2010 ANNUAL REPORT
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CHAIRMAN’S
LETTER
INVESTMENT
REPORT
DIRECTORS’
REPORT
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
STATEMENT
ASX ADDITIONAL
INFORMATION
01
02
06
15
47
56
Katana Capital will combine its listed investment company
structure with the proven ability of its Manager (“Katana
Asset Management Ltd”) to provide investors with access to
comprehensive investment techniques aimed at providing
strong capital and income returns.
The Company and the Manager share similar investment
philosophies. The role of the Company is to assess and monitor
the Manager and liaise with the Manager with respect to
its Mandate as detailed in the Management Agreement. In
addition, the Company will seek to identify appropriate
investment opportunities for review by the Manager.
Our investment philosophy
As an ‘All Opportunities’ fund, the underlying goal of the Manager is to assess the risk adjusted
return of every potential opportunity identifi ed by the Manager. The Manager’s intended
approach includes selectively and modestly taking higher-risk positions, provided that the
potential return exceeds the additional risk – preferably in terms of both value and time.
Whilst the Manager intends to combine the best principles of value investing, fundamental and
technical analysis, it does not wish to be constrained by the constructs of any one approach. The key
to the long-term success of the Company is seen as the capacity of the Manager to integrate the
best principles of each discipline with the extensive and varied experiences of the Manager.
This is achieved by encouraging fl exibility and adaptability, but within the confi nes of an overall
framework that controls risk.
Corporate Directory
Katana Capital Limited
ABN 56 116 054 301
Directors
Dalton Gooding
Peter Wallace
Giuliano Sala Tenna
Company Secretary
Gabriel Chiappini
Registered Offi ce
Level 36, Exchange Plaza
2 The Esplanade
Perth, Western Australia 6000
Telephone
Facsimile
(08) 9326 7623
(08) 9326 7676
www.katanacapital.com.au
Share Registry
Computershare Investor Services Pty Ltd
Level 2 45 St George’s Terrace,
Perth WA 6000
Telephone
Facsimile
(08) 9323 2000
(08) 9323 2033
Auditor
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
PERTH WA 6000
ASX Code: KAT
Top 20 shareholders
KATANA CAPITAL LIMITED
Top 20 Holders
Rank Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
HOPERIDGE ENTERPRISES PTY LTD
WONDER HOLDINGS PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
CLASSIC CAPITAL PTY LTD
VERNON CHARLES WHEATLEY + JOYCELYN EDITH WHEATLEY
COOLAH HOLDINGS PTY LTD
TAXA JUNO NOMINEES PTY LTD
MR ROMANO SALA TENNA + MRS LINDA SALA TENNA
BS CAPITAL PTY LTD
MR BRAD JOHN SHALLARD + MRS LISA MAREE DUPEROUZEL
MR STEPHEN JAMES LAMBERT + MRS RUTH LYNETTE LAMBERT + MR SIMON LEE LAMBERT
MRS LINDA SALA TENNA
UNITING CHURCH IN AUSTRALIA PROPERTY TRUST (WA)
CAMBO INVESTMENTS PTY LTD
MR LAWRENCE HENRY DA SILVA
KEFIR PTY LTD
METHUEN HOLDINGS PTY LTD
COLLORI PTY LTD
S & M O’REILLY PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
As at 28 September 2010
Shares
2,500,000
2,349,144
2,182,533
1,121,183
1,070,577
1,010,000
830,000
811,522
746,955
706,722
681,165
533,897
523,419
500,000
500,000
500,000
500,000
400,000
400,000
400,000
% of Shares
6.18
5.81
5.39
2.77
2.65
2.50
2.05
2.01
1.85
1.75
1.68
1.32
1.29
1.24
1.24
1.24
1.24
0.99
0.99
0.99
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)
Total Remaining Holders Balance
18,267,117
22,188,889
45.15
54.85
57
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Dear Shareholder
Following on from the Global Financial Crisis in 2008/2009,
the Financial Year ended 30 June 2010 (FY10) saw a stabilisation
in global credit markets and equity markets. Pleasingly this
coincided with your company returning to profi tability, posting
an after tax net profi t of $5.308m.
Against this backdrop, our Fund Manager positioned our portfolio
to take advantage of improvements in the global and domestic
investment environment and during FY10 out-performed the
All Ordinaries Index. In percentage terms and before General
and Administrative expenses, the portfolio generated a return of
24.54% compared to the All Ordinaries Index return of 9.55%.
This result continues your Company’s notable trend since
listing on the ASX in December 2005 of out-performing the
All Ordinaries Index.
As noted, the Company reported a FY10 after tax net profi t
of $5.308m and with current cash reserves of approximately
$8.9m or 30% of the value of the portfolio, we believe the Fund
Manager has placed your Company in a robust position to move
with and take advantage of the expected volatility in global and
domestic markets.
The Company, via its Fund Manager Katana Asset Management,
continues to have a focused long term investment philosophy
which includes energy, (via thermal coal, liquefi ed natural gas,
uranium and oil), resources and wealth management businesses
that have strong cash fl ows, pricing power and robust business
models, as refl ected in our top 10 holdings.
Following FY10 the Company, via its ASX Net Tangible Asset
(NTA) announcements to the end of September 2010, has posted
an increase in NTA from $0.94 to $1.02.
The Company continues to have complete confi dence in the
Fund Manager concerning the ongoing management of the
investment portfolio. On behalf of your board we would also
like to take this opportunity to thank the Fund Manager for
Outstanding performance since listing on the ASX. As a measure
of the Fund Manager’s belief in the Company’s direction and
willingness to add value to shareholders, the Fund Manager has
forgone their right under the Investment Mandate to receive
$789,965 in Performance Fees in FY10.
On behalf of the Board of Directors I would also like to thank you
for your continued support of the Company throughout this year.
Yours sincerely
Dalton Gooding
Chairman
01
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
02
Investment
Report
30 June 2010
Katana Asset Management Ltd as manager
(‘Manager’) for Katana Capital Limited (‘Company’)
is pleased to attach a report on the performance
of the Company’s portfolio for the 12 months
to June 30th 2010.
Performance Summary
The 2010 fi nancial year heralded a welcome
return to profi tability, and the Manager was
delighted with the performance of the fund
throughout this period. In percentage terms,
the portfolio yielded a gross investment
return of 24.54% before operating expenses
and tax. The Company’s stated benchmark –
the All Ordinaries index – returned 9.55% over
the same period. This is a signifi cant relative
out performance of 157%.
Katana Capital Ltd listed in December 2005.
Since listing, the Manager has outperformed
the All Ordinaries index during each and
every fi nancial year. During this 5-year period,
the Manager has produced an average gross
investment return of 10.71% pa versus 0.07%
pa for the All Ordinaries index. This is an
excellent achievement, yielding an average
out performance of 72%per annum.
Year Ending
Katana Gross
Investment Return
All Ords
Index
Out
Performance
2006
2007
2008
2009
2010
Average
9.95%
49.03%
-6.41%
-23.57%
24.54%
10.71%
6.90%
25.36%
-15.49%
-25.97%
9.55%
0.07%
44.20%
93.34%
58.62%
9.24%
156.96%
72.47%
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
2010 Financial
Year Review
% of Portfolio Invested
The All Ordinaries index entered the 2010
FY at 3,948 and rallied solidly from that level
– particularly during the fi rst quarter of the
new fi nancial year. During April 2010, the
index tested the 5,000 level, before retreating
to close the month at 4,833. This was still a
sizeable increase of 22% from the beginning
of the fi nancial year, and came on the back of
the 30%+ rally already experienced from the
March 2009 low.
It was relatively clear at the time that the
market had rallied too far too fast, and that
the local and international stimulus packages
were generating an artifi cial level of demand
and indeed perceived demand. In one swift
stroke, investor sentiment had moved from
oblivion to perfection: stocks were suddenly
priced for perfection and earnings forecasts
were overly optimistic and in many instances
clearly unattainable.
During May and June 2010, a number of
concerns came to the fore, as sentiment
increasingly turned negative.
First and foremost, there was a growing
realisation that the situation throughout
much of Europe was substantially worse than
previously believed, and indeed on most
levels substantially worse than the United
States. Greece stepped up to the edge of the
sovereign debt default abyss, as the more
robust nations frantically calculated whether
it would be cheaper to rescue Greece (and
if necessary Spain, Ireland, Portugal et al) or
rescue their respective banking systems in
the event that Greece was left to default. In
the end the cards were always going to land
in Greece’s favour. However it was not before
investors around the globe were given a clear
insight into the precarious and unsustainable
imbalances that have mushroomed
throughout much of Europe under the
umbrella of a common currency.
By comparison, problems with the other two
major global economies were much more
sedate and much less newsworthy! However,
there was nonetheless an occasional
procession of articles and commentaries
highlighting the dangers to growth in China
and the lack of sustainability with the recovery
in the US. More recently, the latter theme has
emerged as the major area of concern.
The resulting impact was that the market
retreated 10.5% over these two months.
Fortunately, the Fund was able to continue
its outperformance during this period due
to its above average weighting in cash and
cash equivalents.
As at the close of the 2010 fi nancial year, cash
reserves totalled approximately 20% of the
value of the portfolio.
85%
80%
75%
JUL
2009
AUG
2009
SEP
2009
OCT
2009
NOV
2009
DEC
2009
JAN
2010
FEB
2010
MAR
2010
APR
2010
MAY
2010
JUN
2010
As at the end of the fi nancial year there
were 72 companies in the portfolio.
This diversifi cation continued to assist
the Manager to reduce the overall risk to
the portfolio. Over the 2011 fi nancial year
however, the Manager is looking to reduce
the number of stocks in the portfolio to
closer to 60.
The Fund’s single largest position remains a
substantially overweight holding in Mineral
Resources Limited (MIN). MIN has grown to
almost 12% of the portfolio, predominantly
through its continued out-performance.
The Manager has resisted the temptation to
reduce this holding, due to the very high level
of confi dence in both the MIN management
and the company’s future growth potential.
Indeed, according to the Manager’s analysis,
during the 2011 fi nancial year, we are likely to
witness MIN’s highest growth in earnings to
date – both in absolute and relative terms.
The Manager’s continuing bias towards the
resource sector contributed to the Fund’s out
performance over the All Ordinaries index.
The Manager believes that the resource
sector and the resourceservicing sector will
continue to provide investors with superior
returns. Long term Chinese economic growth
continues to be driven by the ongoing
urbanisation and industrialisation of the rural
population. This stance is demonstrated by
the Manager’s weightings in not only BHP
Billiton Limited, but also Woodside Petroleum
Limited, GCS Limited and RIO Tinto Limited.
Top 10 Current Holdings
% of total
portfolio
10%
8%
6%
4%
2%
ASX Code
MIN
GCS
BHP
WPL
BFG
PTM
RIO
SEVPC
QBE
IMF
03
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Outlook
It seems a lifetime ago for some investors,
but the Investment Managers at Katana
remember well the 16th of September 2008.
It was a Tuesday, and it was the day that the
world almost lost its banking system.
Of course that was all predicated by the
collapse of Lehman Brothers – the 4th largest
fi nancial institution in the US, with assets under
control of $US600bn. As a result of this near
death experience, every major central/reserve
bank, government and pseudo government
agency took unprecedented steps to
resuscitate the global fi nancial system. And to
their credit, the dramatic stimulus injections,
purchases of toxic assets and rapid lowering of
interest rates, were able to rescue the fi nancial
system in the face of enormous headwinds.
• We are witnessing the industrialisation
of the two most populous nations
in existence; this is likely to be a
multi-generational event that will
stimulate global activity for decades
to come.
•
•
•
Corporations, superannuation funds
and private investors alike are sitting on
substantial cash reserves.
After taking into account tax and
infl ation, the real rate of return on most
bonds and cash products, is negative
or close to. This is not a natural place for
funds to reside.
The debt markets – whilst still some
way from ‘normal’ – have thawed, and
fi nancing is available for robust ventures.
If we fast-forward nearly two years, we fi nd
ourselves in a situation with a number of
worrying characteristics:
• Much negativity has now been priced
into equity valuations, meaning the risk-
return equation is now more favourable.
Firstly, the strong fi scal measures taken to
resuscitate our economies have largely run
their course and are drawing to a close
•
•
•
The eff ects are starting to wear off , yet
the underlying intrinsic demand has not
suffi ciently recovered
• Due to substantially higher levels of
sovereign debt, there is limited capacity to
safely extend or increase these measures.
Sovereign debt levels have rapidly spiralled
out of control, with Government debt to GDP
approaching 80% in Germany and France,
90% in the US and in excess of 190% in Japan.
Further measures of debt to GDP are even
more concerning, with one measure of total
debt to GDP in the US sitting at almost 370%.
In short we are experiencing the potential
for sovereign defaults in Europe, the realistic
threat of a double dip recession in the US, and
the oversupply of housing in China.
Against this backdrop, it would be easy to
be overly negative. However there are some
strong counterbalancing arguments:
• Global interest rates are at record
low levels:
a. This signifi cantly reduces the cost
of doing business for almost every
company in existence:
lower expense = higher profi ts
The normal capital-replacement cycle –
which has existed since the invention of
the steam engine – is running its course,
and drawing us all closer to the next
round of capital expenditure.
So where does that leave us? In short,
whilst the Manager acknowledges the
potential for a ‘substantial, cataclysmic’
style event, it believes that the more likely
outcome is that the Australian market
(at least) will fi nd itself oscillating between
these two strong themes.
Accordingly, in the foreseeable future the
Manager will look to:
•
•
Add to equity holdings by progressively
reducing cash towards approximately
10% in line with any move towards the
4,000 level.
Progressively increase the cash weighting
closer to 30%+ in line with any move
towards the 5,000 level.
As a fi nal note on the macro outlook, the
Manager continues to believe that Australia’s
proximity to the emerging powerhouse
economies of Asia (including India),
combined with our relatively low debt profi le
and advanced business practices, place us as
one of the very best places to invest for the
foreseeable future.
Corporate
The performance of the Katana Fund has been
quite exceptional under rather challenging
conditions. However the Manager and Board
alike have been actively looking for ways to
reduce the gap between the underlying net
tangible asset (NTA) backing and the price at
which the shares trade.
To achieve this, the Fund undertook a more
aggressive share buyback during the 2010FY,
and will continue to do so. Currently, stock is
being repurchased almost daily and cancelled
– much of it at a substantial discount to the
NTA. Over time, this will serve to both improve
the liquidity and exit price for those looking
to sell, as well as increase the underlying value
for all new and remaining shareholders.
