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Moelis Australia Limited
ACN 142 008 428
Contents
About Moelis Australia
Chairman and Chief Executive Officer’s Letter
Group Year in Review
Asset Management Year in Review
Capital Management
Corporate Advisory & Equities
Additional Information
Directors’ Report
Auditor’s Independence Declaration
Remuneration Report
Financial Report
Consolidated Statement of Profit or Loss
and other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Information
Glossary
Corporate Directory
1
2
4
6
8
9
11
13
21
22
29
31
32
33
34
35
93
94
100
102
iii
About Moelis Australia
Moelis Australia is an Australian Securities Exchange (ASX) listed diversified financial services group offering solutions in
asset management, corporate advisory and equities.
Founded in 2009 alongside longstanding partner and leading global investment bank Moelis & Company, we advise
companies on their most critical decisions and currently manage over $3.7 billion in assets on behalf of retail, institutional
and high-net-worth investors.
Our aim is to create long-lasting client relationships by providing strategic and innovative advice through a highly
collaborative approach, that is not limited to specific products or particular regions.
Moelis Australia believes in a partnership-style culture, where enterprise and commitment to excellence create an
environment that attracts, aligns and retains high-quality talent. The team currently comprises more than 160 people
working in offices across Sydney, Melbourne and Shanghai.1
For operating and compliance purposes, each business division operates independently and is governed by the corporate
executive function. For management reporting purposes, the business is presented in two segments: Asset Management
and Corporate Advisory & Equities.
Asset Management
The Asset Management division provides investment management services to retail and institutional investors, including
domestic and foreign high-net-worth individuals.
Guided by a philosophy of developing bespoke investment strategies not generally available to individual investors, Moelis
Australia provides access to asset classes across a range of industry sectors.
The Asset Management team benefits from Group and Corporate Advisory synergies, gaining insights into and access to
unique markets and investment opportunities.
Moelis Australia – managed funds primarily invest in the following alternative asset classes:
• Real estate;
• Credit, hybrid securities and structured investments; and
• Private equity and venture capital.
Asset Management also manages traditional asset classes, including cash, bonds and listed equities.
Corporate Advisory & Equities
The Corporate Advisory division provides strategic and financial advice and equity capital markets services to both private
and institutional clients. Its expertise covers mergers & acquisitions, equity capital markets, debt markets, restructuring and
special situations advisory services.
The Corporate Advisory division has a substantial track record of providing innovative financial advisory solutions to
clients, and has advised on a number of high-profile deals such as Varde, KKR and Deutsche Bank’s $8.2 billion acquisition
of GE Capital Australia & New Zealand Consumer Finance; Reliance Rail’s $2.0 billion recapitalisation and refinancing;
Hitachi’s $974 million acquisition of Bradken; Avoka Groups US$245 million sale to Temenos AG; Channel 10’s sale to CBS
and the restructure of Channel 9.
The Equities division provides securities research, sales and trading execution services to institutional and
high-net-worth clients. It also complements the Corporate Advisory division by providing equity capital markets expertise
and distribution capabilities to facilitate transactions on behalf of clients.
1. As at 31 December 2018, including Redcape Hotel Group head-office management
Moelis Australia Limited 2018 Annual Report
1
Chairman and Chief Executive Officer’s Letter
Dear Shareholder
We are pleased to present our 2018 Annual Report after another productive year of operation.
The Group achieved many successes both financially and operationally. Highlights included:
• Record Underlying EBITDA of $57.5 million (up 38% on FY17) derived from $136.3 million of revenue
(up 27% on FY17);
• Growing Underlying EBITDA margin from 39% to 42% while at the same time investing heavily in growing
our Asset Management platform;
• Asset Management now contributing over 80% of Group EBITDA before corporate overheads;
• Growing assets under management (AUM) to $3.7 billion, an increase of over $800 million for the year;
and
• Declaring a fully franked dividend of 8.0 cents per share.
We would like to thank our Board and executives for their hard work and commitment to the Group in 2018.
During 2018, the management team spent a significant amount of time and effort growing our operating
platform. Pleasingly, we were able to complete this investment while bettering last year’s EBITDA margin.
This effort included hiring approximately 40 people across our offices in Sydney and Melbourne and newly
established office in Shanghai.
At the time of releasing our FY17 full-year result, we highlighted an intention to operate with caution in 2018.
At that time we had concerns over global equity market volatility and the potential for a weakening Australian
economy. This caution proved appropriate; we experienced volatile equity markets in the first and last
quarters of the 2018 calendar year, highlighting the state of global markets and reflecting uncertainty over
the global economic and political environment.
We anticipate conditions to remain challenging in 2019. However, as a consequence of weaker economic
conditions we believe that interest rates should be maintained at relatively low levels, which should provide
a level of support for asset values and the economy overall.
We cannot control market volatility, regulatory and political uncertainty, or the strength of the economy – but
we can manage the way we operate in a changing financial environment. Notwithstanding the environment,
the Company has never been in a stronger operational or financial position.
During weak economic times our advisory business has historically performed well. Lower equity capital
market revenues, normally associated with volatile equity markets, can be offset by stronger revenues in
areas such as restructuring, and mergers & acquisitions advisory services.
Our Asset Management business continues to grow. Recurring income streams grew by 82% in 2018 and
will provide a strong earnings base for 2019. Our focus on originating credit products will provide clients with
stable, contract-based income that should be relatively resilient to shifting economic climates. We are also
encouraged by the growth opportunities associated with an increased presence in China, and the addition of
new institutional mandates across our real estate and credit platforms.
The year 2019 marks Moelis Australia’s 10-year anniversary. Although we are focused on the future, it is
important to look back and reflect on the considerable achievements of the business over our first decade of
operation.
2
Moelis Australia Limited 2018 Annual Report
We were founded in 2009. The combination of a small number of energetic and industrious Australian
executives and global investment bank Moelis & Company has proved to be a highly successful partnership.
We have enjoyed successes, growing our profitability and capital base, increasing our market presence, and
facilitating public investment in the business by listing on the ASX in 2017. We are very proud of our growth
from six Sydney-based employees in 2009 to today where we have in excess of 160 staff members directly
employed across our offices in Sydney, Melbourne and Shanghai and many thousands of people employed
across the businesses we control within our asset management operations.
Since inception, a key part of the Moelis Australia model is ensuring that our management team arrive at
work each day motivated and highly aligned with our clients and shareholders. Today, management remain
the largest shareholders in Moelis Australia and has investments in many of our funds.
Building a great business takes time and enormous effort. Success does not come easily. Over our first
decade of operation there have been ups and downs. We have no doubt that in the years ahead there will
be some variations in fortune. However, with continued focus and hard work we are confident that we will
continue to grow into an even stronger Company.
It is paramount and a feature of our success to date that we continue to apply an ownership mindset to
managing our assets, advising our clients and building a Company that will create long-term shareholder
value.
On behalf of the Board we would like to thank all of our staff members, clients and shareholders for helping
to build a Company that we can be proud of. We believe that the momentum generated, lessons learned and
discipline applied since founding the business will hold us in good stead into 2019.
Thank you for your ongoing support of Moelis Australia.
Yours sincerely,
Jeffrey Browne
Chairman
Andrew Pridham AO
Chief Executive Officer
Moelis Australia Limited 2018 Annual Report
3
Group Year in Review
Building a business that has long-term sustainable value remains at the forefront of everything we do. Our work in
2018 typified this approach reflected by the deliberate platform investments made across the Group. Initiatives such as
expanding our office footprint to China, increasing headcount and developing our technological capabilities were all
important steps forward. Notwithstanding this investment, we achieved EBITDA growth of 38% and a Group margin of 42%
(up from 39% in FY17).
The growth in the Group can be attributed to management’s focus on:
• Creating a culture that unifies employees and makes sure they are aligned with client and shareholder outcomes;
• The collaborative approach across divisions, and the synergies generated from the expertise of our executives who
own approximately 39% of the business with voluntary long term vesting;
• The flexibility of a strong balance sheet;
• The longstanding and active strategic alliance with New York Stock Exchange listed investment bank Moelis &
Company delivering access to high-quality expert bankers located throughout the world;
• The hard work, expertise and dedication of our Board, staff and executive team; and
• The longstanding support of our clients, shareholders and fund investors.
Key Financials
FY17
FY18
Increase
Underlying Revenue
($ million)
107.2
136.3
27%
Underlying EBITDA
($ million)
41.6
57.5
38%
Underlying EBITDA margin
(%)
39%
42%
8.8%
Underlying Net Profit After Tax (NPAT)
($ million)
29.1
39.3
35%
Underlying Earnings Per Share (EPS)
(cents)
23.0
25.7
12%
AUM
($ billion)
2.9
3.7
28%
Dividend per share
(cents)
7.0
8.0
14%
4
Moelis Australia Limited 2018 Annual Report
Group Year in Review (cont.)
As reflected in our 2018 key financials, the Moelis Australia business model continued to gain strength, with all divisions
working collaboratively to achieve client objectives throughout the year. A highlight of the year was the Group’s effort in
achieving the listing of Redcape Hotel Group, which represented an important moment for the Asset Management division
as it delivered the private-to-public transition fund investors were expecting. Moelis Australia remains highly aligned with
Redcape shareholders and highly supportive of Redcape's management, as they focus on growing long-term shareholder
value.
Group Revenue ($ million)
35.3
33.0
2.3
FY14
42.4
34.6
7.8
FY15
61.8
46.2
15.6
FY16
107.2
63.8
43.4
FY17
136.3
51.5
84.8
FY18
Asset Management revenue
Corporate Advisory & Equities revenue
Asset Management revenue grew by 95% in FY18. It now accounts for over 62% of Group revenue, and 80% of Group EBITDA
before corporate overheads – a step change from 48% in FY17. This transformation in the earnings profile over a single financial
year is the result of management’s ongoing commitment to growing recurring income streams. Obtaining an Australian Credit
Licence in May 2018 was important in this regard, as it increases the diversity of annuity-style credit products we can originate.
The Corporate Advisory & Equities business had a solid year despite being affected by volatility in global equity markets.
The Corporate Advisory division achieved revenue per executive within our long-term target range of productivity and
the mid-point of the guidance we provided in our 1H18 results. The Corporate Advisory business provides deep financial
expertise to the Group and is a highly cash generative business.
The ability to generate recurring cash from operations continues to be a prominent feature of our business model.
Monthly recurring cash flows (base management fees, investment income and equities commissions) covered 88% of our
operating expenditure during 2018 (FY17 approximately 70%).
2019 marks the 10th anniversary of Moelis Australia. The Company has come a long way, from the six executives that
founded the business in 2009 in partnership with Moelis & Company, to today’s team of over 160 employees.1
The platform investments made since our inception have reflected management’s long-term focus on building a leading
financial services group. Over the past 10 years the Company has generated substantial momentum and remains focused
on building long-term value.
1. As at 31 December 2018, including Redcape Hotel Group head-office management
Moelis Australia Limited 2018 Annual Report
5
Asset Management Year in Review
Performance
Asset Management recorded FY18 revenue of $84.8 million (up 95.5% on $43.4 million in FY17) and EBITDA of
$52.5 million (up 124.5% on $23.4 million in FY17). Highlights driving this result include:
• A full year’s earnings from the FY17 acquisitions of Armada Funds Management and Redcape;
• Stronger than anticipated inflows from high-net-worth clients;
• A 50% increase in credit product AUM and the acquisition of over $300 million in real estate;
• A material increase in the scale of the marketing and distribution platform; and
• The strategic use of balance sheet funds to seed opportunities.
FY18 base management fees were $45.8 million (up 53.5% on $29.9 million in FY17), transaction fees were $8.6 million
(flat on FY17) and performance fees were $8.4 million, representing our first realised performance fee as a listed company.
The growth in Asset Management’s income from strategic opportunities (particularly Redcape and credit), was a feature of
the result recording revenue of $22.0 million. Unearthing attractive investment opportunities, seeding them via our balance
sheet, and ultimately offering them in managed funds is a core feature of our business model.
AUM at 31 December 2018 was $3.7 billion, an increase of over $800 million during the year. There was growth in AUM
across all asset classes with the largest inflows occurring in real estate funds and credit opportunities. Pleasingly, we raised
over $200 million of real estate and credit inflow alongside two new foreign institutional clients.
Asset Management Revenue ($ million)
Assets Under Management ($ billion)
84.8
44.4
3.7
2.9
15.6
7.8
0.9
1.1
0.4
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
2.3
FY14
6
Moelis Australia Limited 2018 Annual Report
Asset Management Year in Review (cont.)
Operations
There was significant investment in the Asset Management platform in 2018 – both in the recruitment of talent and in the
continued development of technology-based systems. Headcount in the division increased to 47 people (up 29 from the
start of FY18).1 The increase in scale was primarily a result of growing the distribution, marketing and management teams in
Sydney and Melbourne and in the newly opened office in Shanghai. Establishing a full time presence in China reflects our
commitment to servicing our Asian based network and is an important step forward in our Asian growth strategy.
The growth of our platform led to a record year across many important operating metrics. Of note:
• Equity raised in Moelis Australia funds increased by approximately 30%;
• Total investor client numbers grew materially from approximately 1,300 to more than 2,500 (+92%);
• Total domestic high-net-worth investor numbers grew from over 500 to over 1,750 (+220%);
• Secured an additional two institutional mandates in core real estate and credit;
• Obtained an Australian Credit Licence, which has facilitated the ongoing origination of consumer-related credit; and
• AUM growth of $800 million taking total AUM to $3.7 billion at 31 December 2018.
Origination of credit products was a focus in FY18 but was moderated by our overall cautious view of the economy, and in
particular the Australian residential sector. Despite our high underwriting standards and overall caution, we continue to see
significant opportunity in credit origination across many parts of the economy.
Our investment philosophy is premised on deep research and concentrated in areas where we have significant experience
and expertise. Our success as an asset manager is ultimately measured by the long-term returns our funds produce for
investors. Key to achieving this is commitment to aligning interests whereby Moelis Australia and its executives co-invest in
many of our funds.
1. As at 31 December 2018, excluding Redcape Hotel Group head-office management
Moelis Australia Limited 2018 Annual Report
7
Capital Management
Year in Review
At the end of FY18, Moelis Australia held strategic and co-investments positions of $284.1 million, and net tangible assets of
$217.8 million (up 15% on FY17). This included cash of $86.7 million.
Strategic & Co-investments
Cash
Credit
Redcape Hotel Group (ASX:RDC)
Co-investments
Japara Healthcare Limited (ASX:JHC)
Other
Total
Value at
31 December 2018 ($m)
Percentage of total (%)
86.7
86.4
58.51
34.2
16.82
1.5
284.1
30.5%
30.4%
20.6%
12.0%
5.9%
0.6%
100%
The prudence that was displayed in our capital management during 2018 will continue in 2019. The consequence
of holding large cash balances (as we did over 2018) is generally dilutive to what near-term earnings may otherwise
have been on our capital base. However, we have always managed the business for the long term. Fundamental to
this is maintaining a strong balance sheet, including a strong cash balance that can facilitate attractive investment or
business opportunities.
Our capital may be applied in a number of ways including:
• Underwriting client-related capital raisings (debt and equity);
• Co-investing in managed funds to demonstrate alignment and achieve attractive investment returns;
• Taking strategic holdings to seed products for the establishment of new funds;
• Business acquisitions; and
• Managing liquidity for day-to-day operations.
Moelis Australia issued $25.0 million of unsecured corporate notes to clients in 2018 as part of the note program
established in 2017. This took our overall drawn notes programme to $57.2 million.
In the current environment we believe a high weighting in cash is prudent, particularly given the long run of asset price
appreciation in the current cycle. We believe that attractive opportunities will arise in time.
1. Based on Redcape Hotel Group (ASX:RDC) Net Asset Value (NAV) per share of $1.13 at 31 December 2018
2. Based on Japara Healthcare Limited (ASX:JHC) share price of $1.12 at 31 December 2018
8
Moelis Australia Limited 2018 Annual Report
Corporate Advisory & Equities
Performance
Corporate Advisory & Equities recorded FY18 Underlying Revenue of $51.5 million. Underlying Revenue from the Corporate
Advisory business was $42.3 million (-21.9% on FY17), which represented $1.2 million per executive head and was within our
stated long-term productivity guidance range of $1.1 million to $1.3 million per executive. The fall in revenue relative to FY17 was
due to a combination of factors including material global equity market volatility early in FY18 and more significantly the last
quarter of FY18 – which has historically contributed approximately 40% of annual Corporate Advisory revenue.
Notwithstanding achieving a lower revenue per executive in FY18 than FY17, this should be viewed in the context of
market conditions and the fact that FY17 productivity of $1.5 million per executive was above our stated productivity
guidance range.
We believe that the productivity achieved in a volatile market demonstrates the quality of our Corporate Advisory business
and its capacity to deliver relatively consistent revenue irrespective of changing market conditions.
Corporate Advisory & Equities Revenue ($ million)
33.0
25.5
7.4
FY14
34.6
21.2
13.4
FY15
46.2
31.2
15.0
FY16
1H revenue
2H revenue
63.8
40.9
22.9
FY17
51.5
28.2
23.2
FY18
Equities commission revenue was broadly in-line achieving $9.2 million in FY18 compared with $9.6 million in FY17.
The Equities business continues to provide a research and sales trading platform to service our institutional clients and
distribute equity capital markets transactions.
Operational Review
The Corporate Advisory team had a solid year advising on approximately $6.6 billion worth of transactions across
48 mandates. Highlights included advising:
• Saputo on its $1.3 billion acquisition of Murray Goulburn and subsequent $250 million sale of Koroit milk
processing plant;
• Slater and Gordon on its $782 million recapitalisation;
• SCA Property Group’s $573 million acquisition of shopping centres from Vicinity Centres and subsequent
$312 million capital raising;
• Redcape on its $623 million initial public offering (IPO);
• Avoka on its $US245 million sale to Temenos;
• Centuria Metropolitan REIT’s on its $276 million equity raising;
• Pivotal Systems on its $233 million IPO;
• Revasum on its $184 million IPO; and
• MediaWorks on its undisclosed refinancing.
Moelis Australia Limited 2018 Annual Report
9
Corporate Advisory & Equities (cont.)
Late in FY18 we strengthened our Corporate Advisory team by hiring two experienced Managing Directors and associated
teams. This represents the first investment in senior advisory executives for a number of years, and reflects our desire
to grow our overall footprint in Corporate Advisory and the market opportunities we see ahead. These senior hires were
made to augment our long-held practice of developing executive talent from within our business.
A key measure of success in Corporate Advisory is the generation and maintenance of client relationships. Moelis Australia
measures this by the number of repeat clients accumulated over time, as follow-on engagements serve to solidify
relationships and validate work.1 In 2018, we generated seven additional repeat clients, which is a record-equalling
result. Since our inception in 2009, Corporate Advisory has generated 45 repeat clients, on average achieving five to six
additional repeat clients each year.
Total Repeat Clients (cumulative)
45
38
31
25
15
19
8
3
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
1. Clients advised on more than one prior transaction
10
Moelis Australia Limited 2018 Annual Report
Additional Information
Corporate Advisory Strategic Alliance with Moelis & Company
Moelis Australia and Moelis & Company have a longstanding strategic alliance in relation to Corporate Advisory.
Moelis & Company is a leading global independent investment bank listed on the NYSE with a market capitalisation of
approximately US$2.7 billion.1 Moelis & Company holds approximately 33% of the issued capital in Moelis Australia.
The Moelis Australia and Moelis & Company strategic alliance agreement is designed to ensure that Moelis Australia
continues to remain integrated with Moelis & Company in the delivery and execution of corporate advisory services to its
Australian and global clients.
The strategic alliance is highly beneficial to both parties and will continue to benefit Moelis Australia by:
• Providing access to a global network of advisory executives sharing intellectual capital and access to client
relationships;
• Allowing cooperation on cross-border or industry specific advisory mandates; and
• Leveraging a strong and recognisable global brand in Moelis & Company.
The Moelis Standard
17 global Corporate
Advisory offices
The Moelis Standard inspires the highest level of quality,
partnership and integrity in every interaction with our clients
and each other.
We measure our performance by the long-term success of
our clients.
We stay ahead of the changing environment to provide
the most relevant advice and innovative solutions.
We share ideas and experience across our organisations
to achieve the best results for our clients.
We will not compromise our vision or values.
We foster a culture of partnership, passion, optimism and
hard work.
We deliver more.
1. As at 31 January 2019
Moelis Australia Limited 2018 Annual Report
11
Additional Information (cont.)
Moelis Australia Clients
Moelis Australia welcomed a large number of new clients across the Group over the year.
Moelis Australia acknowledges and appreciates the trust that clients have placed in the Group to provide the most relevant
advice and innovative solutions across our suite of products. In particular the Asset Management division takes on the
responsibility of being a custodian of clients’ money with great care. Moelis Australia will endeavour to return this client
trust with high-quality products and services.
People
Moelis Australia’s business is based on delivering the highest-quality long-term outcomes to clients and investors. Key to
achieving this is our commitment to attracting and retaining talent that aligns to our culture and values.
Over 2018, Moelis Australia welcomed close to 40 talented executives to the Group over the past year with each new
team member bringing unique skillsets to supplement our existing talent pool. We also promoted our first ever graduate
(from 2009) to the role of Executive Director. In addition, we offered 14 intern places to aspiring corporate advisors during
our summer and winter intakes. Finding and retaining the best talent is always a challenge, and we continue to explore
opportunities to ensure that Moelis Australia is an employer of choice. We have been fortunate to have experienced very
low staff turnover since our establishment in 2009.
Creating a first-class work environment requires commitment from each individual, and maintaining this culture is an
ongoing focus for management.
Culture
Moelis Australia’s culture is based on employee and client trust and we aim to hire innovative people who perpetuate a culture of
excellence, enterprise and commitment. The Board and senior management focus on developing strong working relationships
and creating a safe, inclusive and innovative working environment for all employees.
The Moelis Australia brand and reputation are core assets of our business and we encourage all employees to benchmark
themselves to the global Moelis Standards (outlined on page 11).
Moelis Australia encourages staff members to be proactive in giving back to the community. The Moelis Australia
Foundation established in 2017, reflects this belief.
Moelis Australia Foundation
The Moelis Australia Foundation (MAF) was established following our IPO to support community initiatives that align with
the culture and broader community interests of Moelis Australia and its executives.
The Independent Chairman of the MAF is Mark Nelson. Mark is a founder and chairman of the Caledonia Investment Group and
a director of The Caledonia Foundation. He is the Vice President of the Art Gallery of NSW Board of Trustees, a deputy chairman
of Art Exhibitions Australia and Kaldor Public Art Projects, a trustee of the Sydney Swans Foundation and governor of the Florey
Institute of Neuroscience. Andrew Pridham and Chris Wyke (Head of Corporate Finance Advisory) are also Directors of MAF.
The Moelis Australia team believes strongly in giving back to the community through projects the team is passionate about.
Empowering the team to suggest and drive community initiatives that are close to their heart through the MAF, underpins
our approach.
MAF asks staff members to nominate the charities they would like the Foundation to support. All staff members may
request that Moelis Australia donate to MAF in lieu of what may otherwise have been compensation paid to them
individually for their services. Some of the charities staff members have nominated include the Sydney Children’s Hospital,
Westmead Children’s Hospital, UNICEF, Dementia Australia, and the Fred Hollows Foundation.
Requests by staff members to direct what otherwise may have been paid to them totalled $2.2 million in 2018. In addition,
Moelis Australia separately contributed $200,000 to MAF in 2018.
