Hearts and Minds
Investments Limited
Annual
Report
For the year ended
30 June 2020
ACN 628 753 220
Hearts and Minds Investments Limited
For the year ended 30 June 2020
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
13
20
32
33
34
35
36
37
60
61
65
Corporate Directory
Directors
(Pro bono)
Company Secretary
(Pro bono)
Investment Committee
(Pro bono)
Core Fund Managers
(Pro bono)
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
Chairman
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds AM
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Tom Bloomfield
David Wright
Christopher Cuffe AO
Lorraine Berends
Brett Paton
Paul Rayson
Caledonia (Private) Investments
Cooper Investors
Magellan Asset Management Limited
Paradice Investment Management
Regal Funds Management
TDM Growth Partners
2019 Conference Fund Managers
(Pro bono)
Builders Union (UK)
TDM Growth Partners
Oasis Management (HK)
Airlie Funds Management
Cooper Investors
Munro Partners
Regal Funds Management
Tekne Capital Management
Tribeca Investment Partners
Montaka Global Investments
Cota Capital
ARK Invest (USA)
Registered Office
Auditor
Administrator
(Pro bono)
Share Registrar
(Pro bono)
Stock Exchange
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
For the year ended 30 June 2020
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 of Hearts and Minds Investments
Limited (hereafter referred to as ‘HM1’ or the ‘Company’) and we are delighted to share the Annual Report for the year
ended 30 June 2020.
HM1 is a listed investment company that 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. It was born out of the investment and philanthropic vision of the Sohn Hearts & Minds Investment
Leaders Conference.
We acknowledge that the pandemic presents a major challenge for communities around the world and that many
families and businesses have been severely impacted by the ongoing health crisis and economic impact. However, we
are pleased to report that the investment portfolio of HM1 has proved to be resilient during the market turmoil and has
generated an excellent investment performance for the full year to 30 June 2020.
HM1 posted a pre-tax investment return of 26.1% for the year ended 30 June 2020, significantly outperforming the
global equity benchmark, the MSCI World Net TR (AUD) index which increased 4.8% over the same period. We are
very pleased with this investment performance, particularly during this period of heightened market volatility, which has
tested many investment strategies. Since inception of the Company in November 2018, HM1 has generated a pre-tax
investment return of 51.3% compared to the MSCI World Net TR (AUD) return of 18.2% over the same period.
During the year ended 30 June 2020, HM1 recorded total comprehensive income after tax of $117,553,802 (2019:
$70,453,027). The result was partly driven by net realised gains from the 2018 Conference Portfolio which was disposed
of during the year. Further net realised gains were generated from both the Core Portfolio and the 2019 Conference
Portfolio where our fund managers recommended the taking of some profits on investment holdings that had exceeded
expectations. In addition to the net realised gains, the financial result for the year reflects net unrealised gains in the
market value of our total investment portfolio as at 30 June 2020. Further details on the performance of the investment
portfolio can be found in the Investment Committee Report.
During December 2019, HM1 raised $62,500,000 from the issue of 25,000,000 new ordinary shares issued at $2.50
each pursuant to a fully renounceable rights issue to existing shareholders. The funds raised were used to invest in the
three highest conviction investment recommendations from our new Core Fund Manager, TDM Growth Partners. We
are pleased to report that the three investment recommendations of TDM have all performed well over the period.
HM1’s post-tax net tangible assets have increased from $570,453,028 at 30 June 2019 to $750,506,830 as at 30 June
2020. Excluding the increase in capital of $62,500,000 from the share issue, the Company’s post-tax net tangible assets
have increased 19.3% or $117,553,802 over the year.
Given the strong returns generated by HM1 since inception and the generation of net realised gains, the Board will
consider a dividend payment following the realisation of the 2019 Conference Portfolio which will occur at the end of
2020.
In line with its philanthropic objective, HM1 provides financial support to leading Australian medical research
organisations 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 donate an
amount equivalent to 1.5% of net tangible assets per annum 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.
During the year ended 30 June 2020, HM1 paid $4.1 million to its designated charities and made provision for a further
$5.1m which will be paid at the end of August 2020. These donated monies will be used by the medical research
organisations to fund important research into the prevention and treatment of chronic diseases and mental health
disorders. The current pandemic highlights the critical importance of medical research to global health outcomes and
economic prosperity.
2
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the year ended 30 June 2020
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 Australian and international listed securities based on the highest conviction ideas from
two groups of fund managers.
• HM1 has invested approximately 35% of its investment portfolio based on the annual recommendations of
fund managers who present at the Sohn Hearts & Minds Investment Leaders Conference (known as the
Conference Fund Managers).
• HM1 has invested approximately 65% of its investment portfolio based on the highest conviction ideas of six
leading fund managers (known as the 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, Regal Funds Management Pty Limited and TDM Growth Partners.
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 use three key measures to evaluate the performance of HM1:
1.
Investment portfolio performance, which measures the growth of the investment portfolio on a pre-tax basis
and after the payment of all other expenses, including the donation payments and provisions. Our investment
benchmark, the MSCI World Net TR (AUD), is measured before taxes. Our Investment performance compared
to benchmark is reported to shareholders on a monthly basis.
2. Net tangible asset (NTA) growth, which is a post-tax measure and represents the change in the value of the
Company’s assets less liabilities. The post-tax NTA of the Company is essentially the realisable value of the
Company at a point in time. The pre and post-tax NTA per share of the Company is reported to shareholders
on a weekly basis.
3. Total shareholder return, which measures the total return to shareholders from share price growth and
dividends paid.
Each of these is discussed below in more detail.
1.
Investment Portfolio Performance
Performance at 30 June 2020
6 Months
1 year
HM1 investment portfolio performance
MSCI World Net TR (AUD)
Outperformance
15.9%
-3.8%
19.7%
26.1%
4.8%
21.3%
Since inception
(14 Nov 2018)
51.3%
18.2%
33.1%
3
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the year ended 30 June 2020
For the year to 30 June 2020, HM1 generated a pre-tax investment return of 26.1%, significantly outperforming global
equity markets. The MSCI World Net TR (AUD) index increased 4.8% over the same period. The 2019 Conference
Portfolio and the Core Portfolio each materially contributed to the excellent investment performance over the year. We
are very pleased with this investment performance, particularly during this period of heightened market volatility and
the global economic downturn.
Since inception of the Company in November 2018, HM1 has generated a pre-tax investment return of 51.3% compared
to the MSCI World Net TR (AUD) return of 18.2% over the same period.
2. NTA Growth
HM1’s post-tax NTA has increased from $570,453,028 at 30 June 2019 to $750,506,830 at 30 June 2020. Excluding
the increase in capital of $62,500,000 from the share issue, the HM1’s post-tax NTA has increased 19.3% or
$117,553,802 over the year to 30 June 2020. The following chart shows the components of the change in post-tax NTA
over this period. The major increase in post-tax NTA came from realised and unrealised gains on the investment
portfolio, partially offset by the provision for current and deferred tax on investment portfolio gains and our donation
expense. On a per share basis, HM1’s post-tax NTA per share has increased from $2.85 at 30 June 2019 to $3.34 at
30 June 2020.
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 $3.11 as at 30 June 2020, an increase of 24%. 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 year to 30 June 2020. The
Board will consider a dividend payment following the December 2020 half year, dependent on the quantum of realised
profits from the disposal of the 2019 Conference Portfolio.
4
Hearts and Minds Investments Limited
Chairman and Chief Executive Officer’s Letter (continued)
For the year ended 30 June 2020
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 note that during the past 6 months each of our service providers enacted their business continuity plans due to the
pandemic. HM1 continued to receive uninterrupted service delivery from all of our service providers.
We sincerely thank our fund managers and service providers for their ongoing support and generosity in supporting the
operations and objectives of HM1. The notional value of the investment and performance fees foregone by the
participating fund managers totalled $10.3 million for the period. The notional value of the service providers and the
Board and Investment Committee working on a pro bono basis totalled $0.7 million for the period.
Finally, 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 virtual 2020 Sohn Hearts and Minds Leaders Conference on Friday, 13 November 2020.
Christopher Cuffe AO
Chairman
Paul Rayson
Chief Executive Officer
Sydney
26 August 2020
5
Hearts and Minds Investments Limited
Investment Committee Report
For the year ended 30 June 2020
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), Christopher 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 investment proposition by creating a concentrated portfolio of
long positions in Australian and international listed securities based on the highest conviction ideas from two groups of
fund managers.
65% of the investment portfolio is held in up to 18 securities based on the highest conviction ideas of six 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, Regal
Funds Management Pty Limited and TDM Growth Partners. On a quarterly basis, the Core Fund Managers provide or
confirm with HM1, their top three security holding recommendations and a weighting for each security. The Core Fund
Managers have agreed to provide investment recommendations to the Company for a period of at least three years.
35% of the investment portfolio is held in 10 to 15 securities based on the annual investment recommendations of fund
managers who present at the Sohn Hearts & Minds Investment Leaders Conference (Conference Fund Managers).
