavanagh & Mr Matthew Mahoney Mr Keith William Kerridge Mr Paul & Mrs Karen & Mr Luke Van Ryn Mrs Karen Lianne Van Ryn Andonandon Pty Ltd Mr Clifford Law & Ms Susanne Bruhn Golden Words Pty Ltd Arongi Pty Limited Mr Aaron Francis Quirk Golden Words Pty Ltd Arazan Pty Ltd Netwealth Investments Limited Appreciation Holdings Pty Ltd 18,959,583 14,261,375 2,095,650 2,031,282 1,579,910 1,300,000 1,000,000 863,531 786,945 781,476 776,476 723,060 700,880 699,301 698,900 691,123 649,650 627,821 614,825 600,000 7.015 5.276 0.775 0.752 0.585 0.481 0.370 0.319 0.291 0.289 0.287 0.268 0.259 0.259 0.259 0.256 0.240 0.232 0.227 0.222 50,441,788 18.662 STOCK EXCHANGE LISTING Quotation has been granted for all of the ordinary shares of the Company on all Member Exchanges of the ASX Limited. CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 | A.B.N. 17 112 870 096 43 This page has intentionally been left blank Level 11, 131 Macquarie Street, Sydney, NSW, 2000 Telephone: (02) 8298 2444 Fax: (02) 8298 2499 Email: info@cadencecapital.com.au Website: www.cadencecapital.com.au CADENCE CAPITAL LIMITED ANNUAL REPORT 2016 

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