2009 ANNUAL REPORT
CONTENTS
Annual Investor Letter
Directors’ Report
Auditor’s Independence Declaration
Corporate Governance Statement
Income Statement
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
4
10
20
21
27
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75
77
ANNUAL INVESTOR LETTER
SEPTEMBER 2009
Dear Investor,
Magellan Financial Group Limited (‘Magellan’ or ‘Group’) recorded a full year net loss after tax of $12,365,000
for the year ended 30 June 2009 (2008: $6,203,000 profit).
OVERVIEW OF RESULTS
The Group’s underlying operating result, excluding significant items and unrealised mark-to-market investment
losses, was a profit after tax of $1.1 million. This compares with a corresponding underlying operating loss
after tax for the previous financial year of $1.6 million.
The Group’s reported result includes:
•
•
revenues, excluding realised and unrealised investment losses and foreign exchange losses, of $9.8 million
compared with underlying revenues of $9.6 million for the previous corresponding period;
total operating expenses of $7.7 million, compared with total operating expenses of $11.6 million for the
previous corresponding period. We had originally forecast total operating expenses for the 2009 financial
year of approximately $10 million and we revised this estimate to $7.3 million at the time of the release
of the Group’s half year results. The total operating expenses of $7.7 million for the 2009 financial year
included a non-recurring non-cash charge in respect of the Company’s share purchase plan of $0.47
million, which was incurred in the last six months;
•
non-recurring and non-cash significant items which reduced the reported result by $2.8 million after tax.
Each of these items represent accounting entries which we believe should be excluded from the results in
order to better understand the underlying operating performance of the Group. These items are:
-
-
-
an accounting profit after tax of $1.3 million for the final accounting adjustment for MFG 2009 Options
which expired on 30 June 2009;
an accounting loss after tax of $3.3 million on the deemed disposal on deconsolidation of our two
managed unit trusts; and
an accounting loss after tax of $0.8 million representing the minority unitholders’ share of the change
in value of their interests in our two managed unit trusts from 1 July 2008 up to the date of their
deconsolidation,
•
a net loss before tax of $15.3 million ($10.7 million after tax) consisting of the Group’s share of unrealised
mark-to-market losses. This includes the transfer of $14.5 million (before tax) as an impairment loss
to the Income Statement from the available for sale reserve, as required by International Accounting
Standards, where there has been a significant or prolonged decline in the market value of an investment
below its cost. As shown in the Financial Statements, the Directors note that the impairment losses are
unrealised and may reverse in future periods, but that any such reversals will be credited to the asset
revaluation reserve and not the Income Statement. The transfer of the impairment losses has no impact
on the Group’s Balance Sheet or net assets per share, as these assets are carried at their market value.
Magellan is in a strong financial position with an extremely strong Balance Sheet. At 30 June 2009:
•
•
the Group had cash of approximately $39.6 million, investment assets of approximately $45.8 million and
shareholders funds of $101.7 million; and
the Group’s NTA per share (diluted for the conversion of the Class B shares) was approximately $0.66
(2008:$0.67).
44
MAGELLAN FINANCIAL GROUP LIMITED - ANNUAL INVESTOR LETTER
The underlying revenues for 2010 and future years will depend upon the Group’s average level of funds under
management, the investment performance of the individual funds, as well as interest, dividend and fee income.
Reported revenues will also include the effect of mark-to-market accounting on the Group’s trading portfolio
and any realised gains or losses on investments.
The Group’s investment assets comprised $34.1 million in the three funds that we manage and an investment
portfolio of $11.7 million (which includes fi xed and fl oating rate debt investments of $5.4 million). As we
indicated at the time of the release of the half year results, we intend to make further investments in the funds
that we manage. Subsequent to the end of the fi nancial year, the Group acquired a further 14.3 million shares
in Magellan Flagship Fund Limited for $8.4 million.
As at 30 June 2009, the Group had invested approximately $10 million in the establishment of its funds and asset
management business. We believe that this largely covers our upfront investment in people and infrastructure.
Based on the current revenues and cost structure for this business, we do not believe we will need to make
any material additional capital commitment to this business. We continue to believe that over time Magellan is
likely to generate an acceptable return on this investment, and this business is Magellan’s focus.
MAGELLAN’S FUNDS AND ASSET MANAGEMENT BUSINESS
For the year ended 30 June 2009, the funds and asset management business generated revenues of
approximately $6.2 million (2008: $5.1 million) and had expenses of approximately $7.1 million (2008: $10.4
million), which resulted in a loss before tax of $0.9 million (2008: loss of $5.3 million). Based on current
revenues and expenses, the funds and asset management business is now profi table. The future results of the
funds and asset management business will largely depend upon Magellan’s ability to grow and retain funds
under management and achieve satisfactory risk adjusted returns for investors in our funds.
As at 18 September 2009, the Group had funds under management of approximately $500 million, split between
global equities and infrastructure equities. This compared with funds under management of $393 million at 30
June 2009, $383 million at 31 December 2008, and $336 million at 30 June 2008. The directors are comfortable
that Magellan is well placed to attract funds under management in 2010 and beyond:
•
the Magellan Global Fund has continued to build its reputation with research houses and major fi nancial
planning groups. As at 18 September 2009 the Magellan Global Fund had funds under management of
approximately $115 million, compared with $36 million at 31 December 2008.
• our infrastructure team continues to have promising discussions with a number institutional clients
and we are hopeful that these discussions will result in a number of mandates being awarded in the
2010 fi nancial year.
Magellan is establishing the foundations for a world class funds and asset management business built upon
the achievement of solid risk adjusted investment performances over time. This core business is scalable and
funds under management can grow signifi cantly without the need to add materially to the number of people
employed.
It is still very early days in the life of our business and there are no grounds for any complacency or lack of
focus. We will only succeed for the long-term through rigorous analytical processes and a disciplined focus
upon managing risks as well as returns for the investment funds entrusted to us.
At the time of establishing Magellan we stated that we were interested in investing in a limited number of fund
managers.
We have reviewed many proposals over the past 24 months. However the vast majority of these proposals
did not appear attractive and we decided to pass on these opportunities. We have actively investigated some
proposals and we remain very cautious about what we will progress. Some very detailed work was undertaken
in conjunction with UBS during the fi nancial year but we determined not to progress these opportunities. We
compare any outside investment opportunities with the opportunities inside Magellan Asset Management and
the Group’s funds and principal investments.
MAGELLAN FINANCIAL GROUP LIMITED
5
ANNUAL INVESTOR LETTER (CONTINUED)
INVESTMENTS IN MAGELLAN’S FUNDS AND PRINCIPAL INVESTMENTS
As at 30 June 2009, Magellan’s investment assets comprised $34.1 million in the three funds we manage
and an investment portfolio of $11.7 million (which includes fixed and floating rate debt investments of $5.4
million). Subsequent to the end of the financial year, we acquired a further 14.3 million shares in Magellan
Flagship Fund Limited for $8.4 million. Over time we hope to earn satisfactory returns for shareholders via the
sensible deployment of the Group’s capital, whilst maintaining capital strength to underpin the business.
In 2008/9 we deployed $5.4 million (as at 30 June 2009) in fixed and floating rate investments in Australian
Dollar bonds issues by some global companies where we were satisfied with their credit quality. These are
scheduled to mature in calendar 2010 and earn analysed yields from 5.55% to 9.67% for credit qualities that
we believe are comparable with those of the major Australian banks. These securities are liquid and we regard
them as comparable to our cash holdings, although we expect to hold them to maturity.
In early 2009 we also decided to increase our investment in equities and have done so by increasing our
investment in the funds we manage.
We consider the Group’s investments in our funds as “look through” investments in the underlying companies
which comprise the portfolios. The following table aggregates these “look through” investments with the
Group’s direct portfolio investments to show the ten largest aggregated “look through” equity investments as
at 30 June 2009.
MFG’s Ten largest Investments on a “Look Through” basis
American Express
Nestlé
Yum! Brands
Wal-Mart
eBay
PepsiCo
Google
Procter & Gamble
Coca-Cola
McDonald’s
30 June 2009
A$m
Market Price
5.2
5.1
3.9
3.9
3.3
2.4
2.1
2.0
1.7
1.7
The other listed holdings in which the group has “look through” holdings valued in excess of $1m as at 30 June
2009 market prices are Tesco Plc, Unilever and Colgate-Palmolive.
We are delighted with the quality of the investments in our funds and believe that Magellan has acquired
interests in high quality companies on terms that we regard as attractive.
Many of these businesses have extraordinary and sustainable competitive advantages. They generate strong
cash flows and returns well above their cost of capital. They have satisfactory growth profiles with market
leading positions in emerging markets, as well as leadership in most developed markets
Although economic growth and business profitability is likely to be subdued in many parts of the world, we
expect these companies to continue to demonstrate business resilience.
As at 30 June 2009, the group had cash of approximately $39.6 million in addition to the fixed and floating rate
investments mentioned earlier. We intend for Magellan to keep a very strong Balance Sheet including a high
level of liquidity and the investments in a handful of global leading, high ROE businesses.
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MAGELLAN FINANCIAL GROUP LIMITED - ANNUAL INVESTOR LETTER (CONTINUED)
We firmly believe that this conservative Balance Sheet approach has benefitted the Company, particularly
during the early stages of the funds and asset management business in the extreme markets of the last two
years. We also believe that Balance Sheet strength will be a significant future benefit.
MAGELLAN’S INVESTMENT OBJECTIVES
As our business remains young and our approach not widely known, we felt it helpful to discuss our investment
approach again this year. For those of you who read last year’s Annual Report you will see that it is virtually
identical to Hamish’s comments in that Report, and may help explain why the Magellan Global Fund managed
by Hamish is very materially outperforming the market benchmarks.
At Magellan we have two fundamental investment objectives:
•
minimise the risk of a permanent capital loss for our investors; and
•
achieve superior risk adjusted investment returns.
The concept of minimising the risk of a permanent capital loss is integral to our philosophy of how we manage
money. We believe that this central concept is different to many in the funds management industry. For many,
risk is effectively measured as the danger of falling short of the benchmark, rather than the risk of losing
capital for investors. In our view, investors in recent years have become unrealistically obsessed with chasing
returns without any real appreciation of the risk of losing their capital.
At Magellan we believe in the “prudent man rule” in managing money for our clients (and ourselves). The
“prudent man rule” was developed in the 19th century when a Massachusetts judge suggested trustees
should “observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to
speculation, but in regard to the permanent disposition of their funds, considering the probable income, as
well as the probable safety of the capital to be invested.”
In order to achieve our investment objectives, our investment philosophy is to buy a relatively concentrated
portfolio of outstanding companies from around the world, and to purchase securities in these businesses
when their share prices are attractive compared to our assessment of their underlying intrinsic value. We
believe buying a concentrated portfolio of outstanding companies at attractive prices will deliver investors
superior risk adjusted returns over a 3 to 5 year time horizon, whilst minimising the risk of permanent capital
loss.
The concept of “Margin of Safety” is central to our investment philosophy and our desire to minimize the risk of
permanent capital loss. The margin of safety is a discount to our assessment of intrinsic value that we require
before buying shares of a company. For companies of comparable quality and characterstics, the bigger the
assessed discount, the wider the margin of safety. We combine this concept with a complementary primary
filter focussed upon business quality.
INVESTMENT TEMPERAMENT
It is our strong belief that in order to achieve superior long-term investment returns, investors need to have a
detached and unemotional temperament. The past 24 months have been particularly challenging for investors
and it has been difficult to see beyond the current turmoil in world financial markets. We believe that it is very
important to be able to separate the underlying risks and economics of a business from short-term volatility
in the stock market.
John Bogle recently wrote in a paper in the Financial Analysts Journal: “Although returns earned in the stock
market are volatile and unpredictable, the returns earned by the underlying businesses in the aggregate –
which collectively represent the foundation of aggregate market capitalization – are (or have been historically)
far less volatile and predictable. Put another way, investors are more volatile than investments … emotions
and perceptions – the tides of hope, greed and fear among the participants in the financial system – govern the
short term returns generated by the markets”.
MAGELLAN FINANCIAL GROUP LIMITED
7
ANNUAL INVESTOR LETTER (CONTINUED)
We believe the market often provides us with excellent investment opportunities to buy or sell at prices
significantly different from our assessment of the intrinsic value of underlying businesses. In chapter 8 of
The Intelligent Investor, Benjamin Graham introduced the concept of “Mr Market”. Mr Market is an obliging
business partner who every day is prepared to tell you what your interest in a business is worth and is prepared
to buy or sell you an additional interest on that basis. Sometimes he quotes you very reasonable prices based
on the business prospects and developments as you know them. Often, Mr Market is unpredictable and
temperamental and quotes you ridiculously high or low prices.
Additionally Graham wrote: “Basically price fluctuations have only one significant meaning for the true investor.
They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance
a great deal. At other times he will do better if he forgets about the stock market and pays attention to his
dividend returns and to the operating results of his companies.”
We agree entirely with Messrs Bogle and Graham that for most investors the daily quotation of stock prices are
a giant distraction and can lead people to make entirely incorrect investment decisions. As Warren Buffett has
stated on numerous occasions “the market is there to serve you not instruct you”. We remain entirely focused
on analysing the underlying results and economics of businesses in which we seek to invest and virtually
ignore daily share price movements unless we are interested in making purchasing or selling decisions.
In a recent speech (June 2, 2008) to a conference of Financial Planners in Florida, John Bogle said:
“Investing to me, is all about the long-term ownership of businesses, focused on the gradual accretion in
intrinsic value that is derived from the ability of our corporations to produce the goods and services that our
consumers and savers demand, to compete effectively, to thrive on the entrepreneurship, and to capitalize on
change, adding value to our society...
Speculation is just the opposite. It represents the short-term- not long-term – holding of financial instruments,
not businesses, focused (usually) on the belief that their prices, as distinct from their intrinsic values, will
rise”.
At Magellan, we are clearly focused on the business of investing and not speculating on short-term price
movements.
Sir John Templeton, who recently died at the age of 95 was perhaps best known for saying: “Bull markets are
born on pessimism, grown on scepticism, mature on optimism and die on euphoria. The time of maximum
pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
We are very conscious that many investors have caught “falling swords” by making contrarian investment calls
simply on the basis that it must be a good time to buy when others are panicking. We generally take a very
cautious stance, and undertake extensive investment analysis, in order to seek to avoid the “falling swords”.
Our investment returns over time will depend on whether our analysis about the economics and competitive
position of a business is correct and not on short-term share price movements. Benjamin Graham stated:
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and
reasoning are right.”
We fundamentally believe that over time a business’ share price should broadly track its underlying intrinsic
value. This is what Graham was referring to when he pointed out: “in the short run the market is a voting
machine … (but) in the long term it is a weighing machine.”
88
MAGELLAN FINANCIAL GROUP LIMITED - ANNUAL INVESTOR LETTER (CONTINUED)
MARKET COMMENTARY
In last year’s Annual Report, Hamish set out some detailed market commentary which is worth reading,
particularly in light of subsequent events. We have also released detailed market updates with the Annual
Reviews of the funds and this is available from our website or from the ASX website.
In summary, we expect that ramifications from the Global Crisis will permeate for many years. Our principal
response is to refocus upon the dual disciplines of Quality and Value. Over time, companies of the highest
quality gain market share, produce strong free cashflows and demonstrate earnings resilience. If they are
purchased when their valuations are attractive, we believe that returns will be at least satisfactory when held
for the medium-term and beyond.
The Global Crisis put additional stress upon businesses, including quality businesses. This was most obvious
in financials where even very high quality institutions were dragged into the vortex of the crisis of confidence
when bankers stopped transacting and lending with each other and the inter-bank market dried up.
We sought to asses and reassess the business strengths and weaknesses of all of our investee companies
in the context of the crisis. The crisis has been an opportunity to further upgrade the quality of the portfolios
managed by Magellan on terms we regard as attractive.
There will be further market volatility. The last 12 months demonstrate the speed with which the ‘crowd’
(investors and speculators) swing to and from greed and fear. Politicians and the public will rewrite the rules
governing some industries, and protectionism will increase. Consumers, businesses, governments and central
bankers also have the extremely difficult tasks of assessing when (and how) the unprecedented stimulus should
be reduced and how to pay for it. Some significant distortions in asset markets, from artificially low interest
rates and excess liquidity, are returning.
