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for the year ended 31 December 2019
APPENDIX 4E
Annual Financial Report
Moelis Australia Limited ABN 68 142 008 428
Reporting period: twelve months ended 31 December 2019
Previous corresponding period: twelve months ended 31 December 2018
Preliminary financial statements for the year ended 31 December 2019 as required by ASX listing rule 4.3A
RESULTS FOR ANNOUNCEMENT TO THE MARKET
(All comparisons to year ended 31 December 2018)
Revenues from ordinary activities
Total income
Profit after tax from ordinary activities attributable to members
Net profit after tax attributable to members
Total comprehensive income
DIVIDEND INFORMATION
2019 final dividend per share
Record Date: 27 February 2020
Payment Date: 4 March 2020
Net tangible assets per share
$m
136.3
153.7
23.5
23.5
25.0
Up/down
Movement %
up
up
down
down
down
6.9%
7.3%
-20.0%
-20.0%
-3.9%
Amount per
share (cents)
Franked
amount per
share (cents)
Tax rate for
franking
credit
10.0
10.0
30.0%
31 December 2019
31 December 2018
$1.36
$1.43
This information should be read in conjunction with the 2019 Annual Report.
This report is based on the annual financial statements for the year ended 31 December 2019 which have been audited by Deloitte
Touche Tohmatsu.
Additional Appendix 4E disclosure requirements and commentary on significant events relating to operating performance and
results are included in the Annual Financial Report for the year ended 31 December 2019 and in the Directors Report for the year
ended 31 December 2019.
This page has been intentionally left blank.
2 0 1 9 A N N U A L R E P O R T
M O E L I S A U S T R A L I A L I M I T E D
Contents
Moelis Australia at a glance
Chairman’s Letter
Chief Executive Officer’s Letter
Group Year in Review
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
2
4
6
8
17
21
33
34
42
45
46
47
48
49
105
106
111
113
iii
1
Moelis Australia at a glance
Our business
The Moelis Academy
Moelis Australia is an ASX-listed financial services firm
Given the increased scale of our Company, as
operating in Asset Management, Corporate Advisory
evidenced by the material growth in staff numbers
and Equities. Over the last decade, we’ve advised on
since IPO (up over 125 FTEs), we intend to materially
~$110 billion of transactions, assisted clients to raise
increase our focus on staff development.
~$10 billion from equity capital markets, and have over
$4.9 billion in assets under management ("AUM").
As such we have established "The Moelis Academy"
which will consolidate all of our internal training and
While Moelis Australia’s business units operate
intern programmes. In addition, we are significantly
independently, sector knowledge and expertise
upgrading our focus on mentoring and formal practical
are shared across divisions enhancing our sector
industry specific training of our executives.
perspective and our ability to identify and respond
to emerging trends and opportunistic investments.
The firm was started in 2009 as a joint venture with
NYSE-listed Moelis & Company, a leading global
independent investment bank, and Australian
executives.
A core strength of Moelis Australia’s strategy has been
to hire, develop and retain motivated and talented
team members. We continue to experience great
success in this area.
Moelis Australia already invests considerable
resources into the development of its staff. The
Moelis Academy seeks to be an industry leading staff
development programme. We believe it will assist in
recruitment, development and retention – making us
an even better Company over time.
The Moelis Academy will provide our staff with
structured teaching, utilising the talents and industry
experience of senior Executives at Moelis Australia
and Moelis & Company, in addition to highly
Hiring team members who have high integrity and are
credentialed external presenters.
ambitious, optimistic and intelligent is critical to our
long-term success. By developing the capability of our
people over time we reinforce, build and evolve our
positive culture.
Celebrating 10 years
2010
Equities started
with acquisition of
Foresight Securities
2014
Melbourne office
opened
2017
Moelis Australia
Limited listed on
the ASX, + $100m
Revenue
2019
Over 200 staff
2009
Moelis & Company
opened in Australia
6 staff
2013
Asset Management
division established
2016
Over 70 staff,
surpassed $1 billion
of AUM
2018
Shanghai office
opened, 180 staff
Listing of Redcape
Hotel Group
(ASX:RDC)
2020
Surpass $5 billion
of AUM
Launch of The
Moelis Academy
2
Moelis Australia Limited 2019 Annual Report
Asset Management
Corporate Advisory & Equities
We manage funds for institutional, high net worth
Our team provides strategic and financial advice
("HNW") and retail investors with a core focus on
for mergers and acquisitions, equity capital markets
alternative asset sectors including real estate, credit,
("ECM"), debt capital markets and restructuring.
and private equity. We also manage traditional
asset classes such as cash, bonds and listed
equities. In total, we manage over $4.9 billion across
approximately 40 funds.
Our funds are managed by an experienced senior
leadership team who have on average over 25 years
experience in their areas of specialisation. The team
benefits from sharing the expertise of the Corporate
Advisory & Equities division, gaining sector insights
and access to different investment opportunities in our
core areas of focus, Real Estate and Credit.
In Real Estate, we manage over $3.4 billion in assets
including hospitality, commercial, retail, aged-care,
child care and industrial properties.
In Credit, we manage over $900 million across various
credit strategies with a focus on capital preservation.
We have deep expertise in providing credit to
borrowers and structuring transactions in a range of
asset classes and economic conditions.
Our Asset Management team were pioneers of the
We have a strategic alliance with NYSE listed, global
investment bank Moelis & Company for the delivery
of corporate advisory services.
Since 2009, we have advised on $110 billion worth
of transactions, including SABMiller's acquisition of
Fosters, the spin-off of Woolworths' property business
into SCA, and the IPO of Fineos Corporation. The team
has also led the recapitalisation and reconstruction
of Slater and Gordon, advised on the sale of the Ten
Network to CBS and advised Saputo on its acquisition
of Murray Goulburn.
We have deep expertise in helping both domestic
and international clients raise money through ECM
including IPOs. We are a top five M&A advisor and
one of Australia’s most active real estate advisory and
ECM investment banks1. We are also ranked Australia’s
leading special situations advisor2.
Largest research of
small cap real estate
Significant Investor Visa (“SIV”) program, developed
Our Equities business provides securities research,
in conjunction with the Federal Government. We are
sales and trading execution services to institutional
leaders in SIV funds management and one of the
and HNW clients. We are primarily focused on small-
largest Australian managers of private investor capital
cap and mid-cap industrial and real estate companies
from China.
$4.9 Billion
AUM
and offer the largest research coverage of small-cap
real estate companies (including REITs) in Australia.
The Equities team complements the Corporate
Advisory division by providing ECM expertise and
distribution capabilities to facilitate transactions on
behalf of clients.
~$110 Billion in
transactions
since 2009
1. Bloomberg – transactions less than or equal to US$1bn completed since 1 January 2017
2. Eilon SDC Platinum 2019
Moelis Australia Limited 2019 Annual Report
3
Chairman's Letter
Dear Shareholder
We are pleased to present our 2019 Annual Report after
another year of solid growth.
In our 10th year of operation, we achieved strong
Underlying financial and operational results alongside
significant investment in people. Highlights included:
• Record Underlying Revenue of $158.3m (up 16% on
FY18), Statutory Revenue $153.7m, up 7%, resulting
in a record Underlying EBITDA of $63.5m (up 6%
We were very pleased with the overall performance of
our Corporate Advisory and Equities divisions during
2019. They achieved $61.7m in Underlying Revenue
which included a record second half result. Equity
Capital Market (“ECM”) activity was particularly pleasing
and our transaction pipeline heading into 2020 is very
encouraging. Our ECM business was involved in 18
transactions in the second half of 2019, raising in excess
of $2.2 billion for our clients. Overall, we were pleased
to achieve advisory revenue productivity of $1.2m per
on FY18);
executive.
• Achieving an attractive Underlying EBITDA margin
of 40% while investing heavily in hiring new people
across the Group;
• Buying-back 8 million MOE shares from long
standing partner Moelis & Company, providing future
earnings-per-share accretion of approximately 5%;
It is worth highlighting that over our first decade
of operation our Corporate Advisory business has
remained very consistent in terms of performance. We
have averaged approximately $1.4m of revenue per
executive over this time having grown our average
executive headcount progressively from six in 2010 to
• Continuation of growth in scale of our Asset
forty-six in 2019. Our strategy has been to progressively
Management activities seeing it contribute
increase the number advisors and breadth of sector
approximately 77% of Group EBITDA before
coverage, but always with a clear focus on maintaining
corporate overheads;
attractive productivity per executive. In FY19
• Growing Assets Under Management (“AUM”) to $4.9
productivity was the same as in FY18 despite increasing
billion, up 32% on FY18; and
average executive headcount by twelve.
• Declaring a fully franked dividend of 10.0 cents per
share (up 25% on FY18).
Promising Outlook
In 2019 we held an average cash balance of $110m
and we finished the year with $129m of cash on the
balance sheet. While cash dilutes our return on equity, it
provides us with important flexibility to invest in growth.
We are constantly evaluating ways to deploy our large
cash balance and believe our practice of patience and
discipline will continue to reward shareholders in the
long-term.
In total, we hired 24 team members across the Group.
This included three Managing Directors in Corporate
Advisory & Equities and a Private Credit Team in our
Asset Management business. While this investment
results in lower short-term earnings our long-held
We indicated in our FY18 results that we expected
interest rates to remain at historically low levels
throughout 2019. We believe this trend will continue
in 2020 and beyond which should provide ongoing
support to asset values and economic activity.
The outlook for Moelis Australia in 2020 is promising.
Today we employ in excess of 200 staff across
Sydney, Melbourne, Shanghai and Beijing. We added
new capabilities and products across the Group in
2019 which should meaningfully drive our long-term
prospects.
Since our IPO we have significantly grown our Asset
Management activities, including:
practice of investing in growth has historically delivered
• Underlying Asset Management Revenue in FY16 was
handsome rewards over the longer term.
c.$16m. In FY19 it was ~$97m (up over 600%);
Our Asset Management business had a strong year
growing recurring income and AUM. Our net growth in
AUM in 2019 was $1.2 billion.
• Assets under management at the end of FY16 was
~$1.1 billion. At the end of FY19 it was at $4.9 billion
(up ~450%)
4
4
Moelis Australia Limited 2019 Annual Report
Moelis Australia Limited 2019 Annual Report
• Asset Management headcount in FY16 was
Andrew is an outstanding leader, proven business
approximately twenty, in FY19 it is over one hundred,
builder and deal maker and it is important for me
demonstrating the material increase in our scale and
to emphasise that Andrew will continue an active
capacity to raise and manage client money.
executive involvement in his role as Group Vice
Reflecting the growth of our Asset Management
business and its evolving focus and business activities,
the Board has resolved to progressively change
the branding of our Asset Management division to
MA Asset Management. Our Corporate Advisory &
Equities business branding remains unchanged as
Moelis Australia, reflecting our ongoing global strategic
partnership with NYSE listed Investment Bank Moelis &
Company.
The Board believes that the revised branding of our
Asset Management business appropriately reflects and
differentiates the company’s underlying activities in
Asset Management and Corporate Advisory & Equities.
Our business was founded as a 50/50 joint venture
with Moelis & Company over 10 years ago. Since then,
our senior management team has been directly aligned
Chairman. His new more client-focussed role will, I
believe, contribute significantly to the ongoing growth
of the business by allowing Andrew more time to focus
on revenue generation, mentoring our executives and
identifying strategic growth opportunities. I believe that
it would be difficult to find a person more invested in a
business than is Andrew is with Moelis Australia and on
behalf of the Board I welcome him to the new role of
Group Vice Chairman.
The changes to the management structure demonstrate
the shared view of the Board and Andrew that strong
business’ need to continue to evolve. His transition to a
new role has been carefully planned thoughtfully timed.
Chris Wyke and Julian Biggins, who co-founded the
business with Andrew in 2009, will become joint CEO’s
and lead the business through its next phase of growth.
to the profitability of Moelis Australia. This alignment
On behalf of the Board I welcome Chris and Julian
remains today as our executives own over 30% of
to their new roles as joint CEO’s and having worked
shares on issue (the majority of which has long-term
with them closely for 3 years, I have every confidence
voluntary vesting terms). The result of this dynamic has
in their ability to successfully lead the business as it
been a deep seeded mentality of ownership across our
continues to evolve. Chris will also be appointed to the
business which sends a strong signal of commitment
Board of Directors.
and alignment to our clients and shareholders.
Reflective of the ongoing growth of the Company we
I thank the Board and executives for their continued
are focussed at Board Level on pursuing increased
hard work and dedication to the Group and I recognise
independence and diversity of the Board. I am working
the effort that goes in to maintaining a culture based
to identify individuals who we all believe can add value
on entrepreneurship, excellence, mutual trust and
to the future operations of the company.
confidence, and hard work. These qualities have been
fundamental to growing our business and will drive our
future ambitions.
We look forward to the year ahead and thank you for
your ongoing support of Moelis Australia.
Although we are certain to face many challenges in the
years ahead, our business has never been stronger.
Yours faithfully
Management and Board
I would like to take this opportunity to acknowledge two
significant, value adding changes to our business. The
Jeffrey Browne
first is the appointment of our CEO, Andrew Pridham as
Chairman
Group Vice Chairman.
Moelis Australia Limited 2019 Annual Report
5
Chief Executive Officer's Letter
Dear Shareholder
I would like to thank the Board and staff of Moelis
Australia for an outstanding performance in 2019.
Achieving record Statutory and Underlying Revenue
across our portfolio of business activities demonstrates
the quality of our people and strength of business
model.
Throughout my career, now spanning over 30 years,
I have developed fantastic relationships with many
people and organisations. I believe that in my new
role I will have considerably more capacity to focus
my efforts on maintaining existing relationships as
well as developing new ones. Overall, I feel that my
best contribution can be achieved by focussing on
generating revenue by assisting clients with their
As you will be aware I have decided that 2020
represents an appropriate time for me to transition my
managerial responsibilities to my co-founders Mr Julian
Biggins and Mr Chris Wyke.
needs in parallel with identifying strategic opportunities
for Moelis Australia. These are core activities that
helped build our business into what it is today and
will continue with me in my new role as Group Vice
Having fulfilled the role of CEO for just over ten years I
Chairman.
believe that now is an appropriate time for me to focus
my professional efforts on clients, pursuing growth
opportunities and mentoring our executives.
I am a strong believer that all senior business leaders
need to set themselves and their business’ new
challenges after a significant period in the same
It is important to know that the business is in great
shape. In 2019 we achieved a record Statutory
and Underlying financial result, grew assets under
management by 32% and saw our staff numbers
surpass 200. Our balance sheet is strong, and we
continue to identify and review exciting growth
role. In my case I have led Moelis Australia since its
opportunities. Importantly, our senior executive team is
establishment in 2009. I am very proud of the growth
very experienced and strong.
experienced in the business over this time.
I believe that the outlook for the business is better than
Moelis Australia has become such a significant part of
it has ever been.
my life. It was after careful thought and consultation
Moelis Australia is very important to me. I am very
with the Board and senior executives that I have
decided that I can make a greater contribution to the
proud of the Company that I have been most fortunate
to have had the opportunity to lead for over a decade.
business in the future in a different role than I have held
Mostly, I am very proud of the talented and devoted
over the past decade. I can assure all shareholders that
executives who manage the business. I have complete
I would not have recommended to the Board these
management changes if I did not believe it would make
us an even stronger Company.
confidence in the capability of Chris Wyke and Julian
Biggins, as joint CEO’s, to lead the company in its next
phase of growth. I have worked with Chris and Julian
for approximately 20 years and look forward to doing
so long into the future.
6
Moelis Australia Limited 2019 Annual Report
Moelis Australia prides itself on its ability to attract,
Finally, I wish to thank our clients and shareholders for
develop and retain high quality executives. A key
their ongoing support. We are committed to delivering
outcome of our active focus on people development
great results for all stakeholders by applying our core
is that we have many highly capable executives.
principles of hard work, optimism and alignment.
Julian and Chris exemplify this and as such are
both well prepared and ready to lead the business.
They possess, with abundance, the requisite skills
and experience to drive the business forward. As
co-founders of Moelis Australia they have a deep
Yours sincerely,
understanding of its culture, people and operations.
I strongly believe that they will bring a new energy and
focus, with a consistency of approach.
Andrew Pridham AO
Chief Executive Officer
Importantly, my strong commitment to Moelis Australia
remains unchanged and I look forward to continuing
to work closely with Chris and Julian in my new
role. I will continue to Chair the Moelis Australia
Executive Committee, which comprises our most
senior executives and is responsible to the Board for
formulating and then executing the strategy of the
Group. Demonstrating the depth and experience of
our leadership team, the Executive Committee have an
average of ~25 years relevant commercial experience.
As has been the case since 2009 my role at Moelis
Australia will remain my sole commercial commitment.
I am excited about our future prospects and confident
that, as Group Vice Chairman I will have even greater
capacity to contribute to Moelis Australia’s next decade
of growth as I did for our first 10 years.
Moelis Australia Limited 2019 Annual Report
7
Group Year in Review
In 2019 Moelis Australia celebrated its tenth year of
• Declaration of a fully franked Dividend of 10 cents
operations and pleasingly delivered a strong financial
per share, an increase of 25% on FY18
performance – highlighted by record Underlying
• Prudent capital management. Our average cash
Revenue.
Over the course of FY19 we achieved an appropriate
balance between delivering strong underlying
financial results and investing for future growth.
Highlights of FY19
• Growth in net Assets Under Management (“AUM”)
of $1.2 billion, taking total AUM to $4.9 billion
(+32% on FY18). Underlying Revenue in our Asset
Management Division grew to $96.7 million3
balance for FY19 was $110m. Our strong cash
balance provides flexibility and assists future
growth. At 31 December 2019 our cash balance
was $129m, and this is after investing $27 million
with a successful buy-back of 8 million shares at
$3.40 per share. The impact of the share buy-back
increases future earnings per share (“EPS”) by
approximately 5%, all else being equal, due to the
lower share count
When reading our Statutory and Underlying results,
• Strong growth in revenue. Statutory Revenue up
we note that there are some adjustments that a reader
7% to $153.7m and Underlying Revenue up 16% to
may find useful to understand in more detail.
