2007 ANNUAL REPORT
FOR THE YEAR ENDED 30 JUNE 2007
CONTENTS
Chairman’s Letter
Investment Philosophy
Directors’ Report
Corporate Governance Statement
Income Statement
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
Corporate Directory
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8
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54
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CHAIRMAN’S LETTER
Dear Investor
I have great pleasure in writing to you as an investor in
Magellan Financial Group. Our vision is that over time
Magellan will become a world class funds management
business based in Australia. We will only achieve this if
we achieve superior risk adjusted returns over time for
investors in our funds.
We are happy with Magellan’s progress since the
establishment of the business in November last year. In
addition to hiring an outstanding team, which I discuss
below, we have:
put in place first class investment processes and
procedures with an emphasis on risk management;
completed the $378 million initial public offering of
our listed investment company, Magellan Flagship
Fund Limited, in December 2006 and invested those
funds entrusted to us in a range of what we consider
to be outstanding businesses whilst maintaining
significant cash reserves;
completed the recapitalisation of the Company with
the Entitlements and Priority Offers in May 2007; and
launched two unlisted funds, Magellan Global Fund
and Magellan Infrastructure Fund in July 2007.
on three key sectors: Global Financial Services, Global
Retail and Brands and Global Infrastructure.
We are delighted that the vast majority of our
employees have recently participated in the staff share
ownership scheme. Our employees have a material
investment in the company and their interests are truly
aligned with all other shareholders.
Chris Mackay and I would like to thank our independent
directors Naomi Milgrom, Brett Cairns and Paul Lewis
for their contribution and counsel this year. Each
Director has a material investment in Magellan and we
can assure you that they are each very committed to the
success of Magellan.
Chris and I firmly believe that if we and our team are
disciplined in our processes we should achieve superior
risk adjusted returns for the investors in Magellan’s
funds. This should enable Magellan to attract
significant funds under management and generate
attractive returns for our shareholders.
Overview of our Investment Philosophy
Magellan’s investment objective is to generate superior
risk adjusted returns whilst minimising the risk of
permanent capital loss.
While we are satisfied with our progress to date and
the early response from financial planners, research
houses and potential investors to the launch of our new
unlisted funds, it is important to recognise that success
in the funds management business is not assured and
it will certainly not happen overnight. It is likely to take
some years to build the Magellan brand and reputation
and create an investment track record for the funds that
we manage.
Our investment philosophy is rational and, we believe,
compelling and not practised by many in the market.
Each of Magellan’s funds will seek to invest in a
portfolio of outstanding global companies assessed
to have highly attractive business characteristics at
a discount to our assessment of their intrinsic value.
We believe that investing in a portfolio of outstanding
businesses purchased at attractive prices will minimise
the risk of permanent capital loss for our investors.
We focus on three overall objectives:
to attract, retain and develop an outstanding team;
to achieve superior risk adjusted returns for our
investors whilst minimising the risk of permanent
capital loss; and
to be an excellent partner for all our counterparties
and intermediaries with whom we interact.
We currently have 26 professionals including experienced
operating, financial, legal and compliance personnel.
Our 13 strong investment management team is focused
We consider outstanding companies to be those
that have sustainable competitive advantages which
translate into returns on capital materially in excess of
their cost of capital for a sustained period of time. While
we are extremely focused on fundamental business
value, we are not typical “value” investors. Securities
that appear undervalued on the basis of a low price to
earnings multiple or a price to book multiple will often
prove to be poor long term investments if the underlying
business is fundamentally weak and exhibits poor
returns on capital. We will buy companies that have
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MAGELLAN FINANCIAL GROUP - CHAIRMAN’S LETTER
both low and higher price to earnings and price to book
multiples provided that the business is outstanding and
the shares are trading at an appropriate discount to our
assessment of intrinsic value.
Given we are seeking to buy companies at meaningful
discounts to their underlying value we will often
purchase companies that are “out of favour” with the
investment community. Most investors do not follow
such practices on a disciplined basis because it can be
psychologically painful to buy “out of favour” companies
even if they are outstanding. Out of favour companies
sometimes fall in price after purchase but, if the
analysis is correct, they usually rise in the medium
term. As Benjamin Graham famously said: “In the short
run, the market is a voting machine but in the long run
it is a weighing machine”.
We can be best described as a “value manager
with a high business quality overlay”. Set out in the
attachment to this Chairman’s letter is a copy of
Magellan’s Investment Philosophy.
Our Risk Management Approach in Current Markets
The recent volatility in debt and equity markets has
highlighted some very material risks in the global
financial system. We do not know whether a full
blown financial crisis will develop, but we do know
that the risk of such an event occurring has increased
materially. Given our objective of minimising the risk of
permanent capital loss for our investors, we are taking
a cautious stance at the moment. We are maintaining
high cash balances. However, we firmly believe that
the most attractive investment opportunities can
arise during periods of maximum pessimism. Thus,
we believe that it is possible that “very compelling”
investment opportunities will become available as
events unfold and we will opportunistically deploy
our available cash. In the meantime we are patiently
seeking opportunities for superior risk adjusted
returns.
Although we are absolutely focused on “bottom up”
analysis of investment opportunities, we do seek to
understand the context of key market events. Thus
a few words on the unfolding liquidity crisis are
warranted.
In early September, former Federal Reserve Chairman
Alan Greenspan told a group of academics in
Washington, D.C. that “the behavior we are observing
in the last seven weeks is identical in many respects to
what we saw in 1998, what we saw in the stock market
crash of 1987, I suspect what we saw in the land-
boom collapse of 1837, and certainly the bank panic of
1907”, and Hank Paulson the US Treasury Secretary
and former President of Goldman Sachs said that “the
crisis of confidence in credit markets is likely to last
longer than any of the financial shocks of the past two
decades”.
We believe that central bankers around the world
are very concerned that the current situation has the
potential to develop into a full blown financial crisis.
I will attempt to outline simply what are the issues that
are so concerning and how this could develop into a full
blown financial crisis.
Contrary to popular belief, we do not believe that the
sub-prime lending crisis in the United States is the sole
cause of the problem, nor the core issue the central
bankers are really concerned about.
A worrying but less understood issue is off-balance
sheet vehicles, known as conduits and structured
investment vehicles, set up by commercial and
investment banks to hold assets and loans. It is
estimated that there is approximately US$1,400 billion
of assets held in these vehicles around the world.
These vehicles have primarily been financed with short
term debt known as asset backed commercial paper.
Investors in the asset backed commercial paper market
virtually disappeared overnight, as they have become
increasingly nervous about the asset quality inside
these vehicles. This has the potential to cause major
liquidity issues in the financial system as commercial
and investment banks are being called on to provide
massive funding lines to these vehicles to replace the
asset backed commercial paper or to bring these loans
back on balance sheet. To preserve liquidity, banks have
become very reluctant to lend to each other in the short
term inter-bank market. The inter-bank lending market
is an essential element of a healthy financial system. In
circumstances where funding cannot be found for these
vehicles, assets will need to be liquidated which is likely
to push down asset prices and trigger losses across the
board.
Central bankers have reacted swiftly to this major issue
by increasing the amount they are prepared to lend
to banks on a short term basis and the United States
Federal Reserve recently reduced the interest rate
(known as the “Fed Discount Rate”) that they charge
to banks in order to try to ensure there is sufficient
liquidity in the system.
A more concerning issue is the potential for a large
scale global liquidity crisis amongst non-banking
financial institutions and hedge funds. In our view, a
possible cause of a large scale global liquidity crisis
would be an effective collective “funding run” on a
number of non-banking financial institutions or hedge
funds, triggered by a fall in asset prices. This would
be akin to a “depositors run” on the banking system.
Hedge funds in our view are vulnerable to a “funding
run” as they are typically highly leveraged and they
do not have a permanent equity base as their capital
is usually subject to quarterly redemptions. This
makes these institutions far more vulnerable than a
well capitalised bank with a large depositor base. A
concurrent run by investors and lenders to withdraw
MAGELLAN FINANCIAL GROUP - CHAIRMAN’S LETTER
5
their funding from hedge funds around the world is
likely to cause an unprecedented financial crisis and is
likely to result in a very material drop in asset prices
across the board.
The banking system is relatively immune to a
“depositors run” due to the central banks key function
as the lender of last resort. Central banks do not act
as lenders of last resort to non-banking financial
institutions and hedge funds, and responding to such
a situation would be very difficult for central banks.
Cutting interest rates would do little, of itself, to
alleviate such a situation, in our view. A number of
market commentators have suggested that central
banks should step in to act as a buyer of assets of last
resort to ensure the financial system has sufficient
liquidity to avert a full blown financial crisis. It is
notable that the Hong Kong Government stepped in
during the Asian financial crisis and bought equities
across the board to provide liquidity to the market. In
our view, central banks would be very reluctant to act in
this capacity as they may effectively be seen as bailing
out risk takers from the result of their investment
decisions.
While we do not know whether a full blown financial
crisis will develop, we believe the risk has increased
materially. Thus, we have taken a cautious approach in
advance of these events unfolding with the objectives
of minimising the risk of a permanent capital loss
and having capital available to take advantage of
opportunities that may arise.
2007 Full Year Results
The reported full year profit of $3.0 million after tax
for the year ended 30 June 2007 is not particularly
meaningful as a predictor of the future as it included:
The results of the Company prior to the restructure
and recapitalisation on 17 November 2006. Following
the restructure, the Company’s activities and cost
base has changed significantly;
The profit on the realisation of investments prior to
the restructure and recapitalisation of the Company
of $2.5 million; and
A non-cash Accounting Adjustment which increased
the reported profit by approximately $4.7 million.
Excluding the non-cash Accounting Adjustment
(discussed below) and the re-statement of the
treatment of a $0.9 million after tax gain from the
liquidation of existing investments prior to the
recapitalisation in November 2006, Magellan would
have reported an accounting loss of $2.6 million. This
compares with a forecast loss of $2.8 million to $3.0
million. The better performance primarily reflects
moderately lower recruitment and employment costs
than forecast.
Accounting Adjustment
Given the materiality of the non-cash Accounting
Adjustment on our profitability and balance sheet I
believe it needs some explanation and why we believe
it should be excluded from our results in order to
understand the true financial position of the Company.
For those of you who are not “accounting minded” you
may want to skip this section.
The non-cash Accounting Adjustment relates to the
accounting treatment for the potential issuance of
Secondary Options. Under the terms of the Initial
Options, an optionholder will be issued a Secondary
Option upon exercise of their Initial Option. The
Accounting Standards require that the Secondary
Options be treated as a financial liability in the balance
sheet. This accounting treatment means that we have
had to record an accounting liability of $30 million
on the balance sheet and an accounting profit of
$4.7 million due to the decrease in the value of this
liability from the date of issuance of the options to 30
June 2007. This accounting treatment is, in my view,
a nonsense and makes it difficult for an investor to
understand our financial statements. We discussed the
issue in depth with our auditors and were informed that
our financial statements would need to be qualified if
we did not comply with this Accounting Standard. I can
assure you we do not have an actual financial liability
to any party, nor have we or will we realise a profit from
the issuance of the Secondary Options.
During the year Magellan raised approximately $75
million in cash from the issue of shares and options,
however, in complying with this accounting standard,
we recorded an increase in contributed equity of
only approximately $40 million. The difference of
approximately $35 million arises from the recognition
of the fair value of the Secondary Options as a financial
liability. A reader of our financial statements may be
highly concerned that we have lost $35 million of the
cash that we raised this year. I can assure you that the
reduction in contributed equity is only an “accounting
entry”.
What is more puzzling than the “disappearing equity” is
the fact that gains and losses on the fair value of these
Secondary Options are required to be recorded to the
profit and loss statement. For the year ended 30 June
2007 we recorded a profit of $4.7 million due to the
reduction in the value of the Secondary Options from
date of issue to 30 June. Had the options been valued at
28 August 2007, we would have recorded a further profit
of approximately $15 million due to a further reduction
in the value of the Secondary Options.
This accounting treatment will continue to distort
our reported profits and balance sheet for the next
few periods and we will seek to provide sufficient
information so that you can understand the underlying
profitability and financial position of the Company.
The good news is that after 30 June 2009 the financial
liability component on the balance sheet will completely
disappear.
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MAGELLAN FINANCIAL GROUP - CHAIRMAN’S LETTER
a public company, New Privateer Holdings Limited.
We are very conscious of the legitimate interests of all
parties, including the minority shareholders in New
Privateer, and are hopeful that a proposal can be put
forward that is fair to the shareholders of both Magellan
and New Privateer. Core to any proposal will be that
Chris and I forego our entitlements to any future MSA
performance fees for no compensation.
I would like to thank you for your interest in Magellan
and I look forward to meeting you at our Annual General
Meeting, which will be held at our offices at Level 7,
1 Castlereagh Street, Sydney at 12 pm on Friday 26
October, 2007.
Yours sincerely
Hamish M Douglass
Chairman
18 September 2007
2008 Financial Outlook
Given the 2007 financial results are not a meaningful
predictor of the future, we have decided to provide some
guidance on the 2008 outlook for the Company. For the
2008 financial year we have budgeted for a loss after
tax of similar magnitude to the $2.8 million to $3.0
million loss that was forecast for 2007. This ignores the
impact of any Accounting Adjustment for the Secondary
Options and is before the impact of any performance fee
that may be payable under the Management Services
Agreement (MSA) discussed below.
The budgeted loss reflects the fact that we are investing
in the start up of a new business. We believe it is critical
that we do not cut corners and hire an outstanding
team of people in all areas of the Magellan’s business.
This requires a substantial upfront investment in people
and infrastructure.
The budgeted total expenses for the business,
including the base management fee under the MSA, are
approximately $15 million.
Revenue assumptions in the budget include full
year investment management fees from Magellan
Flagship Fund, our listed investment company, interest
income on our cash balance and modest investment
management fees from our new unlisted funds
(Magellan Global Fund and Magellan Infrastructure
Fund) launched in July 2007. We believe it is realistic
to assume that investment management fees from the
new unlisted funds will be modest in 2007/2008 as a
whole, and particularly modest for the 6 months to 31
December 2007.
The budgeted loss reflects no material contribution
or losses from the Company’s investments to seed
Magellan’s listed and unlisted funds or from any
principal investments or investments in other fund
managers. There are currently no principal investments
or investments in other fund managers and none have
been made since the recapitalisation of Magellan in
late 2006. As discussed above in relation to our risk
management, it should be no surprise that we continue
to take a prudent approach to considering any potential
investments.
Management Services Agreement
Some of you may have read that Chris and I have
proposed to examine whether the MSA arrangements
between Magellan and NPH Funds Pty Limited (NPH
Funds) can be restructured to an achieve an outcome
that benefits Magellan’s future development.
Chris and I believe that it is in the interests of all
shareholders to restructure the MSA arrangements. In
order to achieve an outcome that benefits all Magellan
shareholders, we have proposed to the Board that we
will forego our entitlement to any future performance
fees for no compensation. While on its face this may
appear relatively straightforward, it is complicated,
primarily because the ownership of NPH Funds includes
MAGELLAN FINANCIAL GROUP - CHAIRMAN’S LETTER
7
INVESTMENT
PHILOSOPHY
Investment Objectives
The Magellan Funds have two principal Investment
Objectives:
to achieve superior risk adjusted investment returns
over the medium to long-term; and
to minimise the risk of permanent capital loss.
