2012 ANNUAL REPORT
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
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
2
10
26
27
29
30
32
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75
76
78
87
89
1
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 $13.7 million for the year ended 30 June 2012 ($5.8 million for 2011).
The Group’s reported result includes:
•
•
revenues, excluding realised and unrealised investment gains and foreign exchange
gains/losses, of $35.8 million compared with revenues of $18.3 million for the previous
corresponding period; and
total operating expenses of $16.7 million, compared with total operating expenses of $10.2
million for the previous corresponding period.
Magellan is in a strong financial position with an extremely strong balance sheet. As at 30 June
2012:
•
•
the Group had investment assets (including the cash and fixed and variable rate debt
investments) of approximately $139.3 million and shareholders’ funds of $147.2 million;
and
the Group’s NTA per share (diluted assuming conversion of the Class B shares) was
approximately $0.91 ($0.78 for 2011).
Revenues for 2012 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 any realised gains or losses on investments.
The Directors have proposed a final fully franked dividend of 3.0 cents per ordinary share in
respect of the 2012 financial year, which represents $4.6 million. An interim dividend of 1.5 cents
per ordinary share, representing $2.3 million, was paid in respect of the 2012 financial year. In
accordance with accounting standards, the final dividend has not been provided for in the 30 June
2012 financial statements.
2
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
MAGELLAN’S FUNDS MANAGEMENT BUSINESS
For the year ended 30 June 2012, the funds management business generated revenues of
approximately $32.7 million ($15.2 million for 2011) and had expenses of approximately $16.4
million ($9.8 million for 2011), which resulted in a profit before tax of $16.3 million ($5.4 million
for 2011).
The following table summarises the profitability of the funds management business over the past
two years:
Funds Management Business
Revenue
Management fees
Consulting fees
Interest & other income
Expenses
Employee expense
Other expense
30 June 2011
30 June 2012
Change
$’000
$’000
%
13,631
1,266
311
15,208
6,972
2,845
9,817
31,042
1,218
400
32,660
11,378
4,983
16,361
128%
-4%
29%
115%
63%
75%
67%
Profit before tax
5,391
16,299
202%
Key Statistics
Net assets ($’000)
Cost/income
Avg number of employees
Employee expenses/Total expenses
6,094
64.6%
28
71.0%
12,803
50.1%
38
69.5%
110%
-22%
36%
-2%
Over the past 12 months we have grown our team adding 13 high quality employees, particularly
Business Support specialists and Investment Analysts. The increase in employees in Business
Support principally relates to the investment in our operational capability for our institutional funds
management business.
We have established a Performance and Client reporting team and hired additional professionals in
Finance, Operations and Compliance. Magellan is also investing in new IT systems and establishing
offshore investment vehicles for both the global equities and infrastructure strategies. The majority
of these expenses will be incurred in 2012/13 financial year. These investments will position the
Group to further grow the funds management business over the longer term in a scalable manner.
We intend to modestly increase our team in the 2012/13 financial year, from the current 48
employees.
3
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
The funds management business had a cost to income ratio of 50.1% for the 2011/12 financial
year, with employee expenses accounting for approximately 70% of total expenses. We would
expect employee expense to grow in line with employee numbers growth and remuneration
inflation.
The following table sets out the total employee numbers over the past 3 years, and as at 17
August 2012.
Employee Summary
Investment
- professional
- administration
Distribution
- professional
- administration
Business Support
- professional
- administration
Total
Average employees
30 June
2010
30 June
2011
30 June
2012
17 August
2012
10
1
11
5
1
6
6
1
7
24
24
12
1
13
10
1
11
6
1
7
31
28
17
2
19
12
1
13
13
3
16
48
14
2
16
12
1
13
13
2
15
44
38
As at 17 August 2012, the Group had funds under management of approximately $4,136.1 million,
split between global equities (60%) and infrastructure equities (40%). This compares with funds
under management of $4,005.7 million at 30 June 2012 and $2,756.3 million at 30 June 2011. The
following table sets out the composition of funds under management over the past three financial
years:
4
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
Funds Under Management
A$ million
Retail
Institutional
- Active
- Enhanced beta
30 June
2010
30 June
2011
30 June
2012
17 August
2012
610.7
1,081.9
1,749.6
1,922.5
197.6
338.7
536.3
178.3
1,496.1
1,674.4
786.9
1,469.2
2,256.1
841.9
1,371.7
2,213.6
Total FUM
1,147.0
2,756.3
4,005.7
4,136.1
Percentage
Retail
Institutional
- Active
- Enhanced beta
53%
17%
30%
47%
39%
6%
55%
61%
44%
20%
36%
56%
46%
20%
34%
54%
Total FUM
100%
100%
100%
100%
Average Base Management fee (bps),
excluding Performance Fees
95
61
71
71 est.
FUM subject to Performance Fees (%)
63%
39%
53%
56%
We note that our retail business has higher fees than our institutional business and our
infrastructure enhanced beta product has lower fees than other institutional mandates.
Retail Funds Under Management
At 30 June 2012 Magellan had total retail funds under management of $1,749.6 million. We
experienced total net retail inflows of $672.8 million for the 12 months to 30 June 2012.
