2011 ANNUAL REPORT
MAGELLAN FINANCIAL GROUP LIMITED
Contents
Page
Annual Shareholder Letter
Directors’ Report
Auditor’s Independence Declaration
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Corporate Information
- Corporate Governance Statement
- Shareholder Information
- Corporate Directory
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MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
Dear Shareholder,
OVERVIEW OF RESULTS
Magellan Financial Group Limited (‘Magellan’ or ‘Group’ or ‘MFG’) recorded a full year net profit
after tax of $5.8 million for the year ended 30 June 2011 ($3.8 million for 2009/10).
The Group’s reported result includes:
•
revenues, excluding realised and unrealised investment gains and foreign exchange
gains/losses, of $18.0 million compared with revenues of $12.3 million for the previous
corresponding period; and
•
total operating expenses of $10.2 million, compared with total operating expenses of
$7.2 million for the previous corresponding period.
Magellan is in a strong financial position with an extremely strong balance sheet. As at 30
June 2011:
•
the Group had cash, fixed term deposits, and fixed and variable rate debt investments
of approximately $29.3 million, investment assets (excluding the cash and fixed and
variable rate debt investments) of approximately $80.1 million and shareholders funds
of $125.8 million; and
•
the Group’s NTA per share (diluted assuming conversion of the Class B shares) was
approximately $0.78 (2010:$0.71).
Revenues for 2011 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.
MAGELLAN’S FUNDS MANAGEMENT BUSINESS
For the year ended 30 June 2011, the funds management business generated revenues of
approximately $15.4 million (2010: $9.0 million) and had expenses of approximately $9.8
million (2010: $6.7 million), which resulted in a profit before tax of $5.6 million (2010: $2.3
million).
We believe that over time Magellan is likely to generate attractive returns from our investment
in the funds management business. This business should be scalable over time, and
Magellan’s funds under management should continue to grow without the need to make
material additional capital investment into the business.
Over the past 12 months we have added additional high quality employees, particularly
specialists in relationship management, distribution, operations and analysts for the funds
management business. In 2009/10, we opened offices in Brisbane and Melbourne to service
our growing relationships with financial planners around the country. We are pleased with the
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MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
initial progress and believe that developing and maintaining strong and trusted relationships
with financial planners is an important factor in Magellan’s future.
Magellan is also developing its capabilities for domestic and offshore institutional client
opportunities. The Group is hiring additional people, investing in new IT systems and
establishing offshore investment vehicles for both the global equities and infrastructure
strategies. Whilst these expenses will be incurred in 2011/12 and beyond we do not expect an
early payback from these investments. Our objective is that these investments position the
Group to further grow the funds management business over the longer term.
As at 17 August 2011, the Group had funds under management of approximately $2.72 billion,
split between global equities and infrastructure equities. This compares with funds under
management of $393 million at 30 June 2009, $1.1 billion at 30 June 2010 and $2.76 billion as
at 30 June 2011. The directors are confident that Magellan continues to be well placed to
attract funds under management:
•
the Magellan Global Fund has continued to build its reputation with research houses
and major financial planning groups, with solid investment outperformance in these
difficult markets (31.2% above the market benchmarks for the first 4 years to 30 June
2011). As at 17 August 2011 the Magellan Global Fund / Colonial First State Magellan
Global Option had funds under management of approximately $667 million, compared
with $71 million at 30 June 2009, $261 million at 30 June 2010 and $650 million at 30
June 2011.
• our infrastructure team had a strong investment performance in 2010/11 and also
increased fund under management. This team has momentum and continues to have
promising discussions with a number of additional
institutional clients. The
infrastructure team had funds under management of approximately $1.67 billion as at
17 August 2011, compared with $89 million at 30 June 2009, $471 million at 30 June
2010 and $1.71 billion at 30 June 2011.
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, whilst maintaining positive relationships with financial
planners and investors in our funds.
The Directors have proposed a final fully franked dividend of 1.5 cents per ordinary share in
respect of the 2011 financial year, which represents $2.28 million. In accordance with accounting
standards, the dividend has not been provided for in the 30 June 2011 financial statements.
INVESTMENTS IN MAGELLAN’S FUNDS AND PRINCIPAL INVESTMENTS
As at 30 June 2011, Magellan’s investment assets comprised $70.8 million invested in the
three funds we manage and an investment portfolio of $9.3 million (which excludes cash,
fixed term deposits, and fixed and floating rate debt investments of $29.3 million). Over time
we hope to earn satisfactory returns for shareholders via the sensible deployment of the
Group’s capital, whilst maintaining capital strength to underpin the business. We intend for
Magellan to maintain a very strong balance sheet including a high level of liquidity to ensure
our business will withstand almost any market condition or unforseen event. This conservative
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MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
balance sheet approach has benefited the Group, particularly during the early stages of the
funds management business in the extreme markets of the last four years and will benefit
Magellan in the future.
We consider the Group’s investments in our funds as “look through” investments in the
underlying companies which comprise the portfolios. The following table aggregates these
“look through” investments with the Group’s direct portfolio investments to show the ten
largest aggregated “look through” equity investments as at 30 June 2011.
MFG’s ten largest investments
on a “look through” basis
American Express
Nestlé
Yum! Brands
eBay
Wells Fargo
Google
Coca-Cola
McDonald's
Visa
Procter & Gamble
30 June 2011
A$m market price
12.3
8.6
8.6
8.4
6.4
5.4
5.3
4.0
3.1
3.0
We are delighted with the quality of the investments in our funds and believe that Magellan
has acquired interests in high quality companies at attractive prices. The benefit of the
excellent underlying business performances was offset in 2010/11 by the ongoing rise in the
Australian dollar.
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 attractive
growth profiles with market leading positions in emerging markets, as well as leadership in
most developed markets. We believe that, in aggregate, these companies continued to
strengthen their competitive advantages and again gained market share in 2010/11.
Although economic growth and overall business profitability is likely to remain subdued in
many parts of the world, we expect these companies to continue to demonstrate business
resilience.
FINANCIAL
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
22 August 2011
Hamish Douglass
Managing Director & CEO
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
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 2011.
Directors
The following persons were Directors of the Company during the year and up to the date of this
report unless otherwise stated.
Directorship
Chairman and Executive Director
Name
Chris Mackay
Hamish Douglass Managing Director and Chief Executive Officer
Naomi Milgrom
Paul Lewis
Brett Cairns
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
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
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 high net worth and retail investors in Australia and New Zealand,
and institutional investors.
Trading Results
The Group’s net profit after tax for the year ended 30 June 2011 was $5,792,000 (2010:
$3,826,000).
The Group’s reported result includes:
•
•
revenues, excluding realised and unrealised investment gains and foreign exchange
gains/losses, of $18.0 million compared with revenues of $12.3 million for the previous
corresponding period; and
total operating expenses of $10.2 million, compared with total operating expenses of $7.2
million for the previous corresponding period.
Magellan is in a strong financial position with an extremely strong balance sheet. As at 30 June
2011:
•
the Group had cash, fixed term deposits, and fixed and variable rate debt investments of
approximately $29.3 million, investment assets (excluding the cash and fixed and variable
rate debt investments) of approximately $80.1 million and shareholders funds of $125.8
million; and
•
the Group’s NTA per share (diluted assuming conversion of the Class B shares) was
approximately $0.78 (2010:$0.71).
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Dividends and Distributions
No dividends were paid during the financial year (2010: nil). The Directors have proposed a final
fully franked dividend of 1.5 cents per ordinary share in respect of the 2011 financial year, which
represents $2.28 million. In accordance with accounting standards, the dividend has not been
provided for in the 30 June 2011 financial statements.
Unissued Shares
Share Options
As at the date of this report, there were 7,882,483 unissued ordinary shares under option which
comprised 7,882,483 MFG 2016 Options to take up one new ordinary share in the Company at an
exercise price of $3.00 per share. The options expire on 30 June 2016.
Option holders do not have any right, by virtue of the option, to participate in any share issue or
interest issue of the Company.
MFG Class B Shares
As at the date of this report, Mr Douglass held 10,200,000 MFG Class B Shares which will convert
into the Company’s ordinary shares on 21 November 2016 in accordance with a conversion
formula. The maximum number of the Company’s ordinary shares that will be issued on
conversion of all the Class B shares is 10,200,000.
Changes in the State of Affairs
There were no significant changes in the state of affairs of the Group that occurred during the
year.
Events Subsequent to the end of the Financial Year
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.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
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 year 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 year by the Auditor is compatible with the general
standard of independence for auditors imposed by the Corporations Act 2001. The Directors are
satisfied, considering the nature and quantum of the non-audit services that the provision of non-
audit services by the Auditor, as set out below, did not compromise the Auditor independence
requirements of the Corporations Act 2001.
Audit services:
Ernst & Young - audit and review of the financial statements of:
- the Company and its operating subsidiaries
- the Magellan unlisted funds
KPMG - audit and review of the financial statements of:
- the Magellan unlisted funds
Other services:
Ernst & Young:
- other regulatory audit services
- other services
KPMG
- other regulatory audit services
2011
$
2010
$
77,200
27,000
73,850
6,000
3,400
107,600
23,130
102,980
15,000
63,250
5,000
57,400
-
78,250
9,900
72,300
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Auditor’s Independence Declaration
A copy of the Auditor’s Independence Declaration as required under section 307C of the
Corporations Act 2001 is set out on page 17.
Information on Directors
Chris Mackay
Chairman and Executive Director (Chief Investment Officer)
Chris is a Director of Consolidated Media Holdings Limited [formerly Publishing & Broadcasting
Limited] (appointed March 2006) and Seven Group Holdings Limited (appointed June 2010).
Chris retired as Chairman of the investment bank UBS Australasia, in 2006, having previously been
its Chief Executive Officer. He is a member of the Federal Treasurer’s Financial Sector Advisory
Council, and is 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
Hamish has more than 20 years experience in financial services and was, formerly Co-Head of
Global Banking at Deutsche Bank, Australasia.
Hamish is a member of the Australian Government’s Foreign Investment Review Board (FIRB), a
member of the Australian Government’s Financial Literacy Board, a member of the Australian
Government’s Takeovers Panel and is a member of the Forum of Young Global Leaders – World
Economic Forum.
Naomi Milgrom AO
Non-executive Director
Naomi 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, Naomi has combined business leadership with leadership in the arts, sciences and
women’s health, as Chair of the Australian Centre for Contemporary Art (ACCA), former Chair of
the Melbourne Fashion Festival, and director of the Howard Florey Institute. Naomi was the first
woman to deliver the Batman Oration on Australia Day 2006. The Centenary of Federation Medal
was awarded to Naomi for her outstanding contribution to business and the fashion industry. In
2011, Naomi received an Officer of the Order of Australia "for service to business as a leader and
mentor in the fashion industry, and to the community through advisory and management roles of
a wide range of arts, health and philanthropic bodies".
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Paul Lewis
Non-executive Director and Chairman of the Audit and Risk Committee
Paul 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. Paul led major assignments in financial services
– retail banking, life insurance and stock exchanges, energy, manufacturing, telecommunications,
rail, air, container shipping and government. Paul also served on senior advisory panels with
ministerial representation in Hong Kong, Malaysia and Indonesia, and from 2003 to 2010 was a
member of British Telecom’s Global Advisory Board. Paul is currently Chair of NAB’s Private Wealth
Advisory Council, Chairman of PSP International, Deputy Chairman of the Australian British
Chamber of Commerce, and a board member of St Vincent’s Hospital Prostate Cancer Centre.
Brett Cairns
Non-executive Director and member of the Audit and Risk Committee
Brett was formerly co-head of the Capital Markets Group within Structured Finance at Babcock &
Brown, which he joined in 2002. Brett 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, Brett spent 3 years with Credit Suisse Financial Products, the then derivatives bank of the
Credit Suisse group.
Information on Company Secretaries
Nerida Campbell
Company Secretary
Nerida has over 20 years experience in the investment banking and finance industry, previously
holding various finance and management roles including that of Chief Financial Officer for UBS AG,
Australia and New Zealand. Nerida is a member of the Institute of Chartered Accountants in
Australia, a Fellow of the Financial Services Institute of Australasia, and a graduate member of the
Australian Institute of Company Directors.
