Cadence Capital Limited
Annual Report 2021

Plain-text annual report

CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 CONTENTS Company Particulars Manager’s Report Top 20 Positions Directors’ Report to Shareholders 2 3 5 6 Auditor’s Independence Declaration 11 Statement of Profit or Loss and Other Comprehensive Income 12 Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 13 14 15 16 33 34 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 COMPANY PARTICULARS CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS: SECRETARY: MANAGER OF THE COMPANY: REGISTERED OFFICE: CONTACT DETAILS: PRIME BROKER: SHARE REGISTRAR: AUDITORS: Karl Siegling Wayne Davies Susan Oakes Wayne Davies Cadence Asset Management Pty Limited ABN: 68 106 551 062 Level 11, 131 Macquarie Street Sydney, NSW 2000 Level 11, 131 Macquarie Street Sydney, NSW 2000 Telephone: (02) 8298 2450 Fax: (02) 8298 2499 Email: Website: info@cadencecapital.com.au www.cadencecapital.com.au For enquiries regarding net asset backing refer to cadencecapital.com.au or call (02) 8298 2450 Deutsche Bank AG Winchester House,1 Great Winchester Street London EC2N 2DB Boardroom Pty Limited Mail Address: GPO Box 3993, Sydney NSW 2001 Telephone: Fax: (02) 9290 9600 (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. Pitcher Partners Level 16 Tower 2, Darling Park 201 Sussex St Sydney, NSW 2000 COUNTRY OF INCORPORATION: Australia 2 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 MANAGER’S REPORT SUMMARY OF RESULTS • • • • • • • • Record profit before tax of $7,960,519 Record profit after tax of $5,594,046 Record earnings per share of 75.2 cents Fund gross performance for the past year of +98.4% Fund gross performance since inception 2.5 years ago of +57.9% per annum 12.0c fully franked Final Dividend and a 3.0c fully franked Special Dividend Yield of 6.1% fully franked (8.8% gross including franking) 30 June 2021 Post-tax NTA per share of $2.4449 COMPANY PERFORMANCE The Cadence Opportunities Fund completed the financial year up 98.4%, outperforming the All Ordinaries Accumulation Index by 68.2% over the same period. Since its inception two and half years ago, the fund has delivered 213.4% (57.9% per annum) for our shareholders which has been a pleasing performance. We are focused on implementing our stock selection and scaling process which seeks to add to winning positions and to cut losers. We believe this will continue to generate good risk-adjusted returns for our investors through market cycles. In terms of stock specific contributors, the best performers for the year were Cettire, Podium Minerals, Uniti Group, Maas Group, Bed Bath & Beyond, Airtasker, Pointsbet and Pinterest. The largest detractors from performance were Redfin and EML Payments. DIVIDENDS The Company announced a 12.0 cents per share fully franked final dividend and a 3.0 cents per share fully franked special dividend. The total dividend equates to a 6.1% annual fully franked yield, or a 8.8% gross yield (grossed up for franking credits) based on the year end Post-Tax NTA of $2.4449. The Ex-Date for the dividend is the 22 October 2021 and the payment date for the dividend is the 29 October 2021. The Dividend Re-Investment Plan (“DRP”) is in operation for the final dividend. The DRP price will be based off the mid-point of the pre and post tax NTA as at the record date less a 3% discount. DEEPGREEN In September 2021, DeepGreen Metals merged with Sustainable Opportunities Acquisition Corporation (SOAC). The merged entity renamed, TMC The Metals Company Inc. (TMC) and listed on the NASDAQ on the 10 September 2021. The Company’s investment in DeepGreen Metals was valued at $0.2 million at 30 June 2021. On the close of the first day of listing of TMC on the NASDAQ the value of the Company’s TMC position increased to $1.6 million. MARKET OUTLOOK The World is slowly coming to terms with Covid 19 with financial markets having largely recovered from the Covid 19 ‘panic’. Corporate profits have rebounded and in many cases are at all-time highs. Investor confidence has returned. Western Europe and North America are leading the world in vaccinations which is allowing their economies to fully re-open. With interest rates expected to remain at zero, or low, across much of the world, the overall environment remains supportive of equities. We are finding investment opportunities for the fund across a broad range of sectors, both domestically and internationally. Opportunity now exists through stock selection rather than ‘all boats rising in a rising tide. COMPANY FUTURE The Board is considering an ASX listing before December 2021. The Board will communicate their decision to Company shareholders if they decide to list. 3 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 MANAGER’S REPORT (Continued) SHAREHOLDER COMMUNICATION As managers of Cadence Opportunities Fund Limited, we aim to provide shareholders with clear and transparent communication. We do this through monthly investment updates, quarterly webcasts, investor presentations, market insights, as well as annual and half yearly profit announcements. We would at www.cadencecapital.com.au/cdonewsletter/. encourage updates register receive regular you to to Please feel free to contact us at info@cadencecapital.com.au with any feedback to improve our communication and engagement with you. I would like to take this opportunity to thank our investors for their continued support. Karl Siegling Managing Director Cadence Asset Management Pty Limited 4 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 TOP 20 POSITIONS AS AT 30 JUNE 2021 