The Magellan Global Fund and the Magellan Infrastructure Fund continue to enhance their
reputations with research houses and major financial planning groups in Australia and New
Zealand. We have an outstanding team of business development managers, led by Frank
Casarotti, with offices in Sydney, Melbourne, Brisbane and Auckland. Both Funds have established
strong performance records and rank at the top of the peer groups. The following table sets out
the investment performance of the Magellan Global Fund and Magellan Infrastructure Fund over
the past 5 years.
5
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
Investment Performance as at 30 June
2012*
Magellan Global Fund
MSCI World NTR Index ($A)
Excess Return
Magellan Infrastructure Fund
UBS Dev Infra & Utilities NTR Index Hedged
($A)
Excess Return
1 Year
18.2%
-0.8%
19.0%
3 Years
p.a.
11.4%
2.5%
8.9%
5 Years
p.a.
4.1%
-6.6%
10.7%
5 Years
cumul.
22.4%
-28.8%
51.2%
7.6%
18.0%
2.0%
10.4%
5.0%
10.3%
-0.3%
-1.5%
2.6%
7.7%
2.3%
11.9%
*Calculations are based on exit price with distributions reinvested, after ongoing fees and
expenses but excluding individual tax, member fees and entry fees (if applicable). Annualised 5
Year performance is denoted with “p.a.”, cumulative 5 year performance is denoted with “cumul.”
The Magellan Global Fund / Colonial First State Magellan Global Option had funds under
management of approximately $1,497.4 million as at 17 August 2012 and experienced strong net
inflows on a monthly basis. Pleasingly, we have experienced monthly net inflows of approximately
$85.1 million, on average, over the last 3 months (to 31 July 2012). The following chart sets out
the monthly net inflows into the Magellan Global Fund/Colonial First State Magellan Global Option
over the past 3 years.
$M
100
90
80
70
60
50
40
30
20
10
0
Magellan Global Fund*
FUM & Monthly Net Inflows
1,600
$M
1,400
1,200
1,000
800
600
400
200
0
30-Jun-09
30-Jun-10
30-Jun-11
30-Jun-12
Magellan Global Fund Flows - LHS
Magellan Global Fund FUM - RHS
* FUM & Flows includes Colonial First State Magellan Global Option from April 2011
6
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
The following table set out some key information of the distribution penetration for the Magellan
Global Fund.
Key Representation of Magellan Global Fund
Platforms:
• BT Wrap (including Lonsdale’s AssetLink, Count’s Wealth-e-Account, Genesys’ Solar)
• Macquarie Wrap (including AMP’s badge Wealth View and Hillross’ Definitive Wrap)
• Colonial First State First Choice
• Colonial First State First Wrap (including Count’s Star Portfolio, PIS’s Investment Exchange
and Centric’s Encircle)
• MLC Wrap (including the Navigator range)
• Westpac-owned Asgard (including the Hillross badge, Portfolio Care)
• NetWealth
• AXA North
• AXA Summit
•
IOOF (Pursuit and The Portfolio Service)
Retail researcher MGF ratings:
• Morningstar - 5 stars quantitative (Silver qualitative)
• Lonsec - Recommended
• Zenith - Highly Recommended
• Van Eyk – A
The number of dealer groups using MGF is approximately 110.
The number of advisers attending the August 2012 roadshows was approximately 1200
(approximately 700 in 2011).
Institutional Funds Under Management
At 30 June 2012 Magellan had total institutional funds under management of $2,256.1 million. We
experienced institutional gross flows of $417.6 million and net inflows of $170.4 million for the 12
months to 30 June 2012.
We are pleased with the development of our institutional funds management business. In
September 2011 we entered into an agreement with Frontier Partners to distribute our global
equity and infrastructure capabilities to clients in the United States and Canada. Since this time we
have established meaningful relationships with many potential clients and asset consultants in
North America and this year won two global equity mandates with total funds under management
of approximately A$300 million. Whilst it will take a number of years to develop our institutional
business in North America, we are very pleased with our relationship with Frontier Partners and
the depth of the prospective client pipeline.
7
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
In February 2011 we hired Zarina Kalapesi to head our institutional client business, with a current
focus on the UK. Zarina is making significant inroads for Magellan with an encouraging prospective
UK client pipeline. We intend to launch a UCITS fund for institutional investors for our global
equities strategy in the March quarter of 2013. Matthew Webb heads our Australian institutional
business. We are very pleased with the progress we are making in Australia with asset consultants
and prospective clients. At 30 June 2012 we had 23 Australian institutional clients across our
business with total funds under management of $1,926.9 million.
Our infrastructure team, led by Gerald Stack and Dennis Eagar, have established a strong
institutional business in Australia, with a developing presence in the UK and North America. We
recently launched a Magellan Infrastructure product for UK clients and have seen solid early client
interest. Investment performance has been outstanding and the infrastructure team had funds
under management of approximately $1,556.1 million as at 17 August 2012, compared with
$1,649.1 million at 30 June 2012 and $1,710.3 million at 30 June 2011. The infrastructure
business’ FUM is split approximately 95% institutional and 5% retail at 30 June 2012.