HM1 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 sold in order to
invest in the recommendations of the selected Conference Fund Managers who present at the following year’s
Conference.
HM1 may vary the holding period for Conference Portfolio securities 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. Where a security is held for a shorter period, HM1 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.
HM1 aims to be fully invested subject to an appropriate cash buffer to meet tax liabilities, dividend payments, donation
payments and general expenses.
HM1 Portfolio Performance
As noted in the Chairman and Chief Executive Officer’s Letter, the investment portfolio has returned 26.1% on a pre-
tax basis for the year ended 30 June 2020. By way of comparison, the MSCI World Net TR (AUD) benchmark index
increased by 4.8% over the same period.
Performance at 30 June 2020
6 Months
1 year
HM1 investment portfolio performance
MSCI World Net TR (AUD)
Outperformance
15.9%
-3.8%
19.7%
26.1%
4.8%
21.3%
Since inception
(14 Nov 2018)
51.3%
18.2%
33.1%
Despite heightened market volatility, the onset of the pandemic and subsequent economic downturn, the investment
portfolio has performed very well. The significant outperformance of the portfolio versus the benchmark was driven by
strong realised and mark to market gains across both our Core and Conference Portfolios.
6
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
The 2018 Conference Portfolio was sold in November 2019 realising a pre-tax gain of 32% for the 12 month holding
period. Most stocks in the 2018 Conference Portfolio performed well with the major contributors being New Oriental
Education & Technology, Docusign Inc, PagSeguro Digital Ltd, JB Hi Fi Ltd, Airbus SE, Bandai Namco Holdings Inc.
and Amazon. Only two stocks in the 2018 Conference Portfolio were sold at a loss. Note that the majority of the market
gains from the 2018 Conference Portfolio were reported in the financial year ended 30 June 2019.
The 2019 Conference Portfolio is also performing very well. As at 30 June 2020, the 2019 Conference Portfolio has
generated a pre-tax return on investment of 47% in realised and unrealised gains over the 7 month holding period.
Major contributors to the portfolio gain are Tesla Inc, Spotify Technology S.A., GDS Holdings Ltd, The Trade Desk Inc,
The A2 Milk Company Ltd and Mineral Resources Ltd.
The Core Portfolio has delivered a pre-tax return of 31% since inception in both realised and unrealised gains. Major
contributors to the Core Portfolio returns have been Appen Limited, Zillow Group Inc, Microsoft Corporation, Alibaba
Group Holdings Ltd and Alphabet Inc.
7
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
HM1 Portfolio Composition
As at 30 June 2020, the portfolio comprised 28 securities. The portfolio holdings ranked by market value at 30 June
2020 are set out in the table below.
Portfolio Holdings as at 30 June 2020:
Principal
Exchange
Listing
Australia
United States
United States
United States
No. of
securities
held at
30 June 2020
Market Value of
securities held
at 30 June 2020
Percentage of
Portfolio
2,774,572
$58,737,689
650,000
$54,238,847
167,000
$52,175,406
120,000
$44,876,593
Company Name
Mineral Resources Limited
Zillow Group Inc - C
Alibaba Group Holding Limited
Spotify Technology S.A.
Appen Limited
GDS Holdings Limited
Grubhub, Inc
Tesla, Inc
Alphabet Inc Class C
Smartsheet Inc
Yext, Inc
Microsoft Corporation
AIA Group Limited
The Trade Desk, Inc
Tyro Payments Limited
Fortive Corporation
Floor & Décor Holdings, Inc
Brambles Limited
Megaport Limited
Danaher Corporation
Lear Corporation
Origin Energy Limited
The A2 Milk Company Limited
Wizz Air Holdings Plc
Nickel Mines Limited
Opthea Limited
Sanken Electric.,Limited
Australia
1,300,000
$44,096,000
United States
United States
United States
United States
United States
United States
United States
Hong Kong
United States
Australia
United States
United States
Australia
Australia
United States
United States
Australia
Australia
360,000
$41,537,659
400,000
$40,730,012
25,000
$39,100,884
16,600
$33,988,885
410,000
$30,239,282
1,062,030
$25,550,867
85,000
$25,055,548
1,750,000
$23,645,203
40,000
$23,551,564
6,545,455
$22,909,092
227,000
$22,246,263
250,000
$20,875,579
1,900,000
$20,653,000
1,616,098
$19,522,464
65,000
$16,648,247
104,950
$16,572,493
2,780,000
$16,235,200
840,000
$15,674,400
United Kingdom
200,000
$11,984,280
Australia
Australia
Japan
16,611,111
$9,800,555
3,000,000
$7,080,000
229,000
$6,512,136
7.54%
6.96%
6.70%
5.76%
5.66%
5.33%
5.23%
5.02%
4.36%
3.88%
3.28%
3.22%
3.03%
3.02%
2.91%
2.85%
2.68%
2.65%
2.51%
2.14%
2.13%
2.08%
2.01%
1.54%
1.26%
0.91%
0.84%
4.50%
Betashares Australian High Interest
Australia
700,000
$35,070,000
Total Equity Securities
$779,308,148
100.00%
8
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
Risk Metrics
The following information summarises the risk metrics of the security holdings in the HM1 portfolio as at 30 June 2020.
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
2020 and analysis produced by Zenith Investment Partners.
All Factor Betas Portfolio Comparison
Consistent with HM1’s capital growth objective, the portfolio exhibits a strong factor bias to growth securities and
momentum. 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 (AUD). Only six of the companies in the portfolio
have a market capitalisation of over USD50 billion. The smallest security is capitalised at A$650 million.
9
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
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 ten industry sectors, being Communications, Technology, Consumer Discretionary, Energy, Industrials,
Consumer Staples, Materials, Healthcare, Utilities and Financials. From an industry factor perspective compared to the
MSCI World Index (AUD), the portfolio biases to the Communications, Technology and Consumer Discretionary sectors
with negative (underweight) biases to the Financial, Utilities and Healthcare sectors. Whilst the majority of the securities
are listed on US exchanges, ten are listed on the Australian Stock Exchange, with the remaining securities listed in
United Kingdom, Hong Kong and Japan.
Risk Assessment
The following table provides a number of risk measures associated with the blend of securities that form the HM1
portfolio since inception to 30 June 2020 compared to the MSCI World Index (AUD). As these risk measures are taken
at a specific point in time, these factors may not be predictive of the risk characteristics of the HM1 portfolio going
forward. The portfolio displays a very high active share measure which indicates the portfolio is a true ‘stock pickers’
portfolio, is actively managed and does not closely track either the composition or performance of the MSCI World
Index (AUD).
Portfolio Beta
Tracking Error
Active Share
Portfolio Volatility
Benchmark Volatility
Correlation (with Benchmark)
Sharpe Ratio
% Monthly Excess Returns (All Markets)
% Monthly Excess Returns (Up Markets)
% Monthly Excess Returns (Down Markets)
1.32
24.61%
94.80%
30.07%
13.52%
0.59
0.33
42.11%
46.15%
33.33%
David Wright
Chairman
Rory Lucas
Chief Investment Officer
10
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
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 $10.3m.
Core Fund Managers
Six Core Fund Managers each provide their three highest conviction investment ideas which are reviewed quarterly.
These securities represent 65% of the total investment portfolio. Each core fund manager has made a minimum three-
year commitment to HM1.
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 $98 billion of funds under management as at 31 July 2020 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.
TDM Growth Partners is a global investment firm with offices currently in Sydney and New
York. TDM invests in fast growing companies run by passionate management teams. Their
unique and flexible mandate allows it to invest in public and private companies globally. They
operate on long-term time horizons, fully aligned incentives, and a commitment to help scale
businesses they are proud of. TDM has a highly focused approach to investing, with a
portfolio of no more than 15 investments globally.
11
Hearts and Minds Investments Limited
Investment Committee Report (continued)
For the year ended 30 June 2020
Conference Fund Managers
The remaining 35% 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.
The 2019 Conference Fund Managers are set out below.
Markus Bihler
Builders Union (UK)
Hamish Corlett
TDM Growth Partners
Seth H. Fischer
Oasis Management (HK)
Emma Fisher
Airlie Funds Management
Allan Goldstein
Cooper Investors
Nick Griffin
Munro Partners
Philip King
Regal Funds Management
Beeneet Kothari
Tekne Capital Management (USA)
Jun Bei Liu
Tribeca Investment Partners
Andrew Macken
Montaka Global Investments
Babak Poushanchi
Cota Capital (USA)
Catherine Wood
ARK Invest (USA)
12
Hearts and Minds Investments Limited
Charity Report
For the year ended 30 June 2020
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 designated medical research organisations. To help maximise our impact, our fund
managers and key service providers have committed to waiving their usual fees. During the year ended 30 June 2020,
HM1 paid $4.1 million to its designated charities and made provision for a further $5.1m which will be paid at the end
of August 2020. These donated monies will be used by the medical research organisations to fund important research
into the prevention and treatment of chronic diseases and mental health disorders.
Why do we support Australian medical research?
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
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
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.