LONG AND SHORT POSITIONS Long Positions Company Name Exposure % of NTO 360 BET MGH UWL ASAN US CTT SHOP US CHN NVDA US UPST US FVRR US BBBY US SE US ECX CROX US PDN CAT MVF ** A Pre-IPO investment in the Materials sector Nitro Software Ltd Life360 Inc Betmakers Technology Group Ltd Maas Group Holdings Ltd Uniti Group Limited Asana Inc Cettire Ltd Shopify Inc Chalice Gold Mines Ltd Nvidia Corp Upstart Holdings Corp Fiverr International Ltd Bed Bath & Beyond Inc Sea Ltd Eclipx Group Ltd Crocs Inc Paladin Energy Ltd Catapult Group International Monash IVF Group Ltd $ Equity $1,124,700 5.12% $1,075,480 4.90% $849,217 3.87% $840,000 3.82% $839,843 3.82% $744,360 3.39% $733,110 3.34% $642,831 2.93% $601,020 2.74% $586,740 2.67% $566,213 2.58% $565,810 2.58% $554,833 2.53% $512,587 2.33% $499,400 2.27% $466,080 2.12% $463,500 2.11% $463,158 2.11% $399,500 1.82% Short Positions Company Name APX Appen Ltd Exposure $ $666,400 % of Equity 3.03% Total Top 20 Long and Short Positions $11,861,982 54.02% TOTAL PORTFOLIO POSITIONS: Portfolio Net Exposure Long Positions $21,396,111 97.39% Portfolio Net Exposure Short Positions $1,735,725 7.90% Total Portfolio Net Exposure $19,660,386 89.49% 5 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2021 The Directors of Cadence Opportunities Fund Limited (“the Company”) submit herewith their report together with the financial report of Cadence Opportunities Fund Limited for the financial year ended 30 June 2021. PRINCIPAL ACTIVITY The principal activity of the Company is investing primarily in securities listed both in Australia and internationally. 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 profit before tax of $7,960,519 (2020: $2,194,677) and an operating profit after tax of $5,594,046 (2020: $1,540,980). REVIEW OF OPERATIONS Investments are valued continuously to market value. For the year ended 30 June 2021, net investments were valued at $19,660,386 (2020: $$8,926,145). 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 year ended was $21,965,936 (2020: $8,429,424). DIVIDENDS PAID OR RECOMMENDED The Board have declared a 12.0 cent per share fully franked final dividend and a 3.0 cent per share fully franked special dividend payable on 29 October 2021. The Ex-Date for the dividend is the 22 October 2021. DIRECTORS The names of the Directors of Cadence Opportunities Fund Limited who held office during or since the end of the financial year are: Karl Siegling Wayne Davies Susan Oakes The following persons were Directors of the Company during the financial year and up to the date of this report: INFORMATION ON DIRECTORS Karl Siegling (Chairman) Karl Siegling has 28 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 a MBA from INSEAD in France. Karl holds a Post Graduate Diploma in Finance with the Securities Institute of Australia (FINSIA). 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. He then worked within the Equities Research Division of Deutsche Morgan Grenfell before studying a MBA at INSEAD and working as a Summer Associate within 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) focused on investing in early stage and expansion capital for financial services and technology companies. Karl worked as a consultant for Wilson Asset Management, researching stocks, before setting up Cadence Asset Management Pty Limited. Karl has been the Chairman and Managing Director of Cadence Asset Management Pty Limited (The Manager), for 17 and a half years. Karl is also a Director Cadence Opportunities Fund Limited. Karl has been the Chairman and Managing Director of Cadence Capital Limited for 16 and a half years. Karl has been a Director of the Company for the past 3 years. 6 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2021 INFORMATION ON DIRECTORS (Continued) Wayne Davies (Non-Executive Director and Company Secretary) Wayne Davies has over 19 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 member of the Cadence Asset Management team and has been the Chief Operating Officer of Cadence Asset Management for the past 14 years. Wayne Davies previously worked with Theorema Asset Management in London and was a director of Theorema Europe Fund and Theorema Europe Fund Plus. Wayne has been a Director of Cadence Capital Limited for the past 7 and a half years. Wayne has been a Director of the Company for the past 3 years. Susan Oakes (Non-executive Director) Susan Oakes has over 30 years financial services industry experience. Susan has worked in trading room roles in Sydney, London and New York. Susan is a former director and business head at Merrill Lynch and has also worked as a risk consultant at the Commonwealth Bank of Australia. Susan has worked in trading roles at Genesis Proprietary Trading, Phoenix Trading Group, Aliom Holdings Limited & TransMarket Group. Susan possesses extensive experience and knowledge in trading and portfolio management. Susan Oakes holds an MBA from the Australian Graduate School of Management, UNSW, specialising in business risk. Susan has been a Director of the Company for the past two and a half years. COMPANY SECRETARY Wayne Davies held the position of Company Secretary at the end of the financial year. DIRECTORS’ MEETINGS No. eligible to attend Attended Karl Siegling Wayne Davies Susan Oakes 5 5 5 5 5 5 REMUNERATION REPORT This report details the nature and amount of remuneration for each Director of Cadence Opportunities Fund 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. 