It is still 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 delivering returns for the investment funds
entrusted to us, whilst maintaining the positive relationships we have with asset consultants,
financial planners and investors in our funds.
INVESTMENTS IN MAGELLAN’S FUNDS AND PRINCIPAL INVESTMENTS
At 30 June 2012 Magellan had total investment assets of $139.3 million, which compares with total
investment assets of approximately $109.5 million at 30 June 2011. The investment assets
increased in market value by approximately $16.3 million over the 12 months in what have been
and continue to be volatile and difficult investment markets.
Over time we hope to earn satisfactory returns for shareholders through 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 balance
sheet approach benefited the Group, particularly during the early stages of the funds management
business in the extreme markets of the last five years, and we believe will benefit Magellan in the
future.
8
MAGELLAN FINANCIAL GROUP LIMITED
ANNUAL SHAREHOLDER LETTER
The following table sets out a summary of Magellan’s investment assets at 30 June 2012:
Magellan’s Investment Assets at 30 June 2012
Cash
Fixed Term Deposits
Magellan Flagship Fund
Magellan Unlisted Funds*
Listed shares
Other
Total
$ million
1.1
30.6
42.2
52.6
9.1
3.7
139.3
* The Magellan Unlisted Funds include Magellan Global Fund, Magellan Infrastructure Fund and
the Frontegra MFG Funds.
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 2012.
MFG’s Ten Largest Investments on a “look through” basis as at 30 June 2012
Wells Fargo
American Express
Visa
eBay
Google
US Bancorp
McDonald's
Walmart
Lowes
Nestlé
$ million
7.8
4.5
4.4
4.3
4.1
4.0
3.9
3.5
3.3
3.3
43.1
NANCIAL
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,
Hamish M Douglass
Managing Director & CEO
24 August 2012
9
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
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 2012.
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 2012 was $13,660,000 (2011:
$5,792,000).
The Group’s reported result includes:
• revenues, excluding realised and unrealised investment gains and foreign exchange gains/losses,
of $35.8 million compared with revenues of $18.3 million for the previous corresponding year; and
• total operating expenses of $ 16.7 million, compared with total operating expenses of $10.2
million for the previous corresponding year.
Magellan is in a strong financial position with an extremely strong balance sheet. As at 30 June
2012:
• the Group had cash, fixed term deposits, and fixed and variable rate debt investments of
approximately $31.6 million, investment assets (excluding the cash and fixed and variable rate
debt investments) of approximately $107.6 million and shareholders’ funds of $147.2 million; and
• the Group’s NTA per share (diluted assuming conversion of the Class B shares) was
approximately $0.91 (2011:$0.78).
10
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Dividends and Distributions
The Directors have proposed a final fully franked dividend of 3.0 cents per ordinary share in
respect of the 2012 financial year (2011: 1.5 cents per share), which represents $4.6 million. In
accordance with accounting standards, the final dividend has not been provided for in the 30 June
2012 financial statements.
Unissued Shares
Share Options
As at the date of this report, there were 7,882,483 MFG 2016 Options to take up one new ordinary
share each 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 have no
entitlement to a dividend and convert into the Company’s ordinary shares on 21 November 2016 in
accordance with a conversion formula. Refer to note 15 for further information. The service
conditions attached to the conversion of the MFG Class B shares to MFG ordinary shares were
satisfied on 1 July 2012.
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 objectives which are to increase the profitability of
the Group over time by increasing the value and performance of funds under management and
seeking to grow the value of the Group’s investment portfolio.
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.
11
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
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
2012
$
2011
$
79,900
26,000
77,200
27,000
-
105,900
3,400
107,600
15,000
63,198
78,198
15,000
63,250
78,250
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 26.
Information on Directors
Chris Mackay
Chairman and Executive Director
Chris is a Non-executive Director of Consolidated Media Holdings Limited [formerly Publishing &
Broadcasting Limited] (appointed March 2006), Seven Group Holdings Limited (appointed June
2010), and Magellan Flagship Fund Limited (appointed September 2006). 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.
12
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
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. Mr Douglass is a Non-executive director of Magellan
Flagship Fund Limited (appointed September 2006). 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 specialty 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 a Member of the Board of Trustees of the National Gallery of Victoria, former
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. She was awarded The Centenary of Federation Medal
for her outstanding contribution to business and the fashion industry, and 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. In further recognition of her accomplishments in business, in
2011, Naomi was the first woman to be awarded an Honorary Doctorate of Business by RMIT.
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.
13
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Information on Company Secretaries
Nerida Campbell
Company Secretary
Nerida Campbell 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 Australasia. Nerida is the Chief Operating Officer, Chief Financial Officer and Company
Secretary of Magellan Asset Management Limited and Magellan Flagship Fund Limited. 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 12 years experience as a corporate lawyer. He is the Legal Counsel and Company
Secretary of 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. Leo is a member of the Law Society of New South Wales and a
member of the Australian Corporate Lawyers Association.
14
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Directors’ Meetings
The following table sets out the number of meetings of the Company’s Directors held during the
year ended 30 June 2012 and attended by each Director.