There are also considerable debates about inflation and deflation. We seek to be prepared for both, with
investments in companies with pricing power supported by sustainable competitive advantages. We also expect
the impacts of technological change to continue to be very important for society and investors.
Thank you for your ongoing interest in Magellan and we look forward to meeting you either at the Annual
General Meeting or over the years ahead.
Yours faithfully,
Chris Mackay
Chairman
Hamish Douglass
Managing Director & CEO
MAGELLAN FINANCIAL GROUP LIMITED
9
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2009
The Directors of Magellan Financial Group Limited (the “Company”) submit their report for the Company and
its controlled entities which together form the consolidated entity (the “Group”) in respect of the year ended
30 June 2009.
DIRECTORS
Name
Chris Mackay
Hamish Douglass
Naomi Milgrom
Paul Lewis
Brett Cairns
Directorship
Chairman (appointed 27 May 2009)
and Executive Director
Managing Director and Chief Executive Officer
(resigned as Chairman 27 May 2009)
Non-executive Director
Non-executive Director
Non-executive Director
Appointed
21 November 2006
21 November 2006
20 December 2006
20 December 2006
22 January 2007
The following persons were Directors of the Company during the year and up to the date of this report unless
otherwise stated.
CORPORATE INFORMATION
The Company is limited by shares and incorporated in Australia. The shares and options of the Company that
are publicly traded on the Australian Securities Exchange (ASX) are ASX Code: MFG, MFGOB, and MFGOC. The
Company also has on issue unlisted Class B shares.
PRINCIPAL ACTIVITY
The primary business activity of the Group is funds management with the objective to offer international
investment funds to Australian and New Zealand investors.
TRADING RESULTS
The Group’s net loss after tax for the year ended 30 June 2009 was $12,365,000 (2008: $6,203,000 profit).
The Group’s underlying operating result, excluding significant items and unrealised mark to market investment
losses, was a profit after tax of $1.1 million. This compares with a corresponding underlying operating loss
after tax for the previous financial year of $1.6 million.
The Group’s reported result includes
•
•
revenues, excluding realised and unrealised investment losses and foreign exchange losses, of $9.8
million which compares to underlying revenues of $9.6 million for the previous corresponding period.
total operating expenses of $7.7 million, which compares to total operating expenses of $11.6 million
for the previous corresponding period. We had originally forecast total operating expenses for the 2009
financial year at approximately $10 million and we revised this estimate to $7.3 million at the time of the
release of the Group’s half year results. The total operating expenses of $7.7 million for the 2009 financial
year included a non-recurring non-cash charge in respect of the Company’s share purchase plan of $0.47
million, which was incurred in the last six months.
•
non-recurring and non-cash significant items which reduced the reported result by $2.8 million after tax.
Each of these items represent accounting entries which we believe should be excluded from our results in
order to better understand the underlying operating performance of the Group. These items are:
-
-
an accounting profit after tax of $1.3 million for the final accounting adjustment for MFG 2009 Options
which expired on 30 June 2009;
an accounting loss after tax of $3.3 million on the deemed disposal on deconsolidation of our two
managed unit trusts;
1010
MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ REPORT
-
an accounting loss after tax of $0.8 million representing the minority unit holders’ share of the change
in value of their interests in our two managed unit trusts from 1 July 2008 up to the date of their de-
consolidation.
•
a net loss before tax of $15.3 million ($10.7 million after tax) consisting of the Group’s share of unrealised
mark to market losses. This includes the transfer of $14.5 million (before tax) as an impairment loss to the
Income Statement from the available for sale reserve, as required by International Accounting Standards
where there has been a significant or prolonged decline in the market value of an investment below its
cost. The directors note that the impairment losses are unrealised and may reverse in future periods, but
that any such reversals will be credited to the asset revaluation reserve and not the Income Statement.
The transfer of the impairment losses has no impact on the Group’s balance sheet or net assets per share,
as these assets are carried at their market value.
Magellan is in a strong financial position with an extremely strong balance sheet. At 30 June 2009:
•
•
the Group had cash of approximately $39.6 million, investment assets of approximately $45.8 million and
shareholders funds of $101.7 million.
the Group’s NTA per share (diluted for the conversion of the Class B shares) was approximately $0.66
(2008:$0.67).
The Group’s investment assets comprised $34.1 million in the three funds that we manage and an investment
portfolio of $11.7 million (which includes fixed and floating rate debt investments of $5.4 million). As we
indicated at the time of the release of the half year results we intend to make further investments in the funds
that we manage. Subsequent to the end of the financial year the Group acquired a further 14.3 million shares
in Magellan Flagship Fund Limited for $8.4 million.
As at 30 June 2009 the Group has invested approximately $10 million in the establishment of its funds and asset
management business. As previously disclosed, we believe that this largely covers our upfront investment in
people and infrastructure. Based on the current revenues and cost structure for this business, we do not
believe we will need to make any material additional capital commitment to this business. We continue to
believe that over time Magellan is likely to generate an acceptable return on this investment, and this business
is Magellan’s focus.
For the year ended 30 June 2009 the funds and asset management business generated revenues of
approximately $6.2 million (2008: $5.1 million) and had expenses of approximately $7.1 million (2008: $10.4
million), which resulted in a loss before tax of $0.9 million (2008: loss of $5.3 million). Based on current
revenues and expenses, the funds and asset management business is now profitable. The future results of
the funds and asset management business will be largely dependent on Magellan’s ability to grow and retain
funds under management and achieve satisfactory risk adjusted returns for investors in our funds.
As at 21 August 2009, the Group had funds under management of approximately $481 million, which compared
to funds under management of $393 million at 30 June 2009, $383 million at 31 December 2008, and $336
million at 30 June 2008. The Group’s funds under management are split approximately $370 million in global
equities and $100 million in infrastructure equities. The directors are comfortable that Magellan is well placed
to attract funds under management in 2010 and beyond:
•
•
the Magellan Global Fund has continued to build its reputation with research houses and major
financial planning groups. At 21 August 2009 the Magellan Global Fund had funds under management of
approximately $98 million, which compared to $36 million at 31 December 2008.
our infrastructure team continues to have promising discussions with a number institutional clients and
we are hopeful that these discussions will result in a number of mandates being awarded in the 2010
financial year.
DIVIDENDS AND DISTRIBUTIONS
No dividends have been declared by the Directors and none have been paid or are payable during the year and
to the date of this report.
MAGELLAN FINANCIAL GROUP LIMITED
11
DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
CHANGES IN THE STATE OF AFFAIRS
There were no 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
Subsequent to the end of the financial year, the Group acquired 14,336,117 shares in Magellan Flagship Fund
Limited (ASX code: MFF) on-market for $8.4 million. As at the date of this report the Group holds 44,727,166
MFF shares or 12.49% (2008: 27,494,268 or 7.27%).
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 Group over
time by increasing the value and performance of funds under management, seeking to grow the value of the
Group’s investment portfolio 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.
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.
1212
MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ REPORT (CONTINUED)
Audit services:
Auditors of the Company and its operating subsidiaries – Ernst & Young
Audit and review of the annual financial report
Auditors of the unlisted trusts – KPMG
Audit and review of the annual financial report
Other services:
Auditors of the Company and its operating subsidiaries – Ernst & Young
Other regulatory audit services
Tax compliance
Tax advice
Auditors of the unlisted trusts - KPMG
Compliance plan audit
Tax compliance (tax returns)
Tax advice
2009
$
2008
$
151,498
112,800
26,167
177,665
14,000
126,800
10,000
8,500
15,000
10,250
44,341
5,364
93,455
9,700
-
-
10,000
43,230
39,169
102,099
AUDITORS’ INDEPENDENCE DECLARATION
A copy of the Auditors’ Independence Declaration as required under section 307C of the Corporations Act 2001
is set out on page 20.
INFORMATION ON DIRECTORS
Chris Mackay
Chairman and Executive Director
Mr Mackay has considerable experience in business management, capital allocation, risk management and
investment. Mr Mackay is a Non-executive director of Magellan Flagship Fund Limited (appointed September
2006), and a director of Consolidated Media Holdings Limited (formerly Publishing & Broadcasting Limited)
(appointed March 2006), and was previously a director of Crown Limited (appointed July 2007, resigned March
2008), and New Privateer Holdings Limited (appointed April 2006, resigned August 2007). 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.
Hamish Douglass
Managing Director and Chief Executive Officer, and member of the Audit and Risk Committee
Mr Douglass has more than 18 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 (appointed
September 2006). Mr Douglass is a member of the Australian Takeovers Panel, and a member of the Forum of
Global Young Leaders of the World Economic Forum.
MAGELLAN FINANCIAL GROUP LIMITED
13
DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
Naomi Milgrom
Non-executive Director
Ms 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 Chairman 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. 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 Chairman of PSP International 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
the Deputy Chairman of the Australian British Chamber of Commerce.
Brett Cairns
Non-executive Director and member of the Audit and Risk Committee
Mr Cairns was formerly 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 Consulting Counsel and Company Secretary. He is also the Company Secretary
and Consulting Counsel of Magellan Flagship Fund Limited and Magellan Asset Management Limited. Mr
Simpson has over 20 years of experience as a corporate lawyer. He 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, in Indonesia and Singapore.
Leo quintana
Company Secretary
Mr Quintana is the Company’s Legal Counsel and Company Secretary. He is also the Legal Counsel and Company
Secretary of Magellan Flagship Fund Limited and Magellan Asset Management Limited. Mr Quintana has 8
years experience as a corporate lawyer. He is admitted as a solicitor of the Supreme Court of New South Wales
and previously was an associate - commercial and corporate group, of Harris Friedman Hyde Page Lawyers.
1414
MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ REPORT (CONTINUED)
DIRECTORS’ MEETINGS
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30
June 2009 and attended by each Director.
Board Meetings
Audit and Risk Committee Meetings
Held
Attended
Held
Attended
Whilst a Director
Whilst a Member
4
4
4
4
4
4
4
3
4
4
n/a
7
n/a
7
7
n/a
6
n/a
7
7
Chris Mackay
Hamish Douglass
Naomi Milgrom
Paul Lewis
Brett Cairns
REMUNERATION REPORT (AUDITED)
This report outlines the director and executive remuneration arrangements of the Company and Group in
accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of
this report Key Management Personnel of the Group are defined as those persons having “authority and
responsibility for planning, directing and controlling activities of the entity”.
Remuneration of Non-executive Directors
The Board reviews and determines the remuneration of the Non-executive Directors and may utilise the services
of external advisors. The remuneration of the Non-executive Directors is not linked to the performance of the
Group.
Remuneration of Executive Directors and Key Management Personnel
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 Key
Management Personnel 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 Magellan Flagship Fund Limited,
the Magellan Global Fund and the Magellan Infrastructure Fund as appropriate.
The Directors do not consider it appropriate to assess Key Management Personnel 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 Key Management
Personnel are motivated to build investment returns for investors in the funds managed by the Group and to
build shareholder wealth over the long term.
Share Purchase Plan
The Group has put in place a Share Purchase Plan (the ‘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.
Further details of the Plan are provide in note 13 to the financial statements.
Directors’ fees
The Non-executive and Executive Directors’ base remuneration is reviewed annually.
Retirement benefits for Directors
No retirement benefits (other than superannuation) are provided to Directors.
MAGELLAN FINANCIAL GROUP LIMITED
15
DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
Details of Remuneration
The Non-executive Directors of the Company were remunerated by the Company, except where noted, and
received the following amounts during the year:
Non-executive Directors
Naomi Milgrom
Paul Lewis
Brett Cairns (2)
Short term Benefits Post-employment
Benefits
Termination
Benefits
Share based
Payment
Total
Salary
$
13,379
20,000
79,223
Cash Bonus
$
Superannuation
$
-
-
13,380
1,204
-
5,865
Under SPP(1)
$
-
71,657
$
-
-
$
14,583
91,657
83,626
71,657
253,751
(1) Share based payments represent the cost of providing interest free loans to Participants in the Share
Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan)
(2) Mr Cairns was employed as an Executive by Magellan Asset Management Limited, a controlled entity, during
the period 10 November 2008 to 22 May 2009, and received remuneration of $175,427 (inclusive of a cash
bonus of $13,380, superannuation of $5,727 and a termination payment of $83,626) in that capacity. Mr Cairns
employment costs relating to his Executive appointment were fully reimbursed by UBS Investment Bank (UBS)
under the Strategic Alliance announced on 3 October 2008.
Comparative information for the year ended 30 June 2008 is as follows:
Non-executive Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Short term Benefits
Salary
$
18,349
20,000
20,000
Post-employment
Benefits
Superannuation
$
1,651
-
-
Share based Payment
Total
Under SPP(1)
$
-
71,657
71,657
$
20,000
91,657
91,657
The Key Management Personnel of the Company, including the Executive Directors, were remunerated by
Magellan Asset Management Limited, a controlled entity, and received the following amounts during the
year:
Short term Ben-
efits
Post-employment
Benefits
Share based
Payment
Total
Key Management Personnel
(including Executive Directors)
Salary
Superannuation
Under SPP(1)
Chris Mackay
Chairman and
Executive Director
Hamish Douglass
Managing Director and
Chief Executive Officer
N Campbell
Chief Financial Officer and
Chief Operating Officer
$
236,255
$
13,745
236,255
13,745
$
-
-
$
250,000
250,000
199,255
13,745
1,823
214,823
(1) Share based payments represent the cost of providing interest free loans to Participants in the Share
Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan
1616
MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ REPORT (CONTINUED)
Comparative information for the year ended 30 June 2008 is as follows:
Key Management Personnel
(including Executive Directors)
Chris Mackay
Chairman and
Executive Director
Hamish Douglass
Managing Director and
Chief Executive Officer
N Campbell
Chief Financial Officer and
Chief Operating Officer
Short term Benefits
Post-employment
Benefits
Share based
Payment
Salary
Cash Bonus
Superannuation
Under SPP(1)
$
78,957
78,957
$
-
-
$
5,059
5,059
$
-
-
Total
$
84,016
84,016
199,871
220,000
13,129
1,031
434,031
No amounts were paid to Non-executive Directors, Executive Directors or other Key Management Personnel
during the year (2008: nil) in respect of other long-term benefits.
Service Agreements
Remuneration and other terms of employment for the Non-executive Directors are formalised in service
agreements.
Employment Agreements
The Executive Directors (Messrs Douglass and Mackay), Mr Cairns while employed in the capacity of Chief
Executive Officer of Magellan Capital Partners Pty Limited, Key Management Personnel and all other employees
are engaged under employment agreements.
The Executive Directors are employed under employment contracts with the following key terms.
The Chairman, Mr. Mackay is employed under a contract with effect from 1 March 2008 and which will continue
indefinitely until terminated. Under the terms of the contract:
•
Mr. Mackay receives fixed remuneration of $250,000 per annum, inclusive of superannuation.
•
•
•
•
Mr. Mackay is not entitled to a bonus for the financial year ending 30 June 2009. For subsequent financial
years, Mr. Mackay may receive a bonus, at the discretion of the Board.
Mr. Mackay has undertaken to the Company that for the period up to and including 1 July 2012 he will not,
within Australia and New Zealand, invest in a business of funds management other than an investment in
a Magellan entity. The restrictions will cease to apply prior to 1 July 2012, if a third party acquires control of
the company or the company terminates the employment contract. The restrictions do not apply in respect
of any investment in:
(a) shares in a company; or
(b) interests in a managed investment scheme; or
(c) other interests in an entity,
which represent less than 10% of the issued shares in that company, interests in that managed investment
scheme or other interests in that other entity respectively.
Mr. Mackay may terminate the contract at any time by giving not less than 3 months written notice to the
Company and the Company may terminate the contract by providing 12 months written notice or providing
payment in lieu of that notice.
The Company may terminate the contract at any time without notice if serious misconduct has occurred.
Where the contract is terminated for cause, the Company must pay Mr. Mackay any accrued but unpaid
amounts to which he is entitled after setting off for misfeasance for any loss suffered by the Company from
the acts which caused the termination.
MAGELLAN FINANCIAL GROUP LIMITED
17
DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
The Managing Director and Chief Executive Officer, Mr. Douglass, is employed under a contract with effect
from 1 March 2008 and which will continue indefinitely until terminated. Under the terms of the contract:
•
Mr. Douglass receives fixed remuneration of $250,000 per annum, inclusive of superannuation.