Corporate Governance Statement
Moelis Australia’s Corporate Governance Statement has been approved by the Board and lodged with the ASX. A copy of
the Corporate Governance Statement is available at investors.moelisaustralia.com/corporate-governance/
12
Moelis Australia Limited 2018 Annual Report
Directors’ Report
Directors’ Report
The Directors of Moelis Australia Limited (“Company”) present their report together with the consolidated financial report of
the Company and its subsidiaries (“Group”) for the year ended 31 December 2018.
Directors
The Directors of the Company are:
Mr Jeffrey Browne (Independent Chairman and non-executive Director)
Mr Kenneth Moelis (non-executive)
Mr Joseph Simon (non-executive)
Mr Andrew Pridham (Chief Executive Officer)
Mr Julian Biggins (executive)
The Directors have been in office since the start of the financial year to the date of this report unless otherwise noted.
Information on Current Directors and Company Secretary
Mr Jeffrey Browne
Independent Non-Executive Director and Chairman
Experience and expertise
Jeff was appointed to the board on 27 February 2017.
Jeff was a senior executive at Nine Network Australia from 2006 until 2013, including serving
as Managing Director from 2010 to 2013. Jeff holds a Degree in Arts from La Trobe University,
Melbourne and a Degree in law from Monash University, Melbourne.
Other directorships
Chairman of Premoso Pty Ltd (owner of the business of “Holden Special Vehicles”).
Special responsibilities
Chairman of the Board
Chairman of the Audit and Risk Committee
Chairman of the Nomination and Remuneration Committee
Interests in the Company
Share Options: 781,250
14
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
Mr Kenneth Moelis
Non-Executive Director
Experience and expertise
Ken has served as a Director since the formation of Moelis Australia.
Ken is Chairman of Moelis & Company Group LP and has served as Chief Executive Officer
of that company since 2007. Ken has over 30 years of investment banking and mergers and
acquisitions experience. Prior to founding Moelis & Company, Ken worked at UBS from 2001
to 2007, where he was most recently President of UBS Investment Bank. Ken holds a Bachelor
of Science and an MBA from the Wharton School at the University of Pennsylvania.
Other directorships
Chairman and CEO of Moelis & Company Group LP (“Moelis & Company”)
Special responsibilities
Member of the Nomination and Remuneration Committee
Interests in the Company
Ken has 70.3% of the combined voting power of Moelis & Company class A and class B common
stock. As a result, Ken has a deemed relevant interest in all Shares held by Moelis & Company.
However, Ken does not have any rights to acquire or control the voting rights attached to the
Shares held by Moelis & Company.
Mr Joseph Simon
Non-Executive Director
Experience and expertise
Joe was appointed to the Board on 7 June 2016.
Joe is the Chief Financial Officer of Moelis & Company serving in that role since joining in 2010.
Joe has over 25 years of experience as a senior manager of financial controls, operations and
strategy and has particular experience with financial services firms. Joe holds a Bachelor of
Science from Cornell University and an MBA from The University of Michigan. He is a Certified
Public Accountant in the United States.
Other directorships
None
Special responsibilities
Member of the Audit and Risk Committee
Interests in the Company
None
Moelis Australia Limited 2018 Annual Report
15
Directors’ Report (cont.)
Mr Andrew Pridham AO
Executive Director and CEO
Experience and expertise
Andrew has served as a Director since the formation of Moelis Australia.
Andrew has 30 years of experience in investment banking and prior to the formation of Moelis
Australia he served as Executive Chairman of Investment Banking at JP Morgan Australia. Andrew
holds a Bachelor of Applied Science from the University of South Australia.
In January 2019, Andrew was appointed as an Officer in the General Division of the Order of
Australia for distinguished service to the investment banking and asset management sector, to
sporting groups, and to philanthropy.
Other directorships
Chairman of Sydney Swans Limited
Special responsibilities
Member of the Nomination and Remuneration Committee
Interests in the Company
Shares: Andrew has a beneficial equity interest in 19,626,761 Shares as a result of his holding in
the Existing Staff Trusts. As a result of Andrew’s ownership of the Staff Trustee, Andrew has a
deemed relevant interest in 50,812,013 Shares.
Mr Julian Biggins
Executive Director
Experience and expertise
Julian has served as an executive of Moelis Australia since its formation and was appointed to the
Board on 2 February 2017.
Julian has over 17 years of investment banking experience covering the real estate industry
including a senior role within JP Morgan’s Investment Banking division and UBS’ Equities
research division. Julian holds a Bachelor of Business (Real Estate) and a Bachelor of Business
(Banking & Finance) from the University of South Australia.
Other directorships
None
Special responsibilities
Member of the Audit and Risk Committee
Interests in the Company
Shares: Julian has a beneficial equity interest in 5,877,603 shares as a result of his holding in the
Existing Staff Trusts.
Share Rights: 304,194
Company Secretary
Mr Peter Dixon was appointed to the position of Company Secretary on 7 February 2017.
Peter joined Moelis Australia’s corporate advisory division in 2010, before taking on the role of General Counsel in August
2015. Peter has over 20 years experience in the legal, funds management and investment banking industries having
previously worked at Macquarie Group, Mallesons Stephen Jacques (now King & Wood Mallesons) and Linklaters.
Peter holds a Bachelor of Commerce (Finance) and a Bachelor of Laws from the University of New South Wales and is
admitted to practice as a solicitor in New South Wales.
16
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
Directors’ Meetings
The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the
financial year and the number of meetings attended by each Director (while they were a Director or committee member).
Board Meeting
Audit and Risk Committee
Nomination and Remuneration
Committee
Mr Jeffrey Browne
Mr Kenneth Moelis
Mr Joseph Simon
Mr Andrew Pridham
Mr Julian Biggins
A
8
5
8
8
8
B
8
8
8
8
8
A
5
N/A
5
N/A
5
B
5
N/A
5
N/A
5
A
2
1
N/A
2
N/A
B
2
2
N/A
2
N/A
A = Number of meetings attended
B = Number of meetings held during the time the Director held office during the year
# = Not a member of committee
Principal Activities
The Group is a financial services provider with offices in
Sydney and Melbourne. The Group’s principal activities in
the course of the year were providing corporate advisory,
equities and asset management services.
Changes in State of Affairs and Significant
Events
During the year the following significant events occurred:
Credit Investments
The Group’s asset management business established a
number of credit funds with a mandate to invest in credit
opportunities. The Group has co-invested in some of the
funds and further has made direct principal investments in
debt instruments.
Credit Licence
A subsidiary of Moelis Australia was granted an Australian
credit licence on 30 May 2018. The granting of the licence
enables the Group to provide further credit services and
expand the credit investment opportunities.
Establishment of Shanghai Office
Moelis Australia successfully registered a Wholly Foreign
Owned Enterprise (WFOE) in Shanghai, which will assist in
the servicing of China based investors.
Listing of Redcape Hotel Group
On 30 November 2018, Moelis Australia Redcape Hotel
Group, a fund managed by the Group, was listed on the
Australian Stock Exchange as Redcape Hotel Group
(ASX:RDC). Moelis Australia and related entities currently
own approximately 39% of Redcape.
Unsecured Note Program
In September and October 2018 the Group raised
$25 million in debt through the issue of four year
unsecured notes.
Operating and Financial Review
The Group recorded total comprehensive income for the
year of $27.2 million (2017: $31.9 million) and profit after
tax for the year of $30.5 million (2017: $29.6 million). Total
comprehensive income and profit after tax have been
prepared in accordance with the Corporations Act 2001
and Australian Accounting Standards, which comply with
International Financial Reporting Standards.
The Group recorded underlying net profit after tax
(“NPAT”) of $39.3 million (2017: $29.1 million). Underlying
NPAT and other measures of underlying performance are
not prepared in accordance with International Financial
Reporting Standards and are not audited. Underlying
NPAT excludes certain items which are disregarded by
management when assessing the Group’s performance.
The table below reconciles the Group’s total comprehensive
income prepared in accordance with International Financial
Reporting Standards to Underlying NPAT.
Moelis Australia Limited 2018 Annual Report
17
Directors’ Report (cont.)
Year Ended 31 December ($’000s)
Total comprehensive income for the year (as disclosed in the Financial Report)
2018
27,206
2017
31,859
Management adjustments:
Listing costs1
Armada Funds Management acquisition adjustments2
Shares issued to staff3
Performance fees deferral4
Unrealised gains/losses on investments5
Adjustments relating to associates6
Sale of joint venture7
Other8
Tax on above
Non Controlling Interests9
Underlying NPAT*
–
6,571
3,514
(6,400)
13,586
220
(2,221)
950
(2,982)
(1,161)
989
3,260
(8,444)
–
–
–
–
189
1,201
–
39,283
29,054
1
2
3
4
5
6
7
8
9
The costs relating to the Company’s Initial Public Offering.
The amortisation of acquired intangible assets and the share based payment expense relating to the shares issued to the vendors, who are now Moelis
Australia Group employees.
The value of Share Rights granted to employees is amortised over the vesting period (which is up to five years), with only a portion of the value being
expensed in 2018. The underlying result includes the full value of the Share Rights as an expense in the year granted.
Deferred performance fee associated with the IPO of the Redcape Hotel Group.
Unrealised gains/losses on strategic Group investments and the impact of the adoption of AASB 9.
The difference between the equity accounting entries taking up the share of profits of associates and revaluations attributable to the Group and the
underlying distributions actually received combined with the Board’s assessment of fair value movements of the overall investment.
Profit on sale reflecting the exercise of options to sell the Group’s interest in Acure Asset Management. The underlying adjustment aligns profit
recognition with settlement timing.
Includes the recognition of loan related fees upfront and the exclusion of theoretical credit losses in the underlying result.
Represents non controlling interests in the income of a loan receivable which has been repaid.
The table below shows the contributions to Underlying EBITDA of the two key business segments. Unallocated refers to
the Corporate Executive team which includes the CEO, CFO, COO, finance and legal teams.
Year Ended 31 December ($’000s)
Corporate Advisory and Equities
Asset Management
Unallocated
Underlying EBITDA**
Net profit after tax.
Earnings before interest, tax, depreciation and amortisation.
*
**
2018
13,240
52,484
(8,180)
57,544
2017
25,326
23,383
(7,085)
41,624
18
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
Please refer to section “2018 Year in Review” and
“Overview of Business Segments” for:
>
>
>
a review of operations during the year and the results
of those operations;
likely developments in the operations in future financial
years and the expected results of those operations; and
comments on business strategies and prospects for
future financial years.
Earnings per share
In respect of likely developments, business strategies
and prospects for future financial years, material which
if included would be likely to result in unreasonable
prejudice to the Group, has been omitted.
2018
2017
Underlying
Statutory
Underlying
Statutory
Basic EPS (cents/share)
Diluted EPS (cents/share)
25.7
24.8
20.0
19.4
23.0
22.4
23.4
22.8
Financial position
The Group raised $25 million of debt during the year via the unsecured notes program.
The summarised financial position at the end of the year is shown in the table below:
$ millions
Cash and cash equivalents
Loans receivable
Listed investments
Unlisted investments
Goodwill and other intangibles
Other assets
Total Assets
Borrowings
Other liabilities
Total Liabilities
Net assets
2018
86.7
111.5
76.1
35.2
23.0
42.7
2017
87.8
42.8
30.7
64.5
25.4
33.7
375.2
284.9
(57.2)
(77.2)
(134.4)
(32.2)
(37.2)
(69.3)
240.8
215.6
Dividends
A fully franked dividend of $10.8 million (7.0 cents per share)
for the full year ended 31 December 2017 was paid on
6 March 2018.
The Directors have declared a fully franked dividend of
8.0 cents per share for the full year ended 31 December
2018, payable on 6 March 2019.
Share Options
The Company had 5,401,900 Share Options outstanding
at 31 December 2018. For details on Share Options issued
during the year refer to note 34 to the financial statements.
Subsequent Events
At 31 December 2018 the Group had commitments of
$27.7 million in undrawn credit facilities.
On 1 January 2019 the Group disposed of its interest in a
loan asset for $12.7 million which represented all principal
plus accrued interest. The loan accounted for $10 million
in undrawn credit facilities.
On 1 February 2019, the Group completed the disposal of
its shareholding in Acure Asset Management Pty Ltd for
gross proceeds of $5 million.
Moelis Australia Limited 2018 Annual Report
19
Directors’ Report (cont.)
A fully franked dividend of 8.0 cents per Share totalling
$12.3m was declared.
Likely Developments
The Group continues to pursue its strategy of focusing on
its core operations. In particular the Group will continue
to market its managed funds and launch new managed
funds with the aim of growing asset management fee
revenue.
Environmental Regulation
The Group’s operations are not subject to any significant
environmental regulation.
Indemnification of Officers and Auditors
During the year, the Company paid a premium in respect
of a contract insuring the Directors and officers of the
Company against liabilities and legal expenses incurred as
a result of carrying out their duties as a Director or officer.
The Directors have not included details of the nature of the
liabilities covered or the amount of premium paid in respect
of this insurance, as such disclosure is prohibited under the
terms of the contract.
The Company has agreed to indemnify all current and
former Directors and company secretaries and certain
officers of the Company and its controlled entities against
all liabilities to persons (other than the Company or a
related body corporate) which arise out of the performance
of their normal duties as a Director, company secretary
or officer to the extent permitted by law and unless the
liability relates to conduct involving wilful misconduct, bad
faith or conduct known to be in breach of law.
The Company has not otherwise, during or since the end
of the financial year, except to the extent permitted by law,
indemnified or agreed to indemnify an officer or auditor
of the Company or any related body corporate against a
liability incurred as such an officer or auditor.
Non-Audit Services
During the financial year, Deloitte Touche Tohmatsu, the
Group’s auditor, has performed services in addition to
the audit and review of the financial statements. Details
of amounts paid or payable to the auditor are outlined in
Note 24 to the financial statements.
The Directors are satisfied that the provision of non-audit
services during the year, by the auditor (or by another
person or firm on the auditor’s behalf), is compatible
with the general standard of independence for auditors
imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as
disclosed in note 24 to the financial statements do not
compromise the external auditor’s independence, for the
following reasons:
>
all non-audit services have been reviewed and
approved to ensure that they do not impact the integrity
and objectivity of the auditor; and
> none of the services undermine the general principles
relating to auditor independence as set out in Code
of Conduct APES 110 Code of Ethics for Professional
Accountants issued by the Accounting Professional &
Ethical Standards Board, including reviewing or auditing
the auditor’s own work, acting in a management or
decision making capacity for the Company, acting as
advocate for the Company or jointly sharing economic
risks and rewards.
Rounding of Amounts
The Group is an entity of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument
2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the Directors’ report and
the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated.
Signed in accordance with a resolution of the Directors.
Jeffrey Browne
Independent Director and Chairman
20 February 2019
Andrew Pridham
Managing Director and Chief Executive Officer
20 February 2019
20
Moelis Australia Limited 2018 Annual Report
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
The Board of Directors
Moelis Australia Limited
Governor Phillip Tower
Level 27, 1 Farrer Place
SYDNEY NSW 2000
20 February 2019
Dear Board Members
Moelis Australia Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide
the following declaration of independence to the directors of Moelis Australia Limited.
As lead audit partner for the audit of the financial statements of Moelis Australia Limited
for the financial year ended 31 December 2018, I declare that to the best of my
Directors’ Report (cont.)
knowledge and belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
Auditor’s Independence Declaration
As auditor for the audit of Moelis Australia Limited for the
year ended 31 December 2018, I declare that to the best of
my knowledge and belief, there have been:
(ii) any applicable code of professional conduct in relation to the audit.
(b) no contraventions of any applicable code of
professional conduct in relation to the audit.
This declaration is in respect of Moelis Australia Limited
and the entities it controlled during the period.
(a) no contraventions of the auditor independence
requirements of the Corporations Act 2001 in relation
Yours sincerely
to the audit; and
DELOITTE TOUCHE TOHMATSU
Delarey Nell
Delarey Nell
Partner
Partner
Deloitte Touche Tohnatsu
Chartered Accountants
Sydney
20 February 2019
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under the Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Moelis Australia Limited 2018 Annual Report
21
Directors’ Report (cont.)
Directors’ Report Schedule:
Remuneration Report
The remuneration report provides information about
the remuneration arrangements for key management
personnel (KMP), which includes Non-Executive Directors
and the Group’s most senior management, for the year to
31 December 2018.
The report includes:
> Details of KMP covered in this report
> Remuneration policy and link to performance
> Remuneration of Non-Executive Directors
> Remuneration of Executive KMP
> Performance of KMP
> Statutory remuneration table
> Key terms of employment contracts
> KMP equity holdings and other transactions
Details of Key Management Personnel
The following persons are considered Key Management
Personnel of the Group during the most recent
financial year:
Non-Executive KMP
Mr Jeffrey Browne
Mr Kenneth Moelis
Mr Joseph Simon
Executive KMP
Mr Andrew Pridham
Mr Julian Biggins
Mr Hugh Thomson
Mr Christopher Wyke*
Mr Graham Lello*
Independent Non-Executive Director and Chairman
Non-Executive Director
Non-Executive Director
Executive Director and CEO
Executive Director and Head of Real Estate Advisory
Chief Operating Officer
Head of Corporate Advisory
Chief Financial Officer
*Mr Wyke was determined to be a KMP as of 1 January 2018 whilst Mr Lello was determined a KMP at 1 March 2018.
Remuneration policy and link to performance
Remuneration of Non-Executive Directors during the year
The Board recognises the important role people play
in achieving the Group’s long-term objectives and as a
key source of competitive advantage. To grow and be
successful, the Group must be able to attract, motivate and
retain capable individuals. When determining remuneration
the Group focuses on the following:
> Ensuring competitive rewards are provided to attract
and retain talent;
>
Linking remuneration to performance so that higher
levels of performance attract higher rewards;
> Aligning rewards of all staff, but particularly senior
management, to the creation of long term value to
shareholders; and
> Ensuring the overall cost of remuneration allows for an
appropriate return to shareholders over the long term.
Remuneration of Non-Executive Directors
The total amount provided to Non-Executive Directors
for their services must not exceed in aggregate and in
any financial year the amount fixed by the Company at its
annual general meeting. This amount has been fixed by the
Company at $500,000 per annum. In order to diversify and
expand the Board representation, an increase in this cap
is currently being reviewed. Any change to the aggregate
annual sum is required to be approved by shareholders.
Mr Kenneth Moelis and Mr Joseph Simon do not receive
any remuneration for their role as Non-Executive Directors.
Mr Jeffrey Browne is paid a fixed fee of $150,000 per
annum plus reimbursement of expenses for his role as
Non-Executive Director and Independent Chairman.
Remuneration of Executive Key Management Personnel
To achieve the aims of attracting, motivating and retaining
capable individuals, remuneration for all employees
includes a mix of fixed and variable remuneration. The fixed
component is delivered through a base salary inclusive
of superannuation. The variable component is delivered
through the annual bonus scheme. The process for
determining remuneration is the same for all employees,
but in this Remuneration Report the process is described to
the extent it applies to Executive KMP.
Each Executive KMP is eligible to participate in the annual
bonus scheme. The Executive KMP must be employed
at the time bonuses are paid in order to receive a bonus.
Payment of bonuses may be in cash or in equity, or a
combination of both.
22
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
The review of salaries and the payment of bonuses to
Executive KMP and whether it is delivered in cash or equity
is determined annually by the Board on recommendation
from the Nomination and Remuneration Committee. In
determining any salary increases and bonus amounts
for Executive KMP, the Board takes into account a range
of factors including the performance of the Group,
market remuneration levels, key metrics such as total
compensation of all employees as a percentage of Group
revenue, as well as the performance of each Executive
KMP. In determining what proportion of the aggregate
annual bonus is provided in equity, the Board takes into
account a number of factors including the need to align
Executive KMP with the goals of the Group as well as
market practice.
The Group’s Equity Incentive Plan allows a variety of
types of equity to be issued to employees (including to
Executive KMP), including Shares, rights to receive Shares
in the future, or Share Options. Such equity is subject to
vesting conditions as determined by the Board including
continuation of employment with the Group. Generally
Underlying EBITDA $million#
Underlying NPAT $million#
Underlying EPS (cents/share)#
Statutory EBITDA $million
Statutory Comprehensive Income $million
Statutory EPS (cents/share)
Dividends declared (cents/share)
Remuneration of Executive KMP*
Existing KMP's
New 2018 KMP's
employees who leave before the relevant vesting dates
will forfeit their equity. The Board retains discretion to allow
employees to retain their equity upon ceasing employment,
and may do so depending on the particular circumstances
of an employee’s departure. Recipients of equity grants are
not allowed to hedge their economic interest.
Performance of Key Management Personnel
The review of the performance of the Executive KMPs
includes both qualitative and quantitative factors,
including the financial performance of the Group. The
performance of each Executive KMP determines his or her
annual bonus and any salary increase. The Independent
Chairman receives a fixed fee regardless of performance,
and the other two Non-Executive Directors receive no
remuneration.
For financial performance, a key measurement is how
the Group’s underlying result has performed compared
to the prior year. The table below compares the Group’s
performance for 2018 against 2017. As 2017 is the first year
that the Group has been listed, the table does not include
the performance of the preceding two years.
Year ended 2018
Year ended 2017
% change
57.5
39.3
25.7
46.8
27.2
20.0
8.0
2018
3.4
2.8
41.6
29.1
23.0
43.1
31.9
23.4
7.0
2017
3.9
–
38%
35%
12%
9%
(15%)
(14%)
14%
(13%)
*
#
the remuneration of KMP shown in the table above includes salary and annual bonus, including the full value of Share Rights in the year of grant.
Underlying numbers are not audited.
Remuneration of Executive Key Management Personnel during the year
For the 2017 and 2018 annual bonus, the Board granted employees a combination of cash and the right to receive Shares
in the future (“Share Rights”). Key terms of the Share Rights are detailed in the table below.
2018 Share Rights
2017 Share Rights
Vesting Period
First
Vesting
Date
3 years
1 January 2020
5 years
1 January 2019
Grant Price
$4.36
$6.08
Moelis Australia Limited 2018 Annual Report
23
Directors’ Report (cont.)
The Share Rights are subject to a continuation of
employment vesting condition and do not include future
performance hurdles or targets, as the Board considers that
the annual bonus and related Share Rights grant represents
remuneration for performance during the year of grant.
Share Rights recipients are entitled to receive a payment
equivalent to the dividend paid by the Company (if any),
but excluding the dividend to be paid for the year when the
Share Rights were granted.
The value of each Share Right is determined by reference
to the trading in the Company’s shares in the five business
days up to the date of grant, adjusted for the dividend to
be paid for that year.
2018 Annual bonus
Andrew Pridham
Julian Biggins
Hugh Thomson
Christopher Wyke
Graham Lello*
No. of Share Rights
Granted
Value of Share
Rights Granted
–
159,868
19,597
177,917
29,748
–
$697,500
$85,500
$776,250
$129,792
*
Remuneration reflects his time as an Executive KMP from 1 March 2018.
The Shares required to discharge the liability under the Share Rights granted to Mr Biggins will be acquired by the
Employee Share Trust through purchases on-market.
2018 Remuneration
Andrew Pridham*
Julian Biggins
Hugh Thomson
Christopher Wyke
Graham Lello**
*
**
Mr Pridham elected not to be considered for a bonus.
Remuneration reflects his time as an Executive KMP from 1 March 2018.