Board Meetings
Held
Attended
Audit and Risk Committee
Meetings
Held
Attended
While a Director
4
4
4
4
4
4
4
4
4
4
While a Member
-
-
6
5
-
-
6
6
6
6
Chris Mackay
Hamish Douglass
Naomi Milgrom
Paul Lewis
Brett Cairns
Remuneration Report (audited)
This report outlines the Key Management Personnel 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.
The Board does not grant options to the Company and Group’s Key Management Personnel or
employees 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. Remuneration for two of the Non-executive Directors’
remuneration includes share based payment amounts that represent the non cash expense to the
Group of providing interest free loans under the SPP.
Remuneration of Executive Directors and Other Key Management Personnel
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.
15
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (continued)
Remuneration of Executive Directors, and Other Key Management Personnel
(continued)
Executive Directors
The Executive Directors’ remuneration is determined by the Board, which may utilise the services
of external advisors. In respect to the year ended 30 June 2012 it comprised fixed compensation
and a discretionary variable compensation amount.
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.
The amount of fixed compensation was 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. The amount of variable compensation paid to the Executive Directors was determined
with regard to the profitability of the Group’s funds management business, and the Group’s overall
profitability.
Details of the employment agreements of the Executive Directors are described later in this report.
Other Key Management Personnel
The Other Key Management Personnel’s 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’s 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, with regard to the profitability of the
Group’s funds management business, and the Group’s overall profitability.
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 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
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, taking into consideration the individual’s performance and contribution
during the year. The variable component of the Other Key Management Personnel is not
16
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (continued)
Remuneration of Executive Directors and Other Key Management Personnel
(continued)
dependent on the satisfaction of performance conditions, the Company’s share price, or dividends
paid by the Company.
Other Key Management Personnel are eligible to participate in the Group’s SPP which is described
later in this report. Other Key Management Personnel remuneration includes share based
payment amounts that represent the non cash expense 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 weighted average sale price of the shares on the
ASX over the five trading days immediately preceding the day the offer is made.
Details of the closing price of the Company’s shares for the previous 6 years are provided below
together with the issue price of shares under the SPP.
MFG shares
closing price
SPP offer date
SPP offer issue price
of MFG shares
30 June 2007
30 June 2008
30 June 2009
30 June 2010
30 June 2011
30 June 2012
$2.20
$0.53
$0.55
$1.13
$1.32
$2.15
10 September 2007
20 October 2008
8 September 2009
10 November 2010
2 March 2011
30 September 2011
$1.66
$0.52
$0.78
$1.35
$1.75
$1.20
The Directors believe that the Key Management Personnel and employee 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.
17
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (continued)
Details of Remuneration
The Key Management Personnel of the Group received the following amounts during the year:
Short term Benefits
Salary
$
Cash
Bonus
$
9,174
20,000
18,349
-
-
-
Post-
employment
Benefits
Superannuation
$
826
-
1,651
Share
based
Payment
Under
SPP(1)
$
-
14,331
14,331
Total
$
10,000
34,331
34,331
234,225
234,225
150,000
150,000
15,775
15,775
-
-
400,000
400,000
252,975
250,000
15,775
11,535
530,285
768,948
550,000
49,802
40,197
1,408,947
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
(1) Share based payments represent the expense of providing interest free loans to Participants in
the Share Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan).
These are non cash items. Refer note 14b).
18
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (continued)
Details of Remuneration (continued)
Comparative information for the year ended 30 June 2011 is as follows:
Short term Benefits
Salary
$
Cash
Bonus
$
13,761
20,000
18,349
234,801
234,801
-
-
-
-
-
Post-
employment
Benefits
Superannuation
$
1,239
-
1,651
15,199
15,199
Share
based
Payment
Under
SPP(1)
$
-
71,657
71,657
Total
$
15,000
91,657
91,657
-
-
250,000
250,000
234,801
125,000
15,199
9,318
384,318
756,513
125,000
48,487
152,632 1,082,632
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
(1) Share based payments represent the expense of providing interest free loans to Participants in
the Share Purchase Plan (see Directors Report – Remuneration Report – Share Purchase Plan).
These are non cash items. Refer note 14b).
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 2012 of $10,000 paid by
the Group
19
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
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 2012 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 2012 of $ 20,000 paid
by the Group
Employment Agreements
The Executive Directors and Other Key Management Personnel are engaged under employment
agreements with Magellan Asset Management Limited (MAM), a controlled entity of the Company.
Chris Mackay, Chairman and Executive Director
The Director is employed under a contract with MAM, with effect from 1 March 2008 and which will
continue indefinitely until terminated.
Under the terms of the contract, for the period to 30 June 2012, the Director:
o
receives fixed compensation structured as a total employment cost package of
$250,000 per annum, inclusive of superannuation, which may be received as a
combination of cash, non-cash benefits and superannuation contributions.
o may receive a bonus at the discretion of the Board of the Magellan Financial Group
Limited (MFG), the parent entity of MAM.
20
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (Audited) (continued)
Employment Agreements (continued)
o 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 MFG, the Magellan Flagship Fund Limited, MAM and related
entities, and any managed investment scheme 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.
o may terminate the contract at any time by giving not less than 3 months written notice
to MAM. MAM may terminate the contract by providing 12 months written notice or
providing payment in lieu of that notice.
o 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.