Impact Video Series
Late last year we interviewed leading individuals from our beneficiaries to discuss the importance of medical research,
their recent breakthroughs and the vital need for private funding. Watch the video series on our website at
hm1.com.au/impact.
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)
13
Our designated beneficiaries are:
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
14
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
The Black Dog Institute
As the only medical research institute in Australia to investigate mental health across the lifespan,
Black Dog’s aim is to create a mentally healthier world for everyone. They do this through
‘translational’ research. Integrating their research studies, education programs, digital tools and
apps, clinical services, and public resources to discover new solutions, foster connections and
create real-world change. Black Dog’s partnerships with people with lived experience, federal,
state and local governments, communities, schools, corporate Australia and others in the mental
health sector enables them to drive evidence-informed change in mental health where it’s needed
most. During FY19/20 Black Dog has:
•
Launched an online clinic, a free mental health assessment tool which provides a report to
download and offers suggested support services and free or low-cost resources.
•
•
Launched Phase 2 of their national suicide prevention research program with world-leading
experts to identify and test new evidence-based strategies.
Launched their 5-year Future Proofing Study, the first-of-its-kind trial involving 20,000 young
people across 400 high schools, which aims to determine whether depression can be
prevented during adolescence.
• Developed in partnership with emergency service agencies, a comprehensive training
package to help managers and supervisors support their teams’ mental health needs.
•
•
Publicly released iBobbly, a social and emotional wellbeing self-help app for young Aboriginal
and Torres Strait Islander Australians recording 1434 downloads in the first 10 months.
Established an Australia-first, Aboriginal and Torres Strait Islander Lived Experience Centre
to ensure Aboriginal and Torres Strait Islander voices are included in reform, policies and
mental health initiatives.
https://www.blackdoginstitute.org.au/
The Brain and Mind Centre
The Brain and Mind Centre is a global leader in research and treatment. We focus on conditions
that affect child development, youth mental health and brain ageing. The Centre aims to
understand individual circumstances and to develop solutions that improve the quality of life for
patients and their loved ones. Work at the Centre extends beyond laboratories and clinics to their
strong partnerships with industry, government, the community, other healthcare providers and
researchers.
Professor Ian Hickie and the Youth Mental Health team are transforming the way in which clinical
care is delivered to young people with emerging mental health disorders such as anxiety,
depression, other mood disorders and psychosis. In order to deliver large-scale national programs
and improved outcomes, they have;
• Developed an enhanced clinical care model for early intervention in young people who
present with the onset of common mood disorders such as anxiety and depression.
•
•
•
Established central concepts of highly-personalised and measurement-based care, which
increase the chance of maximum functional recovery in those who are at greatest risk of poor
health, educational, social and employment outcomes.
Leading expertise in Dynamic System Modelling (DSM) to co-design with regional
communities and those directly affected by mental ill-health. Innovative health system
delivery, promoting effective implementation and, sustainable evidence-based health system
reform. The team is the first in mental health research and policy implementation to
successfully deliver this approach. Through this expertise, they have revealed key findings
that show what strategies are required to help prevent suicide in the face of the ongoing
COVID-19 pandemic impacts on mental health and provide decision-support to policy makers
on best investments to flatten the mental health curve.
Launched ‘Flip the Clinic’; a digital model of healthcare delivery. Flipping the clinic not only
presents a solution to the current coronavirus restrictions, but also creating a mental
healthcare system better equipped to support people and communities with access to the
right interventions where, and when, they’re needed most.
https://sydney.edu.au/brain-mind
15
By 2030 depression
will be the leading
health concern
worldwide
Suicide is the biggest
killer of young
Australians and
accounts for the
deaths of more
young people than
car accidents
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
Charlie Teo Foundation
Charlie Teo Foundation is funding the best brains to beat brain cancer. In the year ended 30 June
2020, the Charlie Teo Foundation committed $3.7M to brain cancer research over the next three
years. Key highlights include:
•
A biomedical engineer at the University of Technology, Sydney is the first in Australia to
develop a microgravity device that alters gravitational forces and kills cancer cells. This space
biology is now being applied to brain cancer cells from the Charlie Teo Foundation Brain
Tumour Bank.
•
•
•
The first recipient of a Teo Research Fellowship, a cancer biologist and cancer survivor at the
University of Sydney who has worked with the 2019 Nobel Prize Winner in Medicine is
applying recent discoveries in what controls the circadian rhythm (the body clock) and how it
can be used to improve treatments for patients with Glioblastoma Multiforme (GBM). GBM is
the most common type of brain cancer, with an average survival of only 14 months.
In a world-first, a biomedical engineer at Washington University, St Louis is combining nasal
delivery, nanoparticles and focused ultrasound to non-invasively treat children with DIPG
(now known as DMG), the deadliest type of childhood brain cancer. This research is the last
step before early phase clinical trial.
A computational brain cancer biology team at the Jackson Laboratory in the U.S. helped treat
sick dogs with brain cancer and discovered dogs develop brain cancer very similarly to
children. The team is now studying those similarities to uncover the potential driver of
childhood brain cancer.
https://www.charlieteofoundation.org.au/
The Florey Institute of Neuroscience and Mental Health
The Florey Institute of Neuroscience and Mental Health is the largest brain research centre in the
Southern hemisphere specialising in diseases of the brain and mind. Over 4.7 million Australians
each year are directly affected by the illnesses the Florey studies.
The Florey is a world leader in discovery science, imaging technologies, clinical trials, population
studies, and data analytics. Florey scientists are at the forefront of science’s final frontier and strive
to improve the lives of people through their brain and mind research.
In 2019 Florey researchers published 848 scientific papers relating to 18 different diseases
including depression, MND, epilepsy, stroke, dementia and Parkinson’s disease. The incredible
advances happening at the Florey were referenced in 115 countries. Several highlights of this
world-class research from the year gone by include:
• Commencing a world-first clinical study with St Vincent’s Hospital in Melbourne trialling the
treatment of Suvorexant in 128 participants with co-occurring sleep and alcohol use disorders.
•
•
•
Identifying an inflammatory marker called sCD14 that could potentially be used as a novel
biomarker to assess a person’s risk of developing dementia.
Partnering with over 50 hospitals in Australia and overseas to launch AVERT DOSE, a novel
stroke rehabilitation trial that aims to reduce disability after stroke. This trial is taking place in
New Zealand, United Kingdom, Ireland, India, Brazil, Singapore and Malaysia and involves
more than 2500 participants.
Trialling a promising new compound known as CuATSM developed by scientists at the Florey,
and the School of Chemistry and Bio21 Institute at the University of Melbourne. This
compound has shown to slow the progress of both motor neurone disease (MND) and
Parkinson’s disease in a phase one study.
https://www.florey.edu.au/
Brain cancer kills
more children in
Australia than any
other disease
Every year over 4.7
million Australians
are directly affected
by one of the
illnesses that the
Florey researches
16
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
Kids Critical Care Research - The Children’s Hospital Westmead
Kids Critical Care Research (KCCR) at The Children’s Hospital at Westmead coordinates and
conducts research to inform practice in the largest paediatric intensive care unit (PICU) in NSW.
Their vision is to deliver world class, innovative, collaborative, flexible, research directed care to
enable positive patient and family experiences. Half of their patients are less than 1 year of age
and the impact of critical illness on future neurodevelopment is a key focus of research.
The purpose of KCCR is to partner with consumers and staff to enable the study of critical illness
in the young in order to realise opportunities to acquire new knowledge that can improve outcomes
for critically ill children and their families in the future.
This year, HM1 funding has enabled recruitment of two Research Assistants to the KCCR team,
and we have commenced a strategic planning exercise intended to leverage research
opportunities within the Westmead precinct.
In the last 12-months, KCCR has published 4 manuscripts in peer reviewed scientific journals.
Key areas of ongoing research include:
•
A leading role in the largest international study to date of infants and children undergoing
cardiac surgery with more than 100 patients enrolled.
•
•
Participation in a multi-centre observational study investigating apnoeic oxygenation in
children requiring emergency intubation.
Evaluation of the impact of ventilation strategies and patient positioning on recovery from
severe paediatric respiratory disease.
• Ongoing enrolment in a multi-centre observational study of paediatric cardiac arrest
outcomes.
•
A study of the impact of mandatory calling criteria on time taken to achieve critical care
interventions.
• Data linkage to investigate long term outcomes and health care utilisation in intensive care
patients utilising existing NSW data registries.
•
•
Studies to evaluate the work flow patterns of doctors and nurses, with the aim of improving
the efficiency and quality of care delivery.
A study of the impact of hydrocortisone, ascorbic acid and thiamine supplementation in
children with septic shock.
www.kidsresearch.org.au/research/kids-critical-care-research
MS Research Australia
MS Research Australia (MSRA) is 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. With $44.3 million invested in funding and facilitating vital MS
research and over 300 research grants, MSRA researchers are making incredible progress. While
MSRA believe the most exciting advances in MS research are yet to occur, funding has powered
some incredible breakthroughs over the last year:
• More than a dozen new MS research grants were awarded.
•
The first ever treatment for secondary progressive MS (SPMS) was approved in Australia by
the Therapeutic Goods Administration (TGA).