Fixed
100%
23%
58%
22%
47%
Variable
(Cash) Bonus
Variable
(Equity) Bonus
–
44%
28%
46%
23%
–
33%
13%
33%
30%
24
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
Statutory Remuneration Table
The following tables disclose total remuneration of Key Management Personnel in accordance with the Corporations
Act 2001:
Executive KMP
Short-term employee benefits
Salary &
Fees
(including
superan -
nuation)
Andrew Pridham 2018
450,000
Bonus (Cash
component)
–
–
Total Cash
450,000
450,050
Non –
monetary
and Other
33,450
37,205
Julian Biggins
2017
2018
2017
450,000
450,000
852,500 1,302,500
450,000
1,072,500
1,522,500
Hugh Thomson
2018
406,487
199,500
605,987
Chris Wyke**
2017
2018
2017
350,000
450,000
N/A
312,000
662,000
948,750
1,398,750
N/A
N/A
Graham Lello*** 2018
333,333
160,694
494,027
2017
N/A
N/A
N/A
Long-term
employee
benefits
Share
Based
Payments*
Total
Remune -
ration
Long service
leave
Bonus
(Equity
compo -
nent)
7,016
7,117
7,010
7,112
39,335
–
7,011
N/A
–
–
490,466
494,322
637,835
1,947,345
224,873
1,754,485
96,772
43,053
742,094
705,053
682,840 2,088,601
N/A
N/A
28,638
208,753
731,418
N/A
N/A
N/A
–
–
–
–
–
–
–
–
Total 2018
2,089,820
2,161,444 4,251,264
33,450
89,010
1,626,200 5,999,924
Total 2017
1,250,000
1,384,500 2,634,500
37,205
14,229
267,926 2,953,860
*
**
Reflects the amortisation of share rights granted in 2017 & 2018.
Executive KMP from 1 January 2018 therefore no comparative.
***
Executive KMP from 1 March 2018 therefore proportionate and no comparative.
Non-Executive KMP
Short-term employee benefits
Long-term
employee
benefits
Share
Based
Payments
Total
Remune -
ration
Salary
& Fees
(including
superan -
nuation)
Bonus (Cash
component)
Jeffrey Browne
2018
150,000
2017
151,250
Kenneth Moelis 2018
Joseph Simon
2017
2018
2017
–
–
–
–
Total 2018
150,000
Total 2017
151,250
–
–
–
–
–
–
–
–
Total Cash
150,000
151,250
–
–
–
–
150,000
151,250
Non –
monetary
and Other
Long service
leave
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Options
61,645
5,226
211,645
156,476
–
–
–
–
–
–
–
–
61,645
211,645
5,226
156,476
Moelis Australia Limited 2018 Annual Report
25
Directors’ Report (cont.)
The annual bonus (both cash and equity components) granted to KMP was determined by the Board as explained in the
preceding sections of this report. Mr Pridham elected to not be considered for a bonus.
Paid during the year *
% Vesting in future years **
Amount
% of Total
Remuneration
Amount
% of Total
Remuneration
2018
Executive KMP
Andrew Pridham
Julian Biggins
Hugh Thomson
Christopher Wyke
Graham Lello
Non-Executive KMP
Jeffery Browne
483,450
1,302,500
605,987
1,398,750
494,027
100%
65%
88%
64%
79%
–
697,500
85,500
776,250
129,792
150,000
100%
–
–
35%
12%
36%
21%
–
28%
Total
4,434,714
72%
1,689,042
*
**
Includes cash component of 2018 annual bonus which will be paid in March 2019.
In relation to Executive Key Management Personnel, the amount shown as vesting in future years is the 2018 Share Rights which will vest in three annual
equal instalments commencing 1 January 2020 and ending 1 January 2022. Vesting is subject to continuation of employment.
Key Terms of Employment Contracts
Chief Executive Officer
The major terms and conditions of the employment
contract are summarised as follows:
> Fixed Compensation inclusive of minimum
superannuation contributions;
> Car parking within the building occupied by the Group;
The terms of Mr Pridham’s contract were agreed when
Moelis Australia was established and were based on
market conditions at that time. The terms have not been
varied since. There are no terms in the contract which
affect compensation in future periods.
> Eligible to participate in the annual bonus incentive
Other Executive KMP
scheme, with payment in any one year determined at
the discretion of the Board;
> The Group may terminate this employment contract
by providing three months written notice or provide
payment in lieu of the notice period. Any payment
in lieu of notice will be based on the total fixed
compensation package. Mr Pridham may terminate this
employment contract by providing three months written
notice; and
> The Group may terminate the employment contract
at any time without notice if serious misconduct has
occurred. When termination with cause occurs the
CEO is only entitled to remuneration up to the date of
termination.
The employment contracts of other Executive KMP are
substantially on the same terms as that of the CEO, with the
following exceptions:
> No car parking entitlement
> The Group may terminate Mr Lello’s contract by giving
six months written notice. Mr Lello may terminate his
contract by giving six months written notice.
26
Moelis Australia Limited 2018 Annual Report
Directors’ Report (cont.)
KMP equity holdings
The following tables set out each KMP’s interests in the Company:
Shares in the Company
Non-Executive KMP
Jeffrey Browne
Kenneth Moelis*
Joseph Simon
Executive KMP
Andrew Pridham**
Julian Biggins**
Hugh Thomson**
Christopher Wyke**
Graham Lello
Shares
Balance at
1 January 2018
Acquired during
the period
Sold
during
the period
Balance at
31 December 2018
–
–
–
21,807,514
6,530,671
518,984
6,530,671
–
–
–
–
–
–
–
–
32,680
–
–
–
–
–
–
(2,180,751)
(653,068)
(51,898)
(653,068)
–
19,626,763
5,877,603
467,086
5,877,603
32,680
*
**
Mr Moelis has 70.3% of the combined voting power of Moelis & Company class A and class B common stock. As a result, Mr Moelis has a deemed
relevant interest in all Shares held by Moelis & Company. However, Mr Moelis does not have any rights to acquire or control the voting rights attached to
the Shares held by Moelis & Company.
Each have a beneficial interest in the number of shares set out in this table as a result of their holdings in the Existing Staff Trusts. Shares sold during the
year resulted from redemptions of units in the Existing Staff Trusts.
Share Rights in the Company
Non-Executive KMP
Jeffrey Browne
Kenneth Moelis
Joseph Simon
Executive KMP
Andrew Pridham
Julian Biggins
Hugh Thomson
Christopher Wyke
Graham Lello
Share Rights
Balance at
1 January 2018
Granted during the
period
Vested during the
period
Balance at signing
date
–
–
–
–
144,326
27,632
146,176
163,399
–
–
–
–
159,868
19,597
177,917
35,698
–
–
–
–
–
–
–
(32,680)
–
–
–
–
304,194
47,229
324,093
166,417
No KMP Share Rights were forfeited during 2018.
Moelis Australia Limited 2018 Annual Report
27
Directors’ Report (cont.)
Options
Chairman’s options
Prior to its listing, the Company offered Mr Jeffrey Browne
(and Mr Browne accepted) the opportunity to purchase
781,250 Share Options, with each option carrying the right
to acquire one share in the Company at a future date. The
Share Options were offered to Mr Browne to provide him
an interest in the Company, and are not subject to any
performance conditions other than continuing to serve as
the Company’s Independent Chairman. Details of the Share
Options acquired by Mr Browne on 4 April 2017 are shown
in the table below. No Share Options held by Mr Browne
were exercised or forfeited during the year.
Number of
Options issued
in 2017
390,625
390,625
Loans to KMP
Grant Date
Share Price
Exercise Price of
Option
Earliest Date
of Exercise
Expiry Date
Value of Options
at Grant Date
(cents per
option)
Amount Paid
(cents per
option)
$2.35
$2.35
$2.80
8 April 2019
7 April 2020
$3.00
8 April 2020
7 April 2021
5.1
4.2
1.7
1.8
There were no loans with KMP’s during the year.
Transactions with KMP
There were no transactions with KMP’s during the year
28
Moelis Australia Limited 2018 Annual Report
Financial Report
Moelis Australia Limited 2018 Annual Report
29
Financial Report
Consolidated Statement of Profit or Loss
and other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
1 Summary of significant accounting policies
2 Application of new and revised Australian
Accounting Standards
3 Net fee and commission income
4 Segment information
5
Investment income
6 Other income
7
Income tax
8
Interest expense
9 Other expenses
10 Receivables
11 Other assets (current)
12 Restricted cash
13 Property, plant and equipment
14 Goodwill
15 Intangible assets
16 Loans receivable
17 Trade and other payables
18 Borrowings and redeemable preference shares
19 Provisions
20 Contributed equity and share options
21 Dividends
22 Cash and cash equivalents
23 Operating leases
24 Remuneration of auditors
25 Personnel expenses
26 Other financial assets
27 Investments in Associates and Joint Ventures
28 Parent entity disclosures
29 Financial instruments
30 Key management personnel compensation
31 Related party transactions
32 Reserves
33 Disposal of interests in subsidiaries
34 Share based payments
35 Earnings per share
36 Contingent liabilities and commitments
37 Subsequent events
38 Subsidiaries
Directors’ Declaration
Independent Auditor’s Report
Additional Information
Glossary
Corporate Directory
71
71
72
72
73
73
74
74
79
79
85
85
87
87
88
90
90
90
91
93
94
100
102
iii
31
32
33
34
35
35
46
58
58
62
62
63
64
65
65
66
66
66
67
68
69
70
70
70
30
Moelis Australia Limited 2018 Annual Report
Statement of Profit or Loss and other Comprehensive Income
for the year ended 31 December 2018
Fee and commission income
Fee and commission expense
Net fee and commission income
Share of profits of associates
Investment income
Other income
Net income
Personnel expenses
Marketing and business development expenses
Communications, data and information technology expenses
Occupancy expenses
Interest expense
Depreciation & amortisation
Other expenses
Total expenses
Profit before tax
Income tax expense
Profit for the period
Notes
3
5
6
2018
$’000
127,413
(9,823)
117,590
446
19,680
5,514
2017
$’000
106,889
(6,781)
100,108
23
1,257
3,447
143,230
104,835
25
69,405
44,925
3,530
3,042
2,940
7,869
2,970
8,074
97,830
45,400
(14,855)
30,545
3,873
3,377
2,436
488
968
6,226
62,293
42,542
(12,975)
29,567
8
13,15
9
7
Other comprehensive income, net of income tax
Items that may be classified subsequently to profit or loss:
Net unrealised loss on investments
–
(1,333)
Items that will not be classified subsequently to profit or loss:
Net unrealised loss on investments
32
Share of other comprehensive income of associates
Total comprehensive income for the period
Profit is attributable to:
Owners of the Company
Non controlling interests
Total comprehensive income is attributable to:
Owners of the Company
Non controlling interests
Earnings per share
Basic earnings per share
Diluted earnings per share
35
35
(9,318)
5,979
27,206
–
3,625
31,859
29,384
1,161
29,567
–
26,045
1,161
Cents
20.0
19.4
31,859
–
Cents
23.4
22.8
The above statement of comprehensive income is to be read in conjunction with the accompanying notes.
Moelis Australia Limited 2018 Annual Report
31
Statement of Financial Position
as at 31 December 2018
Assets
Current assets
Cash and cash equivalents
Receivables
Loans Receivable
Other financial assets
Other assets
Total current assets
Non-current assets
Restricted cash
Loans receivable
Other financial assets
Property, plant and equipment
Investments in associates and joint ventures
Intangible assets
Goodwill
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Redeemable preference shares
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Non controlling interests
Total shareholders equity
Notes
2018
$’000
2017
$’000
22
10
16
26
11
12
16
26
13
27
15
14
17
7
19
17
18
19
18
7
20
32
86,652
32,231
64,920
–
1,950
185,753
5,965
46,561
25,574
2,146
86,201
13,184
9,827
87,786
17,034
–
30,459
1,211
136,490
14,239
42,848
4,763
1,205
59,966
15,560
9,827
189,458
148,408
375,211
284,898
16,066
4,201
21,152
41,419
5,137
57,150
1,662
25,500
3,517
92,966
10,105
5,957
14,406
30,468
493
32,150
1,389
–
4,767
38,799
134,385
69,267
240,826
215,631
189,924
16,743
35,320
(1,161)
240,826
191,507
8,493
15,631
–
215,631
The above statement of financial position is to be read in conjunction with the accompanying notes.
32
Moelis Australia Limited 2018 Annual Report
Statement of Changes in Equity
for the year ended 31 December 2018
Contributed
equity
$’000
Note 20
Share based
payment
reserve
$’000
Note 34
Retained
Earnings
$’000
Investments
Revaluation
Reserve
$’000
Note 32
FVTOCI
Reserve
$’000
14,796
–
17,064
893
–
–
29,567
–
–
–
2,292
–
(31,000)
–
–
180,141
(1,419)
(2,011)
–
–
–
–
–
–
–
–
5,308
–
–
–
–
–
–
–
–
–
–
–
–
–
Attribu-
table to
owners of
the parent
$’000
Non
controlling
interests
$’000
Total
Equity
$’000
32,753
–
32,753
29,567
–
29,567
2,292
–
2,292
(31,000)
–
(31,000)
180,141
(1,419)
(2,011)
5,308
–
–
–
–
180,141
(1,419)
(2,011)
5,308
191,507
5,308
15,631
3,185
–
215,631
–
215,631
191,507
5,308
15,631
3,185
–
215,631
–
215,631
–
–
(89)
308
391
610
–
610
191,507
5,308
15,542
3,493
391
216,241
–
216,241
–
–
30,545
–
–
30,545
(1,161)
29,384
–
–
8,131
(9,800)
86
–
–
–
–
–
–
10,890
–
5,979
(9,318)
(3,339)
(10,767)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10,767)
8,131
(9,800)
86
10,890
–
–
–
–
–
–
(3,339)
(10,767)
8,131
(9,800)
86
10,890
189,924
16,198
35,320
9,472
(8,927)
241,987
(1,161)
240,826
Balance at
1 January 2017
Profit for the
period
Other
comprehensive
income for the
period
Payment of
dividends
Issue of ordinary
shares
Capitalised
IPO costs
Treasury shares
Share based
payments
Balance at
31 December
2017
Balance at
1 January 2018
Adjustments
from adoption
of AASB 9 & 15
Restated
balance at
1 January 2018
Profit for the
period
Other
comprehensive
income for the
period
Payment of
dividends
Issue of ordinary
shares
Treasury shares
Capitalised IPO
costs
Share based
payments
Balance at
31 December
2018
The above statement of changes in equity is to be read in conjunction with the accompanying notes.
Moelis Australia Limited 2018 Annual Report
33
Statement of Cash Flows
for the year ended 31 December 2018
Cash flows from operating activities
Receipts from customers
Interest and dividends received
Amounts (repaid to)/received from affiliates
Payments to suppliers and employees
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
22
Cash flows from investing activities
Payments to acquire financial assets
Proceeds on sale of financial assets
Amounts advanced to third parties
(Payments)/receipts for employee loans
Payments to acquire shares in associates
Capital returns received from associates
Distributions from investments
Net cash inflows/(outflows) to dispose/(acquire) shares in
subsidiary companies
Payments to acquire property, plant and equipment
Net cash used in investing activities
Cash flows from financing activites
Proceeds from issue of shares
Purchase of treasury shares
Share issue transaction costs
Proceeds from borrowings
Proceeds from share based payments
(Increase)/decrease in restricted cash
Amounts received from related parties
Dividends paid
Net cash from financing activities
Notes
2018
$’000
2017
$’000
110,003
102,567
7,116
(863)
(65,837)
50,419
(1,006)
(16,841)
32,572
(4,169)
652
(64,085)
(232)
(22,889)
7,011
4,552
25,500
(1,533)
(55,193)
8,131
(9,800)
–
25,000
–
8,274
–
(10,767)
20,838
2,974
280
(68,144)
37,677
(3)
(9,328)
28,346
(33,280)
4,388
(44,951)
1,497
(54,750)
3,234
–
(9,645)
(805)
(134,312)
169,150
–
(2,409)
32,150
127
(11,105)
64
(31,000)
156,977
Net (decrease)/increase in cash and cash equivalents
(1,783)
51,012
Cash and cash equivalents at the beginning of the year
87,786
37,229
Effects of exchange rate changes on the balance
of cash held in foreign currencies
649
(454)
Cash and cash equivalents at the end of the year
22
86,652
87,786
The above statement of cash flows is to be read in conjunction with the accompanying notes.
34
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements
for the year ended 31 December 2018
1
a
Summary of significant accounting
policies
Basis of preparation
The principal accounting policies adopted in the
preparation of this Financial Report and that of the previous
financial year are set out below. These policies have been
consistently applied to all the financial years presented,
unless otherwise stated.
This Financial Report is a general purpose financial
report which has been prepared in accordance with the
Corporations Act 2001, Australian Accounting Standards
and Interpretations, and complies with other requirements
of the law. The Financial Report comprises the consolidated
financial statements of the Group and accompanying notes.
For the purposes of preparing the consolidated financial
statements, the Company is a for-profit entity.
The Group is an entity of the kind referred to in ASIC
Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument amounts
in the directors’ report and the financial statements are
rounded off to the nearest thousand dollars, unless
otherwise indicated.
All amounts are presented in Australian dollars.
The financial statements were authorised for issue by
Directors on 20 February 2019.
Compliance with International Financial
Reporting Standards
Accounting Standards include Australian Accounting
Standards. Compliance with Australian Accounting
Standards ensures that the financial statements and notes
of the Company and the Group comply with International
Financial Reporting Standards (‘IFRS’).
Historic cost convention
The consolidated financial statements have been prepared
on the basis of historical cost, except for certain financial
instruments that are measured at fair value at the end of
the reporting period. Historical cost is generally based on
the fair values of the consideration given in exchange for
goods and services.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date,
regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating
the fair value of an asset or liability, the Group takes into
account the characteristics of the asset or liability if market
participants would take those characteristics into account
when pricing the asset or liability at the measurement date.
Fair value for measurement and/or disclosure purposes
in these consolidated financial statements is determined
on such a basis, except for measurements that have some
similarities to fair value but are not fair value, such as value
in use in Australian Accounting Standard Board (“AASB”)
number 136: ‘Impairment of Assets’.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based
on the degree to which the inputs to the fair value
measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which
are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity
can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices
included within Level 1, that are observable for the
asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset
or liability.
Critical accounting judgments and key sources of
estimation uncertainty
The preparation of the Financial Report requires the use
of judgment, estimates and assumptions. Should different
assumptions or estimates be applied, the resulting values
may change, impacting the net assets and income of the
Group. These estimates and assumptions are reviewed on
an ongoing basis. The nature of the significant estimates
and judgments made are noted below.
(i)
Assessment of control and significant influence
Five of the funds which the Group manages (Redcape
Hotel Group, Moelis Australia Aged Care Fund, Moelis
Australia Senior Secured Credit Fund II, Moelis Australia
Kincare Fund and Moelis Australia Exchanges Fund) (each
a “Fund”), have investors which include the Group, in its
corporate capacity, and other funds the Group manages.
The accounting treatment of the Group’s investment in a
Fund, depends on whether the Group is deemed to control
the Fund (in which case the Fund is to be consolidated), or
whether the Group has significant influence over the Fund
(in which case the investment in the Fund is to be equity
accounted). AASB 10 Consolidated Financial Statements
sets out the factors to be taken into consideration when
determining whether the power that the Group may
have over a Fund constitutes control. The factors include
considering the magnitude and variability of returns that
the Group may receive by virtue of its remuneration as the
Fund’s trustee or manager, its direct investment in the Fund
and the holdings that other Moelis managed funds may
have in the Fund. AASB 10 does not include a prescriptive
method of calculation, nor a “bright line” as to the level of
magnitude or variability above which the Group would be
deemed to control a Fund. The Group has undertaken the
exercise of quantifying magnitude and variability of returns
for each Fund, and has concluded that it does not control
any of the Funds but does retain significant influence for
each of them.
Moelis Australia Limited 2018 Annual Report
35
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Refer note 27 for financial information on the performance
and financial position of each of the Funds.
degree of judgement. Further information on share based
payments is included in note 34.
(ii)
Determining fair value of finite life intangible asset
(v)
During the prior year the Group acquired Armada Funds
Management, a real estate funds manager which earns
revenue from existing fund management contracts and
has the potential to generate additional revenue from the
establishment of new funds. The aggregate value of the
forecast profit generated from each existing fund has been
recorded as an intangible asset. In determing the values
of the forecast profit generated from each existing fund, a
number of estimates and assumptions were required to be
made including:
•
likely life of each fund
• assumptions as to revaluation of fund assets,
maintenance of fee rates and transactional fees
•
reduction in overheads as funds are terminated
• appropriate discount rate to apply to forecast cashflows
Impairment of interests in associates and joint
ventures
Impairment exists when the carrying value of an asset
or cash generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs to sell and
its value in use. The Group assesses impairment of non-
financial assets (other than goodwill and other indefinite
life intangible assets) at each reporting date by evaluating
conditions specific to the Group and to the particular asset
that may lead to impairment. If an impairment indicator
exists, the recoverable amount of the asset is determined.
This involves fair value less costs to sell or value-in-use
calculations, which incorporate a number of key estimates
and assumptions. Information about the valuation
techniques and inputs used in determining the fair value of
various assets and liabilities are disclosed in notes 27.
(refer note 15 for further information)
(vi)
Impairment of loans and receivables
The deferred tax liability includes an amount of $4.0 million
(2017: $4.7 million) relating to the intangible asset
recognised as a result of the acquisition of Armada Funds
Management.
(iii)
Impairment of intangible assets including goodwill
Determining whether goodwill or other intangible assets
are impaired requires an estimation of the value in use
of the cash-generating units to which goodwill has been
allocated. The value in use calculation requires the Group
to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order
to calculate present value. Where the actual future cash
flows are less than expected, a material impairment loss
may arise.
Information on the judgements used in determining the
value in use is provided in note 14 for goodwill and note 15
for intangible assets.
The carrying amount of goodwill at 31 December 2018
was $9.8 million (31 December 2017 $9.8m). The carrying
amount of intangible assets at 31 December 2018 was
$13.2 million (31 December 2017 $15.6 million).
(iv)
Employee benefits
Employee benefits include share rights granted to staff
on commencement of employment and as part of the
bonus incentive scheme, the vesting of which are subject
to continuous employment conditions. The value of
these grants is amortised over the vesting period, on the
basis that employees do not leave prior to vesting. The
value of the grant has been determined by reference
to the trading in the Company’s shares. The amortising
period commences from the date employees first had
an expectation of receiving an equity component to
their annual bonus, and was assessed as 1 January 2018
(2017: 1 March 2017). Determination of this date required a
36
Moelis Australia Limited 2018 Annual Report
The expected credit loss of each loan and each account
receivable balance is determined by the probability
of default, loss given default and exposure at default.
The consideration of these factors requires judgement,
taking into account a range of factors including the age
of the debt, prior history of the debtor, prior experience
in recovery of similar debts as well as consideration
of economic indicators that may impact the future
collectability of the loan or receivable. For further
information refer notes 10 and 16.
(vii) Options
The Company has granted options to employees and its
Chairman. For accounting purposes, the fair value of the
options is amortised as an expense over the vesting period
of the options. Determining the fair value for accounting
purposes required a number of assumptions and
judgements to be made. Refer note 34 for details.
(viii) Revenue recognition
Fees on Corporate Advisory assignments are typically
subject to performance criteria and other conditions,
including ones outside of the Group’s control. The Group is
required to exercise judgement when recognising revenue,
as to whether it is highly probable that there is a significant
reversal in the amount of cumulative revenue recognised
will not occur when the uncertainty associated with the
consideration is subsequently resolved. Please refer to
note 1(c) for details.
b
Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and entities controlled
by the Company. Control is achieved when the Company:
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
1
Summary of significant accounting
policies (cont.)