Leo Quintana
Company Secretary
Leo has 9 years experience as a corporate lawyer. He is the Legal Counsel and Company Secretary
of Magellan Financial Group Limited, Magellan Asset Management Limited and Magellan Flagship
Fund Limited. Leo is admitted as a solicitor of the Supreme Court of New South Wales and holds a
Bachelor of Laws and a Bachelor of Business. He was previously an Associate – commercial and
corporate group, of Harris Friedman Lawyers. Leo is a member of the Law Society of New South
Wales and a member of the Australian Corporate Lawyers Association.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Directors’ Meetings
The following table sets out the number of meetings of the Company’s Directors held during the
year ended 30 June 2011 and attended by each Director.
Board Meetings
Held
Attended
While a Director
Audit and Risk Committee
Meetings
Held
Attended
While a Member
Chris Mackay
Hamish Douglass
Naomi Milgrom
Paul Lewis
Brett Cairns
4
4
4
4
4
4
4
4
4
4
6
6
6
6
6
6
Remuneration Report (audited)
This report outlines the Key Management Personnel and Other Executives remuneration
arrangements of the Company and the 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”. Key Management Personnel for the
Group are the Non-executive Directors, Executive Directors and Other Key Management Personnel
identified below. Other Executives are employees that are senior managers of the Group, and the
Company Secretary of the Company. The Group has no senior managers other than those
identified as Key Management Personnel.
The Board does not grant options under its remuneration policy.
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 Board’s remuneration policy is designed to attract and
retain appropriately experienced, skilled and qualified personnel in order to achieve the Group’s
objectives. The remuneration of the Non-executive Directors is not linked to the performance or
earnings of the Group.
The Non-executive Directors are eligible to participate in the Group’s Share Purchase Plan (SPP)
which is described later in this report. Non-executive Directors’ remuneration includes share based
payment amounts that represent the cost to the Group of providing interest free loans under the
SPP.
Remuneration of Executive Directors, Other Key Management Personnel and Other
Executives
The Board’s remuneration policy is designed to attract and retain appropriately experienced, skilled
and qualified personnel in order to achieve the Group’s objectives.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Remuneration of Executive Directors, Other Key Management Personnel and Other
Executives (continued)
Executive Directors
The Executive Directors’ remuneration is determined by the Board, which may utilise the services
of external advisors. It comprises fixed compensation only and is unchanged from the previous
year. The amount of fixed compensation is not dependent on the satisfaction of a performance
condition, or the performance of the Group, the Company’s share price, or dividends paid by the
Company. Similarly to previous years, no variable compensation amounts were paid to the
Executive Directors. Details of the employment agreements of the Executive Directors are
described later in this report.
Other Key Management Personnel and Other Executives
The Other Key Management Personnel and Other Executives’ remuneration comprises fixed and
variable remuneration that takes into account the individual’s experience, abilities, achievements,
and contribution to the Group.
Other Key Management Personnel and Other Executives’ fixed compensation is structured as a
total employment cost package, which may be received as a combination of cash, non-cash
benefits and superannuation contributions. Fixed compensation is reviewed annually to ensure
that it is competitive and reasonable, however there are no guaranteed increases to the fixed
compensation amount. The amount of fixed compensation is not dependant on the satisfaction of
a performance condition, or the performance of the Group, the Company’s share price, or
dividends paid by the Company.
The Board determines the total amount of variable compensation to be paid to the Group’s
employees including Other Key Management Personnel and Other Executives with regard to the
profitability of the Group’s funds management business, and the Group’s overall profitability and
capacity to pay dividends to shareholders.
The Board considers that a focus on short term indicators for the determination of short term
variable compensation, such as movements in the Company’s share price, may encourage
performance that is not in the best interests of the Group and its shareholders. The Board is more
concerned that Other Key Management Personnel and Other Executives are motivated to build
investment returns for investors in the funds managed by the Group and to build shareholder
wealth over the long term. The Board believes that the participation in the Group’s SPP by Other
Key Management Personnel and Other Executives closely aligns their interests with the long term
interests of shareholders.
The Executive Directors determine the amount of variable compensation to be paid to Other Key
Management Personnel and Other Executives, taking into consideration each individual’s
performance and contribution during the year. The variable component of the Other Key
Management Personnel and the Other Executive remuneration is not dependent on the satisfaction
of performance conditions, the Company’s share price, or dividends paid by the Company.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Remuneration of Executive Directors, Other Key Management Personnel and Other
Executives (continued)
Other Key Management Personnel and Other Executives are eligible to participate in the Group’s
SPP which is described later in this report. Other Key Management Personnel and Other
Executives remuneration includes share based payment amounts that represent the non-cash cost
to the Group of providing interest free loans under the SPP.
Share Purchase Plan (SPP)
The Group has put in place a SPP that provides financial assistance to Non-executive Directors and
employees (‘Participants’), by way of an interest free loan, to invest in shares in the Company.
The issue price of shares under the SPP is the fair market value of the shares on the offer date.
Details of the closing price of the Company’s shares for the previous 5 years are provided below
together with the issue price of shares under the SPP.
30 June 2007
30 June 2008
30 June 2009
30 June 2010
MFG shares
closing price
$2.20
$0.53
$0.55
$1.13
Offer date
10 September 2007
20 October 2008
8 September 2009
10 November 2010
MFG shares
SPP issue price
$1.66
$0.52
$0.78
$1.35
30 June 2011
$1.32
2 March 2011
$1.75
The Directors believe that the Key Management Personnel and Other Executive participation in the
SPP closely aligns their interests with the interests of the shareholders of the Group.
Further details of the SPP are provided in note 11 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.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Details of Remuneration
The Key Management Personnel of the Group, including the Non-executive and Executive Directors
of the Company, and the Other Executives received the following amounts during the year:
Short term Benefits
Salary
$
Cash
Bonus
$
Non-executive
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Executive Directors
13,761
20,000
18,349
Chris Mackay
Hamish Douglass
234,801
234,801
-
-
-
-
-
Post-employment
Benefits
Superannuation
$
1,239
-
1,651
Share
based
Payment
Under
SPP(1)
$
-
71,657
71,657
Total
$
15,000
91,657
91,657
15,199
15,199
-
-
250,000
250,000
Other Key
Management
Personnel
Nerida Campbell
Total Key
Management
Personnel
Other Executives
234,801
125,000
15,199
9,318
384,318
756,513
125,000
48,487
152,632
1,082,632
Leo Quintana
155,963
30,000
14,037
4,692
204,692
Total
912,476
155,000
62,524
157,324
1,287,324
(1) Share based payments represent the non-cash cost of providing interest free loans to Participants in the
Share Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan)
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Details of Remuneration (continued)
Comparative information for the year ended 30 June 2010 is as follows:
Short term
Benefits
Salary
$
Cash
Bonus
$
13,485
20,000
18,349
235,539
235,539
-
-
-
-
-
Post-
employment
Benefits
Superannuation
$
1,215
-
1,651
Share
based
Payment
Under
SPP(1)
$
Total
$
-
71,657
71,657
14,700
91,657
91,657
14,461
14,461
-
-
250,000
250,000
198,539
50,000
14,461
5,120
268,120
721,451
50,000
46,249
148,434
966,134
142,202
20,000
12,798
3,573
178,573
Non-executive
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Executive
Directors
Chris Mackay
Hamish Douglass
Other Key
Management
Personnel
Nerida Campbell
Total Key
Management
Personnel
Other
Executives
Leo Quintana
Total
(1) Share based payments represent the non-cash cost of providing interest free loans to Participants in the
Share Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan).
152,007 1,144,707
863,653
70,000
59,047
Service Agreements
Remuneration and other terms of employment for the Non-executive Directors are formalised in
service agreements with the Company.
Naomi Milgrom AO, Non-executive Director
• Commenced on 20 December 2006
• No term of agreement has been set unless the Director is not re-elected by shareholders of the
Company
• Base salary, inclusive of superannuation, for the year ended 30 June 2011 of $15,000 paid by
the Group.
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MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Service Agreements (continued)
Paul Lewis, Non-executive Director and Chairman of the Audit and Risk Committee
• Commenced on 20 December 2006
• No term of agreement has been set unless the Director is not re-elected by shareholders of the
Company
• Base salary, inclusive of superannuation, for the period ended 30 June 2011 of $20,000 paid
by the Group
Brett Cairns, Non-executive Director and member of the Audit and Risk Committee
• Commenced on 22 January 2007
• No term of agreement has been set unless the Director is not re-elected by shareholders of the
Company
• Base salary, inclusive of superannuation, for the period ended 30 June 2011 of $20,000 paid
by the Group
Employment Agreements
The Executive Directors, Key Management Personnel, and Other Executives are engaged under
employment agreements with Magellan Asset Management Limited (MAM), a controlled entity of
the Company.
Chris Mackay, Executive Director
The Director is employed under a contract with effect from 1 March 2008 and which will continue
indefinitely until terminated. Under the terms of the contract the Director:
•
receives fixed remuneration of $250,000 per annum, inclusive of superannuation.
• may receive a bonus at the discretion of the Board.
• has undertaken to MAM 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 the Company, the Magellan Flagship Fund Limited, MAM and related entities,
and any managed investment schemes in which MAM acts as responsible entity. The
restrictions will cease to apply prior to 1 July 2012, if a third party acquires control of MAM,
or MAM 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.
14
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Employment Agreements (continued)
• may terminate the contract at any time by giving not less than 3 months written notice to
MAM and MAM may terminate the contract by providing 12 months written notice or
providing payment in lieu of that notice.
• may have his contract terminated by MAM at any time without notice if serious misconduct
has occurred. Where the contract is terminated for cause, MAM must pay any accrued but
unpaid amounts to which the Director is entitled after setting off for misfeasance for any
loss suffered by MAM from the acts which caused the termination.
Hamish Douglass, Executive Director
The Director is employed under a contract with effect from 1 March 2008 and which will continue
indefinitely until terminated. Under the terms of the contract the Director:
•
receives fixed remuneration of $250,000 per annum, inclusive of superannuation.
• may receive a bonus at the discretion of the Board.
• has undertaken to MAM 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 the Company, the Magellan Flagship Fund Limited, MAM and related entities,
and any managed investment schemes in which MAM acts as responsible entity. The
restrictions will cease to apply prior to 1 July 2012, if a third party acquires control of MAM,
or MAM 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.
• may terminate the contract at any time by giving not less than 3 months written notice to
MAM and MAM may terminate the contract by providing 12 months written notice or
providing payment in lieu of that notice.
• may have his contract terminated by MAM at any time without notice if serious misconduct
has occurred. Where the contract is terminated for cause, MAM must pay any accrued but
unpaid amounts to which the Director is entitled after setting off for misfeasance for any
loss suffered by MAM 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’ 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
15
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2011
Remuneration Report (continued)
Employment Agreements (continued)
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
Key Management Personnel and Other Executives have rolling contracts with MAM. MAM may
terminate Key Management Personnel and Other Executives employment agreement by providing
up to three months written notice. On termination, Key Management Personnel and Other
Executives are required to repay any loan amounts outstanding in respect to shares acquired
under the Company’s Share Purchase Plan in accordance with the SPP terms and conditions. There
are no provisions for any termination payments other than for unpaid remuneration and accrued
annual leave to be paid to Key Management Personnel and Other Executives.
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.