• Research has showed that a non-invasive method called repetitive transcranial magnetic
stimulation helps the brain produce more myelin. This research has now progressed to the
safety phase of a clinical trial.
•
•
Early research into a drug currently used to treat a different neurological disease is showing
promise for MS. It encourages the body’s own mechanisms to repair damaged myelin in the
brain and spinal cord.
Two medications used to treat MS in adults were approved for use in children and added to
the Pharmaceutical Benefits Scheme (PBS) – which will make treatment for children with MS
much more affordable.
https://msra.org.au/
17
Each year
the PICU cares for
more than 1500
children with life-
threatening
conditions
10 people on
average are
diagnosed with MS
every week and
research is the only
way we can find a
cure for these people
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
Orygen
Working with young people, their partners and one another, Orygen is redefining what’s possible
in global youth mental health research, policy, education and clinical care. Never satisfied with
what’s good enough, Orygen bridge research with clinical care to create and deliver innovative
services like no other mental health organisation in the world. They make sure that policy makers
understand the need and cost of mental ill-health.
With thanks to Cooper Investors and HM1, Orygen has been able to put youth mental health on
the global agenda and progress their work in developing a global mental health framework, through
a partnership with the World Economic Forum. The collaboration is part of the Forum’s Platform
on Shaping the Future of Health and Healthcare. This has enabled Orygen to maximise the
engagement of the Forum’s strategic partners and elevate the profile of their world leading youth
mental health organisation among key private and public stakeholders globally, with the work
promoted at events during the United Nations General Assembly 2019 and Davos 2020.
The Orygen/World Economic Forum youth mental health project has involved widespread
consultation with clinical academics, service providers, policy makers and young people from over
20 different countries in different resource and cultural settings. The project has produced:
•
A Global Framework for Youth Mental Health Care to support communities, regions and
countries around the world to develop and deliver effective youth mental health services and
supports.
•
•
An investment framework to support funders access the economic evidence for early
intervention and prevention.
An advocacy toolkit to support young people, families and their local communities to make
youth mental health a priority for leaders, funders and policy makers.
The next stages of the project will include working with a number of communities around the world
to support implementation of the Youth Mental Health Framework in their own countries.
www.orygen.org.au
RPA Green Light Institute
Emergency departments are the frontline of health care, with one in seven Australians seeking
help from a hospital emergency department every year. Our medical staff depend on research
findings to help inform their responses to urgent patient needs.
Funding from HM1 helps to connect research and frontline staff. It supports Royal Prince Alfred
Hospital’s Green Light Institute, based on a concept unique in Australasia — to embed research
infrastructure and training facilities entirely within an emergency department, enabling seamless
implementation of new research findings into clinical practice at the bedside.
“The concept and vision behind the Green Light project has been made entirely possible through
funding from HM1. We’re so appreciative to have been chosen by Phil King and Regal Funds
Management as their designated health charity,” says Associate Professor Michael Dinh, Green
Light Institute Clinical Director.
The Green Light Institute focuses on high impact acute medical conditions with significant public
health ramifications like trauma care, stroke, acute cardiac conditions, mental health and sepsis
management. The COVID-19 pandemic has brought the need for research into even sharper
focus, with research focusing on better treatments for COVID-19 and access to health care for
members of the community in quarantine.
Supporting research today benefits patients now and whole communities in the future. Green Light
Institute research coordinator, Saartje Berendsen Russell, says “On behalf of our patients and
their families, as well as generations of future emergency clinical leaders, I would like to extend a
big warm-hearted thank you for the generosity and shared vision of HM1”.
https://www.slhd.nsw.gov.au/research/department_details.html?research=emergencydept
18
Three-quarters
of people who
experience mental
illness do so before
they turn 25
One in seven
Australians present
to an Emergency
Department for
health care each
year
Hearts and Minds Investments Limited
Charity Report (continued)
For the year ended 30 June 2020
Swinburne’s Centre for Human Psychopharmacology
The Centre for Human Psychopharmacology is involved in basic research focused on
understanding the biological determinants of cognitive health across the lifespan. Currently this
research involves studies and clinical trials that help elucidate mechanisms associated with diet,
our microbiome, oxidative stress and inflammatory processes amongst others that are related to
cognition. This research also directly leads to novel interventions to improve cognition in the elderly
and in participants with cognitive decline and to improve mental health and well-being across the
lifespan.
Example studies currently underway include:
• Understanding what causes cognitive decline with increasing age: the role of oxidative stress,
inflammation, diet and cardiovascular function on brain health and cognitive function in
healthy 60-75 year olds.
•
The gut-brain axis: identification of specific bacteria in cognitive health, anxiety and
depression.
• Developing social emotional intelligence in school children, particularly at-risk children.
•
The effects of exercise and Mediterranean diet in cognitive health in older cognitively at-risk
populations.
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 through world class research. At Australia’s home of heart research, they solve the
unsolved using complex molecular and genetic analysis, advanced stem cell technologies,
regenerative medicine and innovative transplantation techniques.
Over the past 25 years, the Victor Chang Cardiac Research Institute has made a multitude of
major advances in heart research, many revolutionising our understanding of disease causes,
treatment, and prevention.
Worldwide, around
50 million people
have dementia, and
there are nearly 10
million new cases
every year
Key research
Cardiomyopathy, Congenital Heart Disease and Genetic Analysis.
focus areas
include Heart Attack, High Cholesterol, Heart Arrhythmia,
The Victor Chang Cardiac Research Institute wish to warmly acknowledge the support of HM1
whose contribution is making life-changing medical discoveries possible.
In 2019 in a landmark breakthrough scientists at the Victor Chang Cardiac Research Institute
discovered a molecule that causes blood vessels to dilate and can lead to dangerously low blood
pressure in patients suffering from severe sepsis, a syndrome that kills 100 Australians a week.
The Victor Chang Cardiac Research Institute Innovation Centre is fully established and is pushing
the boundaries of knowledge by facilitating a new era of collaboration between researchers across
the state, around Australia and the Asia Pacific, transforming the landscape of cardiovascular
research. Their equipment is accelerating the opportunities of discovering cures for heart disease
and bringing them closer to realising precision or “personalised” medicine of the future, which has
only ever been imagined before.
https://www.victorchang.edu.au/
One Australian
dies from heart
disease every
28 minutes
19
Hearts and Minds Investments Limited
Directors’ Report to Shareholders
For the year ended 30 June 2020
Directors’ Report to Shareholders
The Directors of Hearts and Minds Investments Limited (hereafter referred to as ‘HM1’ or ‘the Company’) present their
report together with the annual report of the Company for the year ended 30 June 2020.
Investment Objectives and Principal Activity
HM1 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.
HM1 seeks to provide shareholders with a compelling 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:
•
•
HM1 has allocated 35% of the investment portfolio based on the annual investment recommendations of fund
managers who present at the Sohn Hearts and Minds Investment Leaders Conference (known as the
Conference Fund Managers).
HM1 has allocated 65% of the investment portfolio based on the highest conviction investment
recommendations of six leading fund managers (known as the 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 Regal Funds Management Pty Limited and TDM Growth
Partners.
No change in this activity took place during the period or is likely in the future.
Review of Operations
For the year ended 30 June 2020, HM1 reported total comprehensive income after tax of $117,553,802 (2019:
$70,453,027). The result reflects the strong performance of our investment portfolio over the year. The pre-tax return
of the investment portfolio was 26.1% for the year ended 30 June 2020, significantly outperforming the global equity
benchmark, the MSCI World Net TR (AUD) index, which increased 4.8% over the same period. The investment
performance was partly driven by net realised gains from the 2018 Conference Portfolio which was disposed of during
the year. Further net realised gains were generated from both the Core Portfolio and the 2019 Conference Portfolio
where our fund managers recommended the taking of some profits on investment holdings that had exceeded
expectations. In addition to the net realised gains, the financial result for the period reflects the increase in net unrealised
gains in the market value of our investment portfolio as at 30 June 2020.
The pandemic has presented a major challenge for communities around the world and many families and businesses
have been severely impacted by the ongoing health crisis and economic impact. The investment portfolio of HM1 has
proved to be resilient during the market turmoil and has generated an excellent investment performance for the full year
to 30 June 2020. Since inception of HM1 in November 2018, HM1 has generated a pre-tax investment return of 51.3%
compared to the MSCI World Net TR (AUD) return of 18.2% over the same period. We are very pleased with this
investment performance, particularly during this period of heightened market volatility, which has tested many
investment strategies. Further details on the performance of the investment portfolio can be found in the Investment
Committee Report.
In line with its philanthropic objective, HM1 provides financial support to leading Australian medical research
organisations 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 donate an
amount equivalent to 1.5% of net tangible assets per annum to designated charities.
During the year ended 30 June 2020, HM1 paid $4.1 million to its designated charities and provided a further $5.1m
which will be paid at the end of August 2020. These donated monies will be used by the medical research organisations
to fund important research into the prevention and treatment of chronic diseases and mental health disorders. The
current pandemic highlights the critical importance of medical research to global health outcomes and economic
prosperity.