Investment Philosophy
Our Investment Philosophy is simple to state. We aim
to find outstanding companies at attractive prices. We
consider outstanding companies to be those that have
sustainable competitive advantages which translate
into returns on capital materially in excess of their
cost of capital for a sustained period of time. While
we are extremely focused on fundamental business
value, we are not typical “value” investors. Securities
that appear undervalued on the basis of a low price to
earnings multiple or a price to book multiple will often
prove to be poor investments if the underlying business
is fundamentally weak and exhibits poor returns on
capital. We will buy companies that have both low and
higher price to earnings and price to book multiples
provided that the business is outstanding and the
shares are trading at an appropriate discount to our
assessment of intrinsic value.
An outstanding company will usually have some or
(ideally) all of the following characteristics:
Wide Economic moat
An economic moat refers to the protection around an
economic franchise which enables a company to earn
returns materially in excess of the cost of capital for a
sustained period of time.
Outstanding companies are unusual as capitalism is
very efficient at competing away excess returns, in most
cases.
A company’s economic moat will usually be a function
of some form of sustainable competitive advantage.
A strong indicator as to whether a company possesses
an economic moat is the historical returns on capital
(both including and excluding intangible assets) it has
achieved. If a company has earned returns materially
above the cost of its capital for a sustained period, it is
a good indication that a company may have an economic
moat. In some cases, a company may be developing
a strong economic moat, but its historical returns on
8
MAGELLAN FINANCIAL GROUP - INVESTMENT PHILOSOPHY
capital are low reflecting the investment in building
a business with long-term sustainable competitive
advantages. The key lesson is that historical returns on
capital do not necessarily indicate whether a business
has a wide economic moat and it is critical to fully
understand the competitive advantages and threats
which protect and threaten a company’s economic
franchise.
Identification of companies with wide economic moats
involves consideration and assessment of the barriers
to entry, the risks of substitutes, the negotiating power
of buyers and suppliers to a company and intensity of
rivalry amongst competitors.
The following are illustrations of sustained competitive
advantages:
Where it is very expensive for consumers to shift
from the incumbent provider (that is, where there is
a low threat of substitutes) because of, for example,
cost, inconvenience and/or regulatory restrictions.
Where the leading market participant has material
economies of scale which gives it a significant cost
advantage over competitors or new entrants.
Where the business has a strong and unique brand
name or is protected by long-term intellectual
property rights such as copyright, patents,
trademarks and/or regulatory approvals.
Where a company has a very strong network (ideally
monopoly or proprietary). For example, where it is
the vital intermediary between buyers and sellers, a
market maker or even a ring road that tolls workers
and businesses use as they move people and goods.
We are particularly interested in networks where
access, pricing and volume are subject to market
forces and are not regulated in a materially adverse
manner.
Where the use of psychological imperatives (such
as, safety, exclusivity and quality) drives customer
loyalty and enables companies to charge a premium
for their products or services.
Each of these sustained competitive advantages
is relatively unusual and it is particularly valuable
where a strong competitive advantage prevails over
a long period of time. Market-based monopolies and
proprietary networks can provide the strongest and
most sustainable competitive advantages, but are
extraordinarily rare.
Re-investment Potential
We seek companies that have a moderate to high
potential to continue to re-invest capital into the
business at high incremental returns.
We believe that conventional investment analysis fails
to properly assess the potential of a business to deploy
material amounts of additional capital into the business
at attractive rates of return. This is a fundamental driver
of value over time.
The most attractive types of companies are either:
companies with wide economic moats which can
continue to grow materially with very limited
additional capital. These companies will exhibit
rising returns on capital employed. These types of
businesses are extraordinarily rare and extremely
valuable; and
companies with wide economic moats which have
opportunities to deploy material amounts of capital
into the business at high incremental rates of return.
Examples include a strong retail franchise with
substantial roll-out opportunity, or a retail banking
or financial services franchise that can continue to
grow its lending activities at attractive margins.
These types of businesses are rare and can be very
valuable compounding machines”. It is more usual to
find businesses with wide economic moats which can
only deploy very modest amounts of capital and exhibit
modest growth potential. These businesses, while
attractive, are less likely to be “compounding machines”
than those with material high return re-investment
opportunities.
We are therefore very focused on assessing a company’s
ability to continue to re-invest free cash flow at high
rates of return. It is factors such as, store roll out
potential, global expansion potential, the size of the
market and market share potential, and market growth
rates, which will drive this re-investment potential.
We judge re-investment potential as low, medium or
high depending on the level of re-investment over the
medium term as a percentage of net income, and the
rate of return expected to be achieved.
Low business risks
The purpose of assessing business risk is to determine
the predictability of cash flow and earnings projections.
Businesses which are difficult to predict or could exhibit
large variations in cash flows and earnings have high
inherent business risk.
We assess business risk taking into account factors
such as cyclicality, operating leverage, operating
margin, financial leverage, competitive strength,
regulatory and political environment and profitability.
We assign each company a risk assessment: low,
medium and high. This is not an attempt to measure
the volatility of the shares, but rather the predictability
and strength of the underlying business.
Low agency risk
We term the risk surrounding the deployment of the
free cash flow generated by a business as ‘agency risk’.
A fundamental assumption inherent in a standard
discounted cash flow valuation (DCF) is that free cash
flows are returned to shareholders or are re-invested
at the cost of capital. The reality is that this assumption
is often flawed as free cash flow is often not returned
to shareholders but, rather, cash is re-invested by
companies at returns below the cost of capital. In these
cases, businesses can end up being worth substantially
less than implied by a DCF analysis. We term the risk
surrounding the deployment of the free cash flow
generated by a business as “agency risk”.
A company which can deploy a substantial amount
of free cash flow back into the business at attractive
returns for a sustained period of time will almost
certainly carry lower agency risk than a company
which has limited opportunities to re-invest capital
at attractive returns, unless the company is explicit
about returning excess cash flow to shareholders via
dividends and/or share buy-backs.
In assessing agency risk, we look at factors, including
the structure and level of incentives offered to senior
management, the level of share ownership by senior
management and directors, the track record of
management in pursuing acquisitions, the desire
of management to grow their empire and the track
record of management and the Board in acting in a
shareholder friendly manner, including returning free
cash flow to shareholders via share buy-backs and/or
dividends.
The assessment criteria we apply in evaluating potential
investments are depicted in the diagram below.
An ideal investment will normally have a number of
combined favourable attributes operating together
which would illustrate what Charlie Munger of
Berkshire Hathaway describes as a “Lollapalooza”
effect (which is a term for factors which will reinforce
and greatly amplify each other).
Margin of Safety
We will only purchase an investment when there is a
sufficient “margin of safety”. The margin of safety is the
discount we require before buying shares of a company.
The bigger the assessed discount, the wider is our
margin of safety.
The available margin of safety, we believe, is driven,
in part, by prevailing market psychology. While not a
driver of a company’s quality or intrinsic value, the
markets can have a profound, albeit rarely long-term,
effect on the pricing of a company’s shares. When
short-term issues or concerns are worrying investors or
other factors are resulting in excess enthusiasm (that
is, irrational exuberance), shares will often be mis-
priced relative to intrinsic value. While our process can
make us appear to be out of step with trends, investing
contrary to consensus thinking has the potential to
provide investment opportunities. Understanding
where current market sentiment lies and assessing
the company within the context of whether the concern
or excitement is being appropriately priced, is an
important step in investing.
There are some exceptional businesses where the
“Lollapalooza” effect is truly at work and the moat is
so wide and the risks are so low that we will invest
with a very modest margin of safety. It is more usual
to find companies which do not have all the reinforcing
factors at play which results in a higher level of risk and
requires a higher margin of safety.
MAGELLAN FINANCIAL GROUP - INVESTMENT PHILOSOPHY
9
DIRECTORS’ REPORT
The Directors of Magellan Financial Group Limited (the “Company”) submit their report for the Company, its controlled entities
and Magellan Financial Group Trust (the “Trust”) which together form the consolidated entity (the “Group”) in respect of the
year ended 30 June 2007.
Directors
The following persons were Directors of the Company during the year and up to the date of this report unless otherwise stated.
Name
Directorship
Appointed
Resigned
Hamish Douglass
Chairman and Executive Director
Chris Mackay
Deputy Chairman and Executive Director
Naomi Milgrom
Non-executive Director
Paul Lewis
Brett Cairns
Roger Davis
Non-executive Director
Non-executive Director
Non-executive Director & Chairman
Mark Beames
Non-executive Director
Dean Smorgon
Non-executive Director
Russel Pillemer
Executive Director
Damien Hatfield
Executive Director
Corporate Information
21 November 2006
21 November 2006
20 December 2006
20 December 2006
22 January 2007
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20 December 2006
21 November 2006
21 November 2006
21 November 2006
21 November 2006
The Company is limited by shares and incorporated in Australia. The shares and options of the Company are publicly traded on
the Australian Securities Exchange (ASX) – ASX Code: MFG and MFGOA.
Recapitalisation and De-stapling
The Company was previously called Pengana HedgeFunds Limited and the Trust was previously called Pengana HedgeFunds
Trust. The names of the Company and the Trust were changed on 21 November 2006 following a meeting of shareholders
to approve the recapitalisation of the Company and the introduction of new management led by Mr Douglass (the Chairman
of the Company) and Mr Mackay (the Deputy Chairman of the Company). The recapitalisation involved the Company issuing
approximately 77.4 million shares via a placement of approximately 38.4 million shares in November 2006 and the issuance of
approximately 39.0 million shares in May 2007 pursuant to an Entitlements Offer to shareholders and a Priority Offer to certain
other parties.
On 22 March 2007, shareholders of the Company and unitholders in the Trust voted to simplify the Group by de-stapling and
winding up the Trust. From 22 March 2007, shares in the Company remained listed on the ASX as individual securities and units
in the Trust were de-listed. The net assets of the Trust at the date of the de-stapling were nil. The Trust was wound up on 29
June 2007.
Principal Activity
The primary business activity of the Group is to establish a funds management business with an objective to offer international
investment funds to Australian and New Zealand investors. Since the recapitalisation of the Company on 21 November 2006 the
Company has:
hired an outstanding team of 26 professionals, including a 13 strong investment management team;
moved into offices at 1 Castlereagh Street, Sydney and established a presence in New York;
completed the $378 million initial public offering of a listed investment company, Magellan Flagship Fund Limited (the
Flagship Fund), in December 2006;
10
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
launched two unlisted funds, Magellan Global Fund and Magellan Infrastructure Fund in July 2007;
simplified the Group structure by de-stapling and winding up the Trust; and
completed the recapitalisation of the Company with the Entitlements and Priority Offers in May 2007.
Trading Results
The Group’s net operating loss after tax and minority interest and before the AASB 132 Accounting Adjustment (refer below)
for the year ended 30 June 2007 was $1,694,000 (2006: $2,567,000 profit). The Group’s total revenues were approximately $7.1
million, total expenses were $9.2 million and the income tax benefit was $0.9 million.
Net operating loss attributable to members of the Company after tax and before AASB
132 Accounting Adjustment
AASB 132 Accounting Adjustment attributable to members of the Company *
Net profit attributable to members of the Company after AASB 132Accounting Adjustment
* The AASB 132 Accounting Adjustment discussion (below) provides further information.
2007
$’000
(1,694)
4,681
2,987
2006
$’000
2,567
-
2,567
The revenues of the Group for the year ending 30 June 2007 of $7.1 million include:
Investment management fees of $2.6 million which primarily reflects investment management fees earned from the
managed listed investment company from launch in December 2006 to 30 June 2007.
Interest income of $1.9 million on cash held by the Group which reflects that the majority of this cash was raised in May
2007. As at 30 June 2007 the Group held $74.4 million in cash, the majority of which was raised in May 2007.
Non-recurring gains of $2.5 million arising from the liquidation of existing investments of the Group prior to the
recapitalisation in November 2006.
The expenses of the Group for the year ending 30 June 2007 of $9.2 million include:
Employment and recruitment costs of $5.6 million. The majority of our team members were hired in the second half of the
2007 financial year and therefore there was little or no off-setting revenue. As at 30 June 2007 the Group had 26 employees.
Base fees of $1.55 million paid to NPH Funds Pty Ltd (NPH Funds) under the Management Services Agreement for the 7
month period from recapitalisation of the Company to 30 June 2007.
Legal and professional fees of $0.3 million associated with the launch of the Magellan Global Fund and Magellan
Infrastructure Fund and the de-stapling and winding up of the Trust
The Group’s full year results are not directly comparable to those of the prior period due to activities undertaken as part of the
recapitalisation of the business in November 2006 and the establishment of its globally focussed funds management business.
AASB 132 Accounting Adjustment
As part of the recapitalisation, the Company has issued options (Initial Options) to subscribe in shares of the Company. The
total number of Initial Options on issue at 30 June 2007 was 28,334,066 (2006: nil). Upon exercise of an Initial Option, the
option holder will be issued with one new ordinary share in the Company and one additional option (Secondary Option). Note 13
provides further information.
Australian Accounting Standard AASB 132 Financial Instruments: Presentation determines that the Initial Options are
compound financial instruments comprising both an option on a share and an option on an option. AASB 132 further
determines that the option on a share is an equity instrument and that the option on an option is a financial liability.
The financial liability component is valued at the date that the Initial Options were issued and at each subsequent reporting
date. The financial liability is recognised on the Balance Sheet with subsequent changes in fair value recognised through the
Income Statement. Note 2(i) to the financial statements provides further information on the recognition and measurement of
the financial liability component of the Initial Option.
In the Directors’ opinion this accounting treatment of the Initial Options should be supplemented with the inclusion of the
additional explanations in this section of the Directors’ Report and in note 2(i) to the financial statements in order to provide
users of the financial report with the more useful information. The Directors have formed this view after considering:
the inconsistent approach required by AASB 132 in treating the option on a share as an equity instrument and the option on
an option as a financial liability;
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
11
at the time the Initial Options are either exercised by, or expire on, 30 June 2009 the financial liability component recognised
in the Balance Sheet will cease to exist;
the Company will not be required to settle the financial liability component with cash. To the extent that the Initial Options
are exercised it will be settled with the issue of a Secondary Option which will be treated as an equity instrument; and
the fair value of the financial liability will change with movements in the prices of the Company’s securities. Movements in
the fair value are required to go through the Income Statement. To illustrate, the Directors determined that the fair value of
the financial liability at 30 June 2007 was $1.06 per Initial Option. Applying the same valuation methodology to the relevant
valuation inputs as at 28 August 2007, the value was $0.52 giving a total value of the financial liability of $14,734,000 (30
June 2007 $30,033,000).
The impact of the AASB 132 Accounting Adjustment on the capital and reserves of the Company is as follows:
Contributed equity
Retained earnings
Reserves
Balance before AASB 132
Accounting Adjustment
$’000
Impact of AASB 132
Accounting Adjustment
$’000
Per Balance Sheet 30
June 2007
$’000
103,080
(2,394)
(1,203)
99,483
(37,715)
4,681
-
(30,034)
68,365
2,287
(1,203)
69,449
Dividends and Distributions
The Group paid a Company dividend of 5.39 cents (fully franked) and a Trust distribution of 1.61 cents for a total of 7.0 cents
per stapled security in December 2006. No other amounts have been declared by the Directors and none have been paid or are
payable during the year and to the date of this report.
Changes in the State of Affairs
There were significant changes in the state of affairs of the Group that occurred during the year. These changes have been
disclosed in this report or the financial statements.
Events Subsequent to the end of the Financial Year
On 3 July 2007, the Company subscribed for $15m and $5m respectively of units in the Magellan Global Fund and Magellan
Infrastructure Fund, two new unlisted investment trusts of which Magellan Asset Management Limited (MAM), a controlled
entity, is the Responsible Entity and Investment Manager.
