2 0 1 6 A n n u A l r e p o r t Corporate Directory Katana Capital Limited ABN 56 116 054 301 Board of Directors Mr Dalton Gooding Chairman, Non-Executive Director Mr Peter Wallace Non-Executive Director Mr Giuliano Sala Tenna Non-Executive Director Mr Gabriel Chiappini Company Secretary Solicitors Steinepreis Paganin Level 4, The Read Buildings 16 Milligan Street Perth WA 6001 Auditors Ernst & Young 11 Mounts Bay Road Perth WA 6000 Share Registry Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth WA 6000 Registered Office Level 9, The Quadrant Building 1 William Street Perth WA 6000 Stock Exchange ASX Limited 152-158 St Georges Terrace Perth WA 6000 ASX Code: KAT 02Investment report05DIrectors’ report13auDItor’s InDepenDence DeclaratIon14FInancIal statements43aDDItIonal asX InFormatIon44aDDItIonal asX reportIng Katana Capital combines 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 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. 01 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 identified by the Manager. The Manager’s 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 flexibility and adaptability, but within the confines of an overall framework that controls risk. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Katana Outperformance vs All Ords Index AvERAgE 02 YEAR EnDing 30 JunE 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Katana Gross Investment Return All Ords Index Relative performance % % % 9.20 49.03 -6.41 -23.57 24.54 19.10 -11.19 8.84 26.79 -2.28 4.63 6.90 25.36 -15.49 -25.97 9.55 7.75 -11.25 15.47 12.70 1.29 -2.58 2.30 23.67 9.08 2.40 14.99 11.35 0.06 -6.63 14.09 -3.57 7.21 TOP 10 HOLDingS % 3 3 4 . n W C % 1 9 . 3 Z n A % 2 3.3 PL W STO P Percentage of portfolio valuation AS AT 30 JUNE 2016 C A S H & E q u i v A L E n T S R E m Ainin g EquiTiES 4 % 3.19 % 2.5 8 % C n 2 . 4 B W X 2 . 4 1 % S F R n A B 2 . 3 5 % S32 2.13% HFA 2.12% Financial StatementSKatana capital limited 2016 AnnuAl RepoRt I n v e s t m e n t r e p o r t 03 Katana Asset management ltd (‘the manager’) has completed a report on the performance of Katana Capital limited’s portfolio for the 12 months to 30 June 2016. FY16 financial year review The All Ordinaries Index started FY16 at 5,451.2 points and fell by 2.58% during the course of the year to close at 5,310.4 points on 30 June 2016. FY16 was characterised as another year of low global growth during which the US Federal Reserve commenced its interest rate hiking cycle and concern about the level of bad debts in the Chinese and Italian banking systems increased. Subsequent to the financial year end, the UK voted to leave the European Union (‘Brexit’) in July 2016. Katana outperformed its benchmark by 7.21% with a positive (gross) return of 4.63%. This extended its track record of outperformance to nine out of the past eleven years since the Fund’s inception (before fees and taxes). A summary of the Fund’s returns compared to the All Ords Index is shown in the table (left). The Manager continued to hold between 50-60 individual stock positions and a high level of cash over FY16. The Manager is committed to maintaining a diversified portfolio, which it believes, provides better risk adjusted returns compared to achieving that same outcome with a concentrated portfolio. The bar chart (left) illustrates the Manager’s track record of outperformance in each of the past eleven years together with its average level of outperformance over this period. The Manager increased the Fund’s holdings in large energy and mining stocks in FY16 and reduced its overweight tilt to financials. These changes are represented in the top 10 stocks, which now also include two consumer stocks. All of the top 10 companies have strong balance sheets and produce robust cash flows. The top 10 holdings as at 30 June 2016 are shown in the pie chart (left). outlook The world remains in a low global growth environment despite significant monetary stimulus being injected by many of the world’s central banks. Growth in the US economy does appear to be recovering slowly and interest rates should continue to normalise over the next several years. Europe and Japan have implemented very accommodative monetary policy, which has resulted in bond yields trading at negative rates. Despite this, growth in these geographies remains tepid; unemployment is only declining slowly; and inflation remains well below central bank targets. China is trying to rebalance its economy away from fixed asset investment and more towards consumer expenditure and despite it having some success, there is concern over the high level of bad debts in its financial system. Australia continues to grow at a sub-trend pace with the lower Australian dollar assisting non-mining sectors such as tourism, education and agricultural production as it transitions away from mining investment. Demand is being driven by the emerging middle classes in China and other Asian countries. This region contains some 40% of the world’s population and should continue to increase demand for a broad range of products and services for many years to come. As an example, seven of the top 10 sources of Australian inbound tourism are from Asia and there is a similar theme occurring in education. Low interest rates have facilitated strong growth in housing demand although new home approvals are currently peaking. Healthcare services are also growing strongly aided by an ageing population. Volume growth in liquefied natural gas (LNG) and iron ore exports are also partly offsetting the decline in commodity prices. The low growth environment is providing a tailwind to companies in the form of lower interest rates and lower input costs, which is being partly offset by reduced consumption growth due to an ageing population and lower immigration. In addition, technological change is disrupting traditional business models and in many cases, reducing operating margins. This issue and the associated uncertain outlook has resulted in many companies cutting back on investment and instead simply using any excess funds to pay higher dividends and/or to buy back shares. Katana Capital limited 2016 AnnuAl RepoRt I n v e s t m e n t r e p o r t Despite the uncertain environment, the Manager remains committed to outperforming its benchmark and rewarding shareholders with solid dividends. Katana paid four quarterly 1.5 cent dividends, totalling six cents ($0.06) during FY16. Three of the dividends totalling 4.5c were fully franked and one of 1.5c was 50% franked. Despite the uncertain environment, the Manager remains committed to outperforming its benchmark and rewarding shareholders with solid dividends. On behalf of all of the staff at Katana Asset Management, we take this opportunity to once again thank Katana Capital’s valued shareholders for your support. Brad Shallard Romano Sala Tenna Investment Managers KATANA ASSET MANAGEMENT LIMITED 04 While this is exactly what shareholders are looking for in the short term, profitability will inevitably decline if this continues over the longer term. strategy Overall, the Manager believes the stock market will move slightly higher and provide modest total shareholder returns in FY17, boosted by low interest rates; a more reasonably priced Australian dollar; and a gradual improvement in global economic growth. The Manager has added a few large resource stocks to the portfolio as it believes we have now seen the low in the oil price and potentially other commodity prices, too. It has also increased the Fund’s holdings of quality small and mid-cap companies that are able to grow earnings and dividends despite being in a low growth environment and trimmed some of its previous financial positions. The Manager believes that dividends will continue to form a greater part of total shareholder returns in this low growth environment. Although the Manager has recently deployed some of its cash holdings into the stock market, it is likely to maintain higher average cash balances in FY17 as it will only invest valuable shareholder funds when it considers the risk/return equation to be favourable. The Manager believes the share market will continue to experience periods of volatility and will use any weak periods to add to its holdings. Corporate Katana Capital Ltd finished FY16 with 44.7m shares on issue. During the period from 1 July 2015 to 30 June 2016, 753,968 shares were bought back on market and were subsequently cancelled. The shares were acquired at an average price of $0.80 with the price ranging from $0.76 to $0.835 per share. The buyback also provided liquidity and increased the underlying net asset backing for all existing shareholders. Katana Capital limited 2016 AnnuAl RepoRt Your directors present their report with respect to results of Katana Capital limited (the “company” or “Katana Capital”) and its controlled entities (the “Group”) for the year ended 30 June 2016 and the state of affairs for the Company at that date. I D r e C t o r s ’ Directors’ Report r e p o r t Directors The following persons were directors of Katana Capital Limited during the whole of the financial year and up to the date of this report: 05 information on Directors Dalton gooding BBus, FCA. (Non-Executive Chairman) Mr Gooding was appointed to the Board on 11 November 2005. Mr Gooding, formerly a long-standing partner at Ernst & Young, is a Fellow of the Institute of Chartered Accountants in Australia. He is currently the senior 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 different segments of business. During the past three years Mr Gooding has also served as a director of the following other listed companies: SIPA Resources Limited • - appointed 1 May 2003, resigned 31 March 2016 • • • Avita Medical Limited - appointed 14 November 2002, resigned 30 June 2014 Brierty Limited - appointed 26 October 2007 TFS Corporation Limited - appointed 16 October 2014 Company Secretary gabriel Chiappini BBus, GAICD, CA Peter Wallace SF Fin, FAICD, AFAIM. (Non-Executive Director) giuliano Sala Tenna BCom, FFIN, GAICD. (Non-Executive Director) Mr Wallace was appointed to the Board on 19 September 2005. Mr Wallace has had 46 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 Officer and other General Management roles. Most recently as Head of Corporate Advisory for Bell Potter Securities Ltd, Mr Wallace directed the capital raisings for several 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: • Neptune Marine Services Limited - appointed 8 July 2011 • Goldfields Money Ltd - appointed 7 August 2014 Mr Sala Tenna was appointed to the Board on 19 September 2005. Mr Sala Tenna currently works with one of Australia’s leading full service stockbroking firms in Corporate Advisory and Institutional Sales. Prior to this Mr Sala Tenna was the Head of Institutional Sales with one of Australia’s leading hedge fund managers with over $5.5 billion in funds under management. Mr Sala Tenna has worked in the Finance Industry for over 18 years in various fields including credit, financial advising, business development, corporate advisory and equity sell side / buy side. 