Hearts and Minds Investments Limited
ABN 61 628 753 220
Appendix 4E
Preliminary Final Report
for the period 12 September 2018 to 30 June 2019
This report is for the reporting period from 12 September 2018 (the date of incorporation) to 30 June
2019. As this is the first full reporting period for Hearts and Minds Investments Limited the comparative
figures and percentage changes for the previous corresponding period are not disclosed.
Results for announcement to the market
Revenue from ordinary activities
Loss from ordinary activities after tax attributable to members
Other comprehensive income, net of tax
Total comprehensive income for the period
For the period
12 September
2018
to 30 June 2019
$
4,121,063
(746,300)
71,199,327
70,453,027
Dividend Information
There were no dividends paid or proposed during the period. The Company does not have a dividend
reinvestment plan.
Net tangible assets per share
- before tax
- after tax
As at 30 June
2019
$2.99
$2.85
This report is based on the Annual Report which has been audited by Pitcher Partners. The audit
report is included with the Company’s Annual Report which accompanies Appendix 4E. All the
documents comprise the information required by Listing Rule 4.3A.
Hearts and Minds Investments Limited
ACN 628 753 220
Annual Report
for the period from 12 September 2018
(date of incorporation) to 30 June 2019
Hearts and Minds Investments Limited
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Contents
Corporate Directory
Chairman and Chief Executive Officer’s Letter
Investment Committee Report
Charity Report
Directors’ Report to Shareholders
Auditor’s Independence Declaration
Financial Statements
Statement of 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 Review Report to the Shareholders
ASX Additional Information
1
2
6
12
19
30
31
32
33
34
35
53
54
58
Corporate Directory
Directors
(Pro bono)
Company Secretary
(Pro bono)
Investment Committee
(Pro bono)
Core Fund Managers
(Pro bono)
2018 Conference Fund Managers
(Pro bono)
Registered Office
Auditor
Administrator
(Pro bono)
Share Registrar
(Pro bono)
Stock Exchange
Hearts and Minds Investments Limited
ACN 628 753 220
Corporate Directory
Chairman and Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Previous Director
(appointed 12 September 2018,
ceased 25 September 2018)
Chairman
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Michael Beaumont
Tom Bloomfield
David Wright
Christopher Cuffe AO
Lorraine Berends
Brett Paton
Paul Rayson
Caledonia (Private) Investments Pty Limited
Cooper Investors Pty Limited
Magellan Asset Management Limited
Paradice Investment Management Pty Limited
Regal Funds Management Pty Limited
Munro Partners
Paradice Investment Management
Pengana Capital Group
Tekne Capital Management
Tribeca Investment Partners
Wilson Asset Management
Airlie Funds Management
Auscap Asset Management
Cooper Investors
Cota Capital
Elephant Asset Management
Firetrail Investments
Montaka Global Investments
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
Pitcher Partners
Level 16, Tower 2 Darling Park
201 Sussex Street, NSW 2000
Telephone: (02) 9221 2099
Citco Fund Services (Australia) Pty Limited
Level 22, 45 Clarence Street
Sydney NSW 2000
Telephone: (02) 9005 0400
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
Telephone: (02) 9290 9600
Australian Securities Exchange
The home exchange is Sydney
ASX code: HM1 Ordinary Shares
1
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Chairman and Chief Executive Officer’s Letter
Dear fellow Shareholders,
On behalf of the Board and management we would like to thank you for your support in our first seven months of
operation, and we are delighted to share the first Annual Report for Hearts and Minds Investments Limited (“HM1” or
the “Company”).
HM1 is a listed investment company that was born out of the investment and philanthropic vision of the Sohn Hearts &
Minds Investment Leaders Conference. HM1 was established with the combined objective of providing a concentrated
securities portfolio of the highest conviction ideas from leading fund managers, whilst also supporting Australian medical
research institutes.
When we commenced the public offering in October last year, we were delighted by the strong support from the market.
Our initial public offering, which was oversubscribed, raised $500 million across 5,500 shareholders. We believe this is
a testament to HM1’s investment strategy and the generosity of Australian investors.
Since listing on 14 November 2018, HM1 has had a strong performance, with its pre-tax net tangible assets increasing
19.6% from $2.50 to $2.99 to 30 June 2019, outperforming the MSCI World Net TR (AUD), a global equity investment
benchmark. Total comprehensive income including net unrealised gains and losses on the investment portfolio for the
period was $70.4m. While we are proud of this early performance, resulting from the underlying stock recommendations
of our participating fund managers, we also recognise we have been supported by favourable market conditions.
In line with its philanthropic objective, HM1 provides financial support to leading Australian medical research
organisations in order to help the development of new medicines and treatments and drive a new generation of medical
research in Australia. HM1 and its participating fund managers forego any investment fees and instead an amount
equivalent to 1.5% of net tangible assets per annum is donated to designated charities.
The current designated charities are Victor Chang Cardiac Research Institute, Black Dog Institute, Brain and Mind
Centre at Sydney University, Charlie Teo Foundation, The Children’s Hospital at Westmead – Paediatric Intensive Care
Unit, The Florey Institute of Neuroscience and Mental Health, Multiple Sclerosis Research Australia Limited, Orygen,
Centre of Human Psychopharmacology at Swinburne University and Royal Prince Alfred Hospital Emergency
Research.
HM1 made its first payment of $4.9 million in June 2019 to Victor Chang Cardiac Research Institute, representing a
reimbursement of the offer costs of the initial public offer in accordance with the Company’s agreement with them.
During FY20 it is expected that the offer costs will be fully repaid and donations to the designated charities mentioned
above will commence.
We would like to thank our participating fund managers and service providers for their outstanding and continued
generosity since listing.
HM1’s Investment Approach
HM1 seeks to provide shareholders with a compelling and attractive investment proposition by creating a concentrated
portfolio of long positions in 25 to 30 Australian and international listed securities based on the highest conviction ideas
from two groups of fund managers.
• HM1 has allocated 40% of the investment portfolio based on the annual recommendations of fund managers
who present at the Sohn Hearts & Minds Investment Leaders Conference (Conference Fund Managers).
• HM1 has invested 60% of the investment portfolio based on the highest conviction ideas of five leading fund
managers (Core Fund Managers). These fund managers are Caledonia (Private) Investments Pty Limited,
Cooper Investors Pty Limited, Magellan Asset Management Limited, Paradice Investment Management Pty
Limited and Regal Funds Management Pty Limited.
2
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
In the Board’s view the investment approach offers investors an opportunity to:
•
•
•
capitalise on exposure to the highest conviction ideas, investment approach and expertise of each fund
manager, a number of whom are not otherwise readily accessible to retail investors;
benefit from having a portfolio that is not concentrated on the philosophy or investment style of just one fund
manager; and
access a concentrated portfolio of Australian and international listed securities which HM1 believes provides
an opportunity to maximise shareholder returns over the long term (being five years or more).
Company Performance
As a listed Investment company, we will use three key measures to evaluate the performance of HM1: investment
portfolio performance; net tangible asset (NTA) growth of HM1; and total shareholder return (TSR).
•
Investment portfolio performance measures the growth of the investment portfolio and cash before expenses
and taxes. Our investment benchmark, the MSCI World Net TR (AUD), is also measured before expenses
and taxes.
• NTA growth is the change in the value of the Company’s assets less liabilities and is essentially the realisable
value of the Company. The pre and post-tax NTA of the Company is reported to shareholders every month.
TSR measures the total return to shareholders from share price growth and dividends paid.
•
1.
Investment Portfolio Performance
Performance at 30 June 2019
HM1 investment portfolio performance
MSCI World Net TR (AUD)
Outperformance
Six Months
Since inception
(14 Nov 2018)
25.4%
17.4%
8.0%
21.2%
12.7%
8.5%
Investment performance and index returns are before expenses and taxes.
For the period since listing to 30 June 2019, HM1’s investment portfolio has produced a 21.2% return compared to the
benchmark MSCI World Net TR (AUD) of 12.7%. The strong performance is partly attributable to favourable global
markets and a slight fall in the Australian dollar over the period. However, the outperformance to the index is largely
due to the stock selection of our participating fund managers and the concentrated nature of the portfolio. Pleasingly,
despite the volatility of global markets during this period, the portfolio outperformed the market index in periods of both
market increases and market drawdowns.
2. NTA Growth
HM1’s post current tax NTA has increased 19.6% from $2.50 at listing on 14 November 2018 to $2.99 at 30 June 2019
(representing total net tangible assets of $598 million). The chart on the next page shows the components of the change
in NTA over this period. The major increase in post current tax NTA came from the investment performance over the
period of 21.2% or 53 cents per share, partially offset by the payment of offer costs, the provision for tax on realised
portfolio gains and operational expenses. The post-tax NTA of $2.85 includes a provision for deferred tax on unrealised
gains in the portfolio.
3
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
HM1 NTA Performance
3. Total Shareholder Return
Total Shareholder Return measures the change in share price plus dividends paid. HM1’s share price increased from
$2.50 at listing on 14 November 2018 to $2.95 as at 28 June 2019, an increase of 18%. No dividends have yet been
declared or paid by HM1. This measure does not include the potential value of franking credits arising from the payment
of tax and the franking of future dividends.
Dividend Policy
HM1 provides shareholders with exposure to a concentrated portfolio of Australian and international securities. As such,
returns to shareholders are predominantly delivered through capital growth. The Board is committed to paying fully
franked dividends to shareholders provided the Company has sufficient profit reserves and franking credits and it is
within prudent business practice. The Board has not declared a dividend in respect to the part-year period to 30 June
2019. The Board will consider a dividend payment following the December 2019 half year, dependent on the quantum
of realised profits from the disposal of the first year’s stocks recommended by Conference Fund Managers.
Capital Management
In October 2018 the Company successfully raised $500 million through an initial public offering of 200 million shares at
$2.50 each and listed on the Australian Stock Exchange on 14 November 2018. The funds raised were invested in
accordance with the Company’s investment strategy described above. A cash reserve of 2% of the funds raised was
retained to provide for the payment of donations and to meet operational expenses and reserves. Where securities in
the portfolio have been disposed of during the period, the proceeds have either been reinvested in existing securities
in the portfolio or held in cash or cash equivalents. Further details are provided in the Investment Committee report.
The objective of the Company is to remain fully invested in the portfolio after providing for operational expenses, current
tax liabilities and future dividend payments.
4
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Fund Managers and Service Providers
Through their investment in HM1, shareholders gain exposure to the highest conviction ideas, investment approach
and expertise of leading fund managers, and make a significant contribution to advancing medical research in Australia.
This is made possible by all of our participating fund managers foregoing investment management and performance
fees. The Board of Directors, the Investment Committee and many of our service providers also work on a pro bono
basis.
We would like to thank our fund managers and service providers for their support and generosity in the establishment
and ongoing operations of HM1. The notional value of the investment and performance fees foregone by the
participating fund managers totalled $5.1 million for the period. The notional value of the service providers and the
Board and Investment Committee working on a pro bono basis totalled $0.3 million for the period.
We would also like to thank you, our shareholders, for supporting HM1’s combined objective of providing a compelling
and attractive investment proposition whilst also supporting the advancement of medical research in Australia.
We look forward to the 2019 Sohn Hearts and Minds Leaders Conference at the iconic Sydney Opera House on Friday,
22 November.
Christopher Cuffe AO
Chairman
Paul Rayson
Chief Executive Officer
Sydney
23 August 2019
5
Hearts and Minds Investments Limited
Investment Committee Report
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Investment Committee Report
The Investment Committee of HM1, in conjunction with the Chief Investment Officer (CIO) is responsible for
implementing the Company’s investment strategy, including the selection of fund managers, managing the investment
portfolio and reviewing fund manager performance. The Company’s Investment Committee consists of David Wright
(Chairman), Chris Cuffe, Lorraine Berends, Paul Rayson and Brett Paton. The Investment Committee’s experience and
qualifications are provided in the Directors Report.