There is a Management Services Agreement (MSA) between the Company and NPH Funds Pty Ltd (NPH Funds), details of which
are set out in note 17. NPH Funds is 40% owned by a company controlled by Hamish Douglass, the Chairman of the Company,
and 60% owned by New Privateer Holdings Limited (NPH) an ASX listed company in which Chris Mackay, the Deputy Chairman
of the Company, has a 36% shareholding (approximately 55% on a fully diluted basis).
Since the end of the financial year, Hamish Douglass and Chris Mackay have advised the Boards of the Company and NPH that
they do not wish to participate in any possible performance fees that may arise under the management services agreement
between the Company and NPH Funds. Messrs Douglass and Mackay will examine whether, if they do not participate in
any possible performance fees that may become payable, the arrangements, between the Company, NPH Funds, NPH and
themselves can be restructured to achieve an outcome that benefits the Company’s future development.
The Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or in the financial
statements that has significantly or may significantly affect the operations of the Group, the result of those operations or the
state of affairs of the Group in subsequent financial periods.
Likely Developments and Expected Result of Operations
The Group will continue to pursue its financial objective which is to increase the profitability of the Company over time by
increasing the value and performance of funds under management and by containing costs.
The methods of operating the Group are not expected to change in the foreseeable future.
Rounding Off of Amounts
The Group is of a kind referred to in the Australian Securities & Investments Commission’s Class Order 98/0100 (as amended)
and consequently amounts in the Directors’ Report and financial statements have been rounded off to the nearest thousand
dollars in accordance with that Class Order, unless otherwise indicated.
12
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
Environmental Regulation
The Group is not subject to any particular or significant environmental regulation under Commonwealth, State or Territory legislation.
Auditor
Ernst & Young (the “Auditor”) continues in office in accordance with section 307C of the Corporation Act 2001.
Audit and Non-audit Services
Details of the amounts paid or payable to the Auditor for audit and non-audit services provided during the period are
set out below.
The Directors, in accordance with advice received from the Audit Committee, are satisfied that the provision of those non-audit
services during the period by the Auditor is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors are satisfied, considering
the nature and quantum of the non-audit services that the provision of non-audit services by the Auditor, as set out below, did
not compromise the Auditor independence requirements of the Corporations Act 2001.
Audit services:
Auditors of the Company – Ernst & Young
Audit and review of the annual financial report
Other services:
Other regulatory audit services (AFSL)
Auditors’ Independence Declaration
2007
$
2006
$
112,412
72,148
9,000
-
A copy of the Auditors’ Independence Declaration as required under section 307C of the Corporations Act 2001 is set out
on page 17.
Information on Directors
Hamish Douglass
Chairman and Executive Director, and member of the Audit and Risk Committee
Mr Douglass has more than 15 years experience in financial services and has advised on some of the largest corporate
transactions in Australia. Mr Douglass was formerly the Co-head of Global Banking at Deutsche Bank, Australasia. Mr
Douglass is a Non-executive director of Magellan Flagship Fund Limited, Managing Director of NPH Funds Pty Limited and a
Non-executive director of Catalyst Investment Managers Pty Limited. Mr Douglass is a member of the Australian Takeovers
Panel.
Chris Mackay
Deputy Chairman and Executive Director
Mr Mackay has considerable experience in business management, business assessment, capital allocation, risk management
and investment. Mr Mackay is the Chief Investment Officer of the Company, a Non-executive director of Magellan Flagship Fund
Limited, Chairman of New Privateer Holdings Limited and a Director of Publishing & Broadcasting Limited. Mr Mackay retired
as Chairman of UBS Australasia in March 2006, having previously been its Chief Executive Officer. Mr Mackay is a member
of the Federal Treasurer’s Financial Sector Advisory Council and a former member of the Business Council of Australia and
Director of the International Banks & Securities Association.
Naomi Milgrom
Non-executive Director
Naomi Milgrom is the Executive Chair and CEO of Australia’s largest speciality women’s fashion retailer, the Sussan
Group - comprising Sussan, Suzanne Grae and Sportsgirl. One of Australia’s top business entrepreneurs, Ms Milgrom has
combined business leadership with leadership in the arts, sciences and women’s health, as Chair of the Australian Centre for
Contemporary Art (ACCA), Chair of the Melbourne Fashion Festival, and Director of the Howard Florey Institute. Ms Milgrom
was the first woman to deliver the Batman Oration on Australia Day 2006. The Centenary of Federation Medal was awarded to
Ms Milgrom for her outstanding contribution to business and the fashion industry.
Paul Lewis
Non-executive Director and member of the Audit and Risk Committee
Mr Lewis was Managing Partner and Chief Executive – Asia, based in Hong Kong from 1992 – 2004, for PA Consulting Group, at
the conclusion of which PA had offices in Hong Kong, Beijing, Tokyo, Bangalore, Singapore, Kuala Lumpur and Jakarta.
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
13
Mr Lewis led major assignments in financial services – retail banking, life insurance and stock exchanges, energy,
manufacturing, telecommunications, rail, air, container shipping and government. Mr Lewis also served on senior advisory
panels with ministerial representation in Hong Kong, Malaysia and Indonesia. Mr Lewis is currently an Emeritus Partner with
PA Consulting Group, and holds a number of senior advisory roles with British Telecom, namely, being on the Asia Pacific
Advisory Board since 2003, the Global Advisory Board since 2005 and in senior advisory roles including local Chairman for
Australia and New Zealand. He is a council member for the Australian British Chamber of Commerce and a director of PA
Consulting Group’s Asia businesses.
Brett Cairns
Non-executive Director and Chairman of the Audit and Risk Committee
Mr Cairns is co-head of the Capital Markets Group within Structured Finance at Babcock & Brown, which he joined in 2002. Mr
Cairns was a former Managing Director and Head of Debt Capital Markets for Merrill Lynch in Australia where he worked from
1994 to 2002. Prior to joining Merrill Lynch, Mr Cairns spent 3 years with Credit Suisse Financial Products, the then derivatives
bank of the Credit Suisse group.
David Simpson
Company Secretary
Mr Simpson is the Company’s General Counsel and Company Secretary of the Group and of the Flagship Fund and is General
Counsel of MAM. Mr Simpson has over 20 years of experience as a corporate lawyer, specialising in large scale mergers and
acquisitions, both public and private, and international offerings of debt and equity securities. Mr Simpson was a partner in
Freshfields Bruckhaus Deringer (“Freshfields”), one of the world’s largest law firms, and before that was a partner in one of
Australia’s leading law firms, Allen Allen & Hemsley (now Allens Arthur Robinson). From 1991 to 2004, Mr Simpson was based
in Asia, living and working as a corporate lawyer in Indonesia from 1991 to 1997 and Singapore from 1997 to 2004. Mr Simpson
was the managing partner of both the Allens Arthur Robinson and Freshfields offices in Singapore.
Directors’ Meetings
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2007 and
attended by each Director.
Board Meetings
Audit & Risk Committee Meetings
Held
Attended
Held
Attended
While a Director
While a member
6
6
5
5
4
4
3
3
3
3
6
6
4
5
4
4
2
3
3
3
1
1
1
1
1
1
1
1
-
-
1
1
1
1
1
1
1
1
-
-
Hamish Douglass
Chris Mackay
Naomi Milgrom
Paul Lewis
Brett Cairns
Roger Davis*
Mark Beames*
Dean Smorgon*
Russel Pillemer*
Damien Hatfield*
* resigned during the year
Remuneration Report
This report details the policy for determining the remuneration of Directors and Executives and provides specific detail of their
remuneration.
Remuneration of Non-executive Directors
The Executive Directors review and determine the remuneration of the Non-executive Directors and may utilise the services of
external advisors. It is the policy of the Board to remunerate at market rates commensurate with the responsibilities borne by
the Non-executive Directors. The remuneration of the Non-executive Directors is not linked to the performance of the Group.
Remuneration of Executive Directors
The Executive Directors were not remunerated in relation to acting as Directors or as Executives of the Group.
14
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
Remuneration of Executives
(iv) the aggregate maximum number of shares issued under
The remuneration policy is designed to attract and retain
appropriately experienced, skilled and qualified executives
in order to achieve the Group’s objectives. Executive
remuneration is a combination of fixed and variable
remuneration that takes into account the executives
experience, abilities and achievements.
The fixed compensation is structured as a total employment
cost package, which the executive may elect to receive as a
combination of cash, non-cash benefits and superannuation
contributions. There are no guaranteed increases to the fixed
remuneration, however it is reviewed annually to ensure that
it is competitive and reasonable.
The variable compensation is performance related and is
determined by the Board after consideration of the Executives
skills and contributions to the achievement of the Group’s
objectives as measured by such indicators as the performance
of the Group and the performance of the Flagship Fund, the
Magellan Global Fund and the Magellan Infrastructure Fund
as appropriate.
The Directors do not consider it appropriate to assess
Executive performance solely against short term indicators. A
focus on short term indicators may encourage performance
that is not in the best interests of the Group and its
shareholders. The Directors are more concerned that the
Executives are motivated to build shareholder wealth over the
long term.
Share Purchase Plan
The Group has put in place a Share Purchase Plan for its
employees and Non-executive Directors (Participants). The
plan will provide assistance to Participants to invest in shares
in the Company in order to more closely align the interests
of Participants with the interests of the shareholders of the
Group.
Employees will be invited to apply for a specified number of
fully paid ordinary shares in the Company once a year. The
number of Company shares that may be offered is limited to:
(a) for the initial offer of Shares, after release of the Group’s full
year 30 June 2007 financial results in September 2007:
(i) shares with a market value equal to a multiple of
four times the employee’s after-tax bonus for the
year ending 30 June 2007; and
(ii) such further number of plan shares as approved by
the Board;
(b) for any subsequent offer of shares:
(i) shares with a market value equal to a multiple of
one times the employee’s after-tax bonus for the
financial year (ending 30 June) prior to the financial
year in which the subsequent offer is made; and
(ii) such further number of shares as requested and
approved by the Board,
and, in each case:
each subsequent offer under the Share Purchase Plan will
not exceed 5% of the total number of shares on issue at
the time of the offer provided that the Company may issue
additional Company shares in any subsequent offer up to,
but not exceeding, the number of shares that it has bought
back in the period since the last offer of shares under the
Share Purchase Plan.
Participating Non-executive Directors will be invited to apply
for up to 1,000,000 shares on a once only basis.
No performance hurdles will attach to the invitation to
participate in, or the issue of shares under, the Share
Purchase Plan. The Directors can resolve to vary the timing of
these invitations.
The issue price for the shares will be the fair market value of
the shares at the offer date. This will ordinarily be calculated
using the volume weighted average price of traded shares in
the 5 business days prior to the offer date.
Participants will be required to pay an amount equal to 25% of
the issue price at the time of issue. The remaining 75% of the
issue price will be funded by way of a full recourse interest
free loan from the Company.
Employees will be required to apply 25% of their after tax
annual bonus each year to repay the loan until the loan
has been fully repaid. The maximum term of the loan for
employees is 10 years. Any outstanding balance at the end of
10 years must be repaid by the employee. Employees will not
be entitled to repay their loan early.
Participating Non-executive Directors will be required to repay
the loan on the fifth anniversary of the date of issue of their
shares. Participating Non-executive Directors will be entitled
to repay their loan early.
Loans to Participants under the plan will be secured on the
shares issued to that Participant. The shares will not be
transferable until the loan is fully paid. Once the loan has
been fully repaid, the shares will be freely transferable.
Dividends will be payable on the shares issued under the
Share Purchase Plan on the same basis as all other issued
fully paid ordinary shares, and will be applied to repay the
loan until the loan has been fully repaid.
The plan shares will have the same rights to participate in any
entitlements or bonus issues and will otherwise rank equally
with all other issued ordinary shares.
Directors’ fees
The Non-executive Directors’ base remuneration is reviewed
annually.
Retirement benefits for Directors
No retirement benefits (other than superannuation) are
provided to Directors.
(iii) subject to a maximum of $750,000 worth of shares
per employee in each financial year, other than in
the case of a new employee where the Board may
resolve, in its absolute discretion, to initially offer
additional shares to the new employee; and
Details of Remuneration
The Executive Directors have not been remunerated by the
Group in relation to acting as Directors of the Group or, in
the case of Mr Douglass, as a member of the Audit and Risk
Committee.
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
15
Only the Non-executive Directors of the Company were remunerated by the Company and received the following amounts
during the year:
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Roger Davis
Mark Beames
Dean Smorgon
Short Term Benefits
Post Employment Benefits
Primary Salary
Superannuation
$
10,477
10,000
8,333
51,253
1,274
40,973
$
927
-
-
2,064
37,750
1,377
Total
$
11,404
10,000
8,333
53,317
39,024
42,350
In addition to the Executive Directors, the remuneration of the Key Management Personnel is shown below:
Key Management Personnel
Short Term Benefits Post Employment
Commencement
Date
Salary
Cash
Bonus
Superannuation
Total
$
$
$
$
N Campbell
Chief Financial Officer and Chief Operating Officer
D Simpson
General Counsel and Company Secretary
D Barkas
Group Financial Controller
6 July 2006
200,314
200,000
12,686
413,000
10 November 2006
133,517
110,000
8,458
251,975
23 April 2007
31,103
20,000
2,424
53,527
Service Agreements
Remuneration and other terms of employment for the Non-executive Directors are formalised in service agreements. The
Executive Directors (Messrs Douglass and Mackay) do not have employment agreements and are not remunerated by the
Group. All other employees have employment agreements. Messrs Douglass and Mackay have a financial interest in NPH
Funds which has entered into a Management Services Agreement with the Company (details on the fees payable under the
Management Services Agreement are set out in note 17 to the financial statements).
There are no fixed term agreements between the Group and its employees. Employment may be terminated with three months
notice by either the Group or its employees. There are no provisions for any termination payments other than for unpaid
remuneration and accrued annual leave.
Directors’ Interests in Contracts
No Director has or has had any interest in a contract entered into up to the date of this Directors’ Report with the Company or
any related entity other than as disclosed in note 17 to the financial statements.
Indemnification and Insurance of Directors and Officers
The Group has paid premiums to insure each of its Directors and Officers in office against liabilities for costs and expenses
incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Directors and
Officers of the Group, other than conduct involving a wilful breach of duty in relation to the Group.
This report is made in accordance with a resolution of the Directors.
Hamish Douglass
Chairman
Sydney
30 August 2007
16
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
MAGELLAN FINANCIAL GROUP - DIRECTORS’ REPORT
17
CORPORATE
GOVERNANCE
STATEMENT
Magellan Financial Group Limited (the “Company”) is a listed
company. The Board recognises the importance of good
corporate governance. The Company’s corporate governance
framework, policies and practices are designed to ensure the
effective management and operation of the Company, and will
remain under regular review.
The Board
The Board is responsible for the overall operation and
stewardship of the Company and is responsible for its overall
success and long-term growth and corporate governance. The
Board will act in the best interests of the Company to ensure
the business of the Company is properly managed.
Board Composition and Independence
There must be a minimum of three Directors and a maximum
of ten Directors. The Board has a majority of independent
Non-executive Directors.
The Board comprises:
periodically and its independence, and that of the individual
Directors, will be assessed as part of those reviews.
Board Charter
The Company’s corporate governance policies revolve around
a Charter the purpose of which is to:
promote high standards of corporate governance;
clarify the role and responsibilities of the Board; and
enable the Board to provide strategic guidance for the
Company and effective operational oversight.
The Charter will apply subject to applicable legal and
regulatory requirements, including duties and obligations
imposed on the directors by statute and general law. The
Board may review and amend the Charter at any time.