Basis of consolidation (cont.)
b
• has power over the investee;
•
is exposed to, or has rights, to variable returns from its
involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses 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
listed above.
When the Company has less than a majority of the voting
rights of an investee, it has power over the investee when
the voting rights are sufficient to give it the practical ability
to direct the relevant activities of the investee unilaterally.
The Company considers all relevant facts and circumstances
in assessing whether or not the Company’s voting rights in
an investee are sufficient to give it control, including:
•
the size of the Company’s holding of voting rights
relative to the size and dispersion of holdings of the
other vote holders;
• potential voting rights held by the Company, other vote
holders or other parties;
•
rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate
that the Company has, or does not have, the current
ability to direct the relevant activities at the time that
decisions need to be made, including voting patterns at
previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company
obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically,
income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated
statement of profit or loss and other comprehensive
income from the date the Company gains control until the
date when the Company ceases to control the subsidiary.
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.
c
Revenue recognition
Fee and commission income includes fees from fund
management, brokerage, corporate advisory, and
underwriting and is recognised as the control of the
underlying service is transferred to the customer. Where
commissions and fees are subject to clawback or meeting
certain performance hurdles, they are recognised as
income when it is highly probable those conditions will
not affect the outcome. Fee and commission income and
expenses that are integral to the effective interest rate on
a financial asset or liability are capitalised and included in
the effective interest rate and recognised in the income
statement over the expected life of the instrument.
Performance fees from managed funds are recognised
when it is highly probable that a significant reversal of the
fee will not occur. Factors that are taken into consideration
for performance fees include:
•
•
the proportion of assets already realised
returns on assets realised to-date
• downside valuation on remaining unrealised assets and
reliability of those estimates
• nature of unrealised investments and their returns.
Dividends and distributions are recognised as income when
the Group becomes entitled to the dividend or distribution.
Interest income is brought to account using the effective
interest method. The effective interest method calculates
the amortised cost of a financial instrument and allocates
the interest income or interest expense over the relevant
period. The effective interest rate is the rate that discounts
estimated future cash receipts or payments through
the expected life of the financial instrument or, when
appropriate, a shorter period, to the net carrying amount
of the financial asset or liability. Fees and transaction
costs associated with loans are capitalised and included
in the effective interest rate and recognised in the income
statement over the expected life of the instrument.
Interest income is included with dividend and distribution
income as “investment income” in the statement of profit
and loss and other comprehensive income.
d
Operating lease payments
Payments made under operating leases are recognised in
profit or loss on a straight-line basis over the term of the
lease. In the event that lease incentives are received to
enter into operating leases, such incentives are recognised
as a liability. The aggregate benefit of incentives is
recognised as a reduction of rental expense on a straight-
line basis, except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.
e
Foreign Currency Transactions
The financial statements of the Group are presented in the
currency of the primary economic environment in which the
Group operates (its functional currency). For the purpose
of the consolidated financial statements, the results and
financial position of the Group are expressed in Australian
dollars (‘$’), which is the functional currency of the Group
and the presentation currency for the consolidated
financial statements.
In preparing the consolidated financial statements,
transactions in currencies other than the Group’s functional
currency (foreign currencies) are recognised at the rates
of exchange prevailing at the dates of the transactions.
Moelis Australia Limited 2018 Annual Report
37
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Foreign exchange differences arising on translation
are recognised in the profit or loss. At the end of each
reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that
date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at
the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not
retranslated.
The rate used to translate foreign currency denominated
assets and liabilities balances at year end was USD 0.71.
f
Employee benefits
A liability is recognised for benefits accruing to employees
in respect of wages and salaries, bonus, annual leave
and long service leave in the period the related service is
rendered.
Liabilities recognised in respect of short-term employee
benefits are measured at their nominal values using
the remuneration rate expected to apply at the time of
settlement.
Liabilities recognised in respect of long term employee
benefits are measured as the present value of the
estimated future cash outflows to be made by the Group
in respect of services provided by employees up to
reporting date.
g
Taxation
The Group is a tax-consolidated Group (Tax Group) under
Australian taxation law, of which Moelis Australia Limited
is the head entity. As a result, Moelis Australia Limited is
subject to income tax as the head entity of the Tax Group.
The consolidated current and deferred tax amounts for the
Tax Group are allocated to the members of the Tax Group
using the ‘separate taxpayer within group’ approach, with
deferred taxes being allocated by reference to the carrying
amounts in the financial statements of each member
entity and the tax values applying under tax consolidation.
Current tax liabilities and assets and deferred tax assets
arising from unused tax losses and relevant tax credits
arising from this allocation process are then accounted
for as immediately assumed by the head entity, as under
Australian taxation law the head entity has the legal
obligation (or right) to these amounts.
Entities within the Tax Group have entered into a tax
funding agreement and a tax sharing agreement with the
head entity. Under the terms of the tax funding agreement,
Moelis Australia Limited and its subsidiaries have agreed
to pay a tax equivalent payment to or from the head entity
equal to the tax liability or asset assumed by the head
entity for that period as noted above. The amount arising
under the tax funding arrangement for each period is equal
to the tax liability or asset assumed by the head entity for
that period and no contribution from (or distribution to)
equity participants arises in relation to income taxes.
38
Moelis Australia Limited 2018 Annual Report
The tax sharing agreement entered into between
members of the Tax Group provides for the determination
of the allocation of income tax liabilities between the
entities should the head entity default on its tax payment
obligations or if an entity should leave the Tax Group. The
effect of the tax sharing agreement is that each company in
the Tax Group’s liability for tax payable by the Tax Group is
limited to the amount payable to the head entity under the
tax funding arrangement.
Current tax
The tax currently payable is based on taxable profit for
the year. Taxable profit differs from profit before tax as
reported in the consolidated statement of comprehensive
income because of items of income or expense that are
taxable or deductible in other years and items that are
never taxable or deductible. The Tax Group’s liability for
current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the
reporting period.
Deferred Tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities
in the consolidated financial statements and the
corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all
deductible temporary differences to the extent that it is
probable that taxable profits will be available against which
those deductible temporary differences can be utilised.
Such deferred tax assets and liabilities are not recognised
if the temporary differences arises from goodwill or from
the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries
and associates, and interests in joint ventures, except
where the Tax Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary
differences associated with such investments and interests
are only recognised to the extent that it is probable that
there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they
are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed
at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered.
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
1
Summary of significant accounting
policies (cont.)
Taxation (cont.)
g
Deferred Tax (cont.)
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the period in which the
liability is settled or the asset realised, based on tax rates (and
tax laws) that have been enacted or substantively enacted by
the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences
that would follow from the manner in which the Tax Group
expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to
income taxes levied by the same taxation authority and
the Tax Group intends to settle its current tax assets and
liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in
other comprehensive income or directly in equity, in which
case the current and deferred tax are also recognised
in other comprehensive income or directly in equity,
respectively. Where current tax or deferred tax arises
from the initial accounting for a business combination, the
tax effect is included in the accounting for the business
combination.
h
Plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses.
Depreciation is recognised so as to write off the cost or
valuation of assets less their residual values over their
useful lives, using the straight-line method. The estimated
useful lives, residual values and depreciation method
are reviewed at the end of each reporting period, with
the effect of any changes in estimate accounted for on a
prospective basis. The depreciation periods are as follows:
• computer and office equipment 3 years
•
•
furniture and fittings 7 years
leashold improvements are amortised over the term of
the lease
The gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
i
Impairment of tangible and intangible assets
other than goodwill
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss
(if any). Where it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the
recoverable amount of the cash-generating unit to which
the asset belongs. When a reasonable and consistent
basis of allocation can be identified, corporate assets are
allocated to individual cash-generating units, or otherwise
they are allocated to the smallest group of cash-generating
units for which a reasonable and consistent allocation basis
can be identified.
Recoverable amount is the higher of fair value less costs
of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the
risks specific to the asset for which the estimates of future
cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is
reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss, unless the relevant
asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the
carrying amount of the asset (or cash-generating unit)
is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been
determined had no impairment loss been recognised for
the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in profit
or loss, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss
is treated as a revaluation increase.
j
Provisions
Provisions are recognised when:
•
•
the Group has a present obligation (legal or
constructive) as a result of a past event,
it is probable that the Group will be required to settle
the obligation,
• and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate
of the consideration required to settle the present
obligation at the end of the reporting period, taking into
account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash
flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
Moelis Australia Limited 2018 Annual Report
39
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
k
Goods and services tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except:
(i) where the amount of GST incurred is not recoverable
from the taxation authority, it is recognised as part of
the cost of acquisition of an asset or as part of an item
of expense; or
(ii) for receivables and payables which are recognised
inclusive of GST.
The net amount of GST recoverable from, or payable to,
the taxation authority is included as part of receivables or
payables.
Cash flows are included in the cash flow statement on a
gross basis. The GST component of cash flows arising from
investing and financing activities which is recoverable from,
or payable to, the taxation authority is classified within
operating cash flows.
l
Share-based payments transactions of the
Group
Equity-settled share-based payments to employees and
others providing similar services are measured at the fair
value of the equity instruments at the grant date. Details
regarding the determination of fair value of equity-settled
share-based transactions are set out in note 34.
The fair value determined at the grant date of the equity-
settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group’s
estimate of equity instruments that will eventually vest,
with a corresponding increase in equity. At the end of
each reporting period, the Group revises its estimate
of the number of equity instruments expected to vest.
The impact of the revision of the original estimates,
if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a
corresponding adjustment to the equity-settled employee
benefits reserve.
Equity-settled share-based payment transactions with
parties other than employees are measured at the fair
value of the goods or services received, except where that
fair value cannot be estimated reliably, in which case they
are measured at the fair value of the equity instruments
granted, measured at the date the entity obtains the goods
or the counterparty renders the service.
m
Financial instruments
Financial assets and financial liabilities are recognised
when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets
and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial
40
Moelis Australia Limited 2018 Annual Report
recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognised immediately in
profit or loss.
Financial assets
Financial assets are classified into the following specified
categories:
•
financial assets ‘at fair value through profit or loss’ (FVTPL),
• equity instruments ‘at fair value through other
comprehensive income’ (FVTOCI), and
•
‘amortised cost’.
The classification depends on the nature and purpose
of the financial assets and is determined at the time of
initial recognition. All regular way purchases or sales of
financial assets are recognised and derecognised on
a trade date basis. Regular way purchases or sales are
purchases or sales of financial assets that require delivery
of assets within the time frame established by regulation or
convention in the marketplace.
Classification of Financial Assets
Debt instruments that meet the following conditions are
subsequently measured at amortised cost:
• The financial asset is held within a business model
whose objective is to hold financial assets in order to
collect contractual cash flows, and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
Debt instruments that meet the following conditions are
subsequently measured at FVTOCI:
• The financial asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling the financial assets,
and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
The Group holds no debt instruments measured at FVOCI.
By default, all other financial assets are subsequently
measured at FVTPL.
Despite the aforegoing, the Group may make the following
irrevocable election/designation at initial recognition of a
financial asset:
The Group may irrevocably elect to present subsequent
changes in fair value of an equity investment in other
comprehensive income if certain criteria are met such as,
if the equity instrument is not held for trading; and
The Group may irrevocably designate a debt investment
that meets the amortised cost or FVTOCI criteria as
measured at FVTPL if doing so eliminates or significantly
reduces an accounting mismatch.
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
1
Summary of significant accounting
policies (cont.)
Financial instruments (cont.)
m
Financial assets (cont.)
Financial assets classified as amortised cost
The amortised cost of a financial asset is:
•
the amount at which the financial asset is measured at
initial recognition;
• minus the principal repayments;
• plus the cumulative amortisation using the effective
interest method of any difference between that initial
amount and the maturity amount; and
• adjusted for any loss allowance.
The effective interest method is a method of calculating
the amortised cost of a debt instrument and of allocating
interest income over the relevant period. The effective
interest rate is the rate that exactly discounts estimated
future cash receipts (including all fees and points paid or
received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts)
excluding expected credit losses, through the expected life
of the debt instrument to the gross carrying amount of the
debt instrument on initial recognition.
Interest income is recognised using the effective interest
method for debt instruments measured subsequently at
amortised cost. Interest income is calculated by applying
the effective interest rate to the gross carrying amount of a
financial asset. For financial assets that have subsequently
become credit-impaired, interest income is recognised by
applying the effective interest rate to the amortised cost
of the financial asset. If, in subsequent reporting periods,
the credit risk on the credit-impaired financial instrument
improves so that the financial asset is no longer credit-
impaired, interest income is recognised by applying the
effective interest rate to the gross carrying amount of the
financial asset. Interest income is recognised in profit or
loss and is included in the “investment income” line item.
Equity investments at FVTOCI
On initial recognition, the Group may make an irrevocable
election (on an instrument-by-instrument basis) to
designate investments in equity instruments as at FVTOCI
on the basis that they are held for strategic purposes.
Designation at FVTOCI is not permitted if the equity
investment is held for trading.
A financial asset is held for trading if:
•
It has been acquired principally for the purpose of
selling it in the near term; or
• On initial recognition it is part of a portfolio of identified
financial instruments that the Group manages together
and has evidence of a recent actual pattern of short-
term profit-taking; or
•
It is a derivative
Investments in equity instruments at FVTOCI are initially
measured at fair value plus transaction costs. Gains and
losses relating to these financial assets will be recognised
in other comprehensive income. Dividends from such
investments are recognised as income in profit or loss when
the Group has the right to receive payments unless the
dividend clearly represents a recovery of part of the cost of
the investment. The accumulated fair value reserve related to
these investments will never be reclassified to profit or loss.
The Group has designated all investments in equity
instruments that are not held for trading as at FVTOCI on
initial application of AASB 9.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being
measured at amortised cost or FVTOCI are measured at
FVTPL. Specifically:
•
Investments in equity instruments are classified as
at FVTPL, unless the Group designates an equity
investment that is neither held for trading nor a
contingent consideration arising from a business
combination as at FVTOCI on initial recognition
• Debt instruments that do not meet the amortised
cost criteria or the FVTOCI criteria are classified as at
FVTPL. In addition, debt instruments that meet either
the amortised cost criteria or the FVTOCI criteria may
be designated as at FVTPL upon initial recognition if
such designation 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. The Group
has not designated any debt instruments as at FVTPL.
Financial assets at FVTPL are measured at fair value
at the end of each reporting period, with any fair value
gains or losses recognised in profit or loss. Net gains
and losses, including any interest or dividend income
earned on the financial asset, are recognised in profit &
loss in the ‘other gains and losses’ line item. Fair value
is determined in the manner described in note 29.
Impairment of financial assets
The Group recognises a loss allowance for expected
credit losses on investments in debt instruments that
are measured at amortised cost or at FVTOCI, lease
receivables, amounts due from customers under
construction contracts, as well as on loan commitments
and financial guarantee contracts. No impairment loss
is recognised for investments in equity instruments. The
amount of expected credit losses (“ECLs”) is updated at
each reporting date to reflect changes in credit risk since
initial recognition of the respective financial instrument.
For trade receivables, the Group has elected to use the
simplified approach and has determined the loss allowance
based off the lifetime ECL. The expected credit losses on
these financial assets are estimated based on the Group’s
historical credit loss experience, adjusted for factors that
are specific to the debtors, general economic conditions
Moelis Australia Limited 2018 Annual Report
41
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
and an assessment of both the current as well as the
forecast direction of conditions at the reporting date,
including time value of money where appropriate.
In particular, the following information is taken into
account when assessing whether credit risk has increased
significantly since initial recognition:
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase
in credit risk since initial recognition. If, on the other
hand, the credit risk on the financial instrument has not
increased significantly since initial recognition, the Group
measures the loss allowance for that financial instrument
at an amount equal to 12 months ECL. The assessment of
whether lifetime ECL should be recognised is based on
significant increases in the likelihood or risk of a default
occurring since initial recognition instead of on evidence of
a financial asset being credit-impaired at the reporting date
or an actual default occurring.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected
life of a financial instrument. In contrast, 12 month ECL
represents the portion of lifetime ECL that is expected to
result from default events on a financial instrument that are
possible within 12 months after the reporting date.
Financial assets, other than those at FVTPL, are assessed
for indicators of impairment at the end of each reporting
period. Financial assets are considered to be impaired
where there is objective evidence that, as a result of one
or more events that occurred after the initial recognition of
the financial asset, the estimated future cash flows of the
investment have been affected.
The Group has provided for commitments that are both
drawn and undrawn. The undrawn commitment is contingent
on the counterparty achieving contractual milestones.
Once they are achieved, the amount can be drawn upon
and expected to be met within 12 months. The Group has
included a loss allowance on the entire commitments based
on the 12 month ECL for these commitments.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets.
Significant increase in credit risk
When determining whether the credit risk of a financial
asset has increased significantly since initial recognition
and when estimating ECLs, the Group considers reasonable
and supportable information that is relevant and available
without undue cost or effort. This includes both quantitative
and qualitative information and analysis, based on
the Group’s historical experience and informed credit
assessment including forward-looking information. As part of
the forward looking assessment, the Group has considered
economic indicators such as economic forecast and outlook,
GDP growth, unemployment rates and interest rates.
The Group determines a significant increase in credit
risk based on the number of days past due. A non-trade
receivable loan is assessed to have increased in credit risk
when the number of days past due is over 90 days. This is
based on historical data.
42
Moelis Australia Limited 2018 Annual Report
• existing or forecast adverse changes in business,
financial or economic conditions that are expected to
cause a significant decrease in the debtor‘s ability to
meet its debt obligations,
• an actual or expected significant deterioration in the
operating results of the debtor, and
• an actual or expected significant adverse change in the
regulatory, economic, or technological environment of
the debtor that results in a significant decrease in the
debtor’s ability to meet its debt obligations.
The Group assumes that the credit risk on a financial
instrument has not increased significantly since initial
recognition if the financial instrument is determined to have
low credit risk at the reporting date. A financial instrument
is determined to have low credit risk if:
(i)
the financial instrument has a low risk of default,
(ii) the borrower has a strong capacity to meet its
contractual cash flow obligations in the near term, and
(iii) adverse changes in economic and business conditions
in the longer term may, but will not necessarily, reduce
the ability of the borrower to fulfil its contractual cash
flow obligations.
For loan commitments and financial guarantee contracts,
the date that the Group becomes a party to the irrevocable
commitment is considered to be the date of initial
recognition for the purposes of assessing the financial
instrument for impairment. In assessing whether there has
been a significant increase in the credit risk since initial
recognition of a loan commitment, the Group considers
changes in the risk of a default occurring on the loan to
which a loan commitment relates; for financial guarantee
contracts, the Group considers the changes in the risk that
the specified debtor will default on the contract.
The Group regularly monitors the effectiveness of
the criteria used to identify whether there has been a
significant increase in credit risk and revises them as
appropriate to ensure that the criteria are capable of
identifying significant increase in credit risk before the
amount becomes past due.
Definition of Default
The Group considers the following as constituting an event
of default for internal credit risk management purposes
as historical experience indicates that receivables that
meet either of the following criteria are generally not
recoverable.
• When there is a breach of financial covenants by the
counterparty, or
•
Information developed internally or obtained from
external sources indicates that the debtor is unlikely
to pay its creditors, including the Group, in full (without
taking into account any collaterals held by the Group).
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
1
Summary of significant accounting
policies (cont.)
Financial instruments (cont.)
m
Financial assets (cont.)
Write off Policy
The Group writes off a financial asset when there is
information indicating that the counterparty is in severe
financial difficulty and there is no realistic prospect of
recovery. Any recoveries made are recognised in profit
or loss. Trade receivables are written off when there is no
reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst
others, the failure of a debtor to engage in a repayment
plan with the Group.
Measurement and recognition of expected credit
losses
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows
due to the entity in accordance with the contract and the
cash flows that the Group expects to receive). It consists of
3 components:
(a) probability of default (PD): represents the possibility of a
default over the next 12 months and remaining lifetime
of the financial asset;
(b) a loss given default (LGD): expected loss if a default
occurs, taking into consideration the mitigating effect of
collateral assets and time value of money;
(c) exposure at default (EAD): the total exposure at time of
default
For financial assets, the expected credit loss is estimated
as the difference between all contractual cash flows that
are due to the Group in accordance with the contract
and all the cash flows that the Group expects to receive,
discounted at the original effective interest rate.
For undrawn loan commitments, the expected credit loss is
the present value of the difference between the contractual
cash flows that are due to the Group if the holder of the
loan commitment draws down the loan, and the cash flows
that the Group expects to receive if the loan is drawn down.
The Group has applied the three stage model based on the
change in credit risk since initial recognition to determine
the loss allowances of its financial assets.
Stage 1- 12 month ECL
At initial recognition, ECL is collectively assessed and
measured by classes of financial assets with the same
level of credit risk as a product of the PD within the next
12 months and LGDs with consideration to forward looking
economic indicators. Loss allowances for financial assets
measured at amortised cost are deducted from the gross
carrying amount of the assets.
Stage 2: Lifetime ECL
When the Group determines that there has been a
significant increase in credit risk since initial recognition
but not considered to be credit impaired, the Group
recognises a lifetime ECL calculated as a product of the PD
for the remaining lifetime of the financial asset and LGD,
with consideration to forward looking economic indicators.
Similar to Stage 1, loss allowances for financial assets
measured at amortised cost are deducted from the gross
carrying amount of the assets.
Stage 3: Lifetime ECL – credit impaired
At each reporting date, the Group assesses whether
financial assets carried at amortised cost and debt
securities at FVTOCI are credit-impaired. A financial asset
is ‘credit-impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of
the financial asset have occurred. For financial assets that
have been assessed as credit impaired, a lifetime ECL is
recognised as a collective or specific provision, and interest
revenue is calculated by applying the effective interest rate
to the amortised cost instead of the carrying amount.
The Group recognises a loss allowance for expected
credit losses on investments in debt instruments that are
measured at amortised cost or at FVTOCI, as well as on
loan commitments. No impairment loss is recognised for
investments in equity instruments. The amount of expected
credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the
respective financial instrument.
The Group applies the AASB 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables. To
measure the expected credit losses, trade receivables have
been grouped based on shared credit risk characteristics
and the days past due. The ECLs were calculated based
on actual credit loss relating to revenue from experience
over the past 4 years adjusted for the Group’s forward
looking expectations based off economic indicators. The
Group performed the calculations of ECL rates separately
for receivables arising from the advisory business and other
asset management fees as asset management fees have
been received in full historically.
Financial liabilities and equity instruments
Classification as debt or equity
Debt or equity instruments issued by a Group entity
are classified as either financial liabilities or as equity
in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and
an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting
Moelis Australia Limited 2018 Annual Report
43
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
all of its liabilities. Equity instruments issued by a Group
entity are recognised at the proceeds received, net of
direct issue costs.
Repurchase of the Company’s own equity instruments is
recognised and deducted directly in equity. No gain or loss
is recognised in profit or loss on the purchase, sale, issue
or cancellation of the Company’s own equity instruments.
Financial liabilities
Financial liabilities that are not designated as at FVTPL,
are subsequently measured at amortised cost using the
effective interest method. The effective interest method is
a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all
fees and points paid or received that form an integral part
of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the
financial liability, or (where appropriate) a shorter period, to
the amortised cost of a financial liability.