$158.3m
For further information on adjustments between
• Acceleration of investment in people. Key strategic
Statutory and Underlying results, please refer to the
hires in all areas of the business represents an
detailed reconciliation provided on page 28 of the
investment for future growth. In total, we hired
Directors Report.
24 executives across the Group
3. Underlying Revenue, EBITDA, NPAT and EPS and other measures of underlying performance are not prepared in accordance with International Financial
Reporting Standards (“IFRS”) and are not audited. Detailed reconciliations between the Underlying and IFRS measures are provided in Moelis Australia's 2019
Results presentation and in note 2 and the Directors Report of its 31 December 2019 Consolidated Financial Report (“2019 Results”).
8
Moelis Australia Limited 2019 Annual Report
Financial Results
Statutory Results
Revenue4
EBITDA5
Net profit after tax
Earnings per share
Dividend per share
FY18
$143.2m
$56.2m
$30.5m
20.0¢
8.0¢
FY19
$153.7m
$52.0m
$23.5m
15.5¢
10.0¢
Cash and equivalents
$86.7m
$128.8m
Underlying Results
Revenue
EBITDA
Net profit after tax
Earnings per share
Dividend per share
FY18
$136.3m
$59.8m
$39.3m
25.7¢
8.0¢
FY19
$158.3m
$63.5m
$40.2m
26.5¢
10.0¢
Cash and equivalents
$86.7m
$128.8m
Growth
7.3%
(7.5)%
(23.1)%
(22.5)%
25.0%
48.6%
Growth
16.2%
6.1%
2.1%
3.1%
25.0%
48.6%
For further information on adjustments between Statutory and Underlying results, please refer to the detailed
reconciliation provided in the Directors' Report.
In 2019 Moelis Australia celebrated its tenth year
of operations and pleasingly delivered a strong
financial performance – highlighted by record
Statutory and Underlying revenue.
Over the course of FY19 we achieved an
appropriate balance between delivering strong
underlying financial results and investing
for future growth.
4. Statutory Revenue refers to Total income on the Consolidated Statement of Profit or Loss and Other Comprehensive Income
5. Statutory EBITDA is not a recognised IFRS measure but has been presented to give a comparable measure to the Underlying Result
Moelis Australia Limited 2019 Annual Report
9
Asset Management Year in Review
Financial Results
Assets Under Management ($ billion)
4.9
3.7
2.9
0.9
1.1
FY15
FY16
FY17
FY18
FY19
Net AUM growth was $1.2 billion which reflects client
inflows less client redemptions, and the sale and
purchase of some managed assets.
4.9
2.9
$4.9
billion AUM up
32% on FY18
FY16
FY17
1.1
0.9
FY15
3.7
FY18
FY19
The Asset Management division produced
approximately 77% of Moelis Australia’s Underlying
96.7
EBITDA before corporate overheads in FY19. This
84.8
result was derived from Underlying Revenue of
$96.7m (up 14.0% from $84.8m in FY18).
44.4
Importantly, base management fee income grew by
21.1% in FY19. Overall, underlying Asset Management
15.6
7.8
revenue which is recurring in nature represented
74% of total Underlying Revenue for our Asset
FY17
FY16
FY19
FY15
FY18
Management activities.
Asset Management Revenue ($ million)
96.7
84.8
44.4
15.6
7.8
FY15
FY16
FY17
FY18
FY19
At 31 December 2019 we had approximately
$4.9 billion in AUM (up 32% on 31 December 2018).
We manage assets for an increasingly diversified
portfolio of institutional, HNW and retail investors.
Our core areas of focus are:
• Core Real Estate (~$2.2 billion of AUM primarily
across shopping centre and commercial assets);
• Operating Real Estate (~$1.2 billion of AUM);
• Credit Strategies (~$0.9 billion of AUM primarily
across passive and active credit strategies); and
• Private Equity, Venture Capital and ASX small-cap
equities (~$0.6 billion of AUM)
10
Moelis Australia Limited 2019 Annual Report
Asset Management Year in Review (continued)
Real Estate and Credit
As we have previously stated, we believe Real Estate
and Credit assets are well positioned in the current
Our Fixed Income Fund also had strong capital
inflows during FY19 and now has ~$110m of AUM
environment. Investor demand for cash yielding assets
(up ~$100m in FY19). The Fund has been particularly
is being driven by low interest rates and we anticipate
attractive in today’s low interest rate environment as it
this environment to persist for an extended period.
offers monthly distributions of 4% over the RBA cash
Our initiatives in the credit space have increased
significantly over the past 12 months (FY19 credit
AUM is up to $915m +58% on FY18). Over this time
frame, we have continued to build and improve our
proprietary systems and processes.
We maintain our view that the current opportunity in
Credit is significant. Tailwinds exist owing to the low
interest rate environment coupled with contractionary
lending dynamics within the Australian banking
system. The current market is presenting many
opportunities, but we will remain focused on risk-
adjusted returns in senior asset-secured positions.
Inflows into our Secured Loan Series Fund have
been strong, and the fund now has ~$250m of AUM
rate. The Fund benefits from a credit enhancement
by Moelis Australia assuming the first 10% of any loss.
The underlying assets of this Fund include consumer,
commercial and accounts receivable backed loans.
$110m
Up from $10m in FY18
In December, we raised capital into our newest credit
fund – the Moelis Australia Private Credit Fund.
The Fund will provide loans to small and medium
sized enterprises and the loans will be backed by a
combination of real estate, equipment and receivable
(up ~$130m in FY19). The underlying assets of this
assets. The Fund is positioned to benefit from market
fund are first mortgages secured against Australian
dynamics which are positive for non-bank lenders. We
real estate. The Fund pays monthly distributions and
believe this dynamic will persist over the medium to
investor demand for this Fund product remains high.
long-term in the Australian market and we are focused
$250m
Up from $130m in FY18
on increasing our presence in credit.
$20m
Private Credit Fund
seeded in December 2019
Moelis Australia is now the market leader in legal
disbursement funding. Our lending platform in this
credit vertical today manages a loan book comprising
approximately 17,000 borrowers. This business
continues to show strong growth and attractive
returns. As previously stated, we continue to review
the potential application of our disbursement funding
expertise and technology in markets outside of
Australia.
Moelis Australia Limited 2019 Annual Report
11
Asset Management Year in Review (continued)
Moelis Australia Hotel Management
Moelis Australia Hotel Management (“MAHM”) is our
Moelis Australia has a co-investment in Redcape Hotel
wholly owned hospitality management business.
Group of approximately $60m. Not only does this
MAHM is an active manager of hotel assets
with industry leading expertise in hotel venue
management, acquiring & disposing assets and
undertaking venue refurbishments.
Moelis Australia has managed hospitality funds since
2014 with the acquisition of Redcape Hotel Group in
2017 providing a material increase in scale.
The MAHM platform has over 40 executives who are
solely focused on hospitality assets.
Under MAHM’s management, Redcape Hotel Group
(ASX:RDC) has grown from 25 hotel assets to 32
hotel assets today with a significant exposure to
investment deliver strong alignment with Redcape’s
security holders, it also delivers a cash yield of
approximately 8% per annum and potential for capital
growth.
In November 2019, a single asset fund managed by
MAHM contracted to acquire the iconic Beach Hotel
in Byron Bay for $104m (pre-costs) with settlement
occurring on 10 February 2020. Bryon Bay is widely
recognised as a premier destination and the Beach
Hotel is an iconic venue located on prime real estate
in the heart of the local community. The Beach Hotel
Fund was closed for subscription early in FY20 as
client demand for this investment opportunity was
metropolitan New South Wales.
extremely strong.
MAHM is uniquely positioned to scale its platform
within a hospitality market that is highly fragmented.
$104m
Beach Hotel, Byron Bay acquisition
announced in November 2019
12
Moelis Australia Limited 2019 Annual Report
Asset Management Year in Review (continued)
Asset Management Branding
Moelis Australia has a long-standing strategic
In order to better reflect its evolving focus and
partnership with its largest single shareholder, global
business activities, Moelis Australia proposes to
investment bank Moelis & Company. This partnership
progressively change the branding of its Asset
is principally focused on the provision of Corporate
Management division to MA Asset Management.
Advisory and Equities services in Australia and New
The new branding aims to clearly distinguish the
Zealand. Prior to our IPO in early 2017, Moelis Australia
differences between our asset management and
operated under the single trading name of Moelis &
advisory activities while maintaining links to our
Company. At the time of listing the name was changed
heritage.
to Moelis Australia to reflect the growth of its Asset
Management business and the introduction of third
party shareholders.
Since listing, the proportion of Moelis Australia’s
business relating to asset management has grown
materially (AUM of $1.2 billion at IPO has grown to
$5 billion today).
The Corporate Advisory & Equities business branding
will remain unchanged as Moelis Australia, reflecting
the strong ongoing strategic partnership with
Moelis & Company.
2020
Rebrand Asset
Management business
Moelis Australia
surpass $5 billion AUM
2017
Moelis Australia lists
on ASX (ASX:MOE).
AUM $1.2 billion
2013
Asset Management
division established
2010
Moelis & Company
opened in Australia
Recreate logo
MOELIS & COMPANY
+
MA ASSET MANAGEMENT
M O E L I S
A U S T R A L I A
Moelis Australia Limited 2019 Annual Report
13
Corporate Advisory & Equities Year in Review
Underlying Revenue for FY19 in Corporate Advisory
Corporate Advisory activity in the second half of
& Equities was $61.7m (up 20% on FY18). This was
FY19 was strong. This positive earnings momentum,
primarily driven by advising on an increased number
together with a promising transaction pipeline, gives
of client transactions vs FY18. Equities commissions
us confidence for the first half of 2020. This is in part
were $300k lower in FY19 than FY18 but the division
due to a number of transactions which commenced in
made a significant contribution in the facilitation of
2019 but will not close until 2020.
equity capital markets ("ECM") transactions throughout
the year.
Corporate Advisory revenue has typically been
seasonal with the second half of the calendar year
Our ECM business is performing strongly. We continue
achieving on average ~66% of annual revenue. This
to grow our importance and capability in ECM services
seasonality was highlighted in 2019 with 70% of
in Australia. In the second half of 2019 alone we were
revenue achieved in the second half . We believe
involved in raising over $2.2 billion in equity for clients
that the seasonality in FY19 was driven largely by
across 18 transactions. This included acting on eight
challenging capital markets in the fourth quarter of
IPOs, including three of Australia’s largest 10 IPO’s.
2018 and first quarter of 2019.
Highlighting our growing strength in the technology
sector we acted on two of the five largest IPO’s
involving technology companies.
Our Equity Capital Markets business is performing
strongly. We continue to grow our importance and
capability in ECM services in Australia.
In the second half of 2019 we were involved in
raising over $2.2 billion in equity for clients across
18 transactions.
14
Moelis Australia Limited 2019 Annual Report
Corporate Advisory & Equities Year in Review (continued)
In 2019 we welcomed three new Managing Directors
Our strategy has been to progressively grow our
and associated teams. These hires reflect an important
advisory headcount but with a clear focus on
long-term investment in growing our capability in
maintaining acceptable productivity per executive.
Corporate Advisory and ECM. We flagged in our 1H19
In FY2019 productivity was $1.2m per executive, the
results that our experience when hiring new teams
same as in FY18, despite adding 12 new executives,
is that it can take 18+ months for them to reach full
and within our stated guidance range of $1.1m - 1.3m
productivity. This investment can, for a period, have a
per executive.
dilutive impact on our revenue productivity.
It is worth noting that over our first decade of
operation our Corporate Advisory business has
remained very consistent in terms of performance.
We have averaged approximately $1.4 million of
revenue per executive over this time having grown
our average executive headcount progressively from
6 in 2010 to 46 in 2019.
In FY2019 productivity was $1.2m per executive,
the same as in FY18 despite adding 12 new
executives.
Moelis Australia Limited 2019 Annual Report
15
Capital Management Year in Review
Overview and Insights
At the end of FY19, Moelis Australia held strategic and co-investments positions of $325 million and net tangible
assets of $195 million including cash of $129 million.
Summary of investments ($m)6
31 Dec 2018
31 Dec 2019
Cash
Credit
Redcape Hotel Group (ASX.RDC)
Co-Investment
Japara Healthcare Limited (ASX.JHC)
Other
Total
86.7
111.9
58.5
34.2
16.8
1.3
309.5
128.8
83.2
59.3
36.7
14.8
2.5
325.3
Holding such a large cash balance can dilute returns
This transaction has benefited all shareholders
on equity however this large cash balance provides
through improved free float of Moelis Australia shares
capacity for ongoing investment in growth. We are
and improved future full-year earnings per share by
reviewing numerous commercial growth opportunities
approximately 5% all else being equal. Further, as
with a particular focus on expanding our activities in
Moelis & Company’s interest has fallen below 20%,
credit and real estate. We have always managed the
Moelis Australia will no longer be treated as a foreign
business for the long term and will remain patient
corporation which will result in cost savings and
and prudent when deploying capital. Fundamental to
diminished administrative and commercial complexity.
this is maintaining a strong balance sheet, including
a strong cash balance that can facilitate attractive
investment or business opportunities.
On 31 October 2019, the Company’s shareholders
approved a selective buy-back of 8 million Moelis
Australia shares from Moelis & Company. The total
consideration for the buy-back was $27.2 million,
representing a price of $3.40 per share.
The buy-back followed the on-market sale of 12.5
million Moelis Australia shares by Moelis & Company
which were sold to a range of investors including the
Moelis Australia Employee Share Trust.
As a result of the on-market sale and selective buy-
back, Moelis & Company’s shareholding in Moelis
Australia decreased from 32.1% to 19.9%.
In the future, our capital may be applied in a number
of ways including:
• Optimising our capital structure to improve returns
to shareholders;
• 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
•
Investing in talent, systems and new business
opportunities.
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.
6. Excluding the assets of the Master Credit Trust, (a fund managed by the Group)
16
Moelis Australia Limited 2019 Annual Report
Additional Information
Corporate Advisory Strategic Alliance with Moelis & Company
Moelis Australia and Moelis & Company have a
The strategic alliance is highly beneficial to both
longstanding strategic alliance in relation to Corporate
parties and will continue to benefit Moelis Australia by:
Advisory.
Moelis & Company is a leading global independent
investment bank listed on the NYSE. Moelis &
• Providing access to a global network of advisory
executives sharing intellectual capital and access
to client relationships;
Company holds just under 20% of the issued capital
• Allowing cooperation on cross-border or industry
in Moelis Australia. The Moelis Australia and Moelis
specific advisory mandates; and
& 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.
• Leveraging a strong and recognisable global brand
in Moelis & Company.
Moelis Australia Limited 2019 Annual Report
17
The Moelis Standard19 global Corporate Advisory officesThe 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 foster a culture of partnership, passion, optimism and hard work.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 deliver more. Additional Information (continued)
Moelis Australia Clients
Our culture
Moelis Australia acknowledges and appreciates the
Excellence, enterprise and commitment is how we
trust that clients have placed in the Group to provide
describe the Moelis Australia culture. Excellence for
the most relevant advice and innovative solutions
the standards we set, enterprise to describe the way
across our suite of products. In particular the Asset
we think, plan and act and commitment to reflect
Management division takes on the responsibility of
our culture of accountability and ownership to both
being a custodian of clients’ money with great care.
ourselves and clients.
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
We encourage all our team of over 200 to adopt
a ‘ownership mindset’, ensuring we always remain
aligned with the objectives of our investors and
clients.
highest-quality long-term outcomes to clients and
The Moelis Academy
investors. Key to achieving this is our commitment to
attracting and retaining talent that aligns to our culture
and values.
We have established the The Moelis Academy
which will consolidate all of our internal training and
intern programmes. In addition, we are significantly
Over 2019, Moelis Australia welcomed 24 talented
upgrading our focus on mentoring and formal practical
executives to the Group. Each new team member
industry specific training of our executives.
brings a unique skillset to supplement our existing
talent pool. In addition, we offered 15 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.
Moelis Australia already invests considerable
resources into the development of its staff. The
Moelis Academy seeks to be an industry leading staff
development programme. We believe it will assist in
recruitment, development and retention – making us
an even better Company over time.
Reflecting our view of the importance of talent
development Andrew Pridham will drive the Moelis
Academy as part of his role as Group Vice Chairman
The Moelis Academy will provide our staff with
structured teaching, utilising the talents and industry
experience of senior Executives at Moelis Australia
and Moelis & Company, in addition to highly
credentialed external presenters.
18
Moelis Australia Limited 2019 Annual Report
Additional Information (continued)
Moelis Australia Foundation
The Moelis Australia Foundation ("Foundation") was
Foundation asks staff members to nominate the
established following our IPO to support community
charities they would like the Foundation to support.
initiatives that align with the culture and broader
All staff members may request that Moelis Australia
community interests of Moelis Australia and its
donate to Foundation in lieu of what may otherwise
executives.
The Independent Chairman of the Foundation 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
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.
of the Art Gallery of NSW Board of Trustees, a deputy
In addition, in 2019 we selected two organisations
chairman of Art Exhibitions Australia and Kaldor
to be our inaugural community partners - Beyond
Public Art Projects, a trustee of the Sydney Swans
Foundation and governor of the Florey Institute
Blue and the Go Foundation. This program is for us
to financially support organisations over a three-year
of Neuroscience. Andrew Pridham and Chris Wyke
period with both financial giving and engagement
(Head of Corporate Finance Advisory) are also
events. These organisations were chosen because
Directors of Foundation.