•
•
•
•
Mr. Douglass is not entitled to a bonus for the financial year ending 30 June 2009. For subsequent financial
years, Mr. Douglass may receive a bonus, at the discretion of the Board.
Mr. Douglass has undertaken to the Company that for the period up to and including 1 July 2012 he will not,
within Australia and New Zealand, invest in a business of funds management other than an investment in a
Magellan entity. The restrictions will cease to apply prior to 1 July 2012, if a third party acquires control of
the company or the company terminates the employment contract. The restrictions do not apply in respect
of any investment in:
(a) shares in a company; or
(b) interests in a managed investment scheme; or
(c) other interests in an entity,
which represent less than 10% of the issued shares in that company, interests in that managed investment
scheme or other interests in that other entity respectively.
Mr. Douglass may terminate the contract at any time by giving not less than 3 months written notice to the
Company and the Company may terminate the contract by providing 12 months written notice or providing
payment in lieu of that notice.
The Company may terminate the contract at any time without notice if serious misconduct has occurred.
Where the contract is terminated for cause, the Company must pay Mr. Douglass any accrued but unpaid
amounts to which he is entitled after setting off for misfeasance for any loss suffered by the Company from
the acts which caused the termination.
Mr. Douglass also holds MFG Class B shares which have no entitlement to receive a dividend and which convert
into MFG ordinary shares on the first business day after 21 November 2016 in accordance with a conversion
formula. Mr. Douglass’s Class B shares will convert into only one MFG ordinary share on the first business day
after 21 November 2016 if, before 1 July 2012, he ceases to be a director or employee of MFG, or a subsidiary
of MFG (other than through death or incapacity) or his employment has been terminated for cause.
Key Management Personnel and other executives have rolling contracts. The Group may terminate the
executive’s employment agreement by providing three months written notice. On termination, the executive
must repay any loan amounts outstanding in respect to shares acquired under the Share Purchase Plan in
accordance with the plan terms and conditions. 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 this report.
1818
MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ REPORT (CONTINUED)
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.
Chris Mackay
Chairman
Sydney
26 August 2009
MAGELLAN FINANCIAL GROUP LIMITED
19
AUDITOR’S INDEPENDENCE DECLARATION
2020
MAGELLAN FINANCIAL GROUP LIMITED - AUDITOR’S INDEPENDENCE DECLARATION
CORPORATE GOVERNANCE STATEMENT
Magellan Financial Group Limited (the “Company”) is a listed company whose shares are traded on the
Australian Securities Exchange (ASX). 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.
1.
THE BOARD
1.1
The Board of Directors
C. Mackay (Chairman and Executive Director)
H. Douglass (Executive Director)
N. Milgrom (Independent Non-Executive Director)
P. Lewis (Independent Non-Executive Director)
B. Cairns (Independent Non-Executive Director)
Details of each Board member’s background and attendance at Board meetings are set out in the Directors’
Report.
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.
1.2
Board Composition and Independence
There must be a minimum of three Directors and a maximum of ten Directors. The Board currently comprises
five Directors, three of whom are Independent Non-Executive Directors.
The Board comprises:
•
Directors with an appropriate range of skills, experience and expertise; and
•
Directors who can understand and competently deal with current and emerging business issues.
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 periodically and its independence,
and that of the individual Directors, will be assessed as part of those reviews.
MAGELLAN FINANCIAL GROUP LIMITED
21
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
1.3
The Role of the Board and Delegation
The corporate governance policies of the Company and its controlled entities (collectively the “Group”) 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 Group 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 Charter is available from the Company by contacting the Company Secretary.
The principal responsibilities of the Board include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
assessing the Group’s overall performance;
providing strategic advice to the Group’s senior management;
approving the appointment and removal of the Chairman, Deputy Chairman, Chief Executive Officer, Chief
Financial Officer and the Company Secretary;
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);
reporting to shareholders;
reviewing the Group’s investment activities;
approving an annual operating budget for the Group, for the financial year ahead;
approving the Company’s annual financial statements and reports to shareholders;
approving the Company’s half year financial statements and reports to shareholders;
reviewing and overseeing the implementation of a Code of Conduct;
monitoring and ensuring compliance with legal and regulatory requirements and ethical standards and
policies;
monitoring and ensuring compliance with best practice corporate governance requirements; and
ensuring the risk management systems, including internal controls, operating systems and compliance
processes, are operating efficiently and effectively.
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.
1.4
Non-executive Directors’ Remuneration Structure
For the year ended 30 June 2009 the Non-executive Directors’ fees are in each case:
•
•
•
$10,000 as a Non-executive Director of MFG;
$5,000 as a member of the Audit and Risk Committee;
$5,000 as a Director of Magellan Asset Management Limited
plus reimbursement of expenses such as travelling expenses
Two of the Non-executive Directors are Participants in the Company’s Share Purchase Plan. The terms and
conditions of the Share Purchase Plan are described in the Directors Report. Details of each Non-executive
Directors participation in the Share Purchase Plan is disclosed in the Directors Report – Remuneration
Report.
2222
MAGELLAN FINANCIAL GROUP LIMITED - CORPORATE GOVERNANCE STATEMENT (CONTINUED)
1.5
Evaluation of Performance
The Board reviews its performance in terms of the Group’s objectives and results.
The Group’s Chief Executive Officer reviews the performance of the Group’s senior management team. The Chief
Executive Officer sets performance objectives for each senior management team member at the beginning of
each financial year. Performance reviews of each senior management team member are carried out against
their objectives with input from appropriate stakeholders.
1.6
Access to Information and Independent advice
Directors have access to any information they consider necessary to fulfil their responsibilities and to exercise
independent judgment when making decisions.
Directors may obtain independent professional advice at the Company’s expense, subject to making a request
to, and obtaining the prior authorisation of, the Chairman of the Board. Where the Chairman of the Board
wishes to obtain independent professional advice, the Chairman is required to make a request to, and obtain
the prior authorisation of, the Chairman of the Audit and Risk Committee of the Board.
2
BOARD COMMITTEES
The Board may from time to time establish committees to assist it in the discharge of its responsibilities. To
date, the Board has only found a need to establish the Audit & Risk 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 Company does not have a Nomination Committee. This represents
a departure from Recommendations 1.2 and 1.3 of the ASX Principles as 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.
Audit & Risk Committee
The Audit and Risk Committee is comprised of:
P. Lewis (Chairman and Independent Non-Executive Director)
B. Cairns (Independent Non-Executive Director)
H. Douglass (Executive Director)
Details of each Committee member’s background and attendance at Audit and Risk Committee Meetings are
set out in the Directors’ Report.
The Chairman of the Audit and Risk Committee is an Independent Non-executive Director and is not the
Chairman of the Board.
The objective of the Audit and 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.
These objectives form the foundation of the Audit and Risk Committee’s Charter. A copy of this Charter is
available from the Company by contacting the Company Secretary.
MAGELLAN FINANCIAL GROUP LIMITED
23
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
The Audit and Risk Committee will endeavour to:
•
•
•
•
•
•
maintain and improve the quality, credibility and objectivity of the financial accountability process;
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.
3.
ETHICAL CONDUCT
The Group’s operating company, Magellan Asset Management Limited, has a Corporate Code of Conduct (the
“Code”) that applies to Directors and employees. The purpose of this Code is to:
•
•
•
•
articulate the high standards of honest, ethical and law-abiding behaviour that is expected of Directors
and employees;
encourage the observance of those standards so as to protect and promote the interests of shareholders
and other stakeholders;
guide Directors and employees as to the practices thought necessary to maintain confidence in the Group’s
integrity; and
set out the responsibilities and accountabilities of Directors and employees to report and investigate
reports of unethical practices.
A copy of the Corporate Code of Conduct is available from the Company by contacting the Company
Secretary.
4.
MARKET DISCLOSURE
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’s Continuous Disclosure Policy is designed to ensure that 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
ensures that information which is not generally available 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 Policy, which is available from the Company by contacting the Company Secretary, also sets out 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 after they are released to ASX.
2424
MAGELLAN FINANCIAL GROUP LIMITED - CORPORATE GOVERNANCE STATEMENT (CONTINUED)
5.
SHAREHOLDER COMMUNICATIONS
The Board is committed to ensuring that shareholders are fully informed of material matters that affect the
Company’s position and prospects. It seeks to accomplish this through a strategy which includes:
•
•
•
•
•
the Half Year Results released in February each year;
the Full Year Results released in August each year;
the Annual Report released in September each year;
the Chairman’s address to the Annual General Meeting; and
the posting of significant information on the Company’s website as soon as it is disclosed to the market.
The Company holds its Annual General Meeting in October and a copy of the notice of Annual General Meeting
is posted on the Company’s website and mailed to shareholders. The Board invites shareholders to attend the
Annual General Meeting or to appoint a proxy to vote on their behalf if they are unable to attend. The formal
addresses at the Annual General Meeting are disclosed to the market.
The Company’s external auditor will be invited to attend any annual meeting and will be available to answer
questions about the conduct of the audit and the preparation and contents of the auditor’s report.
6.
SHARE TRADING BY DIRECTORS AND EMPLOYEES
The Group’s Trading Policy sets out the circumstances in which Directors and employees of the Group may
deal in:
•
•
the Company’s securities, which includes any shares in the Company, debentures (including convertible
notes) issued by 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, or 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,
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.
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.
A copy of the Trading Policy is available from the Company by contacting the Company Secretary.
7.
RISK MANAGEMENT
The Board, through the Audit and Risk Committee, is responsible for ensuring that:
•
•
•
there are adequate policies for the oversight and management of material business risks to the Group;
there are effective systems in place to identify, assess, monitor and manage the risks of the Group and to
identify material changes to the Group’s risk profile; and
arrangements are adequate for monitoring compliance with laws and regulations applicable to the
Group.
Risks managed include:
•
•
•
•
•
implementing strategies (strategic risk);
operations or external events (operational risk);
legal and regulatory compliance (legal risk);
changes in community expectation of corporate behaviour (reputation risk); and
being unable to fund operations or convert assets into cash (liquidity risk).
MAGELLAN FINANCIAL GROUP LIMITED
25
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
The Company has implemented risk management and compliance frameworks. These frameworks ensure
that:
•
•
•
•
•
emphasis is placed on maintaining a strong control environment;
accountability and delegations of authority are clearly identified;
risk profiles are in place and regularly reviewed and updated;
timely and accurate reporting is provided to Management and respective Committees; and
compliance with the law, contractual obligations and internal policies (including business rules of conduct)
is communicated and demonstrated
The Group’s senior management reports periodically to the Audit and Risk Committee on the effectiveness of
its risk management and compliance frameworks.
8.
CORPORATE REPORTING
In respect of the year ending 30 June 2009 the Chief Executive Officer 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 for the financial period give a true and fair view (as per section 297 of
the Act);
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.
9.
REMUNERATION
It is an objective of the Group to attract and maintain talented and motivated Directors and employees so as to
encourage enhanced performance and to pursue the long-term growth and success of the Group.
The Board determines the remuneration of the non-executive directors (including the members of all
committees of the Board). Details of Board and executive remuneration are set out in the Remuneration
Report which forms part of the Directors’ Report.
The Company does not have a remuneration committee or has not disclosed a remuneration committee charter
and this is a departure from ASX Recommendation 8.1 and 8.3. Given the size of the Company and its Board,
a separate committee is not considered appropriate.
2626
MAGELLAN FINANCIAL GROUP LIMITED - CORPORATE GOVERNANCE STATEMENT (CONTINUED)
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2009
Revenue
Management fee revenue
Interest income
Dividend and distribution income
Changes in the fair value of
financial assets
Net (losses) / gains on disposal of return
available for sale financial assets
Foreign exchange (losses) / gains
Other revenue
Total revenue
Expenses
Employee benefits expense
Depreciation and amortisation
Occupancy expense
Audit fees
Legal and professional fees
Fund administration expenses
Marketing expense
Management fee expense
Other operating expenses
Total expenses
Share of income from associate entity
Finance cost
- external unitholders’ share of net profit
Operating (loss) / profit before
significant items and income tax
Income tax benefit / (expense)
Net operating (loss) / profit before
significant items
Note
3 a)
Consolidated
Parent
2009
$’000
4,017
2,947
794
2008
$’000
4,261
4,219
630
2009
$’000
-
2,455
797
2008
$’000
-
3,042
544
4 a)
(15,331)
(3,372)
(16,714)
(1,821)
4 b)
(137)
3 b)
(231)
2,000
(5,941)
247
36
508
(547)
(342)
1
218
(20)
(23)
6,529
(14,350)
1,940
5,519
8,445
763
391
154
342
198
80
251
260
-
902
7,706
272
78
514
147
148
137
322
606
1,216
11,613
-
(484)
(296)
-
-
123
21
-
-
-
168
1,075
-
-
-
-
86
30
-
-
597
197
1,301
-
-
(13,859)
(5,380)
(15,425)
639
5 a)
4,254
1,182
4,905
(266)
(9,605)
(4,198)
(10,520)
373
MAGELLAN FINANCIAL GROUP LIMITED
27
INCOME STATEMENT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
Consolidated
Parent
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Significant Items
Finance cost – revaluation of
external unit holders’ units in unlisted funds
Deemed loss to parent on loss of control of unlisted funds
Write down of Goodwill
Write down of carrying value of controlled entities
AASB 132 Accounting Adjustment
19
20
11
18
(769)
2,495
(4,118)
-
(18,644)
-
-
-
-
-
-
-
-
-
-
(20,084)
1,327
26,550
1,327
26,550
Income tax expense on significant items
5 a)
800
-
-
-
Net profit / (loss) attributable to
members of the parent
(12,365)
6,203
(29,277)
26,923
Earnings per share
Earnings attributable to shares
Basic (loss)/ earnings per share
Diluted (loss)/earnings per share
Consolidated
2009
$’000
2008
$’000
6
6
(8.5 cents)
5.0 cents
(8.5 cents)
(15.7 cents)
The Income Statement is to be read in conjunction with the accompanying notes to the Financial Statements.
2828
MAGELLAN FINANCIAL GROUP LIMITED - INCOME STATEMENT (CONTINUED)
BALANCE SHEET
AS AT 30 JUNE 2009
Assets
Current assets
Cash and cash equivalents
Financial assets
Trade and other receivables
Loans - share purchase plan (SPP)
Prepayments
Total current assets
Non-current assets
Investment in associate
Investments in controlled entities
Financial assets
Deferred tax asset
Loans - share purchase plan (SPP)
Loan to controlled entity
Property, plant and equipment
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
External unitholders’ interests
in controlled trusts
AASB 132 Accounting Adjustment
Tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Contributed equity
Available for sale reserve
Retained profit
Total attributable to members of the Group
Total equity
Consolidated
Parent
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
8
39,622
53,363
35,969
33,288
12 a)
9
13
3,316
2,310
-
223
3,200
1,248
203
241
3,075
1,093
-
140
1,978
1,006
203
17
45,471
58,255
40,277
36,492
10
11
15,441
-
-
-
15,441
-
12,539
76,916
12 b)
27,054
47,367
27,054
25,651
5 d)
13
22 b)
14
9,874
4,217
-
359
8,740
3,840
-
511
9,826
4,217
1,150
-
8,300
3,840
1,150
-
56,945
60,458
70,227
115,857
102,416
118,713
110,504
152,349
15 a)
707
18
-
-
-
4,745
10,731
1,327
43
124
20,565
-
-
-
-
1,327
-
707
16,846
124
21,892
15 b)
-
-
2,569
2,569
2,772
2,772
707
16,846
2,693
24,664
101,709
101,867
107,811
127,685
17
107,692
106,757
108,067
107,132
(2,108)
(13,380)
(2,921)
(11,389)
(3,875)
8,490
2,665
31,942
101,709
101,867
107,811
127,685
101,709
101,867
107,811
127,685
The Balance Sheet is to be read in conjunction with the accompanying notes to the Financial Statements.