The Board is responsible for:
approving the appointment and removal of the Chairman
and the Company Secretary;
assessing the Company’s overall performance;
establishing committees of the Board and, in relation
to each committee appointing the members and the
Chairman, setting committee charters and delegating
authority to relevant committees;
subject to the law and the Company’s Constitution,
determining the remuneration of the Non-executive
directors (including the members of all committees of the
Board);
nominating candidates for election to the Board by
shareholders;
reporting to shareholders;
reviewing and having input into overall target portfolio
Directors with an appropriate range of skills, experience
composition;
and expertise; and
recommending to shareholders any increase or decrease
Directors who can understand and competently deal with
in the share capital of the Company;
current and emerging business issues.
issuing, allotting, granting options over, offering or
The Board currently comprises five Directors, three of whom
are Independent Non-executive Directors.
A Director must retire from office no later than the longer of
the third annual general meeting of the Company or three
years, following that Director’s last election or appointment.
An independent Non-executive Director is a Non-executive
Director who is independent of the Company and free of any
business or other relationship that could materially interfere
with, or could reasonably be perceived to materially interfere
with, the exercise of their unfettered and independent
judgment.
The Board is confident that each of the Directors will bring
skills and qualifications to the Company which will enable
them to effectively discharge their individual and collective
responsibilities as Directors of the Company.
The Board considers that the number of Directors is sufficient
to enable it to effectively discharge its responsibilities.
However, the composition of the Board will be reviewed
otherwise dealing with or disposing of unissued shares
in the capital of the Company or rights to subscribe for
or convert any security into shares in the capital of the
Company in accordance with the Company’s Constitution.
The Directors, however, will not, in the absence of
extraordinary circumstances, do so without the approval of
the Company’s shareholders obtained in general meeting,
unless such issue, allotment, grant of offer is made pro-
rata to all of the Company’s shareholders;
making calls in respect of any money unpaid on shares
and forfeiting or accepting surrender of shares in
accordance with the Company’s Constitution;
approving an appropriate debt/equity ratio limit for the
Company;
approving material funding facilities for the Company;
approving by the end of June of each year an operating
budget for the Company, for the financial year ahead;
approving the transfer or transmission of shares in
accordance with the Company’s Constitution, provided that
such power may be delegated to a share registrar;
18
MAGELLAN FINANCIAL GROUP - CORPORATE GOVERNANCE STATEMENT
approving the financial markets on which the Company’s
securities, including its shares, will be listed;
approving any notifications to the relevant exchanges for
listings, suspensions, delistings or relistings;
declaring the amount of profits available for payment
of dividends, to fix the amount of a dividend to be
recommended to shareholders, and to declare and make
arrangements for the payment of interim dividends in
accordance with the Company’s Constitution;
approving the establishment of a dividend re-investment plan;
approving the giving of guarantees and letters of comfort
by the Company;
approving any security, mortgage or other pledge given
over any of the Company’s assets or revenues;
approving the Company’s annual financial statements and
reports to shareholders;
approving the Company’s half year financial statements
and reports to shareholders;
authorising charitable contributions by the Company;
continuing the Board policy that the Company does not
make donations to any political parties;
reporting as appropriate, that the business is a going concern,
with supporting assumptions or qualifications as necessary;
on advice from the Audit & Risk Committee of the Board,
approving the Company’s accounting policies;
approving the appointment and removal of the external
auditors of the Company;
considering and, if appropriate, accepting external audit
reports, including management letters;
reviewing any recommendation from the Audit & Risk
Committee of the Board arising from internal audit reports;
reviewing reports and appraisals from the Audit & Risk
Committee of the Board on market and operational controls;
reviewing and overseeing the implementation of a Code of
Conduct;
monitoring and ensuring compliance with legal and
regulatory requirements and ethical standards and policies;
approving any material conflict of interest that the
Company or a Director may have prior to relevant
transactions being entered into.
Subject to legal or regulatory requirement and the Company’s
Constitution, the Board may delegate any of the above powers
to individual Directors, or committees of the Board. Any
such delegation shall be in compliance with the law and the
Company’s Constitution.
Non-executive Directors’ Remuneration Structure
The Non-executive Directors’ fees are in each case $20,000
per annum plus reimbursement of expenses such as
travelling expenses.
The Executive Directors, Chris Mackay and Hamish Douglass,
will not receive any fees in relation to acting as Directors of
the Company, nor will Hamish Douglass receive any fee as a
member of the Audit & Risk Committee.
Two of the Non-executive Directors are entitled to participate in
the Company’s Share Purchase Plan, but no determination of the
details of their participation was made in the reporting period.
Board Committees
The Board may from time to time establish committees to
assist it in the discharge of its responsibilities. The Board has
established the Audit & Risk Committee and the Investment
Committee.
Other committees may be established by the Board as and
when required. Membership of Board committees will be
based on the needs of the Company, relevant legislative and
other requirements and the skills and experience of individual
Directors. The Board expects that, over time, the Directors will
rotate on and off various committees. Committee members
will be appointed for a three year term of office with staggered
anniversary dates. A Nomination and Remuneration Committee
is not required given the size and nature of the Company.
Performance of all committee members will be reviewed
periodically by the Board.
monitoring and ensuring compliance with best practice
Audit & Risk Committee
corporate governance requirements;
The Audit & Risk Committee must comprise:
ensuring the risk management systems, including internal
controls, operating systems and compliance processes,
are operating efficiently and effectively;
convening meetings of shareholders (including the
annual general meeting) and exercising all other powers
relating to shareholders’ meetings given to directors in the
Company’s Constitution;
approving all resolutions being put and matters concerned
with a notice of general meeting or annual general meeting;
approving the Company’s Continuous Disclosure Policy
and monitoring compliance with this policy;
approving the establishment of overseas branch registers
of the Company;
approving any material related party transaction and any
transaction that any Director would directly benefit from; and
at least three Directors; and
a majority of Independent Directors.
The Chairman of the Audit & Risk Committee is an
Independent Non-executive Director and is not the Chairman
of the Board.
The objective of the Audit & Risk Committee is to assist the
Board to discharge its responsibilities in relation to:
effective management of financial and operational risks;
compliance with laws and regulations;
accurate management and financial reporting;
maintenance of an effective and efficient audit; and
high standards of business ethics and corporate
governance.
MAGELLAN FINANCIAL GROUP - CORPORATE GOVERNANCE STATEMENT
19
The Audit & Risk Committee will endeavour to:
maintain and improve the quality, credibility and objectivity
of the financial accountability process;
with the objective that no Director or employee will contravene
the requirements of the Corporations Act 2001, the ASX
Listing Rules or any other applicable law.
promote a culture of compliance within the Company;
ensure effective communication between the Board
and the Company’s senior financial and compliance
management;
ensure effective audit functions and communications
between the Board and the Company’s auditor;
ensure that compliance strategies and compliance
functions are effective; and
ensure that Directors are provided with financial and non-
financial information that is of high quality and relevant to
the judgments to be made by them.
Key Policies and Procedures
The Company acts in accordance with the following policies
and procedures:
Continuous Disclosure Policy
The Company is committed to complying with its continuous
disclosure obligations under the Corporations Act 2001 and
the Listing Rules and releasing relevant information to the
market and shareholders in a timely and direct manner and to
promoting investor confidence in the Company and its securities.
The Company:
as a minimum complies with its continuous disclosure
obligations under the Corporations Act 2001 and the ASX
Listing Rules;
provides shareholders and the market with timely, direct
and equal access to information issued by it; and
This is designed to protect the reputation of the Company and
to ensure that such reputation is maintained or perceived to
be maintained by persons external to the Company.
An overriding principle is that the Directors and employees
who possess non-public price sensitive information must not
deal in the Company’s securities.
Conflicts of Interest Policy
A ‘conflict of interest’ may arise where the Company makes
internal decisions that may materially impact shareholders or
other stakeholders. The Company takes conflicts seriously, as
they have the potential to impact adversely on the Company’s
business, its obligations under the law, its ethical standards
and its reputation.
The Company is committed to maintaining high moral and
business ethics and ensuring that the conduct of all of its
officers is exemplary, at all times. The Company sets itself
high standards, and has implemented policies and procedures
to achieve its aim.
The Company:
addresses and resolves conflicts of interest as necessary
precursor to the maintenance of the Company’s ethics;
wants to ensure that the quality of its business is not
compromised by conflicts of interest;
wants to ensure that adequate conflicts of interest
management procedures are in place to minimise any
adverse impact on shareholders and other stakeholders.
ensures that information which is not generally available
Related Party Transaction Policy
and which may have a material effect on the price or value
of the Company securities (price sensitive information), is
identified and appropriately considered by the Directors
and senior executives for disclosure to the market.
The Company adheres to procedures which must be followed
in relation to releasing announcements to the market and
discussions with analysts, the media or shareholders.
The Company’s market announcements will also be available
on its website (www.magellangroup.com.au) after they are
released to ASX.
Trading Policy
All Directors and employees of the Company may deal in:
the Company’s securities, which includes any shares in the
Company, debentures (including convertible notes) issued by
the Company, units of shares in the Company and options to
acquire or subscribe for shares in the Company; and
other financial products, which includes any shares,
options, derivatives (including market index derivatives),
debentures any other financial product able to be traded of
any company, trust or other organisation, local domestic
and international, in which the Company invests or
proposes to invest,
The Company has established a protocol for officers of
the Company in negotiating and entering into transactions
between the Company and related parties. This is directed at
ensuring compliance with the law and the ASX Listing Rules
when contracting with parties which are related parties of
the Company. Procedures are followed when negotiating and
entering into arrangements between the Company and related
parties, aimed at ensuring that at all times the best interests
of the Company are paramount without regard to the interests
of related parties.
Corporate Reporting
In respect of the year ending 30 June 2007 the Chairman and
Chief Financial Officer have certified to the Board that:
the financial records of the Company for the financial
period have been properly maintained in accordance with
section 286 of the Corporations Act 2001 (Act);
the financial statements and notes referred to in
paragraph 295(3)(b) of the Act for the financial period
comply with the accounting standards;
the financial statements and notes, including the
additional disclosures relating the AASB 132 Financial
Instruments: Presentation Accounting Adjustment for the
financial period give a true and fair view (as per section
297 of the Act);
20
MAGELLAN FINANCIAL GROUP - CORPORATE GOVERNANCE STATEMENT
any other matters that are prescribed by the Corporations
Regulations 2001 in relation to the financial statements
and the notes for the financial period are satisfied;
the integrity of the Company’s financial statements is
founded on a sound system of risk management and
internal compliance and control which implements the
policies adopted by the Board; and
the Company’s risk management and internal compliance
and control system is operating efficiently and effectively
in all material respects.
MAGELLAN FINANCIAL GROUP - CORPORATE GOVERNANCE STATEMENT
21
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2007
Note
3
4a
4b
Revenue
Management fee revenue
Dividend income
Interest income
Revaluation of financial assets
Net gains on sale of financial assets
Other revenue
Total revenue
Expenses
Employee benefits expense
Depreciation and amortisation
Rental expense
Audit fees
Legal and professional fees
Management fee expense
Other operating expenses
Finance costs
Total expenses
Operating (loss) / profit before income tax
Income tax benefit / (expense)
5
Net operating (loss) / profit before AASB 132
Accounting Adjustment
AASB 132 Accounting Adjustment
Net profit after AASB 132 Accounting Adjustment
Deduct net profit / (loss) attributable to minority
interests:
- Magellan Financial Group Trust
- External minority interests
Net profit / (loss) attributable to members of the
parent after AASB 132 Accounting Adjustment
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
2,568
-
1,866
-
2,493
148
7,075
5,622
36
208
121
320
1,678
1,172
-
9,157
(2,082)
937
(1,145)
4,681
3,536
471
549
-
149
203
1,928
1,686
76
4,042
-
-
-
72
113
332
711
89
1,317
2,725
(529)
2,196
-
2,196
-
(371)
-
-
1,713
-
(59)
89
1,743
-
-
-
77
130
1,678
329
-
2,214
(471)
141
(330)
4,681
4,351
-
-
-
-
105
-
4,913
226
5,244
-
-
-
45
81
298
450
-
874
4,370
(905)
(3,645)
-
3,465
-
-
2,516
2,567
4,351
3,465
1 As explained in note 2(i), the AASB 132 Accounting Adjustment arises from the requirement to recognise one element of the capital structure of the
Company as a financial liability rather than as an equity instrument and to recognise changes in fair value of this financial liability in the Income Statement.
22
MAGELLAN FINANCIAL GROUP - INCOME STATEMENT
Operating (loss) / profit attributable to stapled security
holders before AASB 132 Accounting Adjustment
represented by:
- Magellan Financial Group Limited
- Magellan Financial Group Trust
Operating (loss) / profit attributable to stapled security
holders before AASB 132 Accounting Adjustment
represented by:
- Magellan Financial Group Limited
- Magellan Financial Group Trust
Earnings per stapled security
Earnings attributable to stapled security holders after AASB
132 accounting adjustment
Basic earnings per stapled security
Diluted (loss) /earnings per security
Earnings attributable to stapled security holders before
AASB 132 accounting adjustment
Basic (loss) /earnings per stapled security
Diluted (loss) /earnings per security
Consolidated
2007
$’000
2006
$’000
Note
(2,165)
471
(1,694)
2,516
471
2,987
2,567
-
2,567
2,567
-
2,567
6
6
6
6
5.2 cents
8.5 cents
(2.6 cents)
8.5 cents
(3.0) cents
8.5 cents
(3.0) cents
8.5 cents
The Income Statement is to be read in conjunction with the accompanying notes to the Financial Statements.
MAGELLAN FINANCIAL GROUP - INCOME STATEMENT
23
BALANCE SHEET
AS AT 30 JUNE 2007
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Financial assets
Total current assets
Non-current assets
Property, plant and equipment
Financial assets
Loan to controlled entity
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Tax liabilities
Total current liabilities
Non-current liabilities
AASB132 Accounting Adjustment
Total non-current assets
Total liabilities
Net assets
24
MAGELLAN FINANCIAL GROUP - BALANCE SHEET
Consolidated
Parent
Note
2007
$’000
2006
$’000
2007
$’000
2006
$’000
8
9(a)
10
9(b)
5(d)
11
2(i)
74,408
1,982
64
405
1,638
203
22
22,349
67,515
413
5
-
1,569
226
9
-
76,859
24,212
67,933
1,804
408
24,772
-
2,594
-
-
-
10,852
32,772
27,293
-
776
1,150
1,422
-
776
27,774
11,628
35,344
28,069
104,633
35,840
103,277
29,873
5,151
-
5,151
30,033
30,033
108
675
783
-
-
1,063
-
1,063
30,033
30,033
41
675
716
-
-
35,184
783
31,096
716
69,449
35,057
72,181
29,157
Equity
Issued securities
AASB 132 Accounting Adjustment
Contributed Equity
Reserves
Retained profit
Total attributable to members of the Group
Attributable to minority interests
Total equity
Note
2(i)
13
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
103,080
(34,715)
28,613
-
103,080
(34,715)
28,163
-
68,365
28,163
68,365
28,163
(1,203)
2,287
69,449
(374)
1,348
29,137
-
5,920
(1,203)
5,019
72,181
-
(1,251)
2,245
29,157
-
69,449
35,057
72,181
29,157
The Balance Sheet is to be read in conjunction with the accompanying notes to the Financial Statements.