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
22 August 2011
16
MAGELLAN FINANCIAL GROUP LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
17
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2011
Consolidated
Company
Note
2011
2010
2011
2010
$ ’000
$ ’000
$ ’000
$ ’000
5
Revenue
Management fee revenue
Consulting fee revenue
Dividend income
Interest income
Net changes in fair value of held for trading
financial assets
Net gain on sale of available for sale
financial assets
Foreign exchange gain / (loss)
Other revenue
Total revenue
Expenses
Employee benefits expense
Depreciation and amortisation
Occupancy expense
Audit fees
Legal and professional fees
Fund administration
Marketing expense
Travel and entertainment expense
Other operating expenses
Total expenses
13,631
1,266
1,143
1,915
132
216
(19)
30
7,320
1,490
1,138
2,364
214
6
40
6
- -
- -
1,143
1,462
132
216
(19)
1,138
2,169
214
6
41
- -
18,314
12,578
2,934
3,568
7,170
4,954
341
345
122
422
142
80
540
571
558
639
121
377
137
54
351
330
314
523
10,244
7,161
- -
- -
62
7
59
7
- -
- -
- -
159
569
160
570
Share of income from associate entity
Gain to Group on loss of significant influence
over associate entity
-
(292)
- -
-
153
- -
Operating profit before income tax
8,070
5,278
2,365
2,998
Income tax expense
4 a)
(2,278)
(1,452)
(552)
(764)
Net operating profit
5,792
3,826
1,813
2,234
18
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2011
Consolidated
2011
$ ’000
2010
$ ’000
Company
2011
$ ’000
2010
$ ’000
Other comprehensive income
Net gain on sale of financial assets
Net impact of deemed disposal upon ending
of significant influence over associate entity
Revaluation of available for sale financial
assets
Share of revaluation of available for sale
financial assets of an associate
Income tax expense on items of other
comprehensive income
Other comprehensive income
for the year, net of tax
Total comprehensive income
for the year
(216)
(6)
(216)
-
-
(153)
- -
4,517
5,372
4,517
6,517
-
1,444
- -
4 b)
(1,290)
(1,997)
(1,290)
(1,955)
3,011
4,660
3,011
4,562
8,803
8,486
4,824
6,796
Earnings per share for the year
Earnings attributable to shares
Basic earnings per share
Diluted earnings per share
6
6
3.9 cents
2.6 cents
3.7 cents
2.5 cents
The Statement of Comprehensive Income is to be read in conjunction with the accompanying notes to the Financial Statements.
19
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2011
Consolidated
Company
Note
2011
2010
2011
2010
$ ’000
$ ’000
$ ’000
$ ’000
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
Investments in controlled entities
Financial assets
Deferred tax assets
Loans - share purchase plan (SPP)
Loan to controlled entity
Property, plant and equipment
Total non-current assets
8
10 a)
9
11 a)
10 b)
4 d)
11 b)
12
1,625
27,879
8,441
186
138
38,269
2,243
27,057
3,181
357
176
695
17,372
5,327
186
90
234
25,098
956
357
112
33,014
23,670
26,757
79,980
4,637
6,135
- -
67,595
6,683
4,922
- -
268
245
12,539
79,980
4,173
6,135
1,150
12,539
67,595
6,433
4,922
1,150
- -
90,997
79,468
103,977
92,639
Total assets
129,266
112,482
127,647 119,396
Liabilities
Current liabilities
Trade and other payables
Loans from controlled entity
Income tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
13 a)
2,095
1,177
- -
172
1,336
42
-
1,336
3,431
1,349
1,378
13 b)
- -
-
Total non-current liabilities
- -
-
39
2,000
172
2,211
1,639
1,639
Total liabilities
Net assets
3,431
1,349
1,378
3,850
125,835
111,133
126,269 115,546
Equity
Contributed equity
Available for sale reserve
Retained profits / (accumulated losses)
15
114,529
5,563
5,743
108,630
2,552
(49)
114,904 109,005
1,642
4,899
4,653
6,712
Total attributable to members of the Group
125,835
111,133
126,269 115,546
Total Equity
125,835
111,133
126,269 115,546
The Statement of Financial Position is to be read in conjunction with the accompanying notes to the Financial Statements.
20
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2011
Attributable to Equity Holders of the Group
Contributed
Equity
$’000
108,630
Retained
Profits /
(Accumulated
Losses)
$’000
Available
for Sale
Reserve
$’000
Total
$’000
(49)
2,552
111,133
-
-
5,792
-
-
3,011
5,792
3,011
-
5,792
3,011
8,803
1,028
4,584
287
-
-
-
-
-
-
1,028
4,584
287
5,899
-
-
5,899
114,529
5,743
5,563
125,835
Attributable to Equity Holders of the Group
Contributed
Equity
$’000
107,692
Retained
Profits /
(Accumulated
Losses)
Available
for Sale
Reserve
$’000
(3,875)
$’000
(2,108)
Total
$’000
101,709
-
-
-
647
291
938
108,630
3,826
-
-
4,660
3,826
4,660
3,826
4,660
8,486
-
-
-
-
-
-
647
291
938
(49)
2,552
111,133
Equity - 1 July 2010
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities:
- under employee share purchase plan
(SPP)
- on exercise of MFG 2011 Options
SPP expense for the year
Total transactions with equity
holders in their capacity as equity
owners
Equity - 30 June 2011
Equity - 1 July 2009
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities:
- under employee SPP
SPP expense for the year
Total transactions with equity
holders in their capacity as equity
owners
Equity - 30 June 2010
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial Statements.
21
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2011
For the year ended 30 June 2011
Attributable to Equity Holders of the Company
Contributed
Equity
$’000
Retained
Profits
$’000
Available
for Sale
Reserve
$’000
Total
$’000
Equity - 1 July 2010
109,005
4,899
1,642
115,546
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities:
- under employee SPP
- on exercise of MFG 2011 Options
SPP expense for the year
Total transactions with equity holders
in their capacity as equity owners
Equity - 30 June 2011
For the year ended 30 June 2010
-
1,813
-
1,813
-
-
3,011
3,011
-
1,813
3,011
4,824
1,028
4,584
287
5,899
114,904
-
-
-
-
-
-
-
-
1,028
4,584
287
5,899
6,712
4,653
126,269
Attributable to Equity Holders of the Company
Contributed
Equity
$’000
Retained
Profits
$’000
Available
for Sale
Reserve
$’000
Total
$’000
Equity - 1 July 2009
108,067
2,665
(2,920)
107,812
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities:
- under employee SPP
SPP expense for the year
Total transactions with equity holders
in their capacity as equity owners
Equity - 30 June 2010
-
2,234
-
2,234
-
-
4,562
4,562
-
2,234
4,562
6,796
647
291
938
-
-
-
-
-
-
-
647
291
938
109,005
4,899
1,642
115,546
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial Statements.
22
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2011
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 and distributions received
Tax paid
Payments to suppliers and employees
Consolidated
2011
$ ’000
2010
$ ’000
Parent
2011
$ ’000
2010
$ ’000
13,158
1,397
6,940
1,615
-
1,071
-
1,423
1,029
-
568
1,040
(246)
(8,882)
169
(297)
1,196
578
-
(6,197)
1,029
-
-
1,040
(246)
(258)
169
(297)
-
578
-
(297)
Net cash inflows from operating activities
14a)
8,064
4,004
2,636
1,576
Cash flows from investing activities
Proceeds from sale of
available for sale financial assets
Maturities of held to maturity financial assets
Purchases of available for sale financial assets
Purchases of held to maturity financial assets
Net cash flows from foreign exchange transactions
Purchase of plant and equipment
Net cash outflows from investing activities
Cash flows from financing activities
Proceeds from exercise of MFG 2011 Options
Borrowings from controlled entities
Repayment of borrowings from controlled entities
Proceeds from repayment of share purchase plan
loan
Net cash inflows from financing activities
2,771
9,390
(10,981)
(10,647)
(19)
(98)
(9,584)
128
5,400
(21,212)
(25,708)
37
(30)
(41,385)
2,771
9,390
(10,981)
(2,238)
(19)
-
(1,077)
128
5,400
(21,212)
(24,008)
37
-
(39,655)
495
-
-
-
-
-
495
500
(2,500)
-
2,341
-
407
902
-
407
-
-
(1,098)
2,341
Net increase / (decrease) in cash and cash
equivalents
Effects of exchange rate movements
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the
year
8
(618)
-
2,243
(37,381)
3
39,622
461
-
234
(35,738)
3
35,969
1,625
2,244
695
234
The Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial Statements.
23
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
1.
Corporate Information
The financial report of Magellan Financial Group Limited for the year ended 30 June 2011 was
authorised for issue in accordance with a resolution of the directors on 22 August 2011.
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.
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 (AASB) and International
Financial Reporting Standards (IFRS).
The preparation of the financial statements in conformity with AASB and IFRS requires the use of
critical accounting estimates and judgements. The following balances rely on such judgements:
• balances relating to the Share Purchase Plan. Details are provided in note 2 (p) and note
11;
investment in other unlisted funds. Details are provided in note 10 c) i).
•
24
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(c) New Accounting Standards and Interpretations
The accounting policies applied by the Group in this financial report are the same as those applied
by the Group for the year ended 30 June 2010.
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:
i) AASB 9: Financial Instruments is applicable to annual reporting periods beginning on or
after 1 January 2013. The IASB recently issued an exposure draft proposing that the date
for mandatory adoption be delayed until periods commencing on or after 1 January 2015.
The amendments require financial assets to be measured at fair value through profit or
loss, unless:
- the criteria for amortised cost measurement are met, or
- the Group qualifies and elects to recognise gains and losses on equity securities that are
not held-for-trading directly in other comprehensive income.
Where the Group elects to recognise gains and losses on qualifying securities directly in
other comprehensive income there will be no requirement to recognise either impairment
losses or cumulative changes in fair value on de-recognition of the assets in profit or loss.
ii) Amendments to AASB 2010-4: Further Amendments to Australian Accounting Standards
arising from the Annual Improvements Project (effective for annual reporting periods
beginning on or after 1 January 2011).
In June 2010, the AASB made a number of amendments to Australian Accounting
Standards as a result of the IASB's annual improvements project. The Group does not
expect that any adjustments will be necessary as the result of applying the revised rules.
iii) Revised AASB 124: Related Party Disclosures
AASB 124 is applicable to annual reporting years beginning on or after 1 January 2011. It
requires disclosure of additional information relating to individual key management
personnel. Application of this standard will not affect any of the amounts recognised in the
financial statements.
iv) IFRS 10: Consolidated Financial Statements
IFRS 10 is applicable to annual reporting periods beginning on or after 1 January 2013. The
Group has not yet evaluated the effect on the Group’s financial statements.
v) IFRS 13: Fair Value Measurement
IFRS 13 is applicable to annual reporting periods beginning on or after 1 January 2013. The
Group has not yet evaluated the effect on the Group’s financial statements.
25
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(d) Basis of Consolidation
The financial report of the Group comprises the consolidated financial reports of the Company and
its controlled entities. Controlled entities included within the consolidated financial report are:
Magellan Asset Management Limited
Magellan Capital Partners Pty Limited
% Ownership
30 June
2011
100.0
100.0
30 June
2010
100.0
100.0
All inter-entity balances and transactions between entities in the consolidated group, including
unrealised profits or losses, have been eliminated on consolidation. Policies of the controlled
entities have been changed where necessary to ensure consistency with those policies adopted by
the Company.
(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. 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. Acquisition 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 profit or loss, 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.
26
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(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 is the Australian
dollar.
Transactions and Balances
Transactions denominated in foreign currencies are translated into Australian dollars 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 London 4pm exchange
rates at balance date. The fair values of financial assets are determined using the London 4pm
exchange rates at balance date.
Foreign currency exchange differences relating to financial assets are included in changes in fair
value disclosed in net operating profit or other comprehensive income. All other foreign currency
exchange differences are presented separately in profit or loss.
(h) Cash and Cash Equivalents
Cash comprises current accounts 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 deposits with a maturity less than 90
days from inception are classified as cash equivalents.
(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 its 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.
27
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(j) Derivative Financial Instruments (continued)
The resulting gain or loss is recognised in profit or loss 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 recognised 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 cash flow or fair value hedges.
(k) Financial Assets
Financial assets in the scope of AASB139: Financial Instruments: Recognition and Measurement
are categorised as financial assets at fair value through profit or loss, loans and receivables, held-
for-trading, 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.
Financial assets are initially measured at fair value, plus in the case of assets not at fair value
through profit or 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.
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 profit or loss.
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 initially recognised at fair value and then are carried
at amortised cost using the effective interest rate method.
Loans and Receivables
Fixed term deposits that have a term of 90 days or greater from date of inception are classified as
loans and receivables. These deposits are initially recognised at fair value and are then carried at
amortised cost using the effective interest rate method. They are classified as current assets if the
term to maturity from reporting date is less than 12 months and non-current if the term to
maturity is greater than 12 months.
28
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(k) Financial Assets (continued)
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 the available-for-sale reserve 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 other comprehensive income is recognised in profit or loss.
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 or loss’. On consolidation of these
trusts into the results of the Group, their 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 until the
asset is sold, at which time the cumulative change in fair value previously reported in equity is
recognised in profit or loss.