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 Distinction, 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. During the past three years Mr Giuliano Sala Tenna has not served any other directorship role with listed companies. Mr Chiappini is a member of the Australian Institute of Company Directors and Institute of Chartered Accountants and has been the Company Secretary since 14 November 2005. Mr Chiappini has worked in Chief Financial Officer and Company Secretarial roles in both local and international environments and also holds directorships and Company Secretary positions 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). Katana Capital limited 2016 AnnuAl RepoRt Directors’ Report 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 2016, and the numbers of meetings attended by each director were: I D r e C t o r s ’ r e p o r t Dalton Gooding Peter Wallace Giuliano Sala Tenna A = Number of meetings attended DiRECTORS’ mEETingS AuDiT & COmPLiAnCE COmmiTTEE mEETingS A 6 6 6 B 6 6 6 A 2 2 2 B 2 2 2 B = Number of meetings held during the time the director held office 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. 06 Peter Wallace (Chairman of Committee) Members acting on the Audit and Compliance Committee of the Board at the date of this report are: • • Dalton Gooding • Giuliano Sala Tenna 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 are: Dalton Gooding Peter Wallace Giuliano Sala Tenna Earnings Per Share nO. OF SHARES 30 JunE 2016 nO. OF OPTiOnS 30 JunE 2016 169,259 300,000 nil nil nil nil 30 JunE 2016 CEnTS 30 JuNE 2015 CENTS Basic earnings per share Basic earnings from continuing operations attributable to the ordinary equity holders of the company 1.34 (2.70) The weighted average number of ordinary shares on issue used in the calculation of basic earnings per share was 44,555,004 (2015: 43,623,418). Dividends The following dividends have been paid by the Company or declared by the directors since the commencement of the financial year ended 30 June 2016: Dividend paid during 1st Quarter of the year Dividend paid during 2nd Quarter of the year Dividend paid during 3rd Quarter of the year Dividend paid during 4th Quarter of the year Total Paid Cents per share Total Paid Cents per share Total Paid Cents per share Total Paid Cents per share 30 JunE 2016 $ 30 JuNE 2015 $ 676,546 1.5 cents 670,482 1.5 cents 669,654 1.5 cents 669,966 1.5 cents 2,686,648 509,216 1.5 cents 685,492 1.5 cents 685,005 1.5 cents 689,167 1.5 cents 2,568,880 Katana Capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ r e p o r t 07 Corporate Information The Company was incorporated on 19 September 2005. During the 30 June 2007 financial year it incorporated a wholly owned subsidiary Kapital Investments (WA) Pty Ltd. Katana Capital Limited is incorporated and domiciled in Australia. The registered office is located at Level 9, The Quadrant Building, Perth, Western Australia. Principal activity The principal activity of the Group is that of an Investment Company with an ‘all opportunities’ investment strategy. Employees As at 30 June 2016, the Group did not have any full time employees (2015: Nil). Operating and Financial Review Company overview Katana Capital was incorporated in September 2005 as a listed investment company providing shareholders with access to the investment services of Katana Asset Management Ltd (“Fund Manager”). The Fund Manager employs a benchmark unaware long only Australian Equities investment philosophy with active use of cash holdings as a defensive mechanism within the portfolio to deploy into market weakness. The portfolio does not incorporate gearing or short selling of securities. The All Ordinaries Index started FY16 at 5,451.2 points and fell by 2.58% during the course of the year to close at 5,310.4 points on 30 June 2016. FY16 was characterised as another year of low global growth during which the US Federal Reserve commenced its interest rate hiking cycle and concern about the level of bad debts in the Chinese and Italian banking systems increased. Subsequent to the financial year end, the UK voted to leave the European Union (‘Brexit’) in July 2016. Katana outperformed its benchmark by 7.21% with a positive return of 4.63%. This extended its track record of outperformance to nine out of the past eleven years since the Fund’s inception (before fees and taxes). Katana increased the Fund’s holdings in large energy and mining stocks in FY16 and reduced its overweight tilt to financials. These changes are represented in the top 10 stocks, which also now include two consumer stocks. All of the top 10 companies have strong balance sheets and produce robust cash flows. The profit after tax for the year was $598,401 (2015: $1,157,799 loss after tax). investments for future performance The Manager is committed to maintaining a diversified portfolio, which it believes, provides better risk adjusted returns compared to achieving that same outcome with a concentrated portfolio. The Manager continued to hold between 50-60 individual stock positions and manage cash to match risk profile. Similar to a position taken in FY16, Katana’s Fund Manager will seek to continue to find value including in a number of mid and small-cap companies. In addition to this, during FY16 the Fund Manager invested in a number of successful IPOs and will continue to assess quality IPO opportunities in which to invest into. Key to the Fund’s investment outlook is its maintenance of the current dividend cycle. Cash from operations Net cash inflows from operations were $12,163,093 (2015: outflows $10,184,260) during the year which reflects the Group’s investment from the Australian equities market. Net cash flows for the financial year ending 30 June 2017 are expected to remain neutral and will be subject to the Group taking 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 along with continuing dividend payments and share buybacks. Risk management The Board is responsible for overseeing the establishment and implementation of an effective risk management system and reviewing and monitoring the Group’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 Group’s funds and has formalised an Investment Committee that meets on a regular basis to review the Group’s investments. Significant Changes in State of Affairs In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the year. Significant Changes after Balance Date Other than the 1.5 cent dividend declared on 9 August 2016, the Directors are not aware of any matter or circumstance that has significantly or may significantly affect the operation of the Company or the results of those operations, or the state of affairs of the Company in subsequent financial years. Katana Capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ r e p o r t Directors’ Report Likely Developments and Expected Results The world remains in a low global growth environment despite significant monetary stimulus being injected by many of the world’s central banks. Growth in the US economy does appear to be recovering slowly and interest rates should continue to normalise here over the next several years. Europe and Japan have implemented very accommodative monetary policy, which has resulted in bond yields trading at negative rates. Despite this, growth in these geographies remains tepid; unemployment is only declining slowly; and inflation remains well below central bank targets. China is trying to rebalance its economy away from fixed asset investment and more towards consumer expenditure and despite it having some success, there is concern over the high level of bad debts in its financial system. Australia continues to grow at a sub-trend pace with the lower Australian dollar assisting non-mining sectors such as tourism, education and agricultural production as it transitions away from mining investment. Demand is being driven by the emerging middle classes in China and other Asian countries. This region contains some 40% of the world’s population and should continue to increase demand for a broad range of products and services for many years to come. As an example, seven of the top 10 sources of Australian inbound tourism are from Asia and there is a similar theme occurring in education. Low interest rates have facilitated strong growth in housing demand although new home approvals are currently peaking. Healthcare services are also growing strongly aided by an ageing population. Volume growth in liquefied natural gas (LNG) and iron ore exports are also partly offsetting the decline in commodity prices. The low growth environment is providing a tailwind to companies in the form of lower interest rates and lower input costs, which is being partly offset by reduced consumption growth due to an ageing population and lower immigration. In addition, technological change is disrupting traditional business models and in many cases, reducing operating margins. This issue and the associated uncertain outlook has resulted in many companies cutting back on investment and instead simply using any excess funds to pay higher dividends and/or to buy back shares. While this is exactly what shareholders are looking for in the short term, profitability will inevitably decline if this continues over the longer term. 08 Environmental Regulation and Performance The principal activities of the Group are not subject to any significant environmental regulations. Share Options unissued shares There were no options outstanding as at 30 June 2016. Shares issued on the exercise of Options There were no options exercised during the financial year to acquire fully paid ordinary shares in the Group. Options granted as remuneration There were no options granted as remuneration. Remuneration Report (Audited) This remuneration report outlines the director and executive remuneration arrangements of the Company and Group 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 Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise). This report outlines the remuneration arrangements in place for directors of Katana Capital. Katana Capital, at this stage of its development does not employ executive directors and does not have a Managing Director or a Chief Executive Officer. 