Under the terms of a replacement contract with MAM which was executed on 7 June 2012,
from 1 July 2012 the Director:
o
o
receives a fixed compensation structured as a total employment cost package of
$600,000 per annum, inclusive of superannuation, which may be received as a
combination of cash, non-cash benefits and superannuation contributions.
is not entitled to receive short term or long term incentive payments.
o has undertaken to MAM that for the period up to and including 1 July 2017 neither he
nor his associates will, within Australia and New Zealand, invest in any outside business
which in the reasonable opinion of MAM is primarily engaged in the business of funds
management, other than an investment in MFG, the Magellan Flagship Fund Limited,
MAM and related entities, and any managed investment scheme in which MAM acts as
trustee or responsible entity. The restrictions will cease to apply prior to 1 July 2017, if
a third party acquires control of MAM or MFG, or the employment contract is terminated
for any reason. The restrictions do not apply in respect of any investment in:
21
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (Audited) (continued)
Employment Agreements (continued)
(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.
In consideration for complying with the above investment restriction, the Director will
receive an amount of $500,000 paid on or before 15 July 2017. If prior to 1 July 2017,
employment ceases by reason of termination of the contract by MAM; or due to the
death, total and permanent disability, ill health or genuine redundancy of the Director,
and MAM reasonably considers that the investment restrictions had been complied with,
the amount will be paid on a pro rated basis.
o may terminate the contract at any time by giving not less than 3 months written notice
to MAM. MAM may terminate the contract by providing 3 months written notice or
providing payment in lieu of that notice.
o 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, Chief Executive Officer and Managing Director, and Executive Director
The Director is employed under a contract with the Investment Manager, with effect from 1 March
2008 and which will continue indefinitely until terminated.
Under the terms of the contract, for the period to 30 June 2012, the Director:
o
receives fixed compensation structured as a total employment cost package of
$250,000 per annum, inclusive of superannuation, which may be received as a
combination of cash, non-cash benefits and superannuation contributions.
o may receive a bonus at the discretion of the Board of the Magellan Financial Group
Limited (MFG), the parent entity of MAM.
22
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (Audited) (continued)
Employment Agreements (continued)
o 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 MFG, the Magellan Flagship Fund Limited, MAM and related
entities, and any managed investment scheme 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.
o 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.
o 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.
Under the terms of a replacement contract with MAM which was executed on 7 June 2012, from 1
July 2012 the Director:
o
o
receives fixed compensation structured as a total employment cost package of
$400,000 per annum, inclusive of superannuation which may be received as a
combination of cash, non-cash benefits and superannuation contributions.
receives variable compensation comprising an annual short term incentive amount up
to but not exceeding 200% of his fixed compensation. Where MFG and its controlled
entities’ (MFG Group) diluted earnings per share (EPS) is less than ten (10) cents per
share the maximum amount of annual short incentive will be 125% of the Director’s
fixed compensation. If MFG Group’s diluted EPS is equal to or exceeds twenty (20)
cents per share, the MFG Board and the Director will review the maximum short term
incentive amount and negotiate any changes to the maximum short term incentive
amount.
23
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (Audited) (continued)
Employment Agreements (continued)
The Director’s annual short term incentive amount is based on the following three key
criteria and relative weight distributions:
(cid:131) MFG Group performance and profitability (50% weighting)
(cid:131)
(cid:131) Other Criteria as determined by the MFG Board in its absolute discretion (10%
Investment Performance of the Global Equity Strategy (40% weighting)
weighting)
Specific performance metrics for the above have been set by the MFG Board.
o has undertaken to MAM that for the period up to and including 1 July 2017, neither he
nor his associates will, within Australia and New Zealand, invest in a business which in
the reasonable opinion of MAM is primarily engaged in the business of funds
management, other than an investment in MFG, the Magellan Flagship Fund Limited,
MAM and related entities, and any managed investment scheme in which MAM acts as
trustee or responsible entity. These restrictions will cease to apply prior to 1 July 2017,
if a third party acquires control of MAM or MFG, or if the employment contract is
terminated for any reason. The restrictions do not apply in respect of any investment
in:
(a) securities in a company; or
(b) interests in a managed investment scheme; or
(c) other interests in an entity,
which represents less than 10% of the issued securities in that company, interests in
that managed investment scheme or other interests in that other entity respectively.
In consideration for complying with this investment restriction MAM shall pay the
Director an amount of $500,000 on or prior to 15 July 2017.
The Director 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. The service conditions attached
to the conversion of the MFG Class B shares to MFG ordinary shares were satisfied on 1
July 2012.
Other Key Management Personnel
Other Key Management Personnel have rolling contracts with MAM. MAM may terminate Other Key
Management Personnel’s employment agreements by providing three months written notice. On
termination, Other Key Management Personnel 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 Other Key Management
Personnel.