MAGELLAN FINANCIAL GROUP LIMITED
29
STATEMENT OF CHANGES IN EqUITY
FOR THE YEAR ENDED 30 JUNE 2009
Equity as at beginning of year
Net loss realised on disposal of
available for sale financial assets
Impairment loss on
available for sale financial assets
Net impact of deemed disposal of
controlling interests in unlisted funds
Revaluation of
available for sale financial assets
Share of revaluation of
available for sale financial assets of associate
Income tax on items taken
directly to or transferred from equity
Total income and expenses for
the year recognised directly in equity
Net loss for year
Total (expense) / income for year
Issue of securities:
- under share purchase plan (SPP)
SPP expense for the period
Total transactions with
equity holders in their capacity
as equity owners
Equity as at end of year
Attributable to Equity Holders of the Group
Contributed
Equity
Retained Profits
/ (Accumulated
Losses)
Available
for Sale
Reserve
Total
$’000
106,757
$’000
$’000
$’000
8,490
(13,380)
101,867
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
137
137
14,478
14,478
4,084
4,084
(2,178)
(2,178)
(1,290)
(1,290)
(3,959)
(3,959)
11,272
11,272
(12,365)
-
(12,365)
(12,365)
11,272
(1,093)
209
726
935
107,692
-
-
-
-
-
-
209
726
935
(3,875)
(2,108)
101,709
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
3030
MAGELLAN FINANCIAL GROUP LIMITED - STATEMENT OF CHANGES IN EQUITY
Equity as at beginning of year
Net gains realised on disposal of
available for sale financial assets
Impairment loss on
available for sale financial asset
Revaluation of
available for sale financial assets
Transaction costs associated with
the issue of securities
Income tax on items taken
directly to or transferred from equity
Total income and expenses for
the year recognised directly in equity
Net profit for year
Total (expense) / income for year
Issue of securities:
- as consideration for acquisition of controlled entities
- under employee share scheme (SPP)
- on exercise of MFG 2009 Options
SPP expense for the period
Buyback and cancellation of shares and options
held by controlled entities
AASB 132 Adjustment:
- on cancellation of MFG 2009 Options
- on exercise of MFG 2009 Options
Total transactions with equity holders
in their capacity as equity owners
Equity as at end of year
Attributable to Equity Holders of the Group
Contributed
Equity
Retained Profits
/ (Accumulated
Losses)
Available
for Sale
Reserve
Total
$’000
68,365
$’000
2,287
$’000
$’000
(1,203)
69,449
-
-
(123)
36
(87)
(87)
47,610
6,347
8
335
(17,978)
2,155
2
38,479
106,757
(194)
(194)
2,244
2,244
(18,613)
(18,613)
-
(123)
4,386
4,422
(12,177)
(12,264)
-
-
-
-
-
6,203
-
6,203
6,203
(12,177)
(6,061)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,610
6,347
8
335
(17,978)
2,155
2
38,479
8,490
(13,380)
101,867
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
MAGELLAN FINANCIAL GROUP LIMITED
31
STATEMENT OF CHANGES IN EqUITY (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
Equity as at beginning of year
Net loss realised on disposal of
available for sale financial assets
Impairment loss on
available for sale financial assets
Revaluation of
available for sale financial assets
Income tax on items taken
directly to or transferred from equity
Total income and expenses for
the year recognised directly in equity
Net loss for year
Total (expense) / income for year
Issue of securities:
- under share purchase plan (SPP)
SPP expense for the period
Total transactions with
equity holders in their capacity
as equity owners
Equity as at end of year
Attributable to Equity Holders of the Parent
Contributed
Equity
Retained Profits
/ (Accumulated
Losses)
Available
for Sale
Reserve
Total
$’000
107,132
$’000
$’000
$’000
31,942
(11,389)
127,685
-
-
-
-
-
-
209
726
935
108,067
-
-
-
-
-
(29,277)
(29,277)
-
-
-
547
547
15,977
15,977
(4,467)
(4,467)
(3,589)
(3,589)
8,468
8,468
-
(29,277)
8,468
(20,809)
-
-
-
209
726
935
2,665
(2,921)
107,811
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
3232
MAGELLAN FINANCIAL GROUP LIMITED - STATEMENT OF CHANGES IN EQUITY (CONTINUED)
Equity as at beginning of year
Net loss realised on disposal of available for sale financial as-
sets
Impairment loss on
available for sale financial assets
Revaluation of
available for sale financial assets
Transaction costs associated with
the issue of securities
Income tax on items taken
directly to or transferred from equity
Total income and expensesfor
the year recognised directly in equity
Net profit for year
Total income / (expense) for year
Issue of securities
- as consideration for acquisition of controlled entities
- under share purchase plan (SPP)
- on exercise of MFG 2009 Options
SPP expense for the period
Buyback and cancellation of shares and options
held by controlled entities
AASB 132 Adjustment
- on cancellation of MFG 2009 Options
- on exercise of MFG 2009 Options
Total transactions with equity holders
in their capacity as equity owners
Equity as at end of year
Attributable to Equity Holders of the Parent
Contributed
Equity
Retained Profits
/ (Accumulated
Losses)
Available
for Sale
Reserve
Total
$’000
68,365
$’000
5,019
$’000
$’000
(1,203)
72,181
-
-
-
(123)
36
(87)
-
(87)
47,610
6,347
8
335
(17,603)
2,155
2
38,854
107,132
-
-
-
-
-
-
144
144
1,626
1,626
(16,289)
(16,289)
-
(123)
4,333
4,369
(10,186)
(10,273)
26,923
-
26,923
(10,186)
26,923
16,650
-
-
-
-
-
-
-
-
-
-
-
-
-
47,610
6,347
8
335
(17,603)
2,155
2
38,854
31,942
(11,389)
127,685
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
MAGELLAN FINANCIAL GROUP LIMITED
33
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2009
Cash flows from operating activities
Receipt of fee income
Interest received
Proceeds from sale of held-for-trading financial assets
Purchases of held-for-trading financial assets
Other revenue received
Dividends received
Tax paid
Consolidated
Parent
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4,085
2,737
1,777
(263)
1,293
475
(30)
4,585
4,311
998
-
455
392
(440)
-
2,248
1,466
(263)
-
140
-
-
3,201
-
-
(43)
37
-
Payments to suppliers and employees
(9,810)
(12,050)
(324)
(1,830)
Net cash inflows / (outflows) from operating activities
Cash flows from investing activities
Proceeds from sale of available for sale financial assets
Purchases of available for sale financial assets
Interest received on fixed and floating rate securities
Loan advanced to controlled entity
Purchases of shares and units in controlled entities
Transaction costs paid in acquiring controlled entities
Net cash inflow on acquisition of controlled entity
Cash outflow on loss of control of unlisted trusts
Net cash flows from foreign exchange contracts
Proceeds from sale of plant and equipment
Purchase of plant and equipment
Net cash (outflows)/ inflows from investing activities
Cash flows from financing activities
Proceeds from issue of securities and units
Payments for redemption of units
Borrowings from controlled entities
Payment of costs on issue of securities
Repayment of loans
Interest paid
Distributions paid by controlled unlisted trusts
16
264
(1,749)
3,267
1,365
7,951
4,971
2,878
2,168
(14,692)
(38,818)
(9,215)
(9,488)
25
-
-
-
-
(9,343)
(1,162)
-
(2)
-
-
-
(770)
7,003
-
99
325
(244)
25
-
-
-
-
-
-
(138)
-
-
(7,246)
(24,500)
(770)
-
-
-
-
-
(17,223)
(27,434)
(6,450)
(39,836)
17
4,770
16,718
(1,978)
(1,382)
66
-
17
-
-
-
-
(247)
-
6,001
(123)
(7,000)
(56)
-
-
-
-
-
2,064
-
2,304
(123)
-
(1)
-
Net cash inflows / (outflows) from financing activities
2,545
8,157
6,067
4,244
Net increase / (decrease) in cash and cash equivalents
Effects of exchange rate movements
Cash and cash equivalents at the beginning of the year
(14,414)
(21,026)
2,884
(34,227)
673
(19)
(204)
-
53,363
74,408
33,288
67,515
Cash and cash equivalents at the end of the year
8
39,622
53,363
35,968
33,288
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
3434
MAGELLAN FINANCIAL GROUP LIMITED - STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2009
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).
The nature of the operations and the principal activities of the Company and its controlled entities (the “Group”)
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
the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board.
(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.
These financial statements have been prepared under the historical cost convention, except for financial assets
and certain financial liabilities, 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.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand
dollars ($000) unless otherwise stated.
(b) Compliance with IFRS
The financial report complies with Australian Accounting Standards (AAS) and International Financial Reporting
Standards (IFRS).
The preparation of the financial statements in conformity with AAS and IFRS requires the use of certain critical
accounting estimates and judgements, which are included below.
(c) New Accounting Standards
(i) 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.
•
Revised
AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian
Accounting Standards arising from AASB 101 is applicable to annual reporting period beginning on or after
1 January 2009. The Group has not adopted this standard early. It requires the presentation of a statement
of comprehensive income and makes changes to the statement of changes in equity but will not affect any
of the amounts recognised in the financial statements. If the Group makes a prior period adjustment or
re-classifies items in the financial statement, it will need to disclose a third balance sheet (statement of
financial position), this one being at the beginning of the comparative period.
(ii) New Standards Adopted Early
AASB 8 Operating Segments is mandatory for accounting periods starting on or after 1 January 2009 but
is available for early adoption. The Group has elected to early adopt this standard and has applied it in the
preparation of this financial report.
MAGELLAN FINANCIAL GROUP LIMITED
35
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
AASB 8 replaces AASB 114 Segment Reporting and adopts a management reporting approach to segment
reporting. The impact is to provide additional information to investors, that was not previously required.
(d) Basis of Consolidation
The financial report of the Group comprises the consolidated financial reports of the Company and its controlled
entities:
Ownership %
30 June 2009
30 June 2008
100.0
ø
µ
100.0
100.0
100.0
56.2
75.2
100.0
100.0
Magellan Asset Management Ltd^
Magellan Global Fund
Magellan Infrastructure Fund
New Privateer Holdings Pty Ltd*
Magellan Capital Partners Pty Ltd**
^ became a public company on 27 March 2007
* became a proprietary company on 29 May 2008
** formerly NPH Funds Pty Ltd
ø ceased to be a controlled entity on 4 December 2008
µ ceased to be a controlled entity on 22 October 2008
The controlling interest in New Privateer Holdings Pty Ltd (‘New Privateer’) and Magellan Capital Partners Pty
Ltd (formerly NPH Funds Pty Ltd) (‘MCP’) was acquired on 7 February 2008. The results of these entities have
been included from the date control was acquired.
The Company’s controlling interest in Magellan Global Fund and Magellan Infrastructure Fund (‘the Funds’)
was acquired on 1 July 2007. They ceased to be controlled entities of the Company on 4 December 2008
and 22 October 2008 respectively when external investor contributions into the funds diluted the Company’s
percentage holdings to less than 50% in each fund. As at 30 June 2009, the Company owned 9.3% of the total
units in Magellan Infrastructure Fund and 22.2% of the total units in Magellan Global Fund.
The Funds are accounted for as controlled entities for the period from 1 July 2008 until the dates of loss of
control and in the comparative information for the year ended 30 June 2008. From 4 December 2008 to 30
June 2009, Magellan Global Fund was deemed to be an associate entity as the percentage of the units of the
fund held was sufficient to provide the Group with significant influence. The Group’s share of Magellan Global
Fund’s result following loss of control is recognised as share of loss of an associate in accordance with AASB
128: Investments in Associates (see note 2k).
Magellan Infrastructure Fund has been classified as an available-for-sale financial investment from the date
of loss of control or significant influence to 30 June 2009. Changes in the fair value since the date of loss of
control are recognised in the Available For Sale Reserve.
Further details of the impact on the Income Statement of the Group’s loss of control over Magellan Infrastructure
Fund and Magellan Global Fund are disclosed in note 19.
The external unitholders’ interests in units of the Magellan Global Fund and Magellan Infrastructure Fund up
to the date at which they ceased to be controlled entities are classified as a financial liability, and the profit or
loss which has accrued to the units during the period has been accounted for as an income or expense and
presented in the Income Statement as “Finance cost – external unitholders’ share of net profit”.
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 controlled entities have
been changed where necessary to ensure consistency with those policies adopted by the parent entity.
3636
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
(e) Business Combinations
The purchase method of accounting is used to account for all business combinations regardless of whether
equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given,
shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to
the combination. Where listed equity instruments are issued in a business combination, the fair value of the
instruments is the published closing market bid price as at the date of the exchange. Where unlisted equity
instruments are issued in a business combination, the fair value of the instruments will be determined by
the Directors using an appropriate valuation methodology. Transaction costs arising on the issue of equity
instruments are recognised directly in equity.
Except for non-current assets or disposal groups classified as held for sale (which are measured at fair
value less costs to sell), all identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date. The excess of the cost
of the business combination over the net fair value of the Group’s share of the identifiable net assets acquired
is recognised as goodwill. If the cost of the acquisition is less than the Group’s share of the net fair value of the
identifiable net assets of the controlled entity, the difference is recognised as a gain in the income statement,
but only after a reassessment of the identification and measurement of the net assets acquired.
Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the Company’s incremental
borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
(f) Operating Segment Reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from
which the Group earns revenues and incurs expenses, whose operating results are regularly reviewed by the
Group’s chief operating decision maker in order to make decisions about the allocation of resources to the
segment and assess its performance, and for which discrete financial information is available.
(g) Foreign Currency Translation
Functional and Presentation Currency
The functional and presentation currency of the Company and its controlled entities as determined in
accordance with AASB 121: The Effects of Changes in Foreign Exchange Rates will be the Australian dollar.
Transactions and Balances
Transactions denominated in foreign currencies are translated into Australian currency at the foreign currency
exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated to Australian Dollars at the foreign currency closing exchange rate ruling at the
Balance Sheet date.
Foreign currency exchange differences arising on translation and realised gains and losses on disposals
or settlements of monetary assets and liabilities are recognised in the Income Statement. Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are translated to
Australian dollars at the foreign currency closing exchange rates ruling at the dates that the values were
determined. Foreign currency exchange differences relating to investments at fair value through profit and
loss and derivative financial instruments are included in gains and losses on investments. All other foreign
currency exchange differences relating to monetary items, including cash and cash equivalents are presented
separately in the Income Statement.
(h) 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. Fixed term cash deposits (maturity less than 90 days from balance date) are classified as cash
equivalents.
Cash and cash equivalents at the end of the period, as shown in the Cash Flow Statement, is reconciled to the
related item in the Balance Sheet.
MAGELLAN FINANCIAL GROUP LIMITED
37
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
(i) 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. An impairment provision is recognised when there is objective
evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor, default
payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of
the impairment loss is the receivable carrying amount compared to the present value of estimated future cash
flows, discounted at the original effective interest rate.
(j) Derivative Financial Instruments
The Group may enter into a variety of derivative financial instruments to manage their exposure to interest rate
and foreign exchange rate risk, including forward foreign exchange contracts and interest rate swaps.
Derivatives are categorised as held for trading financial assets and are initially recognised at fair value on the
date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting
date. The resulting gain or loss is recognised in the Income Statement immediately unless the derivative is
designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss
depends on the nature of the hedge relationship.
Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is
negative.
The Group has not entered into any transactions that qualify as cashflow or fair value hedges.
(k) Financial Assets
Financial assets in the scope of AASB139: Financial Instruments: Recognition and Measurement are
categorised either as financial assets at fair value through profit and loss, loans and receivables, held-to-
maturity investments, or available-for-sale financial assets. The classification depends on the purpose
for which investments were acquired. Designation is re-evaluated at each financial year end, but there are
restrictions on reclassifying to other categories.
When financial assets are recognised initially, they are measured at fair value, plus in the case of assets not at
fair value through profit and loss, directly attributable transaction costs.
Recognition and De-recognition
All regular way purchases and sales of financial assets are recognised on the trade date, ie the date that
the group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of
financial assets under contracts that require delivery of the assets or settlement within the period generally
established by regulation or convention in the market place. Financial assets are derecognised when the right
to receive cash flows from the financial assets have expired or been transferred.
Fixed Term Deposits
Fixed term cash deposits (maturity greater than 90 days and 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.
Changes in fair value are recognised in the Income Statement.
3838
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
Held-to-Maturity Financial Assets
Fixed and floating rate bonds are classified as held-to-maturity where it is the intention to hold them until
maturity date. These securities are carried at amortised cost and the premium or discount on acquisition is
recognised in the Income Statement using the effective interest rate method over the period from acquisition
to maturity.