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 financial performance of the Group. (a) Details of Key management Personnel The following persons were directors of Katana Capital Limited during the financial year: (i) Chairman – non-executive Dalton Gooding (ii) Non-executive directors Peter Wallace Giuliano Sala Tenna (b) Key management services - Katana Asset management Ltd In addition to the Directors noted above, Katana Asset Management Ltd, the Fund Manager for the Group provides the Group with key management services. The directors of Katana Asset Management Ltd are Brad Shallard and Romano Sala Tenna. Katana Capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ r e p o r t 09 Remuneration Report (Audited) - COntInUed Officer The company secretary is an officer of the Company but is not considered to be a key management person as he does not have the authority and responsibility for planning, directing or controlling the activities of the Group 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 Group depends upon the quality of its directors. To prosper, the Group must attract, motivate and retain skilled non-executive directors. As a result of the independence and separation of Non-Executive Directors’ role of providing guidance and overview, 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 officers on a periodic basis, by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board. Remuneration structure In accordance with best practice corporate governance, the structure of non-executive director and senior management remuneration is separate and distinct. (i) Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Group 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 non-executive 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 non-executive directors of comparable companies when undertaking the annual review process. During the year there were no external consultants utilised to provide remuneration recommendation. The Board considers that the majority of the Group’s performance lies with the Fund Manager. Each director receives a fee for being a director of the Group 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 non-executive directors for the year ended 30 June 2016 is detailed on page 11 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 Group does not currently employ any executive directors or senior management, it does however have an agreement in place with Katana Asset Management Ltd to provide the Group with investment management services. (iii) Compensation of Katana Asset Management Ltd No amount is paid by the Group directly to the directors of Katana Asset Management Ltd. Consequently, no compensation is paid by the Group to the Directors of Katana Asset Management Ltd as Key Management Personnel. Compensation is paid to the Fund Manager in the form of fees and the significant 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 initial Management Agreement was due to expire at the end of 2015, however the agreement was renewed at the shareholder’s Annual General Meeting held on 24 November 2015 for a further period of 5 years and was renewed on the following basis: 1. 2. 3. the renewal is approved by Shareholders of the Company, such approval being sought by ordinary resolution; the Fund Manager is not in breach of the Management Agreement; and the Fund Manager has not in the reasonable opinion of the Board, materially breached the Management Agreement. Katana Capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ r e p o r t 10 Directors’ Report Remuneration Report (Audited) - COntInUed Remuneration structure - COntInUed (iii) Compensation of Katana Asset Management Ltd - COntInUed 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: (a) the Fund Manager or any of its directors or servants are found guilty of grave misconduct in relation to the affairs of the Company; (b) the Fund Manager’s AFSL is suspended or cancelled at any time for any reason; (c) 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 notified the Fund Manager in writing to remedy that default or breach; (d) the Fund Manager enters into liquidation (except voluntary liquidation for the purpose of reconstruction); (e) a receiver or receiver and manager is appointed to the whole or part of the undertaking of the Fund Manager; (f ) a change in control of the Fund Manager occurs without the Fund Manager obtaining at least 30 days prior written consent from the Company; (g) 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; (h) the Fund Manager fails to remedy a breach of the Management Agreement within the time period reasonably specified in a notice from the Company requiring it to do so; (i) (j) 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 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 five year period during the term, terminate the Management Agreement if Shareholders pass an ordinary resolution to terminate and the average Portfolio return for the five 12 month periods comprising the relevant five year period is less than the average percentage increase in the ASX All Ordinaries Index for those five 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 Total management and performance fees paid and accrued by the Group to Katana Asset Management Ltd for the year ended 30 June 2016 was $671,663 (30 June 2015: $457,651) as follows: (i) Management fee The Fund Manager receives a monthly management fee equal to 0.08333% (2015: 0.08333%) of the Portfolio value calculated at the end of each month. The fee for 2016 was $391,089 (2015: $457,651). The directors and shareholders of Katana Asset Management Ltd are also shareholders of Katana Capital Limited. (ii) Performance fee Performance fee to be paid in respect of each performance calculation period of 15.0% (2015: 15.0%) 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 qualified to receive a performance fee of $280,574 for the financial year ended 30 June 2016 (2015: $nil). Katana Capital limited 2016 AnnuAl RepoRt Remuneration Report (Audited) - COntInUed Company performance The profit/(loss) after tax for the group from 2012 is as follows: 2016 2015 2014 2013 2012 Profit/(loss) after tax expense Earnings/(Loss) per share - cents Share Price 30 June $598,401 1.34 $0.79 $(1,157,799) (2.70) $0.82 $5,904,101 17.07 $0.95 $1,780,914 4.82 $0.78 $(5,209,056) (13.26) $0.60 Remuneration of directors and key management personnel of the group I D r e C t o r s ’ r e p o r t SHORT‑TERm EmPLOYEE BEnEFiTS POST‑ EmPLOYmEnT BEnEFiTS LOng‑TERm BEnEFiTS SHARE‑BASED PAYmEnTS 2016 name 2015 name Non-executive directors Dalton Gooding Peter Wallace Giuliano Sala Tenna Total non-executive directors & KmP 70,000 40,000 40,000 150,000 (i) insurance premiums have not been included in other remuneration. SHORT‑TERm EmPLOYEE BEnEFiTS S E E F D n A Y R A L A S $ S E E f D N A Y R A L A S $ ) i ( R E H T O $ - - - - ) i ( R E h T O $ - - - - i T S H S A C $ - - - - I T S h S A C $ - - - - L A T O T D E S A B F O E g A T n E C R E P n O i T A R E n u m E R S i H C i H W E C n A m R O F R E P $ % 11 ‑ R E P u S n O i T A u n n A $ 6,650 3,800 3,800 14,250 S T i F E n E B n O i T A n m R E T i $ - - - - S n O i T P O $ - - - - POST‑ EmPLOYmEnT BEnEFiTS LOng‑TERm BEnEFiTS SHARE‑BASED PAYmEnTS 76,650 43,800 43,800 164,250 ‑ R E P u S I N O T A u N N A $ 6,650 3,800 3,800 14,250 I N O T A N M R E T I S T I f E N E B $ - - - - S N O T P O I $ - - - - S I I h C h W f O E G A T N E C R E P I N O T A R E N u M E R L A T O T $ 76,650 43,800 43,800 164,250 - - - - D E S A B E C N A M R O f R E P % - - - - Non-executive directors Dalton Gooding Peter Wallace Giuliano Sala Tenna Total non-executive directors, offices & KmP 70,000 40,000 40,000 150,000 (i) insurance premiums have not been included in other remuneration. Equity instrument disclosures relating to key management personnel (i) Option holdings The following options were granted and held by the directors or key management personnel during the financial year: • Mr Dalton Gooding nil (2015: 149,744) • Mr Peter Wallace nil (2015: 300,000) • Mr Giuliano Sala Tenna nil (2015: 112,500) The options were granted on 14 November 2014 to all existing shareholders on a ratio of one option for every one ordinary share held on the record date at $nil consideration. These options expired on 1 March 2016. Katana Capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ r e p o r t Directors’ Report Remuneration Report (Audited) - COntInUed Equity instrument disclosures relating to key management personnel - COntInUed (ii) Shareholdings The numbers of shares in the Company held during the financial year by each director of Katana Capital Ltd 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. 2016 NAME BALAnCE AT THE START OF THE YEAR RECEivED DuRing THE YEAR in THE EXERCiSE OF OPTiOnS OTHER CHAngES DuRing THE YEAR (PuRCHASES / (DiSPOSALS) BALAnCE AT THE EnD OF THE YEAR Directors of Katana Capital Limited Ordinary shares Dalton Gooding Peter Wallace Giuliano Sala Tenna 12 157,219 300,000 112,500 - - - 12,040 - (112,500) 169,259 300,000 - Other transactions and balances with key management personnel Dalton Gooding is a partner of Gooding Partners Chartered Accounting firm and as part of providing taxation advisory services, Gooding partners received $48,620 (2015: $21,035) for tax services provided. EnD OF REmunERATiOn REPORT (AuDiTED) Indemnification of Directors and Officers During or since the financial year, the Company has paid premiums in respect of a contract insuring all the directors of the Company and the Group against legal costs incurred in defending proceedings for conduct other than (a) a wilful breach of duty and (b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001. During the year the Company paid for Directors’ & Officers’ insurance in the normal course of business, this amount has not been included in Directors and Executives remuneration. Indemnification of Auditors To the extent permitted by law, the Company agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Auditor Independence The Directors have obtained an independence declaration from the Company’s auditors, Ernst & Young, as presented on page 13 of this Annual report. Non-Audit Services Ernst & Young did not receive any amounts for the provision of non-audit services. Signed for and on behalf of the Directors in accordance with a resolution of the Board. Dalton gooding CHAIRMAN Perth, Western Australia 28 September 2016 Katana Capital limited 2016 AnnuAl