The Moelis Australia team believes strongly in giving
back to the community through projects the team is
of their strong alignment with issues staff are
passionate about - mental health, at risk children and
youth, medical research and eduction.
passionate about. Empowering the team to suggest
Since inception in 2017, The Moelis Australia
and drive community initiatives that are close to
Foundation has received $7.2m in pledges from staff
their heart through the Foundation, underpins our
and the Group.
approach.
$7.2m
In pledges from staff and the Group since the
inception of The Moelis Australia Foundation in 2017.
Moelis Australia Limited 2019 Annual Report
19
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20
Moelis Australia Limited 2019 Annual Report
2 0 1 9 A N N U A L R E P O R T
Directors’
Report
M O E L I S A U S T R A L I A L I M I T E D
Moelis Australia Limited 2019 Annual Report
21
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22
Moelis Australia Limited 2019 Annual 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 2019.
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.
Mr Jeffrey Browne
Independent Chairman and Non-Executive Director
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
Moelis Australia Limited 2019 Annual Report
23
Directors’ Reportfor the year ended 31 December 2019 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 68% 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
Partnership Fund for New York City
Special responsibilities
Member of the Audit and Risk Committee
Interests in the Company
None
24
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 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 18,477,262 Shares as a result of his holding in the
Existing Staff Trusts. As a result of Andrew’s ownership of the Trustee of one of the Existing Staff
Trusts, Andrew has a deemed relevant interest in 26,800,000 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 nearly 20 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 5,585,369 shares as a result of his holding in the
Existing Staff Trusts and share rights that have vested.
Share Rights: 193,175
Restricted Shares: 158,104
Company Secretary
Mr Peter Dixon resigned from his role as Company Secretary with effect from 30 September 2019. Ms Janna Robertson was
appointed as Company Secretary with effect from 30 September 2019.
Janna has over 20 years’ experience in financial services and prior to joining the Group was a partner at Deloitte.
Janna holds a Bachelor of Business from the University of Technology Sydney, is a Member of the Institute of Chartered
Accountants in Australia and New Zealand and graduate of the Australian Institute of Company Directors.
The above named Directors held office during and since the end of the year except if otherwise indicated above.
Moelis Australia Limited 2019 Annual Report
25
Directors’ Report (cont.)for the year ended 31 December 2019 Directors’ meetings
The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the
financial year
Board
Meeting
Audit & Risk
Committee
Nomination &
Remuneration Committee
A
9
5
8
9
9
B
9
8
8
9
9
A
6
#
6
#
6
B
6
#
6
#
6
A
4
3
#
4
#
B
4
4
#
4
#
Mr Jeffrey Browne
Mr Kenneth Moelis
Mr Joseph Simon
Mr Andrew Pridham
Mr Julian Biggins
A = Number of meetings attended
B = Number of meetings held during the time the Director held office during the year (Mr Moelis and Mr Simon did not participate in meeting related to the selective
share buy-back)
# = Not a member of committee
Principal activities
The Group is a financial services provider with offices in
Sydney, Melbourne and Shanghai. The Group’s principal
activities in the course of the year were providing asset
management, corporate advisory and equities services.
Changes in state of affairs and significant events
During the year the following significant events occurred:
Selective share buy-back
On 31 October 2019 the Company’s shareholders approved
a selective buy-back of 8 million Moelis Australia Limited
shares from Moelis & Company. The total consideration for
the buy-back was $27.2 million, representing a price of $3.40
per share.
The buy-back followed the on-market sale of 12.5 million
Moelis Australia Limited shares by Moelis & Company which
were sold to a range of investors including the Moelis
Australia Employee Share Trust.
As a result of the on-market sale and selective buy-
back, Moelis & Company’s shareholding in the Company
decreased from 32.13% to 19.98%.
The benefits of these transactions has delivered improved free
float of Moelis Australia Limited shares and improved future full
year earnings per share of approximately 5%. Further, as Moelis
& Company’s interest has fallen below 20%, Moelis Australia
Limited will no longer be treated as a foreign corporation which
will result in cost savings and diminished administrative and
commercial complexity.
Moelis Australia Fixed Income Fund
As part of a new credit product offering to the Group’s
client base, the Group established and manages the Moelis
Australia Fixed Income Fund (MAFIF). MAFIF provides
investors with exposure to a diversified portfolio of credit
investments via an investment in Class A Units (Fund
Preferred Units) in the Moelis Australia Master Credit Trust
(Master Credit Trust). As a 10% co-investment, the Group
holds Class B Units in the Master Credit Trust. The Master
Credit Trust is a consolidated entity of the Group.
The Fund Preferred Units held by MAFIF receive a
preferential distribution from the realised profit of the Master
Credit Trust, up to a maximum equal to the RBA Cash Rate
plus 4.00%, over the Class B units, which in turn receive
any excess distributable profits after paying the preferential
distribution to the Fund Preferred Units.
The Class B units further provide a maximum 10% “first
loss” capital buffer which affords the Fund Preferred Units
preferential treatment on distribution and wind-up of the
Master Credit Trust. On wind-up, the Fund Preferred Units
only have recourse to the assets of the Master Credit Trust.
As such the Group’s contractual exposure is the value of the
Class B Units which amounted to $9.7 million at 31 December
2019 (Nil: 31 December 2018).
Redemptions of the Fund Preferred Units are at the discretion
of the Master Credit Trust Trustee and are therefore treated
as non-current liabilities as the Group has an unconditional
right to defer redemptions for at least 12 months after the
end of the reporting period.
While Moelis & Company has reduced its shareholding, it
remains the Company’s largest shareholder and maintains two
Board seats, demonstrating the continued strategic alliance in
providing global corporate advisory services.
During the year, $97.0 million of Fund Preferred Units were
issued. As a result, Master Credit Trust assets of $110.0
million and liabilities of $100.6 million formed part of the
Group consolidated accounts.
26
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 > The Underlying measures are used by management
to allocate resources and make financial, strategic
and operating decisions. Further, all budgeting and
forecasting is based on Underlying measures. This
provides insight into management decision making; and
> The Underlying adjustments have been consistently
applied in all reporting periods, regardless of their impact
on the Underlying result.
The Underlying financial information is not prepared in
accordance with Australian Accounting Standards and IFRS
and is not audited. Adjustments to the IFRS information
align with the principles by which the Company views and
manages itself internally and consist of both differences in
classification and differences in measurement.
Differences in classification arise because the Company
chooses to classify some IFRS measures in a different
manner to that prescribed by IFRS.
Differences in measurement principally arise where the
Company prefers to use non-IFRS measures to better:
> Align with when management has greater certainty of
timing of cash flows;
> Regulate the variability in the value of key strategic
assets, specifically the investment in Japara Healthcare
Limited;
> Normalise for the impacts of one-off transaction costs;
and
> Recognise staff share-based bonus expense when
granted as opposed to over the vesting period.
Unsecured note program – limited recourse
On 27 March 2019, the Group established a new unsecured
medium-term note program designed to be a compliant
investment for the Significant Investor Visa program. The notes
constitute unsecured, unsubordinated obligations of the issuing
special purpose Group entity (issuing entity). The issuing entity
was capitalised by the Group and invests the proceeds of the
note issuance in a diversified portfolio of cash and loans. The
notes have sole recourse to the assets of the issuing entity
and are not guaranteed by the Group. Whilst the notes have a
five-year stated maturity, they can be redeemed at the option
of note holders subject to a minimum 12 month holding period
following issue.
At 31 December 2019, $35.0 million of notes had been issued
and are treated as current liabilities in the consolidated
statement of financial position. No further notes are expected
to be issued under this program.
Operating and Financial Review
The Group recorded total comprehensive income for
the year of $25.0 million (2018: $27.2 million) and profit
after tax of $23.5 million (2018: $30.5 million). Total
comprehensive income and profit after tax have been
prepared in accordance with the Corporations Act 2001 (Cth)
and Australian Accounting Standards, which comply with
International Financial Reporting Standards (IFRS).
The Group also utilises non-IFRS “Underlying” financial
information in its assessment and presentation of Group
performance. In particular, the Group references Underlying
Revenue, Underlying Earnings Before Interest, Tax,
Depreciation and Amortisation (EBITDA), Underlying Earnings
Per Share (EPS) and Underlying Net Profit After Tax (NPAT).
The Directors place great importance and value on the
IFRS measures. As such, the Directors believe that, when
read in conjunction with the IFRS measures, the Underlying
measures are useful to the reader as:
> The Underlying measures reveal the underlying run rate
business economics of the Company;
Moelis Australia Limited 2019 Annual Report
27
Directors’ Report (cont.)for the year ended 31 December 2019 The adjustments between Underlying and IFRS measures are provided in the reconciliation below.
2019 Statutory result
Differences in measurement
Business acquisition adjustments
Equity issued to staff
Net unrealised gains/(losses) on investments
Adjustments relating to associates
Deferred performance fees
Profit on sale of joint venture
Credit investments
Differences in classification
Interest income
Net unrealised gains/(losses) on investments
Credit investments
Tax on adjustments
Total adjustments
2019 Underlying results
2018 Statutory result
Differences in measurement
Business acquisition adjustments
Equity issued to staff
Net unrealised gains/(losses) on investments
Adjustments relating to associates
Deferred performance fees
Profit on sale of joint venture
Credit investments
Differences in classification
Interest income
Net unrealised gains/(losses) on investments
Adoption of AASB 16 Leases
Non-controlling interests
Tax on adjustments
Total adjustments
Note
Revenue1
$000’s
EBITDA2
$000’s
NPAT
$000’s
Comprehensive
Income
$000’s
153,728
52,013
23,494
25,027
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
( j)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(k)
–
–
–
5,979
6,400
2,221
(258)
(6,346)
1,175
(4,550)
–
3,566
(1,822)
–
6,137
6,400
2,221
137
(6,346)
1,175
–
–
4,620
11,468
5,464
(1,822)
–
8,513
6,400
2,221
137
–
1,175
–
(5,427)
16,661
158,348
143,230
63,481
40,154
56,239
30,545
–
–
–
8,763
(6,400)
(2,221)
493
(8,204)
1,909
–
(1,263)
–
4,187
3,514
–
8,763
(6,400)
(2,221)
1,022
(8,204)
1,909
2,303
(1,262)
–
(6,923)
3,608
5,396
3,514
–
8,763
(6,400)
(2,221)
1,022
–
1,909
–
(1,263)
(1,981)
8,739
5,464
(1,822)
2,023
5,475
6,400
2,221
137
–
–
–
(4,771)
15,127
40,154
27,206
5,396
3,514
13,586
220
(6,400)
(2,221)
1,022
–
1,909
–
(1,263)
(3,686)
12,077
2018 Underlying results3
136,307
59,847
39,283
39,283
1.
Statutory Revenue refers to total income on the condensed consolidated statement of profit or loss and other comprehensive income
2. Statutory EBITDA is not an IFRS measure but has been presented to provide a comparable measure to the Underlying result.
3. The 2018 Underlying EBITDA has been adjusted to reflect the impact of the adoption of AASB 16 Leases in 2019. The previously reported 2018 Underlying
EBITDA was $57.5 million.
28
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Differences in Measurement
(a) The acquisition of Armada Funds Management in 2017 for cash and shares gives rise to non-cash IFRS expenditure relating to the amortisation of intangible
assets of $3.6 million (2018: $4.2 million) and share-based payment expense to the vendors, who are now employees of the Company, of $1.9 million
(2018: $1.2 million).
(b) The Underlying measure expenses the full value of the share equity issued to staff as part of the annual bonus plan in the year of grant as opposed to over the
vesting period (up to 5 years) per IFRS.
(c) Adjustment to remove unrealised gains/losses on the Group’s strategic investment in Japara Healthcare Ltd. 2018 further comprises an unrealised gain of $1.0
million arising as a result of the initial adoption of AASB 9. The gain, under AASB 9, was recognised directly in equity as at 1 January 2018 and not through the
2018 Statement of Profit or Loss and Other Comprehensive Income.
(d) The Underlying treatment records dividends and distributions received from associates in Underlying Revenue as opposed to the IFRS treatment of recording
the Group’s share of accounting profit or loss of the associate. Furthermore, Underlying Revenue recognises gains/losses in management’s assessment of the
movement in the underlying value of the associate. These relate primarily to investments in Redcape Hotel Group and Infinite Care Group.
(e) Performance fees relating to Redcape Hotel Group recorded in the 2018 statutory results but deferred to 2019 in the underlying result to closely align with
transaction settlement and cash flows.
(f) The profit on sale of the Group’s interest in Acure Asset Management was recorded in the 2018 statutory results but deferred to 2019 to closely align with
transaction settlement and cash flows.
(g) The Underlying treatment excludes the movement in AASB 9 Expected Credit Loss provisions relating to loan assets. Where there is an increased likelihood of
credit loss, specific provisions individually assessed against loan assets are included in both the statutory and Underlying results. See note( j) for treatment of
specific provisions that are reclassified by management.
Differences in Classification
(h) The Group consolidates the assets and liabilities of certain fund related credit initiatives. The interest expense of $4.8 million (2018: $5.8 million) relating to
the liabilities is reclassified to Underlying revenue to offset against the interest income derived from the related loan assets to reflect the total net return to the
Group. Further, interest income on cash and bank balances of $1.6 million (2018: $2.4 million) is reclassified to Underlying net interest expense. These relate
primarily to our investments in the Moelis Australia Master Credit Trust.
(i) Unrealised gains/losses other than those identified in (c) above are reclassified from Other Comprehensive Income to Underlying revenue.
( j) The specific provision for impairment of a loan asset is reclassified from statutory expense to Underlying revenue, to be consistent with how management view
the movement in value of investments.
(k) Adjustment to reclassify $2.3 million of rent between expenses and amortisation in 2018 as the Statutory result does not reflect the impact of the adoption of
AASB 16 Leases in 2019.
Segment overview
The Group recognises two operating segments: Asset Management and Corporate Advisory and Equities. The costs associated
with CEO, CFO, COO and corporate support functions are separately shown as Unallocated.
The Group’s Underlying measures described above directly align with the segment measures required by AASB 8. Further
information and reconciliations are provided in Note 3 Segment Information.
The table below shows the contributions to Underlying NPAT of the Group’s key business segments.
Corporate advisory and equities
Asset management
Unallocated
Underlying EBITDA1
Depreciation and amortisation
Net interest (expense)/income
Income tax expense
Underlying NPAT
Year ended
31 December 2019
$’000
Year ended
31 December 2018
$’000
17,050
55,712
(9,281)
63,481
(3,276)
(2,842)
(17,209)
40,154
14,168
53,481
(7,802)
59,847
(2,886)
(842)
(16,836)
39,283
1.
The 2018 Underlying EBITDA has been adjusted to reflect the impact of AASB 16 Leases. The previously reported Underlying EBITDA was $57.5 million.
Please refer to the “Group Year in Review” section on page 8 and Note 3 Segment Information for a review of operations
during the year and the results of those operations and comments on business strategies and prospects for future financial
years.
Moelis Australia Limited 2019 Annual Report
29
Directors’ Report (cont.)for the year ended 31 December 2019
Financial Position
$ 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
2019
128.8
199.8
74.1
29.7
33.1
48.5
513.9
189.2
97.6
286.8
2018
86.7
111.5
76.1
35.2
23.0
42.7
375.2
57.2
77.2
134.4
227.1
240.8
Dividends
A fully franked dividend of $12.6 million (8.0 cents per share) for the year ended 31 December 2018 was paid on 6 March 2019.
The Directors have declared a fully franked dividend of 10.0 cents per share for the full year ended 31 December 2019, payable
on 4 March 2020.
Earnings per share
Basic EPS (cents/share)
Diluted EPS (cents/share)
2019
2018
Underlying
Statutory
Underlying
Statutory
26.5
25.7
15.5
14.9
25.7
24.8
20.0
19.4
30
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Non-audit services
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 (Cth).
The Directors are of the opinion that the services as
disclosed in Note 9 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.
Subsequent events
There were no material events subsequent to the year end.
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
environment regulation.
Indemnification and insurance of Directors’,
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.
Moelis Australia Limited 2019 Annual Report
31
Directors’ Report (cont.)for the year ended 31 December 2019 Rounding of amounts
In accordance with ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, amounts in the
Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars, unless otherwise indicated.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
Andrew Pridham
Managing Director and Chief Executive Officer
Jeffrey Browne
Independent Director and Chairman
Sydney
19 February 2020
Sydney
19 February 2020
32
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Moelis Australia Limited 2019 Annual Report
33
Auditor’s independence declarationfor the year ended 31 December 2019 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. 19 February 2020 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 2019, I declare that to the best of my 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 (ii)any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Delarey Nell Partner Chartered Accountants The Board of Directors Moelis Australia Limited Governor Phillip Tower Level 27, 1 Farrer Place SYDNEY NSW 2000 Deloitte Touche TohmatsuA.B.N. 74 490 121 060Grosvenor Place225 George StreetSydneyNSW2000PO Box N250 Grosvenor PlaceSydney NSW 1220 AustraliaDX 10307SSETel:+61 (0) 2 9322 7000Fax:+61 (0) 2 9322 7001www.deloitte.com.au 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 2019.
Details of Key Management Personnel
Non-Executive KMP
Mr Jeffrey Browne
Mr Kenneth Moelis
Mr Joseph Simon
Executive KMP
Mr Andrew Pridham
Mr Julian Biggins
Mr Christopher Wyke
Mr Graham Lello1
Ms Janna Robertson2
Mr Hugh Thomson3
1. Determined to be a KMP from March 2018.
2. Commenced January 2019.
3. Ceased December 2018 to take on an internal senior corporate advisory role.
Remuneration Governance
The Group’s governance and oversight processes in place for
remuneration are overseen mainly through the Board and the
Nomination and Remuneration Committee. Where an external
perspective is needed, the Nomination and Remuneration
Committee seeks guidance from independent remuneration
advisers. During the year the Nomination and Remuneration
Committee received updates on market trends, regulatory
changes and remuneration design advice.