MAGELLAN FINANCIAL GROUP - BALANCE SHEET
25
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2007
Attributable to Equity Holders of the Group
Retained
Profits/
(Accumulated
Losses)
Financial
Assets
Revaluation
Reserve
Contributed
Equity
Total
Minority
Interests
Total
Equity
30 June 2007
$’000
$’000
$’000
$’000
$’000
$’000
Equity as at beginning of year
28,163
1,348
(374)
29,137
5,920
35,057
Net gains realised on disposal of
available for sale financial assets
Net impact of disposal of
controlling interest
Revaluation of other financial assets
Tax assets arising on revaluation of
other financial assets
Transaction costs associated with
the issue of securities (note 13)
Tax assets arising on transaction
costs associated with the issue of
securities (note 13)
Total income and expenses for the
year recognised directly in equity
Net profit for the year
Total (expense) / income for the year
Issue of securities (note 13)
ASB 132 Accounting Adjustment
Dividends and distributions paid
(note 7)
Equity issued to minority interests
Other
Total transactions with
equity holders in their capacity
as equity owners
Equity as at end of year
-
-
-
-
(1,749)
525
(1,224)
-
(1,224)
76,141
(34,715)
-
-
-
-
-
-
-
-
-
-
2,516
2,516
-
-
(1,577)
-
-
41,426
68,365
(1,577)
2,287
374
374
(700)
(326)
-
-
(6,701)
(6,701)
(1,719)
(1,719)
516
516
-
-
(1,749)
525
-
-
-
-
(1,719)
516
(1,749)
525
(829)
(2,053)
(7,401)
(9,454)
-
2,516
1,020
3,536
(829)
463
(6,381)
(5,918)
-
-
-
-
-
-
76,141
(34,715)
(1,577)
-
-
39,849
(1,203)
69,449
-
-
76,141
(34,715)
(471)
(2,048)
911
21
461
-
911
21
40,310
69,449
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial Statements.
26
MAGELLAN FINANCIAL GROUP - STATEMENT OF CHANGES IN EQUITY
Attributable to Equity Holders of the Group
Retained
Profits/
(Accumulated
Losses)
Financial
Assets
Revaluation
Reserve
Contributed
Equity
Total
Minority
Interests
Total
Equity
30 June 2006
$’000
$’000
$’000
$’000
$’000
$’000
Equity as at beginning of year
28,827
(1,219)
Acquisition of a controlling interest
Disposal of controlling interest
Revaluation of other financial assets
Tax assets arising on revaluation of
other financial assets
-
-
-
-
Tax assets arising on transaction costs
associated with the issue of stapled
securities
470
Other
Total income and expenses for the
year recognised directly in equity
Net profit / (loss) for the year
Total income / (expense) for the year
Issue of securities
Dividends and distributions paid
Buy back of stapled securities
Equity issued to minority interests
Total transactions with
equity holders in their capacity
as equity owners
Equity as at end of year
2
472
-
472
-
-
(1,136)
-
(1,136)
28,163
-
-
-
27,608
464
28,072
-
-
4,943
(476)
4,943
(476)
(534)
(534)
700
166
160
160
-
-
470
2
-
-
9
160
470
11
(374)
98
-
2,567
5,176
371
5,274
2,196
(374)
2,665
4,805
7,470
-
-
-
-
-
-
-
(1,136)
-
-
-
-
-
-
(1,136)
651
651
(1,136)
651
(485)
-
-
-
-
-
-
-
2,567
2,567
-
-
-
-
-
1,348
(374)
29,137
5,920
35,057
MAGELLAN FINANCIAL GROUP - STATEMENT OF CHANGES IN EQUITY
27
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2007
Attributable to Equity Holders of the Parent
Contributed Equity
Retained
Profits /
Accumulated
Losses)
Financial
Assets
Revaluation
Reserve)
30 June 2007
$’000
$’000
$’000
Total
Equity
$’000
Equity as at beginning of year
28,163
2,245
(1,251)
29,157
Net gains realised on disposal of
available for sale financial assets
Revaluation of other financial assets
Tax assets arising on revaluation of
other financial assets
Transaction costs associated with
the issue of securities (note 13)
Tax assets arising on transaction
costs associated with the issue of
securities (note 13)
Total income and expenses for the
year recognised directly in equity
Net profit for the year
Total (expense) / income for the year
Issue of securities (refer note 13)
AASB 132 Accounting Adjustment
Dividens and distributions paid
Total transactions with equity holders
in their capacity as equity owners
Equity as at end of year
-
-
-
(1,749)
525
(1,224)
-
(1,224)
76,141
(34,715)
-
41,426
68,365
-
-
-
-
-
-
4,351
4,351
-
-
(1,577)
(1,577)
5,019
1,251
(1,719)
516
-
-
48
-
48
-
-
-
-
(1,203)
1,251
(1,719)
516
(1,749)
525
(1,176)
4,351
3,175
76,141
(34,715)
(1,577)
39,849
72,181
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial Statements.
28
MAGELLAN FINANCIAL GROUP - STATEMENT OF CHANGES IN EQUITY
Attributable to Equity Holders of the Parent
Contributed Equity
Retained
Profits /
Accumulated
Losses)
Financial
Assets
Revaluation
Reserve)
30 June 2006
$’000
$’000
$’000
Equity as at beginning of year
28,827
(1,219)
Revaluation of other financial assets
Tax assets arising on revaluation of
other financial assets
Tax assets arising on transaction
costs associated with the issue of
stapled securities
Total income and expenses for the
year recognised directly in equity
Net profit for the year
Total income / (expense) for the year
Buyback of stapled securities
Other
Total transactions with equity holders
in their capacity as equity owners
Equity as at end of year
-
-
470
470
-
470
(1,136)
2
1,134
28,163
-
-
-
-
3,465
3,465
-
(1)
(1)
2,245
-
(1,787)
536
-
(1,251)
-
(1,251)
-
-
-
(1,251)
Total
Equity
$’000
27,608
(1,787)
536
470
(781)
3,465
2,684
(1,136)
1
(1,135)
29,157
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial Statements.
MAGELLAN FINANCIAL GROUP - STATEMENT OF CHANGES IN EQUITY
29
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2007
Consolidated
Parent
Note
2007
$’000
2006
$’000
1,686
1,460
-
25,232
(944)
-
-
(675)
(3,939)
-
291
157
47,446
(72,696)
61
-
-
(1,200)
2007
$’000
120
1,303
-
-
-
-
(1,150)
(675)
(1,115)
2006
$’000
-
116
-
28,686
(42,384)
-
-
-
(829)
12
22,820
(25,941)
(1,517)
(14,411)
11,062
(26,732)
697
(6,424)
(1,150)
-
-
(719)
(23,266)
-
-
-
-
-
-
6
-
6
29,140
(34,491)
-
-
-
-
-
-
(5,351)
-
-
-
-
-
(13)
6
-
(7)
Cash flows from operating activities
Receipt of fee income
Interest received
Dividends received
Proceeds from sale of held-for-trading
financial assets
Purchases of held-for-trading financial assets
Other income received
Loan advanced to subsidiary
Tax paid
Administration and general expenses paid
Net cash inflows / (outflows) from
operating activities
Cash flows from investing activities
Proceeds from sale of financial assets
Purchases of financial assets
Net cash inflow on acquisition of controlled entity
14
Cash attributable to minority interests on disposal
of controlled entity
Loan repayment to related party
Loans advanced
Proceeds from repayment of loans advanced
Purchase of plant and equipment
Net cash (outflows) / inflows from
investing activities
30
MAGELLAN FINANCIAL GROUP - STATEMENT OF CASH FLOWS
Cash flows from financing activities
Proceeds from issue of securities
Payment of costs on issue of securities
Repurchase of securities via Buy-Back scheme
Repayment of loans
Interest paid
Dividends and distributions paid
Net cash inflows / (outflows) from
financing activities
Net increase / (decrease) in cash and
cash equivalents
Effects of exchange rate movements
Cash and cash equivalents at the beginning of
the year
Cash and cash equivalents at the end of the year
Note
13
13
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
77,051
(1,749)
-
(13)
(22)
(2,051)
648
-
(991)
-
(588)
-
76,140
(1,749)
-
-
-
(1,577)
-
-
(991)
-
-
-
73,216
(931)
72,814
(991)
72,770
(26,866)
65,946
(15,409)
-
(3)
-
-
1,638
74,408
28,507
1,638
1,569
67,515
16,978
1,569
The Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial Statements.
MAGELLAN FINANCIAL GROUP - STATEMENT OF CASH FLOWS
31
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2007
These financial statements have been prepared under the
historical cost convention, except for financial assets, which
have been measured at fair value.
Comparative information in respect of the previous period has
been re-classified where this assists in the understanding of
the current period’s financial report.
(b) Compliance with IFRS
The financial report complies with Australian Accounting
Standards, which include Australian equivalents to
International Financial Reporting Standards (AIFRS). The
financial report also complies with International Financial
Reporting Standards (IFRS).
The preparation of the financial statements in conformity
with AIFRS requires the use of certain critical accounting
estimates and judgements, which are included below.
(c) New Standards Not Yet Adopted
Australian Accounting Standards and Interpretations that
have recently been issued or amended but are not yet effective
have not been adopted by the Group in the preparation of
this financial report. The following standards, amendments
to standards and interpretations have been identified as
those which may impact the Group in the period of initial
application.
AASB 7 Financial Instruments: Disclosures (August
2005) replaces the presentation requirements of financial
instruments in AASB 132. AASB 7 is applicable for annual
reporting periods beginning on or after 1 January 2007,
and will require additional disclosures with respect to the
Company’s financial instruments.
AASB 2005-10 Amendments to Australian Accounting
Standards (September 2005) makes consequential
amendments to AASB 132 Financial Instruments:
Disclosure and Presentation, AASB 101 Presentation of
Financial Statements, AASB 114 Segment Reporting, AASB
139 Financial Instruments: Recognition and Measurement
and AASB 1 First-time Adoption of Australia Equivalents to
International Financial Reporting Standards. AASB 2005-
10 is applicable for annual reporting periods beginning
on or after 1 January 2007 and is expected to only impact
disclosures contained within the consolidated financial
report.
AASB 8 Operating Segments has been identified as those
which may impact the Company in the period of initial
application. They are available for early adoption at 30
June 2007, but have not been applied in preparing these
financial statements. The impact of early adoption of
this standard has been to remove disclosures previously
presented under AASB 114 Segment Reporting. AASB 8 is
effective for annual reporting periods beginning on or after
1 January 2009.
AASB 101 Presentation of Financial Statements (October
2006) has deleted the Australian specific Illustrative
Financial Report Structure and reinstated the current IASB
1 guidance on Illustrative Financial Statement Structure.
The revised AASB 101 is applicable for annual reporting
periods beginning on or after 1 January 2007.
1. Corporate Information
Magellan Financial Group Limited (the “Company”) is a
company limited by shares and incorporated in Australia. The
shares of the Company are publicly traded on the Australian
Securities Exchange (ASX).
Prior to 22 March 2007, the Company was party to an
agreement to staple its shares to units in the Magellan
Financial Group Trust (the “Trust”). The shares of the
Company and the units of the Trust were jointly quoted on
the ASX. The Constitutions of the Company and the Trust
deemed that, as long as the two entities remained jointly
quoted, the number of shares in the Company and the number
of units in the Trust would be equal in number, and that the
shareholders of the Company and the unitholders in the Trust
would be identical.
On 22 March 2007, shareholders of the Company and
unitholders in the Trust voted to amend the Constitutions
of the Company and the Trust respectively to terminate
the stapling agreement. From 22 March 2007, shares in
the Company remained listed on the ASX as individual
securities and units in the Trust were de-listed. The Trust was
subsequently wound up on 29 June 2007. The net assets of the
Trust at the date of the de-stapling were nil.
The Company was previously called Pengana Hedgefunds
Ltd and the Trust was previously called Pengana Hedgefunds
Trust. The names of the Company and the Trust were changed
on 21 November 2006.
The nature of the operations and the principal activities of the
Company are described in the Directors’ Report.
2. Summary of Significant Accounting Policies
The financial report is a general purpose financial report
which has been prepared in accordance with Australian
Accounting Standards (AASBs) adopted by the Australian
Accounting Standards Board (AASB), and the Corporations Act
2001.
(a) Basis of Preparation
The principal accounting policies adopted in the preparation
of the financial report are set out below. These policies have
been consistently applied to all periods presented, unless
otherwise stated.
32
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
(d) Basis of Consolidation
The combined financial report of the Group comprises the
consolidated financial reports of the Company and the Trust
which were jointly quoted on the ASX until 22 March 2007
(refer note 1).
The Company has applied AASB 127: Consolidated and
Separate Financial Statements and AASB Interpretation
1002: Post-Date-of-Transition Stapling Arrangements in the
preparation of this financial report. The parent company in
this arrangement is the Company, which consolidates the
Trust. The results of the Trust have been included up to the
date of de-stapling. In accordance with AASB Interpretation
1002, the results of the Trust and the interests of unitholders
in the net assets and equity of the consolidated group have
been disclosed as a minority interest.
In addition to the Trust, other controlled entities included
within the consolidated financial report are:
Ownership %
Statement when the Company’s entitlement to it becomes
certain, which will usually be at the end of the period to which
the performance fee relates.
Interest Income
Interest income is recognised in the Income Statement as it
accrues, using the effective interest rate method and if not
received at balance date, is reflected in the Balance Sheet as
a receivable.
Dividend Income
Dividend income is brought to account on the applicable ex-
dividend date.
(f) Expense Recognition
Expenses are recognised in the Income Statement when a
present obligation exists (legal or constructive) as a result
of a past event that can be reliably measured. Expenses are
recognised in the Income Statement if expenditure does not
produce future economic benefits that qualify for recognition
in the Balance Sheet.
30 June 2007 30 June 2006
(g) Employee Benefits
Pengana Absolute Return
Real Estate Fund
Magellan Asset
Management Ltd
-
76.61
100
-
The Company’s controlling interest in Pengana Absolute Return
Real Estate Fund was disposed of on 3 October 2006. The
controlling interest in Magellan Asset Management Limited
(‘MAM”) was acquired on 21 November 2006. The results
of these entities have been included from the date control
was acquired and excluded from the date control ceased. All
controlled entities have a 30 June financial year end.
All inter-entity balances and transactions between entities in
the consolidated group, including unrealised profits or losses,
have been eliminated on consolidation. Accordingly policies of
the subsidiaries have been changed where necessary to ensure
consistency with those policies adopted by the parent entity.
Acquisitions have been accounted for using the purchase
method of accounting, which involves allocating the cost of
the business combination to the fair value of assets acquired
and the liabilities and contingent liabilities assumed at the
date of acquisition.
Minority equity interests in the equity and the results of the
entities that are controlled are shown as a separate item in
the consolidated financial report.
(e) Revenue Recognition
Management Fee Revenue
Base management fee revenue is recognised in the Income
Statement as it accrues based on the entitlements set out
in Investment Management Agreements and other fund
documentation.
Performance fee revenue is recognised in the Income
Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, including non-monetary
benefits and annual leave expected to be settled within 12
months of the reporting date are recognised as a current
liability in respect of employees’ services up to the reporting
date and are measured at the amounts expected to be paid
when the liabilities are settled.
Liabilities for sick leave are recognised as an expense when
the leave is taken and measured at the rates paid or payable.
Bonus Plan
Liabilities and expenses for bonuses are recognised where
contractually obliged or where there is a past practice that
has created a constructive obligation.
Long Service Leave
Liabilities for long service leave will be recognised when
employees reach a qualifying period of continuous service.