RepoRt Auditor’s Independence Declaration A u D I t o r s I ’ n D e p e n D e n C e D e C l A r A t I o n 13 Katana Capital limited 2016 AnnuAl RepoRt 30 JUNE 2016 Financial statements ChAnGes In equIt Y fInAnCIAl posItIon ComprehensIve InCome 15 ConsolIDAteD stAtement of 16 ConsolIDAteD stAtement of 17 ConsolIDAteD stAtement of 18 ConsolIDAteD stAtement of 19 notes to the ConsolIDAteD 40 DIreCtors’ DeCl ArAtIon 41 InDepenDent AuDItor’s report fInAnCIAl stAtements CAsh flow 14 Katana Capital limited 2016 AnnuAl RepoRt Consolidated statement of comprehensive income FOR THE YEAR ENDED 30 JUNE 2016 Revenue Dividends Interest Distributions income Investment income/(loss) COnSOLiDATED FOR THE YEAR EnDED NOTES 30 JunE 2016 $ 30 JuNE 2015 $ 991,780 111,391 67,012 824,944 850,535 189,207 111,250 (1,694,090) 3 Total net investment income/(loss) 1,995,127 (543,098) Expenses Fund manager’s fees Legal and professional Directors’ fees and expenses Administration Performance fees Total expenses Profit/(loss) before income tax Income tax benefit/(expense) Profit/(loss) after income tax net profit/(loss) for the year attributable to members of Katana Capital Limited Other comprehensive income, net of tax Total comprehensive income / (loss) for the year attributable to the members of Katana Capital Limited 14 (b) 14 (b) (391,089) (121,706) (172,511) (494,887) (280,574) (457,651) (100,726) (171,250) (670,820) - 15 (1,460,767) (1,400,447) 534,360 (1,943,545) 4 (a) 64,041 785,746 598,401 (1,157,799) 598,401 (1,157,799) - - 598,401 (1,157,799) CEnTS CENTS Earnings/(loss) per share attributable to the ordinary equity holders of the company: Basic and diluted earnings/(loss) per share 18 (a) 1.34 (2.70) the above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Consolidated statement of financial position AS AT 30 JUNE 2016 ASSETS Current assets Cash and cash equivalents Trade and other receivables Investments - held for trading Other assets Income tax receivable Total current assets non-current assets Deferred tax assets 16 Total assets LiABiLiTiES Current Liabilities Trade and other payables Dividends payable Income tax payable Total current liabilities non-current liabilities Total liabilities net assets EquiTY Issued capital Option premium reserve Profit reserve (Accumulated losses)/ retained earnings COnSOLiDATED AT NOTES 30 JunE 2016 $ 30 JuNE 2015 $ 5 6 7 12,197,366 791,760 25,681,307 7,738 33,892 3,204,027 136,205 37,776,106 22,364 - 38,712,063 41,138,702 8 1,424,732 782,220 40,136,795 41,920,922 9 1,852,834 3,317 - 1,065,173 3,317 70,515 1,856,151 1,139,005 1,856,151 1,139,005 38,280,644 40,781,917 11 12(a) 12(b) 12(c) 44,504,730 101,100 920,226 (7,245,412) 44,917,756 101,100 821,538 (5,058,477) Total equity 38,280,644 40,781,917 the above consolidated statement of financial position should be read in conjunction with the accompanying notes. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Consolidated statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2016 Consolidated iSSuED CAPiTAL $ OPTiOn PREmium RESERvE $ NOTES PROFiT RESERvE $ (ACCumuLATED LOSSES) $ TOTAL $ Balance at 1 July 2014 Loss for the year Other comprehensive income Total comprehensive loss for the year 34,607,708 - - - Transfer from retained earnings to profit reserve Buy-back of shares Dividend reinvestment plan Proceeds from contributions by shareholders Transaction costs for issued share capital Dividends provided for or paid 12(b) 11 11 11 11 21 - (719,827) 298,382 10,965,093 (233,600) - 101,100 - - - - - - - - - - - - - (510,260) (1,157,799) - (1,157,799) 34,198,548 (1,157,799) - (1,157,799) 1,510,705 - - - - (689,167) (1,510,705) - - - - (1,879,713) - (719,827) 298,382 10,965,093 (233,600) (2,568,880) Balance at 30 June 2015 44,917,756 101,100 821,538 (5,058,477) 40,781,917 17 Balance at 1 July 2015 Profit for the year Other comprehensive income Total comprehensive loss for the year - - - 44,917,756 101,100 821,538 Transfer from retained earnings to profit reserve Buy-back of shares Dividend reinvestment plan Adjustment on transaction cost from prior year Dividends provided for or paid 12(b) 11 11 11 21 - (1,546,260) 1,063,154 70,080 - 598,401 (5,058,477) 40,781,917 598,401 - 598,401 598,401 - - - - 2,785,336 - - - (2,686,648) (2,785,336) - - - - - (1,546,260) 1,063,154 70,080 (2,686,648) - - - - - - - - Balance at 30 June 2016 44,504,730 101,100 920,226 (7,245,412) 38,280,644 the above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Consolidated statement of cash flow FOR THE YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Proceeds on sale of financial assets Payments for purchases of financial assets Payments to suppliers and employees Interest received Dividends received Other revenue Tax (paid)/received COnSOLiDATED NOTES 30 JunE 2016 $ 30 JuNE 2015 $ 82,405,225 (69,452,092) (1,259,048) 111,373 1,034,368 6,144 (682,877) 117,112,209 (126,473,130) (2,101,582) 189,214 1,041,463 7,340 40,226 net inflow/(outflow) from operating activities 15 12,163,093 (10,184,260) 18 Cash flows from financing activities Dividends paid Payments for shares bought back Proceeds from contributions by shareholders Transaction costs for issued share capital (2,686,648) (483,106) - - (2,568,880) (421,448) 10,965,092 (233,600) net cash inflow/(outflow) from financing activities (3,169,754) 7,741,164 net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 8,993,339 3,204,027 (2,443,096) 5,647,123 Cash and cash equivalents at end of year 5 12,197,366 3,204,027 the above consolidated statement of cash flow should be read in conjunction with the accompanying notes. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 1 Corporate information The financial report of Katana Capital Limited (the ‘’Company’’) and its subsidiaries (the “Group” or the “Consolidated Entity”) for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 28 September 2016. 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 Securities Exchange. The nature of the operations and principle activities are described in the Directors’ report. The Company and its subsidiary are for-profit entities. 2 Summary of significant accounting policies (a) Basis of preparation The financial report is a general purpose financial 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 financial report has also been prepared on a historical cost basis except for certain financial instruments, which have been measured at fair value. The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report comprises the financial statements of Katana Capital Limited and its subsidiaries. 19 The financial report is presented in Australian dollars. (b) Statement of compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Changes in accounting policy and disclosures The Group has adopted all the new and amended Australian Accounting Standards and AASB interpretations effective as at 1 July 2015. The nature and impact of each new standard and amendment is described below: REfERENCE TITLE AASB 2013-9 AASB 2015-3 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The Standard contains three main parts and makes amendments to a number of Standards and Interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. The adoption of these amendments had no material impact on the Group’s financial statements. Accounting standards and interpretations issued but not yet effective. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ended 30 June 2016. The nature of each new standard and amendment is described below: REfERENCE TITLE SuMMARY AASB 9 Financial Instruments AASB 9 (December 2014) is a new standard which replaces AASB 139. This new version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early adoption. The own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. APPLICATION DATE fOR KATANA CAPITAL 1 July 2018 Financial StatementSKatana capital limited 2016 AnnuAl RepoRt APPLICATION DATE fOR KATANA CAPITAL 1 July 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 2 Summary of significant accounting policies - COntInUed (b) Statement of compliance - COntInUed Accounting standards and interpretations issued but not yet effective. - COntInUed REfERENCE TITLE SuMMARY AASB 9 - COntInUed Financial Instruments - COntInUed 20 Classification and measurement AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities. The main changes are described below. Financial assets a. Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. b. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. c. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. Financial liabilities Changes introduced by AASB 9 in respect of financial liabilities are limited to the measurement of liabilities designated at fair value through profit or loss (FVPL) using the fair value option. Where the fair value option is used for financial liabilities, the change in fair value is to be accounted for as follows: > The change attributable to changes in credit risk are presented in other comprehensive income (OCI) > The remaining change is presented in profit or loss AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains or losses attributable to changes in the entity’s own credit risk would be recognised in OCI. These amounts recognised in OCI are not recycled to profit or loss if the liability is ever repurchased at a discount. Impairment The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. hedge accounting Amendments to AASB 9 (December 2009 & 2010 editions and AASB 2013-9) issued in December 2013 included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E. AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014. AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010)) from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 2 Summary of significant accounting policies - COntInUed (b) Statement of compliance - COntInUed Accounting standards and interpretations issued but not yet effective. - COntInUed REfERENCE TITLE SuMMARY AASB 15 Revenue from Contracts with Customers AASB 1057 Application of Australian Accounting Standards AASB 15 Revenue from Contracts with Customers replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations (Interpretation 13 Customer Loyalty Programmes, Interpretation 15 Agreements for the Construction of Real Estate, Interpretation 18 Transfers of Assets from Customers, Interpretation 131 Revenue—Barter Transactions Involving Advertising Services and Interpretation 1042 Subscriber Acquisition Costs in the Telecommunications Industry). AASB 15 incorporates the requirements of IFRS 15 Revenue from Contracts with Customers issued by the International Accounting