The Board believes that to make good remuneration
decisions it needs a Remuneration Framework and Principles
to provide guidance for implementation, assessment and
maintenance of remuneration arrangements throughout
the Group. Further, the Board believes it is important to
have discretion to change remuneration arrangements to
meet changing market conditions as well as to comply with
regulatory and corporate governance developments.
The Nomination and Remuneration Committee supports the
Board to fulfil the remuneration obligations by overseeing and
enhancing the Group’s remuneration strategy and Framework
and Principles.
Remuneration Framework & Principles
The Group’s remuneration framework is focussed on
providing proper compensation for performance and
balancing the delivery of both short and long-term business
objectives.
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,
34
Moelis Australia Limited 2019 Annual Report
Independent Chairman and Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director and CEO
Executive Director and Head of Real Estate Advisory
Head of Corporate Advisory
Chief Financial Officer
Chief Operating Officer
Chief Operating Officer
the Group must be able to attract, motivate and retain quality
individuals.
Key drivers of the Group’s remuneration framework and
principles are:
> Ensuring competitive rewards are provided to attract and
retain the best talent;
>
Linking remuneration to an individual’s overall contribution
so that higher levels of performance attract higher
rewards;
> Providing consistent and aligned rewards over time to all
staff, but particularly senior management, to promote the
creation of long-term value to shareholders;
> Driving behaviours which reflect the Group’s risk culture
by motivating staff to be accountable for all business
decisions and their accompanying risk management,
client, economic and reputational consequences; and
> Ensuring the overall cost of remuneration allows for an
appropriate return to shareholders over the long-term.
Remuneration Features
The Group’s remuneration for employees comprise a mix of
the following components:
> A fixed component which is delivered through a base
salary inclusive of superannuation.
> A variable component which is delivered through the
annual bonus scheme and can comprise cash and
deferred equity components.
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 the Executive KMP.
Directors’ Report (cont.)for the year ended 31 December 2019 Remuneration of 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 deferred equity, or a
combination of both.
The review of salaries and the payment of bonuses to
Executive KMP and whether it is delivered in cash or
deferred 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 considers factors
referable to the Remuneration Framework and Principles
including:
>
the performance of the Group;
> market remuneration levels;
>
>
the effectiveness of supporting the Group’s risk culture;
key metrics such as total compensation of all employees
as a percentage of Group revenue; and
>
the performance and contribution of each Executive KMP.
In determining what proportion of the aggregate annual
bonus is provided in deferred equity, the Board considers
several factors including the need to align Executive KMP
with the goals of the Group as well as market practice for the
industries within which the Group operates.
The Group’s Equity Incentive Plan allows a variety of types of
deferred equity to be issued to Executive KMP, including:
> Shares;
> Restricted shares;
> Rights to receive shares in the future (share rights); and
> Share options
Such equity is subject to vesting conditions as determined
by the Board including continuation of employment with
the Group. Generally, 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 circumstances of an employee’s departure. Recipients
of equity grants are not allowed to hedge their economic
interest.
Performance of Executive KMP
The contribution and performance of each Executive KMP
determines his or her annual bonus and any salary increase.
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 2019 against 2018.
Underlying EBITDA $million1
Underlying NPAT $million1
Underlying EPS (cents/share)1
Statutory EBITDA $million2
Statutory Comprehensive Income $million
Statutory EPS (cents/share)
Dividends declared (cents/share)
Year ended
2019
Year ended
20183
% change
63.5
40.2
26.5
52.0
25.0
15.5
10.0
59.8
39.3
25.7
56.2
27.2
20.0
8.0
6%
2%
3%
-8%
-8%
-22%
25%
1. Underlying numbers are not audited. Please see the Directors Report for a reconciliation of Underlying to Statutory measures.
2. Statutory EBITDA is not an IFRS measure but has been presented to give a comparable measure to the Underlying result.
3. The 2018 Underlying EBITDA has been adjusted to reflect the impact of the adoption AASB 16 in 2019. The previously reported 2018 Underlying EBITDA was
$57.5 million.
Remuneration of Executive KMP $million
2019
6.8
2018
6.2
% change
10%
The remuneration of KMP shown in the table above includes salary and annual bonus, including the full value of deferred
equity granted in the year.
Moelis Australia Limited 2019 Annual Report
35
Directors’ Report (cont.)for the year ended 31 December 2019 Remuneration of Executive KMP during the year
The 2018 and 2019 annual bonus granted by the Board consisted of a combination of cash and deferred equity.
In 2018 the share-based component consisted of the right to receive shares in the future (share rights). In 2019 the share-based
component will be delivered as restricted shares in order to achieve dividend flow through to employees.
Key terms of the deferred equity arrangements are detailed in the table below:
2019 restricted shares
2018 share rights
2017 share rights
Vesting Period
First Vesting Date
Grant Price
3 years
31 January 2021
3 years
1 January 2020
5 years
1 January 2019
$4.98
$4.36
$6.08
The share rights and restricted shares are subject to a continuation of employment vesting condition and do not include future
performance hurdle targets, as the Board considers that the annual bonus and related equity grant represents remuneration for
performance during the year of grant.
Deferred equity recipients are entitled to receive a payment equivalent to the dividend paid by the Company (if any) excluding
the dividend to be paid for the year when the deferred equity was granted.
The value of each share right has been determined by reference to the trading in the Company’s shares in the five business
days up to the date of the grant, adjusted for the dividend to be paid for that year.
The value of each restricted share has been determined by reference to the trading in the Company’s shares in the five
business days up to 31 December 2019, adjusted for the dividend to be paid for the year to which the bonus relates.
2019 annual bonus
Andrew Pridham
Julian Biggins
Christopher Wyke
Graham Lello
Janna Robertson
No. of
Restricted
Shares Granted
Value of
Restricted
Shares Granted
–
158,104
153,587
27,756
20,077
–
$787,500
$765,000
$138,250
$100,000
The shares required to discharge the liability under the deferred equity granted to any Director KMP will be acquired by the
Employee Share Trust through the purchase of shares on-market.
36
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Statutory remuneration table
The following tables disclose total remuneration of Executive KMP in accordance with the Corporations Act 2001 (Cth):
Executive KMP
Short-term employee benefits
Salary & fees
(including
superannuation)
450,000
450,000
Bonus (cash
component)
Total cash
Non-
monetary
and other
–
–
450,000 31,369
33,450
450,000
450,000
962,500
1,412,500
450,000
852,500
1,302,500
Andrew Pridham2 2019
Julian Biggins
2018
2019
2018
Christopher Wyke 2019
450,000
935,000
1,385,000
Graham Lello2
2018
2019
2018
450,000
948,750
1,398,750
437,500
256,750
694,250
333,333
160,694
494,027
Janna Robertson 2019
435,325
475,000
910,325
Hugh Thomson
2018
2019
2018
–
–
–
–
–
–
406,487
199,500
605,987
Long-term
employee
benefits
Share based
payments1
Total
remuneration
Long
service
leave
7,528
7,016
7,187
7,010
7,188
Bonus
(equity
component)
–
–
488,897
490,466
710,370
2,130,057
637,835
1,947,345
732,915
2,125,102
7,011
682,840
2,088,601
11,947
209,500
915,697
28,638
208,753
731,418
6,880
36,111
953,316
–
–
–
–
–
–
39,335
96,772
742,094
–
–
–
–
–
–
–
–
–
–
Total 2019
2,223,825
2,629,250
4,852,075 31,369
40,729
1,688,896
6,613,069
Total 2018
2,089,820
2,161,444
4,251,264
33,450
89,010
1,626,200
5,999,924
1.
reflects the amortisation of unvested deferred equity granted to KMP including share rights granted in 2017 and 2018 and Restricted Shares approved in 2019.
2. Mr Pridham elected not to be considered for a bonus in both 2018 and 2019.
3. 2018 reflects his time as KMP from March 2018.
Paid during the year1
% Vesting in future years2
2019
Andrew Pridham
Julian Biggins
Christopher Wyke
Graham Lello
Janna Robertson
Amount
481,369
1,412,500
1,385,000
694,250
910,325
% of total
remuneration
100%
64%
64%
83%
90%
Amount
–
787,500
765,000
138,250
100,000
% of total
remuneration
–
36%
36%
17%
10%
1.
2.
Includes cash component of 2019 annual bonus which will be paid in March 2020.
In relation to Executive KMP, the amount shown as vesting in future years is the 2019 deferred equity, being restricted shares which will vest in three annual
equal instalments commencing January 2021 and ending January 2023. Vesting is subject to continuation of employment.
Moelis Australia Limited 2019 Annual Report
37
Directors’ Report (cont.)for the year ended 31 December 2019 2019 remuneration
Andrew Pridham
Julian Biggins
Christopher Wyke
Graham Lello
Janna Robertson
Fixed
100%
21%
22%
49%
46%
Variable (cash)
bonus
Variable (equity)
bonus
–
45%
44%
28%
50%
–
34%
34%
23%
4%
Key terms of employment contracts
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.
The Independent Chairman receives a fixed fee regardless
of performance, and the other two Non-Executive Directors
receive no remuneration.
Remuneration of Non-Executive Directors during the year
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.
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;
> Eligible to participate in the annual bonus incentive
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.
Other Executive KMP
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.
> Ms Robertson’s contract included a fixed annual bonus
for 2019 at $0.5 million cash and $0.1 million deferred
equity. No future bonus is fixed.
38
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Non-Executive KMP
Short-term employee benefits
Salary & fees
(including
superannuation)
Bonus (cash
component)
Jeffrey Browne
2019
2018
Kenneth Moelis
2019
Joseph Simon
2018
2019
2018
150,000
150,000
–
–
–
–
Total 2019
150,000
Total 2018
150,000
–
–
–
–
–
–
–
–
Long-term
employee
benefits
Share based
payments
Total
remuneration
Non
monetary
and other
Long
service
leave
Options
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
74,148
224,148
61,645
211,645
–
–
–
–
–
–
–
–
74,148
224,148
61,645
211,645
Total cash
150,000
150,000
–
–
–
–
150,000
150,000
2019
Jeffrey Browne
Kenneth Moelis
Joseph Simon
Paid during the year
% Vesting in future years
Amount
150,000
–
–
% of total
remuneration
100%
–
–
Amount
% of total
remuneration
–
–
–
–
–
–
Key Management Personnel and Non-Executive Directors’ equity holdings
The following tables set out each KMP’s interests in the Company:
Shares in the Company
Non–Executive KMP
Jeffrey Browne
Kenneth Moelis1
Joseph Simon
Executive KMP
Andrew Pridham2
Julian Biggins2
Christopher Wyke2
Graham Lello3
Janna Robertson2
Shares
Balance at
1 January 2019
Acquired during
the period
Sold
during the
period
Balance at
31 December
2019
–
–
–
–
–
–
–
–
–
–
–
–
19,626,763
5,877,603
5,877,603
65,359
–
–
(1,149,501)
18,477,262
51,458
51,828
56,319
40,001
(343,692)
5,585,369
(372,927)
5,556,504
–
–
121,678
40,001
1. Mr Moelis has 68.0% 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.
2.
Includes 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.
3. Balance at 1 January 2019 adjusted for shares held prior to becoming KMP.
Moelis Australia Limited 2019 Annual Report
39
Directors’ Report (cont.)for the year ended 31 December 2019 Shares rights in the Company
Non–Executive KMP
Jeffrey Browne
Kenneth Moelis
Joseph Simon
Executive KMP
Andrew Pridham
Julian Biggins
Christopher Wyke
Graham Lello
Janna Robertson
Share rights
Balance at 1
January 2019
Granted during
the period
Vested during
the period
Balance at
signing date
–
–
–
–
304,194
324,093
166,417
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(111,019)
(117,775)
(44,579)
–
193,175
206,318
121,838
–
No KMP share rights were forfeited during 2019.
Restricted shares
Restricted shares in the Company
Balance at 1
January 2019
Granted during
the period
Vested during
the period
Balance at
signing date
Restricted shares
Non–Executive KMP
Jeffrey Browne
Kenneth Moelis
Joseph Simon
Executive KMP
Andrew Pridham
Julian Biggins
Christopher Wyke
Graham Lello
Janna Robertson
–
–
–
–
–
–
–
–
–
–
–
–
158,104
153,587
27,756
20,077
–
–
–
–
–
–
–
–
–
–
–
–
158,104
153,587
27,756
20,077
40
Moelis Australia Limited 2019 Annual Report
Directors’ Report (cont.)for the year ended 31 December 2019 Options
Chairman’s options
Prior to listing, Jeffrey Browne purchased 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
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
Loans to Executive KMP
There were no loans with KMP’s during the year.
Transactions with Executive KMP
Andrew Pridham and Julian Biggins entered into property management service arrangements with the Group on the same
terms as those offered to third party investors in a property managed by the Group. Total management fees payable by Mr
Pridham and Mr Biggins for 2019 amounted to $25,917 and $5,795 respectively.
Christopher Wyke invested $0.2 million alongside, and on the same terms as, third-party investors in the refinancing of a $21.2
million corporate loan provided by the Group to an unrelated entity.
Moelis Australia Limited 2019 Annual Report
41
Directors’ Report (cont.)for the year ended 31 December 2019 Financial
Report
M O E L I S A U S T R A L I A L I M I T E D
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 Significant accounting policies
2 Application of new and revised Australia
Accounting Standards
3 Segment information
4 Fees and commission income
5
Investment income
6 Other income
7 Personnel expenses
8
Interest expense
9 Other expenses
10 Income Tax
11 Cash & cash equivalents
12 Receivables
13 Loan receivables
14 Other assets
15 Restricted cash
16 Other financial assets
17 Property, plant & equipment
18 Right-of-use asset
19 Investments in associates and joint ventures
20 Intangible assets
21 Goodwill
22 Trade & other payables
45
46
47
48
49
49
64
66
70
71
71
71
71
71
72
74
75
76
77
77
77
78
79
80
83
84
85
Moelis Australia Limited 2019 Annual Report
43
Financial Report 23 Borrowings
24 Redeemable preference shares
25 Lease liabilities
26 Provisions
27 Financial instruments - Fair values and
risk management
28 Contributed equity and share options
29 Earnings per share
30 Dividends
31 Reserves
32 Share-based payments
33 Key management personnel compensation
34 Related party transactions
35 Parent entity disclosures
36 Acquisition of interests in subsidiaries
37 Disposal of interests in subsidiaries
38 Commitments
39 Subsequent events
85
86
87
87
88
96
96
97
97
98
100
100
102
103
104
104
104
44
Moelis Australia Limited 2019 Annual Report
Financial Report Fee and commission income
Fee and commission expense
Net fee and commission income
Share of profits of associates
Investment income
Other income
Total income
Personnel expenses
Marketing and business development expenses
Communications, data and information technology expenses
Occupancy expenses
Interest expense
Depreciation and amortisation
Other expenses
Total expenses
Profit before tax
Income tax expense
Profit for the period
Other comprehensive income, net of income tax
Items that will not be classified subsequently to profit or loss:
Net unrealised loss on investments
Share of other comprehensive income of associates
Total comprehensive income for the period
Profit 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
From continuing operations
Basic (cents per share)
Diluted (cents per share)
Note
4
19
5
6
7
8
17, 20
9
10
Year Ended
31 December 2019
Consolidated
$’000
Year Ended
31 December 2018
Consolidated
$’000
136,261
(8,218)
128,043
82
25,238
365
153,728
79,855
4,977
3,625
885
11,564
5,174
12,374
118,454
35,275
(11,781)
23,493
127,413
(9,823)
117,590
446
19,680
5,514
143,230
69,405
3,530
3,042
2,940
7,869
2,970
8,074
97,830
45,400
(14,855)
30,545
(594)
2,126
25,027
(9,318)
5,979
27,206
23,493
–
29,384
1,161
25,027
–
26,045
1,161
29
29
15.5
14.9
20.0
19.4
The above statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes.
Moelis Australia Limited 2019 Annual Report
45
Consolidated statement of profit or loss and other comprehensive incomefor the year ended 31 December 2019 Assets
Current assets
Cash and cash equivalents
Receivables
Loans receivable
Other assets
Total current assets
Non-current assets
Restricted cash
Loans receivable
Other financial assets
Property, plant and equipment
Right-of-use asset
Investments in associates and joint ventures
Intangible assets
Goodwill
Deferred tax asset
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Lease liabilities
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
Year Ended
31 December 2019
Consolidated
$’000
Year Ended
31 December 2018
Consolidated
$’000
Note
11
12
13
14
15
13
16
17
18
19
20
21
10
22
23
25
10
26
22
23
25
26
24
10
28
31
128,800
32,258
80,723
12,158
253,939
2,650
119,044
26,886
1,885
7,181
76,951
13,356
9,827
2,223
260,003
86,652
32,231
64,920
1,950
185,753
5,965
46,561
25,574
1,933
–
86,201
13,397
9,827
–
189,458
513,942
375,211
22,951
67,180
2,459
2,479
29,451
124,520
8,990
122,022
5,526
258
25,500
–
162,296
16,066
–
–
4,201
21,152
41,419
5,137
57,150
–
1,662
25,500
3,517
92,966
286,816
134,385
227,126
240,826
156,972
24,965
45,189
–
227,126
189,924
16,744
35,320
(1,161)
240,826
The above consolidated statement of financial position is to be read in conjunction with the accompanying notes.