HM1 Investment Strategy
HM1 seeks to provide shareholders with a compelling and attractive investment proposition by creating a concentrated
portfolio of long positions in 25 to 30 Australian and international listed securities based on the highest conviction ideas
from two groups of fund managers.
60% of the investment portfolio is held in up to 15 securities based on the highest conviction ideas of five leading fund
managers (Core Fund Managers). The Core Fund Managers are Caledonia (Private) Investments Pty Limited, Cooper
Investors Pty Limited, Magellan Asset Management Limited, Paradice Investment Management Pty Limited and Regal
Funds Management Pty Limited. On a quarterly basis the Core Fund Managers provide the Company with their top
three security holding recommendations and a weighting for each security.
The Company invests 12% of its investment portfolio in the three recommendations from each of the five Core Fund
Managers. The investment portfolio is rebalanced based on recommendations from the Core Fund Managers. The
Core Fund Managers have agreed to provide investment recommendations to the Company for a period of at least
three years.
40% of the investment portfolio is held in 10 to 15 securities based on the annual recommendations of fund managers
who present at the Sohn Hearts & Minds Investment Leaders Conference (Conference Fund Managers). The Company
generally allocates an equal weight investment to each of these recommendations. These securities are expected to
be held in the portfolio for a period of 12 months. After this period, the securities are expected to be removed in order
to invest in the recommendations of the selected Conference Fund Managers who present at the following year’s
Conference.
The Company may decide to hold a security for a longer or shorter than the annual period in certain circumstances.
This may include if the original investment thesis of the fund manager has played out, or if factors have changed such
that the original investment thesis no longer applies. In this circumstance the Company may hold cash until the end of
the annual period or reinvest in remaining securities based on recommendations from Conference Fund Managers.
The holding period of a security may be extended if the original investment thesis of the fund manager remains in place,
but the potential value is not yet reflected in the security price.
The Company aims to be fully invested subject to an appropriate cash buffer to meet donation payments, general
expenses, tax and any dividend payments.
HM1 Portfolio Composition
HM1 initially invested in 28 securities in November 2018. This comprised 15 securities in the Core portfolio, and 13
securities in the Conference portfolio. Pleasingly, the two parts of the portfolio have contributed equally to the overall
performance of HM1.
The Company has made three changes to the Conference portfolio since November 2018. Holdings in New Oriental
Education and Technology Group, KAR Auction Services Inc, and Yangtze Optical Fibre and Cable Limited were
disposed of during the year. The investment thesis of New Oriental Education and Technology Group played out earlier
than expected and our holding was realised at a substantial gain. Industry specific factors impacted the investments in
Yangtze Optical Fibre and Cable Limited and KAR Auction Services Inc and these investments were sold at break even
and a small loss respectively. The proceeds from these disposals were re-invested into the remaining holdings in the
Conference portfolio based on recommendations from Conference Fund Managers.
The company has made two changes to the Core portfolio since November 2018. One of the holdings in the Core
portfolio, Shire PLC, was the subject of an acquisition by Takeda Pharmaceutical Company Limited (Takeda). The
Company re-invested the proceeds from the acquisition of Shire PLC in the acquiring company, Takeda. During the
period, the Company also sold a poorly performing investment in the Core portfolio and re-invested in a new security
based on the recommendation from one of our Core Fund Managers.
6
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
As at 30 June 2019, the portfolio comprised 25 securities. The portfolio holdings ranked by market value at 30 June
2019 is set out in the table below.
Portfolio Holdings as at 30 June 2019:
Company Name
Principal
Exchange
Listing
No. of
securities
held at
30 June 2019
Market Value of
securities held
at 30 June 2019
Percentage of
Portfolio
PagSeguro Digital Limited
United States
629,000
$34,922,539
Zillow Group Inc - C
United States
518,000
$34,235,675
Appen Limited
AIA Group Limited
Facebook Inc - A
Australia
1,150,000
$32,188,500
Hong Kong
1,750,000
$26,884,784
United States
97,000
$26,671,890
Seven Group Holdings Limited
Australia
1,400,000
$25,886,000
Alphabet Inc Class C
United States
16,600
$25,563,621
TE Connectivity Limited
United States
185,000
$25,244,764
Amazon.com Inc
Brambles Limited
Docusign Inc
Airbus SE
United States
9,260
$24,982,211
Australia
1,900,000
$24,472,000
United States
342,600
$24,263,636
France
118,400
$23,912,981
Alibaba Group Holding Limited
United States
97,000
$23,417,367
ITT Inc.
United States
250,000
$23,322,411
Bandai Namco Holdings Limited
Japan
330,500
$22,824,254
Takeda Pharmaceutical Company
United States
900,000
$22,695,541
JB HiFi Limited
Lear Corporation
Stars Group Inc
Origin Energy Limited
Australia
835,000
$21,584,750
United States
104,950
$20,824,030
Canada
Australia
853,400
$20,755,459
2,780,000
$20,321,800
Liberty Sirius XM Group
United States
375,000
$20,200,527
Betashares Australian High Interest
Australia
350,000
$17,549,000
Reece Australia Limited
Australia
1,440,000
$14,054,400
Grubhub Inc
United States
120,000
$13,333,523
Microsoft Corporation
United States
62,000
$11,832,911
Nufarm Limited
Australia
2,718,000
$11,143,800
Total Equity Securities
$593,088,374
7
5.89%
5.77%
5.43%
4.53%
4.50%
4.36%
4.31%
4.26%
4.21%
4.13%
4.09%
4.03%
3.95%
3.93%
3.85%
3.83%
3.64%
3.51%
3.50%
3.43%
3.41%
2.96%
2.37%
2.25%
2.00%
1.88%
100%
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
HM1 Portfolio Performance
As noted in the Chairman and Chief Executive Officer’s Letter, the investment portfolio has returned 21.2% since
inception on 14 November 2018. By way of comparison, the MSCI World Net TR (AUD) has increased by 12.7% over
the same period. The positive performance of the portfolio over this period is a combination of buoyant equity markets,
a slight fall in the Australian dollar and the strong performance of the individual security recommendations from our
fund managers.
Over the period since inception to 30 June 2019, global markets have been characterised by heightened volatility, with
on-going trade wars between the US and China, European uncertainty over Brexit, weakening global economic
conditions and a reversal of monetary policy tightening. While the portfolio has performed well over the period since
inception, given the concentrated nature of the portfolio, it remains exposed to the ongoing volatility in global markets.
Metrics
The following information summarises the risk metrics of the security holdings in the HM1 portfolio as at 30 June 2019.
The analysis is a snap-shot of the portfolio structure and biases at that point in time and does not reflect any future
biases within the portfolio.
Style Factor Analysis
The chart below illustrates the style tilts exhibited in the portfolio based on the securities in the portfolio as at 30 June
2019 and analysis produced by Zenith Investment Partners.
All Factor Betas Portfolio Comparison
Consistent with HM1’s capital growth objective, the portfolio exhibits a strong bias to growth securities. Other significant
style biases include a negative bias to size, dividend yielding securities and value securities. The negative size factor
indicates a bias to mid and / or small capitalisation securities in the portfolio compared to that of the comparative
benchmark the MSCI World Index. Eight of the companies in the portfolio have a market capitalisation of over USD50
billion. The smallest security is capitalised at USD900 million.
8
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Industry Factor Analysis
Industry Factor Betas – Portfolio Comparison
While the portfolio is concentrated in a relatively small number of securities, sector exposure is diverse, with investments
across eight industry sectors, being Communications, Consumer Discretionary, Financial, Healthcare, Industrials,
Materials, Technology, and Utilities. From an industry factor perspective, the portfolio biases to the Consumer
Discretionary and Communications sectors with material negative (underweight) biases to the Financial, Healthcare,
Consumer Staples and Energy sectors. Whilst the majority of the securities are listed on US exchanges, seven are
listed on the Australian Stock Exchange, with the remaining securities listed in Hong Kong, Japan, France and Canada.
Risk Assessment
The following table provides a number of risk measures associated with the blend of securities that form the HM1
portfolio since inception compared to the MSCI World Index (AUD). Given the short-term performance history of HM1,
caution needs to be exercised in assessing these factors which may not be predictive of the risk characteristics of the
HM1 portfolio going forward.
Portfolio Beta
Tracking Error
Portfolio Volatility
Benchmark Volatility
Correlation (with Benchmark)
Sharpe Ratio
% Monthly Excess Returns (All Markets)
% Monthly Excess Returns (Up Markets)
% Monthly Excess Returns (Down Markets)
0.37
15.8%
14.1%
14.0%
0.36
0.78
42.8%
40.0%
50.0%
David Wright
Chairman
Sydney
23 August 2019
Rory Lucas
Chief Investment Officer
9
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Our Leading Fund Managers
We sincerely thank our participating fund managers that provide their time, expertise and highest conviction investment
idea/s on a pro bono basis. The notional value to HM1 of the investment management fees and performance fees
foregone is equivalent to $5.1m.
Core Fund Managers
Five core fund managers each provide their three highest conviction investment ideas which are reviewed quarterly.
These 15 securities represent 60% of the total investment portfolio. Each core fund manager has made a minimum
three-year commitment to HM1.
Conference Fund Managers
The remaining 40% of the investment portfolio is invested in 10 to 15 recommendations from the fund managers who
present at the annual Sohn Hearts & Minds Investment Leaders Conference. Each year this group of fund managers
will change based on the conference program of speakers and their eligible recommendations. The speakers are invited
onto the program following a rigorous six-month selection process by the HM1 Board and Investment Committee.
Core Fund Managers
Caledonia is a global investment management firm with offices in Sydney and
New York. With over 25 years’ investment experience, Caledonia’s goal is to
achieve high absolute returns for their clients over a long-term time horizon. The
firm manages a long short equity strategy with a focus on deep fundamental
research and high conviction long-term investing.
Cooper Investors Pty Limited is a specialist equities fund manager with funds
under management of approximately $14 billion. Cooper Investors commenced
operations in 2001 and manages money for a range of clients, including large
pension and superannuation funds, religious institutions, Australian State
Government agencies, school endowments, charities, high net worth families and
retail clients. Cooper Investors is 100% owned by its employees. Cooper
Investors seeks to invest in quality companies with a strong value proposition.
Magellan Asset Management Limited (Magellan) is an Australian-based asset
manager that is a wholly-owned subsidiary of Magellan Financial Group Limited,
an ASX top-100 company that was formed by Hamish Douglass and Chris
Mackay in Sydney in 2006. Magellan manages approximately $75 billion of funds
under management as at 31 August 2018 across its global equities, global listed
infrastructure and Australian equities strategies for retail, high net worth and
institutional investors and employs over 120 staff globally.
Paradice Investment Management Pty Limited (Paradice) is a privately-owned
Australian boutique funds management business established in 1999 by David
Paradice. Paradice currently manages over $15 billion in assets across five
distinct investment strategies including Australian small cap, mid cap and large
cap equities, global small cap equities and emerging market equities. Paradice
has offices in Sydney, Denver and San Francisco.
Regal Funds Management is a specialist alternatives investment manager. It was
founded in early 2004 and is one of Australia’s leading investment managers
servicing a wide range of institutional investors and high net worth individuals.
The investment team has extensive investment experience through many market
cycles and a long track record of delivering superior returns for investors. Regal
offers a range of products to suit different investment objectives.
10
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Conference Fund Managers
Babak Poushanchi
Cota Capital
Beeneet Kothari
Tekne Capital Management
Blake Henricks
Firetrail Investments
Christina McQuire
Elephant Asset Management
Christopher Demasi
Montaka Global Investments
Emma Fisher
Airlie Funds Management
Geoff Wilson AO
Wilson Asset Management
Jun Bei Liu
Tribeca Investment Partners
Nick Griffin
Munro Partners
Paul Mason
Paradice Investment Management
Peter Cooper
Cooper Investors
Steven Glass
Pengana Capital Group
Tim Carleton
Auscap Asset Management
11
Hearts and Minds Investments Limited
Charity Report
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Our leading medical research partners
Building on the philanthropic vision of the Sohn Hearts & Minds Investment Leaders Conference, HM1 is committed to
providing significant financial support to leading Australian medical research organisations.