Standards Board (IASB) and developed jointly with the US Financial Accounting Standards Board (FASB). AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments).The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application is permitted. AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15. AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15. This Standard lists the application paragraphs for each other Standard (and Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities. APPLICATION DATE fOR KATANA CAPITAL 1 July 2018 21 1 July 2016 Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 2 Summary of significant accounting policies - COntInUed (b) Statement of compliance - COntInUed Accounting standards and interpretations issued but not yet effective. - COntInUed REfERENCE TITLE SuMMARY AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012– 2014 Cycle 22 • The subjects of the principal amendments to the Standards are set out below: AASB 5 Non-current Assets Held for Sale and Discontinued Operations: • Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: • Servicing contracts - clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. Applicability of the amendments to AASB 7 to condensed interim financial statements - clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. APPLICATION DATE fOR KATANA CAPITAL 1 July 2016 AASB 119 Employee Benefits: • Discount rate: regional market issue - clarifies that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting: • Disclosure of information ‘elsewhere in the interim financial report’ - amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. This Standard inserts scope paragraphs into AASB 8 and AASB 133 in place of application paragraph text in AASB 1057. This is to correct inadvertent removal of these paragraphs during editorial changes made in August 2015. There is no change to the requirements or the applicability of AASB 8 and AASB 133. 1 July 2016 1 July 2016 AASB 2015-2 AASB 2015-9 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 Amendments to Australian Accounting Standards – Scope and Application Paragraphs [AASB 8, AASB 133 & AASB 1057] Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 2 Summary of significant accounting policies - COntInUed (b) Statement of compliance - COntInUed Accounting standards and interpretations issued but not yet effective. - COntInUed REfERENCE TITLE SuMMARY AASB 16 Leases The key features of AASB 16 are as follows: lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. AASB 16 contains disclosure requirements for lessees. • lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. • • • APPLICATION DATE fOR KATANA CAPITAL 1 July 2019 23 AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities preparing financial statements in accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. This standard amends to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: > The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments > Share-based payment transactions with a net settlement feature for withholding tax obligations > A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled 1 July 2017 1 July 2017 1 July 2018 2016-1 2016-2 IFRS 2 (Amendments) Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 Classification and Measurement of Share-based Payment Transactions [Amendments to IFRS 2] The Group has not elected to early adopt any new standards or amendments that are issued but not yet effective. New standards or amendments will be adopted when they become effective. The Group is yet to assess the impact of the adoption of these standards and amendments on its financial statements. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 2 Summary of significant accounting policies - COntInUed (c) Principles of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 June 2016. Control is achieved when the Group is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only the Group has: • • • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • • • The contractual arrangement with the other vote holders of the investee Rights arising from other contractual agreements The Group’s voting rights and potential voting rights 24 The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interest having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • De-recognises the assets (including goodwill) and liabilities of the subsidiary • De-recognises the carrying amount of any non-controlling interests • De-recognises the cumulative translation differences recorded in equity • • • • Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. (d) investments and other financial assets Financial assets are classified as either financial assets held for trading (financial assets at fair value through profit or loss), loans and receivables, held to maturity investments or available for sale investments, as appropriate. When financial 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 classification of its financial assets on initial recognition. (i) Financial assets held for trading After initial recognition investments which are classified as held for trading are measured at fair value, gains and losses on these investments are recognised in the statement of comprehensive income. For financial assets that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the reporting date. For financial 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 flows of the underlying net asset base of the financial assets. The fair value of options is determined using an appropriate option pricing model. Purchases and sales of financial 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 Group commits to purchase the asset. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition. For financial assets carried at amortised cost, gains and losses are recognised in the statement of comprehensive income when the financial assets are derecognised or impaired, as well as through the amortisation process. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 2 Summary of significant accounting policies - COntInUed (d) investments and other financial assets - COntInUed (iii) De-recognition of financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: > > > the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party lender under a “pass through” arrangement; or the Group has transferred its rights to receive cash flows 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 benefits will flow to the entity and specific 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 effective interest method, which is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument to the net carrying amount of the financial instrument. Interest on cash on deposit is recognised in accordance with the terms and conditions that apply to the deposit. 25 (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 year is tax payable on the current year’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial 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 affects neither accounting or taxable profit 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 differences between the carrying amount and tax losses to the extent that it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on 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 statement of financial position comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purposes of the statement of cash flow, cash and cash equivalents includes deposits held at call with banks or financial institutions. (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 effective interest rate method, which is the rate that discounts estimated future cash receipts through the effective life of the financial instrument) to the net carrying amount of the financial 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 identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties 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 flows, discounted at the original effective interest rate. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 2 Summary of significant accounting policies - COntInUed (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 Group. 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) interest-bearing 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, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. (k) goods and Services Tax (gST) 26 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 Office (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 Group from the ATO are recognised as receivables in the statement of financial position. Cash flows are included in the statement of cash flow on a gross basis and the GST component of the cash flows arising from investing and financing activities, which is recoverable from or payable to the taxation authority are classified as operating cash flows. (l) Earnings per share Basic earnings per share (EPS) is calculated as net profit attributable to shareholders divided by the weighted average number of shares. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: > costs of servicing equity (other than dividends) and preference share dividends; > other non-discretionary 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) Derivative financial instruments The Group may use derivative financial instruments such as exchange traded options to manage its risks associated with share price fluctuations. Such derivative financial 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 profit or loss for the year. Exchange traded options From time to time, the Group writes and then trades Exchange Traded Options (‘ETO’s’), the Group’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 profit or loss for the year. (n) Contributed equity Ordinary shares are classified 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. (o) Pension benefits Defined contribution plan Contributions to superannuation funds are charged to the statement of comprehensive income when incurred. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 2 Summary of significant accounting policies - COntInUed (p) Share based payments Equity settled transactions The Group can provide benefits 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 benefits. 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 fulfilled (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: 27 (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 financial 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. 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 condition is fulfilled, provided that all other conditions are satisfied. 