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 profit or loss, 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
Investments in associates are accounted for using the equity method of accounting in the
consolidated financial statements. An 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 an associate is carried in the consolidated Statement
of Financial Position 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.
29
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(k) Financial Assets (continued)
The Group’s share of an associate’s post-acquisition profit or loss is recognised in profit or loss,
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. Dividends receivable from an associate are recognised in the
Company’s Statement of Comprehensive Income as income, while in the consolidated financial
statements they reduce the carrying value of the investment.
(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) 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 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.
30
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(p) Share Purchase Plan
The Company has in place a Share Purchase Plan (SPP) for employees and Non-executive
Directors (‘Participants’) to purchase shares in the Company (see Directors Report – Remuneration
Report – Share Purchase Plan). The Company provides financial assistance to Participants, by way
of an interest free loan. Loans to Participants are initially recognised at fair value, which is
determined by discounting loans to their net present value using the risk-free interest rate at the
time the loan is granted and an estimated repayment schedule. Following initial recognition, they
are carried at amortised cost using the effective interest rate method, adjusted for changes in the
projected repayment schedule. Changes in the carrying value of these are recognised in ‘interest
income’ in profit or loss. The cost of providing the benefit to Participants is recognised as an
employee benefits expense in profit or loss 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 date, and of the changes in carrying value of the loans
and employee benefits expense recognised in profit or loss during the year ended 30 June 2011
are provided in note 11.
(q) Contributed Equity
Ordinary shares are classified as 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 profit or loss as it accrues based on the
entitlements set out in the relevant investment management agreements, and unlisted funds
constitutions or product disclosure statements. Performance fee revenue is recognised in profit or
loss 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 profit or loss as it accrues, using the effective interest rate
method and if not received at balance date it is reflected in the Statement of Financial Position 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.
31
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
2.
Summary of Significant Accounting Policies (continued)
(s) Expense Recognition
Expenses are recognised in profit or loss when a present obligation exists (legal or constructive) as
a result of a past event that can be reliably measured. Expenses are recognised in profit or loss if
expenditure does not produce future economic benefits that qualify for recognition in the
Statement of Financial Position.
(t) Leases
Operating equipment lease payments are recognised as an expense in profit or loss on a straight-
line basis over the lease term.
(u) Income Tax
The current income tax payable is based on the Group’s taxable profit for the year. Taxable profit
differs from profit as reported in the Statement of Comprehensive Income because of items of
income or expense that are taxable or deductible in other years and items that are not taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred
tax assets are recognised for all deductible temporary differences to the extent that it is probable
that taxable profits will be available against which those deductible temporary differences can be
utilised.
(v) Earnings Per Share
Basic earnings per share is determined by dividing the net profit attributable to members of the
Company by the weighted average 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
Company, adjusted for the impact of potential equity, divided by the weighted average 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.
32
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
3.
Operating Segment Information
The Group’s business activities are organised into the following reportable operating segments for
internal management purposes:
Funds Management
Funds management activities are undertaken by the controlled entity, Magellan Asset Management
Limited (MAM). MAM acts as 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 Trustee and Responsible Entity for the Magellan Global Fund and
Magellan Infrastructure Fund (Unlisted Funds) which are managed investment schemes offered to
Australian and New Zealand investors. MAM acts as Trustee and Investment Manager for the
Magellan Infrastructure Beta Fund which is an unregistered managed investment scheme offered
to Australian wholesale 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
Interest income on Non-executive Directors’ Share Purchase Plan (SPP) loans, and costs associated
with the Board, ASX listing, audit and regulatory compliance activities of the Group.
33
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
3.
Operating Segment Information (continued)
The operating results of the Group’s operating segments are as follows:
30 June 2011
Revenue
Management fees
Consulting fees
Dividend income
Interest income
Changes in fair value of
financial assets
Net gains on disposal of
financial assets
Foreign exchange losses
Other revenue
Expense
Employee benefits expense
Employee benefits expense - SPP
Other expenses
Operating profit
before income tax
30 June 2010
Revenue
Management fees
Consulting fees
Dividend income
Interest income
Changes in fair value of
financial assets
Net gains on sale of financial assets
Foreign exchange gains
Other revenue
Expense
Employee benefits expense
Employee benefits expense - SPP
Other expenses
Share of income from an associate
Gain to Group on loss of significant
influence over associate entity
Operating profit before
significant items and income
tax
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated
- Corporate Consolidated
$ ’000
$ ’000
13,631
1,266
-
451
-
-
1,143
1,042
-
-
-
422
13,631
1,266
1,143
1,915
-
132
-
132
-
-
30
15,378
216
(19)
-
2,514
-
-
-
422
6,829
143
2,845
9,817
-
-
-
-
54
144
229
427
216
(19)
30
18,314
6,883
287
3,074
10,244
5,561
2,514
(5)
8,070
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated
- Corporate Consolidated
$ ’000
$ ’000
7,320
1,490
-
193
-
-
-
6
9,009
-
-
1,138
1,756
214
6
40
-
3,154
-
-
-
415
-
-
-
-
415
4,609
147
1,982
6,738
-
-
-
-
-
(292)
54
144
225
423
-
-
153
-
7,320
1,490
1,138
2,364
214
6
40
6
12,578
4,663
291
2,207
7,161
(292)
153
2,271
3,015
(8)
5,278
34
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
3.
Operating Segment Information (continued)
The assets and liabilities of the Group’s operating segments are as follows:
30 June 2011
Cash and cash equivalents
Financial assets
Loans – SPP
Other assets
Total assets
Other liabilities
Total liabilities
Funds
Management
Principal
Investments
Unallocated
- Corporate
Eliminations*
Consolidated
$ ’000
891
10,508
$ ’000
$ ’000
$ ’000
734
-
-
97,351
-
-
-
4,173
15,572
3,506
3,506
9,590
107,675
41
41
6,321
1,150
7,471
1,336
1,336
$ ’000
1,625
107,859
6,321
13,461
129,266
3,431
3,431
-
-
(1,452)
(1,452)
(1,452)
(1,452)
Net assets
12,066
107,634
6,135
-
125,835
30 June 2010
Cash and cash equivalents
Financial assets
Loan to Company – Corporate
Loans – SPP
Other assets
Total assets
Loan from Funds management
Other liabilities
Total liabilities
Net assets
Funds
Management
Principal
Investments
Unallocated
- Corporate
Eliminations*
Consolidated
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
1,971
1,958
2,000
-
4,445
272
92,694
-
-
7,502
10,374
100,468
-
2,286
2,286
-
41
41
-
-
-
5,279
1,150
6,429
2,000
1,811
3,811
-
-
2,243
94,652
(2,000)
-
-
(2,789)
(4,789)
(2,000)
(2,789)
(4,789)
5,279
10,308
112,482
-
1,349
1,349
8,088
100,427
2,618
-
111,133
*Eliminations include adjustments / eliminations for inter-segment transactions and netting of items on the Statement of
Financial Position
The Group’s net investment into its funds management business activities as at 30 June 2011 is:
Capital invested in controlled entity
Subordinated loan to controlled entity
Cash and fixed term deposits held by funds management
Loan at call from funds management to unallocated – corporate
Cash held for regulatory and operating requirements
Net investment in funds management business
The Group’s business activities are conducted in Australia.
35
30 June
2011
$ ’000
12,500
1,150
13,650
(11,159)
-
5,000
7,491
30 June
2010
$ ’000
12,500
1,150
13,650
(3,689)
(2,000)
3,000
10,961
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
4.
Income Tax
Consolidated
2011
$ ’000
2010
$ ’000
Company
2011
$ ’000
2010
$ ’000
(2,206)
8
(1,458)
29
(80)
(23)
(2,278)
(1,452)
(272)
15
(295)
(552)
(577)
36
(223)
(764)
(1,356)
(1,564)
(1,356)
(1,957)
66
-
66
2
-
(433)
-
-
(1,290)
(1,997)
(1,290)
(1,955)
a) Income tax expense recognised during the
year through profit or loss:
Current income tax expense
Prior year adjustments
Deferred income tax expense arising from
- origination and reversal of temporary differences
b) Income tax expense on items recognised
in other comprehensive income:
- Arising from the revaluation of available for sale
financial assets
- Arising from the disposal of available for sale
financial assets
- Arising from the loss of significant influence over
associate entity
c) Income tax attributable to the financial
year differs from the prima facie amount
payable on operating profit. The difference is
reconciled as follows:
Operating profit before significant items and
income tax expense
8,070
5,278
2,365
2,998
Prima facie income tax expense
on operating profit at 30%
Prior year adjustments
Share purchase plan
Other non-assessable income and
non-deductible expenses
(2,421)
(1,583)
(709)
(899)
8
40
95
29
37
65
(2,278)
(1,452)
15
40
102
(552)
36
37
62
(764)
36
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
4.
Income Tax (continued)
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
Revaluation of financial assets
Other temporary differences
e) Tax consolidation
Consolidated
2011
$ ’000
2010
$ ’000
Company
2011
$ ’000
2010
$ ’000
99
1,379
52
2,774
333
4,637
806
971
210
4,509
187
6,683
99
1,379
52
2,774
(131)
4,173
806
971
210
4,509
(63)
6,433
Members of the tax consolidated group
The Company and its 100% owned Australian subsidiaries Magellan Asset Management Limited
and Magellan Capital Partners Pty Limited are part of a tax consolidated group. 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.
5.
Management fee revenue
Management and administration fees
Performances fees
Consolidated
2011
$ ’000
13,311
320
13,631
2010
$ ’000
7,303
17
7,320
Company
2011
$ ’000
-
-
-
2010
$ ’000
-
-
-
Magellan Asset Management Limited (MAM), a controlled entity, is the Trustee and Responsible
Entity of the Magellan Global Fund and Magellan Infrastructure Fund (the Unlisted Funds) and is
entitled to receive monthly management and administration fees from these funds. MAM is the
Trustee and Investment Manager for the Magellan Infrastructure Beta Fund, an unregistered
managed investment scheme, and is entitled to receive monthly management and administration
fees from this fund. MAM is the Investment Manager of Magellan Flagship Fund Limited (the
Flagship Fund) an ASX listed investment company, and is entitled to receive a quarterly
management fee. MAM is also the Investment Manager for a number of wholesale funds on which
management fees are earned.
MAM may also be entitled to receive performance fees from the Unlisted Funds, the Flagship Fund
and on certain wholesale mandates depending on specific hurdles being achieved.
37
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
Earnings Per Share
6.
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 attributable to shareholders – basic
Weighted average number of shares for
basic earnings per share (‘000)
Basic earnings per share
Diluted earnings per share
Net profit attributable to shareholders – diluted
Weighted average number of shares for
diluted earnings per share (‘000)
Diluted earnings per share
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)
Weighted average number of shares on assumed exercise of:
MFG 2011 Options (‘000) – shares deemed to be issued
for nil consideration
MFG 2016 Options (‘000)
Class B shares
Weighted average number of shares for
diluted earnings per share (‘000)
Consolidated
2011
$ ’000
2010
$ ’000
5,792
3,826
147,933
146,906
3.9 cents
2.6 cents
5,792
3,826
157,479
155,721
3.7 cents
2.5 cents
147,933
146,906
670
-
8,876
-
-
8,815
157,479
155,721
b) Further information
The Company has on issue 10.2 million Class B shares (2010: 10.2 million) that represent potential
ordinary shares. 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 2011, the total weighted
average number of securities for the purposes of calculating the diluted earnings per share would
be 157,477,197 (2010: 155,720,857).
For the calculation of the diluted earnings per share for the year ended 30 June 2011, the effect of
the MFG 2011 Options is dilutive since the options were exercised during the year at a market
price above the exercise price.
As at balance date approximately 3.5 million MFG 2011 Options had been exercised and the
remaining 2.5 million options lapsed.
38
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
6.
Earnings Per Share (continued)
The Company has on issue 7.9 million MFG 2016 Options (2010: 7.9 million) that represent
potential ordinary shares. The 2016 options are anti-dilutive because their exercise price was in
excess of the market price of the Company’s 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 in the future. Further details of the terms of these options
and shares are included in note 15.
7.
Dividends
No dividends were paid during the financial year (2010: nil). The Directors have proposed a final
fully franked dividend of 1.5 cents per ordinary share in respect of the 2011 financial year, which
represents $2.28 million. In accordance with accounting standards, the dividend has not been
provided for in the 30 June 2011 financial statements.