2021 Short-term Employee Benefits - Directors Fees: Susan Oakes Wayne Davies Cash Salary Superannuation $ $ Total $ 1,302 650 1,952 15,000 7,500 22,500 13,698 6,850 20,548 7 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2021 REMUNERATION REPORT (Continued) (a) Remuneration (Continued) 2020 Short-term Employee Benefits - Directors Fees: Susan Oakes Wayne Davies Cash Salary $ Superannuation $ Total $ 13,698 6,850 20,548 1,302 650 1,952 15,000 7,500 22,500 (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 Opportunities Fund Limited. In its capacity as Manager, Cadence Asset Management Pty Limited was paid a management fee of $256,190 (inclusive of GST) (2020: $106,071). This is equivalent to 0.125% 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 1.25% of the gross value of the portfolio per annum. As at 30 June 2021, the balance payable to the Manager was $29,011 (2020:nil). The loan receivable from the Manager (which was provided to the Manager by the Company in accordance with a loan agreement entered into on or around the date of the Prospectus) was repaid during the 2021 financial year (refer note 5). As at 30 June 2020 the outstanding Loan to the Manager was $126,411. 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 15% (plus GST) of 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 2021, $1,721,228 (inclusive of GST) (2020: $459,976). was payable to Cadence Asset Management Pty Limited. As at 30 June 2021, the balance payable to the Manager was $1,721,228 (2020: $459,976). Cadence Asset Management Pty Limited employs accounting personnel to provide accounting services to Cadence Opportunities Fund Limited. These services are provided on commercial terms and include a standard charge of $550 (inclusive of GST) per month. (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. 8 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2021 REMUNERATION REPORT (Continued) (d) Shareholdings Directors’ base fees are presently limited to a maximum of $100,000 per annum between the 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. 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 Susan Oakes Acquisitions Disposals Balance at 1 July 2020 1,600,001 100,000 1,724,001 24,000 1,139,554 13,736 5,723 1,159,013 - - - - Balance at 30 June 2021 2,739,555 113,736 29,723 2,883,014 There has been no change to these shareholdings from 30 June 2020 to the date of this report. End of Remuneration Report. EVENTS AFTER THE REPORTING PERIOD In September 2021, DeepGreen Metals merged with Sustainable Opportunities Acquisition Corporation (SOAC). The merged entity renamed, TMC The Metals Company Inc. (TMC) and listed on the NASDAQ on the 10 September 2021. The Company’s investment in DeepGreen Metals was valued at $0.2 million at 30 June 2021. On the close of the first day of listing of TMC on the NASDAQ the value of the Company’s TMC position increased to $1.6 million. Other than disclosed elsewhere in this report, there has not arisen in the interval between the end of the financial year and the date of this report any 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. The Board is considering an ASX listing before December 2022. The Board will communicate their decision to Company shareholders if they decide to list. 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. INDEMNIFICATION AND INSURANCE OF OFFICERS OR AUDITORS During the year the Company paid 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 year, for any person who is or has been an auditor of the Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. 9 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ REPORT TO SHAREHOLDERS FOR THE YEAR ENDED 30 JUNE 2021 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 (including Independence Standards). 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 11 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 27 September 2021 10 Level 16, Tower 2 Darling Park 201 Sussex Street Sydney NSW 2000 Postal Address GPO Box 1615 Sydney NSW 2001 p. +61 2 9221 2099 e. sydneypartners@pitcher.com.au Auditor’s Independence Declaration To the Directors of Cadence Opportunities Fund Limited A.B.N. 37 627 359 166 In relation to the independent audit of the financial report of Cadence Opportunities Fund Limited for the year then ended 30 June 2021, I declare that to the best of my knowledge and belief there have been: (i) no contraventions of the auditor’s independence requirements of the Corporations Act 2001; and (ii) no contraventions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards). C I Chandran Partner Pitcher Partners Sydney 27 September 2021 Adelaide Brisbane Melbourne Newcastle Perth Sydney 11 Pitcher Partners is an association of independent firms. An independent New South Wales Partnership. ABN 17 795 780 962. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 INCOME Net realised and unrealised gain on investments Dividends received Interest received Other income Total Income EXPENSES Finance costs Management fees Performance fees Directors fees Stock loan fees Dividends on short positions Brokerage expenses on share purchases Registry fees Legal fees Custody fees Audit and taxation fees Other expenses from ordinary activities Total Expenses Note s 2021 $ 10,216,240 72,523 2,046 20,196 10,311,005 (54,918) (238,723) (1,603,871) (22,500) (6,854) (495) (287,006) (11,756) (9,307) (64,825) (42,173) (8,058) (2,350,486) 2 2020 $ 2,919,153 68,178 8,904 4,092 3,000,327 (29,038) (98,839) (428,614) (22,500) (2,637) (6,705) (115,743) (4,127) (1,886) (57,148) (29,473) (8,940) (805,650) Profit before income tax 7,960,519 2,194,677 Income tax expense Profit attributable to members of the Company 3(a) 11 (2,366,473) 5,594,046 (653,697) 1,540,980 Other comprehensive income Other comprehensive income for the year, net of tax - - Total comprehensive income for the year 5,594,046 1,540,980 Basic earnings per share Diluted earnings per share 13 13 75.2 cents 31.5 cents 75.2 cents 31.5 cents The accompanying notes form part of these financial statements. 