46
Moelis Australia Limited 2019 Annual Report
Consolidated statement of financial positionas at 31 December 2019 Contributed
Equity
$000’s
Share Based
Payment
Reserve
$000’s
Retained
Earnings
$000’s
Investments
Revaluation
Reserve
$000’s
Investments
Revaluation
OCI Reserve
Total Equity
$000’s
Non-Controlling
Interests
$000’s
Total Equity
$000’s
191,507
5,308
15,631
3,185
–
215,631
–
–
(89)
308
391
610
–
–
–
215,631
610
216,241
191,507
5,308
–
–
–
8,131
(9,800)
86
–
–
–
–
–
–
–
10,890
15,542
30,545
3,493
391
216,241
–
–
30,545
(1,161)
29,384
–
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
189,924
16,198
35,320
9,472
(8,927)
241,987
(1,161)
240,826
–
–
95
–
–
95
–
95
189,924
16,198
35,415
9,472
(8,927)
242,082
(1,161)
240,921
–
23,493
–
–
23,493
–
23,493
–
–
–
(5,640)
(112)
(27,200)
–
2,126
(594)
1,532
–
–
–
–
–
(12,558)
–
–
–
–
–
–
–
–
–
–
–
–
(12,558)
(5,640)
(112)
–
–
–
–
1,532
(12,558)
(5,640)
(112)
–
(27,200)
–
(27,200)
–
6,690
–
6,690
–
6,690
Consolidated
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
Balance at
1 January 2019
Adjustments from
adoption of AASB 16
Restated balance as
at 1 January 2019
Profit for
the period
Other
comprehensive
income for the
period
Payment of
dividends
Treasury shares
Capitalised buy-
back costs
Ordinary share buy-
back & cancellation
Share-based
payments
Non-controlling
interests on
disposal of
subsidiaries
Balance at
31 December 2019
–
–
(1,161)
–
–
(1,161)
1,161
–
156,972
22,888
45,189
11,598
(9,521)
227,126
–
227,126
The above consolidated statement of changes in equity is to be read in conjunction with the accompanying notes.
Moelis Australia Limited 2019 Annual Report
47
Consolidated statement of changes in equityfor the year ended 31 December 2019 Year Ended
31 December
2019
$000’s
Consolidated
Year Ended
31 December
2018
$000’s
Consolidated
Note
124,864
110,003
Cash flows from operating activities
Receipts from customers
Interest and dividends received
Amounts received/(paid) to affiliates
Payments to suppliers and employees
Cash generated from operations
Interest paid
Income taxes paid
Net cash generated by operating activities
11
Cash flows from investing activities
Payments to acquire financial assets
Proceeds from sale of financial assets
Amounts advanced to third parties
Receipts/(payments) for employee loans
Payments to acquire shares in associates
Proceeds from disposals/capital return from associates
Distributions received from investments
Proceeds from disposal of subsidiary companies
Payments to acquire other assets
Payments to acquire property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Purchase of treasury shares
Payments for share buy-back & cancellation
Share buy-back transaction costs
Decrease in restricted cash
Payments of lease liabilities
Proceeds from borrowings
Dividends paid to shareholders
Net cash generated by financing activities
602
8,772
(76,187)
58,051
(10,119)
(19,899)
28,033
(1,496)
38
(81,146)
130
–
11,448
7,486
–
(5,200)
(2,773)
(71,513)
–
(7,404)
(27,200)
(112)
3,315
(2,459)
132,052
(12,558)
85,634
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)
–
–
8,274
–
25,000
(10,767)
20,838
Net increase/(decrease) in cash and cash equivalents
42,154
(1,783)
Cash and cash equivalents at the beginning of the year
86,652
87,786
Effects of exchange rate changes on the balance
of cash held in foreign currencies
(6)
649
Cash and cash equivalents at the end of the year
11
128,800
86,652
The above consolidated statement of cash flows is to be read in conjunction with the accompanying notes.
48
Moelis Australia Limited 2019 Annual Report
Consolidated statement of cash flowsfor the year ended 31 December 2019 Critical accounting estimates and significant judgements
The preparation of the Financial Report in conformity with
Australian Accounting Standards requires the use of certain
critical accounting estimates. It also requires management
to exercise judgement in the process of applying the
accounting policies. The notes to the consolidated financial
statements set out areas involving a higher degree of
judgement or complexity, or areas where assumptions are
significant to the Group such as:
• determination of control of subsidiaries (Note 1(b) and 36)
• determination of significant influence over associates and
joint control over joint ventures (Note 1(o) and 19)
• determination of impairment of finite life intangible assets
(Note 1(h), 1(p) and 20)
•
•
•
the impairment of goodwill (Note 1(n) and 21)
recognition and measurement of employee benefits
including share rights and options (Note 1(k) and 32)
timing and amount of impairment of interests in
associates and joint ventures (Note 1(h), 1(o) and 19)
• measurement of Expected Credit Loss (ECL) including
the choice of inputs, estimates and assumptions relating
to information about past events, current conditions and
forecasts of economic conditions (Note 1(l), 12 and 13)
•
recognition of fees subject to performance criteria and
other conditions, including conditions outside of the
Group’s control (Note 1(c)).
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
reasonable expectations of future events.
1
a
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 and are
applicable to both the Group (Moelis Australia Limited and
its subsidiaries) as well as to the Company (Moelis Australia
Limited), unless otherwise stated.
The Financial Report is a General Purpose Financial
Report which has been prepared in accordance with the
Corporations Act 2001 (Cth) and Australian Accounting
Standards. 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.
In accordance with ASIC Corporations (Rounding in
Financials/Directors’ Reports) Instrument 2016/91, amounts
in the Directors’ Report and the Financial Report 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 19 February 2020.
Compliance with International Financial
Reporting Standards
Compliance with Australian Accounting Standards ensures
that the Financial Report complies with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). Consequently this
Financial Report has also been prepared in accordance with
and complies with IFRS as issued by the IASB.
Basis of measurement
The Financial Report has been prepared under the historical
cost conversion, except for:
•
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.
Moelis Australia Limited 2019 Annual Report
49
Notes to the consolidated financial statementsfor the year ended 31 December 2019 1
b
Significant accounting policies (cont.)
Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and its subsidiaries.
Subsidiaries are all those entities controlled by the Company.
Control is achieved when the Company:
• 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. 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.
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.
50
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 ;
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54
Moelis Australia Limited 2019 Annual Report
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Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
1
d
Significant accounting policies (cont.)
Foreign currency transactions
The functional currency of each entity in the Group is
determined as the currency of the primary economic
environment in which the entity operates (the functional
currency). The Group’s consolidated financial statements are
presented in Australian dollars (the presentation currency),
which is also the Company’s functional currency.
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.
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 re-translated at the rates prevailing at that date. Non-
monetary items carried at fair value that are denominated in
foreign currencies are re-translated at the rates prevailing at
the date when the fair value was determined. Non-monetary
items that are measured in terms of historical costs in a
foreign currency are not re-translated.
e
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 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.
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.
f
Taxation
The Group is a tax-consolidated Group (Tax Group) under
Australian taxation law, of which the Company is the head
entity. As a result, the Company 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 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 those 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, the Company
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 the 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 (or distribution to) equity participants arises in
relation to income taxes.
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 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 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 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 difference 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.
Moelis Australia Limited 2019 Annual Report
55
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Significant accounting policies (cont.)
Taxation (cont.)
1
f
Deferred tax (cont.)
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where
the 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.
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 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 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 as an expense
or income in the 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
business combination.
g
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 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
56
Moelis Australia Limited 2019 Annual Report
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
leasehold 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.
h
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.
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 1
i
Significant accounting policies (cont.)
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 Company 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.
j
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.
k
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 32.
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 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.
l
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. Transactions 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 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 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.
Moelis Australia Limited 2019 Annual Report
57
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Significant accounting policies (cont.)
Financial instruments (cont.)
1
l
Classification of financial assets (cont.)
The Group holds no debt instruments measured at FVTOCI.
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.
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.
58
Moelis Australia Limited 2019 Annual Report
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 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 and 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 27.
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 1
l
Significant accounting policies (cont.)
Financial instruments (cont.)
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 ECL 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 debtors, general economic conditions and
an assessment of both the current as well as the forecast
direction of conditions at the reporting date, including the
time value of money where appropriate.
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 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.
In particular, the following information is taken in account
when assessing whether credit risk has increased
significantly since initial recognition:
• 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
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 meeting 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.
Moelis Australia Limited 2019 Annual Report
59
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 1
l
Significant accounting policies (cont.)
Financial instruments (cont.)
Significant increase in credit risk (cont.)
For loan commitments and financial guarantee contracts, the
date that the Group has become 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).
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 if the holder of the loan commitment draws
down the loan, and 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 allowance 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 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 individually assessed (specific) provision,
and interest revenue is calculated by applying the effective
interest rate to the amortised cost instead of the carrying
amount.
60
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 1
l
Significant accounting policies (cont.)
Financial instruments (cont.)
Measurement and recognition of expected credit
losses (cont.)
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 interests. 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 the 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 advisory business and other
asset management fees as asset management fees have
historically been received in full.
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 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.
m
Loans receivable
Loans and receivables are recognised on settlement date,
when cash is advanced to the borrower. A loss allowance
is recognised that is measured at an amount equal to a 12
month ECL. Please refer to note 13 for further information.
n
Goodwill
Goodwill arising on acquisition of a business is carried at cost
as established at the date of 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 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.
Moelis Australia Limited 2019 Annual Report
61
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 p
Intangible assets
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.
q
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 former 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.
1
o
Significant accounting policies (cont.)
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. 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 (AASB 136)
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 of that impairment loss is recognised in accordance
with AASB 136 to the extent that the recoverable amount of
the investment subsequently increases. Refer to Note 19 for
further details.
62
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 1
q
Significant accounting policies (cont.)
Business combinations (cont.)
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 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 interests in the acquiree
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 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.
r
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.
s
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.
t
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. The reclassifications
had no impact on total comprehensive income.
u
Software
Certain internal and external costs directly incurred in
acquiring and developing certain computer software
programmes are capitalised and amortised over their
estimated useful life. The capitalised software assets are
subject to impairment testing on an annual basis.
Moelis Australia Limited 2019 Annual Report
63
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 The Group applies the definition of a lease and related
guidance set out in AASB 16 to all lease contracts entered
into or modified on or after 1 January 2019. The Group
notes that the new definition in AASB 16 will not change
significantly the scope of contracts that meet the definition of
a lease for the Group.
On 1 January 2019 (the date of initial application of AASB 16),
the Group has applied AASB 16 using the modified
retrospective approach, under which the cumulative effect
of initial application is recognised in retained earnings at
1 January 2019. Accordingly, the comparative information
presented for 2018 has not been restated i.e. it is presented,
as previously reported, under AASB 117 and related
interpretations. The details of the changes in accounting
policies are disclosed below:
Significant accounting policies relating to leases
The Group recognises a right-of-use asset and a lease
liability at the lease commencement date in the consolidated
statement of financial position. The right-of-use asset is
initially measured at cost, and subsequently at cost less
any accumulated depreciation and impairment losses, and
adjusted for certain remeasurements of the lease liability.
When a right-of-use asset is initially measured at cost, and
subsequently measured at fair value, in accordance with the
Group’s accounting policies. Depreciation of right-of-use
assets is recognised on the consolidated statement of profit
and loss.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate. Generally, the Group uses its
incremental borrowing rate as the discount rate. Interest on
lease liabilities is recognised in the consolidated statement of
profit or loss.
The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payment
made. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, a
change in the estimate of the amount expected to be payable
under a residual value guarantee, or as appropriate, changes
in the assessment of whether a purchase or extension option
is reasonably certain to be exercised or a termination option
is reasonably certain not to be exercised.
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 2019.
• AASB 16 Leases
• AASB 2017-1-Amendments to Australian Accounting
Standards – Transfers of Investment Property, Annual
Improvements 2014-2016 Cycle and Other Amendments
• AASB 2017-4 Amendments- Interpretation 23 Uncertainty
over Income Tax Treatments Interpretation 23-Uncertainty
over Income Tax Treatments
• AASB 2017-7 Amendments-Long-term Interests in
Associates and Joint Ventures Amendments to IAS 28
and Illustrative Example-Long-term Interests in Associates
and Joint Ventures
• AASB 2018-1 Amendments - Annual Improvements
2015-2017 Cycle
Impact of the application of AASB 16 Leases
General impact of application of AASB 16
AASB 16 Leases (AASB 16) introduces new or amended
requirements with respect to lease accounting. It introduces
significant changes to the lessee accounting by removing
the distinction between operating and finance leases and
requiring the recognition of a right-of-use asset and a lease
liability at the lease commencement for all leases, except for
short-term leases and leases of low value assets. In contrast
to lessee accounting, the requirements for lessor accounting
have remained largely unchanged. Details of these new
requirements and the impact of the adoption of AASB 16 on
the Group’s consolidated financial statements are described
below.
Impact of the new definition of a lease
The Group has made use of the practical expedient available
on transition to AASB 16 not to reassess whether a contract
is or contains a lease. Accordingly, the definition of a lease
in accordance with AASB 117 and IFRIC 4 will continue
to be applied to leases entered into or modified before
1 January 2019.
The change in definition of a lease mainly relates to the
concept of control. AASB 16 determines whether a contract
contains a lease on the basis of whether the customer has
the right to control the use of an identified asset for a period
of time in exchange for consideration.
64
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 2
Application of new and revised Australian
Accounting Standards (cont.)
Impact of the application of AASB 16 Leases (cont.)
Lease payments are recognised as amortisation expense
of the right of use asset over the term of the lease unless
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are
consumed.
The Group has applied judgement to determine the lease
term for some lease contracts in which it is a lessee that
include renewal options. The assessment of whether the
Group is reasonably certain to exercise such options impacts
the lease term, which significantly affects the amount of lease
liabilities and right-of-use assets recognised.
Under AASB 16, right-of-use assets are tested for impairment
in accordance with AASB 136. This replaces the previous
requirement to recognise a provision for onerous lease
contracts.
The right-of-use assets recognised under AASB 16 is
an intangible asset, and hence excluded from the Group’s
net tangible assets, despite the related lease liability being
included as a reduction in the net tangible assets calculation.
Transition
The Group leases several assets including buildings and
IT equipment that were previously classified as operating
leases under AASB 117. The average lease term is 9.5 years
(2018: 10 years). The Group has the option to extend one of
the leases for an additional period of time after the end of
the non-cancellable period, and this has been accounted for
in determining the minimum lease payments. The Group’s
obligations are secured by the lessors’ title to the leased
assets for such leases and bank guarantees held.
At transition, for leases classified as operating leases
under AASB 117, lease liabilities were measured at present
value of the remaining lease payments, discounted at the
Group’s incremental borrowing rate as at 1 January 2019.
The weighted average rate applied at transition was 3.88%.
Management has reassessed leases as of 31 December 2019
noting the weighted average rate applied across the Group
is 4.56%. The Group has applied the approach of measuring
right-of-use assets at an amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease
payments. The Group does not have any leases that contain
variable lease payments that are not included as part of the
measurement of lease liabilities.
The Group used the following practical expedients when
applying AASB 16 to leases previously classified as operating
leases under AASB 117.
• Excluded initial direct costs from measuring the right-of-
use asset at the date of initial application.
• Used hindsight when determining the lease term if the
contract contains options to extend or terminate the
lease.
Below is the financial impact on transition to AASB 16 as at
1 January 2019:
Under AASB 117
Under AASB 16
Impact
Financial Disclosure
Right-of-use asset
Lease liabilities
Total
Adjustment to opening retained earnings
Standards and interpretations in issue not yet adopted
Standard/Interpretation
AASB 2018-6 Amendments - Definition of a Business
AASB 2018-7 Amendments - Definition of Material
–
(487)
(487)
–
9,248
(9,735)
(487)
–
9,248
(9,248)
–
–
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied
in the financial
year ending
1 January 2020 31 December 2020
1 January 2020 31 December 2020
Moelis Australia Limited 2019 Annual Report
65
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Segment information
3
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 and
the Board of Directors for evaluating operating segment
performance and for deciding how to allocate resources to
operating segments. The segment note is prepared on the
same basis as the Group’s non-IFRS (Underlying) financial
measures. Please refer to the Directors’ Report for an
explanation of why the Directors believe these measures are
useful.
The Board of Directors is considered to be the Chief
Operating Decision Maker (CODM).
The Group is organised into the following business
segments:
• Asset management; and
• Corporate advisory and equities (CA&E)
3.1
Services from which reportable segments derive
their revenues
The asset management segment incorporates the provision
of asset management services and principal co-investment
and strategic investments.
The corporate advisory and equities segment provides
corporate advice, underwriting and institutional stockbroking
services.
The unallocated segment represents the cost of the
executive and central support functions. The cost increase in
the period reflects the ongoing investment in the corporate
platform.
Information regarding these segments is presented below.
The accounting policies of the reportable segments are the
same as the Group’s reporting policies.
The main items of profit or loss and other comprehensive
income used by management to assess each business are
Underlying net income and Underlying earnings before
interest, tax, depreciation and amortisation (EBITDA).
66
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 3
3.2
Segment information (cont.)
Segment revenues and results
Assets, liabilities, depreciation and amortisation and net interest expense are not disclosed by segment as they are not
provided to the CODM and are only reported on a Group basis. The following is an analysis of segment performance.
2019
Revenue(1)
Expenses
EBITDA(2)
Depreciation and amortisation
Net interest expense
Profit before tax
Tax
NPAT
Other comprehensive income
Total comprehensive income
CA&E
Asset
management
Unallocated
Total
Underlying
segment
Statement of
comprehensive
income
Adjustments
61,681
96,667
–
158,348
(4,620)
153,728
(44,631)
17,050
(40,955)
55,712
(9,282)
(9,282)
(94,868)
63,481
(6,847)
(11,468)
( 101,715)
52,013
(3,276)
(2,842)
57,363
(17,209)
40,154
–
40,154
(1,898)
(8,722)
(22,087)
5,427
(16,660)
1,533
(15,127)
(5,174)
(11,564)
35,275
(11,781)
23,494
1,533
25,027
–
Owners of the Company
40,154
(15,127)
25,027
2018
Revenue(1)
Expenses
EBITDA(2)
Depreciation and amortisation
Net interest expense
Profit before tax
Tax
NPAT
Other comprehensive income
Total comprehensive income
Non-controlling interests
Owners of the company
51,474
84,833
–
136,307
6,923
143,230
(37,306)
14,168
(31,353)
53,481
(7,802)
(7,802)
(76,460)
59,847
(2,886)
(842)
56,119
(16,836)
39,283
–
(10,532)
(3,609)
(84)
(7,027)
(10,719)
1,981
(8,739)
(3,338)
39,283
(12,077)
–
(1,161)
(86,992)
56,239
(2,970)
(7,869)
45,400
( 14,855)
30,545
( 3,338)
27,206
(1,161)
39,283
(13,238)
26,045
(1) Revenue refers to total income on the consolidated statement of profit or loss and other comprehensive income
(2) Statutory EBITDA is not an IFRS measure but has been presented to provide a comparable measure to the Underlying result
(3) The 2018 Underlying results have been restated for the impact of AASB 16 Leases. The 2018 Statement of Comprehensive Income (Statutory results) have not
been restated for the impact of AASB 16 per the Group’s accounting policy.