Franking credit balance
The amount of franking credits available for
subsequent financial year are:
Franking credits arising from income tax paid
and payable
8.
Cash and cash equivalents
Cash and cash equivalents comprise:
Cash at bank
Fixed term deposits
Company
2011
$ ’000
2010
$ ’000
1,002
830
1,410
2,412
172
1,002
Consolidated
Company
2011
$ ’000
1,625
-
2010
$ ’000
643
1,600
2011
$ ’000
695
-
2010
$ ’000
234
-
234
Fixed term deposits with maturity dates greater than 90 days from inception date are classified as financial
assets and are designated as loans and receivables.
1,625
2,243
695
9.
Trade and other receivables
Trade receivables
Accrued interest
2011 MFG Option exercise proceeds receivable*
Other
Related party receivables
- Controlled entity
- Other related parties
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
3,417
-
4,088
42
7,547
-
894
1,008
14
-
31
1,053
-
2,128
-
-
4,088
42
4,130
303
894
-
-
-
31
31
-
925
956
*MFG 2011 Option exercise proceeds held in trust at 30 June 2011 and received by the Company in July 2011 - refer to
note 15
5,327
8,441
3,181
39
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
10.
Financial Assets
a) Current
Held-for-trading
(by domicile of primary securities exchange)
- Listed shares – Australia
Held-to-maturity
- Fixed and floating rate securities
Loans and receivables
- Fixed term deposits
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
175
352
1,072
175
1,072
9,622
352
9,622
27,352
16,363
16,845
14,404
27,879
27,057
17,372
25,098
The movement in the carrying value of the Group’s current financial assets can be analysed as
follows:
Balance at 1 July
Acquisitions
Disposals
Reclassification of held-to-maturity securities from non-current to current
Cash placed on fixed term deposit
Maturities of fixed term deposits
Maturities of fixed and floating rate securities
Changes in fair value
Balance at 30 June
2011
$ ’000
27,057
-
(1,029)
352
27,111
(16,122)
(9,390)
(100)
27,879
2010
$ ’000
3,316
9,826
(168)
2,822
16,122
-
(5,400)
539
27,057
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
-
352
-
352
32,746
27,507
32,746
27,507
5,776
1,437
125
51
3,252
1,420
134
-
5,776
1,437
125
51
3,252
1,420
134
-
35,262
2,777
1,806
29,822
3,347
1,761
35,262
2,777
1,806
29,822
3,347
1,761
79,980
67,595
79,980
67,595
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 – United States
- Listed shares – Switzerland
- Listed shares – Netherlands
- Listed shares – Hong Kong
- Unlisted funds - Magellan
- Magellan Global Fund
- Magellan Infrastructure Fund
- Unlisted funds - Other
40
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
10.
Financial Assets (continued)
b) Non-current (continued)
The movement in the fair value of the Group’s non-current financial assets can be analysed as
follows:
Balance at 1 July
Acquisitions
Reclassification of investment in associate*
Disposals
Reclassification of held-to-maturity securities from non-current to current
Changes in fair value
Balance at 30 June
2011
$ ’000
67,595
10,992
-
(2,772)
(352)
4,517
79,980
2010
$ ’000
27,054
19,215
18,910
(128)
(2,822)
5,366
67,595
* the Company and the Group’s investment in Magellan Global Fund was classified as an Investment in an Associate as
at 30 June 2009 and reclassified as an investment during the year ended 30 June 2010.
c) Fair Value Disclosures
i) Financial Assets carried at Fair Value
Accounting standards require financial instruments that are recognised and measured at fair value
to be disclosed by source of valuation inputs using a three level fair value hierarchy:
• Level 1 : The Group invests in liquid securities quoted on major securities exchanges. The
fair value of these investments is based on quoted bid prices.
• Level 2 : The Group invests in unlisted trusts which in turn invest in liquid securities
quoted on major stock exchanges. The fair value is estimated using the redemption price
provided by the Investment Manager of the unlisted trust.
• Level 3 : The Group invests in unlisted trusts which typically invest in unlisted companies.
The fair value is estimated based on Director’s valuation.
The three level fair value hierarchy does not apply to the Group’s investments in loans and
receivables or held-to-maturity financial assets, as these are not measured at fair value.
Listed shares
The fair value of the Group’s investments in listed shares has been determined directly by
reference to published price quotations in an active market and are categorised as Level 1 in the
fair value hierarchy. The fair value of the Group’s listed securities categorised as Level 1 is $40.3
million (2010: $33.4 million) which comprises both held-for-trading and available-for-sale listed
securities.
Unlisted funds - Magellan
The fair values of investments in the Magellan Global Fund and Magellan Infrastructure Fund are
calculated using the redemption unit prices at balance date. They are categorised as Level 2 in the
fair value hierarchy on the basis that the inputs into the redemption unit price are directly
observable from published price quotations. The fair value of the Group’s investment in these
funds categorised as Level 2 is $38.0 million (2010: $33.2 million).
41
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
c) Fair Value Disclosures (continued)
i) Financial Assets carried at Fair Value (continued)
Unlisted funds – Other
‘Unlisted funds – Other’ comprises units in two private equity funds, for which there is no active
market. These funds invest in equity and debt securities of unlisted companies, which are valued
by the funds’ Investment Manager using valuation techniques. The Group’s Directors’ have applied
a discount to the unit prices provided by the funds’ Investment Manager to reflect the illiquidity of
the units, and the estimated impact on the Investment Manager valuations of investee companies
of periodic re-financing requirements.
The Directors’ valuation is based on assumptions which are not supported by observable market
prices and therefore categorised as Level 3 in the fair value hierarchy. The Directors believe the
estimated fair value based on other unlisted funds’ Investment Manager valuations and these
discount assumptions recorded in the Statement of Financial Position and the related changes in
fair value recorded in other comprehensive income are reasonable and the most appropriate at the
reporting date.
Reconciliation of Level 3 fair value movements:
Balance at 1 July
Capital calls
Balance at 30 June
2011
$ ’000
1,761
45
1,806
2010
$ ’000
1,683
78
1,761
There were no transfers between Level 1 and Level 2 during the year.
ii) Held-to-maturity financial assets
Fixed and floating rate securities are recognised at amortised cost and have a carrying value of
$0.3 million at 30 June 2011 (2010: $9.7 million). The fair value of these securities is estimated to
be $0.3 million (2010: $9.7 million).
iii) Loans and receivables
Fixed term deposits are carried at amortised cost which is a close approximation to fair value due
to the relatively short duration of the fixed term deposits.
d) Fixed charge
Certain of the Group’s investment assets are held in custody with Merrill Lynch International (MLI),
a wholly owned subsidiary of Bank of America. The Group has granted MLI a fixed charge over the
Group’s rights, title and interest in these assets as security for the performance of its obligations
under an International Prime Brokerage Agreement (IPBA) which it has entered into with MLI.
42
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
11.
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 are invited to apply for a specified number of fully paid ordinary shares in the
Company. Subject to the Listing Rules, the Directors have overall discretion in relation to the Plan
and may vary the rules. The Directors have currently determined that 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:
(cid:131) 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
(cid:131) 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 is 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 may be required to make an upfront contribution
of up to 25% of the issue price at the time of issue. The remaining amount of the issue price is
funded by way of a full recourse interest free loan from the Company. The Directors waived the
requirement for an upfront contribution in respect of offers made to certain employees pursuant to
the SPP in respect of the years ended 30 June 2010 and 30 June 2011.
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.
43
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
11.
Share Purchase Plan (SPP) (continued)
Participating Non-executive Directors are required to repay the loan on the fifth anniversary of the
date of issue of their shares. Participating Non-executive Directors are entitled to repay their loan
early.
Loans to Participants under the Plan are secured on the shares issued to that Participant. The
shares are not be transferable until the loan is fully paid. Once the loan has been fully repaid, the
shares issued under the Plan are freely transferable.
Dividends are 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 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 date was:
a) Current
Amounts due within one year
b) Non-current
Amounts due later than one year and
within ten years
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
186
357
186
357
6,135
4,922
6,135
4,922
6,321
5,279
6,321
5,279
44
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
11.
Share Purchase Plan (SPP) (continued)
Shares are 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
10 September 2007
20 October 2008
8 September 2009
10 November 2010
2 March 2011
5-day weighted average share price
$1.66
$0.52
$0.78
$1.35
$1.75
The value of shares securing the loans to Participants at balance date applying the Company’s 30
June 2011 closing market price of $1.32 was $8.3 million (2010:$7.6 million). No amounts are
past due nor considered impaired as the SPP provides that any shortfall between the loan amount
and the value of the shares is recoverable from the Participants.
The following information has been used to determine the carrying value of the loans as at:
30 June 2010
30 June 2011
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
September 2009 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
November 2010 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
March 2011 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
$5.8m
3.6 years
7.0%
$0.2m
5.6 years
5.0%
$1.0m
6.8 years
5.3%
$1.6m
7.3 years
5.5%
$0.2m
7.3 years
5.5%
$5.8m
4.5 years
7.0%
$0.2m
6.1 years
5.0%
$1.0m
7.7 years
5.3%
-
n/a
n/a
-
n/a
n/a
Amounts recognised in profit or loss in respect of the SPP loans are as follows:
Included in:
Interest income
Employee benefits expense
Net credit to profit or loss before tax
45
Consolidated
2011
$ ’000
2010
$ ’000
422
(287)
135
415
(291)
124
Company
2011
2010
$ ’000 $ ’000
422
(287)
135
415
(291)
124
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
11.
Share Purchase Plan (SPP) (continued)
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).
12.
Property, Plant and Equipment
2011
2010
Consolidated
Leasehold
Improvements
$ ’000
119
-
-
Equipment,
Fixtures and
Fittings
Total
$ ’000 $ ’000
631
99
-
512
99
-
Leasehold
Improvements
$ ’000
119
-
-
Equipment,
Fixtures and
Fittings
Total
$ ’000 $ ’000
601
30
-
482
30
-
119
611
730
119
512
631
72
-
28
291
-
94
363
-
122
100
385
485
43
-
29
72
199
-
92
242
-
121
291
363
Cost at 1 July
Additions
Disposals
Cost at 30 June
Accumulated
depreciation and
impairment losses
at 1 July
Disposals
Depreciation
charge for the year
Accumulated
depreciation and
impairment losses
at 30 June
Net carrying
268
amount at 30 June
Property, plant and equipment is held by a controlled entity of the Company. The carrying value of
property, plant and equipment of the Company at 30 June 2011 is $nil (2010:$ nil).
245
221
226
19
47
13.
Trade and Other Payables
Consolidated
Company
a) Current
Trade payables
Accrued expenses
Other payables
2011
$ ’000
49
1,671
375
110
870
197
b) Non-current
Related party payables - Controlled entities
2,095
1,177
-
-
-
-
46
2010
$ ’000
2011
$ ’000
2010
$ ’000
-
42
-
42
-
-
4
24
11
39
1,639
1,639
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
14.
Statement of Cash Flows Reconciliation
a) Reconciliation of Net Profit after Tax to Net Cash Flows from Operations:
Net profit after tax
Adjusted for:
Deemed gain to the Company on loss of significant
influence over associate
Losses on sale of available for sale financial assets
Change in carrying value of held to maturity
financial assets
Dividends and distributions on available for sale
financial assets reinvested
Depreciation
Tax paid
Unrealised foreign exchange gains
Net foreign exchange (gains) / losses
Imputed interest on loans under
share purchase plan (SPP)
Employee expense on loans under SPP
(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 from operating activities
b) Non-cash financing and investing activities:
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
5,792
3,826
1,813
2,234
-
97
-
(216)
(6)
(216)
-
(6)
232
(320)
232
(320)
(950)
122
(495)
(950)
(495)
121
-
-
(246)
-
(246)
-
-
(3)
-
19
(37)
19
(3)
(37)
(415)
291
54
27
507
(415)
291
303
43
306
(421)
287
767
23
(735)
(388)
897
(388)
509
172
4,004
2
1,164
2,636
(45)
172
1,576
(421)
287
1,380
35
(949)
897
918
1,164
8,064
Issue of shares under SPP
Imputed interest on loans under SPP
Share based payments under SPP
Acquisition of available-for-sale financial assets via
dividend and distribution reinvestment plans
1,028
(421)
287
647
1,028
647
(415)
(421)
(415)
291
287
291
950
495
950
495
47
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
15.