12 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 ASSETS Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Deferred tax asset TOTAL ASSETS LIABILITIES Cash overdrafts Trade and other payables Financial liabilities at fair value through profit or loss Current tax liability Deferred tax liability Note 12(a) 5 6 3(b) 12(a) 7 8 3(d) 3(c) 2021 $ 11,404,356 3,036,586 21,396,111 14,572 2020 $ 2,679,294 653,968 9,842,520 6,303 35,851,625 13,182,085 7,491,825 3,220,591 1,735,725 611,359 826,189 1,898,516 1,238,497 916,375 296,948 402,325 TOTAL LIABILITIES 13,885,689 4,752,661 NET ASSETS EQUITY Issued capital Profits reserve TOTAL EQUITY 21,965,936 8,429,424 9 10 14,848,568 7,117,368 6,595,050 1,834,374 21,965,936 8,429,424 The accompanying notes form part of these financial statements. 13 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 17 112 870 096 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 Issued capital Note $ Retained Profits $ Profits reserve $ Total equity $ Balance at 30 June 2019 5,560,050 - 293,394 5,853,444 Profit for the year Transfer to profits reserve Other comprehensive income for the year Transactions with owners: Shares issued Balance at 30 June 2020 Profit for the year Transfer to profits reserve Other comprehensive income for the year Transactions with owners: Net shares issued Dividends paid Balance at 30 June 2021 11 10 9 11 10 9 4 - - - 1,540,980 - 1,540,980 (1,540,980) 1,540,980 - - 1,035,000 18,294,586 - - 6,595,050 18,294,586 - 1,035,000 1,834,374 8,429,424 - - - 8,253,518 - 14,848,568 5,594,046 - 5,594,046 (5,594,046) 5,594,046 - - 8,253,518 (311,052) (311,052) 7,117,368 21,965,936 - - - - - - - - - - The accompanying notes form part of these financial statements. 14 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Note 2021 $ 2020 $ CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from the sale of investments Payments for the purchase of investments 138,001,697 (140,542,923) 55,632,421 (56,145,882) Dividends received Interest received Other income received Performance fees paid Management fees paid Brokerage expenses on share purchases Interest paid Dividends paid on shorts Payments for other expenses Income tax paid NET USED IN OPERATING ACTIVITIES 12(b) CASH FLOWS FROM FINANCING ACTIVITIES 71,188 8,904 4,092 (51,745) - (115,743) (29,038) (6,705) (164,252) (58,608) 70,340 2,046 20,196 - (342,619) (83,300) (287,006) (54,918) (495) (257,262) (1,627,621) ( 7 ( 0 2 ( 6 , 1 , 4 0 3 ( 2 , 1 5 0 4 0 , , 2 ) 4 5 0 2 9 , 2 1 3 , ) 0 6 0 4 ) 6 ) (5,101,865) (855,368) Proceeds from shares issued 8,544,670 Dividends paid (311,052) 1,035,000 - NET CASH PROVIDED BY FINANCING ACTIVITIES 8,233,618 1,035,000 NET INCREASE IN CASH HELD 3,131,753 179,632 CASH AND CASH EQUIVALENTS AS AT BEGINNING OF THE FINANCIAL YEAR CASH AND CASH EQUIVALENTS AS AT END OF THE FINANCIAL YEAR 12(a) 6 0 1 , 1 4 6 780,778 601,146 3,912,531 780,778 The accompanying notes form part of these financial statements. 15 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 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'). 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(i). The financial report was authorised for issue on 27 September 2021 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. Financial assets are classified ‘at fair value through profit or loss’ when they are held for trading for the purpose of short-term profit taking. Realised and unrealised gains and losses arising from changes in fair value are included in the Statement of Profit or Loss and Other Comprehensive Income in the period in which they arise. 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. 16 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 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. 17 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (b) Income Tax (Continued) 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. (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 are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for expected credit loss. Trade and other receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. (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 nominal amounts and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. The carrying amount of trade and other payables represent their fair value. (f) Impairment At each reporting date, the Company shall measure the loss allowance on financial assets at amortised cost (cash, due from broker and receivables) at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Company shall measure the loss allowance at an amount equal to 12-month expected credit losses. Significant financial difficulties of the counter party, probability that the counter party will enter bankruptcy or financial reorganisation, and default in payments are all considered indicators that a loss allowance may be required. If the credit risk increases to the point that it is considered to be credit impaired, interest income will be calculated based on the gross carrying amount adjusted for the loss allowance. A significant increase in credit risk is defined by management as any contractual payment which is more than 30 days past due. Any contractual payment which is more than 90 days past due is considered credit impaired. (g) 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 securities which are listed Internationally. (h) Comparative Figures Where required by accounting standards, comparative figures have been adjusted to conform with changes in presentation for the current financial year. 18 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) 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. 