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 to an available for sale reserve within equity until the asset is
sold, or until the investment is determined to be impaired, 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 as available-for-sale financial assets to achieve
consistency with long-term investments held directly by the Company. Unrealised changes in fair value are
taken to an available for sale 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.
Impairment Losses on Available-For-Sale Financial Assets
An impairment loss on available-for-sale financial assets is recognised where the Board assesses that there
has been a significant or prolonged decline in the value of the asset, in accordance with AASB 139: Financial
Instruments: Recognition and Measurement. In assessing whether an asset is impaired, the Board will consider
a number of quantitative and qualitative factors, including the current market price of the asset, research
performed internally by experienced equity analysts, and, where appropriate, external research that provides
guidance on the long-term underlying value of the asset.
If an asset is deemed to be impaired, the difference between fair value and cost will be recognised as an
impairment charge in the Income Statement, less any impairment losses relating to that asset that have been
recognised in previous periods. Subsequent reversals of impairment losses are recognised directly in equity
through the available for sale reserve.
Investments in Associates
The Group’s investment in its associate is accounted for using the equity method of accounting in the
consolidated financial statements and at fair value in the parent. The associate is an entity over which the
Group is determined to have significant influence and that is neither a subsidiary nor a joint venture. The Group
generally deems it has significant influence if it has greater than a 20% share in the entity.
Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost
plus post acquisition changes in the Group’s share of net assets of the associate. Where an associate was
previously a controlled entity of the Group, the deemed cost for the purpose of applying the equity method is
the fair value on the date that the Group ceased to have a controlling interest.
After application of the equity method, the Group determines whether it is necessary to recognise any
impairment loss with the respect to the Group’s net investment in associates.
The Group’s share of its associate’s post-acquisition profit or loss is recognised in the income statement, and
its share of post-acquisition movements in reserves, including its available-for-sale reserve, is recognised
in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the
investment. Distributions receivable from the associate are recognised in the Company’s income statement as
income, while in the consolidated financial statements they reduce the carrying value of the investment.
The reporting dates of the associate and the Group are identical. The Group’s accounting policies have been
adopted in determining the Group’s share of profit or loss and the Group’s share of post-acquisition movement
in reserves recognised in the financial report.
MAGELLAN FINANCIAL GROUP LIMITED
39
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
(l) Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated
impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the
assets as follows:
- Furniture, fittings and leasehold improvements
- Computer equipment
- over three to five years
- over three to five years
If the estimated recoverable amount of an asset is less than its carrying amount, the carrying amount will be
written down to the recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no further future economic
benefits are expected from its use.
(m) Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the acquired entity’s identifiable assets,
liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill
is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of
impairment. Impairment losses recognised for goodwill are not subsequently reversed.
(n) Trade and Other Payables
Trade and other payables are carried at amortised cost. They represent liabilities for goods and services
received by the Group prior to the end of the financial period that remain unpaid at balance sheet date. They
are recognised at the point where the Group becomes obliged to make future payments in respect of the
purchase of these goods and services.
(o) Provisions and Employee Benefits
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 in respect of employees’ services up to the reporting date,
measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating
sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
Long Service Leave
Liabilities for long service leave are recognised when employees reach a qualifying period of continuous
service.
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.
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.
4040
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
(p) Share Purchase Plan
The Company has in place a Share Purchase Plan for employees and Non-executive Directors (‘Participants’)
to purchase shares in the Company (see Directors Report – Remuneration Report – Share Purchase Plan).
Loans to Participants are recognised at fair value based on an estimated repayment schedule, and are classified
as current or non-current loans in accordance with this schedule. Fair value is determined by discounting loans
to their net present value using the risk-free imputed interest rate at the time the loan is granted. Changes
in fair value of these are recognised in ‘interest income’ on the Income Statement. The cost of providing the
benefit to Participants is recognised as an employee expense in the Income Statement on a straight line basis
over the expected life of the loan, in accordance with AASB 2: Share Based Payments.
Details of the loans outstanding at balance sheet date, and of the changes in carrying value of the loans and
staff expense recognised in the Income Statement during the year ended 30 June 2009 are provided in note
13.
(q) Contributed Equity
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds of the issue of shares and options.
(r) 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 the relevant investment management agreements, and unlisted funds constitutions. Performance
fee revenue is recognised in the Income Statement when the Group’s entitlement to it becomes certain, usually
at the end of the period to which the 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 recognised on the applicable ex-dividend date.
Consulting Fee Income
Consulting fee income is recognised when the Group is entitled to it, which is determined by the terms and
conditions of the contractual arrangement.
(s) 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.
(t) Leases
Operating equipment lease payments are recognised as an expense in the Income Statement on a straight-line
basis over the lease term.
(u) 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 LIMITED
41
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
(v) Earnings Per Share
Basic earnings per share is determined by dividing the net profit attributable to members of the parent by the
weighted number of ordinary shares outstanding during the financial year.
Diluted earnings per share is determined by dividing the net profit attributable to members of the parent,
adjusted for the impact of potential equity, divided by the weighted number of ordinary shares and dilutive
potential ordinary shares.
(w) 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.
(x) Goods and Services Tax (GST)
Revenue, expenses and assets are recognised net of the amount of recoverable GST. Where GST is not
recoverable from the taxation authority, the GST is recognised as part of the applicable expense or cost of the
asset acquired.
3.
REVENUE
a) Management fee revenue
Management and administration fees
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4,017
4,017
4,261
4,261
-
-
-
-
Magellan Asset Management Limited (‘MAM’), a controlled entity, acts as Investment Manager for the
Magellan Flagship Fund Limited (Flagship Fund) – see note 22(a) – and the Magellan Global Fund and the
Magellan Infrastructure Fund – see note 22 (c). MAM received fees of $nil (2008: $40,000) in respect of
administrative services provided to MCP for the period 1 July 2007 to 7 February 2008, the date on which the
Company acquired control of MCP
b) Other revenue
Consulting fee income
Other revenue1
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,746
254
2,000
500
8
508
-
1
1
-
(23)
(23)
1 Other revenue includes reimbursement by UBS of costs paid by MAM, as disclosed in the Directors’ report.
4242
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4.
CHANGES IN THE FAIR VALUE OF FINANCIAL ASSETS
The changes in fair value of financial assets recognised in the Income Statement comprise:
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
a) Change in the fair value of financial assets
Company and its operating subsidiaries
- Fair value movements – held for trading
(853)
(1,128)
(737)
(195)
- Unrealised impairment loss – available for sale
(14,478)
(1,626)
(15,977)
(1,626)
Controlled trusts
- Unrealised impairment loss – available for sale
-
(618)
-
-
b) Net gain / (loss) on sale of available for sale financial assets
- Company and its operating subsidiaries
- Controlled trusts
(15,331)
(3,372)
(16,714)
(1,821)
(137)
-
(137)
239
8
247
(547)
-
(547)
218
-
218
The unrealised impairment loss on available for sale assets is categorised as follows:
Company and its operating subsidiaries
- Listed shares – Australia – Magellan Flagship Fund
- Listed shares – Australia - other
- Listed shares – United States
- Unlisted unit trusts – Magellan Infrastructure Fund
- Unlisted unit trusts - other
Controlled trusts
- Listed shares – Australia - other
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
(11,745)
(111)
(973)
-
(1,649)
-
-
(11,730)
(111)
-
-
(1,626)
(967)
(1,626)
-
-
(1,596)
(1,573)
-
-
(14,478)
(1,626)
(15,977)
(1,626)
-
-
(618)
(618)
-
-
-
-
MAGELLAN FINANCIAL GROUP LIMITED
43
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
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:
Operating (loss) / profit before significant items
and income tax expense
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
iv)
(13,859)
(5,084)
(15,425)
639
Prima facie income tax credit / (expense) on operating loss at 30%
4,158
1,525
4,628
(191)
Adjustments arising on tax consolidation
Tax expense relating to controlled entity recognised by parent
Share purchase plan
Tax effect of franked dividends received
Other non-assessable income and non-deductible expenses
Tax effect of contribution from unlisted unit trusts
i)
ii)
iii)
181
-
(206)
3
12
106
4,254
(172)
-
(74)
6
(2)
(101)
1,182
539
(71)
(206)
-
15
-
-
-
-
-
(75)
-
4,905
(266)
i) These adjustments reflect the increase or decrease to deferred tax assets arising from re-setting the
tax cost base of financial assets under the tax consolidation regime.
Tax consolidation requires that the tax cost bases of a subsidiary member’s assets be re-set at joining
date to align them to the tax cost base of the consolidated tax group’s interests in that subsidiary member.
The tax cost base setting process allocates the cost of the membership interests in the subsidiary to the
assets that the subsidiary has brought into the consolidated tax group in proportion to the assets’ market
values.
ii) These are nominal interest and expenses recognised in accordance with AASB 2: Share Based Payments
(see note 2 (p)) on which there is no tax effect.
iii) This represents the tax effect, calculated at 30% of the net contribution to the Group’s operating profit
from controlled trusts, excluding the Company’s share of distributions made by the trusts for the year on
which a tax provision has been raised.
iv) There is no tax effect on the significant items except for the deemed loss to parent on loss of control of
unlisted funds. Included within this item is the recognition in the Income Statement of investment gains
and losses on the investment portfolios held by the trusts. Although these investment gains and losses
are unrealised by the trusts, they are deemed to be realised in the consolidated income statement of the
Group upon loss of a controlling interest in the trusts. A tax expense of 30% of the Group’s (excluding
external unit holders’) share of these deemed losses has been recognised as a tax expense on significant
items .
4444
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
b) Total income tax benefit recognised in Income Statement:
Income tax benefit attributable to operating profit
4,254
1,182
4,905
(266)
Income tax benefit attributable to significant items
800
-
-
-
Total income tax benefit / (expense) recognised in Income Statement
5,054
1,182
4,905
(266)
Current income tax benefit / (expense)
Deferred income tax benefit / (expense)
– origination and reversal of timing differences
-
(7)
-
-
5,054
1,189
4,905
(266)
5,054
1,182
4,905
(266)
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
c) Income tax benefit transferred directly to / (from) equity
- Arising from the revaluation of available for sale financial assets
1,428
(4,889)
1,339 (4,836)
- Arising from the disposal of available for sale financial assets
(244)
16
(234)
- Arising from the recognition of impairment losses in the
Income Statement
(4,459)
488
(4,939)
- Arising from the deemed disposal of controlling interest in unlisted funds
(790)
- Arising from the formation of a consolidated tax group
- Arising from costs associated with the issue of securities
106
-
-
-
-
245
(37)
-
(37)
16
488
-
-
Total income tax benefit / (expense) recognised directly in equity
(3,959)
(4,422)
(3,589)
(4,369)
Deferred income tax benefit / (expense)
- origination and reversal of timing differences
d) Deferred tax as at 30 June relates to the following:
Tax losses carried forward
Net capital losses carried forward
Costs associated with the issue of
securities deductible in future years
(3,959)
(4,422)
(3,589)
(4,369)
(3,959)
(4,422)
(3,589)
(4,369)
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,863
2,503
1,863
2,564
943
395
35
567
943
395
35
347
Revaluation of financial assets available-for-sale
6,198
4,930
6,198
5,337
Revaluation of financial assets held for trading
Impairment losses on
available for sale financial assets
Other temporary differences
Deferred tax asset
495
(12)
(8)
148
488
69
495
(12)
(56)
-
-
17
9,874
8,740
9,826
8,300
MAGELLAN FINANCIAL GROUP LIMITED
45
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
5.
INCOME TAx (CONTINUED)
e) Tax consolidation
Members of the tax consolidated group
The Company and its 100% owned Australian subsidiary Magellan Asset Management Limited formed a tax
consolidated group on 1 July 2007. The 100% owned Australian subsidiaries acquired during the year, New
Privateer Holdings Pty Limited and MCP Pty Limited joined the tax consolidated group on 20 March 2008. The
Company is the head entity of the tax consolidated group.
Tax effect accounting by members of the tax consolidated group
The head entity and its controlled entities in the tax consolidated group continue to account for their own
current and deferred tax amounts. In addition to its own current and deferred tax amounts, the head entity
also recognises current tax assets or liabilities and the deferred tax assets arising from unused tax losses and
unused tax credits assumed from controlled entities in the tax consolidated group.
6.
EARNINGS PER SHARE
The following reflects the earnings and weighted average share data used in calculation of basic and diluted
earnings per share.
a) Earnings per Share
Basic earnings per share
Net profit / (loss) attributable to security holders – basic
Weighted average number of securities for
basic earnings per security (‘000)
Basic (loss) / earnings per share
Diluted earnings per share
Net profit / (loss) attributable to security holders – diluted
Weighted average number of securities for
diluted earnings per security (‘000)
Diluted (loss) / earnings per share
Consolidated
2009
$’000
2008
$’000
(12,365)
6,203
145,774
124,099
(8.5 cents)
5.0 cents
(12,365)
145,774
(20,347)
129,823
(8.5 cents)
(15.7 cents)
4646
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The net (loss) / profit attributable to share holders on a fully diluted basis can be
reconciled to the basic net profit as follows:
Net profit attributable to share holders – basic
Deduct AASB 132 Accounting Adjustment
Consolidated
2009
$’000
2008
$’000
(12,365)
6,203
-
(26,550)
Net (loss) / profit attributable to security holders – diluted
(12,365)
(20,347)
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
share as follows:
Weighted average number of shares already issued (‘000)
145,774
124,099
Weighted average number of share on assumed exercise of:
MFG 2009 Options (‘000)
MFG 2011 Options (‘000)
MFG 2016 Options (‘000)
Class B shares
Weighted average number of shares for
diluted earnings per share (‘000)
-
-
-
-
5,724
-
-
-
145,774
129,823
b) Further information
The Company has on issue 6.0 million MFG 2011 Options (2008: 6.0 million), 7.9 million MFG 2016 Options
(2008: 7.9 million) and 10.2 million Class B shares (2008: 10.2 million) that represent potential ordinary shares.
The Class B shares have the right to a pro-rata share of net assets on winding up of the Group but as they do
not carry the right to participate in dividends, they have been deemed not to represent ordinary shares already
on issue. Further details of the terms of these options and shares are included in note 17.
For the calculation of the diluted earnings per share for the year ended 30 June 2009, the effect of the Class B
shares is anti-dilutive as the Group has reported a net loss attributable to share holders. The Class B shares
have the potential to dilute basic earnings per share in the future. If the Class B shares were converted for the
year ended 30 June 2009, the total weighted average number of securities for the purposes of calculating the
diluted earnings per share would be 154,520,578.
The 2011 and 2016 options are anti-dilutive as the Group has reported a net loss attributable to share holders,
and because the exercise prices are in excess of the market price of ordinary shares throughout the year.
These securities have the potential to dilute basic earnings per share in the future but it is not possible to
estimate the potential impact they will have on the total weighted average number of shares for purposes of
calculating diluted earnings per share.
For the calculation of the earnings per share for the year ended 30 June 2008, the effect of the 2009 options
was dilutive. The AASB 132 Accounting Adjustment arose from the classification of the option embedded in
the MFG 2009 Options as a financial liability and the requirement to recognise changes in fair value of this
liability in the Income Statement. The net profit attributable to share holders was adjusted for this item in the
calculation of fully diluted earnings per share. The 2011 and 2016 options and the Class B shares were anti-
dilutive and disregarded in the calculation of fully diluted earnings per share.
MAGELLAN FINANCIAL GROUP LIMITED
47
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
7.
DIVIDENDS
No dividends were paid during the financial year (2008: nil). No final dividend has been declared.
Franking credit balance
Balance at 1 July
Franking credits arising from controlled entities joining the tax consolidation group
Franking credits on dividends received
Franking account balance at 30 June
8.
CASH AND CASH EqUIVALENTS
Cash and cash equivalents comprise:
Cash held by the parent company and its
operating subsidiaries
Cash held by controlled trusts
9.