24
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2012
Remuneration Report (Audited) (continued)
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
24 August 2012
25
MAGELLAN FINANCIAL GROUP LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
26
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2012
Consolidated
Company
Note
2012
2011
2012
2011
$ ’000
$ ’000
$ ’000
$ ’000
Revenue
Management fee revenue
5
31,042
13,631
Consulting fee revenue
Dividend and distribution income
Interest income
Net changes in fair value of held for trading
financial assets
Net gain/(loss) on sale of available for sale
financial assets
Foreign exchange gain /(loss)
Other revenue
Total revenue
Expenses
Employment expense
Fund administration and operational costs
Travel and entertainment expense
Marketing expense
Occupancy expense
Audit fees
Depreciation and amortisation
Legal and professional fees
Other operating expenses
Total expenses
1,218
1,145
2,412
34
(7)
(2)
4
1,266
1,143
1,915
132
216
(19)
30
-
-
-
-
3,545
1,462
1,143
1,462
34
(7)
(2)
-
132
216
(19)
-
35,846
18,314
5,032
2,934
11,457
7,170
335
341
2,006
540
700
681
474
139
117
172
947
558
571
422
142
122
80
639
16,693
10,244
-
-
-
-
62
-
10
180
587
-
-
-
-
62
-
7
159
569
Operating profit before income tax
19,153
8,070
4,445
2,365
Income tax expense
4 a)
(5,493)
(2,278)
(351)
(552)
Net profit for the year
13,660
5,792
4,094
1,813
27
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2012
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
Other comprehensive income
Net gain/(loss) on sale of available for
sale financial assets transferred to
income
Revaluation of available for sale
financial assets
Income tax expense on items of other
comprehensive income
Other comprehensive income
for the year, net of tax
Total comprehensive income
for the year
7
(216)
7
16,313
4,517
16,313
(216)
4,517
4 b)
(4,899)
(1,290)
(4,899)
(1,290)
11,421
3,011
11,421
3,011
25,081
8,803
15,515
4,824
Earnings per share for the year
Earnings attributable to shares
Basic earnings per share
Diluted earnings per share
6
6
9.0 cents
8.5 cents
3.9 cents
3.7 cents
The Statement of Comprehensive Income is to be read in conjunction with the accompanying notes to the Financial
Statements.
28
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2012
Consolidated
Company
Note
2012
2011
2012
2011
$ ’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
1,052
30,565
9,638
1,658
164
43,077
1,625
27,879
8,441
186
138
38,269
454
12,197
2,822
1,658
68
17,199
695
17,372
5,327
186
90
23,670
- -
107,595
200
4,661
79,980
4,637
6,135
- -
272
112,728
245
90,997
12,539
107,595
-
4,661
1,150
12,539
79,980
4,173
6,135
1,150
- -
103,977
125,945
Total assets
155,805
129,266
143,144
127,647
Liabilities
Current liabilities
Trade and other payables
Income tax payable
Total current liabilities
Non-current liabilities
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
13 a)
4,465
4,124
8,589
2,095
1,336
3,431
47
4,124
4,171
42
1,336
1,378
4 d)
- -
- -
889 -
889 -
8,589
3,431
5,060
1,378
147,216
125,835
138,084
126,269
Equity
Contributed equity
Available for sale reserve
Retained profits
Total attributable to members of
the Group
Total Equity
15
115,395
16,984
14,837
114,529
5,563
5,743
115,770
16,074
6,240
114,904
4,653
6,712
147,216
125,835
138,084
126,269
147,216
125,835
138,084
126,269
The Statement of Financial Position is to be read in conjunction with the accompanying notes to the Financial
Statements.
29
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2012
For the year ended 30 June 2012
Equity - 1 July 2011
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities under employee
share purchase plan (SPP)
Dividend paid during the year
SPP expense for the year
Total transactions with equity
holders in their capacity as equity
owners
Equity - 30 June 2012
For the year ended 30 June 2011
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
Attributable to Equity Holders of the Group
Contributed
Equity
Retained
Profits
Available
for Sale
Reserve
Total
$’000
114,529
-
-
$’000
5,743
13,660
-
$’000
5,563
$’000
125,835
-
11,421
13,660
11,421
-
13,660
11,421
25,081
578
-
288
-
(4,566)
-
-
-
-
578
(4,566)
288
866
115,395
(4,566)
14,837
-
16,984
(3,700)
147,216
Attributable to Equity Holders of the Group
Contributed
Equity
$’000
108,630
Retained
Profits
$’000
(49)
Available
for Sale
Reserve
$’000
2,552
Total
$’000
111,133
-
-
5,792
-
-
3,011
5,792
3,011
-
5,792
3,011
8,803
1,028
4,584
-
-
-
-
1,028
4,584
287
-
-
287
5,899
114,529
-
5,743
-
5,563
5,899
125,835
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
30
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2012
For the year ended 30 June 2012
Contributed
Equity
Retained
Profits
Available for
Sale Reserve
Total
Attributable to Equity Holders of the Company
Equity - 30 June 2011
Net profit for the year
Other comprehensive income
Total comprehensive income
for the year
Issue of securities under employee
share purchase plan (SPP)
Dividend paid during the year
SPP expense for the year
Total transactions with equity
holders in their capacity as equity
owners
Equity - 30 June 2012
$’000
114,904
$’000
6,712
$’000
4,653
$’000
126,269
-
4,094
-
4,094
-
-
11,421
11,421
-
4,094
11,421
15,515
578
-
288
-
(4,566)
-
866
115,770
(4,566)
6,240
-
-
-
-
16,074
578
(4,566)
288
(3,700)
138,084
For the year ended 30 June 2011
Contributed
Equity
Retained
Profits
Available for
Sale Reserve
Total
Attributable to Equity Holders of the Company
Equity - 1 July 2010
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
$’000
109,005
$’000
4,899
$’000
1,642
$’000
115,546
-
1,813
-
1,813
-
-
3,011
3,011
-
1,813
3,011
4,824
1,028
-
-
1,028
4,584
287
-
-
-
-
4,584
287
5,899
114,904
-
-
5,899
6,712
4,653
126,269
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the Financial
Statements.