On the 29th of July, the Fund also announced
that it would move towards paying dividends
on a quarterly basis. It is hoped that this will
increase the attractiveness of the shares to
income-focussed investors. Additionally, this
will increase the frequency with which the
company will buyback shares on market to
satisfy shareholders who have registered under
the dividend reinvestment program (DRP).
It is also worth noting that In June of this year
legislation was passed removing the profi ts test
and introducing the liquidity test as the criteria
that a company must meet in order to pay a
dividend. In essence this means that bouts of
stock market weakness will no longer preclude
the Company’s ability to pay a dividend.
During the GFC the old legislation curtailed
Katana from paying a dividend even though
the company had surplus cash holdings.
This change – coupled with the quarterly
dividend schedule – should help provide a
steady income stream to shareholders.
On a diff erent and fi nal note, the Manager
is delighted to be able to make an
announcement in respect of the Performance
Bonus for the 2010FY. By way of background,
in the normal course of events, 85% of the
performance bonus is paid to the investment
managers, and 15% to the staff in order to
attract and retain the very best people. It is
with much pride however that the Manager
is able to inform all shareholders that the
Investment Manager’s have voluntarily chosen
to forgo their performance bonus owed for
substantially out-performing the market index.
This amounts to a saving and benefi t of in
excess of $800,000 for all shareholders.
b. By reducing the cost of capital,
low interest rates also reduce the
investment threshold for new
projects, and over the medium
term will stimulate greater business
activity, ceteris paribus
The Manager’s investment themes still
include energy, (via thermal coal, liquefi ed
natural gas, uranium and oil), funds
management businesses, and industrial
stocks that have strong cash fl ows, pricing
power and robust business models.
Brad Shallard
Romano Sala Tenna
Investment Managers
Katana Asset Management Limited
04
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
05
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Directors’ Report
Your directors present their report with respect to the results of
Katana Capital Limited (the “Company” or “Katana Capital”) for the year
ended 30 June 2010 and the state of affairs of the Company at that date.
DIRECTORS
The following persons were directors of
Katana Capital Limited during the whole of the
fi nancial year and up to the date of this report:
Information on Directors
Dalton Leslie Gooding BBus, FCA.
(NonExecutive Chairman)
Mr Gooding was appointed to the Board on
11 November 2005. Mr Gooding, formerly
a longstanding partner at Ernst & Young,
is a Fellow of the Institute of Chartered
Accountants in Australia. He is currently the
managing partner of Gooding Partners and
advises to a wide range of businesses with
particular emphasis relating to taxation and
accounting issues, due diligence, feasibilities
and general business advice. Mr Gooding
also has a number of other directorships
of companies in many diff erent segments
of business. During the past three years Mr
Gooding has also served as a director of the
following other listed companies:
• AWH Corporation Limited
– appointed 29 November 2002
• SIPA Resources Limited
– appointed 1 May 2003
• Avita Medical Limited
– appointed 14 November 2002
• Brierty Limited
– appointed 26 October 2007
Peter Wallace SF Fin, FAICD, AFAIM.
(NonExecutive Director)
Mr Wallace was appointed to the Board on
19 September 2005. Mr Wallace has had 42
years in the Banking and Finance industry
with experience gained in all aspects of debt
and equity raising. Past Executive positions
held include COO of a major Regional Bank as
well as Chief Credit Offi cer and other General
Management roles. Most recently as Head of
Corporate Advisory for Bell Potter Securities
Ltd, he directed the capital raisings for several
06
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
large Public companies as well as providing
a variety of Corporate Advisory services to a
wide range of companies, both private and
publicly owned. During the past three years
Mr Wallace has also served as a director of the
following other listed companies:
• Evans and Tate Limited
– appointed 13 October 2005,
resigned 22 August 2007
• Paladio Group Limited
– appointed 25 October 2005,
resigned 23 April 2009
• RuralAus Investments Limited
– appointed 12 July 2007,
resigned 20 November 2009
Giuliano Sala Tenna BCom, FFIN, GAICD.
(NonExecutive Director)
Mr Sala Tenna was appointed to the Board on
19 September 2005.
Mr Sala Tenna has worked in the Finance
Industry for over 13 years in various fi elds and
is currently on the Institutional Equity Desk at
Bell Potter Securities, one of Australia’s largest
full service stockbroking fi rms.
Mr Sala Tenna has completed a Bachelor
of Commerce degree at Curtin University
of Technology with a double major in
Economics and Finance graduating with
Distinctions, the Graduate Diploma in
Financial Planning at the Financial Services
Institute of Australasia, the Company
Directors Course at the Australian Institute of
Company Directors and is an ASX Derivatives
Accredited Adviser.
Mr Sala Tenna is a Member of the Golden Key
National Honour Society, a Graduate Member
of the Australian Institute of Company
Directors and a Fellow of the Financial
Services Institute of Australasia.
COMPANY SECRETARY
Gabriel Chiappini BBus, GAICD, CA
Mr Chiappini has been Company Secretary
since 14 November 2005. Mr Chiappini
has worked in Chief Financial Offi cer and
Company Secretarial roles in both local and
international environments and also holds
the position of Company Secretary with
several ASX listed and unlisted companies.
Mr Chiappini has experience in diverse and
varied industry sectors including Investment
Banking (UK), Property Development &
Investment (UK), Oil & Gas (Australia),
Telecommunications (Australia) and
Biotechnology (Australia).
DIRECTORS’ MEETINGS
The numbers of meetings of the Company’s Board of Directors and of each Board Committee
held during the year ended 30 June 2010, and the numbers of meetings attended by each
director were:
Meetings of committees (i)
Directors’
meetings
Audit and
Compliance
A
5
5
5
B
5
5
5
A
2
2
2
B
2
2
2
Dalton Leslie Gooding
Peter Wallace
Giuliano Sala Tenna
A = Number of meetings attended
B = Number of meetings held during the time the director held offi ce or was a member of the
committee during the year
Committee membership
As at the date of this report the Company had an Audit and Compliance Committee.
Members acting on the Audit and Compliance Committee of the Board at the date of this
report are:
Peter Wallace (Chairman of Committee)
Dalton Gooding
Giuliano Sala Tenna
(i) During the fi nancial year, the Audit and Risk Management Committee was merged with the
Compliance Committee.
Directors’ interest in Shares and Options
As at the date of this report, the interest of the directors in the shares and options of the
Company were:
Number of options
vested during the year
Number of
ordinary shares
Number of
options over
ordinary shares
2010
2009
Directors of Katana
Capital Limited
Dalton Leslie Gooding
Peter Wallace
Giuliano Sala Tenna
100,000
300,000
100,000
No options were exercised during the year.
There are no options outstanding as at 30 June 2010.
07
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Directors’
Report
EARNINGS PER SHARE
30 June 2010
30 June 2009
Notes
Cents
Cents
(a) Basic earnings/(Loss) per share
Earnings/ (loss) from continuing operations attributable to the ordinary equity
holders of the company
12.89
(18.53)
The weighted average number of ordinary shares on issue used in the calculation of basic earnings per share was 41,177,638 (2009: 41,620,466).
There are no dilutive securities on issue as at 30 June 2010.
DIVIDENDS
The following dividends have been paid by the Company or declared by the directors since the commencement of the fi nancial year ended
30 June 2009:
30 June 2010
30 June 2009
Notes
$
$
Final ordinary dividend for the year ended 30 June 2009 of 0.005 cents
(2008 1.0 cents) per fully paid share paid on 20 November 2008
Interim ordinary dividend for the year ended 30 June 2010 of 1.5 cents
(2009 nil cents) per fully paid share
CORPORATE INFORMATION
The Company was incorporated on
19 September 2005. During the 30 June 2007
fi nancial year it incorporated a wholly owned
subsidiary Kapital Investments (WA) Pty Ltd.
its listed investment structure with the proven
ability of Katana Asset Management Limited
(its “Fund Manager”) to provide investors
with access to comprehensive investment
techniques aimed at providing strong capital
and income returns.
Katana Capital Limited is incorporated and
domiciled in Australia.
The registered offi ce is located at
2 The Esplanade, Perth, WA 6000, Australia.
Principal activity
The principle activity of the Company is that
of an Investment Company with an
‘all opportunities’ investment strategy.
Employees
As at 30 June 2010 the Company did not have
any full time employees.
OPERATING AND
FINANCIAL REVIEW
Company overview
Katana Capital was incorporated in
September 2005 with the aim of combining
08
The 2010 fi nancial year heralded a
welcome return to profi tability and the
Fund Manager was delighted with the
performance of Katana throughout this
period. In percentage terms, the portfolio
yielded a gross investment return of 24.54%
before operating expenses and tax. The
Company’s stated benchmark the All
Ordinaries index – returned 9.55% over the
same period. This is a signifi cant relative out
performance of 14.99%.
Operating results for the year
The profi t before tax for the year was
$7,158,111 (2009: $11,481,608 loss) and
profi t after tax for the year was $5,308,691
(2009: $7,711,901 loss).
Operating costs for the year were kept
to a minimum, with administration costs
(exclusive of Fund Manager’s fee) coming in
at 1.93% of funds under management
(2009: 2.05%).
207,472
416,848
614,024
821,496
-
416,848
Investments for future
performance
The Fund Manager will look to:
• Add to equity holdings by progressively
reducing cash towards approximately 10% in
line with any move towards the 4,000 level.
• Progressively increase the cash weighting
closer to 30%+ in line with any move
towards the 5,000 level.
On the macro outlook, the Fund Manager
continues to believe that Australia’s proximity
to the emerging powerhouse economies
of Asia (including India), combined with our
relatively low debt profi le and advanced
business practices, place us as one of the very
best places to invest for the foreseeable future.
The Fund Manager’s investment themes
still include energy, (via thermal coal,
liquefi ed natural gas, uranium and oil), funds
management businesses, and industrial
stocks that have strong cash fl ows, pricing
power and robust business models.
Capital structure
There were no listed options converted into
fully paid ordinary shares during the year.
Cash from operations
Net cash fl ows from operations was $1,790,914
during the year which refl ects the Company’s
investment from the Australian equities market.
Net cash fl ows for the fi nancial year ending
30 June 2011 are expected to increase
subject to the Company continuing to
take advantage of opportunities within the
Australian equities market and the general
performance of the market.
Liquidity and funding
The Company foresees no need to raise
additional equity and will use its remaining
cash reserves to invest into the Australian
equities market.
Risk management
The Board is responsible for overseeing
the establishment and implementation of
an eff ective risk management system and
reviewing and monitoring the Company’s
application of that system.
Implementation of the risk management system
and day to day management of risk is the
responsibility of the Fund Manager. The Fund
Manager is primarily responsible for all matters
associated with risk management associated
with the Equity Markets and Investment of
the Company’s funds and has formalised an
Investment Committee that meets on a regular
basis to review the Company’s investments.
SIGNIFICANT CHANGES
IN STATE OF AFFAIRS
In the opinion of the directors, there were no
signifi cant changes in the state of aff airs of
the consolidated entitiy that occurred during
the year.
SIGNIFICANT CHANGES
AFTER BALANCE DATE
A fi nal fully franked dividend of 1.25 cents for
the 30 June 2010 fi nancial year was declared
on 31 August 2010 by the Company.
The Directors are not aware of any other
matter or circumstance that has arisen since
30 June 2010 that has signifi cantly aff ected,
or may signifi cantly aff ect:
(a) the Company’s operations in future
fi nancial years, or
(b) the results of those operations in future
fi nancial years, or
(c) the Company’s state of aff airs in future
fi nancial years.
LIKELY DEVELOPMENTS
AND EXPECTED RESULTS
There are several prevailing macro themes
currently infl uencing global markets and
economies, most of these themes are as result
of the 2008 Global Financial Crisis (GFC). As a
result of the GFC, every major central/reserve
bank, government and government agency
took unprecedented steps to resuscitate the
global fi nancial system. And to their credit,
the dramatic stimulus injections, purchases
of toxic assets and rapid lowering of interest
rates, were able to rescue the fi nancial system
in the face of enormous headwinds.
Now nearly two years along, we fi nd
ourselves in a situation with a number of
disquieting characteristics:
• Firstly, the strong fi scal measures taken to
resuscitate our economies have largely run
their course and are drawing to a close
• The eff ects are starting to wear off , yet
the underlying intrinsic demand has not
suffi ciently recovered
• Due to substantially higher levels of
sovereign debt, there is limited capacity to
safely extend or increase these measures.
Sovereign debt levels have increased rapidly,
with Government debt to GDP approaching
80% in Germany and France, 90% in the
US and in excess of 190% in Japan. Further
measures of debt to GDP are even more
concerning, with one measure of total debt
to GDP in the US sitting at almost 370%.
In short we are experiencing the potential
for sovereign defaults in Europe, the realistic
threat of a double dip recession in the US,
and the oversupply of housing in China.
Against this backdrop, it would be easy to
be overly negative, however there are some
strong counterbalancing arguments:
• Global interest rates are at record low levels
• This signifi cantly reduces the cost of doing
business for almost every company in
existence with lower expenses resulting in
higher profi ts
• By reducing the cost of capital, low interest
rates also reduce the investment threshold
for new projects, and over the medium
term will stimulate greater business activity,
ceteris paribus
• We are witnessing the industrialisation
of the two most populous nations
in existence; this is likely to be a
multigenerational event that will stimulate
global activity for decades to come.
• Corporations, superannuation funds
and private investors alike are sitting on
substantial cash reserves.
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
• After taking into account tax and infl ation,
the real rate of return on most bonds and
cash products, is negative or close to.
This is not a natural place for funds to reside.
• The debt markets – whilst still some way
from ‘normal’ – have thawed, and fi nancing
is available for robust ventures.
• Much negativity has now been priced into
equity valuations, meaning the risk/return
equation is now more favourable.
• The normal capital replacement cycle –
which has existed since the invention of the
steam engine – is running its course, and
drawing us all closer to the next round of
capital expenditure.
ENVIRONMENTAL
REGULATION AND
PERFORMANCE
The principle activities of the Company
are not subject to any signifi cant
environmental regulations.
SHARE OPTIONS
Unissued shares
There were no options outstanding as at
30 June 2010
Shares issued on the exercise
of options
There were no options exercised during the
fi nancial year to acquire fully paid ordinary
shares in the Company.
Options granted as remuneration
There were no options granted as
remuneration.