Further information on the financial performance of the Company is contained in the Chairman and Chief Executive
Officer’s letter and in the Investment Committee Report.
20
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Financial Position
During December 2019, HM1 raised $62,500,000 from the issue of 25,000,000 new ordinary shares issued at $2.50
each pursuant to a fully renounceable rights issue to existing shareholders. The funds raised were used to invest in the
three highest conviction investment recommendations from our new Core Fund Manager, TDM Growth Partners. We
are pleased to report that the three investment recommendations of TDM have all performed well over the period.
HM1’s net tangible assets have increased from $570,453,028 at 30 June 2019 to $750,506,830 as at 30 June 2020.
Excluding the increase in capital of $62,500,000 from the share issue, the Company’s net tangible assets have
increased 19.3% or $117,553,802 over the year.
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 2020.
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 AM
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Information of Directors
Chairman and Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
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. In October 2007 Chris was
inducted into the Australian Fund Manager’s RBS Hall of Fame for services to the investment industry.
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:
member of the investment committee of UniSuper (which provides superannuation services to employees of Australia’s
higher education and research sector); member of the investment committee of the Paul Ramsay Foundation; Chairman
of Australian Philanthropic Services (a not for profit organisation which inspires, facilitates and educates Australia’s
high net worth community and the professional advisers that support them about effective philanthropy); Director of
various listed companies including Global Value Fund Limited, Antipodes Global Investment Company Limited, Argo
Investments Limited; and founder, director and manager of Third Link Growth Fund.
21
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Information of Directors (continued)
Former directorship in the last 3 years
Christopher Cuffe was a non-executive director of Class Limited from October 2017 to January 2020 and 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.
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 40 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 company appointed director of Qantas
Superannuation Limited.
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 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.
22
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Information of Directors (continued)
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.
Matthew Grounds AM (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 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 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.
23
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Information of Directors (continued)
Other current directorships
Michael Traill currently has a range of primarily social purpose Chair and board roles including Chair of the Paul Ramsay
Foundation, Executive Director of For Purpose Investments, a Director of M H Carnegie & Co, Sunsuper (and Chair of
the Investment Committee), 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.
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.
24
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Information of Directors (continued)
Geoffrey Wilson AO (Independent Director)
Experience and expertise
Geoffrey Wilson has over 40 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.
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
David Wright is currently a director of Zenith Investment Partners Pty Ltd, Zenith Partners Group Pty Ltd, Zenith
Investment Partners NZ Limited, Zenith CW Pty Ltd and ZIP Holdco Pty Ltd.
Special responsibilities
Chair of the Investment Committee.
25
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Information of Directors (continued)
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.
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:
26
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Members of the Investment Committee (continued)
Brett Paton
Brett Paton is currently Chairman of the management company of Escala Partners, an Australian wealth management
advisory group, 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 previously a Council Member at RMIT University and Chair of the Risk and Audit Committee. He was previously
Chairman of PLC VC, a global venture capital investment organisation. He is a qualified Chartered Accountant.
Christopher Cuffe AO
Christopher Cuffe is also a Director. Please refer to 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 the Directors’ Report to Shareholders for details of Lorraine
Berends’ experience and qualifications.
David Wright
David Wright is also a Director. Please refer to the Directors’ Report to Shareholders for details of David Wright’s
experience and qualifications.
Paul Rayson
Paul Rayson is also Chief Executive Officer. Please refer to the Directors’ Report to Shareholders for details of Paul
Rayson’s experience and qualifications.
Remuneration Report (Audited)
The responsibility for 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, the Company has not formed a separate remuneration committee.
a) Remuneration of Directors and Other Key Management Personnel
Key management personnel (KMP) include the Directors, the Chief Executive Officer and the Chief Investment Officer.
Directors have agreed to waive their Directors’ fees on an ongoing basis. For the year ended 30 June 2020, 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 remuneration of the Chief Executive Officer and the Chief
Investment Officer is salary based and does not include securities or options in the Company and no element of the
remuneration is tied to Company performance. The Chief Executive Officer and the Chief Investment Officer are not
provided with retirement benefits apart from statutory superannuation.
Year ended 30 June 2020
Paul Rayson
Rory Lucas
Short-term
benefits
Salary
$
Post-employment
benefits
Superannuation
$
Total
Remuneration
$
150,000
175,000
14,157
15,938
164,157
190,938
27
Remuneration Report (Audited) (continued)
Period from 12 September 2018 to 30 June 2019
Paul Rayson
Rory Lucas
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Short-term
benefits
Salary
$
Post-employment
benefits
Superannuation
$
Total
Remuneration
$
52,083
112,500
4,948
10,688
57,031
123,188
Company performance measures and total KMP remuneration
Net profit/(loss)
Total Comprehensive Income
Net Tangible Assets (at balance date)
Net Tangible Asset backing per share (at balance date)
Share Price (at balance date)
Total KMP remuneration
b) Director Related Entities Remuneration
Period from
12 September
2018 to 30 June
2019
$
Year ended
30 June 2020
$
(2,684,949)
117,553,802
750,506,830
3.34
3.11
355,095
(746,300)
70,453,027
570,453,028
2.85
2.95
180,219
The Company Secretary has waived his right to receive fees. The Company holds professional indemnity insurance to
his benefit. He receives an indemnity as an officer of the Company to the maximum extent permitted by law and is
entitled to be reimbursed for any external costs and expenses he incurs. The Company Secretary is a General Manager
of Boardroom Pty Limited. Boardroom Pty Limited provide company secretarial services to the Company on a pro-bono
basis.
Matthew Grounds is Chairman of Victor Chang Cardiac Research Institute which is a designated charitable beneficiary
of Hearts and Minds Investments Limited.
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.
Matthew Grounds and Guy Fowler were previously senior executives of UBS Australia. UBS Australia provided office
services to the Company on a pro-bono basis for part of the year.
c) Equity Instruments Disclosures of Directors, Other Key Management Personnel and Related Parties
As the date of this report, the 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
28
175,000
5,000
258,042
201,397
874,414
55,000
187,500
5,000
16,657
33,290
–
–
–
–
–
–
–
–
–
–
1,475,000
45,000
1,258,042
1,201,397
4,138,664
495,000
1,687,500
45,000
149,907
113,984
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
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 the Key management personnel compensation note in the financial statements.
- End of remuneration report -
Directors’ Meetings
Director
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds AM
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Investment Committee Meetings
Member
Christopher Cuffe AO
Lorraine Berends
Brett Paton
David Wright
Paul Rayson
No. of eligible
to attend
Attended
5
5
5
5
5
5
5
5
5
5
5
4
4
3
4
5
No. of eligible
to attend
Attended
4
4
4
4
4
4
4
4
4
4
Events Occurring After the Reporting Period
The Directors are not aware of any events subsequent to 30 June 2020 that would materially affect the operations of
the Company, the results of those operations, or the state of affairs of the Company.
Future Developments
HM1’s future performance is dependent on the performance of the HM1’s investment portfolio, which in turn, 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. Accordingly, it is not possible or appropriate to accurately predict the future performance of HM1’s
investment portfolio and HM1’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.
Risk Management Philosophy and Approach
The Board of Directors’ risk policies and controls are designed to be robust and relevant to the investment objectives
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.
29
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Risk Management Philosophy and Approach (continued)
The Investment Committee, in conjunction with the Chief Investment Officer, is responsible for managing the investment
portfolio. The Investment Committee meets quarterly and more frequently as required to review the investment portfolio
and ensure that HM1 continues to deliver on its investment objective and investment strategy.
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 year.
Non-Audit Services
During the year, 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 including Independence
Standards set by the Accounting Professional and Ethical Standards Board.
Rounding of Amounts
In accordance with the ASIC Corporations (rounding in Financial/Directors) Instrument 2016/191, the amounts in the
Directors’ Report and Annual Report to Shareholders have been rounded off in accordance with that Class Order to
the nearest dollar or unless otherwise indicated.
30
Hearts and Minds Investments Limited
Directors’ Report to Shareholders (continued)
For the year ended 30 June 2020
Corporate Governance Statement
The Company’s Corporate Governance Statement for the year ended 30 June 2020 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 the following page.
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
26 August 2020
31
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 year ended 30
June 2020, to the best of my knowledge and belief there have been:
(i) no contraventions of the auditor independence requirements of the Corporations Act 2001; and
(ii) no contraventions of APES 110 Code of Ethics for Professional Accountants (including
Independence Standards).