Other financial liabilities
Other financial liabilities, including borrowings and trade
and other payables, are initially measured at fair value, net
of transaction costs.
n
Loans receivable
Loans and receivables are recognised on settlement date,
when cash is advanced to the borrower. A loss allowance
is recognised measured at an amount equal to a 12 month
ECL. Please refer to note 1 (m) for further information.
o
Goodwill
Goodwill arising on an acquistion of a business is carried
at cost as established at the date of the acquisition of the
business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is
allocated to each of the Company’s cash-generating units
(or groups of cash-generating units) that is expected to
benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been
allocated is tested for impairment annually, or more
frequently where there is indication that the unit may be
impaired. If the recoverable amount of the cash-generating
unit is less than its carrying amount, the impairment loss
is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets
of the unit pro rata based on the carrying amount of
each asset in the unit. Any impairment loss for goodwill
is recognised directly in profit or loss. An impairment loss
recognised for goodwill is not reversed in subsequent
periods.
On disposal of the relevant cash-generating unit, the
attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
44
Moelis Australia Limited 2018 Annual Report
p
Investments in associates and joint ventures
An associate is an entity over which the Group has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions
of the investee but is not control or joint control over those
policies.
A joint venture is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to
the net assets of the joint arrangement. Joint control is the
contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing
control.
The results and assets and liabilities of associates or joint
ventures are incorporated in these consolidated financial
statements using the equity method of accounting.
Under the equity method, an investment in an associate
or a joint venture is initially recognised in the consolidated
statement of financial position at cost and adjusted
thereafter to recognise the Group’s share of the profit or
loss and other comprehensive income of the associate
or joint venture. When the Group’s share of losses of an
associate or a joint venture exceeds the Group’s interest
in that associate or joint venture (which includes any
long-term interests that, in substance, form part of the
Group’s net investment in the associate or joint venture),
the Group discontinues recognising its share of further
losses. Additional losses are recognised only to the
extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the associate
or joint venture. An investment in an associate or a joint
venture is accounted for using the equity method from
the date on which the investee becomes an associate
or a joint venture. On acquisition of the investment in an
associate or a joint venture, any excess of the cost of the
investment over the Group’s share of the net fair value
of the identifiable assets and liabilities of the investee
is recognised as goodwill, which is included within the
carrying amount of the investment. Any excess of the
Group’s share of the net fair value of the identifiable
assets and liabilities over the cost of the investment, after
reassessment, is recognised immediately in profit or loss in
the period in which the investment is acquired.
When necessary, the entire carrying amount of the
investment (including goodwill) is tested for impairment
in accordance with AASB 136 ‘Impairment of Assets’ as a
single asset by comparing its recoverable amount (higher
of value in use and fair value less costs of disposal) with
its carrying amount. Any impairment loss recognised forms
part of the carrying amount of the investment. Any reversal
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
1
p
Summary of significant accounting
policies (cont.)
Investments in associates and joint ventures (cont.)
of that impairment loss is recognised in accordance with
AASB 136 to the extent that the recoverable amount of the
investment subsequently increases.
q
Intangible assets
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination
and recognised separately from goodwill are initially
recognised at their fair value at the acquisition date (which
is regarded as their cost).
Subsequent to their initial recognition, intangible assets
acquired in a business combination are reported at
cost less accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on a
straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed
at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective
basis.
For intangible assets that have a finite useful life, an
assessment is made at each reporting date for indications
of impairment. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher
of the asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent
of the cash inflows from other assets or groups of assets
(cash-generating units). Intangible assets (other than
goodwill) that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when
no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of
an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the
asset, are recognised in profit or loss when the asset is
derecognised.
r
Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a
business combination is measured at fair value, which is
calculated as the sum of the acquisition-date fair values
of the assets transferred by the Group, liabilities incurred
by the Group to the formers owners of the acquiree and
the equity interests issued by the Group in exchange
for control of the acquiree. Acquisition-related costs are
generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value at
the date of acquisition.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-
controlling interests in the acquiree, and the fair value
of the acquirer’s previously held equity interests in the
acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the
liabilities assumed. If, after reassessment, the net of
the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of
the consideration transferred, the amount of any non-
controlling interests in the acquiree and the fair value of the
acquirer’s previously held interest in the acquiree (if any),
the excess is recognised immediately in profit or loss as a
bargain purchase gain.
Non-controlling interests that are present ownership
interests and entitle their holders to a proportionate share
of the entity’s net assets in the event of liquidation may
be initially measured either at fair value or at the non-
controlling interests’ proportionate share of the recognised
amounts of the acquiree’s identifiable net assets. The
choice of measurement basis is made on a transaction-by-
transaction basis.
When the consideration transferred by the Group in
a business combination includes assets or liabilities
resulting from a contingent consideration arrangement,
the contingent consideration is measured at its
acquisition-date fair value and included as part of the
consideration transferred in a business combination.
Changes in the fair value of the contingent consideration
that qualify as measurement period adjustments are
adjusted retrospectively, with corresponding adjustments
against goodwill. Measurement period adjustments are
adjustments that arise from additional information obtained
during the ‘measurement period’ (which cannot exceed
one year from the acquisition date) about facts and
circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value
of the contingent consideration that do not qualify as
measurement period adjustments depends on how
the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured
at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is
remeasured at subsequent reporting dates in accordance
with AASB 9, or AASB 137 Provisions, Contingent
Liabilities and Contingent Assets, as appropriate, with the
corresponding gain or loss being recognised in profit or
loss.
When a business combination is achieved in stages, the
Group’s previously held equity interest in the acquiree
Moelis Australia Limited 2018 Annual Report
45
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
is remeasured to its acquisition-date fair value and the
resulting gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree prior to the
acquisition date that have previously been recognised in
other comprehensive income are reclassified to profit or
loss where such treatment would be appropriate if that
interest were disposed of.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts
for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement
period (see above), or additional assets or liabilities are
recognised, to reflect new information obtained about facts
or circumstances that existed at the acquisition date that,
if known, would have affected the amounts recognised at
that date.
s
Earnings per share
Basic earnings per share is calculated by dividing the
Group’s profit after income tax by the weighted average
number of ordinary shares outstanding during the financial
year.
Diluted earnings per share is calculated by dividing
the Group’s profit after income tax adjusted by profit
attributable to all the dilutive potential ordinary shares
by the weighted average number of ordinary shares and
potential ordinary shares that would be issued on the
exchange of all the dilutive potential ordinary shares into
ordinary shares.
t
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 from the proceeds.
u
Comparatives
The Group has reclassified its share of other
comprehensive income from associates from ‘items that
may be reclassified subsequently to profit and loss’ to
‘items that will not be reclassed subsequently to profit
and loss’ within other comprehensive income. The Group
believes this more accurately reflects the nature of its
share of other comprehensive income from associates.
This reclassification had no impact on total comprehensive
income.
2
Application of new and revised
Australian Accounting Standards
Amendments to Accounting Standards that are
mandatorily effective for the current reporting period
The Group has adopted all of the new and revised
Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant
to their operations and effective for an accounting period
that begins on or after 1 January 2018.
46
Moelis Australia Limited 2018 Annual Report
AASB 9 Financial Instruments
In the current year, the Group has applied AASB 9 Financial
Instruments (as revised) and the related consequential
amendments to other Accounting Standards for the first
time. AASB 9 replaces AASB 139 Financial Instruments:
Recognition and Measurement, and introduces new
requirements for
•
the classification and measurement of financial assets
and financial liabilities
•
impairment for financial assets; and
• general hedge accounting.
The Group has adopted the new accounting standard
using the modified retrospective approach, which means
changes in carrying values were put through opening
retained earnings. Details of these new requirements as
well as their impact on the Group’s consolidated financial
statements are described below.
Classification & measurement of financial assets and
financial liabilities
AASB 9 largely retains the existing requirements in AASB
139 for the classification and measurement of liabilities.
Under AASB 9, on initial recognition, a financial asset is
classified and measured at:
•
•
•
amortised cost;
fair value through other comprehensive income
(FVTOCI) - debt instrument;
fair value through other comprehensive income
(FVTOCI) - equity instrument; or
•
fair value through profit or loss (FVTPL).
The classification of financial assets under AASB 9
is generally based on the business model in which a
financial asset is managed and its contractual cash flow
characteristics. The new standard eliminates the previous
AASB 139 financial asset categories of held to maturity,
loans and receivables and available for sale.
On 1 January 2018 (the date of initial application of
AASB 9), the Group’s management has assessed which
business models apply to the financial assets held by the
Group and has classified its financial instruments into the
appropriate AASB 9 categories.
Initial Recognition and Impact
On initial recognition of an equity investment that is not
held for trading, the Group may irrevocably elect to present
subsequent changes in the investment’s fair value in other
comprehensive income (OCI). The Group has applied this
election on an investment-by-investment basis.
The adoption of AASB 9 has not had a significant
effect on the Group’s carrying values of the financial
assets and financial liabilities. The Group notes that the
new accounting standard has no material impacts on
investments in associates and joint ventures. The following
table and the accompanying notes below explain the
original measurement categories under AASB 139 and the
new measurement categories under AASB 9 for each class
of the Group’s financial assets as at 1 January 2018.
Notes to the Financial Statements
for the year ended 31 December 2018
Application of new and revised Australian Accounting Standards (cont.)
2
Amendments to Accounting Standards that are mandatorily effective for the current reporting period (cont.)
AASB 9 Financial Instruments (cont.)
Carrying Amount as at 1 January 2018 $000’s
Original
carrying
amount
under AASB
139
New carrying
amount
under AASB
9*
87,786
14,239
17,034
87,786
14,239
17,034
Financial assets
Note
Original classification
under AASB 139
New classification
under AASB 9
Cash and cash equivalents
Loan and receivables
Amortised cost
Restricted cash
Receivables
Loan receivables
Listed securities
Other financial assets
• Unlisted securities -
non equity instruments
• Unlisted securities -
non equity instruments
• Unlisted securities -
equity instruments
Total financial assets
(a)
(b)
(c)
(d)
(d)
(e)
Loan and receivables
Amortised cost
Loan and receivables
Amortised cost
Held to maturity
Amortised cost
42,848
42,848
Available for sale
FVTOCI
30,736
30,736
Amortised cost
FVTPL
280
280
Amortised cost
Amortised cost
288
288
Cost
FVTOCI
3,918
4,917
197,135
198,134
*
The new carrying amount under AASB 9 reflect impacts before the application of new credit impairment model.
(a) Receivables that were classfied as loans and receivables under AASB 139 are now classfied at amortised cost. These trade receivables do not include
additional trade receivables that were recognised at 1 January 2018 on adoption of AASB 15. For further details relating to the impact of AASB 15 on the
trade receivables balance, please refer to note 10.
(b) The loan receivables represent loans held by a Moelis managed fund when the entity was part of the Group’s consolidation. They were previously
classified as held to maturity and are now classified at amortised cost. The Group intends to hold the assets to maturity to collect contractual cash flows.
When these cash flows consist solely of payments of principal and interest on the principal amount outstanding, the Group has classfied and measured
them at amortised cost.
(c)
These equity securities represent shares held in various entities. The Group intends to hold these investments for strategic purposes. As permitted
by AASB 9, the Group has designated these investments at the date of initial application as measured at FVTOCI. The accumulated fair value reserve
related to these investments will never be reclassified to profit or loss. Dividends received are recognised as income in profit and loss.
(d) Unlisted non-equity instruments were historically carried at amortised cost under AASB 139. The Group has classified those that meet the solely payments of
principal and interest (SPPI) criterion as amortised cost, and those that fail to meet the criterion as mandatorily at FVTPL under AASB 9.
(e) Unlisted equity intruments were historically held at cost as fair value was not appropriately measurable under AASB 139 and the Group intends to hold
them for long term strategic purposes. Equity instruments where the Group has made an irrevocable election at initial recognition to present subsequent
changes in fair value through other comprehensive income. Dividends from such investments are recognised as income in profit and loss.
Impairment
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with
an ‘expected credit loss’ (ECL) model. This applies to financial
assets measured at amortised cost and debt investments
at FVTOCI, but not to investments in equity instruments.
The Group does not hold any debt investments at FVTOCI.
AASB 9 requires the Group to measure the loss allowance
for a financial instrument at an amount equal to the lifetime
ECL if the credit risk on that financial instrument has
increased significantly since initial recognition, or if the
financial instrument is a purchased or originated credit-
impaired financial asset. If the credit risk on a financial
instrument has not increased significantly since initial
recognition (except for a purchased or originated credit-
impaired financial asset), the Group is required to measure
the loss allowance for that financial instrument at an
amount equal to a 12 month ECL. AASB 9 also provides a
simplified approach for measuring the loss allowance at an
amount equal to lifetime ECL for trade receivables, contract
assets and lease receivables in certain circumstances.
Moelis Australia Limited 2018 Annual Report
47
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
The loss allowance as at 1 January 2018 was determined as follows for trade receivables based on the accounting policy
specified in note 10:
$000’s
Gross trade receivables balance as at 31 December 2017
Historical loss rate adjusted for any forward looking factors
Loss allowance for trade receivables
CA&E
8,869
0.74%
66
Asset
Management*
Total
6,988
15,857
–
–
–
66
*
The probability of default was determined to be so low that the expected credit loss would not be material and consequently no loss allowance has been
recognised.
The Group has reviewed and assessed the Group’s existing financial assets for impairment in accordance with the
requirements of AASB 9 to determine the credit risk of the respective items at the date they were initially recognised, and
compared that to the credit risk as at 1 January 2018. The result of the assessment and expected additional impairment
allowance are as follows:
Financial assets that are subject to impairment
provisions of AASB 9
Loss allowance at 31 December 2017 under AASB139
Cash and cash equivalents
Restricted cash
Trade receivables
Employee loans
Loan receivables measured at amortised cost
Unlisted securities – non equity instruments measured at amortised cost
Loan commitments
Loss allowance at 1 January 2018 under AASB 9
Credit Risk
Attributes
(a)
(a)
(b)
(c)
(d)
(e)
(f)
$000s
808
–
–
66
10
91
4
76
1,055
(a) All bank balances are assessed to have low credit risk as at reporting date as they are held with reputable international banking institutions.
The probability of loss is not material and therefore not shown.
(b) The Group applies the simplified approach and recognises lifetime ECL for these assets.
(c)
The Group has assessed the employee loans to be of normal credit risk as at reporting date as there has been no history of default. The Group
recognises a 12 month ECL for these assets.
(d) The Group has assessed that there has not been a significant increase in credit risk as at reporting date based on on-going monitoring of the financial
assets’ performance internally. Accordingly, the Group recognises a 12 month ECL for these assets.
(e)
If an investment in a debt security had normal credit risk at the date of initial application of AASB 9, then the Group has assumed that the credit risk on
the asset has not increased significantly since its initial recognition. The Group has assessed the loan receivables as normal credit risk based on the fact
that these assets were acquired during the year. Therefore the Group recognises a 12 month ECL for these assets. If an investment in a debt security had
normal credit risk at the date of initial application of AASB 9, then the Group has assumed that the credit risk on the asset has not increased significantly
since its initial recognition.
(f)
The Group has included a loss allowance on all commitments based on the probability of the event occurring and the risk of default if the event did
occur. Accordingly, the Group recognises a 12 month ECL.
48
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Application of new and revised Australian Accounting Standards (cont.)
2
Amendments to Accounting Standards that are mandatorily effective for the current reporting period (cont.)
AASB 9 Financial Instruments (cont.)
The impact of these changes on the Group’s equity is as follows:
$000’s
Opening balance – AASB 139
Increase in other comprehensive income from
reclassifying unrealised loss from available for sale assets
to FVTOCI before tax
Increase in other comprehensive income from revaluing
financial assets from cost to FVTOCI before tax
Decrease in P&L from increase in provision for trade
receivables before tax
Decrease in P&L from increase in provision for financial
assets held at amortised cost before tax
Decrease in P&L from increase in provision for loan
commitments before tax
Impact before tax effect
Tax effect of the above
Total impact
Opening balance – AASB 9
Effect on
Investment
Revaluation
Reserves
3,185
440
–
–
–
–
440
(132)
308
3,493
Effect on FVTOCI
reserves
–
(440)
999
–
–
–
559
(168)
391
391
Effect on
retained
earnings
15,631
–
–
(66)
(105)
(76)
(247)
74
(173)
15,458
Hedge accounting changes arising from AASB 9 do not apply to the Group.
Moelis Australia Limited 2018 Annual Report
49
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Transition
Changes in accounting policies resulting from the adoption
of AASB 9 have been applied retrospectively, except as
described below.
The Group has taken the exemption to not restate
comparative information for prior periods with respect to
classification and measurement (including impairment)
requirements. Differences in the carrying amounts of
financial assets and financial liabilities resulting from the
adoption of AASB 9 are recognised in retained earnings
and reserves as at 1 January 2018. Accordingly, the
information presented for 2017 does not generally reflect
the requirements of AASB 9 but rather those of AASB 139.
Impact of the application of AASB 15 Revenue from
Contracts with Customers
The Group has adopted AASB 15 Revenue from Contracts
with Customers from 1 January 2018 which resulted in
changes in accounting policies and adjustments to the
amounts recognised in the financial statements. The Group
has adopted AASB 15 using the cumulative effect method
(without practical expedients), with the effect of initially
applying this standard recognised at the date of initial
application (i.e. 1 January 2018). Therefore, comparative
periods have not been restated.
Revenue arises mainly from advisory, brokerage, and asset
management services. To determine whether to recognise
revenue, the Group follows a 5 -step process
(1) Identifying the contract with a customer
(2) Identifying the performance obligations
(3) Determining the transaction price
(4) Allocating the transaction price to the performance
obligations
(5) Recognising revenue when or as performance
obligations are satisfied
The Group often enters into transactions that will give
rise to different streams of fees, for example asset
management services may include asset management
fees, administration fees, and upfront fees. In all cases, the
total transaction price for a contract is allocated amongst
the various performance obligations based on their relative
stand-alone selling prices. The transaction price for a
contract excludes any amounts collected on behalf of
third parties.
Revenue is recognised either at a point in time or over
time, when (or as) the Group satisfies performance
obligations by transferring the promised goods or services
to its customers.
The Group recognises contract liabilities for consideration
received in respect of unsatisfied performance obligations
and reports these amounts as other liabilities in the
statement of financial position. Similarly, if the Group
satisfies a performance obligation before it receives the
consideration, the Group recognises either a contract
asset or a receivable in its statement of financial position,
depending on whether something other than the passage
of time is required before the consideration is due.
Under AASB 15, revenue is recognised when the Group
satisfies performance obligations by transferring the
promised services to its customers. Determining the timing
of the transfer of control – at a point in time or over time –
requires judgement. Following is a summary of the major
services provided and the Group’s accounting policy on
recognition as a result of adopting AASB 15.
50
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
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51
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
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I
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
The Group has applied these amendments for the first
time in the current year. The amendments impact various
Accounting Standards, which are summarised below. The
application of these amendments has had no effect on the
Group’s consolidated financial statements.
AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of
Share-Based Payment Transactions
The amendments clarify the following:
(1) In estimating the fair value of a cash-settled share-
based payment, the accounting for the effects of
vesting and non-vesting conditions should follow the
same approach as for equity-settled share-based
payments.
(2) Where tax law or regulation requires an entity to
withhold a specified number of equity instruments
equal to the monetary value of the employee’s tax
obligation to meet the employee’s tax liability which is
then remitted to the tax authority, i.e. the share-based
payment arrangement has a ‘net settlement feature’,
such an arrangement should be classified as equity-
settled in its entirety, provided that the share-based
payment would have been classified as equity-settled
had it not included the net settlement feature.
(3) A modification of a share-based payment that changes
the transaction from cash-settled to equity-settled
should be accounted for as follows:
(i)
the original liability is derecognised;
(ii) the equity-settled share-based payment is
recognised at the modification date fair value of the
equity instrument granted to the extent that services
have been rendered up to the modification date; and
(iii) any difference between the carrying amount of the
liability at the modification date and the amount
recognised in equity should be recognised in profit
or loss immediately.
There has been no material impact on the Group’s
consolidated financial statements as the Group does not
have any cash-settled share-based payment arrangements
or any withholding tax arrangements with tax authorities in
relation to share-based payments.
AASB 2014-10 Amendments to Australian Accounting
Standards - Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture AASB 10 &
AASB 28 and AASB 2015-10 Amendments to Australian
Accounting Standards - Effective Date of Amendments to
AASB 10 and AASB 128
The amendments to AASB 10 Consolidated Financial
Statements and AASB 128 Investment in Associates and
Joint Ventures deal with situations where there is a sale
or contribution of assets between an investor and its
associate or joint venture. Specifically, the amendments
state that gains or losses resulting from the loss of
control of a subsidiary that does not contain a business
in a transaction with an associate or joint venture that is
accounted for using the equity method, are recognised
in the parent’s profit or loss only to the extent of the
unrelated investors’ interests in that associate or joint
venture. Similarly, gains and losses resulting from the
remeasurement of investments retained in any former
subsidiary (that has become an associate or joint venture
that is accounted for using the equity method) to fair value
are recognised in the former parent’s profit or loss only to
the extent of the unrelated investors’ interests in the new
associate or joint venture.
There has been no material impact on the Group’s
consolidated financial statements.
Interpretation 22 Foreign Currency Transactions and
Advance Consideration
Intepretation 22 addresses how to determine the ‘date of
transaction’ for the purpose of determining the exchange
rate to use on initial recognition of an asset, expense
or income, when consideration for that item has been
paid or received in advance in a foreign currency which
resulted in the recognition of a non-monetary asset or
non monetary liability. The Interpretation specifies that the
date of transaction is the date on which the entity initially
recognises the non-monetary asset or non-monetary
liability arising from the payment or receipt of advance
consideration. If there are multiple payments or receipts in
advance, the Interpretation requires an entity to determine
the date of transaction for each payment or receipt of
advance consideration.
There has been no material impact on the Group’s
consolidated financial statements as the Group has always
recognised the asset, expense or income based on the
receipt or payment date.
The application of these amendments has not had a
material presentation impact on the financial performance
or financial position of the Group.
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements,
the Group has not applied the following new and revised
Australian Accounting Standards, Interpretations and
amendments that have been issued but not yet effective.
The Group is currently assessing the impact of these
standards.
Moelis Australia Limited 2018 Annual Report
55
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Application of new and revised Australian Accounting Standards (cont.)
2
Standards and Interpretations in issue not yet adopted (cont.)
Standard/Interpretation
AASB 16 ‘Leases’
AASB 2017-6 Amendments to Australian Accounting
Standards – Prepayment Features with Negative
Compensation
AASB 2017-7 Amendments to Australian Accounting
Standards – Long-term Interests in Associates and Joint
Ventures
AASB 2018-1 Amendments to Australian Accounting
Standards – Annual Improvements 2015–2017 Cycle
AASB 2018-6 Amendments to Australian Accounting
Standards – Definition of a Business
AASB 2016-7 Amendment to Australian Accounting
Standards – Definition of Material
Interpretation 23 Uncertainty over Income Tax Treatments
AASB 2017-4 Amendments to Australian Accounting
Standards – Uncertainty over Income Tax Treatments
Amendments to References to the Conceptual Framework in
IFRS Standard
Effective for annual
reporting periods beginning
on or after
Expected to be initially
applied in the financial year
ending
1 January 2019
31 December 2019
1 January 2019
31 December 2019
1 January 2019
31 December 2019
1 January 2019
31 December 2019
1 January 2020
31 December 2020
1 January 2020
31 December 2020
1 January 2019
31 December 2019
1 January 2020
31 December 2020
AASB 16 Leases
AASB 16 will replace AASB 117 Leases, Interpretation 4
Determining whether an Arrangement contains a Lease,
Interpretation 115 Operating Leases – Incentives and
Interpretation 127 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. The Standard will
provide a comprehensive model for the identification of
lease arrangements and their treatment in the financial
statements of both lessees and lessors.