How do we support medical research?
Instead of charging an investment management fee, HM1 donates an amount equal to 1.5% of the Company’s net
tangible assets per annum to the designated medical research organisations. To help maximise our impact, our fund
managers and key service providers have committed to waiving their usual fees.
Why do we support Australian medical research?
Hearts and Minds supports leading Australian medical research institutes. Investment in medical research provides a
direct avenue to curing many diseases and can provide a strong economic return on investment. Reasons to support
medical research include, but are not limited to:
• Development of new medicine
Every person in Australia has benefited from the results of medical research, from the development of new drugs,
vaccines, or procedures that prevent or treat diseases.
• Excellent return on investment
Medical research provides an excellent return on investment. Investment in medical research is estimated to have
returned a net benefit of $78 billion to Australia. Every dollar invested in Australian medical research returns on
average $3.90 in benefits to the population1.
• Australia is a world leader
Australia produces quality medical research. Australian scientists are responsible for some of the world’s most
important and life-changing medical discoveries. Australia is ranked 8th in the world for producing the top scientific
publications per capita (ahead of the U.S. and the U.K)2.
• Support a new generation of researchers
To tackle the clinical problems of today, and those yet to come, we must find a way to support medical research
and encourage our best and brightest minds to follow a career in science.
1Association of Australian Medical Research Institutes (AAMRI). Australian medical research delivers outstanding returns on investment; 2018.
Available from: https://aamri.org.au/resources/reports/kpmg-medical-research-delivers-roi/
2Organisation for Economic Co-operation and Development (OECD). (2015). OECD Science, Technology and Industry Scoreboard 2015. Section 2.6.1
The quantity and quality of scientific production. Geneva OECD. Available from http://dx.doi.org/10.1787/888933273656 (per capita data derived from
OECD dataset)
12
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Our designated beneficiaries are:
13
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
The Black Dog Institute
The Black Dog Institute is dedicated to understanding, preventing and treating mental illness,
and aims for mental illness to be treated with the same concern, immediacy and seriousness
as physical illness. As a translational research facility, research discoveries are developed
into health services, technology-based treatments and education programs. Key areas of
focus include:
• Suicide prevention, through delivery of integrated and community-led initiatives.
• Workplace mental health and wellbeing, through research and delivery of mental health
training programs to Australian workplaces.
• Novel treatment approaches, such as magnetic brain stimulation techniques, for
difficult-to-treat depression and other conditions.
• Youth mental health, through the development and delivery of early intervention and
prevention programs, targeting young people, their parents and teachers.
•
e-Mental health treatments and programs, which deliver online, accessible and
anonymous
location or
socio-economic circumstances.
for everyone, regardless of
their geographic
therapy
Every day, at least 6
Australians die from
suicide and a further
30 people will
attempt to take their
own life.
https://www.blackdoginstitute.org.au/
The Brain and Mind Centre
The University of Sydney’s Brain and Mind Centre is a global leader in research and
treatment with a focus on conditions that affect child development, youth mental health and
brain ageing. The Centre is developing solutions that improve the quality of life for both
patients and their loved ones. Here’s just a few ways the Centre is transforming brain and
mind health:
• New therapies for autism: In a world-first discovery, they have shown the potential
benefit of a medication to improve social responsiveness in young children with autism.
•
•
Transforming trajectories for young people with emerging mood disorders.
Tackling the challenges of ageing and neurodegeneration: our multidisciplinary research
teams are discovering early detection methods, identifying new treatments and
understanding the mechanisms of neurodegenerative diseases.
• Alleviating human suffering with medicinal cannabis: they are helping patients with a
range of conditions including paediatric epilepsy, cancer, chronic pain, obesity,
neurological and mental health disorders. This aims to optimise safe and effective
cannabinoid therapeutics into mainstream medicine in Australia.
https://sydney.edu.au/brain-mind
Suicide is the
biggest killer of
young Australians
and accounts for
the deaths of more
young people than
car accidents.
14
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Charlie Teo Foundation
Charlie Teo Foundation is dedicated to funding brain cancer research with a low-cost model
that’s redefining how charities operate. Charlie Teo Foundation is all about disruptive
thinking, about funding brilliant, original minds who are not afraid to think outside the box.
Brain cancer is an incredibly complex problem and there has been no improvement in
survival rates for over 30 years. The Foundation’s research strategy encourages making
more ‘bets’ to increase chances of success, whilst learning from both success and failure.
Key areas of focus for 2019 includes:
• Openly sharing more data. The Charlie Teo Foundation Brain Tumour Bank is one
of the largest brain tumour banks in the southern hemisphere, where tumour and
blood samples are collected by researchers for study when Dr Charlie Teo removes
a brain tumour. With this resource, a world-first, large scale brain tumour study is
being conducted. An advanced ‘single cell RNA sequencing’ technique will be used
to produce the first complete picture of everything that’s in one cancer and will help
develop new ways to better diagnose and treat brain cancer.
• Developing better tools for researchers by harnessing the power of big data to map
the network of gene interactions in a brain tumour. This is lean science done at a
fast pace.
•
Funding Teo Fellowships that empower left field brain cancer thinkers to pursue
ambitious and unusual ideas that may otherwise go unfunded.
Brain cancer kills
more young adults
than any other
cancer.
https://www.charlieteofoundation.org.au/
The Florey Institute
The Florey is one of the largest and highly respected brain research centres in the world.
Their teams work on a range of serious conditions including mental illnesses, addiction,
stroke, epilepsy, Alzheimer’s disease, Parkinson’s disease and motor neurone diseases. The
Florey seeks to improve lives through brain research. Recent breakthroughs include:
• A compound investigated by the Florey has shown some positive impacts for those
living with motor neurone disease, and a phase 1 clinical trial shows some positive
improvements in symptoms of Parkinson’s disease.
•
•
In a world-first study, Florey researchers have used advanced imaging to identify
functional brain networks which are affected in concussion.
Isolation and testing of a naturally occurring peptide from spider venom which could
be used to provide precision treatments for rare forms of genetic epilepsies.
• Enrolled 6,000+ Australians in The Healthy Brain Project, an Australian-first online
study which seeks to optimise brain health and ageing.
•
Launched a trial which seeks to understand whether aerobic exercise after stroke
can help to preserve brain volume and function, as well as general physical and
psychological wellbeing.
https://www.florey.edu.au/
Every year over 4.7
million Australians
are directly affected
by one of the
illnesses that the
Florey researches.
15
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Kids Critical Care Research - The Children’s Hospital Westmead
Kids Critical Care Research at The Children’s Hospital at Westmead is the research hub of
the largest paediatric intensive care unit (PICU) in NSW. The purpose of Kids Critical Care
Research is to partner with consumers and staff to improve outcomes for critically ill children
and their families. They collaborate with national and international research groups and
participate in a number of large multicentre trials related to cardiac surgery, invasive
ventilation and early rehabilitation of children with critical illness.
Key areas of current research include:
• A leading role in the largest international study to date of infants and children
undergoing cardiac surgery with more than 100 patients from our centre enrolled
• Participation
in a multi-centre observational study
investigating apnoeic
oxygenation in children.
• Current active enrolment evaluating the impact of ventilation strategies and
positioning on recovery from severe paediatric acute respiratory distress syndrome.
• Ongoing enrolment in a multi-centre observational study of paediatric cardiac arrest
outcomes.
• Data linkage to investigate long term outcomes of intensive care patients by utilising
existing NSW data registries.
• Studies to evaluate the workflow patterns of doctors and nurses, with the aim of
improving the efficiency and quality of care delivery.
Each year the PICU
cares for more than
1500 children with
life-threatening
conditions.
www.kidsresearch.org.au/research/kids-critical-care-research
MS Research Australia
In MS Research Australia’s short 15-year history, it has become the largest Australian
not-for-profit organisation dedicated to funding, coordinating, educating and advocating for
multiple sclerosis (MS) research as part of the worldwide effort to solve MS. Investing $44.3
million in funding and facilitating vital research and awarding 274 research grants. Recent
achievements include:
•
•
10-fold improvement in the time taken to diagnosis MS
45% reduction in mortality rates with people living with MS
• A world-first blood biomarker discovery to help differentiate between types of MS
•
12 effective and accessible therapies on the market for the most common form of
MS
• Vast improvements in the employment outcomes for people living with MS
•
•
The largest trial of its kind in the world studying vitamin D and MS prevention
(PrevANZ)
First ever joint research fellowship awarded by MS Research Australia in
partnership with JDRF Australia to identify the common genetic pathways in MS
and type 1 diabetes driving autoimmunity in both diseases.
10 people on
average are
diagnosed with MS
every week.
https://msra.org.au/
16
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Orygen
Orygen is leading the revolution in youth mental health. Orygen is redefining what’s possible
in global research, policy, education and clinical care. Orygen has pioneered progress for
young people aged 12 to 25 who are experiencing mental illness. The world-leading work
they are doing today is as vital as it’s ever been.
Orygen focuses on turning clinical research and policy work into evidence-based solutions
that improve the lives of young people working through mental health challenges. Their
research strives to deliver improvements in treatment, service delivery, health economics
and clinical practice.
Orygen works across all levels of clinical service delivery – from primary care right through
to specialist services and an inpatient unit.
Orygen’s current priorities are:
• Developing a global model for youth mental health in partnership with the
World Economic Forum;
• Designing, developing and evaluating digital interventions designed to address the
gaps and key limitations in youth mental health services;
• Developing new treatments and interventions for psychotic disorders, personality
disorders, bipolar disorder, mood disorders, suicide and self-harm; and
• Upskilling the youth mental health workforce internationally to integrate early
intervention for mental illness into their models of care.
www.orygen.org.au
RPA Green Light Institute
The RPA Green Light Institute is a newly established centre within Royal Prince Alfred
Hospital designed to improve emergency care in Australia. The Institute focuses on high
impact acute medical conditions with significant public health ramifications. These include
trauma care, stroke, acute cardiac conditions, mental health and sepsis management.
Together, they represent the most important causes of preventable death and disability
around the world. Key research activities for 2019 are:
• Better understand and improve patient flow in NSW Emergency Departments by
incorporating advanced data analytics into real time emergency clinical care.
• Analysis of stroke pathways through the emergency department.
•
Investigate the role of Extracorporeal Membranous Oxygenation (ECMO) in patients
who have suffered a cardiac arrest.
• Develop a state-wide trauma outcomes registry for NSW which aims to improve the
care and outcomes for all severely injured patients.
https://www.slhd.nsw.gov.au/research/department_details.html?research=
emergencydept
Three-quarters of
people who
experience mental
illness do so before
they turn 25.
One in five
Australians present
to an Emergency
Department for
health care each
year.
17
Hearts and Minds Investments Limited
Charity Report (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Swinburne’s Centre for Human Psychopharmacology
The Centre for Human Psychopharmacology at Swinburne University of Technology is a
research leader exploring the cognitive and mood effects of natural substances,
pharmaceuticals, recreational drugs and dietary interventions on humans. The Centre
investigates the fundamental aspects of neurocognitive change and seeks new ways to
enhance human cognition, behaviour and emotion. The Centre is focused on five key areas
of research:
1. Natural substances for cognition and mood enhancement.
2. Pharmaceutical and natural treatments for neurocognitive ageing.
3. The immediate and long-term effects of recreational and prescription drugs on the
brain.
4. The impact of recreational and prescription drugs on applied behaviours such as
driving.
5. The effects of anaesthetics and other psychoactive compounds on human brain
dynamics
Worldwide, around
50 million people
have dementia, and
there are nearly 10
million new cases
every year.
http://www.swinburne.edu.au/research/human-psychopharmacology/
Victor Chang Cardiac Research Institute
The Victor Chang Cardiac Research Institute is dedicated to finding cures for cardiovascular
disease by using innovative transplantation techniques and conducting complex molecular
and genetic analysis to discover better ways to diagnose, treat and ultimately prevent the
onset of heart disease. Victor Chang focuses on pregnancy and birth defects, heart
transplants, genetic analysis, heart attacks and strokes, stem cells and cardiac arrests.