S M Whiddett
Partner
Pitcher Partners
Sydney
26 August 2020
Adelaide Brisbane Melbourne Newcastle Perth Sydney
32
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
Hearts and Minds Investments Limited
Statement of Comprehensive Income
For the year ended 30 June 2020
Investment income from ordinary activities
Net realised and unrealised (loss)/gain on foreign exchange
transactions
Interest income
Dividend income, net of withholding tax of $212,910
(2019: $196,788)
Sundry income
Notes
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
403,769
97,703
3,612,951
6,640
For the
year ended
30 June
2020
$
(1,650,168)
49,565
6,355,593
20,572
Total investment income
4,775,562
4,121,063
Expenses
Donations
Offer costs
Interest expense
Other expenses
Total expenses
Loss before income tax
Income tax benefit
Net loss for the year/period
Other comprehensive income
8
(9,237,640)
–
(4,094)
(715,856)
–
(5,257,409)
(118,430)
(627,552)
(9,957,590)
(6,003,391)
(5,182,028)
(1,882,328)
3
2,497,079
1,136,028
(2,684,949)
(746,300)
Items that will not be reclassified to profit or loss:
Net realised gains on investments, net of tax
Net unrealised gains on investments, net of tax
Net realised and unrealised gains on investments taken to
equity, net of tax
11
11
11
69,299,376
50,939,375
4,178,905
67,020,422
120,238,751
71,199,327
Other comprehensive income, net of tax
120,238,751
71,199,327
Total comprehensive income for the year/period
117,553,802
70,453,027
Loss per share attributable to the ordinary equity holders of
the Company:
Basic and diluted loss per share
15
(1.26)
(0.47)
Cents
Cents
The accompanying notes form part of these financial statements.
33
Assets
Current assets
Cash and cash equivalents
Prepayments
Other receivables
Total current assets
Hearts and Minds Investments Limited
Statement of Financial Position
30 June 2020
Notes
30 June
2020
$
30 June
2019
$
12
7
52,255,304
229,071
401,677
7,052,020
–
53,498
52,886,052
7,105,518
Non-current assets
Financial assets at fair value through other comprehensive income
Deferred tax assets
17
3
Total non-current assets
Total assets
Liabilities
Current liabilities
Current tax liability
Donation provision
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
779,308,148
2,484,033
593,088,374
1,290,040
781,792,181
594,378,414
834,678,233
601,483,932
28,370,880
5,128,890
–
1,929,264
–
362,895
33,499,770
2,292,159
50,671,633
28,738,745
50,671,633
28,738,745
84,171,403
31,030,904
750,506,830
570,453,028
3
8
9
3
10
11
11
562,500,001
188,006,829
–
500,000,001
71,199,327
(746,300)
750,506,830
570,453,028
The accompanying notes form part of these financial statements.
34
Hearts and Minds Investments Limited
Statement of Changes in Equity
For the year ended 30 June 2020
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
10
11
11
11
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”)
10
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
Balance at 1 July 2019
Net loss for the year
Other comprehensive income, net
of tax
Transfer to profits reserve
Transfer from profits reserve
10
11
11
11
11
500,000,001
–
67,020,422
–
4,178,905
–
(746,300) 570,453,028
(2,684,949)
(2,684,949)
– 120,238,751
–
–
–
(69,299,376) 69,299,376
(3,431,249)
–
– 120,238,751
–
–
3,431,249
–
Transactions with equity
holders in their capacity as
owners:
Shares issued
10
62,500,000
–
–
–
62,500,000
Balance at 30 June 2020
562,500,001 117,959,797
70,047,032
– 750,506,830
The accompanying notes form part of these financial statements.
35
Hearts and Minds Investments Limited
Statement of Cash Flows
For the year ended 30 June 2020
Notes
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)
–
For the
year ended
30 June
2020
$
49,565
6,016,504
11,482
(4,094)
(280,908)
(4,108,750)
(1,026,914)
(1,853,304)
Cash flows from operating activities
Interest received
Dividends received
Other income received
Interest paid
Offer costs paid
Donations Paid
Payments for other expenses
Income tax paid
Net cash used in operating activities
13
(1,196,419)
(1,976,700)
Cash flows from investing activities
Proceeds from sales of investments
Payments for purchases of investments
501,356,938
(515,807,067)
90,607,027
(581,982,077)
Net cash used in investing activities
(14,450,129)
(491,375,050)
Cash flows from financing activities
Proceeds from issuance of shares
62,500,000
500,000,001
Net cash provided by financing activities
62,500,000
500,000,001
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year/period
46,853,452
7,052,020
6,648,251
–
Effect of foreign currency exchange rate changes on cash and cash
equivalents
(1,650,168)
403,769
Cash and cash equivalents at the end of the year/period
12
52,255,304
7,052,020
The accompanying notes form part of these financial statements.
36
Hearts and Minds Investments Limited
Notes to the Financial Statements
For the year ended 30 June 2020
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 year ended 30 June 2020.
The financial statements were authorised for issue on 26 August 2020 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.
The Company has adopted all of the new and amended Accounting Standards and Interpretations issued by the AASB
that are mandatory for the current reporting period and there was no material impact on adoption.
(b) Investment income
(i) Dividends
Dividends are recognised as revenue in the Statement of Comprehensive Income when the right to receive payment is
established.
(ii)
Interest income
Interest income is recognised using the effective interest rate method, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
(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.
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.
37
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
2
Summary of significant accounting policies (continued)
(c) Investments and other financial assets (continued)
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 17.
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) Financial instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either
the purchase or sale of the asset (i.e. trade date accounting is adopted).
Financial instruments are initially measured at fair value adjusted for transaction costs.
Classification of financial assets
Financial assets recognised by the Company are subsequently measured in their entirety at either amortised cost or
fair value, subject to their classification and whether the Company irrevocably designates the financial asset on initial
recognition at fair value through other comprehensive income (“FVTOCI”) in accordance with the relevant criteria in
AASB 9.
Financial assets not irrevocably designated on initial recognition at FVTOCI are classified as subsequently measured
at amortised cost.
Classification of financial liabilities
Financial liabilities recognised by the Company are subsequently measured at amortised cost.
Trade and other receivables
Trade and other receivables primarily relate to dividends and are recorded when the right to the dividend is established.
These balances are tested for impairment by applying the ‘expected credit loss’ model and no impairment losses are
recognised.
Long-term equity instruments
Long-term equity instruments comprise ordinary shares in listed entities that are not held for trading. On initial
recognition, investments identified by the Company as long-term equity instruments are irrevocably designated (and
measured) at fair value through other comprehensive income. This election has been made as the directors’ believe
that to otherwise recognise changes in the fair value of these investments in profit or loss would be inconsistent with
the objective of holding the investments for the long term.
38
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
2
Summary of significant accounting policies (continued)
(d) Financial instruments (continued)
Derecognition
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.
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.
(e) 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.
(f) Donation provision
In line with the Company’s philanthropic objectives, the Company donates a percentage of the Company’s net tangible
assets leading Australian medical research organisations every six months. The donations are equal to 1.5% per annum
of the average monthly net tangible assets of the previous half-year. The donation provision represents the amount
provided for donations at the reporting date.
(g) 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.
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.
(h) Income tax
The income tax expense or benefit for the year 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.
39
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
2
Summary of significant accounting policies (continued)
(h) Income tax (continued)
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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
(n) 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.
40
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
2
Summary of significant accounting policies (continued)
(n) Earnings/(loss) per share (continued)
(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.
(o) 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 year ended 30 June 2020 equates to $10,300,000 (30 June 2019: $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 year ended
30 June 2020.
(p) New standards and interpretations not yet adopted
There are no new standards or interpretations applicable that would have a material impact for the Company.
41
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
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:
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
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
For the
year ended
30 June
2020
$
(1,554,608)
(1,346,387)
340,043
63,873
(2,497,079)
21,831,160
29,699,733
51,530,893
Total income tax expense
49,033,814
29,377,969
(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
For the
period from
12 September
2018 (date of
incorporation)
30 June
2019
$
138,305
(1,290,040)
15,707
(1,136,028)
28,723,038
1,790,959
30,513,997
For the
year ended
30 June
2020
$
(1,404,813)
(1,193,993)
101,727
(2,497,079)
21,831,160
29,699,733
51,530,893
Total income tax expense
49,033,814
29,377,969
42
3
Income tax (continued)
(c) Deferred tax assets relate to the following:
Opening balance
Donation accrual not deductible
Costs associated with the issue of shares
2019 Tax return adjustments
Net unrealised gains foreign exchange transactions
Provisions
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
30 June
2020
$
1,290,040
1,538,667
(296,455)
(75,960)
52,337
(24,596)
30 June
2019
$
–
–
1,261,778
–
3,666
24,596
Closing balance
2,484,033
1,290,040
(d) Deferred tax liabilities relate to the following:
Opening balance
Net unrealised gains on investments
Dividend receivable on shares
Closing balance
(e) Movement in deferred tax assets relate to the following:
Opening balance
Charged to profit or loss
Closing balance
30 June
2020
$
30 June
2019
$
28,738,745
21,831,161
101,727
–
28,723,038
15,707
50,671,633
28,738,745
For the
period from
12 September
2018 (date of
incorporation)
30 June
2019
$
For the
year ended
30 June
2020
$
1,290,040
1,193,993
–
1,290,040
2,484,033
1,290,040
43
3
Income tax (continued)
(f) Movement in deferred tax liabilities relate to the following:
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
For the
period from
12 September
2018 (date of
incorporation)
30 June
2019
$
–
15,707
28,723,038
For the
year ended
30 June
2020
$
28,738,745
101,727
21,831,161
50,671,633
28,738,745
Opening balance
Charged to profit or loss
Charged to other comprehensive income
Closing balance
4
Donations
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 donations each month increases expenses and decreases the Company’s net tangible assets.