TRADE AND OTHER RECEIVABLES
Trade receivables
Accrued interest
Other
Related party receivables
- Controlled entity
- Other related parties
Parent
2009
$’000
2008
$’000
779
32
5
816
-
771
8
779
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
39,622
46,286
35,969
33,288
-
7,077
-
-
39,622
53,363
35,969
33,288
Consolidated
Parent
2009
$’000
701
255
35
991
-
1,319
2,310
2008
$’000
2009
$’000
2008
$’000
7
277
153
437
-
811
-
226
31
257
341
495
-
167
-
167
839
-
1,248
1,093
1,006
4848
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENT IN ASSOCIATE
a) Investment details
Magellan Global Fund
b) Movement in carrying value
Cost – at 4 December 2008
Additional amounts invested
Share of profits for the period
Distribution receivable
Consolidated
Parent
2009
$’000
15,441
15,441
2008
$’000
-
-
2009
$’000
15,441
15,441
2008
$’000
-
-
Consolidated
2009
$’000
14,278
2,500
272
(319)
(1,290)
15,441
2008
$’000
-
-
-
-
-
-
Share of unrealised gains / (losses) on available for sale financial assets
Carrying value at 30 June
Magellan Global Fund became an associate entity on 4 December 2008 when it ceased to be a controlled entity
of the Company. The cost of the Company’s investment is the fair value on the date of loss of control.
Summarised financial information
c)
The following table provides summarised financial information relating to Magellan Global Fund as at 30 June
2009 and for the period from 4 December to 30 June 2009:
Total assets
Total liabilities
Net assets
Company’s share of net assets
Revenue
Net profit
Distributions payable
Unrealised losses on available for sale investments recognised directly in equity
30 June 2009
$’000
71,103
(1,682)
69,421
15,441
4 December 2008
to 30 June 2009
$’000
462
(43)
(1,427)
(2,992)
d) Fair value
The fair value of the Company’s investment in Magellan Global Fund is $15,441,000. The Company held
17,789,949 units in Magellan Global Fund and the fair value per unit (redemption price) was $0.85.
MAGELLAN FINANCIAL GROUP LIMITED
49
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
11.
INVESTMENTS IN CONTROLLED ENTITIES – PARENT ENTITY
Operating subsidiaries
Controlled trusts
Parent
2009
$’000
12,539
-
12,539
2008
$’000
60,881
16,035
76,916
The Operating subsidiaries include two entities, New Privateer and MCP, for which substantially all the assets
were disposed of or transferred to the Company during the year ended 30 June 2009. An impairment charge
has been recognised in accordance with AASB 136: Impairment of Assets. The carrying value of New Privateer
and MCP as at 30 June 2009 equates to the residual net tangible assets of each entity. The impairment loss has
been recognised in the Company’s income statement for the year ended 30 June 2009 in the line item ‘Write
down of carrying value of controlled entities’.
The Company ceased to hold controlling interests in the Controlled trusts during the year ended 30 June 2009.
See note 2 d) for further information.
12.
FINANCIAL ASSETS
a) Current
Held for trading
(by domicile of primary stock exchange)
- Listed shares – Australia
- Unlisted shares – Australia
Held to maturity
- Fixed and floating rate securities
- Cash term deposits
Held by:
- Company and its operating subsidiaries
- Controlled trusts
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
684
2,971
684
1,978
-
-
-
-
2,391
241
-
2,391
241
-
3,316
3,200
3,075
1,978
3,316
3,212
3,075
1,978
-
(12)
-
-
3,316
3,200
3,075
1,978
Forward foreign exchange contracts
-
(12)
-
The movement in the fair value of current financial assets of the Company and its operating subsidiaries can
be analysed as follows
Balance at 30 June 2008
Acquisitions
Disposals
Changes in fair value
Balance at 30 June 2009
$’000
3,200
2,734
(1,765)
(853)
3,316
5050
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
b) Non-current
Held to maturity
- Fixed and floating rate securities
Available for sale financial assets
(by domicile of primary stock exchange)
- Listed shares – Australia
- Magellan Flagship Fund
- Listed shares – Australia - other
- Listed shares – United States
- Listed shares – Switzerland
- Listed shares – United Kingdom
- Listed shares – Europe
- Listed shares – other
- Unlisted unit trust –
- Magellan Infrastructure Fund
22 c)
- Unlisted unit trusts – other^
Held by:
- Company and its operating subsidiaries
- Controlled trusts
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,822
-
2,822
-
22 b)
15,499
15,534
15,499
14,969
-
1,626
2,613
18,076
1,143
-
122
-
3,172
1,683
2,733
2,677
2,131
1,435
-
3,155
-
2,613
1,143
-
122
-
3,172
1,683
-
5,962
1,133
-
-
432
**
3,155
27,054
47,367
27,054
25,651
27,054
26,327
27,054
25,651
-
21,040
-
-
27,054
47,367
27,054
25,651
* less than $1,000
** Magellan Infrastructure Fund was a controlled entity at 30 June 2008 and is included in note 11.
^ the Company and the Group’s investment in Magellan Global Fund is classified as an Investment in an Associate as at 30 June 2009 (see
note 10).
The movement in the fair value of non-current financial assets of the Company and its operating subsidiaries
can be analysed as follows:
Balance at 30 June 2008
Acquisitions
Disposals
Changes in fair value
Balance at 30 June 2009
$’000
26,327
8,133
(2,879)
(4,527)
27,054
Acquisitions includes the deemed re-acquisition of the Company’s interest in Magellan Infrastructure Fund ($3,618,000)
following it ceasing to be a controlled trust.
MAGELLAN FINANCIAL GROUP LIMITED
51
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
FINANCIAL ASSETS (CONTINUED)
12.
c) Fixed and floating charge
Certain of the Group’s investment assets are held in custody with Merrill Lynch, a wholly owned subsidiary of
Bank of America. The Group has granted Merrill Lynch a fixed and floating charge over the Group’s rights, title
and interest in the assets as security for the performance of its obligations under this arrangement.
13.
SHARE PURCHASE PLAN (SPP)
The Group has put in place a Share Purchase Plan (the ‘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:
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, subject to:
•
•
where the total amount of the financial assistance being provided to an employee participant will
exceed $750,000 or will exceed three times the amount of an employee participant’s annual base
salary inclusive of superannuation, the prior approval of the Board is required; and
the maximum amount of financial assistance that may be provided by the company to an individual
employee is $1,000,000.
and, in each case:
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
iv) the aggregate maximum number of shares issued under each subsequent offer under the 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 Plan.
No performance hurdles will attach to the invitation to participate in, or the issue of shares under, the 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 make an upfront contribution of up to 25% of the issue price at the time of issue. The remaining
amount of the issue price will be funded by way of a full recourse interest free loan from the Company.
Participants 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 employee Participants is 10 years. Any
outstanding balance at the end of 10 years must be repaid by the employee. Employees are not 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.
5252
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 issued under the
Plan will be freely transferable.
Dividends will be payable on the shares issued under the 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 shares issued under the Plan will have the same rights to participate in any entitlements or bonus issues
and will otherwise rank equally with all other issued ordinary shares.
Upon request from the Company, the outstanding loan amount must be repaid in full immediately without
further demand or notice upon the earliest of:
i) any breach by the Participant of the Share Purchase Plan Rules (the ‘Plan Rules’) where the breach is
not remedied within 7 days of the Company’s notice to the Participant to do so; or
ii) an application being made to a court for an order, or an order being made, that the Participant be made
bankrupt (or any similar event in any jurisdiction as determined by the Board in its discretion).
If a Participant ceases to be an Employee whilst a loan to that Participant is outstanding, the Participant
must:
i) repay the total amount owing under the loan within 3 months (or, in the event that a Participant has
died, within 6 months), or such longer period determined by the Board in its discretion, of ceasing to be
an Employee and, upon payment of such amount the holding lock and any security over the shares issued
under the Plan will be released and the Participant shall be entitled to retain his or her shares issued
under the Plan; or
ii) require the shares issued under the Plan to be bought back or sold by the Company and must pay to the
Company the balance (if any) of the total amount owing outstanding under the loan after the application
of the proceeds of sale.
The carrying value of loans outstanding at balance sheet date was:
a) Current
Amounts due within one year
b) Non-current
Amounts due later than one year and within ten years
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
-
203
-
203
4,217
4,217
3,840
4,043
4,217
3,840
4,217
4,043
Shares were issued to Participants at an issue price equal to the fair market value of the shares at offer date
calculated using the volume weighted average price of traded shares in the five business days prior to the
offer date.
Offer date
5-day weighted average share price
10 September 2007
20 October 2008
$1.66
$0.52
The value of shares securing the loans to Participants at balance date applying the Company’s closing market
price of $0.55 was $3.0 million (2008:$2.6 million). No amounts are past due nor considered impaired as the
Plan provides that any shortfall between the loan amount and the value of the shares is recoverable from the
Participants.
MAGELLAN FINANCIAL GROUP LIMITED
53
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
13.
SHARE PURCHASE PLAN (SPP) (CONTINUED)
The following information has been used to determine the fair value of the loans as at:
September 2007 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
October 2008 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
30 June 2009
30 June 2008
$5.8m
5.8 years
7%
$0.2m
4.8 years
5%
$5.8m
4.9 years
7%
-
-
-
The increase in the estimated weighted average duration of loans between June 2008 and June 2009 results
from changes in assumptions surrounding the repayment patterns of the loans.
Amounts recognised in the Income Statement in respect of the SPP loans are as follows:
Included in:
Interest income
Employee benefits expense (1)
Net credit / (charge) to profit and loss before tax
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
38
(725)
(687)
87
(338)
(251)
38
87
(725)
(338)
(687)
(251)
(1) Included in the expense amount for the year ended 30 June 2009 is a non-recurring amount of $0.47million relating
to future employee benefits expenses which were required to be recognised in the current financial year, as a result of
employment changes.
Both the increase in the carrying value of the loans recorded in interest income and the cost of providing
the benefit to Participants recorded in employee benefits expense are non-cash items. Over the life of the
loans the amounts credited to interest income and the amounts recognised as employee benefits expense will
exactly offset each other. The accounting treatment of these loans is described further in note 2 p).
5454
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14.
PROPERTY, PLANT AND EqUIPMENT
Consolidated
2009
Equipment,
Fixtures and
Fittings
$’000
Leasehold
Improvements
$’000
Total
$’000
Leasehold
Improvements
$’000
2008
Equipment,
Fixtures and
Fittings
$’000
Total
$’000
361
238
599
Cost at 1 July
Reclassifications
Additions
Disposals
Cost at 30 June
Accumulated depreciation and
impairment losses at 1 July
Reclassification
Disposals
Depreciation charge for the year
Accumulated depreciation and
impairment losses at 30 June
Net carrying amount at 30 June
241
2
-
481
63
19
-
-
2
(1)
600
88
-
(1)
116
154
198
241
(241)
-
(1)
119
25
(19)
(1)
38
43
76
261
-
111
(11)
361
18
(4)
10
24
183
444
-
134
(79)
238
-
245
(90)
599
18
36
(22)
68
(26)
78
64
88
283
359
337
174
511
Property, plant and equipment is held by a controlled entity of the parent company. The carrying value of
property, plant and equipment of the parent company at 30 June 2009 is $nil (2008:$ nil).
15.
TRADE AND OTHER PAYABLES
a) Current
Trade payables
Accrued expenses
Distributions payable to external unitholders
Other payables
Related party payables
- Controlled entities
- Other related parties
b) Non-current
Related party payables - Controlled entities
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
189
247
-
271
707
-
-
616
244
296
3,589
4,745
-
-
42
71
-
11
124
3
54
-
2
59
-
-
21,833
-
707
4,745
124
21,892
-
-
-
-
2,569
2,569
2,772
2,772
MAGELLAN FINANCIAL GROUP LIMITED
55
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
16.
CASH FLOW STATEMENT RECONCILIATION
a) Reconciliation of Net Profit / (Loss) after Tax to Net Cash Flows
from Operations:
Net profit / (loss) after tax
Adjusted for:
Amounts attributable to external unitholders
Deemed loss to parent on loss of control of unlisted funds
Writedown of goodwill
AASB 132 Adjustment
Losses / (gains) on sale of
available-for-sale financial assets
Unrealised impairment losses on available-for-sale financial as-
sets
Impairment of controlled entities
Interest received and accrued on fixed and floating rate securities
Dividends and distributions on
available-for-sale financial assets reinvested
Depreciation
Loss on disposal of plant and equipment
Unrealised foreign exchange (gains) / losses
Net cash flows from foreign exchange contracts
Imputed interest on loans under share purchase plan
Employee expense on loans under share purchase plan
Interest paid
Share of income of an associate
Intra-group transfer of sundry balances
via loan account with controlled entities
(Increase) / decrease in trade and other receivables
(Increase) / decrease in prepayments
(Increase) / decrease in deferred tax assets
(Increase) / decrease in held for trading financial assets
Increase / (decrease) in trade and other payables
(Decrease) /increase in current tax liabilities
Net cash inflows / (outflows) from operating activities
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
(12,365)
6,203
(29,277)
26,923
1,253
(2,199)
4,118
-
-
18,644
-
-
-
-
-
-
(1,327)
(26,550)
(1,327)
(26,550)
168
(268)
547
(218)
14,478
2,244
15,977
1,626
-
(64)
(508)
154
-
(793)
1,024
(38)
725
-
(272)
-
(159)
26
-
-
-
78
66
47
-
(86)
335
20
-
-
446
(30)
20,084
(64)
(508)
-
-
342
-
(38)
725
-
-
644
(80)
(123)
-
-
-
-
-
-
-
(86)
335
1
-
-
(259)
(12)
(5,232)
(1,272)
(4,957)
(2,507)
2,288
1,934
1,295
(1,978)
(3,212)
-
(925)
(436)
27
-
4,090
-
264
(1,749)
3,267
1,365
5656
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
b) Non-cash financing and investing activities
Settlement of controlled entity purchase with securities
-
47,610
-
47,610
Issue of shares under SPP
Share based payments under SPP
Buy back and cancellation of securities held by controlled entities
Acquisition of financial assets by means of amounts payable to
controlled entities
Acquisition of available for sale financial assets via dividend and
distribution reinvestment plans
143
726
-
-
508
4,291
335
143
726
4,291
335
(17,978)
-
(17,603)
-
-
746
39,258
508
-
17.
CONTRIBUTED EqUITY
Contributed equity
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
107,692
106,757
108,067
107,132
107,692
106,757
108,067
107,132
The movement during the year of Group securities on issue was as follows:
Number
Shares
’000
MFG 2009
Options
’000
MFG 2011
Options
’000
MFG 2016
Options
’000
Class B
Shares
’000
Balance at 1 July 2008
145,437
18,958
6,034
7,882
10,200
Issue of shares under employee share scheme (SPP)
Exercise of MFG 2009 Options
Options expired
Balance at 30 June 2009
508
-
-
-
-
(18,958)
-
-
-
-
-
-
-
-
-
145,945
-
6,034
7,882
10,200
Balance at 1 July 2008
Issue of shares under Share Purchase Plan
Recognition of SPP expense for the year
Balance at 30 June 2009
The MFG 2009 Options expired on 30 June 2009.
Value
Consolidated
$’000
106,757
209
726
Parent
$’000
107,132
209
726
107,692
108,067
The key terms and rights attaching to the MFG 2011 Options are as follows:
-
MFG 2011 Options can be exercised during any two month period following the announcement of the
Company’s full or half year results in each year prior to the expiry date.
Upon exercise of an MFG 2011 Option, the option holder will be issued with one new ordinary share in the
Company.
The exercise price of the MFG 2011 options is $1.30.
The MFG 2011 options expire on 30 June 2011.
-
-
-
MAGELLAN FINANCIAL GROUP LIMITED
57
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
17.
CONTRIBUTED EqUITY (CONTINUED)
The key terms and rights attaching to the MFG 2016 Options are as follows:
-
MFG 2016 Options can be exercised during any two month period following the announcement of the
Company’s full or half year results in each year prior to the expiry date.
Upon exercise of an MFG 2016 Option, the option holder will be issued with one new ordinary share in the
Company.
The exercise price of the MFG 2016 options is $3.00.
The MFG 2016 options expire on 30 June 2016.
-
-
-
The key terms and rights attaching to the 10,200,000 Class B Shares issued to Hamish Douglass are as
follows:
-
-
No entitlement to receive dividends.
If Mr Douglass has met certain service conditions, the Class B shares convert to the number of ordinary
shares equal to 0.06 times the number of ordinary shares of the Company on issue on 21 November 2016
(up to a maximum of 170,000,000 ordinary shares). The maximum number of ordinary shares that will be
issued on conversion of all the Class B shares is 10,200,000.