Recent discoveries include:
• Pregnancy & birth defects – a double breakthrough identified that a deficiency in a
vital molecule (NAD) during pregnancy can cause recurrent miscarriages and
multiple types of birth defects. The team also discovered a potential prevention for
this in the form of a dietary supplement – vitamin B3.
• Heart attacks & strokes - demonstrated that a MRI scan could be used to diagnose
likely heart attack sufferers and identified a new drug target that may decrease heart
attacks by preventing dangerous plaque formation.
https://www.victorchang.edu.au/
Every 27 minutes
an Australian
suffers a heart
attack.
18
Hearts and Minds Investments Limited
Directors’ Report to Shareholders
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Directors’ Report to Shareholders
The Directors of Hearts and Minds Investments Limited (the “Company”) present their report together with the annual
report of the Company for the period from 12 September 2018 (date of incorporation) to 30 June 2019.
Investment Objectives and Principal Activity
The Company has been established with the combined objective of providing a concentrated investment portfolio of
the highest conviction ideas from leading fund managers, while also supporting Australian medical research institutes.
The Company seeks to provide shareholders with a compelling and attractive investment proposition by creating a
concentrated investment portfolio of long positions in 25 to 30 Australian and international listed securities based on
the highest conviction ideas from two groups:
a)
b)
The Company has invested 40% of the investment portfolio based on the annual recommendations of fund
managers who present at the Sohn Hearts & Minds Investment Leaders Conference held in Australia.
The Company has invested 60% of the investment portfolio based on the highest conviction quarterly
recommendations of five leading fund managers (“Core Fund Managers”). The Core Fund Managers are
Caledonia (Private) Investments Pty Limited, Cooper Investors Pty Limited, Magellan Asset Management
Limited, Paradice Investment Management Pty Limited and Regal Funds Management Pty Limited.
No change in this activity is anticipated in the future.
Review of Operations
The Company was incorporated on 12 September 2018 with 1 share. The Company allotted a further 200,000,000
shares at $2.50 per share. The Company was admitted to the official list on 9 November 2018 and official quotation of
the securities on the ASX commenced on 14 November 2018, when the Company began its operations.
For the period ended 30 June 2019, the Company reported an operating loss before realised and unrealised net gains
on investments of $0.7 million. The operating result of the Company primarily comprises dividend income, less offer
costs and operating expenses. The operating result of the Company does not include the investment performance of
the Company which is accounted for through other comprehensive income. Since inception, the investment portfolio
has increased 21.2% outperforming the MSCI World Net TR (AUD), a global equity investment benchmark. Total
comprehensive income, including net unrealised gains and losses on the investment portfolio for the period was $70.4
million.
Since listing on 14 November 2018, the Company’s post current tax net tangible assets has increased by 19.6% from
$500 million or $2.50 per share to $598 million or $2.99 per share at 30 June 2019. The major increase in post current
tax net tangible assets is the investment performance over the period of 21.2% or 53 cents per share, partially offset
by offer costs, the provision for tax on realised investment portfolio gains and operational expenses. The post-tax net
tangible assets of $570 million or $2.85 per share includes a provision for deferred tax on unrealised gains in the
investment portfolio.
In line with its philanthropic objective, the Company provides financial support to leading Australian medical research
organisations, in order to help the development of new medicines and treatments and drive a new generation of medical
research in Australia. The Company and its participating fund managers forego any investment fees and instead donate
an amount equivalent to 1.5% of its net tangible assets per annum to designated charities.
The Company made its first payment of $4.9 million in June 2019 to Victor Chang Cardiac Research Institute,
representing a reimbursement of the offer costs of the initial public offer in accordance with the Company’s agreement
with them. During FY20 it is expected these offer costs will be fully repaid and donations to the designated charities will
commence.
Further information on the financial performance of the Company is contained in the Chairman and Chief Executive
Officer’s letter on pages 2 to 5 of this report and in the Investment Committee report on pages 6 to 11 of this report.
Financial Position
The net asset value of the Company as at 30 June 2019 was $570.5 million.
19
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Corporate Tax Rate
The Company is taxed at the corporate rate of 30.0%.
The Company maintains a franking account and may declare franked dividends to shareholders.
Dividends
The Directors have not declared a dividend during the period ended 30 June 2019.
Directors
The following persons held office as Directors during the period or since the end of the period and up to the date of this
report:
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Michael Beaumont
Information of Directors
Chairman and Independent Director (appointed 12 September 2018)
Independent Director (appointed 25 September 2018)
Independent Director (appointed 22 October 2018)
Independent Director (appointed 22 October 2018)
Independent Director (appointed 25 September 2018)
Independent Director (appointed 12 September 2018)
Independent Director (appointed 25 September 2018)
Independent Director (appointed 25 September 2018)
Previous Director (appointed 12 September 2018, ceased 25 September 2018)
Christopher Cuffe AO (Chairman and Independent Director)
Experience and expertise
Commencing his career as a chartered accountant, Christopher Cuffe entered the fund management industry in 1985.
In 1988, he joined Colonial First State where he was CEO from 1990 until 2003. In 2003, he became CEO of the listed
Challenger Group.
He holds a Bachelor of Commerce from the University of New South Wales and a Diploma from the Securities Institute
of Australia. He is a Fellow of the Chartered Accountants in Australia and New Zealand, a Fellow of the Institute of
Company Directors and an Associate of the Financial Services Institute of Australasia.
Christopher Cuffe has been Chairman of the Company since 12 September 2018, the date of incorporation.
Other current directorships
Christopher Cuffe is currently involved in a portfolio of activities in the investment and non-profit sectors which include
being a member of the investment committee of UniSuper, which provides superannuation services to employees of
Australia’s higher education and research sector; Chairman of Australian Philanthropic Services and Atrium Investment
Management; Director of various listed companies including Global Value Fund, Antipodes Global Investment
Company, Argo Investments and Class; and founder, director and manager of Third Link Growth Fund.
Former directorship in the last 3 years
Christopher Cuffe was previously a non-executive director of UniSuper from 2007 to 2017, of which the last six years
was as Chairman.
Special responsibilities
Chairman of the Board and member of the Investment Committee.
Interests in shares of the Company
Details of Christopher Cuffe’s interests in shares of the Company are included later in this report.
20
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Information of Directors (continued)
Interests in contracts
Christopher Cuffe has no interest in contracts of the Company.
Lorraine Berends (Independent Director)
Experience and expertise
Lorraine Berends has worked in the financial services industry for over 35 years and possesses extensive experience
in both investment management and superannuation. Before moving to a non-executive career in 2014, she worked
for 15 years with US based investment manager Marvin & Palmer Associates. She contributed extensively to industry
associations throughout her executive career, serving on the boards of the Investment Management Consultants
Association (IMCA Australia) for 13 years (7 years as Chair) and the Association of Superannuation Funds Australia
(ASFA) for 12 years (3 years as Chair). She has been awarded life membership of both IMCA Australia and ASFA. She
holds a Bachelor of Science from Monash University, is a fellow of the Actuaries Institute and a fellow of ASFA.
Other current directorships
Lorraine Berends is an independent non-executive director of ASX listed Pinnacle Investment Management Group
Limited and of listed investment companies Antipodes Global Investment Company Limited, Plato Income Maximiser
Limited and Spheria Emerging Companies Limited. She is also a director of Qantas Superannuation Limited and MDC
Foundation Limited (a not-for-profit company).
Special responsibilities
Member of the Investment Committee.
Interests in shares of the Company
Details of Lorraine Berends’ interests in shares of the Company are included later in this report.
Interests in contracts
Lorraine Berends has no interest in contracts of the Company.
Guy Fowler (Independent Director)
Experience and expertise
Guy Fowler is a co-founder of the Hearts and Minds Investment Leaders Conference. He has worked in a range of
senior positions at UBS Australia for over 25 years including as the Head of Capital Markets and as the Head of the
Corporate Advisory business. In these roles he has advised on many of the largest and most complex equity capital
markets and corporate transactions completed in Australia. He is a qualified Chartered Accountant.
Other current directorships
None.
Special responsibilities
None.
Interests in shares of the Company
Details of Guy Fowler’s interests in shares of the Company are included later in this report.
Interests in contracts
Guy Fowler has no interest in contracts of the Company.
21
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Information of Directors (continued)
Matthew Grounds (Independent Director)
Experience and expertise
Matthew Grounds is a co-founder of the Hearts and Minds Investment Leaders Conference. Over the past 25 years,
he has held a variety of senior roles at UBS including CEO and Country Head, Joint Global Head of the Investment
Banking business, Head of Capital Markets and Head of the Corporate Advisory business. In these roles, he has
advised on many of the largest and most complex equity capital markets and corporate transactions completed in
Australia. He is also a Council Member of the University of NSW, Chairman of Victor Chang Cardiac Research Institute
and a Director of the Financial Markets Foundation for Children. He is currently the CEO and Country Head of UBS
Australia, a role he has held for over ten years. He holds a Bachelor of Commerce (Finance major) and a Bachelor of
Laws from the University of New South Wales.
Other current directorships
None.
Special responsibilities
None.
Interests in shares of the Company
Details of Matthew Grounds’ interests in shares of the Company are included later in this report.
Interests in contracts
Matthew Grounds is Chairman of Victor Chang Cardiac Research Institute which is a designated charitable beneficiary
of Hearts and Minds Investments Limited.
Michael Traill AM (Independent Director)
Experience and expertise
Michael Traill founded Social Ventures Australia in 2002, after 15 years as a co-founder and Executive Director of
Macquarie Group’s private equity arm, Macquarie Direct Investment. He is the author of “Jumping Ship – From the
world of corporate Australia to the heart of social investment” which won the prestigious Ashurst Business Literature
Prize. In 2010, he was made a member of the Order of Australia in recognition of his services to non-profit organisations.
He holds a BA (Hons) from the University of Melbourne and an MBA from Harvard University. He is also an Adjunct
Professor for the Centre for Social Impact (UNSW) and Chair of the Federal Government Task Force on Social Impact
Investing.
Other current directorships
Michael Traill currently has a range of primarily social purpose Chair and board roles including Chair of Goodstart Early
Learning; Executive Director of For Purpose Investments, and a Director of M H Carnegie & Co, Sunsuper and
Australian Philanthropic Services.
Special responsibilities
None.
Interests in shares of the Company
Details of Michael Traill’s interests in shares of the Company are included later in this report.
Interests in contracts
Michael Traill has no interest in contracts of the Company.
22
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Information of Directors (continued)
Gary Weiss AM (Independent Director)
Experience and expertise
Gary Weiss was formerly Chairman of Clearview Wealth Limited and Coats PLC, is a former Non-Executive Director of
Premier Investments Limited and Pro-Pac Packaging Limited, a former Executive Director of Whitlam, Turnbull & Co
and Guinness Peat Group PLC and sat on the board of Westfield Holdings Limited and a number of other public
companies. He has also been involved in overseeing large businesses with operations in many regions including
Europe, China and India and is familiar with investments across a wide range of industries, corporate finance and
private equity type deals. He is a Co-founder of the Sohn Hearts & Minds Investment Leaders Conference. He holds
an LLB (Hons) and LLM from Victoria University of Wellington and a Doctor of the Science of Law (JSD) from Cornell
University. He was admitted as a Barrister and Solicitor of the Supreme Court of New Zealand, a Barrister and Solicitor
of the Supreme Court of Victoria and as a Solicitor of the Supreme Court of New South Wales. He is also a
Commissioner of the Australian Rugby League Commission.
Other current directorships
Gary Weiss is currently the Executive Director of Ariadne Australia Limited. He is Chairman of Ardent Leisure Group,
Ridley Corporation Limited and Estia Health Limited, and a Non-Executive Director of Victor Chang Cardiac Research
Institute, Thorney Opportunities Limited and The Straits Trading Company Limited.