5
Dividends
Dividend franking account
Opening balance
Franking credits on dividends received
Tax paid during the year
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
619,398
–
For the
year ended
30 June
2020
$
619,398
1,133,477
1,853,304
Closing balance of franking account
3,606,179
619,398
Franking credits on dividends receivable
Tax payable in respect of period profit
160,500
28,370,880
–
–
Franking credits available for use in subsequent reporting periods
32,137,559
619,398
44
5
Dividends (continued)
Dividend income
Dividend income - Investments sold during the year
Dividend income - Investments held at year end
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
2,447,484
4,121,019
–
3,809,739
6,568,503
3,809,739
6
Remuneration of auditors
During the year, 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
30 June
2019
$
52,358
1,140
53,498
For the
year ended
30 June
2020
$
49,052
14,000
63,052
30 June
2020
$
391,447
10,230
401,677
Audit and review of financial statements
Other services provided by related practice of the auditor
taxation services
Total remuneration for audit and other assurance services
7
Other receivables
Dividend receivable
Other receivables
Total other receivables
45
8
Donation provision
Donation provision
Total donation provision
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
30 June
2020
$
5,128,890
5,128,890
30 June
2019
$
–
–
For the year ended 30 June 2020, the amount recognised in the Statement of Comprehensive Income as an expense
was $9,237,640. This amount represents donations paid or payable to medical research beneficiaries to advance
medical research in Australia. As at 30 June 2020, the amount recorded as a donation provision in the Statement of
Financial Position of $5,128,890 represents a provision for donations payable to medical research beneficiaries at
balance date (2019: None). This amount will be paid to medical research beneficiaries by 31 August 2020.
9
Other payables
Offer costs payable
Accrued expenses
Total other payables
10
Share capital
(a) Issued capital
Ordinary shares
Ordinary shares
(b) Movements in share capital
Opening balance
Shares issued at $2.50 per share
Closing balance
46
30 June
2020
$
–
–
–
30 June
2019
$
280,908
81,987
362,895
30 June
2020
No. of shares
30 June
2020
$
225,000,001
562,500,001
30 June
2019
No. of shares
30 June
2019
$
200,000,001
500,000,001
For the
year ended
30 June
2020
No. of shares
For the
year ended
30 June
2020
$
200,000,001
25,000,000
500,000,001
62,500,000
225,000,001
562,500,001
10
Share capital (continued)
(b) Movements in share capital (continued)
Opening balance
Shares issued under IPO at $2.50 per share
Closing balance
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
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 27 December 2019, the Company issued 25,000,000 (9 November 2018: 200,000,000) fully paid ordinary shares
at $2.50 (9 November 2018: $2.50) per share pursuant to a fully renounceable rights issue to existing shareholders.
11
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 unrealised gains on investments
Transfer to profits reserve
30 June
2020
$
30 June
2019
$
117,959,797
70,047,032
67,020,422
4,178,905
188,006,829
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)
For the
year ended
30 June
2020
$
67,020,422
98,999,109
(29,699,733)
72,770,536
(21,831,161)
(69,299,376)
Closing balance
117,959,797
67,020,422
47
11
Reserves and accumulated losses (continued)
(a) Reserves (continued)
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
Profits reserve
Opening balance
Transfer from investment portfolio revaluation reserve
Transfer to accumulated losses
Closing balance
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
4,178,905
69,299,376
(3,431,249)
–
4,178,905
–
70,047,032
4,178,905
During the year a number of Investments held at fair value through other comprehensive income were sold realising a
net gain as set out below. The investments were sold following recommendations from our portfolio fund managers and
in accordance with our investment strategy.
Proceeds from sale of investments
Original cost of investments sold
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
501,356,938
(402,357,829)
90,607,027
(84,637,163)
Net realised gains on investments before tax
98,999,109
5,969,864
(b) Accumulated losses
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
–
(746,300)
–
For the
year ended
30 June
2020
$
(746,300)
(2,684,949)
3,431,249
–
(746,300)
Opening balance
Net loss for the year/period
Transfer from profits reserve
Closing balance
48
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
12
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
2020
$
30 June
2019
$
755,994
51,499,310
4,424,943
2,627,077
52,255,304
7,052,020
The cash at bank is denominated in AUD, is at call and is earning interest at a fixed rate of 0.01% (2019: 0.01%). 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 16. 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+.
13
Reconciliation of net loss for the year to net cash provided by/(used in) operating activities
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
Net loss for the year/period
Effects of foreign currency exchange rate changes on cash and cash
equivalents
(2,684,949)
(746,300)
1,650,168
(403,769)
Change in operating assets and liabilities:
Increase in prepayments
Increase in other receivables
Increase in deferred tax assets
Decrease in current tax liability
Increase in donation provision
Decrease in other payables
Decrease in deferred tax liabilities
(229,071)
(348,179)
(1,141,656)
(3,310,454)
5,128,890
(362,895)
101,727
–
(53,498)
(1,290,040)
138,305
–
362,895
15,707
Net cash used in operating activities
(1,196,419)
(1,976,700)
49
14
Non-cash investing and financing activities
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
Sales of investments
Purchases of investments
Total non-cash investing and financing activities
15
Basic and diluted loss per share
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
–
–
–
9,644,831
(9,644,831)
–
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
Net loss for the year/period used in the calculation of basic and diluted loss
per share attributable to the ordinary equity holders of the Company
(2,684,949)
(746,300)
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
$
For the
year ended
30 June
2020
$
Basic and diluted loss per share attributable to the ordinary equity holders of
the Company
(1.26)
(0.47)
50
15
Basic and diluted loss per share (continued)
Weighted average number of shares used as denominator
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
For the
period from
12 September
2018 (date of
incorporation)
to 30 June
2019
No. of shares
For the
year ended
30 June
2020
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
212,708,570
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 the year ended 30 June 2020.
At the end of the year, there were no outstanding securities that are potentially dilutive in nature for the Company (2019:
None).
16
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.
Risks are managed in the context of the Company’s strategic objectives, the size and complexity of its operations, and
the Board’s expectations and attitude to risk. The Company has implemented a risk management framework based on
the Australian New Zealand International Standard Organisation 31000:2009 Risk management – Principles and
guidelines. Details of the Company’s Risk Management Framework are available on the Company’s website.
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, currency exchange 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.
Currency risk
The Company holds monetary assets denominated in currencies other than the Australian dollar. 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.
51
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
16
Financial risk management (continued)
Market risk (continued)
Currency risk (continued)
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 2020 and
30 June 2019:
United States Dollar
Hong Kong Dollar
Euro
Japanese Yen
Canadian Dollar
Pound Sterling
30 June 2020
Net currency
exposure*
%
30 June 2019
Net currency
exposure*
%
62
3
–
1
–
1
67
56
5
4
4
3
–
72
* As percentage of investment portfolio exposure.
Sensitivity
The following tables 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 2020
USD impact
AUD
HKD impact
AUD
JPY impact
AUD
GBP impact
AUD
Impact on total comprehensive income
+/- 36,245,847
+/- 1,655,164
+/- 458,754
+/- 838,900
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
+/- 23,291,136
+/- 1,902,999
+/- 1,692,730
+/- 1,628,231
+/- 1,452,882
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.
52
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
16
Financial risk management (continued)
Market 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
30 June 2020
$
30 June 2019
$
26,048,384
52,096,769
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 tables below summarise the
Company’s exposure to interest rate risks:
30 June 2020
Financial assets
Cash and cash equivalents
Financial assets at fair value through other comprehensive
income
Other receivables
Total financial assets
Financial liabilities
Donation provision
Total financial liabilities
30 June 2019
Financial assets
Cash and cash equivalents
Financial assets at fair value through other comprehensive
income
Other receivables
Total financial assets
Financial liabilities
Other payables
Interest Non-interest
bearing
bearing
$
$
Total
$
755,994
51,499,310
52,255,304
–
–
779,308,148
401,677
779,308,148
401,677
755,994
831,209,135
831,965,129
–
–
5,128,890
5,128,890
5,128,890
5,128,890
Interest Non-interest
bearing
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
Total financial liabilities
280,908
81,987
362,895
53
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
16
Financial risk management (continued)
Market risk (continued)
Sensitivity
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 2020, if interest rates had increased by 100 basis points (bps) or decreased by 100 bps from
the year end rates with all other variables held constant, post tax profit for the year would have been $330,321 (2019:
$30,975) higher or $330,321 (2019: $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.
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, deposits with banks and other financial institutions and
other receivables.
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.