Moelis Australia Limited 2019 Annual Report
67
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 3
3.2
Segment information (cont.)
Segment revenues and results (cont)
A reconciliation of the Underlying segment measures to the statutory measure is as follows:
2019 Statutory Result
Differences in measurement
Business acquisition adjustments
Equity issued to staff
Net unrealised gains/(losses) on investments
Adjustments relating to associates
Deferred performance fees
Profit on sale of joint venture
Credit investments
Differences in classification
Interest income
Net unrealised gains/(losses) on investments
Credit investments
Tax on adjustments
Total adjustments
2019 Underlying results
2018 Statutory Result
Differences in measurement
Business acquisition adjustments
Equity issued to staff
Net unrealised gains/(losses) on investments
Adjustments relating to associates
Deferred performance fees
Profit on sale of joint venture
Credit investments
Differences in classification
Interest income
Net unrealised gains/(losses) on investments
Adoption of AASB 16 Leases
Non-controlling interests
Tax on adjustments
Total adjustments
Revenue(1)
$000’s
Note
EBITDA(2)
$000’s
NPAT
$000’s
Comprehensive
Income
$000’s
153,728
52,013
23,494
25,027
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
( j)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(k)
–
–
–
5,979
6,400
2,221
(258)
(6,346)
1,175
(4,550)
–
3,566
(1,822)
–
6,137
6,400
2,221
137
(6,346)
1,175
–
–
4,620
11,467
5,464
(1,822)
–
8,513
6,400
2,221
137
–
1,175
–
(5,427)
16,660
5,464
(1,822)
2,023
5,475
6,400
2,221
137
–
–
–
(4,771)
15,127
158,348
63,481
40,154
40,154
143,230
56,239
30,545
27,206
–
–
–
8,763
(6,400)
(2,221)
493
(8,203)
1,909
–
(1,263)
–
4,187
3,514
–
8,763
(6,400)
(2,221)
1,022
(8,203)
1,909
2,302
(1,263)
–
(6,923)
3,609
5,396
3,514
–
8,763
(6,400)
(2,221)
1,022
–
1,909
–
(1,263)
(1,981)
8,739
5,396
3,514
13,586
220
(6,400)
(2,221)
1,022
–
1,909
–
(1,263)
(3,686)
12,077
2018 Underlying results
136,307
59,847
39,283
39,283
(1) Revenue refers to Total income on the Consolidated Statement of Profit or Loss and Other Comprehensive Income
(2) Statutory EBITDA is not an IFRS measure but has been presented to provide a comparable measure to the Underlying result
68
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 3
3.2
Segment information (cont.)
Segment revenues and results (cont)
Differences in Measurement
(a) The acquisition of Armada Funds Management in 2017 for cash and shares gives rise to non-cash IFRS expenditure relating to the amortisation of intangible
assets of $3.6 million (2018: $4.2 million) and share-based payment expense to the vendors, who are now employees of the Company, of $1.9 million (2018: $1.2
million).
(b) The Underlying measure expenses the full value of the share equity issued to staff as part of the annual bonus plan in the year of grant as opposed to over the
vesting period (up to 5 years) per IFRS.
(c) Adjustment to remove unrealised gains/losses on the Group’s strategic investment in Japara Healthcare Ltd. 2018 further comprises an unrealised gain of $1.0
million arising as a result of the initial adoption of AASB 9. The gain, under AASB 9, was recognised directly in equity as at 1 January 2018 and not through the
2018 Statement of Profit or Loss and Other Comprehensive Income. These relate primarily to investments in Redcape Hotel Group and Infinite Care Group.
(d) The Underlying treatment records dividends and distributions received from associates in Underlying Revenue as opposed to the IFRS treatment of recording
the Group’s share of accounting profit or loss of the associate. Furthermore, Underlying Revenue recognises gains/losses in management’s assessment of the
movement in the underlying value of the associate.
(e) Performance fees relating to Redcape Hotel Group recorded in the 2018 statutory results but deferred to 2019 in the Underlying result to closely align with
transaction settlement and cash flows.
(f) The profit on sale of the Group’s interest in Acure Asset Management was recorded in the 2018 statutory results but deferred to 2019 to closely align with
transaction settlement and cash flows.
(g) The Underlying treatment excludes the movement in AASB 9 Expected Credit Loss provisions relating to loan assets. Where there is an increased likelihood of
credit loss, specific provisions individually assessed against loan assets are included in both the statutory and Underlying results. See note( j) for treatment of
specific provisions that are reclassified by management.
Differences in Classification
(h) The Group consolidates the assets and liabilities of certain fund related credit initiatives. The interest expense of $4.8 million (2018: $5.8 million) relating to
the liabilities is reclassified to Underlying revenue to offset against the interest income derived from the related loan assets to reflect the total net return to the
Group. Further, interest income on cash and bank balances of $1.6 million (2018: $2.4 million) is reclassified to Underlying net interest expense. These relate
primarily to our investments in the Moelis Australia Master Credit Trust.
(i) Unrealised gains/losses other than those identified in (c) above are reclassified from Other Comprehensive Income to Underlying revenue.
( j) The specific provision for impairment of a loan asset is reclassified from statutory expense to Underlying revenue, to be consistent with how management view
the movement in value of investments.
(k) Adjustment to reclassify $2.3 million of rent between expenses and amortisation in 2018 as the Statutory result does not reflect the impact of the adoption of
AASB 16 Leases in 2019.
3.3
Revenue for major products and services
Segment
Asset Management
Asset Management
Asset Management
CA&E
CA&E
2019
$’000
54,343
15,123
2,705
54,886
9,204
136,261
2018
$’000
47,872
10,848
14,839
43,714
10,140
127,413
Management fees
Transaction fees
Performance fees
Corporate advice
Equity services
3.4
Geographical information
The Group primarily operates in Australia.
3.5
Information about major customers
Two funds managed by the Group contributed more than 10% to Group Revenue with fees of $18.7 million and $17.2 million
respectively. No other single customer contributed 10% or more to Group revenue in 2019 or 2018.
Moelis Australia Limited 2019 Annual Report
69
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
Fee & commission income
4
Fee and commission income is accounted for in accordance with AASB 15 Revenue from Contracts with Customers
2019
$’000
2018
$’000
51,162
9,204
15,123
75,489
3,724
2,705
7,854
46,489
60,772
136,261
17,221
58,268
75,489
57,048
3,724
60,772
136,261
41,247
10,140
10,848
62,235
2,467
14,839
5,996
41,876
65,178
127,412
15,396
47,474
62,870
58,163
6,380
64,543
127,413
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 & commission income by segment
At a point in time
Asset management
Corporate advisory & equities
Total revenue at a point in time
Over time
Asset management
Corporate advisory & equities
Total revenue earned over time
Total fee and commission income
70
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 2019
$’000
2018
$’000
5
Investment income
Interest income on cash and bank balances
Interest, dividends and distributions from investments
6
Other income
Net foreign exchange (losses)/gains
Other income
Realised gains from investments in associates
Other income
1,728
23,510
25,238
(6)
96
275
365
Includes income relating to realised gains/(losses) on financial assets classified at fair value through profit or loss.
7
Personnel expenses
Amortisation of Share-Based Payments (refer note 32)
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
8
Interest expense
Interest on unsecured notes
Fund preferred unit distribution
Interest on lease liabilities
Redeemable preference share dividend
9,052
661
62,186
7,956
79,855
3,925
2,473
386
4,780
11,564
2,378
17,302
19,680
648
2,168
2,698
5,514
10,889
–
49,318
9,198
69,405
2,043
–
–
5,826
7,869
Refer notes 23 and 24 for more detail on the unsecured note program, fund preferred units and redeemable preference shares.
9
Other expenses
Charitable donations
Professional fees
Loss allowance expense
Other expenses
2,036
1,721
4,848
3,769
12,374
2,198
2,167
529
3,182
8,074
The charitable donations paid by the Group in 2019 and 2018 were made to the Moelis Australia Foundation, a registered charity,
and were made in response to some staff members electing not to receive some or all of the annual bonus they might otherwise
have been awarded.
See Notes 1(l), 12 and 13 for more information on the loss allowance expense.
Moelis Australia Limited 2019 Annual Report
71
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 2019
$’000
2018
$’000
476
78
133
687
35,275
(10,583)
(418)
(1,035)
–
255
570
–
118
688
45,400
(13,620)
(343)
(1,240)
348
–
(11,781)
(14,855)
(18,178)
6,397
(11,781)
255
(911)
(656)
2,479
2,479
2,223
2,223
(15,103)
248
(14,855)
3,565
(2,562)
1,003
4,201
4,201
(3,517)
(3,517)
9
9.1
Other expenses (cont.)
Remuneration of auditors
Auditor of the Company
Audit or review of the financial statements
Advisory related services
Tax related services
The auditor of Moelis Australia Limited is Deloitte Touche Tohmatsu.
10
10.1
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 exempt from tax
Non-deductible expenses
Non-controlling interest
Prior year over/(under) adjustment
Represented by:
Current tax
Deferred tax
Income tax expense recognised in profit or loss
10.2
Income tax recognised in other comprehensive income
Deferred Tax
Fair value remeasurement of investments
Share of revaluations in associates
Income tax in other comprehensive income
10.3
Current tax assets and liabilities
Current tax liabilities
Income tax payable
10.4
Deferred tax balances
Deferred tax asset/(liability)
72
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 10
10.4
Income tax (cont.)
Deferred tax balances (cont.)
2019
Temporary differences
Property, plant & equipment
Financial assets
Interest in associates
Deferred revenue
Provisions
Loss allowance
Expense accruals
Intangible assets
Share based payments
Other
2018
Temporary differences
Property, plant & equipment
Financial assets
Interest in associates
Deferred revenue
Provisions
Loss allowance
Expense accruals
Intangible assets
Share based payments
Other
Opening
balances
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
Closing
balances
53
3,754
(4,458)
(1,027)
1,608
11
(2,223)
(3,952)
2,239
478
(3,517)
50
–
3,003
(249)
1,453
–
3,310
569
(1,960)
220
6,396
–
255
(911)
–
–
–
–
–
–
–
(656)
103
4,009
(2,366)
(1,276)
3,061
11
1,087
(3,383)
279
698
2,223
Opening
balances
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
Closing
balances
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)
Moelis Australia Limited 2019 Annual Report
73
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Cash and cash equivalents
11
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:
2019
$’000
2018
$’000
128,800
128,800
86,652
86,652
23,493
30,545
11,781
6
(321)
–
(12,120)
(164)
–
(1,134)
9,052
2,176
(82)
4,848
2,311
687
14,855
(649)
–
(2,221)
(4,009)
–
(4,242)
–
10,890
2,386
(446)
528
–
583
40,533
48,220
(27)
(10,208)
10,738
6,896
47,932
(19,899)
28,033
(15,688)
(739)
10,600
7,020
49,413
(16,841)
32,572
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 of loss
Net foreign exchange loss/(gain)
Realised gain on investments
Unrealised gain on investments in associates
Non-cash interest income
Non-cash investment income
Distributions from associates
Distributions from financial assets
Share-based payments
Intangible amortisation
Share of profits of associates
Loss allowance expense
Depreciation of right-of-use assets
Depreciation of non-current assets
Movements in working capital:
Increase in trade and other receivables
Increase in other assets
Increase in trade and other payables
Increase in provisions
Cash generated from operations
Income taxes paid
Net cash generated by operating activities
74
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 12
Receivables
Accounts receivable
Fees receivable
Interest receivable
Sundry debtors
Affiliates receivable
Loss allowance
2019
$’000
2018
$’000
1,869
16,167
9,193
359
5,078
(408)
32,258
2,006
12,185
4,311
62
13,772
(105)
32,231
Fees receivable disclosed above include amounts that are past due at the end of the reporting period for which the Group has
not recognised an allowance for doubtful debts because the amounts are still considered recoverable. See below table for an
aged analysis of receivables:
Age of receivables that are past due but not credit impaired
60 – 90 days
90 – 120 days
120 + days
Total
Average age (days)
Movement in loss allowance
Balance at the beginning of the year
ECL loss allowance recognised on receivables
ECL loss allowance reversed
Balance at end of year
Loss allowance
107
46
407
560
294
105
460
(157)
408
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade
receivable from the date the credit was initially granted up to the end of the reporting period. The Group performed the
calculations of ECL rates separately for receivables arising from the corporate advisory and equities segment and asset
management segment as asset management fees have historically been received in full.
Fees receivable as at 31 December 2019 ($’000)
Historical loss rate adjusted for any forward-looking factors
Loss allowance for trade receivables ($)
Corporate
Advisory and
Equities
Asset
Management
57
1.22%
701
3,361
–
–
–
354
–
354
365
808
67
(770)
105
Total
3,418
–
701
Receivables aged 120+ days of $0.4 million relate to fees receivable from funds managed by the Group. These amounts are
expected to be recovered in full and this contributes to the low loss allowance balance.
Included in the loss allowance for receivables are accounts receivables amounting to $0.04 million (31 December 2018:
$0.04 million) that have been individually assessed for impairment. The impairment recognised represents the entire value of
the accounts receivable.
Moelis Australia Limited 2019 Annual Report
75
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 13
Loans receivables
Current
Loans to third parties
Loss allowance
Movement in collectively assessed loss allowance
Balance at the beginning of the year
Loss allowance
Balance at the end of the year
Movement in individually assessed loss allowance
Balance at the beginning of the year
Loss allowance
Balance at the end of the year
Non-Current
Loans to employees
Loans to third parties
Loss allowance
Movement in collectively assessed loss allowance
Balance at the beginning of the year
Loss allowance
Balance at the end of the year
2019
$’000
2018
$’000
85,737
(5,014)
80,723
(391)
(73)
(464)
–
(4,550)
(4,550)
450
118,908
(314)
119,044
(295)
(19)
(314)
65,311
(391)
64,920
–
(391)
(391)
–
–
–
580
46,276
(295)
46,561
–
(295)
(295)
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.
Loss allowance
By providing loans to customers, the Group bears the risk that the future circumstances of customers might change, including
their ability to repay their loans in part or in full. While our credit lending policies and procedures aim to minimise this risk,
there will always be instances where we will not receive the full amount owed and hence a provision for impaired loans will be
necessary. The calculation of both the collectively and individually assessed expected loss contains various factors that require
judgement and estimates by management.
76
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 13
Loans receivables (cont.)
Industry
Professional services
Aged care
Construction
Financial services
Other
2019
$’000
2018
$’000
88,747
25,207
25,484
56,536
3,793
199,767
54,289
31,512
3,454
–
22,226
111,481
Included within other is a loan receivable which is past due by greater than 180 days. An individually assessed loss allowance
of $4.6m has been recognised at 31 December 2019 (2018: Nil) for this loan receivable.
None of the remaining loan receivables are past due.
14
Other assets
Prepayments
Deposits
Other
15
Restricted cash
Employee Share Trust
Equities clearing collateral
Premises bonds
16
Other financial assets
Financial assets held at FVTOCI
Financial assets held at FVTPL
Financial assets held at amortised cost
1,270
10,407
481
12,158
150
700
1,800
2,650
1,161
8
781
1,950
3,741
700
1,524
5,965
26,204
24,706
682
–
580
288
26,886
25,574
Moelis Australia Limited 2019 Annual Report
77
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 2019
$’000
2018
$’000
573
414
(342)
645
528
93
(55)
566
833
131
(290)
674
1,934
638
(687)
1,885
387
447
(261)
573
225
340
(37)
528
516
550
(233)
833
1,128
1,337
(531)
1,934
17
Property, plant and equipment
Office equipment
Balance at beginning of year
Additions
Depreciation
Balance at the end of year
Furniture and fixtures
Balance at beginning of year
Additions
Depreciation
Balance at the end of year
Leasehold improvements
Balance at beginning of year
Additions
Depreciation
Balance at the end of year
Total property, plant and equipment
Balance at beginning of year
Additions
Depreciation
Balance at the end of year
78
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 17
Property, plant and equipment (cont.)