09
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Directors’
Report
REMUNERATION REPORT
(AUDITED)
This remuneration report outlines the director
and executive remuneration arrangements
of the Company in accordance with the
requirements of the Corporations Act 2001
and its Regulations. For the purposes of
this report, key management personnel
(KMP) of the Company are defi ned as those
persons having authority and responsibility
for planning, directing and controlling the
major activities of the Company, directly or
indirectly, including any director (whether
executive or otherwise) and includes the
four executives in the Company and group
receiving the highest remuneration.
This report outlines the remuneration
arrangements in place for directors of Katana
Capital. Katana Capital at this early stage of
its development does not employ executive
directors and does not have a Managing
Director or a Chief Executive Offi cer. The
Company has outsourced the management
of the investment portfolio to the Fund
Manager, Katana Asset Management Ltd.
Katana Asset Management Ltd reports
directly to the Board and is invited to attend
all Board meetings to present its investment
strategy and to discuss and review the
fi nancial performance of the Company.
(a) Details of Key Management Personnel
The following persons were directors
of Katana Capital Limited during the
fi nancial year:
(i) Chairman nonexecutive
Dalton Leslie Gooding
(ii) Nonexecutive directors
Peter Wallace
Giuliano Sala Tenna
directing or controlling the activities of the
Company and is not involved in the decision
making process, with his main duties being
aligned to his compliance function.
Remuneration philosophy
The performance of the Company depends
upon the quality of its directors. To prosper,
the Company must attract, motivate and
retain skilled nonexecutive directors.
The remuneration policy of the Directors is not
linked to company performance. However,
Katana Asset Management Ltd’s performance
fees and management fees are linked directly
to the performance of the Company.
The Company does not have a remuneration
committee. The Board of Directors acts as the
Remuneration Committee and is responsible
for determining and reviewing compensation
arrangements for the Company. The Board
will assess the appropriateness of the nature
and amount of emoluments of such offi cers
on a periodic basis, by reference to relevant
employment market conditions with the
overall objective of ensuring maximum
stakeholder benefi t from the retention of a
high quality board.
The Company does not have a policy that
prohibits Directors and Executives from
entering into arrangements to protect the
value of unvested options. This includes
entering into contracts to hedge their
exposure to options or shares granted as part
of their remuneration package.
Remuneration structure
In accordance with best practice corporate
governance, the structure of nonexecutive
director and senior management
remuneration is separate and distinct.
(b) Other key management personnel
(i) Nonexecutive director remuneration
In addition to the Directors noted above,
Katana Asset Management Limited, the
Fund Manager for the Group, is considered
to be Key Management Personnel with
the authority for the strategic direction
and management of the investments of
the Group. The directors of Katana Asset
Management Limited are Brad Shallard
and Romano Sala Tenna.
Offi cer
The company secretary is an offi cer of the
Company but is not considered to be a key
management person as he does not have
the authority and responsibility for planning,
10
Objective
The Board seeks to set aggregate
remuneration at a level which provides
the Company with the ability to attract
and retain directors of the highest
calibre, whilst incurring a cost which is
acceptable to shareholders.
Structure
The constitution and the ASX listing
rules specify that the aggregate
remuneration of nonexecutive directors
shall be determined from time to time
by a general meeting. An amount not
exceeding the amount determined is
then divided between the directors
as agreed. At present the aggregate
remuneration totals $200,000 per year
in respect of fees payable to non
executive directors. This amount was
approved by shareholders at the
annual general meeting held on the
10 November 2005.
The amount of aggregate remuneration,
including the issue of options sought
to be approved by shareholders and
the manner in which it is apportioned
amongst directors, is reviewed annually.
The Board considers advice from external
consultants as well as the fees paid to
nonexecutive directors of comparable
companies when undertaking the annual
review process.
The Board considers that the majority of
the Company’s performance lies with the
fund manager.
Each director receives a fee for being a
director of the Company and includes
attendance at Board and Committee
meetings. Any additional services
provided are charged at a daily rate
agreed in advance by the Chairman.
The remuneration of nonexecutive
directors for the year ended 30 June 2010
is detailed in Table 1 of this report.
(ii) Senior manager and executive
director remuneration
As previously noted the Company at
present does not employ any executive
directors or senior management. If
the Company chooses in the future to
employ executive directors the Company
will review the remuneration packages.
Employment contracts
As noted above the Company does not
currently employ any executive directors
or senior management, it does however
have the agreement in place with
Katana Asset Management Ltd to
provide the Company with investment
management services.
(iii) Compensation of other Key
Management Personnel
No amount is paid by the Group
directly to the Directors of Katana Asset
Management Limited. Consequently,
no compensation is paid by the
Group to the Directors of Katana
Asset Management Limited as Key
Management Personnel.
Compensation is paid to the Fund Manager
in the form of fees and the signifi cant
terms of the agreement and the amount of
compensation is disclosed below.
The Company has entered into the
Management Agreement with the
Fund Manager with respect to the
management of the Portfolio. The
main provisions of the Management
Agreement are summarised below.
The Management Agreement is for
an initial period of 10 years from its
commencement date (Initial Term) unless
earlier terminated in accordance with
its terms. The commencement date
(Commencement Date) is the date on
which the company listed on the Australian
Stock Exchange 23 December 2005.
The Management Agreement will
renew for a further period of 10 years on
expiry of the Initial Term if the following
conditions are satisfi ed:
(1) the Shareholders of the Company
approve such renewal by ordinary
resolution
(2) the Fund Manager is not in breach of
the Management Agreement; and
(3) the Fund Manager has not in the
reasonable opinion of the Board
materially breached the Management
Agreement during the Initial Term.
The Fund Manager may terminate the
Management Agreement at any time by
providing a written notice at least three
months prior to termination, if:
(1) at any time during the term:
(a) the Company fails to make
payment of the remuneration
in accordance with the
Management Agreement and the
failure continues for 21 days from
the delivery of a written notice
by the Fund Manager to the
Company requesting payment;
(b) the Company enters into
liquidation (except voluntary
liquidation for the purpose of
reconstruction);
(c) the Company is guilty of any
gross default, breach, non
observance or non performance
of any of the terms and
conditions contained in the
Management Agreement; or
(d) a receiver or receiver and
manager is appointed to the
whole or part of the undertakings
of the Company; and
(2) such notice is given not less than two
years after the commencement of
the Initial Term.
The Company may immediately
terminate the Management Agreement if:
(1) the Fund Manager or any of its
directors or servants are found guilty
of grave misconduct in relation to the
aff airs of the Company;
(2) the Fund Manager’s AFSL is
suspended or cancelled at any time
for any reason;
(3) the Fund Manager commits a
fundamental default or breach of its
obligations under the Management
Agreement or is in breach of any
conditions of its AFSL and such
default or breach is not remedied
within 30 days after the Company has
notifi ed the Fund Manager in writing
to remedy that default or breach;
(4) the Fund Manager enters into
liquidation (except voluntary
liquidation for the purpose of
reconstruction);
(5) a receiver or receiver and manager is
appointed to the whole or part of the
undertaking of the Fund manager;
(6) a change in control of the Fund
manager occurs without the Fund
Manager obtaining at least 30
days prior written consent from
the Company;
(7) the Fund Manager is guilty of any
gross default, breach, non observance
or non performance of any of the
terms and conditions contained in the
Management Agreement;
(8) the Fund Manager fails to remedy
a breach of the Management
Agreement within the time period
reasonably specifi ed in a notice from
the Company requiring it to do so;
(9) the Fund Manager persistently fails
to ensure that investments made on
behalf of the Company are consistent
with the investment strategy
applicable to the Company at the
time the relevant investment is
made; or
(10) the Fund Manager is not lawfully able
to continue to provide services to the
Company pursuant to the terms of
the Management Agreement.
The Company may, by written notice to
the Fund Manager at any time within
six months after the end of any fi ve year
period during the term, terminate the
Management Agreement if Shareholders
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
pass an ordinary resolution to terminate
and the average Portfolio return for the
fi ve 12 month periods comprising the
relevant fi ve year period is less than the
average percentage increase in the ASX
All Ordinaries Index for those fi ve 12
month periods.
The Board on a regular basis reviews the
Management Agreement and Mandate
to ensure compliance with the terms of
the agreement.
Management and
performance fees
(1) Management fee
The Fund Manager receives a monthly
management fee equal to 0.104167%
of the Portfolio value calculated at the
end of each month. The fee for 2010 was
$497,511 (2009: $395,395). The Directors
and shareholders of Katana Asset
Management Ltd are also shareholders in
Katana Capital Limited.
(2) Performance fee
Performance fee to be paid in respect
of each performance calculation period
of 18.5% of the amount by which the
Fund Manager outperforms the ASX
All Ordinaries during the calculation
period (calculated annually for the 12
month period ending 30 June). The
Fund Manager qualifi ed to receive a
performance fee for Financial year ended
30 June 2010 but chose to forgo 85% of
the performance fee and accrued 15%
of the total fee payable for the Fund
Manager’s analyst. The fee accrued for
2010 was $139,500 (2009: $nil).
11
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Directors’
Report
Company performance
The profi t/(loss) after tax for the group from the date of incorporation (19 September 2005) is as follows:
$
2010
$
2009
$
2008
$
$
2007
19/09/05 to 30/06/06
Profi t/(loss) after tax expense
5,308,691
(7,711,901)
(2,766,949)
7,510,531
1,060,378
Remuneration of Directors and Key Management Personnel of the Company and Group
2010
Name
Short term employee benefi ts
Post
employment
benefi ts
Long term
benefi ts
Sharebased
payments
Salary and
fees
Other
Cash STI
Super
annuation
Termination
benefi ts
$
$
$
$
$
Options
$
Total
$
% of
remuneration
which is
performance
based
%
Nonexecutive directors
Dalton Leslie Gooding
Peter Wallace
Giuliano Sala Tenna
Total nonexecutive directors
Company Secretary
Gabriel Chiappini
Key Management Personnel (KMP)
70,000
40,000
40,000
150,000
37,500
Katana Asset Management Ltd
637,011
Total non-executive directors,
offi cers & KMP
824,511
-
-
-
-
-
-
-
Short term benefi ts
-
-
-
-
-
-
-
6,930
3,600
3,600
14,130
-
-
14,130
Post
employment
benefi ts
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76,930
43,600
43,600
164,130
37,500
-
-
-
-
-
637,011
100%
838,641
-
Long term
benefi ts
Sharebased
payments
2009
Name
Nonexecutive directors
Dalton Leslie Gooding
Peter Wallace
Derek La Ferla1
Giuliano Sala Tenna
Total nonexecutive directors
Company Secretary
Gabriel Chiappini
Key Management Personnel (KMP)
Katana Asset Management Ltd
Total non-executive directors,
offi cers & KMP
1 RESIGNED ON 28 NOVEMBER 2008
12
Salary and fees
Other
Cash STI
Super
annuation
Termination
benefi ts
$
$
$
$
$
Options
$
Total
$
70,000
40,000
16,667
40,000
166,667
36,000
395,395
598,062
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,930
3,600
1,500
3,600
15,630
-
-
15,630
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76,930
43,600
18,167
43,600
182,297
36,000
395,395
100%
613,692
-
End of Remuneration Report
% of
remuneration
which is
performance
based
%
-
-
-
-
-
-
INDEMNIFICATION OF
DIRECTORS AND OFFICERS
The total amount of insurance contract
premiums paid was $39,650 (2009: $39,600).
This amount has not been included in
Directors and Executives remuneration.
AUDITOR INDEPENDENCE
AND NON AUDIT SERVICES
The Directors have obtained an
independence declaration from the
Company’s auditors Ernst & Young as
presented on page 14 of this Annual report.
NON AUDIT SERVICES
Ernst & Young did not receive any amounts
for the provision of nonaudit services.
Signed for an on behalf of the Directors in
accordance with a resolution of the Board.
Giuliano Sala Tenna
Director
22 September 2010
Perth, Western Australia
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
13
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Auditor’s Independence Declaration
to the Directors of
Katana Capital Limited
Ernst & Young Building
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
www.ey.com/au
In relation to our audit of the fi nancial report of Katana Capital Limited for the fi nancial
year ended 30 June 2010, to the best of my knowledge and belief, there have been no
contraventions of the auditor independence requirements of the Corporations Act 2001
or any applicable code of professional conduct.
Ernst & Young
C B Pavlovich
Partner
Perth
23 September 2010
14
fi nancial
statements
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
16
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF
CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS
CORPORATE GOVERNANCE STATEMENT
ADDITIONAL ASX INFORMATION
17
18
19
20
44
45
47
56
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
15
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Consolidated statement of
comprehensive income
FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED
30 June 2010
30 June 2009
Notes
$
Investment Income
Investment income
Dividends
Interest
Total investment income
Investment income/(loss)
Expenses
Fund manager’s fees
Legal and professional
Directors’ fees and expenses
Administration
Performance fee
Total expenses
Profi t/(loss) before income tax
Income tax (expense)/benefi t
Profi t/(loss) from continuing operations
Profi t/(loss)for the year attributable to members of Katana Capital Limited
Other comprehensive income, net of tax
Total comprehensive income for the year
Earnings/(loss) per share attributable to the ordinary equity holders
of the company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
3
3
4
19
19
$
-
1,158,598
173,118
1,331,716
6,887,065
1,135,699
375,652
8,398,416
-
(11,801,269)
(497,511)
(92,033)
(170,500)
(340,761)
(139,500)
(1,240,305)
7,158,111
(1,849,461)
5,308,691
5,308,691
-
(395,395)
(83,029)
(188,666)
(344,965)
-
(1,012,055)
(11,481,608)
3,769,707
(7,711,901)
(7,711,901)
-
5,308,691
(7,711,901)
Cents
Cents
12.89
12.89
(18.53)
(18.53)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
16
Consolidated Balance sheet
AS AT 30 JUNE 2010
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Investments held for trading
Current tax receivables
Other assets
Total current assets
Noncurrent assets
Deferred tax assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Financial liabilities
Dividends payable
Total current liabilities
Net assets
EQUITY
Issued capital
Option premium reserve
Accumulated loss
Total equity
Notes
5
6
7
8
9
10
12
13
13(a)
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
AT
CONSOLIDATED
2010
$
2009
$
7,488,660
227,537
30,675,449
-
87,194
7,073,483
777,191
24,051,056
30,567
61,591
38,478,840
31,993,888
834,334
39,313,174
2,683,755
34,677,643
1,197,133
-
3,316
1,200,449
38,112,725
39,526,993
101,100
(1,515,368)
38,112,725
440,356
54,200
3,316
497,872
34,179,771
40,081,234
101,100
(6,002,563)
34,179,771
17
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Consolidated statement of
changes in equity
FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED
Balance at 1 July 2008
Profi t/(loss) for year
Total comprehensive income for the year
Buyback of shares
Dividends provided for or paid
Balance at 30 June 2009
Balance at 1 July 2009
Profi t/(loss) for year
Total comprehensive income for the year
Buyback of shares
Dividends provided for or paid
Balance at 30 June 2010
Issued capital
Option
premium
reserve
Notes
$
$
Retained
earnings
$
Total
$
40,158,270
101,100
2,126,186
42,385,556
-
-
(77,036)
-
-
-
-
-
(7,711,901)
(7,711,901)
(7,711,901)
(7,711,901)
-
(416,848)
(77,036)
(416,848)
40,081,234
101,100
(6,002,563)
34,179,771
40,081,234
101,100
(6,002,563)
34,179,771
-
-
(554,241)
-
-
-
-
-
5,308,691
5,308,691
5,308,691
5,308,691
-
(821,496)
(554,241)
(821,496)
39,526,993
101,100
(1,515,368)
38,112,725
12
13
12
13
The above statements of changes in equity should be read in conjunction with the accompanying notes.