31
MAGELLAN FINANCIAL GROUP LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2012
Cash flows from operating activities
Receipt of fee income
Interest received
Proceeds from sale of
held for trading financial assets
Dividends and distributions received
Tax paid
Payments to suppliers and employees
Net cash inflows / (outflows) from
operating activities
Cash flows from investing activities
Proceeds from sale of
available for sale financial assets
Dividend received from subsidiary
Maturities of financial assets - held to maturity
and loans and receivable
Purchases of available for sale financial assets
Purchases of financial assets - held to maturity
and loans and receivable
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 issue of securities
Borrowings from controlled entities
Repayment of borrowings from controlled
entities
Proceeds from repayment of share purchase
plan loan
Dividends paid
Net cash inflows / (outflows) from
financing activities
Consolidated
2012
$ ’000
2011
$ ’000
Parent
2012
$ ’000
2011
$ ’000
26,886
2,191
13,726
1,397
-
1,268
-
1,071
209
1,195
(3,125)
(13,945)
1,029
1,040
(246)
(8,882)
209
1,195
(3,125)
(271)
1,029
1,040
(246)
(258)
14a)
13,411
8,064
(724)
2,636
34
-
2,771
-
34
2,400
2,771
-
4,716
(11,336)
9,390
(10,981)
4,716
(11,335)
9,390
(10,981)
(7,833)
(10,647)
-
(2,238)
(2)
(144)
(19)
(98)
(2)
-
(19)
-
(14,565)
(9,584)
(4,187)
(1,077)
4,137
-
495
-
4,137
4,089
495
500
-
-
-
(2,500)
1,010
(4,566)
407
-
1,010
(4,566)
407
-
581
902
4,670
(1,098)
Net (decrease) / increase in cash and
cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of
the year
8
(573)
1,625
(618)
2,243
(241)
695
1,052
1,625
454
461
234
695
The Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial Statements.
32
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
1.
Corporate Information
The financial report of Magellan Financial Group Limited for the year ended 30 June 2012 was
authorised for issue in accordance with a resolution of the directors on 24 August 2012.
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).
•
33
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(c) New Accounting Standards and Interpretations
Except as described below, 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 2011.
(i) New Standards Adopted
The Group has adopted the following new Australian Accounting Standard which is applicable for
interim and annual periods beginning on or after 1 January 2011:
• AASB 124 Related Party Disclosures (revised December 2009) effective 1 January 2011
simplifies the definition of a related party, clarifying its intended meaning and eliminating
inconsistencies from the definition, including:
a) The definition now identifies a subsidiary and an associate with the same
investor as related parties of each other
(b) Entities significantly influenced by one person and entities significantly
influenced by a close member of the family of that person are no longer related
parties of each other
(c) The definition now identifies that, whenever a person or entity has both joint
control over a second entity and joint control or significant influence over a third
party, the second and third entities are related to each other.
(ii) 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, although mandatory adoption has now been 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 2011, 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.
34
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
iii) AASB 10: Consolidated Financial Statements
AASB 10 is applicable to annual reporting periods beginning on or after 1 January 2013.
This standard broadens the situations where an entity is likely to be considered to control
another entity and includes new guidance for determining control of an entity, which may
require the Group to consolidate certain investments. However, the Group has not yet
completed its evaluation of the effect on the financial statements.
iv) AASB 13: Fair Value Measurement
AASB 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.
(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
2012
100.0
100.0
30 June
2011
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. The Group held a controlling investment in the Frontegra MFG Core Infrastructure
Fund at year end, and a controlling interest in the Frontegra MFG Global Equity Fund until 29
March 2012. Consolidating these funds would not have a material impact on the financial report
for the year, and consequently the investment in these funds is classified as financial assets
available for sale with gains and losses recognised through other comprehensive income.
(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
35
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(e) Business Combinations (continued)
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.
(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.
36
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(i) Trade and Other Receivables (continued)
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. 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.
37
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(k) Financial Assets (continued)
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
term to maturity from reporting date is less than 12 months and non-current if the term to
maturity is greater than 12 months.
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.
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.
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.
38
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(k) Financial Assets (continued)
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.
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.
39
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(n) 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.
(o) 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 2012
are provided in note 11.
(p) 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.
40
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(q) 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.
(r) 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.
(s) Leases
Operating equipment lease payments are recognised as an expense in profit or loss on a straight-
line basis over the lease term.