(h) Income Tax
The income tax expense or benefit for the period is the tax
payable or receivable on the current period taxable income or
loss based on the current income tax rate adjusted by changes
in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities and
their carrying amounts in the financial statements, and to
unused tax losses. Under AASB 112: Income Taxes, deferred
tax balances are determined using the Balance Sheet method
which calculates temporary differences based on the carrying
amounts of an entity’s assets and liabilities in the Balance
Sheet and their associated tax bases.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are
reduced to the extent that it is no longer probable that the
related tax benefit will be realised.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
33
(i) Financial Instruments
The Company has issued options (ASX code: MFGOA) (Initial Options) which when exercised entitle the option holder to be issued
with one new ordinary share in the Company (ASX code: MFG) and one additional option (Secondary Option) (refer note 13).
The Initial Options are regarded by AASB 132 Financial Instruments: Presentation as compound financial instruments which
comprise: (i) an option on a share; and (ii) an option on an option. The Standard regards the option on an option as a derivative
contract for the future delivery of the Company’s own shares and hence as a financial liability which is required to be measured
at fair value.
The financial liability is valued as at the dates the Initial Options were issued and this value is recognised on the Balance Sheet.
At each subsequent reporting date, gains or losses arising from changes in fair value are recognised in the Income Statement.
The financial liability components of the initial options have been measured at their theoretical fair values determined using
a Black–Scholes option pricing framework as at the relevant Initial Option issue dates. Theoretical values have been used to
determine the fair values at the relevant Initial Option issue dates as there was no market in the Initial Options until they were
listed on ASX on 17 May 2007. At balance date, the financial liability components were measured at their market fair value using
the observed market value for the Initial Options less a Black-Scholes option pricing framework value for the option on a share
component of the Initial Options ((i) above).
The following primary assumptions have been adopted in determining the fair value of financial liability components of the
Initial Options in the current financial year:
21 November 2006
First Issue date (1)
16 May 2007
Second Issue date
29 June 2007
Initial Options
Strike price
Maturity date
Interest Rate (semi-annual)
Dividend yield
Expected volatility
Secondary Options
Strike price
Maturity date
Interest Rate (semi-annual)
Dividend yield
Expected volatility
No of Initial Options on issue (millions)
Cumulative Initial Options on issue (millions)
Closing market price for Shares (MFG) (1)
Closing market price for Initial Options (MFGOA)
Theoretical value of option on a share component of MFGOA
Fair value of each Secondary Option
$1.20
$1.20
$1.20
30 June 2009
30 June 2009
30 June 2009
6.36%
0.00%
30%
6.59%
0.00%
30%
6.83%
0.00%
30%
$1.30
$1.30
$1.30
30 June 2011
30 June 2011
30 June 2011
6.27%
0.00%
30%
19.2
19.2
$2.30
-
-
$1.33
6.59%
0.00%
30%
9.1
28.3
$2.00
-
-
$1.01
6.94%
0.00%
30%
n/a
28.3
$2.20
$2.22
$1.16
$1.06
(1) The market price of the Company’s securities rose materially over the period from the announcement of the recapitalisation on
7 September 2006 (closing market price of $1.00) to 21 November 2006, being the First Issue Date.
34
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
(j) Earnings Per Share
Basic and diluted earnings per share are determined by dividing
the operating profit after income tax by the weighted number of
ordinary shares outstanding during the financial year.
(k) Cash and Cash Equivalents
Cash comprises current deposits with banks. Cash
equivalents are short-term highly liquid investments that are
readily convertible to known amounts of cash, are subject to
an insignificant risk of changes in value, and are held for the
purpose of meeting short-term cash commitments rather
than for investment or other purposes. Cash at the end of the
period, as shown in the Cash Flow Statement, is reconciled to
the related item in the Balance Sheet.
(l) Financial Assets
Fixed Term Deposits
Fixed term cash deposits (maturity less than 1 year from
balance date) are classified as current financial assets and
are designated as assets held to maturity.
Held-for-Trading Financial Assets
Short-term trading securities are classified as held-for-
trading financial assets and are carried at fair value. Gains or
losses arising from changes in fair value are recognised in the
Income Statement. All held-for-trading assets that were held
by the Group are short-term investments held by Pengana
Absolute Return Real Estate Fund, a controlled entity up until
3 October 2006.
Available-for-Sale Financial Assets
Long term investments are classified as available-for-sale
financial assets and are carried at fair value. Unrealised
changes in fair value are taken directly to an asset revaluation
reserve within equity until the asset is sold, at which time the
cumulative change in fair value previously reported in equity is
recognised in the Income Statement.
Investments in operating subsidiaries are also classified as
available-for-sale financial assets and are carried at cost
in accordance with AASB 127: Consolidated and Separate
Financial Statements.
From time to time, the Company may hold controlling
interests in unlisted unit trusts which classify their long-term
investments as ‘at fair value through profit and loss’. On
consolidation of these trusts into the results of the Group,
these long-term investments are designated are available-
for-sale financial assets to achieve consistency with long-
term investments held directly by the Company. They are
carried at fair value. Unrealised changes in fair value are
taken directly to an asset revaluation reserve within equity
until the asset is sold, at which time the cumulative change
in fair value previously reported in equity is recognised in the
Income Statement.
(m) Trade and Other Receivables
Receivables are recognised as and when they are due. They
are initially recognised at fair value and are subsequently
measured at amortised cost using the effective interest
method, less any allowance for uncollectible amounts.
Debts which are known to be uncollectible are written off. A
provision for doubtful debts is raised when there is evidence
the amount will not be collected.
(n) Property, Plant and Equipment
Property, plant and equipment are stated at historical cost
less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets as follows:
Furniture, fittings and leasehold improvements*
- over five to ten years
Computer equipment
- over two to three years
* where remaining lease term is less than five years,
leasehold improvements are depreciated over the lease term.
If the estimated recoverable amount of an asset is greater
than its carrying amount, the carrying amount will be written
down to the estimated recoverable amount.
(o) Trade and Other Payables
Trade and other payables are carried at amortised cost. They
represent liabilities for good and services received by the
Company prior to the end of the financial period that remain
unpaid at balance sheet date. They are recognised at the
point where the Company becomes obliged to make future
payments in respect of the purchase of these goods and
services.
(p) Directors’ Entitlements
Liabilities for Directors’ entitlements to fees are accrued at
nominal amounts calculated on the basis of current fee rates.
Contributions to Directors’ superannuation plans are charged
as an expense as the contributions are paid or become
payable.
(q) Contributed Equity
Ordinary shares issued by the Company and units issued by
the Trust are classified as equity. Units issued by the Trust
are separately identified as relating to minority interests in
the Statement of Changes in Equity.
Transaction costs that arise on the issue of shares are shown
in equity as a deduction, net of tax, from the proceeds from
issue of shares.
(r) Dividends
Provision is made for the amount of any dividend declared,
determined or publicly recommended by the Directors on or
before the end of the financial year but not paid at balance date.
(s) Goods and Services Tax (GST)
Revenue, expenses and assets recognised net of the amount
of any GST except when GST incurred on a purchase of goods
and services is not recoverable from the taxation authority,
in which case the GST is recognised as part of the cost of the
acquisition of the asset.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
35
3. Management Fee Revenue
MAM is appointed to act as Investment Manager for the Flagship Fund Limited (Flagship Fund).
Base Fee
A quarterly fee calculated at 0.3125% (excluding GST) of the market value of all assets less total indebtedness of Flagship Fund.
Performance Fee
An annual fee calculated as 10% (excluding GST) of the absolute dollar value of the investment performance (after deducting
the base fee), if the total annual return in the relevant annual period:
Exceeds the percentage change in the Australian Dollar MSCI for the relevant annual period and
Exceeds the Australian Government 10-year bond rate on the first day of each quarter occurring within the relevant
annual period.
No performance fee was earned for the year.
Management Fee Revenue
Base fee
Consolidated
2007
$’000
2,568
2,568
2006
$’000
-
-
4. Changes in the Fair Value of Financial Assets
The changes in fair value of financial assets recognised in the Income Statement comprise:
a) Revaluation of financial assets
- held for trading
b) Net gain on sale of financial assets
- held for trading
- available for sale
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
-
1,928
2,493
-
2,493
-
1,686
1,686
-
-
(59)
(59)
2006
$’000
-
-
4,913
4,913
36
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
5. Income Tax
a) Income tax attributable to the financial year
differs from the prima facie amount payable
on operating (losses) / profit. The difference is
reconciled as follows:
Consolidated
Parent
Note
2007
$’000
2006
$’000
2007
$’000
2006
$’000
Operating (loss) / profit before income tax expense
(2,082)
2,725
(471)
4,370
Prima facie income tax credit / (expense) on
operating loss at 30%
625
(817)
141
(1,311)
Net profits / (losses) of Magellan Financial
Group Trust
Other non-assessable income and non-
deductible expenses
Minority interests share profit of other controlled
trust – not subject to tax
i)
ii)
Deferred income tax relating to issue
transaction costs
Adjustments to prior period tax expense
Other
141
-
171
-
-
-
(494)
44
376
(259)
517
104
-
-
-
-
-
-
-
44
-
(259)
517
104
937
(529)
141
(905)
i)
The Magellan Financial Group Trust distributed all its income ($471,000) for the period ended 29 June 2007 and is not
liable to pay tax. The reconciling item reflects the nominal tax effect of these earnings, computed at 30%.
ii) This is the nominal tax effect of the minority share ($569,000) of a controlled trust that is not normally subject to tax,
calculated at 30%.
Current income tax
Deferred income tax
c) Income tax benefit / (charge) directly to equity comprises:
Current income tax
Deferred income tax arising from:-
- Revaluation of financial assets available-for-sale
- Costs associated with the issue of securities
(refer note 13)
-
937
937
-
356
525
881
(675)
146
(529)
-
160
470
630
-
141
141
-
(20)
525
505
(675)
(230)
(905)
-
536
470
1,006
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
37
d) Deferred tax as at 30 June relates to the following:
Tax losses carried forward
Costs associated with the issue of securities deductible
in future years
Revaluation of financial assets available-for-sale
Other temporary differences
Deferred tax asset
6. Earning Per Stapled Security
Consolidated
Parent
2007
$’000
1,223
527
516
328
2,594
2006
$’000
-
211
536
29
776
2007
$’000
451
527
516
(72)
1,422
2006
$’000
-
211
536
29
776
The following reflects the earnings and weighted average stapled security data used in calculation of basic and diluted earnings
per stapled security.
a) Earnings per security after AASB 132 adjustment
Basic earnings per security
Net profit attributable to stapled security holders – basic
Weighted average number of securities for basic earnings per security (‘000)
Basic earnings per stapled security
Diluted earnings per security
Consolidated
2007
$’000
2,516
57,233
2006
$’000
2,567
30,152
5.2 cents
8.5 cents
Net (loss) / profit attributable to stapled security holders – diluted
(1,694)
2,567
Weighted average number of securities for diluted earnings per security (‘000)
Diluted (loss) / earnings per stapled security
65,555
30,152
(2.6 cents)
8.5 cents
The net (loss) / profit attributable to stapled security holders on a fully diluted basis
can be reconciled to the basic net profit as follows:
Net profit attributable to stapled security holders – basic
Deduct AASB 132 accounting adjustment
Net (loss) / profit attributable to stapled security holders – diluted
2,987
(4,681)
2,567
-
1,694
2,567
38
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
Consolidated
2007
$’000
2006
$’000
The weighted average number of securities on a fully diluted basis can be reconciled to
the weighted average number of securities used to calculate basic earnings per security
as follows:
Weighted average number of securities already issued (‘000)
Weighted average number of securities on assumed exercise of Initial Options (‘000)
Weighted average number of securities on assumed exercise of Secondary Options (‘000)
57,302
30,152
4,780
3,383
-
-
Weighted average number of securities for diluted earnings per security (‘000)
65,555
30,152
b) Earnings per security before AASB 132 adjustment
Net (loss) / profit attributable to stapled security holders
Weighted average number of securities for basic earnings per security (‘000)
Diluted (loss) / earnings per stapled security
c) Further information
(1,694)
2,567
57,302
30,152
(3.0 cents)
8.5 cents
The Company has on issue 28.3m options (2006: nil) that represent potential ordinary shares. Details of the terms of these
options are included in note 13.
The AASB 132 Accounting Adjustment arises from the classification of the option embedded in the Initial Options as a
financial liability and the requirement to recognise changes in net market value of this liability in the Income Statement. This
adjustment is no longer applicable once the Initial Options have been exercised and has been reversed in the determination of
the earnings on a fully diluted basis.
For the calculation of the earnings per security before the AASB 132 Accounting Adjsutment, the effect of these options in the
calculation of earnings per share for the current reporting period is anti-dilutive. The fully diluted earnings per security is
therefore the same as the basic earnings per security. However, these options have the potential to dilute basic earnings per
security before AASB 132 Accounting Adjustment in the future. There are no other potential ordinary shares on issue (2006: nil).
The net profit attributable to stapled security holders includes the net profit of the Trust up to and including 22 March 2007
when the units of the Trust were de-stapled from the shares of the Company (refer note 1). The earnings of the Trust post de-
stapling were nil and the Trust was wound up on 29 June 2007.
7. Dividends and Distributions
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
a) Dividends and distributions declared and paid during the year
Dividends on ordinary shares (5.39c per share)
Trust distribution (1.61c per unit)
Total per stapled security / share (7c per stapled security)
1,577
471
2,048
-
-
-
1,577
-
1,577
-
-
-
No final dividend has been declared.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
39
b) Franking credit balance
Balance at 1 July 2006
Franking credits arising from tax paid in year
Franking credits on dividends paid in year
Franking account balance at 30 June 2007
Dividends paid during the year were franked at 30% (2006: nil).
8. Trade and Other Receivables
Parent
2007
$’000
2006
$’000
-
675
(673)
2
-
-
-
-
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
Trade receivables
Accrued interest
Loan to Carpe Diem Capital Pty Limited
Other
Related party receivables
- Controlled entity
- Other related parties
9. Other Financial Assets
a) Current
Held for trading - Unlisted unit trusts
Held to maturity - Cash term deposits
b) Non-current
- Listed shares
- Unlisted shares – controlled entity
- Unlisted shares – other
- Unlisted unit trusts – controlled entity
- Unlisted unit trusts – other
i)
ii)
iii)
iv)
v)
i)
i)
321
423
-
28
772
-
1,210
1,982
-
405
405
24,772
-
-
-
-
24,772
40
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
-
-
137
66
203
-
-
-
409
-
4
413
-
-
203
413
22,349
-
22,349
-
-
700
-
10,152
10,852
-
-
-
24,772
8,000
-
-
-
-
-
137
76
213
13
-
226
-
-
-
-
-
-
17,141
10,152
32,772
27,293
c) Valuation Methodologies and Material Investments
i) The fair values of unlisted unit trusts are deemed to be the redemption unit prices at balance sheet date reported by the
manager of those trusts.
Details of unlisted unit trusts that were controlled entities of the Company during the year are disclosed in note 2(d). The
holding in other unlisted trusts at 30 June 2006 of $10.2m was wholly comprised of an investment in Wallace Australia
Opportunities Fund. These units were redeemed on 30 September 2006 for consideration of $10.2m.
ii) The fair value of cash term deposits is determined on an amortised cost basis using the effective interest rate method.
iii) The fair value of listed shares are determined to be the closing bid price of shares on the last business day preceding the
balance sheet date.
The holding in listed shares at 30 June 2007 comprises wholly of shares in the Flagship Fund, an ASX listed investment
company of which MAM is the investment manager (refer note 2(d))
iv) The carrying value of shares in unlisted companies that are operating subsidiaries of the Company represent the cost of the
investment in those subsidiaries, in accordance with AASB 127 : Consolidated and Separate Financial Statements. Details of
controlled entities during the year are disclosed in note 2d.
v) Where there is no active market for shares in an entity, the directors select a valuation technique that, in their opinion, best
estimates the fair value of the asset. Possible valuation techniques include using recent arms length market transactions,
where available, referring to the fair value of another instrument that is substantially the same, discounted cash flow analysis
or an option pricing model.