18
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Consolidated statement of
cash fl ows
FOR THE YEAR ENDED 30 JUNE 2010
CONSOLIDATED
30 June 2010
30 June 2009
Notes
$
$
Cash fl ows from operating activities
Proceeds on sale of fi nancial assets
Payments for purchases of fi nancial assets
Payments to suppliers and employees
Interest received
Dividends received
Other revenue
Interest paid
Tax paid/(refund)
49,304,572
(47,934,000)
(1,059,687)
372,080
1,100,965
2,002
-
4,982
Net cash outfl ow (infl ow) from operating activities
16
1,790,914
Cash fl ows from fi nancing activities
Proceeds from issues of shares
Dividends paid
Payments for shares bought back
Repayment of borrowings from subsidiary
-
(821,496)
(554,241)
-
37,762,881
(36,458,449)
(1,048,933)
171,851
1,238,382
24,727
-
28,588
1,719,047
-
(420,401)
(77,036)
-
Net cash infl ow (outfl ow) from fi nancing activities
(1,375,737)
(497,437)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the fi nancial year
Cash and cash equivalents at end of year
5
415,177
7,073,483
7,488,660
1,221,610
5,851,873
7,073,483
The above consolidated statement of cash fl ows should be read in conjunction with the accompanying notes.
19
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the Financial Statements
30 JUNE 2010
1 Corporate information
The fi nancial report of Katana Capital Limited (“the Company”) for the year ended 30 June 2010 was authorised for issue in accordance with a
resolution of the directors on 22 September 2010.
The Company was incorporated on 19 September 2005. In July 2006 it incorporated a wholly owned subsidiary Kapital Investments (WA) Pty
Ltd.
Katana Capital Limited is a company limited by shares, incorporated and domiciled in Australia and whose shares are publicly traded on the
Australian Stock Exchange.
The nature of the operations and principle activities are described in the Directors’ Report.
2 Summary of signifi cant accounting policies
(a) Basis of preparation
The fi nancial report is a general purpose fi nancial report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards
Board. The fi nancial report has also been prepared on a historical cost basis except for the investments held for trading and derivative
fi nancial instruments, which have been measured at fair value.
The principal accounting policies adopted in the preparation of the fi nancial report are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated. The fi nancial report comprise the fi nancial statements of Katana
Capital Limited and its subsidiaries.
The fi nancial report is presented in Australian dollars.
(b) Statement of compliance
The fi nancial report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board.
New Accounting Standards and Interpretations
The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2009:
- AASB 7 Financial Instruments: Disclosures eff ective 1 January 2009
- AASB 8 Operating Segments eff ective 1 January 2009
- AASB 101 Presentation of Financial Statements (revised 2007) eff ective 1 January 2009
AASB 7 Financial Instruments: Disclosures
The amended Standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related
to all fi nancial instruments recognised and measured at fair value are to be disclosed by source of inputs using a three level fair value
hierarchy, by class. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now
required, as well as signifi cant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for
liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement
disclosures are presented in note 20. The liquidity risk disclosures are not signifi cantly impacted by the amendments and are presented in
note 20.
20
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
2 Summary of signifi cant accounting policies (continued)
(b) Statement of compliance (continued)
AASB 8 Operating Segments
AASB 8 replaced AASB 114 Segment Reporting upon its eff ective date. The Group concluded that the operating segments determined in
accordance with AASB 8 are the same as the business segments previously identifi ed under AASB 114. AASB 8 disclosures are shown in
note 21.
AASB 101 Presentation of Financial Statements
The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of
transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity and included
in the new statement of comprehensive income. The statement of comprehensive income presents all items of recognised income and
expense, either in one single statement, or in two linked statements. The Group has elected to present one statement.
Accounting Standards and Interpretations issued but not yet eff ective
A number of Australian Accounting Standards and Interpretations have been issued or amended but are not yet eff ective. These have
not been adopted by the Group for the annual reporting period ending 30 June 2010. The impact of these new or amended Accounting
Standards whilst not expected to give rise to material changes in the Group’s fi nancial statements, are yet to be assessed.
(c) Principles of consolidation
The consolidated fi nancial statements incorporate the assets and liabilities of the subsidiary of Katana Capital Limited as at 30 June 2010
and the results of the subsidiary for the year then ended. Katana Capital Limited and its subsidiary together are referred to in this fi nancial
report as the “Group” or the consolidated entity.
The subsidiary is the entity (including a special purpose entity) over which the Company has the power to govern the fi nancial and
operating policies, generally accompanying a shareholding of more than onehalf of the voting rights. The existence and eff ect of potential
voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity.
The subsidiary is fully consolidated from the date on which control is transferred to the Company. It is deconsolidated from the date that
control ceases.
The fi nancial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting
policies.
(d) Investments and other fi nancial assets
Financial assets are classifi ed as either fi nancial assets held for trading, loans and receivables, held to maturity investments or available for
sale investments, as appropriate..
When fi nancial assets are initially recognised they are recorded at fair value, plus in the case of investments not held for trading, directly
attributable transaction costs. The Fund Manager determines the classifi cation of its fi nancial assets after initial recognition and when
allowed and appropriate, reevaluates this designation at each fi nancial year end.
(i) Financial assets held for trading
After initial recognition investments which are classifi ed as held for trading are measured at fair value, gains and losses on these
investments are recognised in the profi t and loss. For fi nancial assets that are actively traded in organised fi nancial markets, fair value is
determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date.
For fi nancial assets where there is no quoted market price, fair value is determined by reference to the current market value of another
instrument which is substantially the same or is calculated based on the expected cash fl ows of the underlying net asset base of the
fi nancial assets. The fair value of options is determined using an appropriate option pricing model.
Purchases and sales of fi nancial assets that require delivery of assets within the time frame generally established by regulation or
convention in the market place are recognised on the trade date i.e. the date that the Company commits to purchase the asset.
(ii) Loans and receivables
Loans and receivables are non derivative fi nancial assets with fi xed and determinable payments that are not quoted in an active
market. Such assets are carried at amortised cost using the eff ective interest method.
Amortised cost is calculated by taking into account any discount or premium on acquisition. For fi nancial assets carried at amortised
cost, gains and losses are recognised in the income statement when the fi nancial assets are derecognised or impaired, as well as
through the amortisation process.
21
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
2 Summary of signifi cant accounting policies (continued)
(d) Investments and other fi nancial assets (continued)
(iii) Derecognition of fi nancial assets
A fi nancial asset (or where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised when:
–
–
–
the rights to receive cash fl ows from the asset have expired;
the company retains the right to receive cash fl ows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party lender under a “passthrough” arrangement; or
the company has transferred its rights to receive cash fl ows from the asset and either (a) has transferred substantially all the risks
and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
(e) Revenue recognition
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefi ts will
fl ow to the entity and specifi c criteria have been met for each of the Group’s activities as described below.
(i)
Interest income
Interest income is recognised on an accruals basis using the eff ective interest method, which is the rate that exactly discounts
estimated future cash fl ows through the expected life of the fi nancial instrument to the net carrying amount of the fi nancial
instrument. Interest on cash on deposit is recognised in accordance with the terms and conditions that apply to the deposit.
(ii) Dividends
Dividends are recognised as revenue when the right to receive payment is established.
(f) Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary diff erences and to
unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary diff erences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated fi nancial statements. However, the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
aff ects neither accounting nor taxable profi t or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary diff erences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary diff erences and losses.
Deferred tax liabilities and assets are not recognised for temporary diff erences between the carrying amount and tax bases of investments
in foreign operations where the company is able to control the timing of the reversal of the temporary diff erences and it is probable that
the diff erences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are off set when there is a legally enforceable right to off set current tax assets and liabilities and when
the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are off set where the entity has a legally
enforceable right to off set and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
(g) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of
three months or less.
For the purposes of Statement of cash fl ows, cash and cash equivalents includes deposits held at call with banks or fi nancial institutions.
22
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
2 Summary of signifi cant accounting policies (continued)
(h) Trade and other receivables
Receivables may include amounts for dividends, interest and securities sold where settlement has not yet occurred. Receivables are
recognised and carried at the original invoice amount and interest accrues (using the eff ective interest rate method, which is the rate that
discounts estimated future cash receipts through the eff ective life of the fi nancial instrument) to the net carrying amount of the fi nancial
asset. Amounts are generally received within 30 days of being recorded as receivables.
Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be
uncollectible are written off when identifi ed. An impairment provision is recognised when there is objective evidence that the Group
will not be able to collect the receivable. Financial diffi culties of the debtor, default payments or debts more than 60 days overdue are
considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the
present value of estimated future cash fl ows, discounted at the original eff ective interest rate.
(i) Trade and other payables
Liabilities for creditors and other amounts are carried at amortised cost, which is the fair value of the consideration to be paid in the future
for goods and services received, whether or not billed to the Company.
Payables include outstanding settlements on the purchase of investments and distributions payable. The carrying period is dictated by
market conditions and is generally less than 30 days.
(j) Interestbearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interestbearing loans and borrowings are subsequently measured at amortised cost using the eff ective interest
method.
Gains and losses are recognised in profi t or loss when the liabilities are derecognised.
(k) Goods and Services Tax (GST)
Incomes, expenses and assets, with the exception of receivables and payables, are recognised net of the amount of GST, to the extent that
GST is recoverable from the Australian Tax Offi ce (ATO). Where GST is not recoverable it is recognised as part of the cost of the asset or as
part of the expense item as applicable.
Reduced input tax credits (RITC) recoverable by the Company from the ATO are recognised as receivables in the Balance Sheet.
Cash fl ows are included in the cash fl ow statement on a gross basis and the GST component of the cash fl ows arising from investing and
fi nancing activities, which is recoverable from or payable to the taxation authority are classifi ed as operating cash fl ows.
(l) Earnings per share
Basic earnings per share (EPS) is calculated as net profi t attributable to shareholders divided by the weighted average number of units.
Diluted earnings per share is calculated as net profi t attributable to members of the parent, adjusted for:
–
costs of servicing equity (other than dividends) and preference share dividends;
– other nondiscretionary changes in revenues or expenses during the period that would result from the dilution of potential
ordinary shares;
– divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
(m) Signifi cant accounting judgements, estimates and assumptions
The determination of fair value of unlisted securities requires the application of a discounted cashfl ow valuation model. A discounted
cashfl ow model requires that certain judgements and assumptions are made, including an estimate for the discount rate applied and an
estimation of future uncertain cashfl ows.
The Company determines the fair value of unlisted options using the BlackScholes formula, taking into account the terms and conditions
upon which the instruments were granted. The BlackScholes formula requires the estimation of certain assumptions including the
volatility of the underlying shares and an estimation as to the anticipated date at which the option will be exercised.
23
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
2 Summary of signifi cant accounting policies (continued)
(n) Derivative fi nancial instruments
The Group uses derivative fi nancial instruments such as exchanged traded options to manage its risks associated with share price
fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered
into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when
their fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to net profi t or loss for the year.
Exchange traded options
The Group writes and then trades Exchange Traded Options (‘ETO’s’), the Company’s policy for managing its risk for ETO’s is to ensure it
only writes ETO’s against shares that it physically holds. ETO’s are governed by the Australian Stock Exchange (“ASX”) and are traded on the
ASX.
ETO’s are recognised as liabilities at fair value. Any gains or losses arising from changes in the fair value of ETO’s, are taken directly to net
profi t or loss for the year.
(o) Contributed equity
Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a
deduction, net of tax, from the proceeds.
(p) Pension benefi ts
Defi ned contribution plan
Contributions to superannuation funds are charged to the statement of comprehensive income when due.
(q) Share based payments
Equity settled transactions
The Group can provide benefi ts to its employees (including key management personnel) in the form of share based payments, whereby
employees render services in exchange for shares or rights over shares (equity settled transactions).
There are currently no formal plans in place to provide these benefi ts.
The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments
at the date at which they are granted. The fair value is determined by an external valuer using a binomial model.
In valuing equity-settled transactions, no account is taken of any vesting conditions, other than (if applicable):
- Non-vesting conditions that do not determine whether the Group or Company receives the services that entitle the employees to
receive payment in equity or cash, and
-
Conditions that are linked to the price of the shares of Katana Capital Limited (market conditions).
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfi lled (the vesting period), ending on the date on which the relevant employees become
fully entitled to the award (the vesting date).
At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of:
(a) The grant date fair value of the award.
(b) The current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee
turnover during the vesting period and the likelihood of non-market performance conditions being met.
(c) The expired portion of the vesting period.
The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts
already charged in previous periods. There is a corresponding entry to equity. Equity-settled awards granted by Katana Capital Limited to
employees of subsidiaries are recognised in the parent’s separate fi nancial statements as an additional investment in the subsidiary with
a corresponding credit to equity. As a result, the expense recognised by Katana Capital Limited in relation to equity-settled awards only
represents the expense associated with grants to employees of the parent. The expense recognised by the Group is the total expense
associated with all such awards.
24
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
2 Summary of signifi cant accounting policies (continued)
(q) Share based payments (continued)
Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally
anticipated to do so. Any award subject to a market condition or non-vesting condition is considered to vest irrespective of whether or
not that market condition or non-vesting is fulfi lled, provided that all other conditions are satisfi ed.
If a non-vesting condition is within the control of the Group, Company or the employee, the failure to satisfy the condition is treated as a
cancellation. If a non-vesting condition within the control of neither the Group, Company nor employee is not satisfi ed during the vesting
period, any expense for the award not previously recognised is recognised over the remaining vesting period, unless the award is forfeited.