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. Future taxable amounts are determined based on the historical performance of the Company. Deferred tax assets are reviewed at each reporting period. There are no estimates or judgements that have a material impact on the Company’s financial results for the period ended 30 June 2021 (2020: none). 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. (j) 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. (k) Profits Reserve The profits reserve is made up of amounts transferred from current and retained earnings that are preserved for future dividend payments. (l) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. (m) New and amended standards adopted by the Company There are no standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning on or after 1 July 2020 that will have a material impact on the accounts recognised in the prior periods or will affect the current or future periods. (n) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2021, and have not been early adopted in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Company. 19 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 2. AUDITOR’S REMUNERATION Remuneration of the auditor of the Company for: Audit and review the financial report Non-audit Services Other services provided by a related practice of the auditor: Taxation services 2021 $ 2020 $ 27,026 23,621 15,147 42,173 5,852 29,473 3. TAXATION (a) Current Income Tax Expense The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax expense as follows: Prima facie tax expense on profit from ordinary activities before income tax at 30% Imputation credit gross up Franked dividends receivable – prior year Franked dividends receivable – current year Change in corporate tax rate Other Prior year under/ (over) 2,388,157 (15,228) 389 - - (6,000) (845) 2,366,473 658,403 (15,440) 1,875 (389) 8,898 350 - 653,697 Effective tax rate 30.0% 30.0% The effective tax rate for FY2020 is 30.0% reflecting the benefit to the Company of franking credits received on dividend income during the year. Total income tax expense results in a: Current tax (asset)/ liability Movement in deferred tax assets/liabilities (b) Deferred Tax Asset Provisions Capitalised share issue costs Movement in deferred tax asset Balance at the beginning of the year Credited to the profit or loss Charged to equity 20 611,358 1,755,115 2,366,473 7,494 7,078 14,572 6,303 1,191 7,078 14,572 355,556 298,141 653,697 6,303 - 6,303 - 6,303 - 6,303 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 3. TAXATION (Continued) (c) Deferred Tax Liability Provisions Fair value adjustments Movement in deferred tax liability Balance at the beginning of the year Debited to the profit or loss (d) Current Tax Liability Movement in current tax liability Balance at the beginning of the year Current year income tax on operating profit Income tax paid Prior year under/(over) 2021 $ 2020 $ 1,627 824,562 826,189 402,325 423,864 826,189 296,948 1,942,876 (1,627,621) (844) 611,359 583 401,742 402,325 97,881 304,444 402,325 - 355,556 (58,608) - 296,948 4. DIVIDENDS (a) Dividends paid by the Company 6.0 cents per share final dividend fully franked paid 16 October 2020. Subsequent to 30 June 2021, the Board have declared a 12.0 cent per share fully franked final dividend and a 3.0 cent per share fully franked special dividend payable on 29 October 2021. The Ex-Date for the dividend is the 22 October 2021. 311,052 - (b) Dividend franking account Balance of franking account at year end adjusted for franking credits, arising from payment of provision for income tax and dividends recognised as receivables and franking credits that may be prevented from distribution in subsequent financial years. 2,219,127 91,701 Subsequent to the reporting period, the franking account would be reduced by the proposed dividend disclosed in (a) above. 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. The balance of the franking account does not include the tax to be paid on unrealised investment gains and accrued income currently recognised as a deferred tax liability of $826,189. (2020: $402,325) 5. TRADE AND OTHER RECEIVABLES Trade debtors Income receivable GST receivable Miscellaneous receivable Loan receivable 2,888,451 5,423 137,212 5,500 - 3,036,586 473,605 3,240 50,711 - 126,412 653,968 21 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 5. TRADE AND OTHER RECEIVABLES (Continued) 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. The Loan Receivable was the outstanding loan recorded as a receivable from the Manager as a consequence of the Manager Loan which was provided to the Manager by the Company in accordance with a loan agreement entered into on or around the date of the Prospectus. Trade and other receivables are not past due or impaired and are of a good credit quality, therefore no expected credit loss has been recognised. 