The investment of $0.7m in an unlisted entity at 30 June 2006 comprised a 20% holding in PAR Management Pty Ltd by the
Trust. Fair value was determined with reference to an offer that had been received and accepted. The asset was sold for $0.7m
on 14 November 2006.
10. Property, Plant and Equipment
Consolidated
2007
2006
Leasehold
Improvements
$’000
Office
Equipment,
Fixtures and
Fittings
$’000
Leasehold
Improvements
$’000
Total
$’000
Office
Equipment,
Fixtures and
Fittings
$’000
Total
$’000
Cost at 1 July 2006
Additions
Aquisitions of controlled entity
Cost at 30 June 2007
Accumulated depreciation and
impairment losses at 1 July 2006
Depreciation charge for the year
Accumulated depreciation and
impairment losses at 30 June 2007
-
249
12
261
-
18
18
-
150
33
183
-
18
18
-
399
45
444
-
36
36
Net carrying amount at 30 June 2007
243
165
408
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
All property, plant and equipment is held by a controlled entity of the parent company. The net carrying value of property,
plant and equipment of the parent company at 30 June 2007 is $nil (2006:$nil).
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
41
11. Trade and Other Payables
Consolidated
Parent
2006
$’000
2007
$’000
2006
$’000
Trade payables
Accrued interest
Other payables
Related party receivables
- Controlled entity
- Other related parties
2007
$’000
173
3,609
559
4,341
-
810
6
69
33
108
-
-
33
142
65
240
13
810
5,151
108
1,063
12. Cash Flow Statement Reconciliation
a) Reconciliation of net profit after tax to net cash flows
from operations:
Net (loss) / profit after tax before AASB 132 Accounting Adjustment
(1,145)
2,196
(330)
3,465
Adjusted for:
(Gains) on sale of available-for-sale financial assets
(269)
-
(59)
Unrealised (gains) on financial assets held for trading
Depreciation
Profit on share buy-back
Loss on impairment of loan
Other non-cash items
Changes in assets and liabilities
(Increase) / decrease in trade debtors and other receivables
(Increase) / decrease in prepayments
(Increase) in deferred tax assets arising from operational
cash flows
Decrease in financial assets held for trading
Decrease in other assets
(Increase) in loan receivable
Increase / (decrease) in trade creditors and other payables
(Decrease) /increase in current tax liabilities
Increase / (decrease) in deferred tax assets recognised
Net cash movement on acquisition and disposal of
controlled entities
-
37
-
-
-
(954)
(15)
(937)
21,944
-
-
4,834
(675)
-
-
(25,215)
-
(145)
64
127
572
18
(776)
-
114
-
(9,144)
675
630
-
-
-
-
-
4
(188)
-
-
-
(1,150)
1,022
(675)
(141)
4,943
-
-
1
40
-
41
-
-
41
-
(19,205)
-
(145)
64
-
583
25
(776)
-
-
-
(102)
675
1,005
22,820
(25,941)
(1,517)
(14,411)
42
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
13. Contributed Equity
Contributed equity
Stapled securities - fully paid
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
68,365
-
68,365
-
-
28,163
-
28,163
68,365
28,163
68,365
28,163
On 22 March 2007 shares in the Company were de-stapled from units in the Trust (refer note 1). All securities on issue by the
Group as at 30 June 2007 were ordinary shares in the Company.
The Company has issued options (Initial Options) to subscribe in shares of the Company. The total number of Initial Options on
issue at 30 June 2007 was 28,334,066 (2006: nil). The key terms and rights attaching to the Initial Options are as follows:
- Initial Options can be exercised during any two month period following the announcement of the Company’s full year or
half year results in each year prior to the expiry date.
- Upon exercise of an Initial Option, the option holder will be issued with one new ordinary share in the Company and one
additional option (Secondary Option).
- The exercise price of the Initial Options is $1.20.
- The Initial Options expire on 30 June 2009.
The key terms of the Secondary Options are as follows:
- Secondary Options can be exercised during any two month period following the announcement of the Company’s full year
or half year results in each year prior to the expiry date.
- Upon exercise of a Secondary Option, the option holder will be issued with one new ordinary share in the Company.
- The exercise price of the Secondary Options is $1.30.
- The Secondary Options expire on 30 June 2011.
The movement during the year of Group securities on issue were as follows:
Number
Value
Stapled
Securities
Shares
Options
Total
AASB 132
Adjustment
After AASB
132 Adjustment
$’000
$’000
$’000
$’000
$’000
$’000
Balance at 1 July 2006
Placement – 24 November 2006
Issue costs (net of tax)
29,259
38,400
-
-
-
-
De-stapling – 22 March 2007
(67,659)
67,659
Entitlements and Priority Offers
– 16 May 2007
Issue costs (net of tax)
Balance at 30 June 2007
-
-
-
39,696
-
-
19,200
-
-
9,134
-
28,163
37,440
(1,033)
-
38,701
(191)
-
(25,459)
-
-
(9,256)
-
107,355
28,334
103,080
(34,715)
28,163
11,981
(1,033)
-
29,445
(191)
68,365
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
43
14. Acquisition and Disposal of Controlled Entities
a) Acquisition of MAM
On 21 November 2006, the Company acquired 100% of the share capitalof MAM
from NPH Funds, a related party of the Company. Consideration paid was $10
which represented the fair value of the net assets of MAM at the date of acquisition.
The fair values of the identifiable assets and liabilities of MAM at the
date of acquisition were as follows
Cash and cash equivalents
Trade and other receivables
Prepayments
Financial assets
Property, plant and equipment
Trade and other payables
Accurued expenses
Sub-ordinated loan from NPH Funds
Net assets
The net cash flow on acquisition was as follows:
Consideration paid
Net cash at aquisition date
Cash and cash equivalents
$
697,017
426,342
27,151
165,000
44,240
(188,868)
(20,872)
(1,150,000)
10
-
(10)
697,017
697,007
Since the date of acquisition, the Company has subscribed for an additional $8,000,000 of shares in MAM, bringing its total cost
of investment to $8,000,010.
b) Disposal of Controlling Interest in Pengana Absolute Return Real Estate Fund
On 3 October 2006, the Company disposed of its controlling interest in the Pengana Absolute Return Real Estate Fund for
$18.8m. The net assets of the fund at the date of disposal comprised financial assets held for trading. The net cash inflow
to the group arising from this disposal was $18.8m.
44
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
15. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise listed shares in the Flagship Fund, and cash accounts. On 3 July 2007,
the Company provided $15m and $5m of seed capital to the Magellan Global Fund and the Magellan Infrastructure Fund
respectively, two unlisted unit trusts of which MAM is the Responsible Entity and Investment Manager. The Company
continues to hold these investments.
Market and Foreign Currency Risk
The Group has direct exposure to market risk and foreign currency risk via its investment in the Flagship Fund, which is
traded on the ASX, and its investments in the Magellan Global Fund and Magellan Infrastructure Fund (Unlisted Funds). The
market price of the Flagship Fund shares is influenced by the fair value of the underlying investment assets it holds and by its
exposure to foreign currency fluctuations. The fair value of the interests held in the Flagship Fund and the Unlisted Funds is
directly related to the fair value of the underlying investments and foreign currency exposure of those funds.
The investments in the Flagship Fund and the Unlisted Funds (collectively the “Funds”) will be held as long term investments.
Changes in the fair value of these securities are taken to the asset revaluation reserve and thus do not affect the reported
profit of the Group.
The Group also has indirect exposure to the market and foreign currency risks of the Funds via its entitlements to receive
investment management fees and performance fees. Investment management fees are based on the asset values of the funds and
performance fees are subject to performance hurdles being met and when earned are based on the performance of the Funds.
The policies adopted by the Flagship Fund to manage its market, foreign currency and other financial risks are disclosed in
its 30 June 2007 Annual Report and the policies adopted by the Unlisted Funds to manage these risks are disclosed in their
Product Disclosure Statements dated 23 July 2007.
Credit Risk
The Group’s only significant credit risk is in relation to management and any performance fees receivable from the Funds.
Investment management fees from the Flagship Fund are payable quarterly and are due within two weeks of the end of each
quarter. Management fees from the Unlisted Funds will be payable monthly and due within two weeks of the end of each
month. Any performance fees are receivable within two weeks of year end for the Flagship Fund and within two weeks of each
half year end for the Unlisted Funds.
The ongoing ability of Funds to pay management fees to the Group is influenced by the market and foreign currency risks
described above.
The Group’s cash balances and financial assets are held with Westpac Banking Corporation Limited and National Australia
Bank Limited in operating bank accounts, at call bank accounts and term deposits maturing in less than 12 months. The
counterparty risk presented by these major banks is considered to be low.
Interest Rate Risk
The Group is exposed to interest rate risk via its cash balances, which have arisen from the capital restructure undertaken by
the Group over the past year (see note 13). It is the Group’s intended to maintain cash balances in short term, floating interest
accounts so that the Group is able to take advantage of suitable opportunities to develop the business as they arise.
The Group’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and
financial liabilities is set out below:
Liquidity Risk
The Group’s investments in the Funds are intended as long term strategic investments and there is no intention to sell any
their shares or redeem any of their units in the foreseeable future. The Group has sufficient cash reserves to finance business
operations and new business opportunities in the short to medium term.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
45
Consolidated
30 June 2007
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Prepayments
Other financial assets (i)
Non-current
Other financial assets
Financial liabilities
Current
Trade and other payables
Non-current
AASB 132 Accounting provision
Weighted
average
interest rate
%
Floating
interest rate
$’000
Non-
interest
bearing
$’000
Total
carrying
amount
$’000
6.2
-
-
6.4
-
-
-
74,408
-
-
405
-
1,982
64
-
74,408
1,982
64
405
74,813
2,046
76,859
-
-
-
24,772
24,772
5,151
5,151
30,033
30,033
(i) Other current financial assets comprise fixed term deposits provided as security for lease guarantees provided by the Group’s bank in
respect of its premises leases. These deposits mature within one year of balance sheet date. The Group is currently committed to providing
security in this form but intends to renegotiate these arrangements with its bank and/or lessors.
Parent
30 June 2007
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Prepayments
Non-current
Other financial assets
Loan to controlled entity
Financial liabilities
Current
Trade and other payables
Non-current
AASB 132 Accounting provision
46
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
6.2
67,515
-
-
-
-
-
-
-
-
67,515
-
-
-
-
-
-
413
5
418
67,515
413
5
67,933
32,772
32,772
1,150
1,150
33,922
33,922
1,063
1,063
30,033
30,033
Consolidated
30 June 2006
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Prepayments
Other financial assets
Non-current
Other financial assets
Financial liabilities
Current
Trade and other payables
Parent
30 June 2006
Financial assets
Current
Cash and cash equivalents
Trade and other receivables
Prepayments
Non-current
Trade and other receivables
Financial liabilities
Trade and other payables
Weighted
average
interest rate
%
Floating
interest rate
$’000
Non-
interest
bearing
$’000
Total
carrying
amount
$’000
4.5
6.7
-
-
-
-
4.5
6.7
-
-
1,638
137
-
-
-
66
22
1,638
203
22
22,349
22,349
1,775
22,437
24,212
-
-
1,569
137
-
1,706
-
-
10,852
10,852
108
108
-
89
9
98
1,569
226
9
1,804
27,293
27,293
41
41
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
47
16. Key Management Personnel
Key management personnel include persons and corporate entities having authority and responsibility for planning, directing and
controlling activities of the Group.
Details of Key Management Personnel
Directors
Name
Directorship
Appointed
Resigned
Hamish Douglass
Chairman and Executive Director
Chris Mackay
Deputy Chairman and Executive Director
Naomi Milgrom
Non-executive Director
Paul Lewis
Brett Cairns
Roger Davis
Non-executive Director
Non-executive Director
Non-executive Director & Chairman
Mark Beames
Non-executive Director
Dean Smorgon
Non-executive Director
Russel Pillemer
Executive Director
Damien Hatfield
Executive Director
21 November 2006
21 November 2006
20 December 2006
20 December 2006
22 January 2007
-
-
-
-
-
-
-
-
-
-
20 December 2006
21 November 2006
21 November 2006
21 November 2006
21 November 2006
In addition to the Executive Directors, the Key Management Personnel are shown below:
Executives
Name
Directorship
Nerida Campbell
Chief Financial Officer and
Chief Operating Officer
David Simpson
General Counsel and Company Secretary
Darren Barkas
Group Financial Controller
Appointed
6 July 2007
10 November 2007
23 April 2007
Resigned
-
-
-
There were no changes of Key Management Personnel after balance date and before the date that the financial report was
authorised for issue.
Compensation of Key Management Personnel
The Executive Directors have not been remunerated by the Group in relation to acting as Directors of the Group or, in the case of
Mr Douglass, as a member of the Audit and Risk Committee.
Only the Non-executive Directors of the Company were remunerated by the Company and received the following amounts during
the year:
Naomi Milgrom
Paul Lewis
Brett Cairns
Roger Davis
Mark Beames
Dean Smorgon
Short term Benefits
Primary Salary
$
Post-employment Benefits
Superannuation
$
10,477
10,000
8,333
51,253
1,274
40,973
927
-
-
2,064
37,750
1,377
Total
$
11,404
10,000
8,333
53,317
39,024
42,350
48
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
In addition to the Executive Directors, the remuneration of the Key Management Personnel is shown below:
Short Term Benefits
Salary
$
Cash Bonus
$
200,314
133,517
31,103
200,000
110,000
20,000
Post Employment
Superannuation
$
12,686
8,458
2,424
Total
$
413,000
251,975
53,527
Nerida Campbell
David Simpson
Darren Barkas
Service Agreements
Remuneration and other terms of employment for the Non-executive Directors are formalised in service agreements. The Non-
executive Directors’ service agreements have no fixed term of agreement unless the Director is not re-elected by the Shareholders of
the Company.
The Executive Directors (Mr Mackay and Mr Douglass) do not have service agreements. All other employees have service
agreements. Messrs Douglass and Mackay have a financial interest in NPH Funds which has entered into a Management Services
Agreement with the Company (details on the fees payable under the Management Services Agreement are set out in note 17).
There are no fixed term agreements between the Group and its employees. Employment may be terminated with three months notice
by either the Group or its employees. There are no provisions for any termination payments other than for unpaid remuneration and
accrued annual leave.
Equity Instrument Disclosure Relating to Key Management Personnel and Related Parties
Share Holdings
The number of ordinary shares held in the Company at balance date are:
Name
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass (i)
Chris Mackay (i) (ii)
Balance at
1 July 2006
Acquisitions
Disposals
-
-
-
-
-
6,018,000
30,000
18,661
12,645,337
20,728,698
-
-
-
-
-
Balance at
30 June 2007
6,018,000
30,000
18,661
12,645,337
20,728,698
(i) Mr Douglass and Mr Mackay are directors of NPH Funds Pty Ltd (NPH Funds). NPH Funds is 40% owned by a company controlled
by Hamish Douglass and 60% owned by New Privateer Holdings Limited (NPH) a company of which Chris Mackay is a director and
has a 36% shareholding (approximately 55% on a fully diluted basis). NPH Funds acquired during the year and owned at 30 June
2007 12,606,006 shares in the Company.