Carrying values
Office equipment – at cost
Less accumulated depreciation
Total office equipment
Furniture & fixtures – at cost
Less accumulated depreciation
Total furniture and fixtures
Lease Improvements – at cost
Less accumulated depreciation
Total leasehold improvements
18
Right-of-use asset
Balance at the beginning of the year
Additions
Depreciation
Balance at the end of the year
Right-of-use asset at cost
Less accumulated amortisation
Total right-of-use asset
Refer to note 2 for the impact of the adoption of AASB 16 Leases
2019
$’000
2018
$’000
2,270
(1,625)
645
732
(166)
566
1,486
(812)
674
9,248
244
(2,311)
7,181
9,492
(2,311)
7,181
1,856
(1,284)
572
640
(112)
528
1,355
(522)
833
–
–
–
–
–
–
–
Moelis Australia Limited 2019 Annual Report
79
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 19
Investments in associates and joint ventures
Redcape Hotel Group
Infinite Care Group
Moelis Australia Aged Care Fund
Moelis Australia Senior Secured Credit Fund II
Moelis Australia Kincare Fund
Moelis Australia Exchanges Fund
19.1
Details of ownership interest activities
Associate
Nature of
Interest
Place of
Incorporation
Redcape Hotel Group
Associate
Australia
Infinite Care Group
Associate
Australia
Moelis Australia Aged
Care Fund
Moelis Australia Senior
Secured Credit Fund II
Moelis Australia Kincare
Fund
Moelis Australia
Exchanges Fund
Associate
Australia
Associate
Australia
Associate
Australia
Principal activity
Owner & operator
of hotels
Aged care facility
operator
Investor in aged care
facility operator
Credit funds
management
Credit funds
management
Associate
Australia
Equities investor
2019
$’000
59,348
2,774
3,833
2,275
8,721
–
76,951
2018
$’000
58,547
4,722
6,846
1,900
7,738
6,448
86,201
Proportion of ownership interest and
voting power held by the Group
2019
9.3%
5.2%
10.1%
13.0%
25.5%
–
2018
9.4%
5.2%
10.0%
13.0%
25.5%
25.7%
80
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 l
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Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
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Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
19
19.3
Investments in associates and joint ventures (cont.)
Summarised financial information for the Group’s material associates and joint ventures
The following information outlines the level of control the Group has over it's associates and the resultant accounting treatment.
Further information on Moelis Australia Senior Secured Credit Fund II, Moelis Australia Kincare Fund & Moelis Australia
Aged Care Fund (Funds)
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)
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.
Further information on Redcape Hotel Group (Redcape)
The Group is the responsible entity of Redcape and performs hotel operating and asset management services.
As at 31 December 2019 the Group owned 9.3% (2018: 9.4%) of Redcape and funds managed by the Group own 28.5% (2018:
29.3%). 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 28.5% owned by other Moelis managed funds and the
investment return on its direct 9.3% holding is such that the Group is not considered to control Redcape. It’s 9.3% 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.
Further information on Moelis Australia Exchanges Fund
During the year, the Group exited its investment in the Moelis Australia Exchanges Fund.
20
Intangible assets
Carrying amounts of:
Identifiable intangible assets
Cost
Balance at the beginning of the year
Additions
Balance at the end of the year
Accumulated amortisation and impairment
Balance at the beginning of the year
Amortisation expense
Balance at reporting period
2019
$’000
2018
$’000
13,356
13,397
16,542
2,134
18,676
(3,144)
(2,176)
(5,320)
16,340
202
16,542
(706)
(2,438)
(3,144)
Identifiable intangible assets include those recognised as part of the Armada Funds Management (Armada) acquisition,
software and trademarks purchased.
Moelis Australia Limited 2019 Annual Report
83
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Intangible assets (cont.)
20
Identifiable intangible assets recognised as part of the Armada acquisition in 2017 were 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 and 7 months to 7 years and 9 months at the time of acquisition. The aggregate value of intangible assets related to the
Armada acquisition as at 31 December was $11.3 million (2018: $13.2 million). Included in the deferred tax liability of the Group is
an amount of $3.4 million (2018 $4.0 million) relating to the intangible asset recognised as a result of the acquisition of Armada.
Amortisation of Armada intangible assets
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 rights, and is reassessed at the end of each reporting period.
Impairment of Armada intangible assets
Determining whether intangible assets are impaired requires an estimation of the value-in-use. 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 5 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 the management rights;
(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; and
(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 to 15%
A decrease in the expected life of each fund by one year
21
Goodwill
Cost
Total
Goodwill is allocated to the following cash-generating units (CGU's):
Corporate advisory and equities
Asset management
Impairment of goodwill
no impact
$0.46m
2018
$’000
9,827
9,827
1,326
8,501
9,827
2019
$’000
9,827
9,827
1,326
8,501
9,827
Determining whether goodwill is impaired requires an estimation of the value-in-use of the CGU’s to which goodwill has been
allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the CGU
and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a
material impairment loss may arise.
Goodwill is not amortised but reviewed. It is reviewed for impairment at least annually.
The recoverable amounts of the two items of goodwill are determined based on a value-in-use calculation which uses post-tax
cash flow projections based on financial budgets, using the following assumptions:
Timeframe
Post tax discount rate
84
Moelis Australia Limited 2019 Annual Report
CA&E
5 years
11.0%
Asset
Management
5 years
12.5%
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Goodwill (cont.)
21
The following elements have been reflected in the calculation of the value-in-use:
(1) an estimate of future cash flows the entity expects to derive from the asset;
(2) the time value of money, represented by the current market risk-free rate of interest;
(3) the price for bearing the uncertainty inherent in the asset; and
(4) other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to
derive from the asset.
Sensitivity
A 5% reduction in cashflows
An increase in the post tax discount rate to 15%
A decrease in terminal value growth rate from 2.5% to 1.5%
22
Trade and other payables
Current
Accounts payables and accrued expenses
Other liabilities
GST payable
Non-current
Preference dividends payable
Other liabilities
23
Borrowings
Current
Unsecured notes
Unsecured notes – limited recourse
Non-current
Unsecured notes
Fund preferred units
(a)
Unsecured notes
Issue date
Maturity date
Amount ($m)
Interest rate per annum
Issue costs ($000's)
Impact on impairment assessment
No impact
No impact
No impact
2019
$’000
2018
$’000
11,505
10,435
1,011
22,951
8,990
–
8,990
32,150
35,030
67,180
25,000
97,022
122,022
13,336
2,271
459
16,066
4,205
932
5,137
–
–
–
57,150
–
57,150
Current
Non-current
2017
2018
Sep 2020
Sep 2022
32.2
5.25%
24.2
25.0
5.75%
6.5
Moelis Australia Limited 2019 Annual Report
85
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 23
(b)
Borrowings (cont.)
Unsecured notes – limited recourse notes
On 27 March 2019, the Group established a new unsecured medium term note program. The notes constitute unsecured,
unsubordinated obligations of the issuing special purpose Group entity (issuing entity). The issuing entity was capitalised by the
Group and invests the proceeds of the note issuance in a diversified portfolio of cash and loans. The notes have sole recourse
to the assets of the issuing entity and are not guaranteed by the Company. Whilst the notes have a five year stated maturity,
they can be redeemed at the option of note holders subject to a minimum 12 month holding period following issue. No further
notes are expected to be issued under this program. A summary of the key terms is below:
Issue
Maturity date
Amount ($m)
Interest rate per annum
2019
May 2024
35.0
variable
The interest rate is calculated at a margin of 4.35% over the RBA cash rate at the time of issue per tranche and then reset in
February and August of each year.
(c)
Fund preferred units
During the year the Group established Moelis Australia Fixed Income Fund (MAFIF). MAFIF provides investors with exposure
to a diversified portfolio of credit investments via an investment in Class A Units (Fund Preferred Units) in the Moelis Australia
Master Credit Trust (Master Credit Trust). As a 10% co-investment, the Group holds Class B Units in the Master Credit Trust. The
Master Credit Trust is a consolidated entity of the Group.
The Fund Preferred Units held by MAFIF receive a preferential distribution from the realised profit of Master Credit Trust, up
to a maximum equal to the RBA Cash Rate plus 4.00%, over the Class B Units, which in turn receive any excess distributable
profits after paying the preferential distribution to the Fund Preferred Units. The Class B units further provide a maximum 10%
“first loss” capital buffer which affords the Fund Preferred Units preferential treatment on distribution and wind-up of the Master
Credit Trust. As such the Group’s economic exposure is to the value of the Class B Units which amounted to $9.7 million at
31 December 2019 (31 December 2018: nil).
Redemptions of the Fund Preferred Units are at the discretion of the Master Credit Trust Trustee and require the consent of the
Group and therefore the units are treated as non-current liabilities as the Group has an unconditional right to defer settlement
for at least 12 months after the end of the reporting period.
24
Redeemable preference shares
Redeemable preference shares
2019
$’000
2018
$’000
25,500
25,500
A wholly owned special purpose Group entity has issued Redeemable Preference Shares (RPS) to a fund managed by the
Group. All RPS proceeds were used to acquire a loan asset in order for the fund investors to participate in the economics of
that loan asset. The loan asset is recognised as a loan receivable in the consolidated statement of financial position.
A summary of the RPS terms and conditions are as follows:
Issue date
Issue price
Dividend rate
Maturity date
2017
$1
15%
Dec 2022
The RPS have no voting rights unless when dividends are in arrears and there is a proposal to reduce capital or approve terms
of a buy-back agreement that affects the rights of RPS holders.
86
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 25
Lease liabilities
Maturity analysis – contractual undiscounted cashflows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities at 31 December 2019
Lease liabilities included in the statement of financial position
Balance as at 1 January 2019
Interest incurred
Payments of lease liabilities
Additions
Incremental borrowing rate adjustment
Balance as at 31 December 2019
Current
Non-current
Total lease liabilities
Amounts recognised in Statement of Comprehensive Income
Interest on lease liabilities
Amounts recognised in the Statement of Cash Flows
Total cash outflow for leases
Refer to note 2 for the impacts of adopting AASB 16 Leases
26
Provisions
Employee benefits
Current
Non-current
2019
$’000
2018
$’000
2,758
4,794
1,333
8,885
9,735
386
(2,459)
610
(287)
7,985
2,459
5,526
7,985
386
(2,459)
29,709
29,709
29,451
258
29,709
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,814
22,814
21,152
1,662
22,814
The provision for employee benefits represents annual leave, long service leave and bonus entitlements accrued.
Moelis Australia Limited 2019 Annual Report
87
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Financial instruments – fair values and risk management
27
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 of 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.
Categories of financial instruments
Financial assets
Cash and cash equivalents
Restricted cash
Loans receivable
Receivables
Listed and unlisted equity securities
Deposits
Other assets
Financial liabilities
Creditors
Unsecured notes
Fund preferred units
Redeemable preference shares
2019
$’000
128,800
2,650
199,767
32,258
26,886
10,407
481
31,941
92,180
97,022
25,500
2018
$’000
86,652
5,965
111,482
32,231
25,574
8
789
21,203
57,150
–
25,500
Financial assets and liabilities are accounted for in accordance with AASB 9 Financial Instruments.
88
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Financial instruments – fair values and risk management (cont.)
27
Capital management
The capital structure of the Group consists of net cash (cash and bank balances offset by the unsecured notes detailed in
note 23) 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 2018.
The Group’s borrowings comprise unsecured loan notes of $92.2m (2018: $57.2m), fund preferred units $97.0m (2018: nil) as
well as redeemable preference shares of $25.5m (2018: $25.5m).
Redemptions of the fund preferred units are at the discretion of the Master Credit Trust Trustee and require the consent of the
Group and therefore the units are treated as non-current liabilities as the Group has an unconditional right to defer settlement
for at least 12 months after the end of the reporting period.
The maturity dates of the unsecured loan notes 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 unsecured notes do not include any material undertakings
or obligations which, if not complied with, would result in an acceleration of the amount owing. The limited recourse
unsecured notes can be redeemed at the option of noteholders subject to a minimum 12 month holding period and are treated
as current borrowings.
Maturity Date
Unsecured notes – current (18 September 2020)
Unsecured notes – non-current (14 September 2022)
Unsecured notes – limited recourse (16 May 2024)
2019
$’000
2018
$’000
32,150
25,000
35,030
92,180
32,150
25,000
–
57,150
A subsidiary of the Company, Moelis Australia Securities Pty Ltd, is an ASX market participant 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 Licences with separate capital requirement obligations.
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 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 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.
Moelis Australia Limited 2019 Annual Report
89
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Financial instruments – fair values and risk management (cont.)
27
Foreign currency risk (cont.)
The carrying amounts of the Group’s foreign currency denominated monetary assets at the end of the reporting period are as
follows:
Currency of USA
Currency of People's Republic of China
Foreign currency sensitivity analysis
2019
$’000
1,553
5
1,558
2018
$’000
4,674
–
4,674
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 would be positive.
Profit or loss
Currency of USA
Currency of People’s Republic of China
155
1
467
–
The Group’s sensitivity to foreign currency has reduced during the current year mainly due to a lower USD bank account
balance.
Interest rate risk
The Group is exposed to interest rate risk as a decrease in interest rates will reduce the interest income earned on its cash
at bank and reduce the interest expense on variable rate borrowings, while the impact will be reversed in the event of an
increase in interest rates.
The Group’s borrowings via unsecured notes and fund preferred units (refer Note 23) are at fixed and variable rates of interest.
Funding via RPS (refer to Note 24) are at a fixed rate of interest.
Interest rate sensitivity analysis
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 2019 would increase or decrease by $667,113 (2018: $733,000).
90
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
Financial instruments – fair values and risk management (cont.)
27
Equity investment market price risk
The Group is exposed to increases and decreases in the market prices of its equity investments, which would cause an
increase or 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 end 31 December 2019 and 2018 would have been unaffected as the investments are classified as
FVTOCI and no investments were disposed of or impaired; and
• other comprehensive income for the year ended 31 December 2019 would be impacted by $1,310,215 (2018: $1,293,000) as
a result of changes in fair value of available-for-sale shares.
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.
Invoices for services
The creditworthiness 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 2019, the Group does not have a significant credit risk exposure to any single customer. Note 12 includes a
summary of ageing of receivables past due.
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 loans having maturity dates ranging from 3 months to 5 years from the balance sheet date, with an average maturity of
2.1 years. Loans considered non-investment grade 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. To facilitate this, detailed due diligence is performed on the counterparty and underlying security.
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.
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. 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.
Moelis Australia Limited 2019 Annual Report
91
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 27
Financial instruments – fair values and risk management (cont.)
Liquidity and interest rate tables
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has
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.
Liabilities $’000
31 December 2019
Non-interest bearing
Variable interest rate
instruments 1
Fixed interest rate instruments
31 December 2018
Non-interest bearing
Fixed interest rate instruments
Total
Weighted
average
effective
Interest rate
Less than 1
month
1-3
months
3-12
months
1-5 years
5 + years
Total
–
14,495
7,273
–
10,185
5.3%
8.4%
–
8.4%
–
–
–
–
14,495
7,273
35,030
32,150
67,180
97,022
50,500
157,707
9,690
6,376
–
–
9,690
6,376
–
–
–
5,137
82,650
87,787
–
–
–
–
–
–
–
31,953
132,052
82,650
246,655
21,203
82,650
103,853
The following table details the Group’s expected maturity of its non-derivative financial assets. The table has been drawn up
based on the undisclosed 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.
Assets $’000
31 December 2019
Non-interest bearing
Variable interest rate
instruments 1
Fixed interest rate instruments
31 December 2018
Non-interest bearing
Variable interest rate
instruments 1
Fixed interest rate instruments
Weighted
average
effective
Interest rate
Less than 1
month
1-3
months
3-12
months
1-5 years
5 + years
Total
802
19,512
23,365
26,375
7.8%
6.7%
128,800
–
46
–
79,008
101,980
12,383
9,000
129,602
19,558
114,756
137,355
4,411
15,380
25,922
13,164
9.5%
6.6%
99,395
26,831
29,477
44,643
–
–
–
3,471
103,806
42,211
55,399
61,277
–
–
–
–
–
–
–
–
70,054
309,834
21,383
401,271
58,877
200,345
3,471
262,693
1
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.
92
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 27
Financial instruments – fair values and risk management (cont.)
Fair value of financial assets and financial liabilities
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 AASB 136.
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.
Valuation processes
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation
function that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values,
and reports directly to the chief financial officer. The valuation function regularly reviews significant unobservable inputs and
valuation adjustments. Significant valuation issues are reported to the group audit committee.
Moelis Australia Limited 2019 Annual Report
93
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 w
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Moelis Australia Limited 2019 Annual Report
95
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019
28
Contributed equity and share options
Ordinary shares - fully paid
2019
$’000
2018
$’000
156,972
189,924
Number of shares
Contributed equity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Contributed equity at the beginning of
the year
152,415,250
153,263,697
189,924
191,507
Share repurchase and cancellation
Cost of repurchasing and cancelling shares
(8,000,000)
–
–
–
144,415,250
153,263,697
Treasury shares
(1,748,534)
(848,447)
Contributed equity at the end of the year
142,666,716
152,415,250
Completion of ordinary share buyback and subsequent cancellation
(27,200)
(112)
162,612
(5,640)
156,972
–
86
191,593
(1,669)
189,924
Following shareholder approval at the General Meeting held on 31 October 2019, Moelis Australia Limited bought back
8,000,000 Moelis Australia shares from Moelis & Company at a cost of $27.2 million. These shares have subsequently been
cancelled.
The Company had authorised share capital amounting to 147,641,070 ordinary shares at 31 December 2019 (2018: 155,641,070).
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.
29
Earnings per share
Basic earnings per share
Diluted earnings per share
2019
Cents per share
2018
Cents per share
15.5
14.9
20.0
19.4
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
Potential equity shares
Share options
Share rights
Restricted shares
2019
2018
151,348,830
153,080,455
1,873,916
3,187,526
1,366,651
2,476,936
2,234,375
–
Weighted average number of ordinary shares (net of treasury shares) and
potential equity shares used in calculating diluted earnings per share
157,776,923
157,791,766
96
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 30
Dividends
During the period, Moelis Australia Limited made the following fully franked dividend payments:
Fully paid ordinary shares
2017 dividend
2018 dividend
2019
$’000
2018
$’000
–
12,558
12,558
10,767
–
10,767
Adjusted franking account balance
30,523
15,524
The Directors have declared a fully franked dividend of 10 cents per share, payable on 4 March 2020.