If the terms of an equity-settled award are modifi ed, as a minimum an expense is recognised as if the terms had not been modifi ed. An
additional expense is recognised for any modifi cation that increases the total fair value of the share-based payment arrangement, or is
otherwise benefi cial to the employee, as measured at the date of modifi cation.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for
the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement
award on the date that it is granted, the cancelled and new award are treated as if they were a modifi cation of the original award, as
described in the previous paragraph.
The dilutive eff ect, if any, of outstanding options is refl ected as additional share dilution in the computation of diluted earnings per share.
Shares in the Group reacquired on-market are classifi ed and disclosed as reserved shares and deducted from equity.
(r) Parent entity fi nancial information
The fi nancial information for the parent entity, Katana Capital Limited, disclosed in note 23 has been prepared on the same basis as the
consolidated fi nancial statements, except as set out below.
(i) Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the fi nancial statements of Katana Capital
Limited. Dividends received from associates are recognised in the parent entity’s profi t or loss, rather than being deducted from the
carrying amount of these investments.
(s) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The
chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has
been identifi ed as the strategic steering committee.
3
Investment income/(loss)
Realised gains/(losses) on investments held for trading
Unrealised gains/(losses) on investments held for trading
Changes in fair value of options
Foreign exchange gains (net)
Other income
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
2,040,048
4,777,296
67,719
-
2,002
(5,110,432)
(7,131,860)
416,395
(99)
24,727
6,887,065
(11,801,269)
25
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
4
Income tax expense
(a) Income tax expense/(benefi t)
Current tax expense/(benefi t)
Deferred tax
Deferred income tax(benefi t)/expense included in income tax expense comprises:
(Decrease)/increase in deferred tax assets (note 8)
Decrease/(increase) in deferred tax liabilities (note 11)
Other
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profi t/ (loss) from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2009 30%)
Tax eff ect of amounts which are not deductible/(taxable) in calculating taxable income:
Nondeductible expenses
Franking credits
Franking rebate
Income tax expense
5 Current assets Cash and cash equivalents
Bank balances
Deposits at call
Short term bank bills
Short term bank bills have a maturity of 90 days with a market interest rate of 5.425%
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
-
1,849,420
1,849,420
1,655,799
193,621
-
$
-
(3,769,707)
(3,769,707)
(2,691,772)
(1,077,935)
-
1,849,420
(3,769,707)
7,157,632
2,147,290
(11,481,608)
(3,444,482)
291
127,784
(425,945)
1,849,420
325
139,522
(465,072)
(3,769,707)
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
2,523,639
-
4,965,021
7,488,660
6,976,849
96,634
-
7,073,483
26
6 Current assets Trade and other current receivables
Unsettled trades listed equities
Interest receivable
Dividend receivable
There are no receivables past due or impaired.
7 Current assets Investments
Listed equities classifi ed as held for trading
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
173,148
4,839
49,550
227,537
761,108
1,267
14,816
777,191
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
30,675,449
30,675,449
24,051,056
24,051,056
Held for trading investments consist of investments in ordinary shares and therefore have no fi xed maturity date or coupon rate. Fair value is
determined by reference to Stock Exchange quoted market bid prices at the close of business at the balance sheet date.
8 Noncurrent assets Deferred tax assets
The balance comprises temporary diff erences attributable to:
Tax losses
Other
Share issue costs
Options
Provisions
Other
Investments
Total deferred tax assets
Setoff of deferred tax liabilities pursuant to setoff provisions (notes 11)
Net deferred tax assets
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
1,703,532
3,387,592
41
-
92,747
426
10,494
1,807,240
(972,906)
834,334
35,836
1,426
38,119
67
-
3,463,040
(779,285)
2,683,755
27
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
8 Noncurrent assets Deferred tax assets (continued)
Movements Consolidated
At 30 June 2008
(Charged)/credited directly to income statement
At 30 June 2009
At 30 June 2009
(Charged)/credited directly to income statement
At 30 June 2010
Tax losses
$
688,319
2,699,273
3,387,592
3,387,592
(1,684,060)
1,703,532
Share issue
costs
$
71,630
(35,795)
35,835
35,835
(35,794)
41
Other
$
11,317
28,295
39,612
39,612
64,055
103,667
Total
$
771,266
2,691,773
3,463,039
3,463,039
(1,655,799)
1,807,240
The deferred tax asset is being carried forward as an asset due to the company’s view that the tax asset will be utilised as global stock
exchanges correct themselves, global economic activity increases and the company realises profi ts.
9 Current liabilities Trade and other payables
Unsettled trades listed equities
Accrual Classic Capital management fee
Trade creditors
Performance fee payable
Employee pay as you go tax instalments
Custody fees payable
10 Current liabilities Financial liabilities
Exchange traded options held for trading at fair value*
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
851,780
135,451
40,063
139,500
5,280
25,059
1,197,133
275,638
103,468
33,552
-
5,280
22,418
440,356
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
-
-
$
54,200
54,200
*
The Company writes and then trades Exchange Traded Options (ETO’s), the company’s policy for managing its Risk for ETO’s is to ensure it
only writes ETO’s against shares that it physically holds. ETO’s are governed by the Australian Stock Exchange (ASX) and are traded on the
ASX. The ETO’s had an average expiry date of 30 July 2009.
28
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
956,589
14,865
1,452
972,906
(972,906)
-
Other
$
28,380
(23,555)
4,825
4,825
11,492
16,317
774,460
4,445
380
779,285
(779,285)
-
Total
$
1,857,220
(1,077,935)
779,285
779,285
193,621
972,906
Investments
$
1,828,840
(1,054,380)
774,460
774,460
182,129
956,589
AT
AT
PARENT ENTITY
PARENT ENTITY
30 June 2010
30 June 2009
30 June 2010
30 June 2009
Shares
Shares
$
$
40,703,119
41,414,313
39,526,993
40,081,234
Number
of shares
41,684,800
(190,487)
41,494,313
41,494,313
(791,194)
40,703,119
$
40,158,270
(77,036
40,081,234
40,081,234
(554,241)
39,526,993
11 Noncurrent liabilities Deferred tax liabilities
The balance comprises temporary diff erences attributable to:
Deferred tax liabilities
Investments
Dividends receivable
Other
Total deferred tax liabilities
Setoff of deferred tax liabilities pursuant to setoff provisions
Net deferred tax liabilities
Movements Consolidated
At 1 July 2008
Charged/(credited) to the income statement
At 30 June 2009
At 30 June 2009
Charged/(credited) to the income statement
At 30 June 2010
12 Issued Capital
Ordinary shares
Fully paid
(a) Movements in ordinary share capital:
Date
Details
1 July 2008
Opening balance
Buyback of shares
30 June 2009
Balance
1 July 2009
Opening balance
Buyback of shares
30 June 2010
Balance
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
During the period from July 2009 to June 2010, 791,194 shares were bought back on market and were subsequently cancelled. The shares
were acquired at an average price of $0.7005 with the price ranging from $0.60 to $0.755 per share.
29
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
12 Issued Capital (continued)
(b) Movements in options:
Date
Details
1 July 2009
Opening balance
Expired options
30 June 2010
Closing Balance
30 June 2010
30 June 2009
Number of
options
Number of
options
1,000,000
(1,000,000)
1,000,000
-
-
1,000,000
Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company.
(c) Capital management
When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal
returns to shareholders and benefi ts for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest
cost of capital available to the entity. Management is constantly adjusting the capital structure to take advantage of favourable costs of
capital or high returns on assets.
13 Reserves and retained earnings
Option premium reserve
(a) Retained profi ts/(accumulated profi ts)
Movements in retained earnings were as follows:
Balance 1 July
Net profi t/(loss) after tax attributable to members of the Company
Dividends
Balance 30 June
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
101,100
101,100
AT
CONSOLIDATED
30 June 2010
30 June 2009
$
$
(6,002,563)
5,308,691
(821,496)
(1,515,368)
2,126,186
(7,711,901)
(416,848)
(6,002,563)
30
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
150,000
14,130
497,511
139,500
801,141
166,667
15,630
395,395
-
577,692
14 Key management personnel disclosures
(a) Key management personnel compensation
Shortterm employee benefi ts
Postemployment benefi ts
Management fee to Fund Manager
Performance fee to Fund Manager
(b) Equity instrument disclosures relating to key management personnel
(i) Option holdings
2010
Name
Directors of Katana Capital Limited
Dalton Leslie Gooding
Peter Wallace
Giuliano Sala Tenna
Other key management personnel
of the Company
Brad Shallard
Romano Sala Tenna
Balance
at start of
the year
Granted as
compen-
sation
Exercised
Expired
Balance
at end of
the year
Vested and
exercisable
Unvested
250,000
250,000
250,000
(250,000)
(250,000)
(250,000)
Katana Asset Management Ltd
-
-
-
-
-
-
-
Balance
at start of
the year
Granted as
compen-
sation
Exercised
Other
changes
Vested and
exercisable
Unvested
2009
Name
Directors of Katana Capital Limited
Dalton Leslie Gooding
Peter Wallace
Guiliano Sala Tenna
Derek La Ferla1
Other key management personnel
of the Company
Brad Shallard
Romano Sala Tenna
250,000
250,000
250,000
250,000
Katana Asset Management Ltd
-
-
-
1
RESIGNED 28 NOVEMBER 2008
-
-
Balance
at end of
the year
250,000
250,000
250,000
250,000
250,000
250,000
250,000
250,000
-
-
-
-
-
-
-
31
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
14 Key management personnel disclosures (continued)
(b) Equity instrument disclosures relating to key management personnel (continued)
(ii) Share holdings
The numbers of shares in the Company held during the fi nancial year by each director of Katana Capital Limited and other key
management personnel of the Group, including their personally related parties, are set out below.
All equity transactions with key management personnel, other than those arising from the exercise of remuneration options,
have been entered into under terms and conditions no more favourable that those the Group would have adopted if dealing
at arm’s length.
2010
Name
Balance at the
start of the year
Received during
the year on
the exercise
of options
Other changes
during the year
Balance at
the end of
the year
Directors of Katana Capital Limited
Ordinary shares
Dalton Leslie Gooding
Peter Wallace
Giuliano Sala Tenna
Other key management personnel of the Company
Ordinary shares
Brad Shallard
Romano Sala Tenna
Katana Asset Management Ltd
100,000
300,000
100,000
2,040,125
2,267,870
-
100,000
300,000
100,000
55,270
30,237
-
2,095,395
2,298,107
-
-
2009
Name
Balance at the
start of the year
Received during
the year on
the exercise
of options
Other changes
during the year
Balance at
the end of
the year
Directors of Katana Capital Limited
Ordinary shares
Dalton Leslie Gooding
Peter Wallace
Derek La Ferla 1
Giuliano Sala Tenna
Other key management personnel of the Company
Ordinary shares
Brad Shallard
Romano Sala Tenna
Katana Asset Management Ltd
1
RESIGNED 28 NOVEMBER 2008
100,000
300,000
100,000
100,000
2,040,125
2,267,870
-
100,000
300,000
100,000
100,000
2,040,125
2,267,870
-
-
-
(c) Other transactions and balances with key management personnel
There were no transactions or balances with key management personnel other than those disclosed in the remuneration report of the
Director’s Report.
32
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
15 Related party transactions
(a) Directors
The names of persons who were Directors of the Katana Capital Limited at any time during the fi nancial year and up to the date of this
report are as follows: Mr Dalton Gooding, Mr Giuliano Sala Tenna and Mr Peter Wallace.
(b) Related party transactions
Transactions between the Parent Company and related parties noted above during the year are outlined below:
Dalton Gooding is a partner of Gooding Partners Chartered Accounting fi rm and as part of providing taxation advisory services, Gooding
Partners received $21,847 (2009: $31,250) for tax services provided.
All related party transactions are made in arms length transactions on normal commercial terms and conditions.
Outstanding balances at period end are unsecured and settlement occurs in cash.
Wholly owned group transactions
There are no transactions with companies within the wholly owned group.
16 Reconciliation of profi t/(loss) after income tax to net cash infl ow from operating activities
Profi t/(loss) for the year
Impairment of intercompany
Other noncash items
(Gains)/losses recognised on measurement to fair value of held for trading investments
(Increase)/decrease in trade and other receivables
(Increase)/decrease in fi nancial assets held for trading
(Increase) decrease in deferred tax assets
(Increase)/decrease in other assets
(Decrease)/increase in trade and other payables
(Decrease)/increase in current tax liabilities
(Decrease)/increase in deferred tax liabilities
Net cash infl ow (outfl ow) from operating activities
17 Financial risk management
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
5,308,691
(7,711,901)
-
-
(4,777,295)
524,051
(1,901,297)
-
-
756,777
30,567
1,849,420
1,790,914
-
-
7,131,860
(514,073)
7,498,704
-
-
(963,887)
48,053
(3,769,709)
1,719,047
The Group activities expose it to a variety of fi nancial risks: market risk (including price risk and interest rate risk), credit risk and liquidity risk.
The Group’s overall risk management programme focuses on ensuring compliance with the Group’s Investment Mandate and seeks to
maximise the returns derived for the level of risk to which the Group is exposed.
The Group uses derivative fi nancial instruments to alter certain risk exposures. Financial risk management is carried out by the Investment
Manager under policies approved by the Board of Directors (the Board).
The Group uses diff erent methods to measure diff erent types of risk to which it is exposed. These methods include sensitivity analysis in the
case of interest rate, foreign exchange and other price risks and ratings analysis for credit risk.
33
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
17 Financial risk management (continued)
Mandate
The Fund Manager must manage the Portfolio in accordance with guidelines for management set out in the Mandate, which may be
amended by written agreement between the Group and the Fund Manager from time to time. The Mandate provides that the Portfolio will be
managed with the following investment objectives:
to achieve a pre tax and pre expense return which outperforms the ASX All Ordinaries Index; and
the preservation of capital invested. The Mandate permits the Fund Manager to undertake investments in:
(1) listed securities;
(2) rights to subscribe for or convert to listed securities (whether or not such rights are tradeable on a securities exchange);
(3) any securities which the Fund Manager reasonably expects will be quoted on the ASX within a 24 month period from the date
of investment;
(4) listed securities for the purpose of short selling;
(5) warrants or options to purchase any investment and warrants or options to sell any investment;
(6) discount or purchase of bills of exchange, promissory notes or other negotiable instruments accepted, drawn or endorsed by any
bank or by the Commonwealth of Australia, any State or Territory of Australia, or by any corporation of at least an investment grade
credit rating granted by a recognised credit rating agency in Australia;
(7) deposits with any bank or corporation declared to be an authorised dealer in the short term money market;
(8) debentures, unsecured notes, loan stock, bonds, promissory notes, certifi cates of deposit, interest bearing accounts, certifi cates
of indebtedness issued by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or any Australian
government authority, or a corporation of at least an investment grade credit rating granted by a recognised credit rating
agency in Australia;
(9) units or other interest in cash management trusts;
(10) underwriting or sub underwriting of securities as and where permitted by relevant laws and regulations and the Fund Manager’s
AFSL; and
(11) any other investment, or investment of a particular kind, approved by the Company in writing as and where permitted by the Fund
manager’s AFSL.