Special responsibilities
None.
Interests in shares of the Company
Details of Gary Weiss’ interests in shares of the Company are included later in this report.
Interests in contracts
Gary Weiss is a Non-Executive Director of Victor Chang Cardiac Research Institute which is a designated charitable
beneficiary of Hearts and Minds Investments Limited.
Geoffrey Wilson AO (Independent Director)
Experience and expertise
Geoffrey Wilson has over 39 years direct experience in investment markets having held a variety of senior investment
roles in Australia, the UK and the US. He founded Wilson Asset Management in 1997 and created Australia’s first listed
philanthropic wealth creation vehicles, the Future Generation companies. He holds a Bachelor of Science, a Graduate
Management Qualification and is a Fellow of the Financial Services Institute of Australia and the Australian Institute of
Company Directors.
Other current directorships
Geoffrey Wilson is currently Chairman of WAM Capital Limited, WAM Leaders Limited, WAM Research Limited, WAM
Active Limited, WAM Microcap Limited, WAM Global Limited and the Australian Stockbrokers Foundation. He is the
Founder and a Director of Future Generation Global Investment Company Limited, Future Generation Investment
Company Limited, Wilson Asset Management (International) Pty Limited and MAM Pty Limited, and a Director of
Australian Leaders Fund Limited, Global Value Fund Limited, 8IP Emerging Companies Limited, Wealth Defender
Equities Pty Limited, Wollongong 2022 Limited, Century Australia Investments Pty Limited, Incubator Capital Limited,
Sporting Chance Cancer Foundation, the Australian Fund Managers Foundation and the Australian Children’s Music
Foundation. He is a member of the Second Bite NSW Advisory Committee.
Special responsibilities
None.
23
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Information of Directors (continued)
Geoffrey Wilson AO (Independent Director) (continued)
Interests in shares of the Company
Details of Geoffrey Wilson’s interests in shares of the Company are included later in this report.
Interests in contracts
Geoffrey Wilson has no interest in contracts of the Company.
David Wright (Independent Director)
Experience and expertise
David Wright is a Managing Partner and joint founder of Zenith Investment Partners (“Zenith”). He established Zenith
in October 2002 and has extensive investment industry experience. His role includes overall responsibility of the
business and remains closely involved in servicing the firm’s investment consulting clients with portfolio construction,
management and monitoring advice.
Prior to establishing Zenith, he held senior positions within the financial services industry including IWL Limited (Head
of Research), an ASX listed company in which he was also a significant equity holder. He was instrumental in building
and further developing IWL’s managed investment research methodology and process and expanding the group’s
distribution of research to financial advisers. Other roles included Associate Director and Head of Managed Funds
research at Lonsdale Limited and an analyst with the Advisor Group, a national financial planning group. He has
extensive experience researching, assessing and rating many forms of managed investments including, unlisted
managed funds, listed managed investments including LIC’s, ETF’s, ETMF’s and property syndicates. He is also a
former practitioner lecturer of the Securities Institute of Australia (now FINSIA).
Other current directorships
None.
Special responsibilities
Chair of the Investment Committee.
Interests in shares of the Company
Details of David Wright’s interests in shares of the Company are included later in this report.
Interests in contracts
David Wright has no interest in contracts of the Company.
Chief Executive Officer
Paul Rayson
Paul Rayson is a Chartered Accountant and has worked in the financial services industry for over 20 years and has
extensive experience in investment markets, technology, retail banking, risk management and insurance.
He is the former Managing Director of CommSec, Australia’s leading online broker and former Managing Director of
Australian Investment Exchange Limited and Colonial Mutual Life Assurance Society Limited. He has also held a
number of CFO and governance positions across large financial services businesses. Prior to financial services, he
held senior roles in Chartered Accounting and Consulting firms specialising in corporate advisory, risk management
and strategy.
He holds a Commerce degree from Swinburne University and is a Fellow of the Institute of Chartered Accountants and
a member of the Australian Institute of Company Directors.
24
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Chief Investment Officer
Rory Lucas
Rory Lucas has worked in the Australian and global equity markets for nearly 30 years. Whilst having worked in a
variety of roles, his specialty is in trade execution as well as portfolio construction and risk management.
He has had previous roles with Rothschild Australia Asset Management in managing a fund of funds. His specific
responsibility was to source and vet potential managers as well as to determine the allocation of capital between them
and manage the consolidated risk of the portfolio.
In 2006, he took up a senior Equity Facilitation role at UBS Australia. As part of this role, he oversaw the management
of a high conviction portfolio of UBS Equity Research ideas known as alpha preferences. He was responsible for
portfolio execution, re-weighting and all aspects of the portfolio trading strategy. More recently, he has held trading and
execution roles at Commonwealth Bank of Australia, prior to their exit from the institutional equities business.
Company Secretary
Tom Bloomfield
Tom Bloomfield held the position of Company Secretary during the financial period. Tom has over fifteen years of
international Corporate Secretarial experience working for global organisations, both ‘in-house’ and for corporate
services providers. He has experience working with and consulting to a range of international and domestic clients. He
acts as Company Secretary to a number of ASX listed, unlisted and private companies in Australia in numerous industry
sectors. Tom is a Chartered Company Secretary, Fellow of ICSA (Institute of Chartered Secretaries and Administrators)
and Member of the Australian Institute of Company Directors. He holds a Law degree with Honours and a Graduate
Diploma in Applied Corporate Governance.
Members of the Investment Committee
The experience and qualifications of the members of the Investment Committee at the end of the financial period, up
to the date of this report are set out below:
Brett Paton
Brett Paton is currently Chairman of the management company of Escala Partners, an Australian wealth management
advisory group, Chairman of PLC Asset Management, a global venture capital investment organisation and Chairman
of Pointsbet Holdings Limited. He has worked in a range of senior positions including Vice Chairman at UBS Australia
where he spent 23 years. He also spent 5 years at Citi serving as Vice Chairman Australia, Institutional Clients Group.
He has served as a Non-Executive Director of Tabcorp and Chair of Audit and Risk for its demerged entity, Echo
Entertainment, giving him valuable insights into the functions expected of ASX 100 boards.
He was a Council Member at RMIT University and Chair of the Risk and Audit Committee. He is a qualified Chartered
Accountant.
Christopher Cuffe AO
Christopher Cuffe is also a Director. Please refer to pages 20 to 24 of the Directors’ Report to Shareholders for details
of Christopher Cuffe’s experience and qualifications.
Lorraine Berends
Lorraine Berends is also a Director. Please refer to pages 20 to 24 of the Directors’ Report to Shareholders for details
of Lorraine Berends’ experience and qualifications.
David Wright
David Wright is also a Director. Please refer to pages 20 to 24 of the Directors’ Report to Shareholders for details of
David Wright’s experience and qualifications.
25
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Paul Rayson
Paul Rayson is also Chief Executive Officer. Please refer to pages 20 to 24 of the Directors’ Report to Shareholders
for details of Paul Rayson’s experience and qualifications.
Remuneration Report (Audited)
The responsibility of the Company’s remuneration policy rests with the Board of Directors. Given the size of the
Company, its charitable nature and the fact that the Company has only three employees and has no intention to
remunerate its Directors, no remuneration committee has been formed by the Company.
a) Remuneration of Directors and Other Key Management Personnel
Key management personnel include the Chairman, Directors, the Chief Executive Officer and the Chief Investment
Officer. The Chairman and the Directors have agreed to waive their Directors’ fees on an ongoing basis. For the period
ended 30 June 2019, no Directors’ fees were paid by the Company. The remuneration of the Chief Executive Officer
and the Chief Investment Officer are set out below. The Chief Executive Officer and the Chief Investment Officer are
employed under standard employment contracts with a three-month notice period. The Chief Executive Officer and the
Chief Investment Officer do not receive performance-related compensation and are not provided with retirement
benefits apart from statutory superannuation.
Paul Rayson
Rory Lucas
b) Director Related Entities Remuneration
Short-term
benefits
Salary
$
Post-employment
benefits
Superannuation
$
Total
Remuneration
$
52,083
112,500
4,948
10,688
57,031
123,188
The Company Secretary has waived his right to receive fees. The Company will hold professional indemnity insurance
to his benefit, he will receive an indemnity as an officer of the Company to the maximum extent permitted by law and
will be entitled to be reimbursed for any external costs and expenses he incurs.
c) Equity Instruments Disclosures of Directors, Other Key Management Personnel and Related Parties
At the date of this report, the Company’s Directors, other key management personnel and their related parties held the
following interest in the Company:
Ordinary shares held
the period Acquisitions
Disposals
Balance at
beginning of
As at the date
of this report
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Paul Rayson
Rory Lucas
1,300,000
40,000
1,000,000
1,000,000
3,264,250
440,000
1,500,000
40,000
133,250
80,694
–
–
–
–
–
–
–
–
–
–
1,300,000
40,000
1,000,000
1,000,000
3,264,250
440,000
1,500,000
40,000
133,250
80,694
–
–
–
–
–
–
–
–
–
–
26
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Remuneration Report (Audited) (continued)
c) Equity Instruments Disclosures of Directors, Other Key Management Personnel and Related Parties (continued)
Directors, other key management personnel and director related entities disposed of and acquired ordinary shares in
the Company on the same terms and conditions available to other shareholders. The Directors have not, during or
since the end of financial period, been granted options over unissued shares or interests in shares of the Company as
part of their remuneration.
For further details, please refer to Note 18 of the financial statements.
- End of remuneration report -
Directors’ Meetings
Director
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Investment Committee Meetings
Member
Christopher Cuffe AO
Lorraine Berends
Brett Paton
Michael Traill AM (resigned 15 March 2019)
Gary Weiss AM (resigned 15 March 2019)
Geoffrey Wilson AO (resigned 15 March 2019)
David Wright
Paul Rayson
Events Occurring After the Reporting Period
No. of eligible
to attend
Attended
8
7
4
4
7
8
7
7
5
7
3
4
3
6
6
7
No. of eligible
to attend
Attended
4
4
4
2
2
2
4
4
3
4
3
1
1
2
4
4
The Directors are not aware of any events subsequent to Statement of Financial Position date that would materially
affect the financial report.
Future Developments
The Company’s future performance is dependent on the performance of the Company’s investments. In turn, the
performance of these investments is impacted by investee company-specific factors and prevailing industry conditions.
In addition, a range of external factors including economic growth rates, interest rates, exchange rates and macro-
economic conditions impact the overall equity market and these investments.
As such, we do not believe it is possible or appropriate to accurately predict the future performance of the Company’s
investments and, therefore, the Company’s performance.
Environmental Regulation
The Company’s operations are not subject to any particular or significant environmental regulation under a law of the
Commonwealth or of a State or Territory in Australia.
27
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Risk Management Philosophy and Approach
The success and profitability of the Company largely depends on each fund manager’s continued ability to provide
recommendations which generate a return for the Company.
The Investment Committee, in conjunction with the Chief Investment Officer, is responsible for managing the investment
portfolio. The Board of Directors’ risk policies and controls are designed to be robust and relevant to the investment
objectives and investment strategy.
The Investment Committee meets quarterly and more frequently as required to review the investment portfolio and
ensure that the Company continues to deliver on its investment objective and investment strategy.
The Board of Directors is committed to robust corporate governance practices to create value and provide accountability
and a control system commensurate with the risk involved. The Board of Directors will monitor the investment portfolio
to ensure compliance with the investment strategy and the investment guidelines.
Indemnification and Insurance of Officers and Directors
The Company has entered into director protection deeds with each Director. Under these deeds, the Company has
agreed to indemnify, to the extent permitted by the Corporations Act, each officer in respect of certain liabilities which
the officer may incur as a result of, or by reason of (whether solely of in part), being or acting as an officer of the
Company. The Company has also agreed to maintain in favour of each officer a directors’ and officers’ policy of
insurance for the period that they are officers and for seven years after they cease to act as officers.
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 the 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 period.