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Long positions - held for trading financial assets Listed Investments at fair value Unlisted Investments at fair value 7. TRADE AND OTHER PAYABLES Trade creditors Sundry creditors - related parties Sundry creditors - other 2021 $ 21,201,634 194,477 21,396,111 1,143,098 1,750,788 326,705 3,220,591 2020 $ 9,631,255 211,265 9,842,520 751,476 460,526 26,495 1,238,497 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 – related parties, includes fees payable of $1,750,788 (inclusive of GST) (2020: $460,526) to the manager, Cadence Asset Management Pty Limited. Sundry creditors – other, are settled within the terms of payment offered, which is usually within 30 days. 8. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Short positions – Listed Investments at fair value 1,735,725 1,735,725 916,375 916,375 9. ISSUED CAPITAL (a) Paid-up Capital Ordinary shares fully paid Share issue transaction costs Deferred tax asset on share issue transaction costs 14,869,214 (29,494) 8,848 14,848,568 6,595,050 - - 6,595,050 22 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 9. ISSUED CAPITAL (Continued) (a) Paid-up Capital (Continued) 2021 Date Balance at the beginning of the year 1 September 2020 1 October 2020 1 November 2020 1 December 2020 1 January 2021 16 January 2021 1 March 2021 1 April 2021 1 June 2021 Details Placement Placement Placement Placement Placement Buy-Back Placement Placement Placement 2020 Date Balance at the beginning of the year 1 October 2019 1 November 2019 1 December 2019 1 January 2020 Details Placement Placement Placement Placement Share Price $ No. of Shares Issue value $ $2.048 $2.066 $2.061 $2.184 $2.234 $2.291 $2.377 $2.389 $2.559 5,135,367 48,840 24,207 1,143,554 2,503,613 223,804 (214,139) 42,065 41,853 35,176 8,984,340 6,595,050 100,000 50,000 2,356,865 5,467,891 500,000 (490,592) 100,000 100,000 90,000 14,869,214 Share Price $ No. of Shares Issue value $ $1.490 $1.500 $1.535 $1.530 4,447,962 3,356 570,000 100,977 13,072 5,135,367 5,560,050 5,000 855,000 155,000 20,000 6,595,050 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. (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. 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 2021 $ 7,117,368 2020 $ 1,834,374 1,834,374 5,594,046 (311,052) 7,117,368 293,394 1,540,980 - 1,834,374 The Profit Reserve is made up of amounts transferred from current and retained earnings that are preserved for future dividend payments. 23 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 11. RETAINED EARNINGS Opening balance Profit attributable to members of the Company Transfer to profits reserve 2021 $ - 5,594,046 (5,594,046) - 2020 $ - 1,540,980 (1,540,980) - 12. CASH FLOW INFORMATION (a) Reconciliation of cash Cash at the end of the year 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 11,404,356 (7,491,825) 3,912,531 2,679,294 (1,898,516) 780,778 The weighted average interest rate for cash and cash equivalents as at June 2021 is 0.04% (June 2020: 0.09%). The weighted average interest rate for cash overdrafts as at June 2020 is 0.95% (June 2020: 1.00%). The Company has Prime Brokerage facilities, including lending, and Custody arrangements with Deutsche Bank AG. The Prime Brokerage 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 Operating profit after income tax Movement in fair value on financial assets and liabilities 5,594,046 (10,734,241) 1,540,980 (4,036,424) Changes in assets and liabilities: Increase in trade and other receivables Increase in trade and other payables Increase in current tax liability Increase in deferred tax asset Increase in deferred tax liability Net cash used in by Operating Activities 13. EARNINGS PER SHARE Basic earnings per share (2,509,030) 1,808,506 314,411 (8,269) 432,712 (5,101,865) 2021 Cents per share 75.2 2021 $ (78,660) 1,123,247 296,948 (6,303) 304,444 (855,368) 2020 Cents per share 31.5 2020 $ Profit after income tax used in the calculation of earnings per share 5,594,046 1,540,980 24 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 13. EARNINGS PER SHARE (Continued) 2021 No. 2020 No. Weighted average number of ordinary shares outstanding during the year used in calculation of basic earnings per share 7,436,796 4,893,522 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: Weighted average number of ordinary shares used in calculation of basic earnings per share Add: 7,436,796 4,893,522 7,436,796 4,893,522 Weighted average number of potential ordinary shares used in the calculation of diluted earnings per share - - Weighted average number of shares used in the calculation of diluted earnings per share 7,436,796 4,893,522 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, foreign currency risk and market price 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. 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. 25 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. FINANCIAL RISK MANAGEMENT(Continued) (b) Credit Risk (Continued) The Company maintains Prime Brokerage facilities, including lending, and Custody facilities with its prime broker and custodian Deutsche Bank AG. 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 or custodian that is being used by the Company, 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 AG 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 AG’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 Price Risk Market price 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 price 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 price 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. (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: 26 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. FINANCIAL RISK MANAGEMENT (Continued) (e) Foreign Currency Risk (Continued) 2021 2020 United States Dollar Net Denominated Net Assets USD$175,007 USD$253,806 AUD/USD Exchange Rate as at 30 June 2021: $0.7500 (2020: $0.6904) The maximum exposure to credit risk on financial assets, excluding investments, of the Company which have been recognised on the Statement of Financial Position, is the carrying amount. The Company is not materially exposed to any individual credit risk. (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. 