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 satisfied 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 modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. 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 modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Shares in the Group reacquired on-market are classified and disclosed as reserved shares and deducted from equity. (q) Parent entity financial information The financial information for the parent entity, Katana Capital Limited, disclosed in note 22 has been prepared on the same basis as the consolidated financial statements. (r) 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 identified as the strategic steering committee. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 3 Investment income Realised (losses)/gains on investments held for trading Unrealised gains/(losses) on investments held for trading Other 4 (a) Income tax expense Income tax benefit 28 Current tax expense Deferred tax benefit Deferred income tax benefit included in income tax expense comprises: Increase in deferred tax assets (Note 8) (Increase)/decrease in deferred tax liabilities (Note 10) (b) Reconciliation of income tax expense to prima facie tax payable Profit/(loss) before income tax expense Tax at the Australian tax rate of 30% (2015 - 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Franking credits denied Franking credits Franking rebate Non Assessable Income Income Tax Benefit 5 Current assets - Cash and cash equivalents Cash at bank COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ (121,310) 940,110 6,144 824,944 2,697,922 (4,399,843) 7,831 (1,694,090) COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 578,471 (642,512) (64,041) 837,036 (194,524) 642,512 282,702 (1,068,448) (785,746) 321,655 746,793 1,068,448 COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 534,360 160,308 (1,943,545) (583,063) (9,020) 102,652 (342,175) 24,194 (64,041) - 86,677 (288,924) (436) (785,746) COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 12,197,366 12,197,366 3,204,027 3,204,027 Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 6 Current assets - Trade and other current receivables Unsettled trades - listed equities Interest receivable Dividend receivable There are no receivables past due or impaired. Due to the short-term nature of these receivables, their carrying value approximates their fair value. 7 Current assets - Investments held for trading COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 717,853 23 73,884 791,760 63,425 5 72,775 136,205 Equity securities Australian listed trusts Australian unlisted trusts COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 29 23,292,498 1,829,186 559,623 25,681,307 33,812,802 2,923,029 1,040,275 37,776,106 Held for trading investments consist primarily of investments in ordinary shares and therefore have no fixed maturity date or coupon rate. For fair value measurements refer to Note 16(h). 8 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Other Investments Provisions Other Total deferred tax assets Set-off of deferred tax liabilities pursuant to set-off provisions (Note 10) Net deferred tax assets COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 1,749,834 121,947 16,220 1,888,001 (463,269) 1,424,732 973,703 61,555 15,707 1,050,965 (268,745) 782,220 The deferred tax asset is recognised as an asset at this time due to the Company’s view that utilising the tax asset is considered probable. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 9 Current liabilities - Trade and other payables Unsettled trades - listed equities Management fee - Katana Asset Management Ltd Trade creditors Performance fee payable Custody fees payable Other payables Redemptions payable Due to the short-term nature of these payables, their carrying value approximates their fair value. 30 10 Non-current liabilities - Deferred tax liabilities The balance comprises temporary differences attributable to: Deferred tax liabilities Investments Dividends receivable Other Total Deferred tax liabilities Set-off of deferred tax liabilities pursuant to set-off provisions (Note 8) Net deferred tax liabilities COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 1,376,883 120,945 39,500 280,574 34,808 124 - 1,852,834 776,316 135,135 31,148 13,073 23,397 - 86,104 1,065,173 COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 413,065 22,172 28,032 463,269 (463,269) - 232,895 21,832 14,018 268,745 (268,745) - 11 Issued capital COnSOLiDATED EnTiTY AT COnSOLiDATED EnTiTY AT 30 JunE 2016 SHARES 30 JuNE 2015 ShARES 30 JunE 2016 $ 30 JuNE 2015 $ Ordinary shares fully paid 44,683,578 45,342,549 44,504,730 44,917,756 (a) movements in ordinary share capital: DATE DETAiLS numBER OF SHARES $ 1 July 2014 30 June 2015 1 July 2015 30 June 2016 Opening balance Proceeds from contributions by shareholders Buy-back of shares Dividend reinvestment plan Decrease due to transaction costs for issued share capital Balance Opening balance Adjustment on transaction cost from prior year Buy-back of shares Dividend reinvestment plan Balance 34,002,419 11,790,421 (780,780) 330,489 - 45,342,549 45,342,549 - (753,968) 94,997 44,683,578 34,607,708 10,965,093 (719,827) 298,382 (233,600) 44,917,756 44,917,756 70,080 (603,893) 120,787 44,504,730 Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 11 Issued capital - COntInUed (a) movements in ordinary share capital: - COntInUed Fully paid ordinary shares carry one vote per share and carry the right to dividends. During the period from 1 July 2015 to 30 June 2016, 753,968 shares were bought back on market and were subsequently cancelled. The shares were acquired at an average price of $0.80 with the price ranging from $0.76 to $0.835 per share. The Company has a dividend reinvestment plan (DRP) for its dividend distribution, which shareholders have the discretion to join or exit. The DRP shares are managed via an on-market buyback of shares that are then re-distributed to shareholders. During the year as part of the DRP the Company issued 94,997 new shares to meet the DRP shortfall for buyback shares acquired on-market. (b) 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 benefits 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. The Group defines its capital as the total funds under management, being $40,136,795 at 30 June 2016 (30 June 2015: $41,920,922), including equities and cash reserves. The Group does not have any additional externally imposed capital requirements however has as a goal the ability to continue to grow assets under management and maintain a sustainable dividend return to shareholders. To assist with meeting its internal guidelines, Katana Asset Management Limited holds regular Investment Committee meetings to assess the equity portfolio. 31 12 Reserves and accumulated losses (a) Reserves Option premium reserve COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ 101,100 101,100 101,100 101,100 The option premium reserve is used to record the value of share based payments provided to employees, including KMP, as part of their remuneration. (b) Profit reserve The profit reserve is made up of amounts allocated from retained earnings / (accumulated losses) that are preserved for future dividend payments. Movement in profit reserve were as follows: Opening balance Transferred from retained earnings (i) Dividends paid COnSOLiDATED AT 30 JunE 2016 30 JuNE 2015 821,538 2,785,336 (2,686,648) 920,226 - 1,510,705 (689,167) 821,538 (i) The amount transferred to profit reserve are the profits for the periods 1 July 2015 to 31 July 2015 and 1 October 2015 to 31 December 2015 in accordance with a resolution of the Board of Directors dated 4 September 2015 and 2 February 2016, respectively, (2015: profit for the period 1 January 2015 to 28 February 2015 in accordance with a resolution of the Board of Directors dated 16 April 2015). (c) Accumulated losses Movements in accumulated losses were as follows: Opening balance Net (loss)/profit after tax attributable to members of the Company Transfer to profit reserves Dividends paid Closing balance COnSOLiDATED AT 30 JunE 2016 $ 30 JuNE 2015 $ (5,058,477) 598,401 (2,785,336) - (7,245,412) (510,260) (1,157,799) (1,510,705) (1,879,713) (5,058,477) Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 13 Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits - Director fees Post-employment benefits 14 Related party transactions (a) Directors COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 150,000 14,250 164,250 150,000 14,250 164,250 32 The names of persons who were Directors of the Katana Capital Limited at any time during the financial year and at the date of this report are as follows: Mr Dalton Gooding, Mr Giuliano Sala Tenna and Mr Peter Wallace. (b) Related party transactions All related party transactions are made at arm’s length on normal commercial terms and conditions. Outstanding balances at period end are unsecured and settlement occurs in cash. Related parties during the year are outlined below: Director related: Dalton Gooding is a partner of Gooding Partners Chartered Accounting firm and as part of providing taxation advisory services, Gooding Partners received $48,620 (2015: $21,035) for tax services provided. Other Key management services - Katana Asset management Ltd: Katana Asset Management Ltd, the Fund Manager for the Group, provides the Group with Key Management Services. The directors of Katana Asset Management Ltd are Brad Shallard and Romano Sala Tenna. Katana Capital incurred management fees of $391,089 to the Fund Manager for management services provided during the year (2015: $457,651). There was a performance fee of $280,574 due to the Fund Manager for the year (2015: $nil). The Fund Manager and its directors have the following shareholdings: 2016 name Brad Shallard Romano Sala Tenna 2015 name Brad Shallard Romano Sala Tenna BALAnCE AT THE START OF THE YEAR OTHER CHAngES DuRing THE YEAR (nET PuRCHASES) BALAnCE AT THE EnD OF THE YEAR 3,612,322 4,057,774 331,770 329,728 3,944,092 4,387,502 BALANCE AT ThE START Of ThE YEAR OThER ChANGES DuRING ThE YEAR (NET PuRChASES) BALANCE AT ThE END Of ThE YEAR 2,968,498 3,284,070 643,824 773,704 3,612,322 4,057,774 Wholly owned group transactions There are no transactions with companies within the wholly owned group. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 33 15 Reconciliation of profit/(loss) after income tax to cash inflow from operating activities Profit/(loss) for the year (Increase)/decrease in financial assets held for trading (Increase)/decrease in trade and other receivables (Increase)/decrease in deferred tax assets Increase/(decrease) in trade and other payables Increase/(decrease) in financial liabilities held at fair value through profit or loss Increase/(decrease) in deferred tax liabilities (Decrease)/increase in current tax liabilities net cash inflow/(outflow) from operating activities COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 598,401 12,111,018 (655,555) (837,036) 785,633 - 194,524 (33,892) 12,163,093 (1,157,799) (8,734,365) 1,295,548 (782,220) (489,566) 33,508 - (349,366) (10,184,260) 16 Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on ensuring compliance with the Company’s Investment Mandate and seeks to maximise the returns derived for the level of risk to which the Company is exposed. The Group uses derivative financial 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 different methods to measure different 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. (a) 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 Company 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: (i) listed securities; (ii) rights to subscribe for or convert to listed securities (whether or not such rights are tradable on a securities exchange); (iii) any securities which the Fund Manager reasonably expects will be quoted on the ASX within a 24 month period from the date of investment; (iv) listed securities for the purpose of short selling; (v) warrants or options to purchase any investment and warrants or options to sell any investment; (vi) 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; (vii) deposits with any bank or corporation declared to be an authorised dealer in the short term money market; (viii) debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of deposit, interest bearing accounts, certificates of indebtedness issued by any bank or by the Commonwealth of Australia, any State or Territory of Australia, any Australian government authority, or a corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia; (ix) units or other interest in cash management trusts; (x) underwriting or sub-underwriting of securities as and where permitted by relevant laws and regulations and the Fund Manager’s AFSL; and (xi) 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 specifies 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 10% 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 pre stock basis as set out in the table below unless the prior approval of the Board is received to do otherwise. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 16 Financial risk management - COntInUed (b) 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 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, allows the Fund Manager the flexibility 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 of 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 first, 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: Size of company 34 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 (c) Asset allocation minimum invESTmEnT PER SECuRiTY inDiCATivE BEnCHmARK invESTmEnT PER SECuRiTY mAXimum invESTmEnT PER SECuRiTY AS A PERCENTAGE Of TOTAL PORTfOLIO 1% 1% No Minimum No Minimum 5% 3% 2% 1% 12.5% 10% 7.5% 5% 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 (e.g. comparative investment merit). The Fund Manager may form views on the factors outlined above, may re-weight the Portfolio accordingly. (d) market risk Market risk is the risk that changes in foreign exchange rates, interest rates and prices will affect the Group income or the carrying value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. (i) Price Risk The Group is exposed to equity securities, convertible notes and derivative securities price risk. This arises from investments held by the Group for which prices in the future are uncertain. The paragraph below sets out how this component of price risk is managed and measured. Investments are classified in the statement of financial position as held for trading. All securities investments present a risk of loss of capital. Except for equities sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Possible losses from equities sold short can be unlimited. The Investment Manager mitigates price risk through diversification and a careful selection of securities and other financial instruments within specified limits set by the Board. The table on page 35 summarises the impact of an increase/decrease in the Australian Securities Exchange All Ordinaries Index on the Group’s net assets attributable to shareholders at 30 June 2016. The analysis is based on the assumptions that the index increased/decreased by 10% (2015: 10%) with all other variables held constant and that the fair value of the Group’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 with combined value of $25,681,307 (2015: $37,776,106) that represented the maximum exposure as at reporting date. (ii) Foreign exchange risk The Group does not hold any monetary and non-monetary assets denominated in currencies other than the Australian dollar. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 16 Financial risk management - COntInUed (d) market risk - COntInUed (iii) Interest rate risk The Group’s interest bearing financial assets expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The risk is measured using sensitivity analysis. Compliance with the Group’s policy is reported to the Board on a monthly basis. The Group may also enter into derivative financial instruments to mitigate the risk of future interest rate changes. The table below summarises the Group’s exposure to financial assets/liabilities at the balance sheet date. WEigHTED AvERAgE inTEREST RATE YEAR EnDED COnSOLiDATED (% P.A.) 30 JunE 2016 30 JuNE 2015 Financial Assets Cash and short term deposits - floating 1.43% 12,197,366 3,204,027 The table above summarises the impact of an increase/decrease of interest rates on the Group’s operating profit and net assets attributable to shareholders through changes in fair value or changes in future cash flows. The analysis is based on the assumption that interest rates changed by +/- 50 basis points (2015: +/- 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 fixed interest securities. 35 (e) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s operating profit and other comprehensive income to interest rate risk and other 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, historical correlation of the Group 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 Group invest. As a result, historic variations in risk variables should not be used to predict future variations in the risk variables. ‑10% PRiCE RiSK +10% ‑10% +10% imPACT On OPERATing PROFiT imPACT On OTHER COmPREHEnSivE inCOmE 30 June 2016 30 June 2015 (2,568,131) (3,777,611) 2,568,131 3,777,611 - - - - 30 June 2016 30 June 2015 (f) Credit risk inTEREST RATE RiSK ‑50BPS +50BPS ‑50BPS +50BPS imPACT On OPERATing PROFiT imPACT On OTHER COmPREHEnSivE inCOmE (60,987) (16,020) 60,987 16,020 - - - - 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 financial institutions and amounts due from brokers. None of these assets are impaired nor past due but not impaired. As at 30 June 2016 the Group does not hold any debt securities (30 June 2015: nil). The Group does trade in Exchange Traded Options (“ETO’s”). 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 2016 the Group held no Exchange Traded Options (30 June 2015: nil). Compliance with the Group’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 financial assets. The majority of cash assets are held with one bank, which has a credit rating of A-1, which is the significant concentration risk. (g) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. To control liquidity, the Group invests in financial instruments which under normal market conditions are readily convertible to cash. The Group held no derivatives (ETO’s), as at 30 June 2016 (30 June 2015: $nil). Financial liabilities of the Group comprise trade and other payables and dividends payable. Trade and other payables have no contractual maturities but are typically settled within 30 days. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 16 Financial risk management - COntInUed (h) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise: (a) Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. (b) Level 2 - valuation technique for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. (c) Level 3 - valuation technique for which the lowest level input that is significant to the fair value movement that is not observable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The following table presents the Company’s assets and liabilities measured and recognised at fair value at 30 June 2016. group - as at 30 June 2016 LEvEL 1 $ LEvEL 2 $ LEvEL 3 $ TOTAL $ 36 Assets Financial assets held at fair value through profit and loss - Equity securities - Listed Unit Trust - Unlisted Unit Trust - Options Assets Liabilities Financial liabilities held at fair value through profit and loss - Options Total Liabilities group - as at 30 June 2015 Assets Financial Assets held at fair value through profit and loss - Equity securities - Listed Unit Trust - Unlisted Unit Trust Total assets Liabilities Financial liabilities held at fair value through profit and loss - Options Total Liabilities 23,292,498 1,829,186 - - 25,121,684 - - LEvEL 1 $ - - 559,623 - 559,623 - - LEvEL 2 $ 33,312,802 2,923,029 - 36,235,831 - - 1,040,275 1,040,275 - - - - - - - LEvEL 3 $ 500,000 - - 500,000 23,292,498 1,829,186 559,623 - 25,681,307 - - TOTAL $ 33,812,802 2,923,029 1,040,275 37,776,106 - - - - - - - - The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available for sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1. The fair value of financial instruments that are not traded in an active market (for example, unlisted investments) is determined using valuation techniques. The Group 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 long term debt for disclosure purposes. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. In determining the fair value of the securities the company holds in the unlisted investments, the company referred to the Net Tangible Assets of the investee, recent trading in units of the investment and all other market factors associated with the unlisted investment. Financial assets at fair value through profit or loss are dependent on the change of input variables used to determine fair value, namely changes in market prices of equity securities. The majority of the investments are invested in shares of companies listed on the Australian Stock Exchange which are valued based on market observable information. There were no transfers between level 1 and level 2 during the year. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 16 Financial risk management - COntInUed (h) Fair value measurements - COntInUed The following table presents the changes in level 3 instruments for the year ended 30 June 2016: group Opening balance Transfer out to Level 1 Purchases Sales Gains and losses recognised in profit or loss Closing balance 2016 $ 500,000 (500,000) - - - 2015 $ - - 500,000 - - 500,000 The level 3 financial instrument above relates to an unlisted investment that was purchased on 19 June 2015 and subsequently listed on the Australian Stock Exchange on 11 November 2015. 17 Segment reporting 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 significant operating disclosures are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial 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. 37 18 Earnings per share (a) Basic earnings per share: Profit/(loss) per share attributable to the ordinary equity holders of the Company 1.34 (2.70) (b) Reconciliation of earnings used in calculating earnings per share COnSOLiDATED YEAR EnDED 30 JunE 2016 CEnTS 30 JuNE 2015 CENTS Basic earnings/(loss) per share Profit/((loss) from continuing operations COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 598,401 (1,157,799) Profit/(loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share 598,401 (1,157,799) (c) Weighted average number of shares used as the denominator COnSOLiDATED YEAR EnDED 30 JunE 2016 numBER 30 JuNE 2015 NuMBER Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 44,555,004 43,623,418 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 44,555,004 43,623,418 Financial StatementSKatana capital limited 2016 AnnuAl RepoRt Notes to the consolidated financial statements FOR THE YEAR ENDED 30 JUNE 2016 18 Earnings per share - COntInUed (c) Weighted average number of shares used as the denominator - COntInUed Basic earnings per share amounts are calculated by dividing the net profit 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 profit 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. 19 Events occurring after reporting date Other than the events below, the directors are not aware of any matter or circumstance that has significantly or may significantly affect the operations of the company or the results of those operations, or the state of affairs of the company in subsequent financial years. On 9 August 2016, the company announced a 50% franked 1.5 cent per share dividend. 20 Remuneration of auditors 38 (a) Audit services Ernst & Young Australia Audit and review of financial reports Total remuneration for audit and other assurance services (b) non-audit services Other services Total remuneration for other assurance services 21 Dividends Dividend paid during 1st Quarter of the year Dividend paid during 2nd Quarter of the year Dividend paid during 3rd Quarter of the year Dividend paid during 4th Quarter of the year Total dividends paid and payable Total Paid Cents per share Total Paid Cents per share Total Paid Cents per share Total Paid Cents per share COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 57,500 57,500 56,500 56,500 - - - - PAREnT EnTiTY YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ 676,546 1.5 cents 670,482 1.5 cents 669,654 1.5 cents 669,966 1.5 cents 2,686,648 509,216 1.5 cents 685,492 1.5 cents 685,005 1.5 cents 689,167 1.5 cents 2,568,880 COnSOLiDATED YEAR EnDED 30 JunE 2016 $ 30 JuNE 2015 $ Franking credits available for subsequent financial years based on a tax rate of 30% (2015: 30%) 103,503 357,740 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 financial years. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. Financial StatementSKatana capital limited 2016 AnnuAl RepoRt 22 Parent entity financial information Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders’ equity Contributed equity Option premium reserve Profit reserve Accumulated loss Profit or loss for the year Total comprehensive income Investment in controlled entity at cost PAREnT EnTiTY AS AT 2016 $ 2015 $ 38,623,965 1,424,732 40,048,697 1,768,053 - 1,768,053 44,504,730 101,100 920,226 (7,245,412) 38,280,644 41,176,373 782,220 41,958,593 1,264,879 - 1,264,879 44,917,756 101,100 821,538 (5,146,680) 40,693,714 598,401 (1,246,002) 598,401 (1,246,002) 39 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 wholly owned 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 financial statements in respect of this agreement on the basis that the possibility of default is remote (see Note 4). (ii) Tax effect accounting by members of the tax consolidated Group Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences are recognised in the separate financial statements of the members of the tax consolidated Group using the Group allocation 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 have 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 different 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. 23 Commitments and contingencies There are no outstanding contingent liabilities or commitments as at 30 June 2016 (30 June 2015: Nil). 24 Corporate Governance The Board is committed to achieving the highest standards of corporate governance. The Board reviews and improves its policies and procedures to ensure they are effective for the Group and fulfil the expectations of stakeholders. The Company’s Corporate Governance Statement has been approved by the Board and can be located on the Company’s website at http://www.katanaasset.com/katana-capital-limited/#corporate-charters Financial StatementSKatana capital limited 2016 AnnuAl RepoRt I D r e C t o r s ’ D e C l A r A t I o n 40 Directors’ declaration 30 JUNE 2016 In accordance with a resolution of the directors of Katana Capital Limited, I state that: (a) The financial statements and notes of the consolidated entity set out on pages 14 to 39 are in accordance with the Corporations Act 2001, including (i) Giving a true and fair view of the financial position as at 30 June 2016 and of its performance for the year ended on that date of the consolidated entity. (ii) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2011; (b) the financial 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 2011 for the financial year ended 30 June 2016. On behalf of the Board Katana Capital Limited Dalton gooding CHAIRMAN 28 September 2016 Perth, Western Australia Katana Capital limited 2016 AnnuAl RepoRt Independent audit report TO MEMBERS OF KATANA CAPITAL LIMITED I n D e p e n D e n t A u D I t r e p o r t 41 Katana Capital limited 2016 AnnuAl RepoRt Independent audit report TO MEMBERS OF KATANA CAPITAL LIMITED I n D e p e n D e n t A u D I t r e p o r t 42 8 to 12 Katana Capital limited 2016 AnnuAl RepoRt Additional ASX Information Ordinary Fully Paid Shares Range of units AS OF 19 SEPTEMEBER 2016 RAngE TOTAL HOLDERS uniTS % OF iSSuED CAPiTAL 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 999,999,999 1,000,000,000 - 9,999,999,999 Rounding Total 44 40 58 216 76 0 434 10,549 131,589 488,656 8,582,045 35,470,739 0 44,683,578 0.02 0.29 1.09 19.21 79.38 0.00 0.01 100.00 A D D I t I o n A l A s X I n f o r m A t I o n unmarketable Parcels minimum PARCEL SiZE HOLDERS Minimum $ 500.00 parcel at $ 0.78 per unit 642 36 uniTS 4565 43 Top 20 Shareholders AS OF 19 SEPTEMEBER 2016 RAnK nAmE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. WONDER HOLDINGS PTY LTD MR STEPHEN JAMES LAMBERT + MRS RUTH LYNETTE LAMBERT + MR SIMON LEE LAMBERTCLASSIC CAPITAL PTY LTD KATANA ASSET MANAGEMENT LTD COOLAH HOLDINGS PTY LTD JOVE PTY LTD MR ROMANO SALA TENNA + MRS LINDA SALA TENNA PULO RD PTY LTD MR BRAD JOHN SHALLARD + MRS LISA MAREE DUPEROUZEL BS CAPITAL PTY LTD WAVEFRONT ASSET PTY LTD MR RONALD WILLIAM JAMES + MRS ELIZABETH JANET JAMES MRS LINDA SALA TENNA KATANA EQUITY PTY LTD CAMBO INVESTMENTS PTY LTD METHUEN HOLDINGS PTY LTD HOPERIDGE ENTERPRISES PTY LTD COLLORI PTY LTD MRS ELSIE DA SILVA MR MARCUS BESEN + MRS JULIE CATHERINE FLEMMING Totals: Top 20 holders of ORDinARY FuLLY PAiD SHARES (TOTAL) Total Remaining Holders Balance Substantial Shareholders nAmE WONDER HOLDINGS PTY LTD MR STEPHEN JAMES LAMBERT + MRS RUTH LYNETTE LAMBERT + MR SIMON LEE LAMBERT uniTS % OF uniTS 2,518,139 2,303,343 1,743,261 1,735,861 1,474,096 1,341,216 1,228,450 1,204,400 1,183,573 1,149,848 859,938 830,000 791,752 723,054 680,364 655,910 600,000 568,345 530,706 5.64 5.15 3.90 3.88 3.30 3.00 2.75 2.70 2.65 2.57 1.92 1.86 1.77 1.62 1.52 1.47 1.34 1.27 1.19 520,000 22,642,256 22,041,322 1.16 50.67 49.33 uniTS % OF uniTS 2,518,139 2,303,343 5.64 5.15 Katana Capital limited 2016 AnnuAl RepoRt Additional ASX Reporting (a) List of investments held as at 30 June 2016 Katana investment Portfolio Crown Resources Limited Australian Finance Group Limited Australia and New Zealand Banking Group Limited Bendigo and Adelaide Bank Limited Woodside Petroleum Limited A2 Milk Company Limited A D D I t I o n A l A s X r e p o r t I n G Santos Limited Pioneer Credit Limited BWX Limited Sandfire Resources NL National Australia Bank Limited 44 South32 Limited HFA Holdings Limited Henderson Group PLC QBE Insurance Group Limited Global Construction Services Limited Troy Resources Limited Mineral Resources Limited Isentia Group Limited Challenger Limited Pacific Current Group Limited Regis Resources Limited Commonwealth Bank of Australia Ingenia Communities Group Talisman Mining Limited Woolworths Limited Pacific Smiles Group Limited Perpetual Limited CSG Limited MNF Group Limited Cash Converters International Steadfast Group Limited AWE Limited Integrated Research Limited Yellow Brick Road Holdings Limited Reckon Limited IPH Limited Westpac Banking Corporation Adacel Technologies Limited Buru Energy Limited Beach Energy Limited DSHE Holdings Limited Motorcycle Holdings Limited Specialty Fashion Group Limited Carnarvon Petroleum Limited Cover-More Group Limited BC Iron Limited Ispire Network (Unlisted) Smarter Money Fund Betashares Australian High Interest Cash ETF BT Investment Management Limited Betashares Crude Oil Index ETF Independence Group NL (b) Total Number of Transactions during the report period Total number of transactions during the 12 months to 30 June 2016 was 1,109 with brokerage fees of $307,504. (c) Total management fees paid or accrued and summary of agreement Please refer to disclosure made in Remuneration Report. Katana Capital limited 2016 AnnuAl RepoRt K A T A n A C A P i T A L L i m i T E D 2 0 1 6 A N N u A L R E P O R T www.katanaasset.com