The Mandate specifi es the following risk control features:
The Portfolio may comprise securities in up to 80 companies from time to time.
No investment may represent more than 12.5% of the issued securities of a company at the time of investment.
Total cumulative gearing on the Portfolio may not exceed 50% of the total value of the net tangible assets of the Group after tax.
The Fund Manager will adhere to the parameters on a per stock basis as set out in the table below unless the prior approval of the Board is
received to do otherwise.
34
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
17 Financial risk management (continued)
Portfolio composition and management
The aim of the Fund Manager is to build for the Group a portfolio of 20 to 60 companies, with an emphasis towards holding a larger number
of smaller positions. Under the current Mandate, the Group’s Portfolio may vary from between 0 to 80 securities, depending upon investment
opportunities and prevailing market conditions. The Fund Manager may construct a Portfolio comprising of any combination of cash,
investment and debt, subject to the gearing limits in the Mandate. Under the Mandate, total cumulative gearing on the Portfolio may not
exceed 50% of the total value of the net tangible assets of the Group after tax.
The capacity to short sell securities, as well as employ debt, is designed to ensure the Fund Manager has fl exibility to implement an absolute
return strategy. It should also be noted that, despite the focus on emerging and green chip companies, in periods of overly negative market or
stock sentiment, the best investment opportunities on a risk return basis are often found in the ASX S&P Index Top 20 and ASX S&P Index Top
100 stocks by market capitalisation. Often the larger stocks rebound fi rst, hence providing not just safer returns, but quicker returns.
Under the current Mandate, the following parameters will apply to individual investments unless the prior approval of the Directors is received
to do otherwise:
Minimum investment
Indicative benchmark
Maximum investment
Size of company
per security
Investment per security
ASX S&P Top 20
ASX S&P Top 100/Cash Hybrids
ASX S&P Top 500
Outside of ASX S&P Top 500/Other Instruments
1%
1%
No minimum
No minimum
5%
3%
2%
1%
per security
As a percentage
of total portfolio
12.5%
10%
7.5%
5%
Asset allocation
The Fund Manager’s allocation of the Portfolio will be weighted in accordance with various macro economic factors. These factors will
invariably impact the medium and long term Performance of the Group. These factors include:
global economy;
Australian economy and positioning within the economic cycle;
sectors within the Australian market;
phase of the interest rate cycle; and
state of the property market (eg comparative investment merit).
The Fund Manager may form views on the factors outlined above, and may re weight the Portfolio accordingly.
35
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
17 Financial risk management (continued)
(a) Market risk
(i) Price risk
The Company is exposed to equity securities and derivative securities price risk. This arises from investments held by
the Company for which prices in the future are uncertain. Where nonmonetary fi nancial instruments are denominated in currencies
other than the Australian dollar, the price in the future will also fl uctuate because of changes in foreign exchange rates. Paragraph (ii)
below sets out how this component of price risk is managed and measured. They are classifi ed on the balance sheet as held for trading.
All securities investments present a risk of loss of capital. Except for equities sold short, the maximum risk resulting from fi nancial
instruments is determined by the fair value of the fi nancial instruments. Possible losses from equities sold short can be unlimited.
The Investment Manager mitigates this price risk through diversifi cation and a careful selection of securities and other fi nancial
instruments within specifi ed limits set by the Board. The mandate specifi es that following risk control features:
The Portfolio may comprise securities in up to 80 companies from time to time:
no investment may represent more than 12.5% of the issued securities of a company at the time of investment
total cumulative gearing on the Portfolio may not exceed 50% of the total value of the net tangible assets of the Company
after tax
the Fund Manager will adhere to the parameters on a per stock basis as set out in the table below unless the prior approval of
the Board is received to do otherwise.
The aim of the Fund Manager is to build for the Company a portfolio of 20 to 60 companies, with an emphasis towards holding a
larger number of smaller positions. Under the current Mandate, the Company’s Portfolio may vary from between 0 to 80 securities,
depending upon investment opportunities and prevailing market conditions. The Fund Manager may construct a Portfolio comprising
of any combination of cash, investment and debt, subject to the gearing limits in the Mandate. Under the Mandate, total cumulative
gearing on the Portfolio may not exceed 50% of the total value of the net tangible assets of the Company after tax.
The capacity to short sell securities, as well as employ debt, is designed to ensure the Fund Manager has fl exibility to implement an
absolute return strategy. It should also be noted that, despite the focus on emerging and green chip companies, in periods of overly
negative market or stock sentiment, the best investment opportunities on a risk return basis are often found in the ASX S&P Index Top
20 and ASX S&P Index Top 100 stocks by market capitalisation. Often the larger stocks rebound fi rst, hence providing not just safer
returns, but quicker returns.
The table on page 35 summarises the impact of an increase/decrease in the Australian Securities Exchange All Ordinaries Index on the
Company’s net assets attributable to shareholders at 30 June 2010. The analysis is based on the assumptions that the index increased/
decreased by 10% (2009 10%) with all other variables held constant and that the fair value of the Company’s portfolio of equity
securities and derivatives moved according to the historical correlation with the index. The impact mainly arises from the possible
change in the fair value of listed equities, unlisted unit trusts and equity derivatives.
Foreign exchange risk
The Company does not hold any monetary and nonmonetary assets denominated in currencies other than the Australian dollar.
(ii) Interest rate risk
The Company’s interest bearing fi nancial assets expose it to risks associated with the eff ects of fl uctuations in the prevailing levels of
market interest rates on its fi nancial position and cash fl ows. The risk is measured using sensitivity analysis.
Compliance with the Company’s policy is reported to the Board on a monthly basis. The Company may also enter into derivatives
fi nancial instruments to mitigate the risk of future interest rate changes.
The table below summarises the Company’s exposure to fi nancial assets/liabilities at the balance sheet date.
Weighted Average Interest
Financial Assets
Cash and short term deposits fl oating
36
YEAR ENDED
CONSOLIDATED
Rate (% pa)
30 June 2010
30 June 2009
5.33%
5.33%
7,488,660
7,488,660
7,073,484
7,073,484
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
17 Financial risk management (continued)
(b) Summarised sensitivity analysis
The table below summarises the impact of an increase/decrease of interest rates on the Company’s operating profi t and net assets
attributable to shareholders through changes in fair value or changes in future cash fl ows. The analysis is based on the assumption that
interest rates changed by +/- 50 basis points (2009: +/- 50 basis points) from the year end rates with all other variables held constant.
The impact mainly arises from changes in the fair value of fi xed interest securities.
The following table summarises the sensitivity of the Company’s operating profi t and equity to interest rate risk and price risk. The reasonably
possible movements in the risk variables have been determined based on management’s best estimate, having regard to a number of factors,
including historical levels of changes in interest rates and historical correlation of the Company’s investments with the relevant benchmark and
market volatility. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including
unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the Company invests.
As a result, historic variations in risk variables are not a defi nitive indicator of future variations in the risk variables.
Price Risk
10%
Interest Rate Risk
+10%
50bps
+50bps
Impact on Operating Profi t/Equity
(3,067,545)
(2,405,106)
(5,472,651)
3,067,545
2,405,106
5,472,651
(85,516)
(24,016)
(109,532)
85,516
24,016
109,532
30 June 2010
30 June 2009
(c) Credit risk
Credit risk primarily arises from investments in debt securities and from trading derivative products. Other credit risk arises from cash and
cash equivalents, deposits with banks and other fi nancial institutions and amounts due from brokers. None of these assets are impaired
nor past due but not impaired
As at 30 June 2010 the Company does not hold any debt securities.
The Company does trade in Exchange Traded Options. The Investment Manager has established limits such that, at any time, such that
options are not traded without holding the physical security in the portfolio and contracts are with counterparties included in the Board’s
Approved Counterparties list. As at 30 June 2010 the Company held three Exchange Traded Options.
Compliance with the Company’s policy is reported to the Board on a monthly basis.
The maximum exposure to credit risk at the reporting date is the carrying amount of the fi nancial assets.
The majority of cash assets are held with one bank.
(d) Liquidity risk
Liquidity risk is the risk that the Company will encounter diffi culty in raising funds to meet commitments associated with fi nancial
instruments. Cash fl ow interest rate risk is the risk that future cash fl ows on a fi nancial instrument will fl uctuate because of changes in the
market interest rates.
To control liquidity and cash fl ow interest rate risk, the Company invests in fi nancial instruments which under normal market conditions
are readily convertible to cash. In addition the Company invests within the Mandate guidelines to ensure that there is no concentration
of risk.
The Company does not hold derivatives.
Financial liabilities of the Company comprise trade and other payables, distributions payable to shareholders. Trade and other payables
have no contractual maturities but are typically settled within 30 days.
37
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
17 Financial risk management (continued)
(e) Fair value measurements
The fair value of fi nancial assets and fi nancial liabilities must be estimated for recognition and measurement or for disclosure purposes.
As of 1 July 2009, Katana Capital Limited has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires
disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
(b) 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
(c)
inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3)
The following table presents the Company’s assets and liabilities measured and recognised at fair value at 30 June 2010. Comparative
information has not been provided as permitted by the transitional provisions of the new rules.
Group as at 30 June 2010
Assets
Held for trading fi nancial assets -
Equity Securities
Total assets
Group as at 30 June 2009
Assets
Held for trading fi nancial assets -
Equity securities
Total assets
Level 1
$
30,408,517
30,408,517
Level 1
$
23,441,124
23,441,124
Level 2
$
-
-
Level 2
$
-
-
Level 3
$
Total
$
266,932
266,932
Level 3
$
30,675,449
30,675,449
Total
$
406,932
406,932
24,051,056
24,051,056
The fair value of fi nancial instruments traded in active markets (such as publicly traded derivatives, and trading and availableforsale
securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for fi nancial assets held by
the Company is the current bid price. These instruments are included in level 1.
The fair value of fi nancial instruments that are not traded in an active market (for example, overthecounter derivatives) is determined
using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing
at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for
longterm debt for disclosure purposes. Other techniques, such as estimated discounted cash fl ows, are used to determine fair value for
the remaining fi nancial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash
fl ows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period.
These instruments are included in level 2 and comprise debt investments and derivative fi nancial instruments. In the circumstances where
a valuation technique for these instruments is based on signifi cant unobservable inputs, such instruments are included in level 3.
38
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
17 Financial risk management (continued)
(e) Fair value measurements (continued)
The following table presents the changes in level 3 instruments for the year ended 30 June 2010:
Group
Opening balance
Transfer into level 3
Other increases
Gains recognised in other comprehensive income
Loss recognised in profi t or loss
Closing balance
Total loss for the period included in profi t or loss that relate to assets held at the end of the reporting period
The following table presents the changes in level 3 instruments for the year ended 30 June 2009:
Group
Opening balance
Transfer into level 3
Other increases
Gains recognised in other comprehensive income
Loss recognised in profi t or loss
Closing balance
Total loss for the period included in profi t or loss that relate to assets held at the end of the reporting period
Total
$
406,932
-
-
-
(140,000)
266,932
(140,000)
Total
$
820,115
-
-
-
(413,183)
406,932
(413,183)
18 Segment information
For management purposes, the Group is organised into one main operating segment, which invests in equity securities, debt instruments,
and related derivatives. All of the Group’s activities are interrelated, and each activity is dependent on the others. Accordingly, all signifi cant
operating disclosures are based upon analysis of the Group as one segment. The fi nancial results from this segment are equivalent to the
fi nancial statements of the Group as a whole.
The Group operates from one geographic location, being Australia, from where its investing activities are managed.
The Group does not derive revenue of more than 10% from any one of its investments held.
39
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
19 Earnings per share
(a) Basic earnings per share
Loss from continuing operations attributable to the ordinary equity holders of the company
There are no dilutive securities on issue as at 30 June 2010.
(b) Reconciliations of earnings used in calculating earnings per share
Basic earnings per share
Loss from continuing operations
Loss attributable to the ordinary equity holders of the company used in calculating basic
earnings per share
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
Cents
Cents
12.89
-
(18.53)
-
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
5,308,691
(7,711,901)
5,308,691
(7,711,901)
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
Number
Number
(c) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
41,177,638
41,620,466
Adjustments for calculation of diluted earnings per share:
Options
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
-
-
41,177,638
41,620,466
Basic earnings per share amounts are calculated by dividing the net profi t attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profi t attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on
conversion of all the dilutive potential ordinary shares into ordinary shares.
There are no dilutive securities on issue as at 30 June 2010.
20 Events occurring after the reporting period
A fi nal fully franked dividend of 1.25 cents per share for the 30 June 2010 fi nancial year has been declared by the Group. The Directors note
that other than the dividend declaration, the Directors are not aware of any matter or circumstance that has signifi cantly or may signifi cantly
aff ect the operations of the Group or the results of those operations, or the state of aff airs of the Group in subsequent fi nancial years.
40
21 Remuneration of auditors
(a) Audit services
Ernst & Young Australia
Audit and review of fi nancial reports
Total remuneration for audit services
(b) Nonaudit services
Other services
Other services
Total remuneration for nonaudit services
Total auditors’ remuneration
22 Dividends
Final dividend for the year ended 30 June 2009 of 0.005 cents (2008 1.00 cents) per fully
paid share paid on 17 December 2009 (2008 20 November 2008)
Fully franked (2008 30% franked) based on tax paid @ 30% 0.005 cents
(2008 1.0 cents interim) per share
Interim dividend for the year ended 30 June 2010 of 0.015 cents (2009 nil cents) per fully
paid share (2010 paid 19 April 2010)
Total dividends provided for or paid
Dividends paid in cash or satisfi ed by the issue of shares under the dividend reinvestment
plan during the years ended 30 June 2010 and 2009 were as follows:
Paid in cash
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
45,500
45,500
45,500
45,500
-
-
-
-
45,500
45,500
YEAR ENDED
PARENT ENTITY
30 June 2010
30 June 2009
$
$
207,472
416,848
614,024
821,496
614,024
-
614,024
-
416,848
416,848
416,848
YEAR ENDED
CONSOLIDATED
30 June 2010
30 June 2009
$
$
Franking credits available for subsequent fi nancial years based on a tax rate of 30% (2009: 30%)
530,805
487,495
The above amounts represent the balance of the franking account as at the reporting date, adjusted for:
(a) franking credits that will arise from the payment of the amount of the current tax liability;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date;
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and
(d) franking credits that may be prevented from being distributed in subsequent fi nancial years.