54
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
16
Financial risk management (continued)
Liquidity risk (continued)
The tables below summarise the maturity profile of the Company’s financial assets and financial liabilities based on
contractual undiscounted cash flows:
1 to 3
months
$
3 to
12 months
$
More than
12 months
$
No fixed
maturity
$
Total
$
30 June 2020
Financial assets
Cash and cash equivalents
Financial assets at fair value
through other comprehensive
income
Other receivables
On demand
$
52,255,304
–
401,677
Total financial assets
52,656,981
Financial liabilities
Donation provision
Total financial liabilities
–
–
30 June 2019
Financial assets
Cash and cash equivalents
Financial assets at fair value
through other comprehensive
income
Other receivables
On demand
$
7,052,020
–
53,498
Total financial assets
7,105,518
Financial liabilities
Other payables
362,895
Total financial liabilities
362,895
17
Financial assets
Fair value measurements
(a) Fair value estimation
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52,255,304
– 779,308,148 779,308,148
401,677
–
–
– 779,308,148 831,965,129
–
–
5,128,890
5,128,890
5,128,890
5,128,890
No fixed
maturity
$
Total
$
1 to 3
months
$
3 to
12 months
$
More than
12 months
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,052,020
– 593,088,374 593,088,374
53,498
–
–
– 593,088,374 600,193,892
–
–
–
–
362,895
362,895
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.
55
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
17
Financial assets (continued)
Fair value measurements (continued)
(a) Fair value estimation (continued)
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 tables present the Company’s assets and liabilities measured and recognised at fair value at:
30 June 2020
Level 1
$
Level 2
$
Level 3
$
Total
$
Financial assets at fair value through other
comprehensive income
Listed equity securities on major exchanges
779,308,148
Total financial assets at fair value through
other comprehensive income
779,308,148
–
–
–
–
779,308,148
779,308,148
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 year (2019: None).
The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the
reporting period.
The carrying amounts of other receivables and other payables are assumed to approximate their fair values due to their
short-term nature.
56
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
18
Segment information
The Company is solely engaged in investment activities, deriving revenue from dividend income, interest income and
from the sale of its investments. It has no reportable business or geographical segments.
The Company’s investments are listed equity securities on major exchanges. The split of the Company’s investments
by the country of listing is set out below.
30 June 2020
30 June 2019
Country of Listing Country of Listing
%
%
United States
Australia
Hong Kong
France
Japan
Canada
United Kingdom
62
33
3
–
1
–
1
56
28
5
4
4
3
–
100
100
19
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 year ended 30 June 2020) are:
Christopher Cuffe AO
Lorraine Berends
Guy Fowler
Matthew Grounds AM
Michael Traill AM
Gary Weiss AM
Geoffrey Wilson AO
David Wright
Paul Rayson
Rory Lucas
(a) Remuneration
Chairman and Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Chief Executive Officer
Chief Investment Officer
Key management personnel (KMP) include the Directors, the Chief Executive Officer and the Chief Investment Officer.
Directors have agreed to waive their Directors’ fees on an ongoing basis. For the year ended 30 June 2020, 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 remuneration of the Chief Executive Officer and the Chief
Investment Officer is salary based and does not include securities or options in the Company and no element of the
remuneration is tied to Company performance. The Chief Executive Officer and the Chief Investment Officer are not
provided with retirement benefits apart from statutory superannuation.
Year ended 30 June 2020
Paul Rayson
Rory Lucas
Post-
Short-term
benefits
employment
Total
benefits Remuneration
Salary Superannuation
$
$
150,000
175,000
14,157
15,938
$
164,157
190,938
57
19
Key management personnel compensation (continued)
(a) Remuneration (continued)
Period from 12 September 2018 to 30 June 2019
Paul Rayson
Rory Lucas
(b) Shareholdings
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
Post-
Short-term
benefits
employment
Total
benefits Remuneration
Salary Superannuation
$
$
52,083
112,500
4,948
10,688
$
57,031
123,188
The Company’s key management personnel and their related parties held the following interest in the Company:
30 June 2020
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
175,000
5,000
258,042
201,397
874,414
55,000
187,500
5,000
16,657
33,290
–
–
–
–
–
–
–
–
–
–
30 June 2019
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
1,475,000
45,000
1,258,042
1,201,397
4,138,664
495,000
1,687,500
45,000
149,907
113,984
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.
58
Hearts and Minds Investments Limited
Notes to the Financial Statements (continued)
For the year ended 30 June 2020
20
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).
Matthew Grounds is Chairman of Victor Chang Cardiac Research Institute which is a designated charitable beneficiary
of Hearts and Minds Investments Limited.
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.
Directors’ fees
The Directors have agreed to waive any right to be paid director fees (see Note 19).
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 were previously senior executives of UBS
Australia. UBS Australia provided office services to the Company on a pro-bono basis for part of the year.
21
Contingencies and commitments
The Company had no material contingent liabilities or commitments as at 30 June 2020 (2019: Nil).
22
Events occurring after the reporting period
No other matter or circumstance has occurred subsequent to year 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.
59
Hearts and Minds Investments Limited
Directors’ Declaration
For the year ended 30 June 2020
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 33 to 59 and the additional disclosures included in the Directors’ Report
designated as ‘Remuneration Report’, as set out on pages 27 to 29, 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 2020 and of its performance,
as represented by the results of the operations and the cash flows, for the year 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
26 August 2020
60
Level 16, Tower 2 Darling Park
201 Sussex Street
Sydney NSW 2000
Postal Address
GPO Box 1615
Sydney NSW 2001
p. +61 2 9221 2099
e. sydneypartners@pitcher.com.au
Independent Auditor’s Report
To the Members of 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 2020, the
statement of comprehensive income, the statement of changes in equity and the statement of
cash flows for the year ended then ended, 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 2020
and of its financial performance for the year 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 (including Independence
Standards) (“the Code”) that are relevant to our audit of the financial report in Australia. We
have also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which
has been given to the Directors of the Company, would be 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.
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.
61
pitcher.com.au
Independent Auditor’s Report
To the Members of Hearts and Minds Investments Limited
ABN 61 628 753 220
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.
Key audit matter
How our audit addressed the matter
Existence, Completeness and Valuation of Financial Assets and Financial Liabilities
Refer to Note 17: Financial Assets
We focused our audit effort on the existence,
completeness and valuation of the Company’s
financial assets and financial liabilities as they
are 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 reports 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 confirmation of the investment
holdings directly from the Custodian;
§ Recalculating and assessing the
Company’s valuation of individual
investment holdings to independent pricing
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.
62
Independent Auditor’s Report
To the Members of Hearts and Minds Investments Limited
ABN 61 628 753 220
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 year ended 30 June
2020, 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.
63
Independent Auditor’s Report
To the Members of Hearts and Minds Investments Limited
ABN 61 628 753 220
· 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, actions taken to eliminate threats or safeguards applied.
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 in pages 27 to 29 of the Directors’ Report
for the financial year ended 30 June 2020. In our opinion, the Remuneration Report of Hearts
and Minds Investments Limited, for the financial year ended 30 June 2020, 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
26 August 2020
Pitcher Partners
Sydney
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
64
Hearts and Minds Investments Limited
ASX Additional Information
For the year ended 30 June 2020
ASX Additional Information
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed
elsewhere in this report.
Shareholdings
Substantial shareholders (as at 31 July 2020)
There are no substantial shareholders (voting interest greater than 5%) in Hearts and Minds Investments Limited as at
30 June 2020 (2019: Nil).
Distribution of shareholders (as at 31 July 2020)
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 60.
Number of
shareholders
ordinary shares
Percentage of
issued capital
held
602
2,261
1,306
2,510
188
0.15%
2.77%
4.45%
28.49%
64.14%
6,867
100.00%
65
Twenty largest shareholders - Ordinary shares (as at 31 July 2020)
Name
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Netwealth Investments Limited (Wrap Services)
Koll Pty Limited
HSBC Custody Nominees (Australia) Limited (Account 2)
Beta Gamma Pty Limited
Associated World Investments Pty Limited
Skip Enterprises Pty Limited
John Shearer (Holdings) Pty Limited
Navigator Australia Limited
Jane Hansen Super Pty Limited
Wroxby Pty Limited
The Ian Potter Foundation Limited
Charles & Corneloa Goode Foundation Pty Ltd
Netwealth Investments Limited (Super Services)
Wilson Foundation Pty Limited
Netwealth Investments Limited (Super Services)
Australian Philanthropic Services Foundation Pty Limited
Midas Touch Investments Pty Limited
Bridgestar Pty Limited
Hearts and Minds Investments Limited
ASX Additional Information (continued)
For the year ended 30 June 2020
Number of
shareholders
ordinary shares
Percentage of
issued capital
held
42,926,482
14,906,000
7,524,426
4,443,750
3,748,091
2,600,000
2,250,000
2,250,000
2,250,000
2,228,242
2,200,228
2,000,000
1,800,000
1,800,000
1,712,579
1,687,500
1,682,069
1,350,000
1,350,000
1,350,000
102,059,367
19.1%
6.6%
3.3%
2.0%
1.7%
1.2%
1.0%
1.0%
1.0%
1.0%
1.0%
0.9%
0.8%
0.8%
0.8%
0.8%
0.7%
0.6%
0.6%
0.6%
45.5%
Securities exchange listing
Quotation has been granted for all of the ordinary shares of the Company on all Member Exchanges of the ASX Limited.
66