Key requirements of AASB 16:
AASB 16 distinguishes leases and service contacts on
the basis of whether an identified asset is controlled by
a customer. Distinctions of operating leases (off balance
sheet) and finance leases (on balance sheet) are removed
for lessee accounting, and is replaced by a model where
a right-of-use asset and a corresponding liability have to
be recognised for all leases by lessees (i.e. all on balance
sheet) except for short-term leases or leases of low value
assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain
exceptions) less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease
liability. The lease liability is initially measured at the
present value of the lease payments that are not paid
at that date. Subsequently, the lease liability is adjusted
for interest and lease payments, as well as the impact
of lease modifications, amongst others. Furthermore,
56
Moelis Australia Limited 2018 Annual Report
the classification of cash flows will also be affected as
operating lease payments under AASB 117 are presented
as operating cash flows; whereas under the AASB 16
model, the lease payments will be split into a principal and
an interest portion which will be presented as financing
and operating cash flows respectively.
In contrast to lessee accounting, AASB 116 substantially
carries forward the lessor accounting requirements in
AASB 117, and continues to require a lessor to classify a
lease either as an operating lease or a finance lease.
Furthermore, extensive disclosures are required by
AASB 16.
AASB 16 applies to annual period beginning on or after
1 January 2019. The Group anticipates that the application
of AASB 16 in the future may have a material impact on
amounts reported in respect of the Group’s financial assets
and financial liabilities.
Based on the Group’s assessment of the leases the Group
has as at 31 December 2018 on the basis of the facts and
circumstances that exist as at that date, the changes to
AASB 16 Leases will result in the inclusion of a lease liability
and a right of use asset on the balance sheet. There will
also be changes to the profile of the expense. Rather than
being a straight line rental expense, there will be more
expensed in early years and less in later years. In addition,
the nature of expenses related to those leases will now
change because the new standard replaces the straight-
line operating lease expense with a depreciation charge for
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
right-of-use assets and interest expense on lease liabilities.
As a result, there will be an increase in cash inflow from
operations arising from the depreciation charge, and an
increase in cash outflow from financing activities from the
interest expense. This will also increase metrics such as
EBITDA as rather than an operating rental expense there
will be a movement of expenses below the EBITDA line.
The Group has lease commitments of $10,689,604
(refer note 23.3). The amount disclosed does not include
any lease extension options and is not discounted as the
Group is still in the process of determining its incremental
borrowing rate, and as such has not able to determine the
impact on the statement of financial position and statement
of comprehensive income at this stage.
As a lessee, the Group can either apply the standard
using the retrospective approach or modified retrospecive
approach with optional practical expedients. The lessee
applies the election consistently to all of its leases. The
standard is mandatory for first interim periods within annual
reporting periods beginning on or after 1 January 2019. The
Group plans to apply the accounting standard initially on
1 January 2019, using a modified retrospective approach.
Therefore, the cumulative effect of adopting AASB 16 will
be recognised as an adjustment to the opening balance of
retained earnings at 1 January 2019, with no restatement of
comparative information. The Group has not yet decided
whether it will use the optional exemptions.
AASB 2017-6 Amendments to Australian Accounting
Standards – Prepayment Features with Negative
Compensation
This amendment clarifies that particular financial assets
with prepayment features that may result in reasonable
negative compensation (i.e. a payment to the borrower)
for the early termination of the contract are eligible to be
measured at amortised cost or at fair value through other
comprehensive income (depending upon the entity’s
business model). As a result, entities may adopt this
approach when on the early termination of the contract a
party may pay or receive reasonable compensation for that
early termination.
AASB 2017-7 Amendments to Australian Accounting
Standards – Long-term Interests in Associates and
Joint Ventures
This amendment clarifies that an entity applies AASB 9
Financial Instruments to financial instruments in an
associate or joint venture to which the equity method is
not applied. These include long-term interests that, in
substance, form part of the entity’s net investment in an
associate or joint venture.
There is no expected material impact on the Group’s
consolidated financial statements as all associates have
been accounted using the equity method.
AASB 2018-1 Amendments to Australian Accounting
Standards – Annual Improvements 2015–2017 Cycle
The amendments clarify that an entity should recognise
the income tax consequences of dividends in profit or
loss, other comprehensive income or equity according
to where the entity originally recognised the transactions
that generated the distributable profits. This is the case
irrespective of whether different tax rates apply to
distributed and undistributed profits.
There is no material impact on the Group’s financial
statements.
Interpretation 23 Uncertainty over Income Tax
Treatments AASB 2017-4 Amendments to Australian
Accounting Standards – Uncertainty over Income
Tax Treatments
The Intepretation sets out how to determine the accounting
tax position when there is uncertainty over income
tax treatments. The Interpretation requires an entity to
determine whether uncertain tax positions are assessed
separately or as a group, and assess whether it is probable
that a tax authority will accept an uncertain tax treatment
used, or proposed to be used, by an entity in its income
tax filings. The Group is to determine tax amounts on a
basis that is consistent with the tax treatment included in its
income tax filings if an entity concludes that it is probable
that a particular tax treatment will be accepted by the
taxation authorities. Otherwise, the tax amounts should
be using the most likely amount or expected value of the
tax treatment (whichever provides better predictions of
the resolution of the uncertainty) if an entity concludes
that it is not probable that a particular tax treatment will be
accepted by the taxation authorities.
The Company does not anticipate that the application of
these amendments will have a significant impact on the
Group’s consolidated financial statements.
There are no other standards that are not yet effective
and that would be expected to have a material impact on
the entity in the current or future reporting periods and on
foreseeable future transactions.
Moelis Australia Limited 2018 Annual Report
57
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Net fee and commission income
3
Fee and commission income is accounted for in accordance with AASB 15 Revenue - Contracts with Customers
Timing of revenue recognition
At a point in time
Advisory success fees
Commission and brokerage income
Facilitation and transaction fees
Total revenue earned at a point in time
Over time
Advisory retainer fees
Performance fees
Distribution fees
Management fees
Total revenue earned over time
Total fee and commission income
Fee and commission expense
Costs associated with execution and clearing of securities trading
Commissions and fees paid on asset management revenue
Total fee and commission expense
2018
$’000
2017
$’000
41,247
10,140
10,848
62,235
2,467
14,839
5,996
41,876
65,178
44,966
10,561
16,599
72,126
8,707
–
5,259
20,797
34,763
127,413
106,889
935
8,888
9,823
961
5,820
6,781
4
4.1
Segment information
Services from which reportable segments derive
their revenues
The asset management segment provides asset and fund
management services to Moelis managed funds and to
individual clients.
AASB 8 Operating Segments requires the ‘management
approach’ to disclose information about the Group’s
reportable segments. The financial information is reported
on the same basis as used by senior management for
evaluating operating segment performance and for
deciding how to allocate resources to operating segments.
The Group is divided into the following two Operating
Segments:
• Corporate advisory and equities (“CA&E”)
• Asset management.
The corporate advisory and equities segment provides
corporate advice, underwriting and institutional
stockbroking services.
Some of the financial information of the two Operating
Segments used by Management is produced using
different measures and different classifications to that used
in preparing the statutory statement of comprehensive
income. Differences in measurement may occur if
Management disregards one-off transaction costs or
non-cash expenses such as intangible amortisation
in measuring the operating business’ performance. A
description and the impact of these differences is included
in the table below, and a breakdown of the differences
is provided in the Directors’ Report. Differences in
classification arise because Management groups some
items together, for instance unrealised gains/losses on
investments (shown as “other comprehensive income” in
the statement of profit or loss and other comprehensive
income) is grouped with realised gains/loss on investments
for segment reporting purposes.
58
Moelis Australia Limited 2018 Annual Report
2018
Fee and
commission
income
Recognised
as follows:
At a point
in time
Over time
Interest
expense
Depreciation
and
amortisation
Profit before
tax
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
4.2
Segment revenues and results
The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment.
CA&E
$’000s
Asset Man.
$’000s
Unallocated
$’000s
Total
Operating
Segments
$’000s
Differences in
measure ment
$’000s
Differences in
classifi cation
$’000s
Statement
of Compre-
hensive
Income
$’000s
50,322
71,082
–
121,404
6,400
(391)
127,413
47,855
2,467
8,371
62,711
Net income
51,474
84,834
Expenses
EBITDA*
(38,234)
(32,350)
(8,180)
(78,764)
13,240
52,484
(8,180)
57,544
Interest income
78
1,122
–
(2,042)
–
–
–
56,225
65,178
136,308
–
–
1,200
(2,042)
6,400
–
(570)
(8,228)
(8,798)
7
–
(391)
62,235
–
65,178
(1,909)
133,829
(1)
(86,993)
(1,910)
46,836
8,195
9,402
(5,827)
(7,869)
(325)
(195)
(63)
(583)
(2,386)
–
(2,969)
12,993
51,369
(8,243)
56,119
Tax
(3,898)
(15,411)
2,473
(16,836)
Profit after tax
9,095
35,958
(5,770)
39,283
(11,177)
2,984
(8,193)
458
45,400
(1,003)
(14,855)
(545)
30,545
Other
comprehensive
income
Total
comprehensive
income
Non controlling
interests
Owners of the
company
–
–
–
–
(5,045)
1,706
(3,339)
9,095
35,958
(5,770)
39,283
(13,238)
1,161
27,206
–
–
–
–
–
(1,161)
(1,161)
9,095
35,958
(5,770)
39,283
(13,238)
–
26,045
* Earnings before interest, tax, depreciation and amortisation.
Moelis Australia Limited 2018 Annual Report
59
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
4
4.2
Segment information (cont.)
Segment revenues and results (cont.)
CA&E
$’000s
Asset Man.
$’000s
Unallocated
$’000s
Total
Operating
Segments
$’000s
Differences in
Measure ment
$’000s
Differences in
Classi fication
$’000s
Statement
of Compre-
hensive
Income
$’000s
62,859
44,030
–
106,889
55,527
16,599
Over time
8,707
26,056
Net income
63,756
43,412
–
–
–
72,126
34,763
107,168
Expenses
EBITDA*
(38,430)
(20,029)
(7,085)
(65,544)
25,326
23,383
(7,085)
41,624
Interest income
219
721
(98)
(390)
(186)
(80)
940
(488)
–
–
–
(266)
(702)
–
–
–
–
4,708
4,708
–
–
–
106,889
–
–
72,126
34,763
(3,274)
103,894
–
(60,836)
(3,274)
43,058
–
–
–
940
(488)
(968)
2017
Fee and
commission
income
Recognised as
follows:
At a point in
time
Interest
expense
Depreciation
and
amortisation
Profit before
tax
Tax
25,261
23,634
(7,578)
(7,302)
(7,085)
2,124
41,810
(12,756)
Profit after tax
17,683
16,332
(4,961)
29,054
4,005
(1,201)
2,804
(3,274)
42,542
982
(12,975)
(2,292)
29,567
Other
comprehensive
income
Total
comprehensive
income
Non controlling
interests
Owners of the
company
–
–
–
–
–
2,292
2,292
17,683
16,332
(4,961)
29,054
2,804
–
–
–
–
–
17,683
16,332
(4,961)
29,054
2,804
–
–
–
31,859
–
31,859
60
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Differences in measurement:
Listing costs1
Armada acquisition adjustments2
Shares issued to staff as remuneration3
Performance fees deferral4
Unrealised gains/losses on investments5
Adjustments relating to associates6
Sale of joint venture7
Other8
Impact on profit before tax
Tax thereon
Impact on profit after tax
2018
$’000
–
(6,571)
(3,514)
6,400
(13,586)
(220)
2,221
(950)
(16,220)
2,982
(13,238)
2017
$’000
(989)
(3,261)
8,444
–
–
–
–
(189)
4,005
(1,201)
2,804
1
2
3
The costs relating to the Company’s Initial Public Offering.
The amortisation of acquired intangible assets and the share based payment expense relating to the shares issued to the vendors, who are now Moelis
Australia Group employees.
The value of Share Rights granted to employees is amortised over the vesting period (which is up to five years), with only a portion of the value being
expensed in 2018. The underlying result includes the full value of the Share Rights as an expense in the year granted.
4 Deferred performance fee associated with the IPO of the Redcape Hotel Group.
5 Unrealised gains/losses on strategic Group investments and the impact of the adoption of AASB 9.
6
7
The difference between the equity accounting entries taking up the share of profits of associates and revaluations attributable to the Group and the
underlying distributions actually received combined with the Board’s assessment of fair value movements of the overall investment.
Profit on sale reflecting the exercise of options to sell the Group’s interest in Acure Asset Management. The underlying adjustment aligns profit
recognition with settlement timing.
8
Includes the recognition of loan related fees upfront and the exclusion of theoretical credit losses in the underlying result.
4.3
Segment assets and liabilities
Segment assets
Corporate advisory and equities
Asset management
Total operating segment assets
Unallocated
Consolidated total assets
Segment liabilities
Corporate advisory and equities
Asset management
Total operating segment liabilities
Unallocated
Consolidated total liabilities
2018
$’000
2017
$’000
48,185
327,026
375,211
75,022
209,876
284,898
–
–
375,211
284,898
31,039
95,628
126,667
7,718
134,385
20,928
37,616
58,544
10,723
69,267
The unallocated balances represent tax deferred and tax payable balances.
Moelis Australia Limited 2018 Annual Report
61
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
4
4.4
Segment information (cont.)
Revenue from major products and services (cont.)
The following is an analysis of the Group’s revenue from continuing operations from its major products and services.
Corporate Advice
Equity Services
Management and distribution fees
Transaction fees
Performance fees
4.5
Geographical information
The Group operates in Australia.
4.6
Information about major customers
Segment
CA&E
CA&E
Asset Management
Asset Management
Asset Management
2018
$’000
43,714
10,140
47,872
10,848
14,839
2017
$’000
52,298
10,561
35,745
8,285
–
127,413
106,889
Two funds managed by the Group contributed more than 10% to Group Revenue with fees of $36.5m ($32.0m from asset
management, $4.5m from CA&E) and $16.2m (asset managment) respectively. No other single customer contributed 10% or
more to Group revenue in 2018 or 2017.
5
Investment income
Continuing operations
Interest income on cash and bank balances
Interest, dividends and distributions from investments
6
Other income
Net foreign exchange gains/(losses)
Other income
Realised gains from investments in associates
Realised gains from AFS investments
2018
$’000
2,378
17,302
19,680
2018
$’000
648
2,168
2,698
–
5,514
2017
$’000
940
317
1,257
2017
$’000
(455)
–
–
3,902
3,447
Includes income relating to realised gains/(losses) on financial assets classified at fair value through profit or loss.
62
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
7
7.1
Income tax
Income tax recognised in profit or loss
Profit before tax from continuing operations
Prima facie tax at the Australian tax rate of 30%
Effect of income that is subject to/(exempt from) tax
Non-deductible expenses
Other
Deferred tax balances not brought to account
Represented by:
Current tax
Deferred tax
Income tax expense recognised in profit or loss
7.2
Income tax recognised in other comprehensive income
Deferred tax
Fair value remeasurement of investments
Share of revaluations in associates
Income tax expense recognised in other comprehensive income
7.3
Current tax assets and liabilities
Current tax liabilities
Income tax payable
7.4
Deferred tax balances
Deferred liabilities
2018
$’000
45,400
(13,620)
(343)
(1,240)
348
–
2017
$’000
42,542
(12,763)
207
(784)
–
365
(14,855)
(12,975)
2018
$’000
2017
$’000
(15,103)
248
(14,855)
2018
$’000
3,565
(2,562)
1,003
(10,786)
(2,189)
(12,975)
2017
$’000
572
(1,554)
(982)
2018
$’000
2017
$’000
4,201
5,957
2018
$’000
(3,517)
2017
$’000
(4,767)
Moelis Australia Limited 2018 Annual Report
63
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
7
7.4
Income tax (cont.)
Deferred tax balances (cont.)
2018
Temporary differences
Property, plant & equipment
Financial assets
Interest in associates
Deferred revenue
Provisions
Expected loss allowance
Expense accruals
Intangible assets
Share based payments
Other
2017
Temporary differences
Property, plant & equipment
AFS financial assets
Interest in associates
Deferred revenue
Provisions
Doubtful debts
Expense accruals
Intangible assets
Share based payments
Other
8
Interest expense
Interest on unsecured notes
Redeemable preference shares
Opening
balances
Recognised
in profit or
loss
Recognised in other
comprehensive
income
Acquisitions/
disposals
Closing
balance
35
189
(579)
(785)
878
243
(803)
(4,668)
222
501
(4,767)
18
–
(1,317)
(242)
730
(232)
(1,420)
716
2,017
(23)
247
–
3,565
(2,562)
–
–
–
–
–
–
–
1,003
–
–
–
–
–
–
–
–
–
–
–
53
3,754
(4,458)
(1,027)
1,608
11
(2,223)
(3,952)
2,239
478
(3,517)
Opening
balances
Recognised
in profit or
loss
Recognised in other
comprehensive
income
Acquisitions/
disposals
Closing
balance
44
(383)
–
(1,027)
4,061
16
505
–
–
66
(9)
–
975
242
(2,818)
227
(1,308)
211
222
435
–
572
(1,554)
–
–
–
–
–
–
–
–
–
–
–
(365)
–
–
35
189
(579)
(785)
878
243
(803)
(4,879)
(4,668)
–
–
222
501
3,282
(1,823)
(982)
(5,244)
(4,767)
2018
$’000
2,043
5,826
7,869
2017
$’000
488
–
488
Refer note 18 for more detail on the unsecured note program and the redeemable preference shares.
64
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
9
Other expenses
Charitable donations
Professional fees
IPO costs
Other
2018
$’000
2,198
2,167
–
3,709
8,074
2017
$’000
2,400
903
989
1,934
6,226
The charitable donations paid by the Group in 2018 and 2017 were made to the Moelis Australia Foundation, a registered
charity, and were made in response to some Group staff members electing not to receive some or all of the bonus that they
might otherwise have been awarded.
10
Receivables
Accounts receivable
Fees receivable
Interest receivable
Sundry debtors
Affiliates receivable
Loss allowance
2018
$’000
2,006
12,185
4,311
62
13,772
(105)
32,231
2017
$’000
836
15,857
26
1,123
–
(808)
17,034
Fees receivable disclosed above include amounts (see below for aged analysis) that are past due at the end of the
reporting period for which the Group has not recognised an allowance for doubtful debts because the amounts are still
considered recoverable.
Age of receivables that are past due but not credit impaired
60-90 days
90-120 days
Total
Average age (days)
Movement in loss allowance
Balance at beginning of the year
ECL provision/impairment losses recognised on receivables
Impairment losses reversed
Balance at end of the year
2018
$’000
–
354
354
365
2018
$’000
808
67
(770)
105
2017
$’000
303
577
880
113
2017
$’000
53
770
(15)
808
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the end of the reporting period. The afflilates receivable amount
is largely comprised of performance fees from Redcape, which is a Moelis managed fund, and amounts from Moelis & Co in
the US. The Group is confident that they will be received in full and this contributes to the low allowance balance.
Included in the allowance for doubtful debts are individually impaired trade receivables amounting to $Nil (31 December
2017 $770,000) which have been placed under liquidation. The impairment recognised represents the difference between
the carrying amount of these trade receivables and the present value of the expected liquidation proceeds.
Moelis Australia Limited 2018 Annual Report
65
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
11
Other assets (current)
Prepayments
Other
12
Restricted cash
Cash held by Employee Share Trust
Collateral held by equities clearing house
Cash supporting premises bonds
13
Property, plant and equipment
Office equipment – at cost
Balance at beginning of year
Additions
Depreciation
Balance at end of year
Furniture and fixtures – at cost
Balance at beginning of year
Additions
Depreciation
Balance at end of year
Computer software
Balance at beginning of year
Additions
Depreciation
Balance at end of year
Leasehold improvements – at cost
Balance at beginning of year
Additions
Depreciation
Balance at end of year
Consolidated
66
Moelis Australia Limited 2018 Annual Report
2018
$’000
1,161
789
1,950
2018
$’000
3,741
700
1,524
5,965
2018
$’000
387
447
(261)
573
225
340
(37)
528
77
187
(52)
212
516
550
(233)
833
2017
$’000
686
525
1,211
2017
$’000
10,000
2,700
1,539
14,239
2017
$’000
257
337
(207)
387
202
45
(22)
225
–
81
(4)
77
207
342
(33)
516
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Balance at beginning of year
Additions
Depreciation expense
Balance at end of year
Office equipment – at cost
Less accumulated depreciation
Total office equipment
Furniture and fixtures – at cost
Less accumulated depreciation
Total furniture and fixtures
Computer software
Less accumulated depreciation
Total computer software
Leasehold improvements – at cost
Less accumulated depreciation
Total leasehold improvements
Total plant and equipment
14
Goodwill
Cost
Accumulated impairment losses
Goodwill arose from:
Acquisition of Foresight Securities (2010)
Acquisition of Armada Funds Management (2017)
2018
$’000
1,205
1,524
(583)
2,146
1,856
(1,284)
572
640
(112)
528
268
(55)
213
1,355
(522)
833
2017
$’000
666
805
(266)
1,205
1,391
(1,005)
386
300
(75)
225
81
(3)
78
804
(288)
516
2,146
1,205
2018
$’000
9,827
–
9,827
1,326
8,501
9,827
2017
$’000
9,827
–
9,827
1,326
8,501
9,827
The recoverable amounts of the two items of goodwill are determined based on a value in use calculation which uses
post-tax cash flow projections based on financial budgets, using the following asumptions:
Timeframe
Post tax discount rate
Foresight
5 years
11.0%
Armada
5 years
12.5%
Moelis Australia Limited 2018 Annual Report
67
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
14
Goodwill (cont.)
The following elements have been reflected in the calculation of the value in use:
(1) an estimate of future cash flows the entity expects to derive from the asset;
(2) the time value of money, represented by the current market risk-free rate of interest;
(3) the price for bearing the uncertainty inherent in the asset; and
(4) other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects
to derive from the asset.
The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to
determine the recoverable amount for each of the Group of CGU’s to which goodwill is allocated. The Group believes that
any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the
aggregate carrying amount to exceed the aggregate recoverable amount of the related CGU’s.
Sensitivity
A 5% reduction in cashflows
An increase in the post tax discount rate from 12% to 15%
A decrease in terminal value from 3.5% to 2.5%
15
Intangible assets
Carrying amounts of:
Identifiable intangible assets
Cost
Balance at 1 January 2018
Acquisitions through business combinations
Trademarks purchased
Balance at 31 December 2018
Accumulated amortisation and impairment
Balance at 1 January 2018
Amortisation expense (refer note 1a(ii))
Balance at 31 December 2018
Impact on impairment assessment
no impact
no impact
no impact
2018
$’000
2017
$’000
13,184
15,560
16,263
–
10
16,273
(702)
(2,387)
(3,089)
–
16,262
–
16,262
–
(702)
(702)
The aggregate value of intangible assets acquired as part of the acquisition in 2017 was determined as the net present
value of the forecast management fees less operating expenses, based on the expected lives of each fund which ranged
from 2 years to 7 years and 9 months at the time of acquisition.
The amortisation of the aggregate value of the intangible assets over their useful lives is based on the forecast profile of the
profit generated by the management of the funds, and is reassessed at the end of each reporting period.