41
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Notes to the
Financial Statements
30 JUNE 2010
23 Parent entity fi nancial information
Balance sheet
Current assets
Noncurrent assets
Total assets
Current liabilities
Shareholders’ equity
Contributed equity
Option premium reserve
Accumulated loss
Profi t or loss for the year
Total comprehensive income
Investment in controlled entity at cost
AT
PARENT ENTITY
2010
$
2009
$
38,478,836
834,334
39,313,170
1,200,449
39,526,993
101,100
(1,515,290)
38,112,803
5,308,690
5,308,690
31,993,886
2,683,755
34,677,641
497,872
40,081,234
101,100
(6,002,562)
34,179,772
(7,711,900)
(7,711,900)
The investment in the controlled entity is for 100% of the issued capital of Kapital Investments (WA) Pty Ltd.
Tax consolidation legislation
Katana Capital Limited and its whollyowned Australian controlled entities implemented the tax consolidation legislation from 1 July 2007.
(i) Members of the tax consolidated Group and the tax sharing arrangement.
Katana Capital Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated Group from 1 July 2007. Katana
Capital Limited is the head entity of the tax consolidated Group. Members of the Group have entered into a tax sharing agreement that
provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.
No amounts have been recognised in the fi nancial statements in respect of this agreement on the basis that the possibility of default is
remote. (see note 3).
(ii) Tax eff ect accounting by members of the tax consolidated Group
Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary diff erenced are recognised in the separate
fi nancial statements of the members of the tax consolidated Group using the Group allocated method. Current tax liabilities and assets
and deferred tax assets arising from the unused tax losses and tax credits of the members of the tax consolidated Group are recognised by
Katana Capital Limited, the head entity of the tax consolidated Group.
Members of the tax consolidated Group has entered into a tax funding agreement. Amounts are recognised as payable to or receivable
by the Company and each member of the consolidated Group in relation to tax contribution amounts paid or payable between the
parent entity and other members of the tax consolidated Group in accordance with this agreement. Where the tax contribution amount
recognised by each member of the tax consolidated Group for a particular period is diff erent to the aggregate of the current tax liability or
asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the distribution is recognised as a
contribution from (or distribution to) equity participants.
Commitments and contingencies
There are no contingent liabilities or commitments as at 30 June 2010 (2009: nil).
42
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
24 Commitments and contingencies
There are no contingent liabilities or contingent assets as at 30 June 2010 (2009: nil).
Katana Capital Limited has entered into 10 year Management Agreement with the Fund Manager, Katana Asset Management Ltd. Under the
terms of the contract the Fund Manager the Manager us obliged to manage the investment portfolio on behalf of Katana Capital Limited. A
Management fee is payable to the manager as follows:
the Fund Manager will receive a monthly management fee equal to 0.104167% of the portfolio value calculated at the end of the month
performance fee to be paid in respect of each performance calculation period of 18.5% of the amount by which the Fund Manager
outperforms the ASX All Ordinaries during the calculation period ( calculated annually for the 12 month period ending 30 June ).
43
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Katana Capital Limited
Directors’ declaration
30 JUNE 2010
In accordance with a resolution of the directors of Katana Capital Limited, I state that:
In the opinion of the directors:
(a) The fi nancial statements and notes of the consolidated entity set out on pages 16 to 43 are in accordance with the Corporations Act 2001,
including:
(i) Giving a true and fair view of the consolidated entity’s fi nancial position as at 30 June 2010 and of its performance for the year ended
on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001;
(b) the fi nancial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2 (b)
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
(d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A
of the Corporations Act 2001 for the fi nancial year ending 30 June 2010
On behalf of the Board
Katana Capital Limited
Giuliano Sala Tenna
Director
22 September 2010
Perth, Western Australia
44
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Independent auditor’s report to the
members of Katana Capital Limited
30 JUNE 2010
Ernst & Young Building
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
www.ey.com/au
Report on the Financial Report
We have audited the accompanying fi nancial report of Katana Capital Limited, which comprises the statement of fi nancial position
as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash fl ows for the
year ended on that date, a summary of signifi cant accounting policies, other explanatory notes and the directors’ declaration of the
consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the fi nancial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the fi nancial report in accordance with the
Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility
includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the fi nancial report that is
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with
Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the fi nancial report,
whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair
presentation of the fi nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the eff ectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the fi nancial report.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
45
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Independent auditor’s
report to the members
of Katana Capital Limited
30 JUNE 2010
Independence
In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the
company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.
Auditor’s Opinion
In our opinion:
1.
the fi nancial report of Katana Capital Limited is in accordance with the Corporations Act 2001, including:
i
ii
giving a true and fair view of the consolidated entity’s fi nancial position at 30 June 2010 and of its performance for the year ended
on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001.
2.
the fi nancial report also complies with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 10 to 12 of the directors’ report for the year ended 30 June 2010. 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.
Auditor’s Opinion
In our opinion the Remuneration Report of Katana Capital Limited for the year ended 30 June 2010 complies with section 300A of the
Corporations Act 2001.
Ernst & Young
C B Pavlovich
Partner
Perth
23 September 2010
46
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Corporate Governance Statement
The Board of Directors of Katana Capital Limited (Katana) is responsible for the corporate governance of the consolidated entity. The Board guides
and monitors the business and aff airs of Katana on behalf of the shareholders by whom they are elected and to whom they are accountable.
In accordance with the ASX Corporate Governance Council’s corporate governance guidelines contained in Corporate Governance Principles and
Recommendations (Second Edition Corporate Governance Guidelines), the Katana Corporate Governance Statement contains certain specifi c
information and discloses the extent to which the Company has followed the guidelines during the period. Where a recommendation has not
been followed it is disclosed together with reasons for the departure.
The Katana Corporate Governance Statement is structured with reference to the Second Edition Corporate Governance Guidelines, which are
as follows:
Principle 1
Lay solid foundations for management and oversight
Principle 2
Structure the board to add value
Principle 3
Promote ethical and responsible decision making
Principle 4
Safeguard integrity in fi nancial reporting
Principle 5
Make timely and balances disclosure
Principle 6
Respect the rights of shareholders
Principle 7
Recognise and manage risk
Principle 8
Remunerate fairly and responsibly
For further information on corporate governance policies adopted by Katana, refer to our website www.katanacapital.com.au
47
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Corporate Governance
Statement
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
1.1
Establish and disclose the functions
reserved to the Board and those delegated
to senior executives
✓
The Board has a Corporate Governance Statement which outlines
the role and duties of the Board.
The Company considers that the primary responsibility of the Board
is to oversee the Company’s business activities and management for
the benefi t of the shareholders by:
(a) supervising the Company’s framework of control and
accountability systems to enable risk to be assessed and
managed which includes but is not limited to the points
noted below:
(b) ensuring the Company is properly managed by:
(i) setting and communicating clear objectives;
(ii) appointing and removing the Managing Director of
the Company;
(iii) ratifying the appointment and, where appropriate,
the removal of the Chief Financial Offi cer and the
Company secretary;
(iv) input into and fi nal approval of management’s development
of corporate strategy and performance objectives;
(v) reviewing and ratifying systems of risk management
and internal compliance and control, codes of conduct,
and legal compliance;
(vi) monitoring senior management’s performance and
implementation of strategy, and ensuring appropriate
resources are available;
(c) approving and monitoring the progress of major capital
expenditure, capital management, and acquisitions
and divestitures;
(d) approval of the annual budget;
(e) monitoring the fi nancial performance of the Company;
(f ) approving and monitoring fi nancial and other reporting;
(g) overall corporate governance of the Company, including
conducting regular reviews of the balance of responsibilities
within the Company to ensure division of functions remain
appropriate to the needs of the Company;
(h) liaising with the Company’s external auditors either directly or
via the Audit Committee as appropriate; and
(i) monitoring, and ensuring compliance with, all of the Company’s
legal obligations, in particular those obligations relating to the
environment, native title, cultural heritage and occupational
health and safety.
Katana does not employ a Chief Executive Offi cer or Managing
Director, but instead has a Fund Manager that is responsible for
the Investment Risk Management and management of the equity
Portfolio. The Fund Manager is responsible for running the aff airs
of the Company under delegated authority from the Board and to
implement the policies and strategy set by the Board. In carrying out
their responsibilities the Fund Manager must report to the Board in a
timely manner and ensure all reports to the Board present a true and
fair view of the Company’s fi nancial condition and operational results.
Matters which are not covered by the delegations require
Board approval.
The Corporate Governance Statement is available on the Company’s
website in the Corporate Governance section.
48
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Principle
Corporate Governance best
practice recommendation
1.2
Disclose the process for evaluating the
performance of senior executives
1.3
1.3.1
1.3.2
2.1
2.2
2.3
2.4
2.5
Provide the following information in the
annual report:
An explanation of any departure from
recommendations 1.1, 1.2 and 1.3
Whether a performance evaluation for senior
executives has taken place in the reporting
period and whether it was in accordance with
the process disclosed.
A majority of the Board should be
independent directors
The chairperson should be an
independent director
The roles of chairperson and chief
executive offi cer should not be exercised
by the same individual
The Board should establish a
nomination committee
The process for evaluating the performance of
the Board, its committees and individual directors
should be disclosed.
Compliance How we comply
✓
✓
✓
✗
✓
✗
✓
There are no senior executives in the Company, however the board
reviews the performance of the Fund Manager in accordance with
the Mandate. Refer to Annual Report for Katana’s mandate with the
Fund Manager.
Not applicable.
Refer 1.2, performance of the Fund Manager is reviewed by the
board in accordance with the Fund Manager’s Mandate.
The majority of the Board is independent where an independent
director is a non-executive director who meets the criteria for
independence included in the ASX Best Practice Recommendations.
The company currently has 2 out 3 of its directors classifi ed as
independent directors.
The Chairman, Mr Gooding as noted above in 2.1 does not meet the
Governance Council’s independence criteria, however the board
believes that Mr Gooding will at all times act independently and
discharge his duties for the benefi t of all shareholders.
Mr Gooding is not strictly independent as noted above due to him
being a Partner of Chartered Accounting fi rm Gooding Partners,
which from time to time provides professional tax advice as required
on a commercial basis, for further information refer to the related
party note in the accounts. This is not considered to be a material
transaction for Mr Gooding.
As noted in 1.1 & 1.2 above Katana does not employ a Chief
Executive Offi cer but instead has a Mandate with the Fund Manager
which covers some of the functions a traditional Chief Executive
Offi cer would ordinarily perform. The Chairman, Mr Dalton Gooding,
facilitates the relationship between the Board and the Fund Manager.
The Board does not have a Nomination Committee. The duties of
such committee have been considered and adopted by the full Board.
The Company does not have a documented procedure for the
selection and appointment of directors. The Board informally reviews
the skill set of and market expectations for its directors on a regular
basis and considers these factors when appointing / re-electing
directors. The Board invites persons with relevant industry experience
and fi nancial experience to assist it in its appointment of directors.
The Company does not have a documented procedure for the
evaluating the performance of the Board, its committees and directors.
An evaluation of the performance of the Board and its directors is
undertaken informally each year. The Chairman of the Board is the
driver of this process. This year the Chairman conducted interviews
with each director.
The evaluation of the performance of the Board’s various committees
is undertaken on an exception basis. This is also an informal process
which is driven by the Chairman of the Board.
49
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Corporate Governance
Statement
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
2.6
2.6.1
2.6.2
2.6.3
2.6.4
2.6.5
2.6.6
2.6.7
Provide the following information in the
annual report:
The skills, expertise and experience relevant to
the position of director held by each director in
offi ce at the date of the annual report
The names of the directors considered by the
Board to be independent directors and the
Company’s materially thresholds
A statement as to whether there is a procedure
agreed by the Board of directors to take
independent professional advice at the expense
of the Company
The Board should state its reasons if it considers
a director to be independent notwithstanding
that the director does not meet the defi nition of
independence contained in the ASX Guidelines
The period of offi ce held by each director in
offi ce at the date of the annual report
The names of members of the nomination
committee and their attendance at meetings of
the committee
Whether a performance evaluation for the Board,
its committees and directors has taken place
in the reporting period and whether it was in
accordance with the process disclosed
2.6.8
An explanation of any departure from
recommendations 2.1, 2.2, 2.3, 2.4 and 2.5
The following material should be made publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
(a) a description of the procedure for the
selection and appointment of new directors
to the Board
(b) the charter of the nomination committee
or a summary of the role, rights,
responsibilities and membership
requirements for the committee
(c) the nomination committee’s policy for the
appointment of directors
✓
✓
✓
✓
✓
✓
✓
✗
✗
✗
Provided in the Annual Report.
Provided in the Annual Report.
Individual directors have the right in connection with their duties
and responsibilities as directors to seek independent professional
advice at the Company’s expense. The engagement of an outside
adviser is subject to prior approval of the Chairman and this will not
be withheld unnecessarily. If appropriate, any advice so received will
be made available to all Board members.
Refer above at 2.2.
Provided in the Annual Report.
Provided in the Annual Report.
An evaluation of the Board, its committees and directors was
undertaken and was in accordance with the process disclosed at 2.5.
Refer to comments at 2.1 and 2.2.
Refer 2.4 - The Board informally reviews the skill set of and market
expectations for its directors on a regular basis and considers these
factors when appointing / re-electing directors. The Board invites
persons with relevant industry experience and fi nancial experience
to assist it in its appointment of directors.