2021 Weighted Average Interest Rate Interest Bearing More than 1 year $ Less than 90 days $ Non-interest bearing $ Total $ - - - - - - - - - - 21,396,111 - 2,888,451 148,135 24,432,697 21,396,111 11,404,356 2,888,451 148,135 35,837,053 1,735,725 - 1,143,098 2,077,493 1,735,725 7,491,825 1,143,098 2,077,493 4,956,316 12,448,141 Assets Financial assets Cash and cash equivalents Trade Debtors(<90 days) Other receivables Total assets - 11,404,356 - - 11,404,356 - 0.04% - - Liabilities Financial liabilities Cash overdrafts Trade Creditors(<90 days) Other payables - 7,491,825 - - - 0.95% - - Total liabilities 7,491,825 27 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. FINANCIAL RISK MANAGEMENT (Continued) (g) Financial instrument composition and maturity analysis (Continued) 2020 Interest Bearing Weighted Average Interest Rate Less than 90 days $ More than 1 year $ Non-interest bearing $ Total $ Assets Financial assets Cash and cash equivalents Trade Debtors(<90 days) Other receivables Total assets - 2,679,294 - - 2,679,294 - 0.09% - - Liabilities - Financial liabilities 1,898,516 Cash overdrafts - Trade Creditors(<90 days) - Other payables - 1.00% - - Total liabilities 1,898,516 - - - - - - - - - - 9,842,520 - 473,605 180,363 10,496,488 9,842,520 2,679,294 473,605 180,363 13,175,782 916,375 - 751,476 487,021 916,375 1,898,516 751,476 487,021 2,154,872 4,053,388 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 2021 $ 2,077,493 - 2020 $ 487,021 - 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: Level 3: inputs). 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). Inputs for the asset or liability are not based on observable market data (unobservable 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 Contracts for Difference, Financial Liabilities, Initial Public Offerings and Placements in which the Company has subscribed to during the year. The fair value of Contracts for Difference and Financial Liabilities have been determined using market inputs of the underlying investments. Initial Public Offerings and Placements are investments that have not listed on the Australian Stock Exchange as at 30 June 2021 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. 28 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. FINANCIAL RISK MANAGEMENT (Continued) (h) Financial Instruments Measured at Fair Value 30 June 2021 Financial assets Financial liabilities Total 30 June 2020 Financial assets Financial liabilities Total Level 1 $ 20,451,635 (1,735,725) 18,715,910 Level 2 $ 749,999 - 749,999 Level 3 $ Total $ 194,477 - 194,477 21,396,111 (1,735,725) 19,660,386 Level 1 $ 9,631,255 (916,375) Level 2 $ - - Level 3 $ 211,265 - Total $ 9,842,520 (916,375) 8,714,880 - 211,265 8,926,145 Level 3 asset class is made of a pre-IPO investment. DeepGreen Metals Inc is valued at the weighted average cost of purchases. DeepGreen Metals merged with Sustainable Opportunities Acquisition Corporation (SOAC) and listed on the NASDAQ on 10 September 2021 under the name TMC The Metals Company Inc. Refer to Note 17 of the financial statements for further information. (i) Sensitivity Analysis The Company has performed a sensitivity analysis relating to its exposure to interest rate risk, foreign currency risk and market price 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% 2021 $ 2020 $ (41,126) (1,639) 41,126 1639 (28,789) (1,148) 28,789 1,148 Foreign Currency Risk Sensitivity Analysis At 30 June 2021, 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% 2021 $ 2020 $ (802) 802 3,601 (3,601) (562) 562 2,521 (2,521) 29 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. FINANCIAL RISK MANAGEMENT (Continued) (i) Sensitivity Analysis (Continued) Market Price Risk Sensitivity Analysis At 30 June 2021, the effect on profit and equity as a result of changes in the market price 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% 2021 $ 2020 $ 393,208 178,523 (393,208) (178,523) 275,245 124,966 (275,245) (124,966) 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 Susan Oakes (a) Remuneration Chairman Non-Executive Director and Company Secretary Non-Executive Director There are no executives that are paid by the Company. Cadence Asset Management Pty Limited, the investment manager of the Company 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 (b) Compensation Practices 2021 2020 $ $ 20,548 1,952 22,500 20,548 1,952 22,500 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 $100,000 per annum between the 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. 