Contributed Equity
Contributed equity
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
114,529
108,630
114,904
109,005
114,529
108,630
114,904
109,005
a) Movement during the year of Group securities on issue
Balance at 1 July 2010
Issue of shares from exercise of Options*
Options expired
Issue of shares under share purchase plan (SPP)
Balance at 30 June 2011
MFG
2011
Options
‘000
6,034
(3,526)
(2,508)
-
MFG
2016
Options
‘000
7,882
-
-
-
Class
B
Shares
’000
10,200
-
-
-
-
7,882
10,200
Shares
’000
147,198
3,526
-
1,169
151,893
* Proceeds from the exercise of options totalled $4,583,684. $495,420 was received prior 30 June 2011 and
the balance of $4,088,264 was held in trust and received by the Company in July 2011 – refer note 9.
Balance at 1 July 2010
Issue of shares from exercise of MFG 2011 Options
Issue of shares under SPP
Recognition of SPP expense for the year
Balance at 30 June 2011
Value
Consolidated
Company
$‘000
108,630
4,584
1,028
287
$‘000
109,005
4,584
1,028
287
114,529
114,904
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. However, the final exercise period commences on the date that is two business days
after the release of the results for the half year to 31 December 2015 and ends on 30 June
2016.
- 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.
48
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
15.
Contributed Equity (continued)
a) Movement during the year of Group securities on issue (continued)
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 will 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 10.2 million.
For example, based on the issued capital as at 30 June 2011 the 10,200,000 the Class B shares
would be entitled to convert to 9,113,591 ordinary shares, being equal to 0.06 times 151,893,175
ordinary shares on issue.
b) Capital Management
The Directors aim to earn satisfactory returns for shareholders over time via the sensible
deployment of the Group’s capital, whilst maintaining capital strength to underpin the business.
The Directors intend to maintain a very strong balance sheet including a high level of liquidity to
ensure the business will withstand almost any market conditions or unforseen event. This
conservative balance sheet approach has benefitted the Group, particularly during the early stages
of the funds management business in the extreme markets of the last four years, and will benefit
the Group in the future.
The Directors believe that the Group’s core business, funds management, is scalable over time and
the Group’s funds under management should continue to grow without the need to make material
additional capital investment into the business.
The Group’s capital consists of its shareholders equity and the Group has no external net
borrowings. The Company’s wholly owned subsidiary, Magellan Asset Management Limited (MAM),
is the holder of an Australian Financial Services License (AFSL). As a holder of an AFSL, the
Australian Securities and Investment Commission (ASIC) sets out requirements in respect of
holdings of Net Tangible Assets and Surplus Liquid Funds. MAM has complied with all externally
imposed requirements to hold an AFSL during the year.
There were no changes in the Group’s approach to capital management during the year. Other
than the requirements imposed under the AFSL, the Group is not subject to any externally
imposed capital requirements.
49
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
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.
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; and
the effect of market movements on the Group’s funds under management and the
consequent impact on the management fees earned.
The Group’s investment assets comprise long term, strategic investments in the Magellan Flagship
Fund Limited 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 investments. The investment portfolios of Magellan Flagship Fund Limited and
the two Magellan 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 entities can be found in the annual report of
Magellan Flagship Fund Limited and the Product Disclosure Statement (PDS) of the Magellan
unlisted funds.
The Group earns management fees on funds under management, which are based on a
percentage of the value of those entities. Market movements will therefore affect the
management fees that the Group earns. The Group may also be entitled to earn performance fees
on a portion of the funds that it manages. These performance fees are reliant on the performance
of portfolios compared to absolute and index relative hurdles and hence have some exposure to
market risk.
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 profit or loss and the
Statement of Changes in Equity.
b) Market Risk
Market risk is the risk that the Group’s revenues and 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 entitlement to
investment management fees on the funds under management, and from the Group’s and the
Company’s direct investment in equity securities.
50
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
(i) Equity Price Risk (continued)
All equity investments are carried at fair value with changes arising from held-for-trading
investments reflected in profit or loss, and changes arising from available-for-sale investments
reflected in other comprehensive income.
Over the past 10 years, the annual movement in the MSCI Total Return Net World Index varied
between +23% and -24% (in AUD) and +31% and -30% (in USD). Performance of markets is not
always a reliable guide to future performance, and the Company’s investment portfolio does not
attempt to mirror the global indices, but this very wide range of historic movements in the indices
provides an indication of the magnitude of equity price movements that might reasonably be
expected within the portfolio over the next twelve months. The impact of equity price movements,
expressed in percentage terms, on the net profit reported by the Company, is linear.
Impact arising from the Group’s own investment portfolio
Each incremental increase of 5% in the market prices of the Group’s and the Company’s
investments held at balance date would have had the following impact on net profit and equity:
Group
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
6
38
6
38
2,799
2,805
2,410
2,448
2,799
2,410
2,805
2,448
Impact on net profit attributable to
members of the Company
Impact on available-for-sale reserve, net
of tax
Total impact on net profit and equity
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 by Director’s valuation. 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) A decrease of 5% in the market prices of the Group’s and the Company’s investments held at
balance date would have an equal and opposite effect to the changes disclosed above.
iii) 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.
51
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
(i) Equity Price Risk (continued)
Impact arising on entitlements to management fees
Each incremental increase of 5% in the average value of funds under management of the Group
during the years ended 30 June 2011 and 30 June 2010 would have increased the base
management fees recognised in the net profit and equity as follows:
Impact on net profit attributable to
members of the Company
Total impact on net profit and equity
Assumptions and explanatory notes
Group
2011
$ ’000
477
477
2010
$ ’000
256
256
Company
2011
$ ’000
2010
$ ’000
-
-
-
-
i) A decrease of 5% in the average value of funds under management of the Group would have
an equal and opposite effect to the changes disclosed above;
ii) Changes in market prices may impact the inflows to, and outflows from, the Group’s funds
under management. This impact has not been estimated.
The equity price impact on base fees earned from funds under management may arise from
movements in the underlying prices in local currency, exchange rate movements, or a combination
of both. Approximately 82% of the Group’s base management fee revenue for the year ended 30
June 2011 (30 June 2010: 84%) was exposed to movements in the Australian dollar relative to
other currencies.
The Group has a variety of different performance fee arrangements with its funds and some of its
wholesale mandates. The Group’s entitlement to these fees may be dependant on performance
relative to absolute targets, index relative targets, high watermarks or some combination of these.
Fees also accrue over different calculation periods, ranging from 1 month to 3 years. A 5%
decrease in the absolute value of the Group’s portfolios but no change in the index relative
performance would have reduced performance fees earned by the Group in 2011 by approximately
$270,000 (2010: nil). It is not feasible to estimate the impact on performance fees of a 5%
increase in the absolute performance with no change in relative performance.
(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.
52
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
(ii) Currency Risk (continued)
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 date, the Group’s direct currency risk exposure arose from:
-
-
foreign currency financial assets designated as available-for-sale;
foreign currency cash balances.
An increase of 10% 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 net
profit and amounts recognised in equity:
Group
Assets denominated in:
US dollars
Euro
Swiss francs
Hong Kong dollars
Company
Assets denominated in:
US dollars
Euro
Swiss francs
Hong Kong dollars
Increase / (decrease)
in net profit
2011
$ ’000
2010
$ ’000
-
-
-
-
(5)
-
-
-
Increase / (decrease)
in net profit
2011
$ ’000
2010
$ ’000
-
-
-
-
(5)
-
-
-
Increase / (decrease) in
equity
2011
$ ’000
(525)
(11)
(131)
(5)
2010
$ ’000
(296)
(12)
(129)
-
Increase / (decrease) in
equity
2011
$ ’000
(525)
(11)
(131)
(5)
2010
$ ’000
(296)
(12)
(129)
-
The Group and the Company held negligible foreign cash at 30 June 2011. The Group’s and the
Company’s foreign currency exchange exposure arises on non-monetary assets and is recognised
directly in other comprehensive income, unless financial assets are sold. A decrease of 10% in the
Australian dollar relative to each currency to which the Group and Company have exposure would
have an opposite impact of materially similar magnitude on 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 Limited, Magellan Global Fund and Magellan Infrastructure Fund.
Magellan Flagship Fund Limited is listed on the Australian Securities Exchange and its market value
is denominated in Australian dollars.
53
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
Magellan Global Fund and Magellan Infrastructure Fund 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
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
(ii) Currency Risk (continued)
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.
The equity price impact on base fees earned from funds under management may arise from
movements in the underlying prices in local currency, exchange rate movements, or a combination
of both. Approximately 82% of the Group’s base management fee revenue for the year ended 30
June 2011 (30 June 2010: 84%) was exposed to movements in the Australian dollar relative to
other currencies.
(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 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 fixed interest securities, 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.
The sensitivity of the Group’s and the Company’s net profit and equity 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 date, the effect on the annual interest
income of an increase of 100 basis points in floating interest rates would be as follows:
Decrease in net profit and equity
attributable to members of the Company
Group
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
203
149
122
121
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 attributable to members of the Company.
54
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
Financial Risk Management Objectives and Policies (continued)
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 2011, the Group had an obligation to settle trade creditors of $2.1 million (2010:
$1.2 million) within 30 days. The Group had cash reserves of $1.6 million (2010: $2.2 million) and
a further $10.0 million (2010: $3.2 million) of receivables collectable and fixed term deposits
maturing within 30 days to cover these liabilities, accordingly the Group does not have a significant
direct exposure to liquidity risk.
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 financial assets and liabilities as they are marked
to market. The total credit risk is therefore limited to the amount carried on the Statement of
Financial Position.
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 (MLI), a wholly owned subsidiary of Bank of America. The Company has entered into
an IPBA, and two further IPBAs have been entered into by a controlled entity in its capacity as
Trustee and Responsible Entity of the Magellan Global Fund and Magellan Infrastructure Fund
(Unlisted Funds).
The services provided by MLI to the Group include clearing and settlement of transactions,
financing, securities lending and acting as custodian for the Company and the Unlisted Funds’
assets. The IPBA with MLI is in a form that is typical of prime brokerage arrangements. In acting
as custodian of the Unlisted Funds’ assets, MLI complies with the relevant provisions of the
Corporations Act and applicable ASIC policy statements relating to registered managed investment
scheme property arrangements with custodians. In the event of MLI becoming insolvent the
Company and the Unlisted Funds may rank as an unsecured creditor in regard to any investments
that have been used by MLI for its own purposes.
During the period Magellan Asset Management Limited (MAM), in its capacity as Trustee and
Responsible Entity of the Unlisted Funds, amended the prime brokerage arrangements with MLI as
follows:
• Limiting the extent to which the Unlisted Funds’ securities held by MLI may be used
by MLI for its own purposes to value not exceeding A$200 million (in the case of the
Magellan Global Fund) or A$100 million (in the case of the Magellan Infrastructure
Fund). Investments of an Unlisted Fund utilised by MLI become the property of MLI
and the Fund will have a right against MLI for the return of equivalent assets.
55
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
16.
Financial Risk Management Objectives and Policies (continued)
d) Credit Risk (continued)
• Establishing an arrangement where MAM may, at its sole election and at a time of its own
choosing, cause the transfer of an Unlisted Fund’s unencumbered securities from MLI to a
separate custodian, Prime Asset Custody Transfers Limited (PACT). PACT forms part of the
Bank of America Merrill Lynch Group of Companies. If transferred to PACT, the Unlisted
Fund’s securities would be held in a custody account by PACT pursuant to a Custody
Agreement. PACT may not use in any way the Unlisted Fund’s securities credited to the
PACT custody account for its own purposes.
The Company has also entered into an arrangement giving it access to PACT.
The credit quality of Bank of America / Merrill Lynch’s senior debt is rated, as at 30 June 2011, by
Standard & Poor’s as being A, and by Moody’s as being A2.
At 30 June 2011 the Group had an outstanding balance totalling $6.3 million (2010: $5.3 million)
for loans to participants under the share purchase plan and held at 30 June 2011 Company shares
valued at $8.3 million (2010: $7.6 million) as security for the loans (note 11 provides further
information). The loans were made to the Group’s employees and Company’s Non-executive
Directors on a full recourse basis.