The aggregate recoverable amount of the intangible assets is determined based on a value in use calculation which uses
post-tax cash flow projections based on financial budgets over 8 years and a post-tax discount rate of 12.5% per annum.
The following elements have been reflected in the calculation of the value in use:
(1) expectations as to the likely lives of each fund (ranging from 2 years to 7 years and 9 months).
(2) expectations about variations to management fee rates, and amount and timing of transaction fees.
(3) the reduction in operating costs as individual management rights terminate.
(4) a discount rate that reflects the relative security of the cashflows and the market pricing for similar management rights.
Sensitivity
Impact on impairment assessment
An increase in the discount rate of to 15%
A decrease in the expected life of each fund by one year
no impact
$2.7m
68
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
16
Loans Receivable
Current
Loans to third parties
Loss allowance
Movement in Loss Allowance
Balance at beginning of the year
Amounts recognised in the opening balance
ECL provision/impairment losses recognised on loan receivables
Impairment losses reversed
Balance at end of the year
Non Current
Loan to employees
Loans to third parties
Loss allowance
Movement in Loss Allowance
Balance at beginning of the year
Amounts recognised in the opening balance
ECL provision/impairment losses recognised on loan receivables
Impairment losses reversed
Balance at end of the year
2018
$’000
2017
$’000
65,311
(391)
64,920
–
(21)
(370)
–
(391)
580
46,276
(295)
46,561
–
(80)
(215)
–
(295)
–
–
–
–
–
–
–
–
348
42,500
–
42,848
–
–
–
–
–
Loans to third parties comprises commercial loans provided to Australian corporates. The loans have terms of between one
and three years and are secured against the assets of the borrowers.
The Group attributes the low allowance balance which amounts to a 12 month ECL, to the fact that the Group has collateral
for all loans to third parties, and that the majority of the loans have expiry of less than 24 months. In the case of default
and the borrower fails to meet its payment obligations, the Group has full recourse to the underlying assets. The Group
has assessed that there is sufficient collateral for each of the loans such that any loss given default would be insignificant.
Loans are monitored by arrears. None of the loans are past due.
Industry
Professional services
Aged care
Others
Construction
Loan receivables
54,289
31,512
22,226
3,454
111,481
Moelis Australia Limited 2018 Annual Report
69
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
17
Trade and other payables
Current
Accounts payable and accrued expenses
Affiliate payable
Other liabilities
GST payable
Non current
Preference dividends payable
Other Liabilities
18
Borrowings and redeemable preference shares
Unsecured notes
Issue Year
Maturity Date
Amount ($m)
Interest rate per annum
Issue costs ($000's)
2018
$’000
13,336
–
2,271
459
16,066
4,205
932
5,137
2018
$’000
57,150
2017
$’000
7,229
164
1,819
894
10,106
–
–
–
2017
$’000
32,150
2018
2017
September 2022
September 2020
25.00
5.75%
6.5
32.15
5.25%
24.2
Redeemable preference shares
25,500
–
Redeemable Preference Shares (RPS) were issued by a subsidiary of the Company and represent third party interests in the
consolidated Kincare Pty Ltd loan investments of $25.5m. A summary of the terms and conditions is as follows:
Issue price
Dividend rate
Maturity date
$1
15%
5 years
The RPS have no voting rights unless dividends are in arrears and there is a proposal to reduce capital or approve terms of
a buy-back agreement and the proposal affects the rights of RPS holders.
19
Provisions
Employee benefits*
Current
Non-current
2018
$’000
22,814
22,814
21,152
1,662
22,814
2017
$’000
15,795
15,795
14,406
1,389
15,795
*
70
The provision for employee benefits represents annual leave, long service leave and bonus entitlements accrued.
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
20
20.1
Contributed equity and share options
Contributed equity
Ordinary shares – fully paid
Contributed equity at 31 December 2017
Issue to Employee Share Trust
Cost of issuing shares
Treasury shares
Contributed equity at 31 December 2018
2018
$’000
2017
$’000
189,924
191,507
Number of
shares
Contributed
equity
$’000
153,263,697
191,507
1,831,294
–
8,131
86
155,094,991
199,724
(2,679,741)
152,415,250
(9,800)
189,924
The Company had authorised share capital amounting to 153,809,776 ordinary shares at 31 December 2018
(2017: 153,809,776). Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of
the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no
par value.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
20.2
Share options
During 2017 the Company sold options over its shares to employees, giving them the right to acquire shares at a future
date at a fixed price. As at 31 December 2018 5.4 million shares were subject to the options (2017: 5.8 million shares). Refer
note 34 for more detail.
21
Dividends
Ordinary shares
2018 dividend fully franked at a 30% tax rate
Pre IPO dividend fully franked at a 30% tax rate
2018
$’000
10,767
–
10,767
2017
$’000
–
31,000
31,000
Adjusted franking account balance
15,524
3,249
The Directors have declared a fully franked dividend of 8.0 cents per share, payable on 6 March 2019.
Moelis Australia Limited 2018 Annual Report
71
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Cash and cash equivalents
22
Cash and cash equivalents at the end of the reporting period are reflected in the related items in the statement of financial
position as follows:
Cash and bank balances
Reconciliation of profit for the year to net cash flows from operating
activities
Profit after income tax
Adjustments to profit after tax:
Income tax expense recognised in profit or loss
Net foreign exchange (gain)/loss
Realised gain on investments
Unrealised gain on investments in associates
IPO costs
Non cash interest income
Distributions from associates
Share based payments
Intangible amortisation
Share of profits of associates
Expected credit loss expense
Depreciation of non current assets
Movements in working capital:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in other assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in other liabilities
Increase/(decrease) in provisions
Cash generated from operations
Income taxes paid
Net cash generated by operating activities
23
23.1
Operating leases
Leasing arrangements
2018
$’000
86,652
86,652
2017
$’000
87,786
87,786
30,545
29,567
14,855
(649)
–
(2,221)
–
(4,009)
(4,242)
10,890
2,386
(446)
528
583
12,974
456
(3,902)
–
989
–
–
5,181
703
(23)
685
266
48,220
46,896
(15,688)
(739)
10,600
–
7,020
49,413
(16,841)
32,572
130
523
5,002
216
(15,093)
37,674
(9,328)
28,346
Moelis Australia Operations Pty Limited signed a tenancy lease on premises at Level 34, 120 Collins Street Melbourne
which commenced in January 2015 and is due to expire December 2021. Moelis has exercised the option to renew the
lease to December 2023.
Moelis Australia Operations Pty Limited signed a tenancy lease on premises at Level 27 Governor Phillip Tower, Sydney
which commenced in January 2016 and expires in December 2021. A lease was signed for additional space on Level 28
Governor Phillip Tower which commenced in July 2017 and expires in December 2021.
72
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Moelis Australia Hotel Management Pty Ltd signed a lease commencing from 1 September 2018 which terminates 31 August
2028.
23.2
Payments recognised as an expense
Minimum lease payments
23.3
Non-cancellable operating lease commitments
Current
2 to 5 years
> 5 years
24
Remuneration of auditors
Auditor of the parent entity
Audit or review of the financial report
Advisory related services
Tax related services
The auditor of Moelis Australia Limited is Deloitte Touche Tohmatsu.
25
Personnel expenses
Amortisation of Share-Based payments (refer note 34)
Termination benefits
Salary, superannuation and bonuses paid in cash
Other personnel related expenses, including recruitment fees, payroll tax,
insurance, consultants and contractors
Total personnel expense
2018
$’000
2,305
2,305
2018
$’000
2,798
7,892
3,061
13,751
2018
$’000
570
–
118
688
2018
$’000
10,889
–
49,318
9,198
69,405
2017
$’000
1,808
1,808
2017
$’000
2,168
7,408
–
9,576
2017
$’000
398
454
125
977
2017
$’000
5,175
299
34,317
5,134
44,925
Refer note 34 for more detail on the share rights granted.
In 2018 and 2017 some Group staff members elected not to receive some or all of the bonus that they might otherwise
have been awarded. In recognition of this, the Group chose to donate $2.1 million (2017: $2.4 million) to the Moelis Australia
Foundation, a registered charity.
Moelis Australia Limited 2018 Annual Report
73
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
26
Other financial assets
Current
Financial assets classified as available-for-sale
–
30,459
2018
$’000
2017
$’000
Non current
Financial assets held at FVTOCI
Financial assets held at FVTPL
Financial assets held at amortised cost
Financial assets held at cost
27
Investments in associates and joint ventures
Acure Asset Management Ltd
GWP Credit Opportunity Fund No 1
Redcape Hotel Group
Infinite Care Group
Encore Care Trust
Moelis Australia Aged Care Fund
Moelis Australia Senior Secured Credit Fund II
Moelis Australia Kincare Fund
Moelis Australia Exchanges Fund
24,706
580
288
–
25,574
2018
$’000
–
–
58,547
4,722
–
6,846
1,900
7,738
6,448
–
277
–
4,486
4,763
2017
$’000
2,501
1,012
48,147
–
1,440
6,866
–
–
–
86,201
59,966
74
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
27.1
Details of ownership interest activities
NATURE OF
INTEREST
Place of
incorporation
Principal activity
2018
2017
Joint venture
Australia
Fund manager
Proportion of ownership interest and
voting power held by the Group
Associate
Acure Asset
Management Ltd
GWP Credit
Opportunity Fund No 1
Associate
Australia
Redcape Hotel Group
Associate
Australia
Encore Care Group
Joint venture
Australia
Encore Care Trust
Joint venture
Australia
Moelis Australia
Aged Care Fund
Associate
Australia
Infinite Care Group
Associate
Australia
Moelis Australia Senior
Secured Credit Fund II
Associate
Australia
Moelis Australia
Kincare Fund
Moelis Australia
Exchanges Fund
Associate
Australia
Associate
Australia
Investor in debt
instruments
Freehold
owner of hotels
Aged care
facility operator
Aged care
facility owner
Aged care
facility operator
Aged care
facility operator
Credit Funds
Management
Credit Funds
Management
Equities
investor
–
–
9.4%
–
–
10.0%
5.2%
10.0%
25.5%
25.7%
50.0%
21.5%
10.1%
50.0%
50.0%
10.0%
–
–
–
–
Moelis Australia Limited 2018 Annual Report
75
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
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Moelis Australia Limited 2018 Annual Report
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Moelis Australia Limited 2018 Annual Report
77
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
27
27.4
Investments in associates
and joint ventures (cont.)
Further information on Moelis Australia Senior
Secured Credit Fund II, Moelis Australia Kincare
Fund & Moelis Australia Exchanges Fund
(“Funds”)
27.5
Further information Redcape Hotel Group
Redcape Hotel Group (“Redcape”) is a listed stapled
scheme which owns and operates 32 hotels, offering food
& beverage, takeaway liquor and gaming. The Moelis
Australia Group is the responsible entity of Redcape and
performs hotel operating and asset management services.
The magnitude and variability of returns the Group receives
from the Funds, including the fees it earns as trustee and
asset manager and the investment return on its holdings is
such that the Group is not considered to control the Funds.
Its direct holding in addition to its roles as trustee and asset
manager is considered sufficient for the Group to retain
significant influence over the Funds.
Further information on Infinite Care Group (“Infinite”)
During the year the Group received 4.75m convertible
notes from Infinite (Refer to note 33(e)). These convertible
notes will mandatorily/automatically convert to ordinary
shares in Infinite on the satisfaction of certain triggers in
accordance with the terms of the notes and as such have
been recognised as an ownership interest. The terms of
the note allow that should the triggers not be satisfied
over the 10 year term of the notes, that these notes be
redeemed for their face value.
Refer note 1(a)(v) regarding key estimates and assumptions.
The magnitude and variability of returns the Group receives
from Infinite, including the fees it earns as trustee and asset
manager of the Moelis Australia Aged Care Fund and the
investment return on its holdings is such that the Group
is not considered to control Infinite. Its direct holding in
addition to its roles as trustee and asset manager of Moelis
Australia Aged Care Fund is considered sufficient for the
Group to retain significant influence over Infinite.
On 30 November 2018 the Redcape Hotel Group was listed
on the Australian Stock Exchange, issuing $40 million new
securities in addition to a sale of $20m existing securities
(representing existing Moelis Australia related security-
holders).
A summary of Redcape’s balance sheet and income
statement is disclosed in note 27.3.
As at 31 December 2018 the Group owned 9.4% (2017:
10.1%) of Redcape and funds managed by the Group own
29.3% (2017: 41.8%) of Redcape. The magnitude and
variability of returns the Group receives from Redcape,
including the fees it earns as trustee, asset manager and
hotel operator, the increase in fees it earns through the
29.3% owned by other Moelis managed funds and the
investment return on its direct 9.4% holding is such that the
Group is not considered to control Redcape. Its 9.4% direct
holding in addition to its roles as responsible entity, asset
manager and hotel operator is considered sufficient for the
Group to retain significant influence over Redcape.
78
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Parent entity disclosures
28
As at, and throughout, the financial year ended 31 December 2018 the parent entity of the group was Moelis Australia
Limited.
Result of the parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprising of:
Contributed equity
Reserves
Retained earnings
Total equity
2018
$’000
8,430
–
8,430
2017
$’000
31,421
63
31,484
186,516
223,965
201,239
208,673
6,361
6,361
6,673
6,673
217,604
202,000
201,735
15,428
441
191,507
7,715
2,778
217,604
202,000
The implementation of AASB 9 and AASB 15 did not have a material impact on the parent entity as the expected credit
losses on intercompany balances was determined not to be material and accordingly no loss allowance was recognised.
Parent entity contingencies
The parent entity had no contingencies at year end other than those already disclosed in the financial statements.
29
29.1
Financial instruments
Financial risk management objectives
The Group’s principal financial assets comprise cash and cash equivalents, trade and other receivables, commercial
loans and investments in listed and unlisted securities. The Group’s principal financial liabilities comprise trade and other
creditors and borrowings.
The Group’s activities expose it to a variety of financial risks: for example, market risk (including interest rate risk and
foreign currency risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to ensure the potential adverse effects on the financial performance of the
Group are kept to within acceptable limits. 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 risk, and ageing analysis for credit risk.
Risk management is carried out by senior management and the Board. The Board identifies and monitors the risk exposure
of the Group and determines appropriate procedures, controls and risk limits. Senior management identifies, evaluates and
monitors financial risks within the Group’s operations.
There has been no change to the nature of the financial risks the Group is exposed to, or the manner in which these risks
are managed and measured, other than the risks introduced as a result of the increased provision of commercial loans. The
issuance of the loans introduces an additional level of liquidity risk and an additional consideration for the management of
the Group’s capital.
Moelis Australia Limited 2018 Annual Report
79
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
29
29.1
Financial instruments (cont.)
Financial risk management objectives (cont.)
Categories of financial instruments
Financial assets
Cash and cash equivalents
Restricted cash
Loans receivable
Receivables
Listed and unlisted equity securities
Other assets
Financial liabilities
Creditors including preference dividends payable
Unsecured notes
Redeemable preference shares
2018
$’000
86,652
5,965
111,482
32,231
25,574
789
21,203
57,150
25,500
2017
$’000
87,786
14,239
42,848
17,034
35,222
525
10,599
32,150
–
29.2
Capital management
The capital structure of the Group consists of net cash
(cash and bank balances offset by the unsecured notes
and redeemable preference shares detailed in note 18) and
equity (comprising contributed equity, retained earnings
and reserves).
The Group manages its capital with the aim of ensuring
that the Group will be able to continue as a going concern
while maximising the return to shareholders through the
optimisation of the debt and equity balance. The Group’s
overall strategy remains unchanged from 2017.
The Group’s borrowings comprise unsecured loan notes of
$57.15m (2017 $32.15m) as well as redeemable preference
shares of $25.5m (2017 $0). The maturity dates are shown
in the table below. Except for the obligation to pay periodic
interest and repay the principal at the end of the term,
the terms of the loan notes do not include any material
undertakings or obligations which, if not complied with,
would result in the acceleration of the amount owing.
Maturity Date
18 September 2020
14 September 2022
A subsidiary of the Company, Moelis Australia
Securities Pty Ltd, is a market participant on the ASX and
therefore has an externally imposed capital requirement.
In addition, the subsidiaries Moelis Australia Securities
Pty Ltd, Moelis Australia Advisory Pty Ltd, Moelis Australia
Asset Management Ltd, Mendoza Ltd and Redcape Hotel
Group Management Ltd all have Australian Financial
Services Licenses.
80
Moelis Australia Limited 2018 Annual Report
2018
$’000
32,150
25,000
57,150
2017
$’000
32,150
–
32,150
29.3
Foreign currency risk
The Group undertakes transactions denominated in
foreign currencies, including fees on corporate advisory
engagements and expenditure, principally on information
technology and data services. The Group does not
manage its exposure to advisory revenue denominated in
foreign currency until fees are invoiced, as generally the
fee receipt of revenue is too uncertain prior to invoicing
and not material. Foreign currency debtors and foreign
currency bank balances are periodically reviewed relative
to the Group’s balance sheet and liquidity requirements.
Revenue received in foreign currency is sometimes
retained in those currencies rather than converted
into Australian dollars, in order to meet future foreign
denominated expenses or to take advantage of potential
future movements in exchange rates. While holding foreign
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
currency balances assists in reducing exposure to adverse
movements in exchange rates on future foreign currency
denominated expenditure, it does create exposure to
adverse unrealised losses upon revaluation of the foreign
currency balances themselves, and realised losses should
the Group choose to convert the foreign currency balances
into Australian dollars at a future date rather than retain
them to satisfy future foreign currency denominated
expenditure.
The carrying amounts of the Group’s foreign currency
denominated monetary assets and monetary liabilities at
the end of the reporting period are as follows:
Currency of USA
Currency of USA
Currency of Canada
2018
$’000
Liabilities
2017
$’000
–
216
Assets
4,674
–
8,189
1,286
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 10%
increase and decrease in the Australian dollar against the
relevant foreign currencies. 10% represents management’s
assessment of the reasonably possible change in foreign
exchange rates. The sensitivity analysis includes only
outstanding foreign currency denominated monetary
items and adjusts their translation at the year end for a
10% change in foreign currency rates. A negative number
below indicates a reduction in profit where the Australian
dollar strengthens 10% against the relevant currency. For a
10% weakening of the Australian dollar against the relevant
currency, there would be a comparable impact on the
profit, and the balances below would be positive.
Profit or loss
Profit or loss
2018
$’000
2017
$’000
USD impact
(467)
(797)
CAD impact
–
(129)
The Group’s sensitivity to foreign currency has reduced
during the current year mainly due to a lower USD bank
account balance.
The Group’s sensitivity to interest rates has increased
during the current year due to the increase in cash at bank
and the new commercial loans.
29.4
Interest rate risk
The Group is exposed to a decrease in interest rates
reducing the interest income earned on its cash at bank.
The Group’s borrowings via unsecured notes (refer note 18)
is at a fixed rate of interest.
Interest rate sensitivity analysis
A 1% increase or decrease in interest rates represents
management’s assessment of the reasonably possible
change in interest rates.
If interest rates had been 1.0% higher or lower and all
other variables were held constant, the Group’s profit for
the year ended 31 December 2018 would be impacted by
$733,000 (2017: $612,000). The decrease is attributable to
the Group’s exposure to interest rates on its cash at bank
and commercial loans.
Moelis Australia Limited 2018 Annual Report
81
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
29
29.5
Financial instruments (cont.)
Equity investment market price risk
The Group is exposed to decreases in the market prices
of its equity investments, which would cause a decrease in
their carrying value and may result in a lower realised profit
on sale.
If market prices had been 5% higher or lower:
• profit for the year ended 31 December 2018 and 2017
would have been unaffected as the investments are
classified as FVOCI (2018) and available-for-sale (2017)
and no investments were disposed of or impaired; and
• other comprehensive income for the year ended
31 December 2018 would be impacted by $1,293,000
(2017: $1,761,100) as a result of changes in fair value of
available-for-sale shares.
29.6
Credit risk management
Credit risk management is the risk that a counterparty
defaults on its contractual obligations resulting in
financial loss to the Group. A default may arise through a
counterparty failing to repay loans and interest thereon, and
through failing to meet its obligation to pay invoiced fees.
(i)
Invoices for services
The credit-worthiness of clients is taken into account when
accepting client assignments, however, the nature of the
Group’s advisory work includes engaging with clients which
are under financial stress where the risk of non-payment of
invoices is elevated.
Receivables consist of a number of customers, spread
across diverse industries and geographical areas. Ongoing
credit evaluation is performed on the financial condition of
accounts receivable.
As at 31 December 2018 the Group does not have a
significant credit risk exposure to any single customer.
Note 10 includes an ageing of receivables past due.
(ii)
Commercial loans
The Group has provided commercial loans during the year.
The loans are secured by charges over the assets of the
borrowers, with the majority of loans having terms of less
than 24 months. The loans are considered non-investment
grade and carry a commensurately higher rate of interest.
Credit risk analysis is focused on ensuring that risks have
been fully identified and that the downside risk is properly
understood and acceptable.
(iii)
Cash balances
The credit risk on the banks holding the group’s cash is
considered limited because the banks have high credit-
ratings assigned by international credit-rating agencies.
29.7
Liquidity risk management
Liquidity risk is the risk that financial obligations of the
Group cannot be met as and when they fall due without
incurring significant costs. The Group manages liquidity risk
by monitoring forecast cash requirements, both short and
longer term, against its current liquid assets (primarily cash
and listed investments). In determining the level of liquidity
to maintain, regard is had to cash flows required over the
next 12 months, regulatory obligations such as Australian
Financial Services Licence requirements and financial
covenants attached to any relevant contractual obligations
of the Group.
Liquidity and interest rate tables
The following table details the Group’s remaining
contractual maturity for its non-derivative financial
liabilities. The tables have been drawn up based on the
undiscounted cash flows of financial liabilities based on
the earliest date on which the Group can be required to
pay. There is no interest payable on the financial liabilities
(excluding the unsecured notes) so only principal cash
flows have been disclosed.
Weighted
average
effective
interest rate
Less than
1 month
1-3
months
3-12
months
1-5 years
5+ years
Total
Liabilities $’000
31 December 2018
Non-interest bearing
Fixed interest rate instruments *
8.4%
–
–
9,690
6,376
–
9,690
6,376
–
–
–
5,137
82,650
87,787
–
–
–
21,203
82,650
103,853
31 December 2017
Non-interest bearing
–
6,932
1,788
1,334
489
Fixed interest rate instruments *
5.3%
–
–
–
32,150
Total
6,932
1,788
1,334
32,639
56
–
56
10,599
32,150
42,749
82
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
The following table details the Group’s expected maturity
for its non-derivative financial assets. The table has been
drawn up based on the undiscounted contractual maturities
of the financial assets. The inclusion of information on
non-derivative financial assets is necessary in order to
understand the Group’s liquidity risk management as the
liquidity is managed on a net asset and liability basis.
Weighted
average
effective
interest rate
Less than
1 month
1-3
months
3-12
months
1-5 years
5+ years
Total
Assets $’000
31 December 2018
Non-interest bearing
Variable interest rate instruments *
9.6%
99,395
26,831
29,477
4,411
15,380
25,922
13,164
48,113
103,806
42,211
55,399
61,277
31 December 2017
Non-interest bearing
4,475
10,938
34,494
Variable interest rate instruments *
5.3%
87,786
12,000
17,000
14,698
27,739
Total
92,261
22,938
51,494
42,437
–
–
58,877
203,816
– 262,693
–
–
–
64,605
144,525
209,130
*
The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities is subject to change if changes
in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.
29.8
Fair value of financial instruments
This note provides information about how the Group determines fair values of various financial assets and financial
liabilities.