31
Reserves
Investments revaluation reserve
FVTOCI reserve
Share-based payments reserve (refer Note 32)
Investments revaluation reserve
Balance at the beginning of the year
Adjustments from adoption of AASB 9
Share of other comprehensive income of associates
Income tax relating to the revaluations of associates
Net share of other comprehensive income of associates
11,598
(9,521)
22,888
24,965
9,472
–
3,038
(912)
2,126
9,472
(8,927)
16,198
16,743
3,185
308
8,541
(2,562)
5,979
Balance at the end of the year
11,598
9,472
FVTOCI reserve
Balance at the beginning of the year
Adjustments from adoption of AASB 9
Net loss arising on revaluation of financial assets
Income tax relating to gain arising on revaluation of financial assets
Net unrealised loss on investments
(8,927)
–
(848)
254
(594)
–
391
(12,884)
3,566
(9,318)
Balance at the end of the year
(9,521)
(8,927)
Moelis Australia Limited 2019 Annual Report
97
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 32
Share-based payments
Share-based payment reserve
Balance at the beginning of the year
Amortisation of option fair value
Amortisation of share rights
Amortisation of restricted shares
Amortisation of Armada deferred remuneration
Vesting of share-based payments
Balance at the end of the year
2019
$’000
16,198
184
3,103
2,458
2,708
(1,765)
22,886
2018
$’000
5,308
448
6,275
–
4,167
–
16,198
The component of bonus expected to be paid in shares has been accounted for as a share-based payment, with the amounts
accruing over the expected vesting period of between 1 to 3 years. The profit and loss impact (after tax) of the estimated share
component for services received as at 31 December 2019 was $1,395,388 (2018 $1,284,163). The accounting standards require
the value of the share-based component to be determined when there is a shared understanding of the terms and conditions
of the scheme and so the estimate of the accrual to date could change until this grant date is achieved.
(i)
Employee share options
The Group has granted options to employees and its Chairman. For accounting purposes, fair value of the options is amortised
as an expense over the vesting period of the 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 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.
The table below provides the details of options issued on 8 April 2017
Numbers of
Options at
beginning of
year
Acquired by
Grant date
share price
1,540,217 Employees
1,540,217 Employees
1,540,216 Employees
390,625 Mr Browne
390,625 Mr Browne
5,401,900
$2.35
$2.35
$2.35
$2.35
$2.35
Exercise
price of
option
$3.00
$3.15
$3.36
$2.80
$3.00
Issue price
Earliest date
of exercise
Expiry date
Options
forfeited
during the
year
Number of
options at
year end
$0.03
$0.03
$0.01
$0.02
$0.02
8-Apr-21
7-Apr-22
190,700
1,349,517
8-Apr-22
8-Apr-23
7-Apr-23
7-Apr-24
8-Apr-19
7-Apr-20
8-Apr-20
7-Apr-21
190,700
1,349,517
190,700
1,349,516
–
–
390,625
390,625
572,100
4,829,800
98
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 32
(i)
Share-based payments (cont.)
Employee share options (cont.)
There were no share options granted during the year.
Fair value of share options granted
The weighted average value of the share options at the time of grant was $0.0375.
The fair value of the share options was calculated using a Black-Scholes model, adjusted for expectations of forfeiture due to
employee departures. The assumptions used in calculating the fair value are shown below and are common to all tranches of
share options, unless otherwise stated:
• Dividend yield 4.0%
• Risk-free rate 2.5%
• Expected volatility of 30%
• Expected life of option is the maximum term up to last day of the exercise window
• Forfeiture assumptions for the options granted to employees are that 16%, 20% and 23% of Share options are forfeited for
tranches 1, 2 and 3 respectively. No allowance for forfeiture has been made for the share options granted to the Chairman.
Number of
options
employees
Number of
options
Chairman
Number of
options
Total
Balance at the beginning of the year
4,620,650
781,250
5,401,900
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
–
(572,100)
–
–
–
–
–
–
–
(572,100)
–
–
Balance at the end of the year
4,048,550
781,250
4,829,800
Weighted
average
exercise
price ($)
employee
3.17
–
3.17
–
–
–
Weighted
average
exercise
price ($)
Chairman
2.90
–
–
–
–
–
No share options were issued, forfeited or exercised since year end. 390,625 Chairman share options were exercisable at
year end.
(ii)
Share rights
Employee benefits include share rights granted to staff on commencement of employment and as part of the bonus incentive
scheme, the vesting of which are subject to continuous employment conditions. The value of these grants are amortised over
the vesting period, on the basis that employees do not leave prior to vesting. The value of the grant has been determined
by reference to the trading in the Company’s shares. The amortising period commences from the date employees first had
an expectation of receiving an equity component to their annual bonus. Determination of this date required a degree of
judgement.
Share rights granted as sign-on incentive
The Company has periodically granted share rights to senior executives commencing employment with the Group. The
share rights are priced with reference to the trading price of the Company’s shares at the time the offer of employment is
made. Vesting is subject to continuous employment, with terms varying on a case by case basis. Amortisation of the expense
commences on the day the senior executive starts their employment.
Moelis Australia Limited 2019 Annual Report
99
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 32
(ii)
Share-based payments (cont.)
Share rights (cont.)
Share rights granted as annual bonus
The share rights have been granted to employees in connection with their annual bonus which entitle the employees to shares
in the Company in the future for no payment. The share rights vest over a prescribed vesting period, and are conditional on
continuous employment, unless otherwise determined by the Board.
Opening balance
Granted during the year
Forfeited during the year
Vested during the year
Closing balance
(iii)
Restricted shares
Number of
share rights
Grant date
fair value ($)
3,399,398
15,934,546
401,046
1,486,505
(90,917)
(443,366)
(522,001)
(2,754,960)
3,187,526
14,272,725
In 2019 the share-based component of remuneration will be delivered as restricted shares in 2020. The restricted shares were
priced at the 5-day volume weighted average price of the shares in the Company at 31 December 2019. The restricted shares
vest over a prescribed vesting period, and are conditional on continuous employment, unless otherwise determined by the Board.
The amortising period has been assessed to commence from the date (1 January 2019) employees first had an expectation of
receiving an equity component to their annual bonus.
Restricted shares granted as 2019 annual bonus
As at 31 December 2019, the Group has estimated the expected outcome of the determination of the 2019 annual bonuses,
including an estimate of the amount of bonuses to be paid in cash and the amount to be paid in shares.
The profit and loss impact (after tax) of the estimated equity component for services received as at 31 December 2019 was
$4,765,005 (31 December 2018: nil).
33
Key Management Personnel compensation
The aggregate compensation made to both Executive and Non-Executive Directors and other members of Key Management
Personnel (KMP) of the Company and the Group is set out below. There were 8 KMPs in both 2019 and 2018.
Short-term employee benefits
Share-based payment
Long service leave
2019
$’000
5,034
1,722
41
6,797
2018
$’000
4,435
1,688
89
6,212
Related party transactions
34
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.
Loans to related parties
Loans to employees
450
580
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.
100
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Related party transactions (cont.)
34
Transactions with Moelis & Company
Moelis & Company Group LP (Moelis & Company) is a global financial institution with subsidiaries and offices in a number of
countries. During the year the Group worked with Moelis & Company offices to execute cross border transactions with any
revenue share 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
Net expenses allocated from Moelis & Company
The main expense categories were:
Information services
IT infrastructure
Transactions with Key Management Personnel
The following transactions with KMPs took place in 2019:
2019
$’000
–
(102)
(70)
(32)
2018
$’000
2,157
(107)
(11)
(96)
Andrew Pridham and Julian Biggins entered into property management service arrangements with the Group on the same
terms as those offered to third party investors in a property managed by the Group. Total management fees payable by
Mr Pridham and Mr Biggins for 2019 amounted to $25,917 and $5,795 respectively.
Christopher Wyke invested $0.2 million alongside, and on the same terms as, third-party investors in the refinancing of a
$21.2 million corporate loan provided by the Group to an unrelated entity.
Transactions with funds managed by the Group
The Group is involved in the management of various funds, through it’s role as a trustee, manager, financial advisor and
underwriter, and charges fees for doing so. The Group also invests in some of the funds which it manages.
Related party investments
Redcape Hotel Group
Moelis Australia Aged Care Fund
Infinite Care Group
Moelis Australia Senior Secured Credit Fund II
Moelis Australia Kincare Fund
Moelis Australia Exchange Fund
KMP
2019
$’000
8,054
4,150
–
1,598
400
–
Group
2019
$’000
59,348
3,833
2,774
2,275
8,721
–
KMP
2018
$’000
6,794
4,150
–
1,598
430
2,278
Group
2018
$’000
58,547
6,845
4,722
1,901
7,247
6,448
14,202
76,951
15,250
85,710
The above amounts for KMPs 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
Receivables from related parties
2019
$’000
20,584
–
20,584
2018
$’000
33,808
4,515
38,323
Current trade and other receivables from related parties
3,932
8,327
Moelis Australia Limited 2019 Annual Report
101
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 Parent entity disclosures
35
As at, and throughout, the financial year ended 31 December 2019 the parent entity of the group was Moelis Australia Limited.
Results of the parent entity
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of the parent entity at year end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprising of:
Contributed equity
Reserves
Retained earnings
Total equity
2019
$’000
(642)
–
(642)
2018
$’000
8,430
–
8,430
161,522
37,449
186,516
37,449
198,971
223,965
1,968
–
6,361
–
1,968
6,361
197,003
217,604
174,423
22,877
(297)
197,003
201,735
15,428
441
217,604
The parent entity had no contingencies at year end other than those already disclosed in the financial statements
102
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 36
(a)
Acquisition of interests in subsidiaries
Moelis Australia Master Credit Trust
On 4 January 2019, the Group acquired the power to exercise control in Moelis Australia Master Credit Trust. No gains or losses were
incurred from acquisition as it was transacted at arms length. The Group accounts for the entity as a subsidiary from that date onwards.
(b)
Subsidiaries
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
2019
31 December
2018
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
MAAM GP Pty Ltd
MACDF TT Pty Ltd
Global Wealth Residential Pty Ltd
Rockford Capital Pty Ltd
Armada Funds Management Pty Ltd
Mendoza Ltd
Global Wealth Aged Care Pty Ltd
Asset management
Asset management
Asset management
Australia
Australia
Australia
Asset management
Australia
Asset management
Asset management
Asset management
Australia
Australia
Australia
Australia
Moelis Australia Hotel Management Pty Ltd
Asset management
Moelis Australia Share Plan Pty Ltd
Administration entity
Australia
Moelis Australia Finance Pty Ltd
Moelis Australia Partners Pty Ltd
MAAM Holdings Pty Ltd
KC Finance Pty Ltd
Administration entity
Australia
Asset management
Asset management
Asset management
Australia
Australia
Australia
Eastern Credit Management Pty Ltd
Asset management
Australia
TMASL Finance Pty Ltd
KCF ST Pty Ltd
Asset management
Asset management
Moelis Australia Funds Management Pty Ltd
Asset management
Australia
Australia
Australia
Moelis Australia Foundation Pty Ltd
Administration entity
Australia
MAF Credit Pty Ltd
Asset management
Australia
MAAM Commercial Consulting (Shanghai) Co Ltd
Asset management
Moelis Australia Master Credit Trust
Asset management
Moelis Australia Credit Investments Pty Ltd
Asset management
China
Australia
Australia
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%
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
Moelis Australia Limited 2019 Annual Report
103
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 36
(b)
Acquisition of interests in subsidiaries (cont.)
Subsidiaries (cont.)
Composition of the Group
Principal Activity
Asset management
Corporate advisory and equities
Administration
Place of
incorporation
and operation
Australia
Australia
Australia
Number of wholly-owned
subsidiaries
31 December
2019
31 December
2018
23
3
4
30
24
3
4
31
During the year the Group wound up R88A Finance Pty Ltd.
Disposal of interests in subsidiaries
37
On 1 January 2019, the Group disposed the remaining interest in MAOF3 Pty Ltd, consisting of a loan asset of $12.7 million,
which represented all principal and accrued interest. No gains or losses were incurred upon disposal.
On 9 July 2019, the Group disposed the remaining interest in Golden Corridor Management No. 2 Pty Ltd. No gains or losses
were incurred upon disposal.
Commitments
38
At 31 December 2019, the Group had capital commitments of $40.7 million (31 December 2018: $27.7 million). Subsequent to
31 December 2019 $5.0 million of this commitment was either cancelled or drawn upon.
Subsequent events
39
There were no material events subsequent to the year end.
104
Moelis Australia Limited 2019 Annual Report
Notes to the consolidated financial statements (cont.)for the year ended 31 December 2019 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 financial statements and notes set out on pages 45 to 104 are in accordance with the Corporations Act 2001 (Cth),
including:
(i) compliance with Australian accounting standards; and
(ii) giving a true and fair view of the Company’s and the Group’s financial positions at 31 December 2019 and their
performance for the financial year ended on that date.
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).
This declaration is made in accordance with a resolution of the Directors.
Andrew Pridham
Managing Director and Chief Executive Officer
Jeffrey Browne
Independent Director and Chairman
Sydney
19 February 2020
Sydney
19 February 2020
Moelis Australia Limited 2019 Annual Report
105
Directors’ declaration 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
2019, 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 2019 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 Asia Pacific Limited and the Deloitte Network.
106
Moelis Australia Limited 2019 Annual Report
Independent auditors’ reportfor the year ended 31 December 2019
How the scope of our audit responded to the
Key Audit Matter
Our procedures included, but were not limited to:
• Analysing management’s
impairment
assessment detailing conclusions made on
impairment indicators and noted that the
carrying value is supported by the Group’s
share of net assets of Redcape;
• Reconciling the Group’s share of net assets
of Redcape to the Group’s investment in
Redcape balance; and
• Reviewing
the
the workpapers
component auditor for Redcape and their
assessment of Redcape’s
impairment
assessment.
of
We assessed the appropriateness of the disclosures
in Note 19 to the financial statements.
Key Audit Matter
Investment in Redcape
investment
In November 2017, Moelis in conjunction
with a number of Moelis managed funds and
external investors completed a $677m
transaction. The transaction involved Moelis
taking a direct 10%
into
Redcape, with total holdings by Moelis and
Moelis managed funds of 59%. Moelis
determined in FY 17 that Redcape was an
associate and was therefore subject to
equity accounting method. This equity
accounting remained the same when in
November 2018, Redcape underwent an
IPO.
The share price
for Redcape declined
subsequent to IPO from $1.13 at listing to
$1.11 as at 31 December 2019. The
resultant market capitalisation indicating
that Moelis investment in Redcape is valued
at $57.6m compared to their share of profits
from associate to the amount of $59.3m.
impairment
Moelis has performed an
analysis on the investment.
Investment Banking Revenue
Recognition
Our procedures included, but were not limited to:
from
investment
The revenue generated by the Corporate
Advisory Segment within the Group is
primarily
banking
transactions. For the year ended 2019, the
advisory segment generated $52.8m 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(c) and Note 4.
•
•
Evaluating management’s controls over
the revenue recognition process;
Testing, on a sample basis, the calculation
the key
of
in the client
milestones as outlined
engagement letters;
fees recognised
the
to
• Reviewing
subsequent
period
documentation to assess whether revenue
has been recorded in the correct period;
and
Revenue recognition required management
judgement in respect of when stages of the
transaction were completed and revenue
was appropriately recognised.
• Reviewing management reporting, board
minutes, market available information and
making enquiries of management
to
support the revenue recognised.
Loan loss allowance under AASB 9
Financial Instruments
Our procedures in conjunction with our specialists
included, but were not limited to:
We have also assessed the appropriateness of the
disclosures in Note 1(c) and Note 4 to the financial
statements.
As at 31 December 2019, the Group has
recognised $4.9m of loss allowance on loans
held at amortised cost in accordance with
the impairment model under AASB 9 as
disclosed in Note 1 (l) and Note 13.
The Group measures loss allowances for a
whether
• Assessing
management’s
expected credit loss model adequately
addresses the requirements of AASB 9;
• Assessing, on a sample basis, individual
exposures
they are
to determine
classified into appropriate default stages
if
Moelis Australia Limited 2019 Annual Report
107
Independent auditors’ report (cont.)for the year ended 31 December 2019
financial instrument at an amount equal to
the lifetime ECL for stage 2 or stage 3 assets
if the credit risk on that financial instrument
has increased significantly since recognition,
or if the financial instrument is a purchased
or originated credit-impaired financial asset.
Where the credit risk on a
financial
instrument has not increased significantly
since
for a
initial recognition (except
purchased or originated credit-impaired
financial asset), the loss allowance was
recognised at an amount equal to a 12
month ECL for stage 1 assets.
This loss allowance represents an area of
significant judgment and estimation for the
Group given the level of assumptions applied
in the modelling including, historic loss rates
and recoverability
and aging buckets for the purpose of
determining impairment loss provision;
• Assessing management’s assumptions
used in the expected credit loss model; and
• Assessing adequacy of management
the modelled collective
overlays
provision by recalculating the coverage
provided by the collective impairment
provision (including overlays) to loan book,
taking into account recent history and
performance.
to
We also assessed the appropriateness of the
disclosures within notes 1 (l) and 13 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 2019, but does
not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and 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.
108
Moelis Australia Limited 2019 Annual Report
Independent auditors’ report (cont.)for the year ended 31 December 2019
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
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 34 to 41 of the Directors’ Report for
the year ended 31 December 2019.
In our opinion, the Remuneration Report of Moelis Australia Limited, for the year ended 31 December
2019, complies with section 300A of the Corporations Act 2001.
Moelis Australia Limited 2019 Annual Report
109
Independent auditors’ report (cont.)for the year ended 31 December 2019
110
Moelis Australia Limited 2019 Annual Report
Independent auditors’ report (cont.)for the year ended 31 December 2019 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, 19 February 2020 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 2019 results is 4 March 2020.
Share Registry Details
The following information is correct as at 12 February 2020.
Registered Holder
MOELIS & CO INTERNATIONAL HOLDINGS LLC
MAGIC TT PTY LTD
MAGIC TT 2 PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
UBS NOMINEES PTY LTD
TOUCHARD PTY LTD
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