At 30 June 2011 all cash and receivables are collectable within 30 days and there are no amounts
which are past due.
56
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
17. Transactions with Related Parties
a) 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 Company’s acquisition of
MAM. The amount drawn down on the facility at 30 June 2011 was $1,150,000 (2010:$1,150,000).
(ii) Amounts due from MAM
At balance date, a net amount of $303,000 (2010: $1,638,000 payable) was receivable by the
Company from MAM in respect of amounts arising from the transfer of MAM’s tax losses to the
Company.
b) Disclosures Relating to Key Management Personnel
Share Holdings
The number of ordinary shares held in the Company at 30 June 2011:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns (1)
Hamish Douglass
Chris Mackay
Other Key
Management
Personnel
Nerida Campbell (2)
Balance at
1 July 2010
Acquisitions
Cancellations/
Disposals
Balance at
30 June 2011
6,182,360
1,900,747
1,086,427
10,436,508
18,077,777
-
-
9,054
-
-
585,019
75,000
-
-
-
-
-
-
6,182,360
1,900,747
1,095,481
10,436,508
18,077,777
660,019
(1) Acquisitions during the year arising from the exercise of MFG 2011 Options
(2) Acquisitions during the year under the Company’s Share Purchase Plan
57
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
Share Holdings (continued)
The number of ordinary shares held in the Company at 30 June 2010:
Balance at
1 July 2009
Acquisitions
Cancellations/
Disposals
Balance at
30 June 2010
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
6,182,360
1,569,747
1,086,427
9,408,448
18,077,777
-
331,000
-
1,028,060
-
Other Key
Management
Personnel
Nerida Campbell (1)
(1) Acquisitions during the year under the Company’s Share Purchase Plan
435,019
150,000
-
-
-
-
-
-
6,182,360
1,900,747
1,086,427
10,436,508
18,077,777
585,019
The number of MFG Class B shares held in the Company at 30 June 2011:
Name
Balance at
1 July 2010
Acquisitions
Disposals
Balance at
30 June 2011
Hamish Douglass
10,200,000
-
-
10,200,000
The key terms and rights attaching to the MFG Class B Shares are disclosed in note 15 a). MFG
Class B shares disclosed above are identical to 30 June 2010 disclosures.
The number of MFG 2016 Options (ASX: MFGOC) expiring on 30 June 2016 held at 30 June 2011:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Other Key
Management
Personnel
Nerida Campbell
Balance at
1 July 2010
16,532
5,790
11,467
297,792
2,644,354
39,600
Acquisitions
Disposals
Balance at
30 June 2011
-
-
-
-
-
-
-
-
-
-
-
-
16,532
5,790
11,467
297,792
2,644,354
39,600
The key terms and rights attaching to the MFG 2016 Options are disclosed in note 15 (a). Option
holdings disclosed above are identical to 30 June 2010 disclosures.
58
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
Unit Holdings in the Unlisted Funds
The number of units in Magellan Global Fund held at 30 June 2011:
Name
Directors
Paul Lewis
Hamish Douglass
Chris Mackay
Balance at
1 July 2010
326,754
817,106
409,222
Other Key
Management
Personnel
Nerida Campbell
* including reinvestment of 30 June 2010 distributions
20,010
Name
Directors
Paul Lewis
Hamish Douglass
Chris Mackay
Balance at
1 July 2009
161,793
800,659
400,985
Other Key
Management
Personnel
Nerida Campbell
* including reinvestment of 30 June 2009 distributions
-
Acquisitions*
Disposals
Balance at
30 June 2011
5,154
12,889
6,454
316
-
-
-
-
331,908
829,995
415,676
-
20,326
Acquisitions*
Disposals
Balance at
30 June 2010
164,961
16,447
8,237
20,010
-
-
-
-
326,754
817,106
409,222
20,010
The number of units in Magellan Global Fund held at 30 June 2010:
The number of units in Magellan Infrastructure Fund held at 30 June 2011:
Balance at
1 July 2010
Acquisitions*
Disposals
Balance at
30 June 2011
Name
Directors
Paul Lewis
* including reinvestment of 30 June 2010 distributions
29,343
4,187
-
33,530
The number of units in Magellan Infrastructure Fund held at 30 June 2010:
Balance at
1 July 2009
Acquisitions*
Disposals
Balance at
30 June 2010
Name
Directors
Paul Lewis
* including reinvestment of 30 June 2009 distributions
27,792
1,551
-
29,343
59
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
Loans
The Company has made full recourse interest free loans to Non-executive Directors and Key
Management Personnel 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.
Shares
acquired
during
the year
Loan
Balance
at 1 July
2010
Loans
made Repayments
Loan Balance at 30 June
2011
Number
$
- 1,245,000
- 1,245,000
$
-
-
Face value
$
Carrying
Value
$
1,245,000
1,245,000
1,163,551
1,163,551
$
-
-
75,000
147,575
101,250
(9,375)
239,450
173,830
Name
Directors
Paul Lewis
Brett Cairns
Other Key
Management
Personnel
Nerida Campbell
Comparative information for the year ended 30 June 2010 is as follows:
Shares
acquired
during
the year
Loan
Balance
at 1 July
2009
Loans
made Repayments
Loan Balance at 30 June
2010
Number
$
- 1,245,000
- 1,245,000
$
-
-
Face value
$
Carrying
value
$
1,245,000
1,245,000
1,087,431
1,087,431
$
-
-
150,000
30,575
117,000
-
147,575
111,295
Name
Directors
Paul Lewis
Brett Cairns
Other Key
Management
Personnel
Nerida Campbell
60
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
Remuneration
The Key Management Personnel of the Group, including the Non-executive and Executive Directors
of the Company, received the following amounts during the year:
Short term Benefits
- Salary
- Cash Bonus
Post-employment Benefits
- Superannuation
Termination Benefits
Share based Payment
- Under SPP (1)
Total
Consolidated
2011
$
2010
$
Company
2011
$
2010
$
756,513
721,451
47,110
46,834
125,000
50,000
-
-
48,487
46,249
2,990
2,866
-
-
-
-
152,632
1,082,632
148,434
966,134
148,434
198,534
148,434
198,134
(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)
18.
Contingent Liabilities and Commitments for Expenditure
Capital Commitments
The directors are not aware of any capital commitments as at the date of this report.
Lease Commitments
A controlled entity, Magellan Asset Management Limited (‘MAM’), has entered into non-cancellable
operating leases for its office premises in Sydney, Melbourne and Brisbane as well as 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
Consolidated
Company
2011
$ ’000
2010
$ ’000
2011
$ ’000
2010
$ ’000
305
86
391
375
293
668
-
-
-
-
-
-
The operating lease for MAM’s office premises in Sydney expires as at 31 March 2012. MAM has an
option to extend the lease for a further 3 years subject to a market rent review at 31 March 2012
and a 4% increase per annum for the following 2 years.
61
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
18.
Contingent Liabilities and Commitments for Expenditure (continued)
Contingent Liabilities
The Group has a contingent liability for uncalled amounts of $0.4 million (2010: $0.4 million) on
units in other unlisted unit trusts that are held for investment purposes. The directors are not
aware of any other contingent liabilities at balance date.
19.
Events Subsequent to Reporting Date
Since the end of the year, there have been no matters or circumstances not otherwise dealt with
in this report or the financial statements that have 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.
20.
Auditor’s Remuneration
Consolidated
Company
2011
$
2010
$
2011
$
2010
$
77,200
73,850
62,200
58,850
27,000
15,000
63,250
6,000
5,000
57,400
3,400
-
23,130
9,900
-
-
-
-
-
-
-
-
-
-
185,850
175,280
68,800
65,450
Amounts received or due and receivable by
Ernst & Young Australia for:
-
audit and review of the financial statements for
the Company and its operating subsidiaries
audit and review of the financial statements for
the Magellan unlisted funds
other regulatory audit services
other services
-
-
-
Amounts received or due and receivable by
KPMG Australia for:
-
audit and review of the financial statements for
the Magellan unlisted funds
other regulatory audit services
-
62
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of Magellan Financial Group Limited, I state that:
In the opinion of the Directors:
(a)
the financial statements, notes and the additional disclosures included in the Directors
Report designated as audited, of the company and of the consolidated entity are in
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 2011 and of their performance for the year ended
on that date; and
(ii)
complying with Australian Accounting , International Financial Reporting Standards
(IFRS) as disclosed in Note 2 (b) and Corporations Regulations 2001; and
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as
and when they become due and payable.
This declaration has been made after receiving the declarations required to be made to the
directors in accordance with section 295A of the Corporations Act 2001 for the financial year
ending 30 June 2011.
On behalf of the Board
Chris Mackay
Chairman
Sydney
22 August 2011
63
MAGELLAN FINANCIAL GROUP LIMITED
INDEPENDENT AUDITOR’S REPORT
64
MAGELLAN FINANCIAL GROUP LIMITED
INDEPENDENT AUDITOR’S REPORT
65
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
INTRODUCTION
This Corporate Governance Statement (‘Statement’) applies to Magellan Financial Group Limited
(the ‘Company’) and its controlled entities (collectively, the ‘Group’). The Company’s Directors
and Group senior management recognise the importance of good corporate governance. The
Group’s corporate governance framework, policies and practices are designed to ensure the
effective management and operation of the Group, and will remain under regular review.
Some of the Company’s controlled entities have adopted their own policies and practices to deal
with specific matters relevant to their business including, for instance, compliance with the
conditions of an Australian Financial Services Licence. Where such policies and practices have been
adopted, they have been developed in line with the standards referred to in this Statement.
This Statement reports against the ASX Corporate Governance Council’s Corporate Governance
Principles and Recommendations (‘ASX Recommendations’). To the extent they are relevant to
the Company, the ASX Recommendations have been adopted by the Company. Where, after due
consideration,
from an ASX
the Company's corporate governance practices depart
Recommendation, this Corporate Governance Statement will set out the reasons for the departure.
1.
LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
Role and responsibilities of the Board
The Board is responsible for the overall operation and stewardship of the Group and is
responsible for its overall success and long-term growth and corporate governance. The
Board will act in the best interests of the Group to ensure the business of the Group is
properly managed. The Group’s corporate governance arrangements revolve around the
Company’s Board 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 Board may review and amend the Board Charter at any time. The Company’s Board
Charter is available 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, 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
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;
66
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
•
•
•
•
•
•
approving the Group’s annual Financial Statements and reports to shareholders;
approving the Group’s half year Financial Statements and reports to shareholders;
reviewing and overseeing the implementation of a Corporate 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 Group’s risk management systems, including internal controls,
operating systems and compliance processes, are operating efficiently and
effectively.
Subject to legal 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.
Evaluation of senior executive performance
The Group’s Chief Executive Officer reviews the performance of the Group’s senior
executives. The Chief Executive Officer sets performance objectives for each senior
executive at the beginning of each financial year. Performance reviews of each senior
executive are carried out against their objectives with input from appropriate stakeholders.
Induction of senior executives
The Group has an induction process in place for all new employees of the Group, including
senior executives. As part of this induction process, new senior executives will receive
briefings on the Group’s business and its policies and procedures. These briefings will focus
on the key operational, regulatory, risk and compliance issues that are of relevance to the
Group.
2.
STRUCTURE THE BOARD TO ADD VALUE
Board Composition
The Company’s Board must comprise:
•
•
Directors with an appropriate range of skills, experience and expertise; and
Directors who can understand and competently deal with current and emerging
business issues.
The following persons were Directors of the Company during the year:
•
•
•
•
•
Chris Mackay (Chairman and Executive Director)
Hamish Douglass (Executive Director)
Naomi Milgrom AO (Independent Non-Executive Director)
Paul Lewis (Independent Non-Executive Director)
Brett Cairns (Independent Non-Executive Director)
Details of each Directors’ background, date of appointment and attendance at Board
meetings are set out in the Directors’ Report. The Board is confident that each of the
Directors will bring the skills and qualifications which will enable them to effectively
discharge their individual and collective responsibilities as Directors of the Company.
67
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
The Company’s Constitution provides that there must be a minimum of three Directors and
a maximum of ten Directors. 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.