For example, based on the issued capital as at 30 June 2009 the 10,200,000 the Class B shares would be entitled
to convert to 8.76 million ordinary shares, being equal to 0.06 times 145.9 million ordinary shares on issue.
18.
AASB 132 ACCOUNTING ADJUSTMENT
Amounts recognised in the Income Statement as a AASB 132 Adjustment arise from the revaluation of a
financial liability embedded in the MFG 2009 Options, in accordance with AASB: 132 Financial Instruments:
Presentation. As the options expired on 30 June 2009, the value of the liability per option as at 30 June 2009
was nil (2008: $0.07).
19.
INFRASTRUCTURE FUND
DEEMED DISPOSAL OF CONTROLLING INTERESTS IN MAGELLAN GLOBAL FUND AND MAGELLAN
The Company’s controlling interests in Magellan Global Fund and Magellan Infrastructure Fund (‘the Funds’)
were acquired on 1 July 2007. They ceased to be controlled entities of the Company on 4 December 2008
and 22 October 2008 respectively when external investor contributions into the funds diluted the Company’s
percentage holdings to less than 50% in each fund. As at 30 June 2009, the Company owned 9.3% of the total
units in Magellan Infrastructure Fund and 22.2% of the total units in Magellan Global Fund. The loss of control
gave rise to losses as follows:
Reclassification of unrealised losses on non-current investments held by the Funds (i)
Effect of recognition of investment in Funds at fair value on date of loss of control (ii)
Total loss to Group on deemed disposal
30 June 2009
$’000
(4,084)
(34)
(4,118)
(i) In accordance with AASB: 127 Consolidated and Separate Financial Statements, the unrealised losses
on available for sale investments held by the Funds that were previously recognised in the consolidated
Group’s Available for Sale Reserve have been reclassified to the Income Statement on loss of control of
the Funds.
(ii) The fair value of the Group’s ongoing investment in the Funds following loss of control is determined by
the redemption price of each Fund on applicable reporting dates. The difference between the redemption
price and the net asset value, which represents an allowance made for disposal costs, gives rise to a loss
on recognition of the investments in the Funds on date of loss of control.
5858
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20.
GOODWILL
(a) Reconciliation of carrying amounts of goodwill at the beginning and end of the period
At 1 July net of impairment
Acquisition of controlled entities
Impairment
At 30 June net of impairment
Consolidated
Parent
2009
$’000
-
-
-
-
2008
$’000
-
18,644
(18,644)
-
2009
$’000
2008
$’000
-
-
-
-
-
-
-
-
21.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
(a) Financial Risk Management Objectives, Policies and Processes
The activities of the Group and the Company give rise to exposure to direct and indirect financial risk, including
market risk, credit risk and liquidity risk. Risks are managed through a process of ongoing identification,
measurement and monitoring.
Direct exposure to financial risk occurs through the impact on the Group’s and the Company’s profit and total
equity arising from changes in the value of the Group’s and the Company’s investment portfolios and changes
in other financial assets and liabilities, including trade receivables and payables that arise directly from its
operations.
The Group’s investment assets comprise long term, strategic investments in the Magellan Flagship Fund and
two Magellan unlisted funds of which a controlled entity of the Group is the investment manager, and the
application of a portion of the Group’s cash reserves into a small, direct portfolio of quality investments.
The investment portfolios of Magellan Flagship Fund and the two unlisted funds are managed on a daily basis
by the Investment Manager in accordance with the investment objectives and mandates of those funds. Further
details of the risk management objectives and policies of those funds can be found in the annual report of
Magellan Flagship Fund and the Product Disclosure Statement (PDS) of the unlisted funds.
The remainder of this note provides further details of the specific risks faced by the Group and the Company
and illustrates the potential impact of changes in risk variables on the Income Statement and Statement of
Changes in Equity.
(b) Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to
changes in market variables such as equity prices, foreign exchange rates, and interest rates.
(i) Equity Price Risk
Equity price risk is the risk that the fair value of equities increases or decreases as a result of changes in
market prices, caused by factors specific to the individual stock or affecting all instruments in the market.
Equity price risk exposures arise from the Group’s and the Company’s investments in equity securities.
All investments are carried at fair value with changes arising from held-for-trading investments reflected in
the Income Statement, and changes arising from available-for-sale investments reflected in the Statement of
Changes in Equity.
MAGELLAN FINANCIAL GROUP LIMITED
59
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
21.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(i) Equity Price Risk (Continued)
An increase of 5% in the market prices of the Group’s and the Company’s investments held at balance sheet
date would have had the following impact on net profit and total reserves:
Impact on net profit after tax attributable to members of the parent
Impact on available for sale reserve, net of tax
Total impact on equity
Group
Parent Company
2009
$’000
24
1,381
1,405
2008
$’000
(254)
1,560
1,306
2009
$’000
24
1,381
1,405
2008
$’000
125
1,293
1,418
Assumptions and explanatory notes
i.
The Company and the Group hold an investment in an unlisted trust that invests in unlisted equities. The
fair value of this trust is determined using the unit price supplied by the manager of that trust. The
underlying values of the unlisted equities are determined with reference to the projected cash flows of
those businesses, which may or may not be correlated with changes in market prices of listed equities. No
assessment has been made of the impact of changes in market prices on the fair value of that trust.
ii.
The comparative figures, for the year ended 30 June 2008, indicate a decrease in profit of the Group with
a 5% increase in the market values of investments, which arises due to the impact of consolidating the
controlled trusts. The trusts were no longer controlled entities at 30 June 2009.
iii.
A decrease of 5% in the market prices of the Group’s and the Company’s investments held at balance sheet
date would have an equal and opposite effect to the changes disclosed above.
iv.
The Group recognises impairment losses on available for sale investments in accordance with the
accounting policy disclosed in note 2(k). For the purposes of the sensitivity disclosed above, it has been
assumed that a 5% change in market prices would have no impact on the assessment of whether individual
assets are impaired.
(ii) Currency Risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in foreign exchange rates. The Group and the Company are potentially exposed to currency risk on
foreign currency denominated:
-
-
-
-
-
held for trading financial assets;
available for sale financial assets;
cash balances and overdrafts;
currency derivatives;
payables and receivables, such as income receivable from foreign investments or outstanding settlements
on purchase or sale of foreign investments.
To the extent that changes in the fair value of available for sale financial assets arise from currency movements,
this will be recognised in the Statement of Changes in Equity.
At balance sheet date, the Group’s direct currency risk exposure arose from:
-
-
foreign currency financial assets designated as available for sale;
foreign currency cash balances.
6060
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
An increase of 5% in the Australian dollar relative to each currency to which the Group and Company had
significant exposure would have the following impact on amounts recognised in the Income Statement and
amounts recognised directly in equity:
Group
Assets denominated in:
US dollars
Euro
Swiss francs
British pounds
Parent Company
Assets denominated in:
US dollars
Euro
Swiss francs
British pounds
Increase / (decrease)
in net profit
Increase / (decrease)
credited directly to
equity
2009
$’000
2008
$’000
2009
$’000
2008
$’000
(68)
252
(124)
-
-
-
(68)
-
-
-
94
57
52
-
-
-
-
(6)
(54)
-
(124)
(6)
(54)
-
(677)
(69)
(108)
(99)
(425)
25
(51)
(47)
The Group and the Company held a US dollar cash balance at 30 June 2009, which gives rise to the currency
exposure recognised in net profit. The rest of the Group’s and the Company’s foreign currency exchange
exposure arises on non-monetary assets and is recognised directly in equity, unless financial assets are sold.
A decrease of 5% in the Australian dollar relative to each currency would have an opposite impact of materially
similar magnitude on amounts recognised in the Income Statement and amounts recognised directly in equity
for both the Group and the Company.
The Group and the Company also have indirect foreign exchange exposure via the investments in Magellan
Flagship Fund, Magellan Global Fund and Magellan Infrastructure Fund. Magellan Flagship Fund is listed on
the Australian Securities Exchange and its market value is denominated in Australian dollars. Magellan Global
Fund and Magellan Infrastructure Fund (‘the Funds’) are unlisted registered schemes, also denominated in
Australian dollars. These entities’ investment portfolios comprise companies predominantly denominated
in foreign currencies, and with extensive operating exposure to global currency fluctuations. Changes in
their fair value are therefore influenced by movements in currencies. The sensitivity analysis disclosed above
disregards the impact on the fair value of these investments.
(iii) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the
fair value of financial instruments. At balance sheet date, the Group and the Company’s exposure to changes
in interest rates arises from:
-
-
cash balances, including amounts on term deposit;
floating rate notes.
The Group and the Company also held some fixed interest securities. These are designated as “held-to-
maturity” and recognised at amortised cost. Future changes in interest rates will not affect the carrying value
of these securities, nor the future cash flows to be received.
Substantially all of the Group’s and Company’s holdings of cash and cash equivalents are held with major
Australian banks. Cash term deposits are of short duration and their fair value would not be materially affected
by changes in interest rates.
MAGELLAN FINANCIAL GROUP LIMITED
61
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
21.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
(iii) Interest Rate Risk (Continued)
The sensitivity of the Group’s and the Company’s income statement to changes in interest rates is reflected in
the impact on the interest that would be earned. Based on the cash and cash equivalents held by the Group
and the Company at balance sheet date, the effect on the annual interest income of an increase of 100 basis
points in floating interest rates would be as follows:
Impact on net profit after tax attributable to members of the parent
Group
Parent Company
2009
$’000
303
2008
$’000
354
2009
$’000
276
2008
$’000
233
A decrease of 100 basis points in floating rate interest rates would have an equal but opposite effect on the
annual interest income and the net profit after tax attributable to members of the parent company.
(iv) Indirect Impacts of Market Risk
In addition to the direct impacts of market risk on the financial assets and liabilities of the Group, the operating
profit is indirectly exposed to market risks. The most significant impact is on the fees earned by a controlled
entity of the group for providing investment management services to Magellan Flagship Fund and the two
unlisted funds. Base fees earned by the Group are based on a percentage of the fair value of the investments
managed by these funds. Changes in equity prices and foreign exchange rates would impact the net asset
value of the funds and therefore the base fees earned by the Group. The Group may also earn performance
fees from the funds based on their performance relative to certain benchmarks. Changes in market conditions
might also impact the flow of funds into or out of the unlisted funds.
(c) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial
liabilities. The Group manages liquidity risk by maintaining sufficient cash reserves to cover its liabilities and
by receiving management fee income on a regular basis.
As at 30 June 2009, the Group had an obligation to settle trade creditors of $0.7m (2008: $4.7m) within 30
days. The Group had sufficient cash reserves of $39.6m (2008: $53.4m) and a further $2.0m (2008: $1.3m)
of receivables collectable within 30 days to cover these liabilities and accordingly the Group does not have a
significant direct exposure to liquidity risk.
The Company’s trade and other payables of $3m arise from balances owed to controlled entities. There are no
contractual settlement terms for these balances and no liquidity risk arises from them.
(d) Credit Risk
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.
Market prices generally incorporate credit assessments into valuations and risk of loss is implicitly provided
for in the carrying value of on-balance sheet financial assets and liabilities as they are marked to market.
The total credit risk for on-balance sheet items including securities is therefore limited to the amount carried
on the Balance Sheet. The Group minimises concentrations of credit risk by undertaking transactions with
counterparties that are recognised and reputable or are recognised and reputable financial intermediaries
with acceptable credit ratings determined by a recognised rating agency.
The Group has entered into International Prime Brokerage Agreements (IPBA) with Merrill Lynch International
(Australia) Limited (Merrill). The Company has entered into an IPBA, and two further IPBAs have been entered
into by a controlled entity in its capacity as Responsible Entity of the controlled trusts. The services provided
by Merrill include lending, clearance, settlement and custody services. The IPBA with Merrill is in a form that
is typical of prime brokerage arrangements. Certain of the Company’s investments are held directly by Merrill
as prime broker and custodian.
6262
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
21.
During the financial year, Merrill Lynch was acquired by Bank of America, one of the ‘systemically important’
global financial institutions. As at 30 June 2009, the credit quality of Bank of America / Merrill Lynch’s senior
debt is rated by Standard & Poor’s as being A and by Moody’s as being A2. In the unlikely event of Merrill Lynch
becoming insolvent, the Company may rank as an unsecured creditor in respect of any investments that have
been lent or used as collateral by Merrill Lynch.
At 30 June 2009 the Group had an outstanding balance totalling to $4.2m (2008: $3.8m) for loans to participants
under the share plan scheme and held at 30 June 2009 Company shares valued at $3.0m (2008: $2.6m) as
security for the loans (note 12 provides further information). The loans were made to Company employees and
Directors on a full recourse basis.
At 30 June 2009 all cash and receivables are collectable within 30 days and there are no amounts which are
passed due.
22.
TRANSACTIONS WITH RELATED PARTIES
a) Magellan Flagship Fund Limited (‘Flagship Fund’)
Magellan Asset Management (‘MAM’) is 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% (excluding GST) of the market value of all assets held by the
Flagship Fund less total debt. To date, the Investment Manager has excluded deferred tax assets from the
calculation of the base fee thereby reducing the base fee amount. During the year ended 30 June 2009, the total
base fees earned by MAM from the Flagship Fund were $3,207,000 (2008: $3,932,000). The amount owing from
the Flagship Fund to MAM at balance sheet date was $722,000 (2008: $808,000).
(ii) Performance Fee
MAM is entitled to an annual performance fee of 10% (excluding GST) of the amount by which the absolute
dollar value of the investment performance, net of the base fee, exceeds the Australian Dollar MSCI for each
annual period, provided that:
-
-
the total annual return in the relevant annual 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 annual period for which a performance fee was paid to the Investment Manager within
the last three years.
No performance fee was receivable from the Flagship Fund for the annual period to 30 June 2009
(2008: $nil).
b) Magellan Asset Management Limited (‘MAM’)
(i) Sub-ordinated Loan to 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 2009 was $1,150,000 (2008: $1,150,000).
(ii) Amounts due to MAM
At balance date, a net amount of $2,568,000 (2008: $2,467,000) was payable by the Company to MAM in respect
of amounts arising from the transfer of MAM’s tax losses to the Company.
(iii) Amounts due from MAM
At balance date, a net amount of $341,000 (2008:$334,000) was payable by MAM to the Company representing
employee share scheme loan repayments withheld from employee bonuses in accordance with Share Purchase
Plan rules.
MAGELLAN FINANCIAL GROUP LIMITED
63
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
22.
TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
c) Magellan Global Fund and Magellan Infrastructure Fund
(i) Management and Administration Fees
MAM is the Responsible Entity and investment manager of the Magellan Global Fund and Magellan Infrastructure
Fund. Under the Investment Management Agreement, MAM is entitled to the following fees:
Management fees paid to MAM for managing the Magellan Global Fund and the Magellan Infrastructure
Fund are 1.26% per annum and 0.96% per annum respectively of the net asset value of each fund at the end
of each month. Administration fees paid to MAM for managing the Magellan Global Fund and the Magellan
Infrastructure Fund are 0.10% per annum of the net asset value of each fund at the end of each month. The
management and administration fees are reflected in the daily unit price of each fund and are paid to MAM
monthly. During the year ended 30 June 2009, the total management and administration fees earned by MAM
from the Magellan Global Fund were $536,000 (2008: $295,000), and earned from the Magellan Infrastructure
Fund were $189,000 (2008:$62,000). The amounts owing from the Magellan Global Fund and the Magellan
Infrastructure Fund to MAM at balance sheet date were $78,000 (2008: $24,000) and $23,000 (2008:$5,000)
respectively.
(ii) Performance Fees
MAM is entitled to an annual performance fees from Magellan Global Fund and Magellan Infrastructure Fund
of 10% (excluding GST) of the amount by which the absolute dollar value of their performance, net of base fees,
exceeds the applicable hurdle index for that fund, provided that:
-
-
the total annual return in the relevant annual 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 Funds’ unit prices (adjusted for intervening distributions) on the last day of the relevant annual period
exceeds that on the last day of the most recent annual period for which a performance fee was paid to the
Investment Manager within the last three years.