29.8.1
Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring
basis
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting
period. The following table gives information about how the fair values of these financial assets and financial liabilities are
determined (in particular, the valuation technique(s) and inputs used).
Moelis Australia Limited 2018 Annual Report
83
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
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84
Moelis Australia Limited 2018 Annual Report
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Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
29.8.2
Fair value of financial assets and financial liabilities that are not measured at fair value (but fair value
disclosures are required)
The Directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated
financial statements approximate their fair values.
Key management personnel compensation
30
The aggregate compensation made to Directors and other members of key management personnel of the Company and
the Group is set out below. There were 8 KMP’s in 2018 and 6 KMP’s in 2017.
Short-term employee benefits
Share-based payment
Long service leave
2018
$’000
4,435
1,688
89
6,212
2017
$’000
2,823
273
14
3,110
Related party transactions
31
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have
been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other
related parties are disclosed below.
31.1
Loans to related parties
Loans to employees
2018
$’000
580
2017
$’000
348
The Group has provided several employees with interest free loans that are used for investment purposes, primarily for
investment in funds managed by the Group. The investments purchased have been designated as restricted and are
unable to be sold without the approval of the Group. 51% of distributions received on the investments are allocated against
the loan balance. The loans are repayable over a maximum term of five years.
31.2
Transactions with overseas Moelis & Company entities
Moelis & Company Group LP (Moelis & Company) is a global financial insitution with subsidiaries and offices in a number of
countries. Moelis & Company owns 32.1% of the Group. During the year the Group worked with Moelis & Company offices
to execute cross border transactions with the revenue shared based on the roles of the teams involved. There were also
costs allocated from Moelis & Company for global technology and market data expenses.
Net revenue shares to Moelis & Company
2018
$’000
2,157
2017
$’000
888
Net expenses allocated from Moelis & Company
(107)
(1,013)
The main expense categories were:
Service level agreement
Information services
IT infrastructure
31.3
Transactions with Key Management Personnel
There were no transactions with KMP’s in 2018.
–
(11)
(96)
(195)
(535)
(283)
In the prior year there were fees paid to entities associated with key management personnel of Moelis Australia Ltd
totalling $75,000 for capital commitments provided by the KMP to the Company in relation to the Group’s underwiting
activities.
Moelis Australia Limited 2018 Annual Report
85
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
31
31.4
Related party transactions (cont.)
Transactions with funds managed by the Group
The Group is involved in the management of various funds, through it roles as a trustee, manager, financial adviser and
underwriter, and charges fees for doing so. The Group also invests in some of the funds which it manages.
Related party investments
Encore Care Trust
Encore Care Group Pty Ltd
Redcape Hotel Group
Moelis Australia Aged Care Fund
Moelis Australia Secured Loan Priority Fund
Moelis Australia Senior Secured Credit Fund II
Moelis Australia Kincare Fund
Moelis Australia Exchanges Fund
KMP
2018
–
–
6,794
2,150
–
1,598
430
2,278
Group
2018
–
–
58,547
6,845
–
1,901
7,247
6,448
KMP
2017
–
–
11,450
2,150
80
–
–
–
Group
2017
1,440
310
46,000
7,000
652
–
–
–
13,250
80,988
13,680
55,402
The above amounts are recorded at the entry price paid or committed for the relevant investment in accordance with AASB
124 Related Party Disclosures and have not been adjusted for subsequent valuation changes.
Related party fees
Trustee and management fees
Financial advisory, underwriting and fund establishment
2018
$’000
33,808
4,515
38,323
2017
$’000
9,102
12,139
21,241
Receivables from related parties
Current trade and other receivables from related parties
8,327
1,010
86
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
32
Reserves
Investments revaluation reserve
FVOCI reserve
Share based payments reserve (refer note 34)
Total reserves
Investments revaluation reserve
Balance at beginning of year
Adjustments from adoption of AASB9
Share of other comprehensive income of Associates
Income tax relating to the revaluations of Associates
Share of other comprehensive income of Associates
Net loss arising on revaluation of available-for-sale financial assets
Cumulative loss reclassified to profit or loss on sale of available-for-sale
financial assets
Income tax relating to gain arising on revaluation of available-for-sale financial
assets
Adjustments from adoption of AASB 9
Unrealised loss gain on AFS investments
2018
$’000
9,472
(8,927)
16,198
16,743
3,185
308
8,541
(2,562)
5,979
–
–
–
–
–
2017
$’000
3,185
–
5,308
8,493
893
5,179
(1,554)
3,625
(605)
(1,300)
572
–
(1,333)
Balance at end of year
9,472
3,185
FVOCI reserve
Balance at beginning of year
Net loss arising on revaluation of financial assets
Income tax relating to gain arising on revaluation of financial assets
Adjustments from adoption of AASB 9
Unrealised loss gain on investments
Balance at end of year
–
(12,884)
3,566
391
(8,927)
(8,927)
–
–
–
–
–
–
33
(a)
Disposal of interests in subsidiaries, associates and joint ventures
Senior Secured Credit Fund II
On 28 February 2018, the Group lost the power to exercise control in Moelis Australia Senior Secured Credit Fund II
(formerly Moelis Australia Opportunities Fund II) (the “Fund”) as a result of the paydown of loans issued to the Fund from
the Group. No gains or losses were incurred from the loss of control as it was transacted at the fair value of the underlying
asset disposed of. The Group then acquired 10% of the Fund’s issued units and from that date onwards, the Group has
accounted for the entity as an investment in associates. Please refer to note 27.
(b)
Kincare Fund
On 28 February 2018, the Group lost the power to exercise control in Moelis Australia Kincare Fund (formerly Moelis
Australia Opportunities Fund I) (“Kincare”) as a result of the paydown of loans, reducing the interest in Kincare to 17.9%. No
gains or losses were incurred from the loss of control as it was transacted at the fair value of the underlying asset disposed
of. From that date onwards, the Group has accounted for Kincare as an investment in associates. The interest in Kincare
increased to 25.48% due to a subsequent acquisition of units in November 2018. Please refer to note 27.
Moelis Australia Limited 2018 Annual Report
87
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
33
(c)
Disposal of interests in subsidiaries, associates and joint ventures (cont.)
Moelis Australia Opportunities Fund 3
On 28 February 2018, the Group disposed of 52% of its interest in Moelis Australia Opportunity Fund 3 as a result of the
paydown of loans. There has been no loss of control and therefore it is still acccounted for as a subsidiary of the Group
with a 48% minority interest. No gains or losses were incurred from the disposal as it was transacted at the fair value of the
underlying asset disposed of.
(d)
Acure Asset Management Ltd
In December 2018, a call option deed associated with the sale of the shares the Group held in Acure Asset Management
Ltd was executed. The transaction settled on 1 February 2019. The gain on sale, totalling $2.2m before tax, has been
reflected in the statutory results in the current financial year.
(e)
Encore Care Trust and Encore Care Group Pty Ltd
On 30 November 2018, the investments the Group held in Encore Care Trust and Encore Care Group Pty Ltd were sold to
the Infinite Care Group. As part of this transaction, the Group received 4.75m convertible notes in the Infinite Care Group.
34
34.1
Share based payments
Share based payment reserve
Balance at beginning of year
Option premium received and ammortisation of option fair value
Amortisaton of Share Rights
Amortisation of Armada deferred remuneration
Balance at end of year
2018
$’000
5,308
448
6,275
4,167
16,198
2017
$’000
–
144
2,733
2,431
5,308
(i)
Employee share options
Prior to the listing of the Company, a number of employees were provided the opportunity to purchase options
(“Share Option”), with each Share Option carrying the right to acquire one Share in the Company at a future date. As a
result of the offer, the Company issued 5,468,750 Share Options on 8 April 2017.
At the same time, the Company offered the Chairman and Non-Executive Director Mr Jeffrey Browne (and Mr Browne
accepted) the opportunity to purchase 781,250 Share Options, with each Share Option carrying the right to acquire one
Share in the Company at a future date.
Each Share Option is exercisable for a period of one year, commencing on the first exercise date applicable to the relevant
tranche (exercise window) as set out in the table below. Each Share Option expires if it is not exercised within the relevant
exercise window. The vesting period of the Share Options runs from the grant date to the first exercise date as shown in
the table below.
Unless otherwise determined by the Board, a Share Option holder must continue to be employed by the Group in order to
exercise the Share Option.
Share Options do not carry any dividend entitlement. Shares issued on exercise of Share Options will rank equally with
other Shares of the Company on and from issue. There are no inherent participating rights or entitlements inherent in the
Share Options and Share Option holders will not be entitled to participate in new issues of capital offered to shareholders
during the life of the Share Options.
The offer price is paid or is payable by the recipient on receipt of the Share Option.
88
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
The table below provides the details of options issued on 8 April 2017:
Number of
options at
beginning of
year
Acquired by
Grant date
share price
Exercise price
of option
Issue
price
Earliest date
of exercise Expiry date
Options
forfeited
during the
year
Number of
options at
year end
1,675,300
Employees
1,675,300
Employees
1,675,300
Employees
390,625
Mr Browne
390,625
Mr Browne
5,807,150
$2.35
$2.35
$2.35
$2.35
$2.35
$3.00
$3.15
$3.36
$2.80
$3.00
$0.03
$0.03
$0.01
$0.02
$0.02
8-Apr-21
7-Apr-22
135,083
1,540,217
8-Apr-22
7-Apr-23
135,083
1,540,217
8-Apr-23
7-Apr-24
135,084
1,540,216
8-Apr-19
7-Apr-20
8-Apr-20
7-Apr-21
–
–
390,625
390,625
405,250
5,401,900
There were no Share Options granted during the current financial year.
Fair value of Share Options granted
The weighted average value of the Share Options at the
time of grant was $0.0375.
The fair value of the Share Options was calculated using
a Black Scholes model, adjusted for expectations of
forfeiture due to employee departures. The assumptions
used in calculating the fair value are shown below and are
common to all tranches of Share Options, unless otherwise
stated:
• Dividend yield 4.0%
• Risk-free rate 2.5%
• Expected volatility of 30%, based on the volatity of
comparable listed entities
• Expected life of option is the maximum term up to the
last day of the exercise window
• Forfeiture assumptions for the options granted to
employees are that 16%, 20% and 23% of Share options
are forefeited for tranches 1, 2 and 3 respectively. No
allowance for forfeiture has been made for the Share
Options granted to the Chairman.
Number of
options
Employees
Number of
options
Chairman
Number of
options
total
Weighted
average exercise
price ($)
Employees
Weighted
average exercise
price ($)
Chairman
Balance at beginning of period
5,025,900
781,250
5,807,150
Granted during the period
–
Forfeited during the period
(405,250)
Exercised during the period
Expired during the period
–
–
–
–
–
–
–
(405,250)
–
–
3.17
–
3.17
2.90
–
–
–
–
Balance at end of period
4,620,650
781,250
5,401,900
3.17
2.90
No Share Options were issued, forfeited or exercised since year end. No Share Options were exercisable at year end.
(ii)
Share Rights
2018 year-end allocated Share Rights
At the end of the year, the Board of Directors determined
the annual bonus pool to be paid to employees, and the
components to be paid in cash and to be paid through
granting Share Rights.
The Share Rights granted to employees in connection with
the 2018 annual bonus (“2018 Share Rights”) entitle the
employees to Shares in the Company in the future for no
payment. The Share Rights vest in equal amounts over a
three year period (2017: five years). Vesting is conditional
on continuous service, unless otherwise determined by
the Board. The service period start date is 1 January 2018.
The fair value of each 2018 Share Right at grant date
(21 December 2018) was $4.36, determined by reference to
the trading in the Company’s shares.
Share Rights granted as sign-on incentives
In addition to the 2018 Share Rights, the Company
granted Share Rights to senior executives commencing
employment with the Group. These Share Rights are priced
with reference to the trading price of the Company’s shares
at the time the offer of employment is made. Vesting is
subject to continous employment, with terms varying on
a case by case basis, determined by reference to the
terms from the former employers. Amortisation of the
expense commences on the day the senior executive starts
their employment.
Moelis Australia Limited 2018 Annual Report
89
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
34
Share based payments (cont.)
The average fair value of all Share Rights granted during the year was $5.48. It is anticipated that the Share Rights will be
equity settled.
Opening balance
Issued during the year
Closing balance
35
Earnings per share
Basic earnings per share
Diluted earnings per share
Number of Share
Rights
Grant date
fair value
1,545,823
7,576,916
1,799,829
8,238,369
3,345,652
15,815,285
2018
Cents per share
2017
Cents per share
20.0
19.4
23.4
22.8
The earnings used in the calculation of basic and diluted earnings per share is profit after tax.
Weighted average number of ordinary shares (net of treasury shares) used in
calculating basic earnings per share
153,080,455
126,261,993
2018
2017
Potential equity shares:
Share Options*
Share Rights
Weighted average number of ordinary shares (net of treasury shares) and
potential equity shares used in calculating diluted earnings per share
2,476,936
2,234,375
2,836,938
319,644
157,791,766
129,418,575
*
The number of shares assumed to be issued on exchange of options is calculated using the difference between the option exercise price and the
average traded price of the Company’s shares during the year.
No options or share rights were excluded in calculating diluted earnings per share.
36
Contingent liabilities and commitments
Commitments exist in respect of:
– Undrawn credit facilities
37
Subsequent events
At 31 December 2018 the Group had commitments of
$27.7 million in undrawn credit facilities.
On 1 January 2019 the Group disposed of its interest in a
loan asset for $12.7 million which represented all principal
plus accrued interest. The loan accounted for $10 million in
undrawn credit facilities.
2018
2017
27,737
85,000
On 1 February 2019, the Group completed the disposal of its
shareholding in Acure Asset Management Pty Ltd for gross
proceeds of $5 million.
A fully franked dividend of 8.0 cents per Share totalling
$12.3 million was declared.
90
Moelis Australia Limited 2018 Annual Report
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Subsidiaries
38
Details of the Group’s material subsidiaries at the end of the reporting period are as follows:
Name of subsidiary
Principal activity
Proportion of ownership interest
and voting power
held by the Group
Place of
incorporation and
operation
31 December
2018
31 December
2017
Moelis Australia Advisory Pty Ltd
Corporate Finance
Australia
Moelis Australia Securities Pty Ltd
Corporate Finance
Australia
Moelis Australia Asset Management Ltd
Asset management
Australia
Moelis Australia Visa Fund Manager Pty Ltd Asset management
Australia
Moelis Australia Operations Pty Ltd
Administration entity Australia
Western Funds Management Pty Ltd
Asset management
Australia
A.C.N. 167 316 109 Pty Ltd
Corporate Finance
Australia
Redcape Hotel Group Management Ltd
Asset management
Australia
MARAM TT Pty Ltd
MAAM GP Pty Ltd
MACDF TT Pty Ltd
Asset management
Australia
Asset management
Australia
Asset management
Australia
Global Wealth Residential Pty Ltd
Asset management
Australia
Rockford Capital Pty Ltd
Asset management
Australia
Armada Funds Management Pty Ltd
Asset management
Australia
Mendoza Ltd
Asset management
Australia
Global Wealth Aged Care Pty Ltd
Asset management
Australia
Moelis Australia Hotel Management Pty Ltd Asset management
Australia
MAHPT TT Pty Ltd
Asset management
Australia
Moelis Australia Share Plan Pty Ltd
Administration entity Australia
Moelis Australia Finance Pty Ltd
Administration entity Australia
Moelis Australia Partners Pty Ltd
Asset management
Australia
MAAM Holdings Pty Ltd
Asset management
Australia
KC Finance Pty Ltd
R88A Finance Pty Ltd
Asset management
Australia
Asset management
Australia
Eastern Credit Management Pty Ltd
Asset management
Australia
TMASL Finance Pty Ltd
Asset management
Australia
KCF ST Pty Ltd
Asset management
Australia
Moelis Australia Funds Management Pty Ltd Asset management
Australia
Moelis Australia Foundation Pty Ltd
Administration entity Australia
MAF Credit Pty Ltd
Asset management
Australia
MAAM Commercial Consulting (Shanghai)
Co Ltd
Asset management
China
Moelis Australia Ltd is the head entity within the tax-consolidated group.
The wholly-owned subsidiaries are members of the tax-consolidated group.
100%
100%
100%
100%
100%
100%
100%
100%
0%
100%
100%
100%
100%
100%
100%
100%
100%
0%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
99%
99%
99%
100%
100%
100%
100%
N/A
N/A
Moelis Australia Limited 2018 Annual Report
91
Notes to the Financial Statements (cont.)
for the year ended 31 December 2018
Composition of the Group
Principal Activity
Coporate Advisory and Equities
Asset management
Administration
Place of
incorporation and
operation
Australia
Australia
Australia
Number of wholly-owned
subsidiaries
31 December
2018
31 December
2017
3
24
4
31
3
19
4
26
During the year the Group disposed of or wound up the following entities:
MARAM TT Pty Ltd
MAHPT TT Pty Ltd
Global Wealth Partners Fund Pty Ltd
92
Moelis Australia Limited 2018 Annual Report
Directors’ Declaration
for the year ended 31 December 2018
In the Directors’ opinion:
(a) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable; and
(b) the attached financial statements and notes thereto are in accordance with the Corporations Act 2001 (Cth), including
complying with accounting standards and giving a true and fair view of the financial position and performance of the
consolidated entity.
Note 1(a) includes a statement that the financial report complies with International Financial Reporting Standards
The Directors have been given declarations by the CEO and CFO required by section 295A of the Corporations
Act 2001 (Cth)
Signed in accordance with a resolution of the Directors
Jeffrey Browne
Independent Director and Chairman
Andrew Pridham
Chief Executive Officer
Sydney
Date 20 February 2019
Moelis Australia Limited 2018 Annual Report
93
Independent Auditors Report
for the year ended 31 December 2018
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the Members of Moelis Australia
Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Moelis Australia Limited (the “Company”) and its subsidiaries
(the “Group”) which comprises the consolidated statement of financial position as at 31 December
2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies and
other explanatory information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 31 December 2018 and of
their financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
94
Moelis Australia Limited 2018 Annual Report
Independent Auditors Report (cont.)
for the year ended 31 December 2018
Key Audit Matter
Investment in Redcape
In July 2017, Moelis in conjunction with a
number of Moelis managed funds and
external investors completed a $677m
transaction to acquire the Redcape Group.
The transaction involved Moelis taking a
direct 10% investment into Redcape, with
total holdings by Moelis and Moelis managed
funds of 59%. Moelis determined in FY17
that Redcape was an associate and was
therefore subject to equity accounting
method.
In November 2018, Redcape underwent an
IPO. Prior to that process Moelis and its
their
managed
investment in Redcape. Moelis has updated
their assessment and determined that
Redcape remains an associate.
funds have
reduced
The share price
for Redcape declined
subsequent to IPO from $1.13 at listing to
$1.02 as at 31 December 2018. The
resultant market capitalisation indicating
that the Moelis investment in Redcape is
valued at $52.8m compared to their share
of profits from associate to the amount of of
$58.5m. Moelis
an
has
impairment analysis and determined that
the investment was not impaired as at 31
December 2018.
performed
How the scope of our audit responded to the
Key Audit Matter
Our procedures included, but were not limited to:
Challenging management’s accounting position
paper on the appropriate accounting treatment for
the investment in Redcape including:
Analysed management’s position
in
relation to the key factors for the treatment
of the investment,
Enquiries with management and inspection
of documents to assess the nature of the
financial information obtained and used by
management
the
in
performance of the investment, and
monitoring
Recalculating the variability and magnitude
of returns from direct and indirect streams
to assess linkage between power and
returns.
We
consulted Accounting
Technical
specialists to assist us in this assessment
of the appropriate accounting treatment.
In relation to the impairment assessment for the
associate our procedures included but were not
limited to :
We
analysed management’s
impairment assessment and noted that the
carrying value is supported by Moelis’
share of net assets of Redcape.
have
We have reviewed the workpapers of the
component auditor for Redcape and their
assessment of Redcape’s
impairment
assessment.
Investment
Recognition
Banking
Revenue
Our procedures included, but were not limited to:
We have also assessed the appropriateness of the
disclosures
financial
statements.
in Note 27.5
the
to
from
investment
In FY2018
The revenue generated by the Corporate
Advisory Segment within the Group is
banking
primarily
transactions.
the advisory
(FY2017:
segment generated $43.7m
$52.2m) in revenue. This revenue stream is
recognised by reference to the stage of
completion of the transaction at the end of
the reporting period as disclosed in Note
1(a).
Revenue recognition requires management
judgement where not all stages of the
transaction are complete.
Evaluating management’s controls over
the revenue recognition process,
Testing, on a sample basis, the calculation
the key
of
the client
milestones as outlined
engagement letters,
fees recognised
the
to
in
Reviewing subsequent period invoices and
bank statements,
to assess whether
revenue has been recorded in the correct
period, and
Reviewing management reporting, board
minutes, market available information and
making enquiries of management
to
support the revenue recognised.
We have also assessed the appropriateness of the
disclosures
financial
statements.
in Note 1(a)
the
to
Moelis Australia Limited 2018 Annual Report
95
Independent Auditors Report (cont.)
for the year ended 31 December 2018
Share based payments
The Group utilises share based payments as
part of its remuneration strategy. The share
based payments expense for the year then
ended 31 December 2018 is $10.1m as
disclosed in Note 34.
Recognition and measurement of incentive
schemes involves significant management
judgement to calculate the fair value of
options granted and to assess whether it is
likely
that vesting conditions will be
satisfied.
Our procedures included, but were not limited to:
Evaluating management’s methodology
used against requirements of accounting
standards for share options issued,
Verifying the number of grants, grant dates
and corresponding exercise price
to
supporting documentation for a sample of
share based payments, and
Challenging management assumptions
used to calculate the fair value in the share
based payments.
We also assessed the appropriateness of the
related disclosures in Note 34 to the financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 31 December 2018, but does
not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of
the financial report that gives a true and fair view and is free from material misstatement, whether
due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
96
Moelis Australia Limited 2018 Annual Report
Independent Auditors Report (cont.)
for the year ended 31 December 2018
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.
forgery,
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial report.
We are responsible for the direction, supervision and performance of the Group’s audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 20 to 25 of the Directors’ Report for
the year ended 31 December 2018.
In our opinion, the Remuneration Report of Moelis Australia Limited, for the year ended 31 December
2018, complies with section 300A of the Corporations Act 2001.
Moelis Australia Limited 2018 Annual Report
97
Independent Auditors Report (cont.)
for the year ended 31 December 2018
98
Moelis Australia Limited 2018 Annual Report
Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Delarey Nell Partner Chartered Accountants Sydney, 20 February 2019 Additional Information
Dividend Details
Moelis Australia generally pays a dividend on its fully paid ordinary shares once a year following its full-year financial results
announcement.
The payment date for the dividend following the announcement of the 2018 results is 6 March 2019.
Number of
Ordinary Shares
Held
50,000,000
45,000,000
% of Ordinary
Shares
32.1%
28.9%
12,697,817
9,550,590
4,843,077
3,902,725
2,561,621
2,149,702
1,723,417
1,199,852
1,000,000
651,915
633,821
525,532
500,000
413,185
405,000
351,064
250,701
217,660
8.2%
6.1%
3.1%
2.5%
1.6%
1.4%
1.1%
0.8%
0.6%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.1%
Share Registry Details
The following information is correct as at 8 February 2019.
20 Largest Shareholders
Registered Holder
MOELIS & CO INTERNATIONAL HOLDINGS LLC
MAGIC TT PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
TOUCHARD PTY LTD
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