Independent Directors
The Board has a majority of Independent Non-Executive Directors. Directors of the
Company are considered to be independent when they are independent of management
and free from 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 Chairman of the Board is not an independent director. This is a departure from ASX
Recommendation 2.2, which recommends that the Chair should be an independent
director. The Board believes that Mr Mackay is the most appropriate person to lead the
Board as Chairman and that he is able to and does bring independent judgment to all
relevant issues falling within the scope of the role of Chairman and that the Company and
Group as a whole benefits from his experience and expertise.
Access to information
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 Group’s expense, subject to making a
request to, and obtaining the prior authorisation of, the chairperson of the Board. Where
the chairperson of the Board wishes to obtain independent professional advice, he or she is
required to make a request to, and obtain the prior authorisation of, the chairperson of the
Audit and Risk Committee of the Board.
Retirement of Directors
A Director must retire from office no later than the later of the third Annual General
Meeting of the Company or three years following the Director’s last election or
appointment.
Nominations and appointment of new Directors
ASX Recommendation 2.4 provides that the Board should establish a Nominations
Committee. Given the size and the nature of the Group, the Board has determined that a
Nomination Committee is not warranted. The Board considers the issues that would
otherwise be considered by a Nominations Committee.
Review of Board performance
Under the Company’s Board Charter, the Board will conduct a review of its collective
performance and the performance of its Directors every two years. This review will
consider the Board’s role; the processes of the Board and its Committees; the Board’s
performance; and each Director’s performance. This review was last undertaken by the
Board in August 2010.
68
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
3.
PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING
Corporate Code of Conduct
The Company has a Corporate Code of Conduct (the “Code”) that applies to all Directors
and employees of the Group. 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 of the Group;
encourage the observance of those standards so as to protect and promote the
interests of shareholders and other stakeholders;
guide Directors and employees of the Group 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 of the
Group to report and investigate reports of unethical practices.
A copy of the Corporate Code of Conduct is available on the Company’s website.
Personal Trading Policy
The Company has a Personal Trading Policy that sets out the circumstances in which the
Directors and employees of the Group may trade in the Company’s securities.
The Policy places restrictions and notification requirements, including the imposition of
blackout periods, trading windows and the need to obtain pre-trade approval.
A copy of the Company’s Personal Trading Policy has been lodged with the Australian
Securities Exchange (ASX) and is also available the Company’s website.
One of the Company’s controlled entities, Magellan Asset Management Limited (‘MAM’),
has also established its own Personal Trading Policy. This Policy sets out the
circumstances in which MAM’s Executive Directors and employees may trade in the
Company’s securities and in securities generally. The Policy also places restrictions and
notification requirements, including the imposition of blackout periods, trading windows
and the need to obtain pre-trade approval.
4.
SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
Audit and Risk Committee
Committee composition
The Company has established and Audit & Risk Committee (‘Committee’). The following
persons were members of the Committee during the year:
•
•
•
Paul Lewis (Chairman and Independent Non-Executive Director)
Brett Cairns (Independent Non-Executive Director)
Hamish Douglass (Executive Director)
Details of each Committee member’s background and attendance at Audit & Risk
Committee meetings are set out in the Directors’ Report.
69
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
The Chairman of the Committee is an Independent Non-executive Director and is not the
Chairman of the Board. The Committee also consists of a majority of Independent Non-
executive Directors. This is a departure from ASX Recommendation 2.4 which recommends
that the Audit Committee should consist only of Non-executive Directors. Given the size
and the nature of the Group, and the skills and expertise of each Committee member, the
Board considers that a Committee comprised of a majority of Independent Non-Executive
Directors is appropriate.
Objectives and responsibilities of the Committee
The objective of the 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 Committee’s Charter. A copy of the
Committee’s Charter can be found on the Company’s website.
The Committee will endeavour to:
•
•
•
•
•
•
maintain and improve the quality, credibility and objectivity of the financial
accountability process;
promote a culture of compliance within the Group;
ensure effective communication between the Board and the Group’s senior financial
and compliance management;
ensure effective audit functions and communications between the Board and the
Group’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.
The Committee will meet a minimum of three times each year. The Chairman of the
Committee will report to the Board in respect of each Committee meeting.
Independent external audit
The Group’s independent external auditor is Ernst & Young. The Committee is responsible
for recommending to the Board the appointment and removal of the external auditor. The
independence and effectiveness of the external auditor is reviewed regularly. The
Committee is also responsible for ensuring that the external audit engagement partners are
rotated in accordance with relevant statutory requirements, and otherwise after a
maximum of five years' service.
The external auditors attend the Committee’s meetings when the Group’s half year and full
year Financial Statements are being considered. The external auditors also attend other
meetings where relevant items are on the Committee’s agenda.
70
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
The Group’s external auditors attend the Company’s Annual General Meeting and are
available to answer questions from shareholders in relation to the conduct of the audit, the
Audit Report, the accounting policies adopted by the Group in preparing the Financial
Statements and the independence of the auditors.
5.
MAKE TIMELY AND BALANCED DISCLOSURE
The Company is committed to complying with its continuous disclosure obligations under
the Corporations Act 2001 and the ASX Listing Rules and releasing relevant information to
the market and shareholders in a timely and direct manner and to promote investor
confidence in the Company and its securities.
Continuous Disclosure Policy
The Board has adopted a Continuous Disclosure Policy that is designed to ensure:
•
•
•
the Company as a minimum complies with its continuous disclosure obligations
under the Corporations Act 2001 and the ASX Listing Rules;
the Company provides shareholders and the market with timely, direct and equal
access to information issued by it; and
that information which is not generally available and which may have a material
effect on the price or value of the Company’s securities be identified and
appropriately considered by the Directors and Group senior executives for
disclosure to the market.
The Continuous Disclosure Policy, which can be found on the Company’s website, 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 the ASX.
6.
RESPECT THE RIGHTS OF SHAREHOLDERS
Communication to Shareholders
The Board is committed to ensuring that shareholders are fully informed of material
matters that affect the Group’s position and prospects. It seeks to accomplish this through
the release of:
•
•
•
•
•
•
the Group’s Half Year Results in February each year;
the Group’s Full Year Results in August each year;
the Chairman’s and Chief Executive Officer’s Letter to Shareholders each year;
the Group’s Annual Report;
the Chairman’s address to the Annual General Meeting; and
market announcements on the Group’s website after they are disclosed to the
market.
71
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
Shareholder Meetings
The Company holds its Annual General Meeting in October and a copy of the notice of the
Annual General Meeting is released to the ASX and also mailed to shareholders. The Board
encourages 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 Group’s external auditor will be invited to attend any Annual General Meeting and will
be available to answer questions about the conduct of the audit and the preparation and
contents of the Audit Report.
7.
RECOGNISE AND MANAGE RISK
Risk management responsibility
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 assessed include:
•
•
•
•
•
implementing strategies (strategic risk);
operations or external events (operational and investment 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).
Risk Management Framework
The Group 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 Group senior management and
respective Committees; and
compliance with the law, contractual obligations and internal policies (including the
Corporate Code 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.
72
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
Assurance
In respect of the year ending 30 June 2011 the Chief Executive Officer and Chief Financial
Officer have made the following certifications to the Board:
•
•
The Group’s Financial Statements and notes applicable thereto represent a true and
fair view of its financial position and performance and comply with the requirements
of the Accounting Standards, Corporations Act and Corporations Regulations; and
The risk management and internal compliance and control systems are sound,
appropriate, operating efficiently and effectively managing the Group’s material
business risks.
Responsible Entity and Trustee Governance
Magellan Asset Management Limited (‘MAM’) is a wholly owned controlled entity of the
Company. It is the holder of an Australian Financial Services Licence (‘AFSL’) and is the
Trustee of various registered and unregistered managed investment schemes (collectively,
the ‘Magellan Funds’).
There are currently three Directors on the MAM Board: Hamish Douglass, Paul Lewis, and
Brett Cairns. At least half of the Board of MAM is comprised of External Directors, within
the meaning of section 601JA of the Corporations Act.
As the Trustee of each of the Magellan Funds, MAM has a fiduciary obligation to act in the
best interests of the investors in the Magellan Funds. The Directors of MAM are conscious
of their fiduciary obligations to investors and continually assess their decisions in light of
these obligations. The MAM Board has responsibility for the management of risks that arise
from its duties as the Responsible Entity and Trustee of the Magellan Funds and the
provision of financial services under its AFSL.
8.
REMUNERATE FAIRLY AND RESPONSIBLY
Remuneration Committee
ASX Recommendation 8.1 provides that the Board should establish a Remuneration
Committee. Given the size and the nature of the Group the Board has determined that a
Remuneration Committee is not warranted, nor does it have a Remuneration Policy to
disclose. The Board considers the issues that would otherwise be considered by a
Remuneration Committee.
Remuneration Framework and Structure
The remuneration details for Directors and senior executives are provided in the
Remuneration Report which forms part of the Directors’ Report.
73
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
Distribution of Shareholders
The distribution of shareholders of the Company as at 17 August 2011 is presented below:
Distribution Schedule of Holdings
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
Number
of
Holders
Number of
Ordinary
Shares
Percentage
of Shares in
Issue
511
696
359
767
133
309,649
1,894,556
2,769,682
23,700,470
123,218,818
2,466 151,893,175
0.20
1.25
1.82
15.60
81.12
100.000
95
14,362
0.000
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company as at 17 August 2011 are listed
below:
Holder Name
Magellan Equities Pty Limited
Cavalane Holdings Pty Ltd
Midas Touch Investments Pty Ltd
Citicorp Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
National Nominees Limited
Nota Bene Investments Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Emmanuel Capital Pty Ltd
ABN Amro Clearing Sydney Nominees Pty Ltd
Christopher John Mackay
UBS Nominees Pty Ltd
Aljamat Pty Ltd
Mr David Doyle
Giwah Pty Ltd
Mr Philip Alan Kenneth Naylor & Mrs Andrea Naylor
Smallco Investment Manager Ltd
Alexander Hone
Naze Nominees Pty Ltd
Number of
Ordinary
Shares
15,355,551
13,274,871
9,686,508
7,710,292
6,833,126
6,096,815
6,006,006
4,070,306
3,647,792
3,380,196
2,844,891
2,232,022
1,967,712
1,919,381
1,500,000
1,341,826
1,305,752
1,114,331
1,057,528
1,000,000
Percentage
of Shares
in Issue
10.11
8.74
6.38
5.08
4.50
4.01
3.95
2.68
2.40
2.23
1.87
1.47
1.30
1.26
0.99
0.88
0.86
0.73
0.70
0.66
Total shares held by the twenty largest shareholders
93,344,906
61.45
Total shares in issue
151,893,175
74
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
Substantial Shareholders
The names of the substantial shareholders appearing on the Company’s Register of Substantial
Shareholders at 17 August 2011 are listed below:
Shareholder
Chris Mackay and associates (1)
Cavalane Holdings Pty Ltd (2)
Hamish Douglass, Midas Touch Investments Pty Ltd and associates (3)
Number of
Ordinary
Shares
18,077,777
13,781,069
10,436,508
(1) Includes shares acquired after substantial shareholder notice lodged on 27 March 2008 – 16,830,301 shares
(2) As per substantial shareholder notice lodged on 16 February 2011. Current holding at 17 August 2011 – 13,274,871
shares
(3) Includes shares acquired after substantial shareholder notice lodged on 16 June 2009 – 9,408,448 shares
Voting Rights
Subject to the Company Constitution:
a) at meetings of shareholders, each shareholder is entitled to vote in person, by proxy, by
attorney or by representative;
b) on a show of hands, each shareholder present in person, by proxy, by attorney or by
representative is entitled to one vote; and
c) on a poll, each shareholder present in person, by proxy, by attorney or by representative is
entitled to one vote for every share held by the shareholder.
In the case of joint holdings, only one joint holder may vote.
Stock Exchange Listing
The Company’s ASX code is “MFG” for its shares and “MFGOC” for its listed options.
75
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE DIRECTORY
Directors
Chris Mackay – Chairman
Hamish Douglass – Managing Director and Chief Executive Officer
Naomi Milgrom
Paul Lewis
Brett Cairns
Company Secretaries
Nerida Campbell
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
Share Registry
Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney NSW 2000
Telephone: +61 2 9290 9600
Fax: +61 2 9279 0664
Email: enquiries@boardroomlimited.com.au
Securities Exchange Listing
Australian Securities Exchange
ASX code: MFG
Website
http://www.magellangroup.com.au
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