(ii) NPH acquired during the year and owned at 30 June 2007 6,696,651 shares in the Company.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
49
Option Holdings
The number of Initial Options expiring 30 June 2009 held at balance date are:
Name
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass (i)
Chris Mackay (i) (ii)
Balance at
1 July 2006
Acquisitions
Disposals
-
-
-
-
-
3,001,801
3,000
1,867
6,304,535
9,992,874
-
-
-
-
-
Balance at
30 June 2007
3,001,801
3,000
1,867
6,304,535
9,992,874
(i) Mr Douglass and Mr Mackay are directors of NPH Funds Pty Ltd (NPH Funds). NPH Funds is 40% owned by a company controlled
by Hamish Douglass and 60% owned by New Privateer Holdings Limited (NPH) a company of which Chris Mackay is a director
and has a 36% shareholding (approximately 55% on a fully diluted basis). NPH Funds acquired during the year and owned at 30
June 2007 6,300,601 Initial Options in the Company
(ii) NPH acquired during the year and owned at 30 June 2007 3,069,666 Initial Options in the Company
The key terms and rights attaching to the Initial Options are disclosed in note 13.
17. Transactions with Related Parties
a) NPH Funds Pty Limited
i) Services Fee
The Company is party to a Management Services Agreement with NPH Funds under which it engages NPH Funds to provide
strategic and management services. The directors of NPH Funds, Chris Mackay and Hamish Douglass, are also directors of the
Company and of its controlled entity, MAM.
Under the terms of this agreement, the Company pays NPH Funds a quarterly Services Fee, calculated at the rate of 0.3125%
per quarter of the market capitalisation of the Company at the end of the quarter. The market capitalisation is calculated with
reference to the average daily volume weighted price for the last 10 days of that quarter.
The Management Services Agreement commenced on 21 November 2006 and the Company has recognised an expense of
$1,412,955 in relation to the Service fee for the year ended 30 June 2007 (2006: nil). The balance owing from the Company to NPH
Funds at balance sheet date in respect of this fee was $810,100.
ii) Performance Fee
Under the terms of the Management Services Agreement, an annual performance is payable to NPH Funds if the total return to
shareholders of the Company from dividends received and share market price movements exceeds certain minimum hurdles.
The initial performance fee is payable as at 30 June 2008 if the total return to Company shareholders exceeds 10% for the period
from 21 November 2006 until 30 June 2008. Subsequent performance fees are receivable on an annual basis thereafter, subject
to the total return to shareholders for each year ending on 30 June of that year exceeding 10%.
For any period for which a performance fee is receivable, the amount of that fee will be:
- 10% of the dollar value of the total return to shareholders if that total return is greater than 10% but less than 20%.
-15% of the dollar value of the total return to shareholders if that total return is greater than 20%.
If the average of the total return to shareholders over three consecutive periods for the purposes of calculating performance fees
is less than 10%, no performance fee is receivable in respect of the third period even if the total return to shareholders for that
period individually is in excess of 10%. Similarly, no performance fee is receivable for the year ended 30 June 2009 if the average
total return to shareholders of that period and the initial period is less than 10%, even if the return for the year ending 30 June
2009 is greater than 10%.
No performance fee has crystallised during the year ended 30 June 2007 and no expense has been recognised in the Income
Statement for the year ended 30 June 2007. A contingent liability exists in respect of the performance fee that may be payable
as at 30 June 2008 in respect of the performance of the Company for the period to 30 June 2007. It is not possible to reliably
estimate the fee that may be payable at that date.
50
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
iii) Issue of Share Capital
On 20 November 2006, the Company issued 10.5m shares and 5.25m options to NPH Funds under the recapitalisation
programme. On 16 May 2007, the Company issued a further 2.1m shares and 1.0m options to NPH Funds. The shares were
offered on an arms length basis on the same terms and conditions as those available to all other eligible investors.
iv) Acquisition of MAM
On 21 November 2006, the Company acquired 100% of the share capital of MAM from NPH Funds. Consideration paid was $10
which represented the fair value of the net assets of MAM at the date of acquisition. Details of the assets acquired are shown in
note 14a.
v) Repayment of Sub-ordinated Loan
At the time of acquisition of MAM by the Company, MAM had a sub-ordinated loan from NPH Funds of $1,150,000. On 29
November 2006, the Company provided a new sub-ordinated loan facility to MAM and MAM repaid its loan from NPH Funds in full.
Total interest of $18,958 (2006: $nil) was paid by MAM to NPH Funds in respect of the loan. Interest on the sub-ordinated loan was
charged at a commercial rate.
vi) Administration Services Provided to NPH Funds
NPH Funds has engaged MAM to provide administration, secretarial and accounting services. During the year ended 30 June
2007, administration fee revenue of $50,000 has been earned (2006: nil). The balance owing from NPH Funds at 30 June 2007 in
respect of these services was $50,000 (2006: nil).
b) The Flagship Fund
MAM is appointed as the investment manager of the Flagship Fund. Under the Investment Management Agreement, MAM is entitled
to the following fees:
i) Base Fee
A quarterly fee is payable, calculated as 0.3125% of the market value of all assets held by the Flagship Fund less total debt.
The total base fees earned by MAM from the Flagship Fund for the period from 12 December 2006 (date of appointment as
investment manager) to 30 June 2007 were $2,567,900 (2006: $nil). The amount owing from the Flagship Fund to MAM at balance
sheet date was $1,151,935 (2006: $nil).
ii) Performance Fee
MAM is entitled to an annual performance fee calculated as 10% of the absolute dollar value of the investment performance of
the Flagship Fund (after deducting the base fee) provided that:
- the total annual return in that period exceeds the return of the A$ MSCI for the same period; and
- the total annual return in that period exceeds the Australian Government 10-year bond rate (measured as an average of the
10-year bond rate published in the Australian Financial Review, or similar publication, on the first day of each quarter occurring
within the relevant annual period; and
- the portfolio value less borrowings on the last day of the relevant annual period is more than that on the last day of the last
period for a which a performance fee was paid to the Company within the last three years.
No performance fee was receivable from the Flagship Fund for the initial period from 12 December 2006 to 30 June 2007 (2006: nil).
c) Magellan Asset Management Limited (MAM)
The Company has provided an interest-free sub-ordinated loan facility to its wholly owned subsidiary MAM. Under the terms of
MAM’s Australian Financial Services Licence, the loan cannot be repaid without the prior consent of the Australian Securities and
Investments Commission. The current loan agreement commenced on 29 November 2006, following the acquisition of MAM by the
Company. The amount drawn down on the facility at 30 June 2007 was $1,150,000 (2006: nil).
At balance date, there was also a balance of $13,473 payable to MAM in respect of expenses paid by MAM on behalf of the Company.
Prior to its acquisition by the Company, MAM incurred $355,943 of expenses on behalf of the Company. These were recharged at cost
to the Company.
d) Magellan Financial Group Trust (the Trust)
MAM paid expenses of $48,640 on behalf of the Trust during the year ended 30 June 2007 in its capacity as Investment Manager of
the Trust.
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
51
As part of the winding up of the Trust the Investment Manager acquired for cash the residual receivables and liabilities of the Trust.
These comprised:
Insurance premiums refundable
Other receivables
Expenses incurred, not yet invoiced
$
6,160
1,065
(2,387)
4,838
Costs anticipated to arise in respect to completing the winding up of the Trust will be borne by MAM.
e) Pengana Capital Limited
Prior to 21 November 2006, Pengana Capital Limited was the appointed Investment Manager of the Trust. Pengana received
management fees of $108,982 from the Company (2006: $297,901) in respect of the provision of these services.
During the year, entities associated with Pengana Capital Limited acquired certain assets of the Trust. All transactions between the
Trust and entities associated with the former Investment Manager were at arm’s length, and at market value on normal commercial
terms and conditions.
f) Aurora Funds Management Limited
Aurora Funds Management Limited (Aurora) was the appointed Responsible Entity of the Trust until 29 June 2007, the date on which
the Trust was wound up. In accordance with the Trust Constitution, Aurora was entitled to receive fees for the provision of services to
the Trust and to be reimbursed for certain expenditure incurred in the administration of the Trust.
Total fees paid to Aurora during the period ended 29 June 2007 were $57,291 (2006: $41,391). During the year ended 30 June 2007
Aurora incurred certain expenses on behalf of the Trust of $56,572 (2006: nil). These costs were reimbursed by the Trust.
Disclosures relating to key management personnel are set out in note 16.
18. Contingent Liabilities and Commitments for Expenditure
Capital Commitments
The directors are not aware of any capital commitments as at the date of this report.
Lease Commitments
MAM has entered into non-cancellable operating leases for its office premises at Levels 1 and 7 at 1 Castlereagh Street Sydney and
for office equipment.
Commitments for minimum lease payments in relation to
non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
2007
$’000
513
2,002
2,515
Contingent Liabilities
The Company has a contingent liability in respect of a performance fee that may be payable at as 30 June 2008. Details are provided
in note 17(a) (ii). The performance fee that would be payable as at 30 June 2008, in the event that if the Company’s 10 day average
share price for the trading period immediately prior to 30 June 2008 was $1.55 (the 10 day average share price for 23 August 2007),
is $8.9 million.
19. Segment Information
The Company operates solely from Australia. It operates in one sector, being the provision of investment management services.
52
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
20. Events Subsequent to Reporting Date
Seeding of Magellan Global Fund and Magellan Infrastructure Fund
On 3 July 2007, the Company subscribed for $15m and $5m respectively of units in the Magellan Global Fund and Magellan
Infrastructure Fund, two new unlisted investment trusts of which MAM is appointed as Responsible Entity and Investment Manager.
Management Services Agreement with NPH Funds Pty Ltd
There is a Management Services Agreement (MSA) between the Company and NPH Funds, details of which are set out in note 17 a).
NPH Funds is 40% owned by a company controlled by Hamish Douglass, the Chairman of Magellan, and 60% owned by New Privateer
Holdings Limited (NPH) an ASX listed company in which Chris Mackay, the Deputy Chairman of Magellan, has a 36% shareholding
(approximately 55% on a fully diluted basis).
Since the end of the financial year, Hamish Douglass and Chris Mackay have advised the Boards of the Company and NPH that they
do not wish to participate in any possible performance fees that may arise under the management services agreement between the
Company and NPH Funds. Messrs Douglass and Mackay will examine whether, if they do not participate in any possible performance
fees that may become payable, the arrangements, between the Company, NPH Funds, NPH and themselves can be restructured to
achieve an outcome that benefits the Company’s future development.
21.Auditor’s Remuneration
Amounts received or due and receivable by
Ernst & Young Australia for:
- an audit of the financial report for the entity and any
other entity in the consolidated group
- non audit services in relation to the entity and any
other entity in the consolidated group
Consolidated
Parent
2007
$’000
2006
$’000
2007
$’000
2006
$’000
112
9
121
72
-
72
77
-
77
45
-
45
MAGELLAN FINANCIAL GROUP - NOTES TO THE FINANCIAL STATEMENTS
53
DIRECTORS’ DECLARATION
FOR THE YEAR ENDED 30 JUNE 2007
In accordance with a resolution of the Directors of Magellan Financial Group Limited, I state that:
In the opinion of the Directors:
(a)
the financial statements, notes and the additional disclosures included in the Directors Report designated as
audited, of the company and of the consolidated entity are in with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the company and the consolidated entity as at 30 June 2007
and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and Corporations Regulations 2001; and
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable.
This declaration has been made after receiving the declarations required to be made to the directors in accordance with
section 295A of the Corporations Act 2001 for the financial year ending 30 June 2007.
On behalf of the Board
Hamish Douglass
Chairman
Sydney
30 August 2007
54
MAGELLAN FINANCIAL GROUP - DIRECTORS’ DECLARATION
MAGELLAN FINANCIAL GROUP - INDEPENDENT AUDIT REPORT
55
56 MAGELLAN FINANCIAL GROUP - INDEPENDENT AUDIT REPORT
SHAREHOLDER INFORMATION
AS AT 23 AUGUST 2007
Distribution of Shareholders
The distribution of shareholders of the Comapny as at 23 August 2007 is presented below:
Distribution Schedule
of Holdings
Number
of Holders
Number of
Ordinary Shares
Percentage
of Shares in Issue
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Total
Number of holders with less
than a marketable parcel
Twenty Largest Shareholders
1,187
1,603
615
615
61
4,081
84
792,130
4,085,668
4,436,259
15,711,147
82,329,766
107,354,970
12,201
0.74
3.81
4.13
14.64
76.68
100.00
0.01
The distribution of shareholders of the Comapny as at 23 August 2007 is presented below:
Holder Name
Cavalane Holdings Pty Ltd
NPH Funds Pty Ltd
New Privateer Holdings Limited
UBS Wealth Management Australia Nominees Pty Ltd
Nota Bene Investments Pty Ltd
Cogent Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Doulev Pty Ltd
Pakham Investments Pty Ltd
Mr David Doyle
Innisfallen Investments Pty Ltd
Forbar Custodians Limited
Christopher John Mackay
DBR Corporation Pty Ltd
Merrill Lynch (Australia) Nominees Pty Ltd
Perpetual Trustees Consolidated Limited
Darian Investments Pty Limited
Cairnton Holdings Limited
Reidco Pty Ltd
Emmanuel Capital Pty Ltd
Total shares held by the twently largest shareholders
Total shares in issue
Number of
Ordinary Shares
Percentage
of Shares in Issue
18,006,006
12,606,006
6,696,651
6,530,497
6,006,006
5,799,317
2,964,413
2,286,006
2,196,513
1,500,000
1,356,662
1,344,465
1,206,026
1,032,673
956,650
798,795
724,006
666,667
607,966
550,000
78,835,325
107,354,970
16.77
11.74
6.24
6.08
5.59
5.40
2.76
2.13
2.05
1.40
1.26
1.25
1.12
0.96
0.89
0.74
0.67
0.62
0.57
0.51
68.78
100.00
MAGELLAN FINANCIAL GROUP - SHAREHOLDER INFORMATION
57
Substantial Shareholders
The names of the substantial shareholders of the Company and their holdings as at 23 August 2007 are listed below:
Shareholder
Chris Mackay, Hamish Douglass and Associates *
Cavalane Holdings Pty Ltd (an entity controlled by
Consolidated Press Holdings Ltd)
Number of
Ordinary Shares
Percentage
of Shares in Issue
20,741,363
18,006,006
19.32
16.77
* Mr Douglass and Mr Mackay are directors of NPH Funds Pty Ltd (NPH Funds). NPH Funds is 40% owned by a company
controlled by Hamish Douglass and 60% owned by New Privateer Holdings Limited (NPH) a company of which Chris Mackay
is a director and has a 36% shareholding (approximately 55% on a fully diluted basis). NPH Funds holds 12,606,006 shares
and NPH holds 6,696,651 shares in the Company.
Voting Rights
Subject to the Company Constitution:
a) at meetings of shareholders, each shareholder is entitled to vote in person, by proxy, by attorney or by representative;
b) on a show of hands, each shareholder present in person, by proxy, by attorney or by representative is entitled to one vote; and
c) on a poll, each shareholder present in person, by proxy, by attorney or by representative is entitled to one vote for every share held
by the shareholder.
In the case of joint holdings, only one joint holder may vote.
Stock Exchange Listing
The Company’s ASX code is “MFG” for its shares and “MFGOA” for its listed options.
58 MAGELLAN FINANCIAL GROUP - SHAREHOLDER INFORMATION
CORPORATE DIRECTORY
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Company Secretary
David Simpson
Auditors
Ernst & Young
680 George Street
Sydney NSW 2000
Registered Office
Magellan Financial Group Limited
ABN 59 108 437 592
Level 1, 1 Castlereagh Street
Sydney NSW 2000
Telephone: +61 2 8114 1888
Email: info@magellangroup.com.au
Fax: +61 2 8114 1800
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