30 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 15. KEY MANAGEMENT PERSONNEL COMPENSATION (Continued) As at 30 June 2021, the Company’s key management personnel indirectly held the following shares in the Company: Shareholdings Karl Siegling Wayne Davies Susan Oakes Acquisitions Disposals Balance at 1 July 2020 1,600,001 100,000 1,724,001 24,000 1,139,554 13,736 5,723 1,159,013 - - - - Balance at 30 June 2021 2,739,555 113,736 29,723 2,883,014 As at 30 June 2020, the Company’s key management personnel indirectly held the following shares in the Company: Karl Siegling Wayne Davies Susan Oakes Balance at 1 July 2019 1,600,001 100,000 24,000 1,724,001 Acquisitions Disposals - - - - - - - - Balance at 30 June 2020 1,600,001 100,000 24,000 1,724,001 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 Opportunities Fund Limited. In its capacity as Manager, Cadence Asset Management Pty Limited was entitled to a management fee of $256,190 (inclusive of GST) (2020: $106,071). This is equivalent to 0.125% 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 1.25% of the gross value of the portfolio per annum. As at 30 June 2021, the balance payable to the Manager was $29,011. (2020: nil). The loan receivable from the Manager (which was provided to the Manager by the Company in accordance with a loan agreement entered into on or around the date of the Prospectus) was repaid during the 2021 financial year (refer note 5). As at 30 June 2020 the outstanding Loan to the Manager was $126,411. 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 15% (plus GST) of 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 2021 $1,721,228 (inclusive of GST) (2020: $459,976) was payable to Cadence Asset Management Pty Limited. As at 30 June 2021, the balance payable to the Manager was $1,721,228 (2020: $459,976). Cadence Asset Management Pty Limited employs accounting personnel to provide accounting services to Cadence Opportunities Fund Limited. These services are provided on commercial terms and include a standard charge of $550 (inclusive of GST) per month. 31 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 17. EVENTS AFTER THE REPORTING PERIOD The Board have declared a 12.0 cent per share fully franked final dividend and a 3.0 cent per share fully franked special dividend payable on 29 October 2021. The Ex-Date for the dividend is the 22 October 2021. In September 2021, DeepGreen Metals merged with Sustainable Opportunities Acquisition Corporation (SOAC). The merged entity renamed, TMC The Metals Company Inc. (TMC) and listed on the NASDAQ on the 10 September 2021. The Company’s investment in DeepGreen Metals was valued at $0.2 million at 30 June 2021. On the close of the first day of listing of TMC on the NASDAQ the value of the Company’s TMC position increased to $1.6 million. 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 2021 (2020: nil). 19. CAPITAL COMMITMENTS 2021 $ 2020 $ Capital commitments exist for placements entered into before 30 June 2021, which settle after year end. 150,000 72,000 32 CADENCE OPPORTUNITIES FUND LIMITED A.B.N. 37 627 359 166 DIRECTORS’ DECLARATION The Directors of Cadence Opportunities Fund Limited declare that: 1. The financial statements and notes as set out on pages 12 to 32, 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 2021 and of its performance for the year ended on that date; 2. 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. Signed in accordance with a resolution of the Board of Directors. Karl Siegling Director Dated at Sydney, this 27 September 2021 33 Level 16, Tower 2 Darling Park 201 Sussex Street Sydney NSW 2000 Postal Address GPO Box 1615 Sydney NSW 2001 p. +61 2 9221 2099 e. sydneypartners@pitcher.com.au Independent Auditor’s Report To the Members of Cadence Opportunities Fund Limited A.B.N. 37 627 359 166 Report on the Audit of the Financial Report We have audited the financial report of Cadence Opportunities Fund Limited (“the Company") which comprises the statement of financial position as at 30 June 2021, 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 30 June 2021, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Company, is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Company’s financial position as at 30 June 2021 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The directors of the Company are responsible for the other information. The other information obtained at the date of this auditor’s report is information included in the directors’ report but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. Adelaide Brisbane Melbourne Newcastle Perth Sydney 34 Pitcher Partners is an association of independent firms. An independent New South Wales Partnership. ABN 17 795 780 962. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au Independent Auditor’s Report To the Members of Cadence Opportunities Fund Limited A.B.N. 37 627 359 166 In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially consistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors 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 and the Corporations Act 2001. In Note 1, the directors also state, in accordance with applicable Australian Accounting Standards and Interpretations that the financial statements comply with International Financial Reporting Standards. The directors’ responsibility also includes such internal control as the directors determine is necessary to enable the preparation of a financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting intentional omissions, involve collusion, fraud may from error, as misrepresentations, or the override of internal control. forgery, • Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Pitcher Partners is an association of independent firms. ABN 17 795 780 962. An independent New South Wales Partnership. 35 Independent Auditor’s Report To the Members of Cadence Opportunities Fund Limited A.B.N. 37 627 359 166 • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. C I Chandran Partner 27 September 2021 Pitcher Partners Sydney Pitcher Partners is an association of independent firms. ABN 17 795 780 962. An independent New South Wales Partnership. 36 

Continue reading text version or see original annual report in PDF format above