Non-Audit Services
During the period, Pitcher Partners, the Company’s auditor, did not perform any non-assurance services in addition to
their statutory duties for the Company. Related entities of Pitcher Partners perform certain taxation services for the
Company. Details of the amounts paid to the auditors are disclosed in Note 6 to the financial statements.
The Board of Directors is satisfied that the provision of non-audit services during the period 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 6 did not compromise the external auditor’s independence for the following reasons:
•
•
all non-audit services are reviewed and approved by the Board prior to commencement to ensure they 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.
Rounding of Amounts
The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 issued by the ASIC, relating to the
‘rounding off’ of amounts in the Directors’ Report to Shareholders. Amounts in the Directors’ Report to Shareholders
have been rounded off in accordance with that Class Order to the nearest dollar or unless otherwise indicated.
28
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Corporate Governance Statement
The Company’s Corporate Governance Statement for the period ended 30 June 2019 is provided on the Company
website at heartsandmindsinvestments.com.au.
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 30.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act
2001.
Christopher Cuffe AO
Chairman and Independent Director
Sydney
23 August 2019
29
Hearts and Minds Investments Limited
Auditor’s Independence Declaration
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
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 Hearts and Minds Investments Limited
ABN 61 628 753 220
In relation to the independent audit of Hearts and Minds Investments Limited for the period from
incorporation to 30 June 2019, 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 any applicable code of professional conduct in relation to the audit.
S M Whiddett
Partner
Pitcher Partners
Sydney
23 August 2019
Adelaide Brisbane Melbourne Newcastle Perth Sydney
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
30
Hearts and Minds Investments Limited
Statement of Comprehensive Income
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Investment income from ordinary activities
Net realised and unrealised gain on foreign exchange transactions
Interest income
Dividend income, net of withholding tax of $196,788
Sundry income
Total investment income
Expenses
Offer costs
Interest expense
Other expenses
Total expenses
Loss before income tax
Income tax benefit
Net loss for the period
Notes
4
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
403,769
97,703
3,612,951
6,640
4,121,063
(5,257,409)
(118,430)
(627,552)
(6,003,391)
(1,882,328)
3
1,136,028
(746,300)
Other comprehensive income
Items that will not be reclassified to profit or loss:
Net realised gains on investments taken to equity, net of tax
Net unrealised gains on investments taken to equity, net of tax
Net realised and unrealised gains on investments taken to equity, net of tax
Other comprehensive income, net of tax
Total comprehensive income for the period
10
10
10
Loss per share attributable to the ordinary equity holders of the Company:
Basic and diluted loss per share
14
4,178,905
67,020,422
71,199,327
71,199,327
70,453,027
Cents
(0.47)
The accompanying notes form part of these financial statements.
31
Assets
Current assets
Cash and cash equivalents
Other receivables
Total current assets
Non-current assets
Financial assets at fair value through other comprehensive income
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Current tax liability
Other payables
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity
Hearts and Minds Investments Limited
Statement of Financial Position
30 June 2019
Notes
30 June
2019
$
11
7
16
3
3
8
3
9
10
10
7,052,020
53,498
7,105,518
593,088,374
1,290,040
594,378,414
601,483,932
1,929,264
362,895
2,292,159
28,738,745
28,738,745
31,030,904
570,453,028
500,000,001
71,199,327
(746,300)
570,453,028
The accompanying notes form part of these financial statements.
32
Hearts and Minds Investments Limited
Statement of Changes in Equity
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Investment
portfolio
Share revaluation
reserve
capital
$
$
Notes
Profits Accumulated
losses
reserve
$
$
Total
$
Balance at 12 September 2018
Net loss for the period
Other comprehensive income, net
of tax
Transfer to profits reserve
9
10
10
10
1
–
–
–
–
–
–
–
–
(746,300)
1
(746,300)
71,199,327
(4,178,905)
–
4,178,905
–
–
71,199,327
–
Transactions with equity
holders in their capacity as
owners:
Shares issued under Initial Public
Offering (“IPO”)
9
500,000,000
–
–
– 500,000,000
Balance at 30 June 2019
500,000,001
67,020,422
4,178,905
(746,300) 570,453,028
The accompanying notes form part of these financial statements.
33
Hearts and Minds Investments Limited
Statement of Cash Flows
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Cash flows from operating activities
Interest received
Dividends received
Interest paid
Offer costs paid
Payments for other expenses
Net cash used in operating activities
Cash flows from investing activities
Proceeds from sales of investments
Payments for purchases of investments
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of shares
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of foreign currency exchange rate changes on cash and cash equivalents
Notes
4
12
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
97,703
3,560,593
(118,430)
(4,976,501)
(540,065)
(1,976,700)
90,607,027
(581,982,077)
(491,375,050)
500,000,001
500,000,001
6,648,251
–
403,769
Cash and cash equivalents at the end of the period
11
7,052,020
The accompanying notes form part of these financial statements.
34
Hearts and Minds Investments Limited
Notes to the Financial Statements
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
1
General information
Hearts and Minds Investments Limited (the “Company”) is a company limited by shares, incorporated and domiciled in
Australia, whose shares are publicly traded. The registered office is Level 12, 225 George Street, Sydney NSW 2000.
The Company was incorporated on 12 September 2018. Its shares were admitted for quotation on the Official List of
ASX Limited (“ASX”) on 9 November 2018 and commenced operations on 14 November 2018. The financial
statements of the Company are for the period from 12 September 2018 to 30 June 2019.
The financial statements were authorised for issue on 23 August 2019 by the Board of Directors.
2
Summary of significant accounting policies
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with the Australian Accounting
Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting
Standards Board (“AASB”) and the Corporations Act 2001. The financial statements of the Company also comply with
International Financial Reporting Standards as issued by the International Accounting Standards Board. The Company
is a for-profit entity for the purpose of preparing the financial statements. Material accounting policies adopted in the
preparation of these financial statements are presented below and have been consistently applied unless stated
otherwise.
These financial statements have been prepared on an accruals basis, and are based on historical cost convention
except for the revaluation of financial assets at fair value through other comprehensive income and cash flow
information.
In accordance with ASIC Corporations Instrument 2016/191, the amounts in the Financial Report have been rounded
to the nearest dollar, unless otherwise indicated.
(b) Revenue recognition
Revenue is measured at the fair value of consideration received or receivable.
(i)
Investment gains and losses
Profits and losses realised from the sale of investments and unrealised gains and losses on securities held at fair value
are included in the Statement of Comprehensive Income in the period they are incurred, in accordance with the policies
described in Note 2(c).
(ii) Dividends
Dividends are recognised as revenue in the Statement of Comprehensive Income when the right to receive payment is
established.
(iii)
Interest income
Interest income is recognised as it accrues in the Statement of Comprehensive Income based on nominated interest
rates available on the bank accounts held.
(c) Investments and other financial assets
Classification
The Company has classified its investments as long-term in nature and has elected to recognise investments at fair
value through other comprehensive income. All gains and losses on long-term investments and tax thereon are
presented in other comprehensive income as part of the Statement of Comprehensive income.
35
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
2
Summary of significant accounting policies (continued)
(c) Investments and other financial assets (continued)
Recognition and derecognition
Purchases and/or sales of financial assets are recognised on the trade date, i.e., the date that the Company commits
to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial
assets have expired or have been transferred and the Company has substantially transferred all the risks and rewards
of ownership.
Measurement
At initial recognition, the Company measures a financial asset at its fair value in the Statement of Financial Position.
Transaction costs for financial assets carried at fair value through other comprehensive income are included as part of
the initial measurement.
The fair value of financial assets is based on the price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date. Usually, the quoted market prices on a recognised exchange
or, in its absence, the most advantageous market to which the Company has access at that date. The Company’s
accounting policy on fair value is disclosed in Note 16.
Changes in the fair value for financial assets at fair value through other comprehensive income are recognised through
the Investment portfolio revaluation reserve after deducting a provision for the potential deferred tax liability.
When a financial asset held at fair value through other comprehensive income is disposed, the cumulative gain or loss,
net of tax thereon, is transferred from the Investment portfolio revaluation reserve to the profits reserve.
(d) Other receivables
Other receivables are non-derivative financial assets and are stated at their amortised cost. 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 may be 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 the value in use, is compared to the asset’s carrying value. Any excess of the
asset’s carrying value over its recoverable value is expensed to the Statement of Comprehensive Income.
(e) Other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial
period which are unpaid. Other payables are presented as current liabilities unless payment is not due within 12 months
from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost
using the effective interest method.
(f) Foreign currency translation
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in
which the Company operates. The financial statements are presented in Australian dollars (“AUD” or “$”) which is the
Company’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
36
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
2
Summary of significant accounting policies (continued)
(f) Foreign currency translation (continued)
Transactions and balances (continued)
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at
the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are
reported as part of fair value gain or loss.
(g) 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, adjusted by changes in deferred tax assets and deferred tax liabilities attributable to
temporary differences and unused tax losses, 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.
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 amounts
of recognised and unrecognised deferred tax assets are reviewed at each reporting date.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to offset current tax
assets and current tax liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and liabilities are offset where the Company has a legally enforceable right to offset and intends to settle on a
net basis.
Current and deferred tax is recognised in the Statement of Comprehensive Income, except to the extent that it relates
to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity as appropriate.
(h) Goods and Services Tax (“GST”)
Revenues, expenses and assets are recognised net of the amount of GST, unless GST incurred is not recoverable
from the Australian Taxation Office. 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.
(i) Cash and cash equivalents
Cash and cash equivalents include 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.
(j) Issued capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of ordinary shares have been recognised
in the Statement of Comprehensive Income, net of any tax effects.
37
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
2
Summary of significant accounting policies (continued)
(k) Profits reserve
A profits reserve is made up of amounts transferred from current and retained earnings and realised gains on disposal
of financial assets that is preserved for future dividend payments.
(l) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the
discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
In accordance with the Corporations Act 2001, the Company may pay a dividend where the Company’s assets exceed
its liabilities, the payment of the dividend is fair and reasonable to the Company’s shareholders as a whole and the
payment of the dividend does not materially prejudice the Company’s ability to pay its creditors.
(m) Earnings/(loss) per share
(i) Basic earnings/(loss) per share
•
the profit/(loss) attributable to owners of the Company, excluding any costs of servicing equity other than
ordinary shares; and
• by the weighted average number of ordinary shares outstanding during the financial period.
(ii) Diluted earnings/(loss) per share
Diluted earnings/(loss) per share adjusts the figures used in the determination of basic earnings per share to take into
account:
•
•
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares; and
the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
(n) 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.
The investments of the Company are managed by fund managers who provide their expertise and stock
recommendations to the Company on a pro bono basis. Therefore, the investment portfolio of the Company does not
incur any fund management fees. It is estimated that the investments fees forgone by the fund managers based on
normal commercial terms for the period to 30 June 2019 equates to $5,100,000. This notional benefit to the Company
is not included in the financial statements of the Company. Other than this estimate, there are no estimates or
judgements that have a material impact on the Company’s financial results for the period ended 30 June 2019.