Refer 2.4
Refer 2.4
50
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
3.1
Establish a code of conduct and disclose the
code or a summary of the code as to:
(a) the practices necessary to maintain
confi dence in the Company’s integrity;
(b) the practices necessary to take into account
their legal obligations and the reasonable
expectations of their stakeholders;
(c) the responsibility and accountability of
individuals for reporting and investigating
reports of unethical practices;
3.2
Establish a policy concerning trading in
Company securities by directors, senior
executives and employees and disclose the
policy or a summary of the policy
3.3
3.3.1
Provide the following information in the
annual report:
An explanation of any departure from
recommendations 3.1, 3.2 and 3.3
The following material should be made publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
(a) any applicable code of conduct or a
summary of its main provisions
(b) the trading policy or summary of its
main provisions
4.1
The Board should establish an audit committee
✓
✓
✓
✓
✓
✓
✓
✓
✓
The Company has implemented a suite of policies including a Code
of Business Conduct which provides guidelines aimed at maintaining
high ethical standards and corporate behaviour. The principals of the
policies include:
•
•
•
•
•
Respect the law and act in accordance with it;
Respect confi dentiality and not misuse company information,
assets or resources;
Avoid real or perceived confl icts of interest;
Act in the best interest of stakeholders; and
Perform their duties in ways that minimise environmental
impacts and maximise workplace safety.
Directors and employees are expected to comply with all Company
policies and to act professionally with integrity, honesty and
responsibility at all times.
The Company’s security trading policy imposes basic trading
restrictions on all directors and offi cers (including the Fund Manager)
of the Company with “inside information” and additional trading
restrictions on the directors of the Company. “Inside information” is
information that:
•
•
Is not generally available; and
If it were generally available, it would, or would be likely to
infl uence investors in deciding whether to buy or sell the
Company’s securities.
Directors and employees are prohibited from trading in the
Company’s securities where they possess information which is not
generally available and that information, if readily available, may
have a material eff ect on the share price of the Company. Further,
directors, offi cers and employees involved in the preparation and
release of fi nancial statements may not trade in the company’s
securities for the period commencing four weeks prior to the
announcement of the results.
Not applicable
The Code of Conduct is available on the Company’s website in the
Shareholder Corporate Governance section.
The Share Trading Policy on Dealing Rules for Employees and
Directors is available on the Company’s website in the Corporate
Governance section.
The Audit, Compliance and Risk Committee assists the Board to meet
its oversight responsibilities in relation to the Company’s fi nancial
reporting, internal control structure, risk management procedures
and the internal and external audit function. In doing so, it is the
Audit and Risk Committee’s responsibility to maintain free and open
communications between the Committee, the external auditors, the
internal auditors and the management of the Company.
51
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Corporate Governance
Statement
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
4.2
Structure the audit committee so that it
consists of:
The committee complies with the structure as required by the Best
Practice Recommendation 4.2.
4.3
4.4
a) only non-executive directors
b) majority of independent directors
c)
independent chairperson, who is not the
chairperson of the Board
d) at least three members
The audit committee should have a
formal charter
Provide the following information in the
annual report:
(a) Details of the names and qualifi cations
of those appointed to the audit
committee and their attendance at
meetings of the committee
(b) The number of meetings of the
audit committee
The following material should be made publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
(a) the audit committee charter
(b) information on procedures for the selection
and appointment of the external auditor,
and for the rotation of external audit
engagement partners
5.1
Establish written policies and procedures
designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure
accountability at a senior executive level for that
compliance. These policies or a summary of the
policies should be disclosed.
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
52
The Audit, Compliance and Risk Committee Charter is available on
the Company’s website in the Corporate Governance section.
Refer to Director’s Report
Refer to Director’s Report
The charter of the Audit, Compliance and Risk Committee is available
on the Company’s website in the Corporate Governance section.
The committee manages the relationship between the Company
and external auditor on behalf of the Board. It recommends to
the Board potential auditors for appointment, re-appointment or
replacement, the terms of engagement and remuneration of the
external auditor.
The Company’s continuous disclosure policy has been adopted
to ensure compliance with obligations under the continuous
disclosure regime of the Corporations Law and the Listing Rules
of the Australian Stock Exchange Limited and to ensure that all
Katana shareholders have access to material information about the
Company and its prospects.
The disclosure obligations include:
•
•
All employees, Company offi cers and Directors must comply
with the ASX Listing Rules and Corporations Law provisions
relating to a timely disclosure of price sensitive information
to the ASX. The Company does this by releasing written
announcements to the ASX.
The Fund Manager together with the board are accountable
for the establishment, communication and maintenance of
this policy and ensuring that material information is disclosed
to the ASX.
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
5.2
5.2.1
5.2.2
6.1
6.2
6.2.1
6.2.2
Provide the following information in the
annual report:
An explanation of any departures from
recommendations 5.1and 5.2 and reasons for
the departure
The following material should be publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
•
A summary of the policies and procedures
designed to guide compliance with Listing
Rule disclosure requirements
Design and disclose a communications
strategy to promote eff ective communication
with shareholders and encourage eff ective
participation at general meetings
✓
✓
Not applicable.
The Company’s Shareholder Communications Policy is available on
the Company’s website in the Corporate Governance section.
The Company places considerable importance on eff ective
communications with shareholders and other stakeholders. Katana’s
communication strategy requires communication with shareholders
and other stakeholders in an open, regular and timely manner
so that the market has suffi cient information to make informed
investment decisions on the operations and results of the company.
The strategy provides for the use of systems that ensure a regular
and timely release of information about the company is provided to
shareholders. Mechanisms employed include:
•
Announcements lodged with ASX;
• Half Yearly Report
• Monthly Net Tangible Asset Backing ASX disclosure;
•
•
•
•
Presentations at the Annual General Meeting;
Annual Report
Promote eff ective communication with shareholders; and
Encourage shareholder participation at AGMs.
Provide the following information in the
annual report:
An explanation of any departures from
recommendation and reasons for the departure
Not applicable.
The Company should describe how it will
communicate with its shareholders publically,
ideally by posting this information on the
company’s website in a clearly marked corporate
governance section.
✓
The Company’s Shareholder Communications Policy is available on
the Company’s website in the Corporate Governance section.
53
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Corporate Governance
Statement
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
7.1
The Company should establish policies on risk
oversight and management.
✓
The Board should require management to
design and implement the risk management
and internal control system to manage the
company’s material risks and report to it
on whether those risks are being managed
eff ectively. The Board should disclose that
management has reported to it as to the
eff ectiveness of the company’s management
of its material business risks.
The Board should disclose whether it has received
assurance from the Chief Executive Offi cer and
the Chief Financial Offi cer that the declaration
provided in accordance with section 295A of the
Corporations Act is founded on a sound system
of risk management and internal control and that
the system is operating eff ectively in all material
respects in relation to fi nancial reporting risks
Provide the following information in the
annual report:
An explanation of any departures from
recommendations 7.1, 7.2, 7.3 and 7.4 and
reasons for the departure
Whether the Board has received the report from
management under recommendation 7.2
Whether the Board has received assurance from
the Chief Executive Offi cer and Chief Financial
Offi cer under recommendation 7.3
The following material should be made publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
•
a summary of the Company’s policies on
risk oversight and management of material
business risks
✓
✓
✓
✓
✓
7.2
7.3
7.4
7.4.1
7.4.2
7.4.3
54
The Company is committed to the identifi cation; monitoring and
management of risks associated with its business activities and has
embedded in its management and reporting systems a number
of risk management controls. The Fund Manager is charged with
implementing appropriate risk management systems within the
Company and in particular with the investment process.
The Board monitors and receives advice on areas from the Fund
Manager on operational and fi nancial risk, and considers strategies
for appropriate risk management arrangements. The Fund Manager
has an Investment Committee that meets on a regular basis to
analyse, monitor and review the investment portfolio.
Specifi c areas of risk identifi ed initially and which will be regularly
considered at Board meetings include fi nancial performance,
performance of portfolio, compliance within regulatory framework,
markets, statutory compliance and continuous disclosure
obligations. The Fund Manager has its own Investment Committee
that regularly reviews the Company’s portfolio and reviews the
performance of individual stocks. The Investment Committee also
makes recommendations on signifi cant investments and conducts
its own research to assist with this process.
The annual report details material fi nancial and investment
risks which arose during the reporting period (see notes to
fi nancial statements).
As part of the reporting process the Fund Manager has provided
the Board prior to the Board approving the annual and half-yearly
accounts, a written statement that the integrity of the fi nancial
statements (as per ASX Recommendation 4.1) are founded on a
system of risk management and internal compliance and control
which implements the Board’s policies and the Company’s risk
management and internal control system is operating effi ciently
and eff ectively in all material matters.
The Board has received assurance from the Fund Manager that the
s295A declaration is founded on a sound system of risk management
and internal control and the system is operating eff ectively in all
material respects in relation to fi nancial risks.
Not applicable.
The Board has received the report from the Fund Manager pursuant
to recommendation 7.2 and periodically receives and reviews a
summary of signifi cant risks.
The Board has received the assurance in accordance with
recommendation 7.3
The charter of the Audit and Risk Committee is available on the
Company’s website in the Corporate Governance section.
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Principle
Corporate Governance best
practice recommendation
Compliance How we comply
8.1
8.2
8.3
8.3.1
8.3.2
8.3.3
The Board should establish a
remuneration committee
Companies should clearly distinguish the
structure of non-executive directors’
remuneration from that of executive directors
and senior executives
Provide the following information in the
annual report:
the names of the members of the remuneration
committee and their attendance at meetings
of the committee, or where the Company does
not have a remuneration committee, how the
functions of a remunerations committee are
carried out
the existence and terms of any schemes for
retirement benefi ts, other than superannuation,
for non-executive directors
An explanation of any departures from
recommendation 8.1, 8.2 and 8.3 and reasons
for the departure
The following material should be made publicly
available, ideally on the Company’s website in a
clearly marked corporate governance section:
(a) the charter of the remuneration committee
or a summary of the role, rights,
responsibilities and membership
requirements for that committee;
(b) a summary of the company’s policy on
prohibiting entering into transactions
in associated products which limit the
economic risk of participating in unvested
entitlements under any equity-based
remuneration schemes.
✗
✓
As the company does not presently have any employees including
employment of a Managing Director and Senior Executives there is
no requirement for remuneration committee
Refer Director’s Report
✗
Refer 8.1
✓
Refer Director’s Report
Not applicable
Refer 8.1
The Company does not enter into transactions in associated
products which limit the economic risk of participating in unvested
entitlements under any equity-based remuneration schemes.
✗
✓
55
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
Additional ASX Information
KATANA CAPITAL LIMITED
ORDINARY FULLY PAID SHARES (TOTAL) As of 31 Aug 2010
Range of Shares
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 9,999,999,999
Rounding
Total
Total holders
20
46
134
309
71
580
Shares
5,349
187,454
1,108,351
11,767,484
27,634,481
% of Issued Capital
0.01
0.46
2.72
28.91
67.89
0.01
40,703,119
100.00
Unmarketable Parcels
Minimum $ 500.00 parcel at $ 0.00 per unit
Minimum Parcel Size
0
Holders
0
Units
0
56
CHAIRMAN’S
LETTER
INVESTMENT
REPORT
DIRECTORS’
REPORT
FINANCIAL
STATEMENTS
CORPORATE
GOVERNANCE
STATEMENT
ASX ADDITIONAL
INFORMATION
01
02
06
15
47
56
Katana Capital will combine its listed investment company
structure with the proven ability of its Manager (“Katana
Asset Management Ltd”) to provide investors with access to
comprehensive investment techniques aimed at providing
strong capital and income returns.
The Company and the Manager share similar investment
philosophies. The role of the Company is to assess and monitor
the Manager and liaise with the Manager with respect to
its Mandate as detailed in the Management Agreement. In
addition, the Company will seek to identify appropriate
investment opportunities for review by the Manager.
Our investment philosophy
As an ‘All Opportunities’ fund, the underlying goal of the Manager is to assess the risk adjusted
return of every potential opportunity identifi ed by the Manager. The Manager’s intended
approach includes selectively and modestly taking higher-risk positions, provided that the
potential return exceeds the additional risk – preferably in terms of both value and time.
Whilst the Manager intends to combine the best principles of value investing, fundamental and
technical analysis, it does not wish to be constrained by the constructs of any one approach. The key
to the long-term success of the Company is seen as the capacity of the Manager to integrate the
best principles of each discipline with the extensive and varied experiences of the Manager.
This is achieved by encouraging fl exibility and adaptability, but within the confi nes of an overall
framework that controls risk.
Corporate Directory
Katana Capital Limited
ABN 56 116 054 301
Directors
Dalton Gooding
Peter Wallace
Giuliano Sala Tenna
Company Secretary
Gabriel Chiappini
Registered Offi ce
Level 36, Exchange Plaza
2 The Esplanade
Perth, Western Australia 6000
Telephone
Facsimile
(08) 9326 7672
(08) 9326 7676
www.katanacapital.com.au
Share Registry
Computershare Investor Services Pty Ltd
Level 2 45 St George’s Terrace,
Perth WA 6000
Telephone
Facsimile
(08) 9323 2000
(08) 9323 2033
Auditor
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
PERTH WA 6000
ASX Code: KAT
Top 20 shareholders
KATANA CAPITAL LIMITED
Top 20 Holders
Rank Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
HOPERIDGE ENTERPRISES PTY LTD
WONDER HOLDINGS PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
CLASSIC CAPITAL PTY LTD
VERNON CHARLES WHEATLEY + JOYCELYN EDITH WHEATLEY
COOLAH HOLDINGS PTY LTD
TAXA JUNO NOMINEES PTY LTD
MR ROMANO SALA TENNA + MRS LINDA SALA TENNA
BS CAPITAL PTY LTD
MR BRAD JOHN SHALLARD + MRS LISA MAREE DUPEROUZEL
MR STEPHEN JAMES LAMBERT + MRS RUTH LYNETTE LAMBERT + MR SIMON LEE LAMBERT
MRS LINDA SALA TENNA
UNITING CHURCH IN AUSTRALIA PROPERTY TRUST (WA)
CAMBO INVESTMENTS PTY LTD
MR LAWRENCE HENRY DA SILVA
KEFIR PTY LTD
METHUEN HOLDINGS PTY LTD
COLLORI PTY LTD
S & M O’REILLY PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
KATANA CAPITAL LIMITED
2010 ANNUAL REPORT
As at 28 September 2010
Shares
2,500,000
2,349,144
2,182,533
1,121,183
1,070,577
1,010,000
830,000
811,522
746,955
706,722
681,165
533,897
523,419
500,000
500,000
500,000
500,000
400,000
400,000
400,000
% of Shares
6.18
5.81
5.39
2.77
2.65
2.50
2.05
2.01
1.85
1.75
1.68
1.32
1.29
1.24
1.24
1.24
1.24
0.99
0.99
0.99
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)
Total Remaining Holders Balance
18,267,117
22,188,889
45.15
54.85
57
2010 ANNUAL REPORT
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