No performance fees were receivable from Magellan Global Fund or Magellan Infrastructure Fund for the
annual period to 30 June 2009 (2008: $nil).
(iii) Unit holdings
The numbers of units held in the Funds at balance sheet date are:
Related party
Magellan Global Fund
Magellan Infrastructure Fund
Balance at
1 July 2008
Number
15,000,001
5,000,001
Acquisitions
Number
3,249,709
271,662
Balance at
30 June 2009
Distribution
receivable
Number
%
18,249,710
22.3
5,271,663
9.3
$’000
318
177
The units acquired include units allocated under the Funds’ distribution reinvestment plans. The Company
participates in this optional scheme on the terms and conditions available to all investors in the Funds.
6464
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
d) Equity Instrument Disclosure Relating to Key Management Personnel and Related Parties
Share Holdings
The number of ordinary shares held in the Company at balance sheet date are:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Executives
N Campbell
Balance at
1 July 2008
Acquisitions
Cancellations /
Disposals
Balance at
30 June 2009
6,182,360
1,070,213
1,086,427
7,643,813
17,051,771
-
499,534
-
1,764,635
1,029,006
358,096
76,923 (1)
-
-
-
-
-
-
6,182,360
1,569,747
1,086,427
9,408,448
18,080,777
435,019
(1) Shares acquired under the Company’s Share Purchase Plan
The number of MFG Class B shares held in the Company at balance date are:
Name
Hamish Douglass
Balance at
1 July 2008
10,200,000
Acquisitions
Disposals
Balance at
30 June 2009
-
-
10,200,000
The key terms and rights attaching to the MFG Class B Shares are disclosed in note 17.
e) Equity Instrument Disclosure Relating to Key Management Personnel and Related Parties
Option Holdings
MFG 2009 Options (ASX: MFGOA) expired unexercised on 30 June 2009:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Executives
N Campbell
Balance at
1 July 2008
Acquisitions
Expired
Balance at
30 June 2009
3,008,468
3,600
61,867
3,934
622,607
10,000
-
-
-
-
-
-
3,008,468
3,600
61,867
3,934
622,607
10,000
-
-
-
-
-
-
MAGELLAN FINANCIAL GROUP LIMITED
65
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
22.
TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
e) Equity Instrument Disclosure Relating to Key Management Personnel and Related Parties (CONTINUED)
The number of MFG 2011 Options (ASX: MFGOB) expiring 30 June 2011 held at balance date are:
Name
Brett Cairns
Balance at
1 July 2008
Acquisitions
Disposals
9,054
-
-
Balance at
30 June 2009
9,054
The number of MFG 2016 Options (ASX: MFGOC) expiring 30 June 2016 held at balance date are:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Executives
N Campbell
Balance at
1 July 2008
Acquisitions
Disposals
Balance at
30 June 2009
16,532
5,790
11,467
297,792
2,644,354
39,600
-
-
-
-
-
-
-
-
16,532
5,790
11,467
297,792
2,644,354
39,600
The key terms and rights attaching to the MFG 2011 Options, and MFG 2016 Options are disclosed in note 17.
Unit Holdings in Magellan Global Fund and Magellan Infrastructure Fund
The number of units in Magellan Global Fund held at balance date are:
Name
Paul Lewis
Hamish Douglass
Chris Mackay
Balance at
1 July 2008
26,744
781,959
391,619
Acquisitions*
Disposals
135,049
18,700
9,366
-
-
-
Balance at
30 June 2009
161,793
800,659
400,985
* including reinvestment of distributions
The number of units in Magellan Infrastructure Fund held at balance date are:
Name
Paul Lewis
Balance at
1 July 2008
Acquisitions
Disposals
Balance at
30 June 2009
26,360
1,432
-
27,792
In respect of these units issued to directors, Magellan Asset Management, the Responsible Entity, exercised
its right to waive the contribution fee of 1.25% which it is entitled to levy on investors who invest in the funds
directly instead of through a financial adviser.
6666
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
f) Loans
The Company has made full recourse interest free loans to Non-executive Directors in connection with shares
acquired under the Company’s Share Purchase Plan (SPP). The terms and conditions of the loans, including
repayment terms, are disclosed in the Remuneration Report – Share Purchase Plan.
Name
Shares acquired
during the year
under SPP
SPP Loan Bal-
ance at
1 July 2008
Loans made
Repayments
Directors
Paul Lewis
Brett Cairns
Number
$
-
-
1,245,000
1,245,000
$
-
-
$
-
-
SPP Loan
Balance at
30 June 2009
SPP
Balance at
30 June 2009
Face value
Fair Value
$
$
1,245,000
1,245,000
2,490,000
1,016,291
1,016,291
2,032,582
The Company has made full recourse interest free loans to the following Key Management Personnel in
connection with shares acquired under the Company’s SPP during the year. The number of shares acquired and
the terms and conditions of the loans including repayment terms are disclosed in the Remuneration Report –
Share Purchase Plan.
Name
Shares acquired
during the year
under SPP
SPP Loan Bal-
ance at
1 July 2008
Loans made
Repayments
Executives
N Campbell
Number
$
$
76,923
575
30,000
$
-
SPP Loan
Balance at
30 June 2009
SPP
Balance at
30 June 2009
Face value
Fair Value
$
$
30,575
30,575
26,615
26,615
23.
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
A controlled entity, Magellan Asset Management Limited (‘MAM’), has entered into non-cancellable operating
leases for its office premises at Level 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
Contingent Liabilities
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
334
610
944
323
960
1,283
-
-
-
-
-
-
The Group has a contingent liability for uncalled amounts of $0.5 million (2008: $0.6million) on units in unlisted
unit trusts that are held for investment.
The directors are not aware of any other contingent liabilities at balance date
MAGELLAN FINANCIAL GROUP LIMITED
67
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
24.
OPERATING SEGMENT INFORMATION
The Group’s business activities are organised into the following reportable operating segments for internal
management purposes:
Funds and asset management
Funds and asset management activities are undertaken by the controlled entity, Magellan Asset Management
Limited (MAM), which acts as an Investment Manager for the Magellan Flagship Fund Limited (the Flagship
Fund), a listed investment company (ASX code: MFF) and other wholesale client mandates. It acts as Responsible
Entity and Investment Manager for the Magellan Global Fund and Magellan Infrastructure Fund (the Unlisted
Funds) which are registered schemes offerings made to Australian and New Zealand wholesale and retail
investors.
Principal investments
The principal investment portfolio is comprised of investments in the Flagship Fund, the Unlisted Funds, and
in a select portfolio of Australian and international listed companies, cash and fixed interest securities and
other investments.
Unallocated - Corporate
Costs associated with the board, ASX listing, audit and regulatory compliance activities of the Group.
The operating results of the Group’s operating segments are as follows:
30 June 2009
Revenue
Management fees
Consulting fees
Interest income
Interest income - (SPP)
Dividend income
Changes in fair value of financial assets
Net gains / (losses) on disposal of financial
assets
Foreign exchange gains / (losses)
Other revenue
Expense
Employee benefits expense
Employee benefits expense - (SPP)
Other expenses
Share of income from an associate
Finance cost – external units holder’ share
of net profit
Operating profit / (loss) before significant
items and income tax
Funds and asset
management
$’000
Principal
Investments
$’000
Unallocated -
Corporate
$’000
4,017
1,747
271
(95)
-
-
-
-
249
6,189
4,756
582
1,769
7,107
-
-
-
-
2,638
-
794
(15,331)
(137)
(231)
4
(12,263)
-
-
62
62
272
(484)
-
-
-
133
-
-
-
-
-
133
38
143
356
537
-
-
Consolidated
$’000
4,017
1,747
2,909
38
794
(15,331)
(137)
(231)
253
(5,941)
4,794
725
2,187
7,706
272
(484)
(918)
(12,537)
(404)
(13,859)
6868
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30 June 2009
Revenue
Management fees
Consulting fees
Interest income
Interest income - (SPP)
Dividend income
Changes in fair value of financial assets
Net gains / (losses) on disposal of financial
assets
Foreign exchange gains / (losses)
Other revenue
Expense
Employee benefits expense
Employee benefits expense - (SPP)
Other expenses
Finance cost
– external unit holders’ share of net profit
Operating profit / (loss) before significant
items and income tax
Funds and asset
management
$’000
Principal
Investments
$’000
Unallocated -
Corporate
$’000
Consolidated
$’000
4,261
500
330
(37)
-
-
-
-
8
5,062
8,047
193
2,135
10,375
-
(5,313)
-
-
3,802
-
630
(3,372)
247
36
-
1,343
-
-
-
-
296
1,047
-
-
124
-
-
-
-
-
124
62
143
1,033
1,238
4,261
500
4,132
87
630
(3,372)
247
36
8
6,529
8,109
336
3,168
11,613
-
296
(1,114)
(5,380)
The assets and liabilities of the Group’s operating segments are as follows:
30 June 2009
Funds and asset
management
$’000
Principal
Investments
$’000
Unallocated -
Corporate
$’000
Eliminations*
$’000
Consolidated
$’000
Cash and cash equivalents
Financial assets
Investment in associate
Loans – share purchase plan (SPP)
Other assets
Total assets
External unit holders’ interests in
controlled trusts
Other liabilities
Total liabilities
3,617
240
-
-
4,616
8,473
-
2,074
2,074
36,005
30,370
15,441
-
9,401
91,217
-
124
124
-
-
-
4,217
-
4,217
-
-
-
-
-
-
-
(1,491)
(1,491)
-
(1,491)
(1,491)
39,622
30,610
15,441
4,217
12,526
102,416
-
707
707
Net assets
6,399
91,093
4,217
-
101,709
MAGELLAN FINANCIAL GROUP LIMITED
69
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2009
24.
OPERATING SEGMENT INFORMATION (CONTINUED)
30 June 2008
Funds and asset
management
$’000
Principal
Investments
$’000
Unallocated -
Corporate
$’000
Eliminations*
$’000
Consolidated
$’000
Cash and cash equivalents
Financial assets
Investment in associate
Loans – share purchase plan (SPP)
Other assets
Total assets
External unit holders’ interests in
controlled trusts
Other liabilities
Total liabilities
7,349
240
-
-
4,140
11,729
-
5,283
5,283
46,014
50,327
-
-
8,084
104,425
10,731
2,316
13,047
-
-
-
4,043
-
4,043
-
-
-
-
-
-
-
(1,484)
(1,484)
-
(1,484)
(1,484)
53,363
50,567
-
4,043
10,740
118,713
10,731
6,115
16,846
Net assets
6,446
91,378
4,043
-
101,867
*Eliminations includes adjustments and eliminations for inter-segment transactions and netting of balance sheet items
The Group’s net investment into its funds and asset management business activities as at 30 June 2009 is:
Capital invested in controlled entity
Subordinated loan to controlled entity
Cash held by funds and asset management operating segment
Net investment in funds and asset management business
The Group’s business activities are conducted in Australia.
$’000
12,500
1,150
13,650
3,617
10,033
25.
EVENTS SUBSEqUENT TO REPORTING DATE
Subsequent to the end of the financial year, the Group acquired 14,336,117 shares in Magellan Flagship Fund
Limited (ASX code: MFF) on-market for consideration of $8.4 million. As at the date of this report the Group
holds 44,727,166 MFF shares or 12.49% (2008: 27,494,268 or 7.27%).
No other significant events have occurred since the balance date which would impact on the financial position
of the group as at 30 June 2009 and on the results for the year ended on that date.
7070
MAGELLAN FINANCIAL GROUP LIMITED - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26.
AUDITOR’S REMUNERATION
Amounts received or due and receivable by
Ernst & Young Australia for:
-
-
-
-
an audit of the financial report for the
entity and its operating subsidiaries
other regulatory audit services - AFSL
tax compliance (tax returns)
tax advice
Amounts received or due and receivable by
KPMG Australia for:
-
-
-
-
audit and review of the annual financial
report for the controlled trusts
audit of the compliance plan for each
controlled trust
tax compliance (tax returns)
tax advice
Consolidated
Parent
2009
$’000
2008
$’000
2009
$’000
2008
$’000
152
10
9
15
26
10
44
5
271
113
10
-
-
14
10
43
39
229
123
86
-
-
-
-
-
18
-
141
-
-
-
-
-
13
-
99
MAGELLAN FINANCIAL GROUP LIMITED
71
DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of Magellan Financial Group Limited, I state that:
In the opinion of the Directors:
•
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 accordance 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 2009 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and Corporations Regulations 2001; and
•
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 2009.
On behalf of the Board
Chris Mackay
Chairman
Sydney
26 August 2009
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MAGELLAN FINANCIAL GROUP LIMITED - DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
MAGELLAN FINANCIAL GROUP LIMITED
73
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
7474
MAGELLAN FINANCIAL GROUP LIMITED - INDEPENDENT AUDITOR’S REPORT
SHAREHOLDER INFORMATION
AS AT 20 AUGUST 2009
DISTRIBUTION OF SHAREHOLDERS
The distribution of shareholders of the Company as at 20 August 2009 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
789
1,012
378
754
107
3,040
569
515,069
2,599,077
2,901,780
22,387,509
112,091,532
140,494,967
0.367
1.850
2.065
15.935
79.783
100.000
TWENTY LARGEST SHAREHOLDERS
The names of the twenty largest shareholders of the Company as at 20 August 2009 are listed below:
Holder Name
Cavalane Holdings Pty Ltd
Magellan Equities Pty Ltd
Midas Touch Investments Pty Ltd
Nota Bene Investments Pty Ltd
Vahedin Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
Mr Jeffrey Emmanuel
Mr David Dixon
Mr Christopher Mackay
Mr Peter Kennan
Doulev Pty Limited
Mr David Dixon & Ms Catherine Ramm
Aljamat Pty Ltd
JP Morgan Nominees Australia Limited
Mr David Doyle
Mr Philip Naylor & Mrs Andrea Naylor
National Nominees Limited
ANZ Nominees Limited
Emmanuel Capital Pty Ltd
Number of
Ordinary Shares
Percentage of
Shares in Issue
18,006,006
15,355,551
12.338
10.521
8,708,448
6,006,006
5,348,638
5,332,277
3,031,613
2,505,000
2,433,801
2,232,012
1,891,594
1,886,006
1,832,810
1,799,863
1,728,532
1,500,000
1,490,059
1,417,940
1,406,122
1,375,196
5.967
4.115
3.665
3.654
2.077
1.716
1.668
1.529
1.296
1.292
1.256
1.233
1.184
1.028
1.021
0.972
0.963
0.942
Total shares held by the twenty largest shareholders
85,287,474
58.438
Total shares in issue
145,945,254
MAGELLAN FINANCIAL GROUP LIMITED
75
SHAREHOLDER INFORMATION (CONTINUED)
AS AT 20 AUGUST 2009
SUBSTANTIAL SHAREHOLDERS
The names of the substantial shareholders of the Company and their holdings as at 20 August 2009 are listed
below
Shareholder
Chris Mackay and associates
Cavalane Holdings Pty Ltd
(an entity controlled by Consolidated Press Holdings Ltd)
Hamish Douglass, Midas Touch Investments Pty Ltd and associates
Voting Rights
Subject to the Company Constitution:
Number of
Ordinary Shares
Percentage of
Shares in Issue
18,080,777
18,006,006
9,408,448
12.389
12.338
6.447
a.
b.
c.
at meetings of shareholders, each shareholder is entitled to vote in person, by proxy, by attorney or by
representative;
on a show of hands, each shareholder present in person, by proxy, by attorney or by representative is
entitled to one vote; and
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 “MFGOB”, and “MFGOC” for its listed options.
7676
MAGELLAN FINANCIAL GROUP LIMITED - SHAREHOLDER INFORMATION
CORPORATE DIRECTORY
Directors
Chris Mackay– Chairman
Hamish Douglass – Managing Director and Chief Executive Officer
Naomi Milgrom
Paul Lewis
Brett Cairns
Company Secretaries
David Simpson
Leo Quintana
Registered Office
Magellan Financial Group Limited
Level 7, 1 Castlereagh Street
Sydney NSW 2000
Telephone: +61 2 8114 1888
Email: info@magellangroup.com.au
Fax: +61 2 8114 1800
Auditors
Ernst & Young
680 George Street
Sydney NSW 2000
Website
www.magellangroup.com.au
MAGELLAN FINANCIAL GROUP LIMITED
77
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