38
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
3
Income tax
(a) Income tax expense
The prima facie tax on loss before income tax is reconciled to the income tax expense as follows:
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
(564,697)
(816,186)
185,819
59,036
(1,136,028)
28,723,038
1,790,959
30,513,997
29,377,969
30 June
2019
$
138,305
(1,290,040)
15,707
(1,136,028)
28,723,038
1,790,959
30,513,997
29,377,969
Prima facie income tax expense on the net profit at 30%
Imputation credits and foreign tax credits claimed at 100%
Imputation credits gross up on dividends received
Foreign tax credits gross up dividends received
Income tax benefit recognised in profit or loss
Deferred tax on net unrealised gains on investments
Income tax on net realised gains on investments
Income tax expense recognised in other comprehensive income
Total income tax expense
(b) Total income tax expense results in a:
Current income tax liability
Deferred tax assets
Deferred tax liabilities
Income tax benefit recognised in profit or loss
Deferred tax liability on net unrealised gains on investments
Current income tax liability on net realised gains on investments
Income tax expense recognised in other comprehensive income
Total income tax expense
39
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
3
Income tax (continued)
(c) Deferred tax assets relate to the following:
Costs associated with the issue of shares
Provisions
Net unrealised gains on foreign exchange transactions
Deferred tax assets
(d) Deferred tax liabilities relate to the following:
Net unrealised gains on investments
Dividend receivable on shares
Deferred tax liabilities
(e) Movement in deferred tax assets and deferred tax liabilities:
Opening balance
Charged to profit or loss
Charged to other comprehensive income
Closing balance
4
Offer costs and donations
30 June
2019
$
1,261,778
24,596
3,666
1,290,040
30 June
2019
$
28,723,038
15,707
28,738,745
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
Deferred tax
assets
$
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
Deferred tax
liabilities
$
–
1,290,040
–
–
(15,707)
(28,723,038)
1,290,040
(28,738,745)
In line with the Company’s philanthropic objectives, the Company donates a percentage of the Company’s net tangible
asset to leading Australian medical research organisations every six months. The donations are equal to 1.5% per
annum of the average monthly net tangible assets for the previous half-year and roughly equivalent to the value of the
investment management fees foregone by participating fund managers. The donations accrue monthly and regardless
of the performance of the Company, and may vary month-to-month in proportion to the net tangible asset value. The
accrual of the donation amount each month increases expenses and decreases the Company’s net tangible assets.
40
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
4
Offer costs and donations (continued)
In accordance with the Company’s agreement with Victor Chang Cardiac Research Centre, the costs of the Company’s
initial public offer were borne by Victor Chang Cardiac Research Centre. In accordance with the agreement the first
payment of the Company under the donation framework is to be paid to Victor Chang Cardiac Research Centre until
the offer costs are fully recouped. For the period ended 30 June 2019, the amount recognised in the Statement of
Comprehensive Income as an expense was $5,257,409. This represents the total costs of the initial public offer. The
first payment under the donation framework of $4,976,501 was made to Victor Chang Cardiac Research Centre in June
2019. At 30 June 2019, the amount payable to Victor Chang Cardiac Research Centre is $280,908 (Note 8).
5
Dividends
Dividend franking account
Opening balance
Franking credits on dividends received
Closing balance
6
Remuneration of auditors
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
619,398
619,398
During the period, the following fees were paid or payable for services provided by the auditor of the Company, its
related practices and non-related audit firms:
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
38,000
–
11,288
49,288
Audit and review of financial statements
Other services provided by related practice of the auditor
Independent Accountant’s Report and Prospectus (pro-bono)
Taxation services
Total remuneration for audit and other assurance services
41
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
7
Other receivables
Dividend receivable
Other receivables
Total other receivables
8
Other payables
Offer costs payable
Accrued expenses
Total other payables
Offer costs payable incurs interest at the rate of 3.5% per annum.
9
Share capital
(a) Issued capital
Ordinary shares
(b) Movements in share capital
Opening balance
Shares issued under IPO
Closing balance
30 June
2019
$
52,358
1,140
53,498
30 June
2019
$
280,908
81,987
362,895
30 June
2019
No. of shares
30 June
2019
$
200,000,001
500,000,001
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
No. of shares
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
1
200,000,000
1
500,000,000
200,000,001
500,000,001
On 9 November 2018, the Company issued 200,000,000 fully paid ordinary shares under the IPO at an application
price of $2.50 per share.
42
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
10
Reserves and accumulated losses
(a) Reserves
Investment portfolio revaluation reserve
Profits reserve
Total reserves
Investment portfolio revaluation reserve
Opening balance
Net realised gains on investments
Income tax on net realised gains on investments
Net unrealised gains on investments
Deferred income tax on net unrealised gains on investments
Transfer to profits reserve
Closing balance
Profits reserve
Opening balance
Transfer from investment portfolio revaluation reserve
Closing balance
43
30 June
2019
$
67,020,422
4,178,905
71,199,327
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
5,969,864
(1,790,959)
95,743,460
(28,723,038)
(4,178,905)
67,020,422
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
4,178,905
4,178,905
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
10
Reserves and accumulated losses (continued)
(b) Accumulated losses
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
(746,300)
(746,300)
Opening balance
Net loss for the period
Closing balance
11
Cash and cash equivalents
Cash at the end of the reporting period as shown in the Statement of Cash Flows is reconciled to the related items in
the Statement of Financial Position as follows:
Cash at bank
Cash at custodian
Total cash and cash equivalents
30 June
2019
$
4,424,943
2,627,077
7,052,020
The cash at bank is denominated in AUD, is at call and is earning interest at a fixed rate. The cash at custodian is at
call and denominated in United States Dollars (“USD”), Japanese Yen (“JPY”), Hong Kong Dollars (“HKD”) and Euros
(“EUR”) and is non-interest bearing.
Risk exposure
The Company’s exposure to interest rate risk is discussed in Note 15. The maximum exposure to credit risk in relation
to cash at the end of the reporting period is the carrying amount of cash in bank and cash at custodian.
Cash in bank is with Commonwealth Bank of Australia that has a Standard and Poor’s short-term rating of A-1+ and
long-term rating of AA-. Cash at custodian is with JP Morgan Chase Bank that has a short-term rating of A-1 and a
long-term rating of A+.
44
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
12
Reconciliation of net loss for the period to net cash used in operating activities
Net loss for the period
Effects of foreign currency exchange rate changes on cash and cash equivalents
Change in operating assets and liabilities:
Increase in other receivables
Increase in deferred tax assets
Increase in current tax liability
Increase in other payables
Increase in deferred tax liabilities
Net cash used in operating activities
13
Non-cash investing and financing activities
Sales of investments
Purchases of investments
Total non-cash investing and financing activities
14
Loss per share
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
(746,300)
(403,769)
(53,498)
(1,290,040)
138,305
362,895
15,707
(1,976,700)
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
9,644,831
(9,644,831)
–
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
Net loss for the period used in the calculation of basic and diluted loss per share attributable
to the ordinary equity holders of the Company
(746,300)
45
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
14
Loss per share (continued)
(a) Basic and diluted loss per share
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
Basic and diluted loss per share attributable to the ordinary equity holders of the Company
(0.47)
(b) Weighted average number of shares used as denominator
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
No. of shares
Weighted average number of ordinary shares used as the denominator in calculating basic
and diluted loss per share attributable to the ordinary equity holders of the Company
160,273,974
The weighted average number of shares used as the denominator in calculating basic and diluted loss per share is
based on the average number of shares from 12 September 2018 (date of incorporation) to 30 June 2019.
At the end of the period, there were no outstanding securities that are potentially dilutive in nature for the Company.
15
Financial risk management
The Company’s financial instruments consist mainly of cash and cash equivalents, other receivables, financial assets
at fair value through other comprehensive income, and other payables.
The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk,
and equity price risk), credit risk, liquidity risk and other risks. The Board of the Company have implemented a risk
management framework to mitigate these risks.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market prices.
The investment portfolio is exposed to market risk. The market risk of securities in the Company’s investment portfolio
can fluctuate as a result of market conditions. The value of the investment portfolio may be impacted by factors such
as economic conditions, interest rates, regulations, sentiment and geopolitical events as well as environmental, social
and technological changes. In addition, as the Company is listed on the ASX, its securities are exposed to market risks.
As a result, the security price may trade at a discount or a premium to its net tangible assets.
46
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
15
Financial risk management (continued)
Market risk (continued)
Currency risk
The Company holds both monetary and non-monetary assets denominated in currencies other than the Australian
dollar. Foreign exchange risk arises as the value of monetary securities denominated in other currencies fluctuates due
to changes in exchange rates. The foreign exchange risk relating to non-monetary assets and liabilities is a component
of price risk not foreign exchange risk. However, the Company monitors the exposure on all foreign currency
denominated assets and liabilities.
The Company does not hedge against its foreign exchange exposure, and consequently, the impact of foreign
exchange movements is directly reflected in the Statement of Comprehensive Income.
While the Company has direct exposure to foreign exchange rate changes on the price of non-Australian dollar
denominated investments, it may also be indirectly affected by the impact of foreign exchange rate changes on the
earnings of certain investments in which the Company invests, even if those investments are denominated in Australian
dollars. For that reason, the sensitivity analysis below may not necessarily indicate the total effect on the Company’s
equity of future movements in foreign exchange rates.
The table below summarised the Company’s monetary assets exposed to foreign currency risk at 30 June 2019:
United States Dollar
Hong Kong Dollar
Euro
Japanese Yen
Canadian Dollar (“CAD”)
* As percentage of investment portfolio exposure.
Sensitivity
Net currency
exposure*
%
56
5
4
4
3
72
The following table illustrates the sensitivities of the Company’s monetary assets and liabilities to foreign exchange
risk. The analysis is based on the assumption that the AUD weakened and strengthened by 10% against the other
currencies.
30 June 2019
Impact on total
comprehensive income
Equity price risk
USD impact
AUD
HKD impact
AUD
EUR impact
AUD
JPY impact
AUD
CAD impact
AUD
+/- 33,273,052
+/- 2,718,570
+/- 2,418,186
+/- 2,326,044
+/- 2,075,546
The Company is exposed to price risk on its financial assets classified in the Statement of Financial Position as financial
assets at fair value through other comprehensive income. There is a risk that securities will fall in value over short or
extended periods of time. Equity markets tend to move in cycles, and individual share prices may fluctuate and
underperform other asset classes over extended periods of time. The Company’s typical investment portfolio is
expected to hold 25 to 30 securities, which represents a high level of investment concentration. The lower the number
of investments, the higher the concentration and, in turn, the higher the potential volatility. The Company seeks to
manage and constrain market risk by diversification of the investment portfolio across a number of global equity fund
managers.
47
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
15
Financial risk management (continued)
Market risk (continued)
Equity price risk (continued)
Sensitivity
The following table illustrates the effect on the Company’s equity from possible changes in the fair value of financial
assets that were reasonably possible based on the market risk that the Company was exposed to at reporting date,
assuming a tax rate of 30%.
Impact on other components of equity
MSCI World Index (AUD)
Change in variable +/- 5%
Change in variable +/- 10%
Cash flow and interest rate risk
$
20,758,093
41,516,186
The Company’s interest-bearing financial assets expose it to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial position and cash flows. The table below summarises the
Company’s exposure to interest rate risks at 30 June 2019:
Financial assets
Cash and cash equivalents
Financial assets at fair value through other comprehensive
income
Other receivables
Total
Financial liabilities
Other payables
Total
Sensitivity
Interest
bearing
$
Non-interest
bearing
$
Total
$
4,424,943
2,627,077
7,052,020
–
–
593,088,374
53,498
593,088,374
53,498
4,424,943
595,768,949
600,193,892
280,908
81,987
362,895
280,908
81,987
362,895
Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents as a result of changes in
interest rates. At 30 June 2019, if interest rates had increased by 100 basis points (bps) or decreased by 100 bps from
the period end rates with all other variables held constant, post tax profit for the period would have been $30,975 higher
or $30,975 lower, as a result of higher or lower interest income from cash and cash equivalents.
Interest rate risk also arises from the effects of fluctuations in the prevailing levels of market interest rates on its financial
assets at fair value through other comprehensive income. The sensitivity to changes in the value of financial assets at
fair value through other comprehensive income is set out in the price risk and currency risk sensitivity tables. The
Directors do not consider it meaningful, to provide a separate analysis of the sensitivity of the investment portfolio to
changes in interest rates.
48
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
15
Financial risk management (continued)
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation.
Credit risk primarily arises from cash and cash equivalents and deposits with banks and other financial institutions.
The maximum exposure to credit risk, at balance sheet date to recognised financial assets, is the carrying amount, net
of any provisions for expected credit losses of those assets, as disclosed in the Statement of Financial Position and
Note 11 to the financial statements.
The Company held no collateral as security or any other credit enhancements. None of the assets exposed to a credit
risk are overdue or considered to be impaired.
Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities. The Board and Investment Committee monitor the Company’s cash flow requirements in relation to the
investment portfolio taking into account dividends, tax payments and investing activity.
The Company’s inward cash flows depend on the level of dividend and interest revenue received, investment disposals
and capital raising initiatives from time to time. Should these decrease by a material amount, the Company would
amend its outward cash flows accordingly. As the major cash outflows are investments, donations, general expenditure
and future dividends paid to shareholders, the level of these outflows is managed by the Board and Investment
Committee. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. A
sufficient level of the Company’s cash is held at call to meet cash outflows and mitigate liquidity risk.
The table below summarises the maturity profile of the Company’s financial assets and financial liabilities based on
contractual undiscounted cash flows at 30 June 2019:
Financial assets
Cash and cash equivalents
Financial assets at fair value
through other comprehensive
income
Other receivables
Total
Financial liabilities
Other payables
Total
On demand
$
7,052,020
–
53,498
7,105,518
362,895
362,895
1 to 3
months
$
3 to
12 months
$
More than
12 months
$
No fixed
maturity
$
Total
$
–
–
–
–
–
–
–
–
7,052,020
– 593,088,374 593,088,374
53,498
–
–
– 593,088,374 600,193,892
–
–
–
–
362,895
362,895
–
–
–
–
–
–
49
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
16
Financial Assets
Fair value measurements
(a) Fair value estimation
Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset
takes place either in the principal market for the asset or, in the absence of a principal market, in the most advantageous
market for the asset. The principal or the most advantageous market must be accessible to the Company. The fair
value of an asset is measured using the assumptions that market participants would use when pricing the asset,
assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset
takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and
best use or by selling it to another market participant that would use the asset in its highest and best use.
The fair value for financial instruments traded in active markets at the reporting date is based on their quoted closing
price, without any deduction for transaction costs.
For all other financial instruments not traded in an active market, the fair value is determined using valuation techniques
deemed to be appropriate in the circumstances. Valuation techniques include the market approach (i.e., using recent
arm’s length market transactions, adjusted as necessary, and reference to the current market value of another
instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option
pricing models making as much use of available and supportable market data as possible).
For assets that are measured at fair value on a recurring basis, the Company identifies transfers between levels in the
hierarchy by re-assessing the categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole), and deems transfers to have occurred at the beginning of each reporting period.
(b) Fair value hierarchy
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:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
•
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 2); and
•
Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The following table presents the Company’s assets and liabilities measured and recognised at fair value at 30 June
2019:
Level 1
$
Level 2
$
Level 3
$
Total
$
Financial assets at fair value through other
comprehensive income
Listed equity securities on major exchanges
593,088,374
Total financial assets at fair value through
other comprehensive income
593,088,374
–
–
–
–
593,088,374
593,088,374
There were no transfers between levels for recurring fair value measurements during the period.
The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the
reporting period.
50
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
17
Segment information
The Company has only one reportable segment. The Company is engaged solely in investment activities, deriving
revenue from dividend income, interest income and from the sale of its investments.
18
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 period ended 30 June 2019) are:
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Michael Beaumont
Paul Rayson
Rory Lucas
(a) Remuneration
Chairman and Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Previous Director (appointed 12 September 2018, ceased 25 September 2018)
Chief Executive Officer
Chief Investment Officer
The Chairman and Directors have agreed to waive any right to be paid director fees on an ongoing basis. For the period
ended 30 June 2019, no Directors’ fees were paid by the Company.
The Company Secretary has also waived his right to receive fees. The Company will hold professional indemnity
insurance to his benefit, he will receive an indemnity as an officer of the Company to the maximum extent permitted by
law and will be entitled to be reimbursed for any external costs and expenses he incurs.
(b) Shareholdings
As at 30 June 2019, the Company’s key management personnel and their related parties held the following interest in
the Company:
Directors and Key Management
Opening
balance Acquisitions
Disposals
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Paul Rayson
Rory Lucas
–
–
–
–
–
–
–
–
–
–
1,300,000
40,000
1,000,000
1,000,000
3,264,250
440,000
1,500,000
40,000
133,250
80,694
–
–
–
–
–
–
–
–
–
–
Closing
balance
1,300,000
40,000
1,000,000
1,000,000
3,264,250
440,000
1,500,000
40,000
133,250
80,694
Directors, other key management personnel and director related entities disposed of and acquired ordinary shares in
the Company on the same terms and conditions available to other shareholders. The Directors have not, during or
since the end of financial period, been granted options over unissued shares or interests in shares of the Company as
part of their remuneration.
51
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
19
Related party transactions
All transactions with related entities were made on normal commercial terms and at market rates, except as noted
below.
Investment and management fees
The Company will forego any investment and management fees associated with implementing and managing the
investment strategy. Instead, donations will be paid by the Company to the designated charities every six months (Note
4).
Directors’ fees
The Chairman and Directors have agreed to waive any right to be paid director fees (see Note 18).
Pro-bono services
The Company Secretary is a General Manager of Boardroom Pty Limited. Boardroom Pty Limited provides company
secretarial services to the Company on a pro-bono basis.
Two of the Company’s Directors, Matthew Grounds and Guy Fowler are senior executives of UBS Australia. UBS
Australia provides office services to the Company on a pro-bono basis.
20
Contingencies and commitments
The Company had no material contingent liabilities or commitments as at 30 June 2019.
21
Events occurring after the reporting period
No matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly
affect, the operations of the Company, the results of those operations or the state of affairs of the Company in
subsequent financial periods.
52
Hearts and Minds Investments Limited
Directors’ Declaration
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Directors’ Declaration
In accordance with a resolution of the Directors of Hearts and Minds Investments Limited (the “Company”), the
Directors of the Company declare that:
(a) The financial report as set out in pages 31 to 52 and the additional disclosures included in the Directors’ Report
designated as ‘Remuneration Report’, as set out on pages 26 to 27, are in accordance with the Corporations Act
2001, including:
(i) complying with Australian Accounting Standards, which, as stated in Note 2 to the financial statements,
constitutes compliance with International Financial Reporting Standards, the Corporations Regulations 2001
and other mandatory professional reporting requirements; and
(ii) giving a true and fair view of the financial position of the Company as at 30 June 2019 and of its performance,
as represented by the results of the operations and the cash flows, for the period ended on that date; and
(b) At the date of this declaration, in the Director’s 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.
(c) The Directors have been given the declaration required by section 295A of the Corporations Act 2001 from the
person who performs the Chief Executive Officer and Chief Financial Officer functions, for the purpose of the
Corporations Act 2001.
Signed in accordance with a resolution of the Board of Directors made pursuant to section 295(5)(a) of the Corporations
Act 2001.
Christopher Cuffe AO
Chairman and Independent Director
Sydney
23 August 2019
53
Hearts and Minds Investments Limited
Independent Auditor’s Review Report to the Shareholders
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
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 Directors of Hearts and Minds Investments Limited
ABN 61 628 753 220
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Hearts and Minds Investments Limited (“the Company”), which
comprises the statement of financial position as at 30 June 2019, the statement of comprehensive
income, the statement of changes in equity and the statement of cash flows for the period 12
September 2018 (date of incorporation) to 30 June 2019, 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 Hearts and Minds Investments Limited is in
accordance with the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the Company’s financial position as at 30 June 2019 and of
its financial performance for the period then ended; and
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 (“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 on 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Adelaide Brisbane Melbourne Newcastle Perth Sydney
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
54
Hearts and Minds Investments Limited
Independent Auditor’s Review Report to the Shareholders
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Key audit matter
How our audit addressed the matter
Existence and Valuation of Financial Assets
Refer to Note 16: Financial assets
We focused our audit effort on the existence and
valuation of the Company’s financial assets as they
represent the most significant driver of the
Company’s Net Tangible Assets and profits.
Investments consist of listed Australian and global
securities and are considered to be non-complex in
nature with fair value based on readily observable
market data. Consequently, these investments are
classified under Australian Accounting Standards as
“Level 1” (i.e. where the valuation is based on
quoted prices in the market). All foreign investments
are valued in presentation currency (Australian
dollars) utilising the year end rates.
Our procedures included, amongst others:
▪ Obtaining an understanding of the investment
management process and controls;
▪ Reviewing and evaluating the independent
audit report on internal controls (ASAE 3402
Assurance Reports on Controls at a Service
Organisation) for the Custodian;
▪ Reviewing and evaluating the independent
audit report on internal controls (ASAE 3402
Assurance Reports on Controls at a Service
Organisation) for the Administrator;
▪ Making enquiries and obtaining bridging letters
as to whether there have been any changes to
these controls or their effectiveness and
performing additional procedures on a sample
basis;
▪ Obtaining a confirmation of the investment
holdings directly from the Custodian;
▪
▪ Assessing the Company’s valuation of individual
investment holdings to independent sources;
Evaluating the accounting treatment of
revaluations of financial assets and financial
liabilities for current/deferred tax and
unrealised gains or losses; and
▪ Assessing the adequacy of disclosures in the
financial statements.
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
55
Hearts and Minds Investments Limited
Independent Auditor’s Review Report to the Shareholders
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Other Information
The Directors are responsible for the other information. The other information comprises the
information included in the Company’s Annual Report for the financial period ended 30 June 2019, 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 accordingly we do not
express any form of assurance conclusion thereon.
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 inconsistent 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
and for such internal control as the Directors determine is necessary to enable the preparation of the
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 ability of the Company
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 from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• 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.
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
56
Hearts and Minds Investments Limited
Independent Auditor’s Review Report to the Shareholders
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
• 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.
• 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.
We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included on pages 26 to 27 of the Directors’ Report for the
financial period ended 30 June 2019. In our opinion, the Remuneration Report of Hearts and Minds
Investments Limited, for the financial period ended 30 June 2019, complies with section 300A of the
Corporations Act 2001.
Responsibilities
The Directors of the Company 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.
S M Whiddett
Partner
23 August 2019
Pitcher Partners
Sydney
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
57
Hearts and Minds Investments Limited
ASX Additional Information
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
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 26 July 2019)
There are no substantial shareholders (voting interest greater than 5%) in Hearts and Minds Investments Limited as at
30 June 2019.
Distribution of shareholders (as at 26 July 2019)
1 - 1,000
1,000 - 9,999
10,000 - 99,999
100,000 - 999,9999
1,000,000 and over
The number of shareholdings held in less than marketable parcels is 15.
Number of
shareholders
ordinary shares
Percentage of
issued capital
held
509,816
5,293,558
10,569,898
54,691,969
128,934,760
0.25%
2.65%
5.28%
27.35%
64.47%
200,000,001
100.00%
58
Hearts and Minds Investments Limited
ASX Additional Information (continued)
For the period from 12 September 2018 (date of incorporation) to 30 June 2019
Twenty largest shareholders - Ordinary shares (as at 26 July 2019)
Name
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Netwealth Investments Limited
Koll Pty Limited
Associated World Investments Pty Limited
Wroxby Pty Limited
Jane Hansen Super Pty Limited
Skip Enterprises Pty Limited
Paul Ramsay Foundation
Tandom Pty Limited
John Shearer (Holdings) Pty Limited
Navigator Australia Limited
The Ian Potter Foundation Limited
Wilson Foundation Pty Limited
Beta Gamma Pty Limited
SL Nominees Pty Limited
Australian Philanthropic Services Foundation Pty Limited
Midas Touch Investments Pty Limited
Bridgestar Pty Limited
Number of
shareholders
ordinary shares
Percentage of
issued capital
held
41,795,135
13,606,800
5,058,553
3,950,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
1,866,253
1,600,000
1,500,000
1,420,000
1,311,071
1,200,000
1,200,000
1,200,000
20.9%
6.8%
2.5%
2.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
0.9%
0.8%
0.8%
0.7%
0.7%
0.6%
0.6%
0.6%
Securities exchange listing
Quotation has been granted for all of the ordinary shares of the Company on all Member Exchanges of the ASX Limited.
89,707,812
44.9%
59