(t) 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.
41
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
2.
Summary of Significant Accounting Policies (continued)
(u) 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.
(v) 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.
(w) 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.
42
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
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 (the Unlisted Funds) which are managed investment schemes offered to
Australian and New Zealand investors and as subadviser for the Frontegra MFG Core Infrastructure
Fund and the Frontegra MFG Global Equity Fund (the Frontegra MFG Funds) which are offered to
US wholesale investors. MAM acts as Trustee and Investment Manager for the Magellan Core
Infrastructure Fund (MCIF) which is an unregistered managed investment scheme offered to
Australian wholesale investors. The consulting fees are included in this operating segment.
Principal Investments
The principal investment portfolio is comprised of investments in the Magellan Flagship Fund
Limited, the Unlisted funds, the Frontegra MFG Funds and in a select portfolio of Australian and
international listed companies, cash and fixed interest securities and other investments.
Unallocated - Corporate
This includes interest income on Non-executive Directors’ Share Purchase Plan (SPP) loans, costs
associated with the Board, ASX listing, audit and regulatory compliance activities of the Group and
tax payable at the corporate level. All current and deferred tax assets and liabilities are assigned to
Unallocated Corporate.
43
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
3.
Operating Segment Information (continued)
The operating results of the Group’s operating segments are as follows:
30 June 2012
Revenue
Management fees
Consulting fees *
Dividend income
Other revenue
Interest income
Net changes in fair value of
financial assets
Net loss on disposal of
financial assets
Foreign exchange losses
Expense
Employee benefits expense
Employee benefits expense - SPP
Other expenses
Operating profit
before income tax
30 June 2011
Revenue
Management fees
Consulting fees *
Dividend income
Other revenue
Interest income
Net changes in fair value of
financial assets
Net gains on disposal of
financial assets
Foreign exchange losses
Expense
Employee benefits expense
Employee benefits expense - SPP
Other expenses
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated
- Corporate
$ ’000
Consolidated
$ ’000
31,042
1,218
-
4
396
-
-
32,660
11,119
259
4,983
16,361
-
-
1,145
-
1,539
34
(7)
(2)
2,709
-
-
-
-
-
-
-
477
-
-
-
477
50
29
253
332
31,042
1,218
1,145
4
2,412
34
(7)
(2)
35,846
11,169
288
5,236
16,693
16,299
2,709
145
19,153
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated
- Corporate
$ ’000
Consolidated
$ ’000
13,631
1,266
-
30
281
-
-
1,143
-
1,212
-
-
-
-
422
13,631
1,266
1,143
30
1,915
-
132
-
132
-
-
15,208
216
(19)
2,684
-
-
422
6,829
143
2,845
9,817
-
-
-
-
54
144
229
427
216
(19)
18,314
6,883
287
3,074
10,244
Operating profit
before income tax
2,684
* The arrangement under which consulting fees are received expires on 30 June 2013.
5,391
(5)
8,070
44
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
3.
Operating Segment Information (continued)
Other comprehensive income before tax of the Group’s operating segments are as follows:
30 June 2012
Net gain/(loss) on sale of available for
sale financial assets transferred to income
Revaluation of available for sale financial
assets
30 June 2011
Net gain/(loss) on sale of available for
sale financial assets transferred to
income
Revaluation of available for sale financial
assets
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated -
Corporate
$ ’000
Consolidated
$ ’000
-
-
7
16,313
-
-
7
16,313
Funds
Management
$ ’000
Principal
Investments
$ ’000
Unallocated -
Corporate
$ ’000
Consolidated
$ ’000
-
-
(216)
4,517
-
-
(216)
4,517
The assets and liabilities of the Group’s operating segments are as follows:
30 June 2012
Cash and cash equivalents
Financial assets
Loans – SPP
Other assets
Total assets
Other liabilities
Total liabilities
Net assets
Funds
Management
Principal
Investments
$ ’000
557
7,500
-
9,164
17,221
4,418
4,418
12,803
$ ’000
495
130,660
-
909
132,064
46
46
132,018
30 June 2011
Cash and cash equivalents
Financial assets
Loans – SPP
Other assets
Total assets
Other liabilities
Total liabilities
Net assets
Funds
Management
Principal
Investments
$ ’000
891
5,000
-
3,709
9,600
3,506
3,506
6,094
$ ’000
734
102,859
-
5,417
109,010
41
41
108,969
Unallocated
-
Corporate#
$ ’000
-
-
6,319
3,331
9,650
7,255
7,255
2,395
Unallocated
–
Corporate#
$ ’000
-
-
6,321
5,787
12,108
1,336
1,336
10,772
Elimination* Consolidated
$ ’000
-
-
-
(3,130)
(3,130)
(3,130)
(3,130)
-
$ ’000
1,052
138,160
6,319
10,274
155,805
8,589
8,589
147,216
Elimination* Consolidated
$ ’000
-
-
-
(1,452)
(1,452)
(1,452)
(1,452)
-
$ ’000
1,625
107,859
6,321
13,461
129,266
3,431
3,431
125,835
*Eliminations include adjustments / eliminations for inter-segment transactions and netting of items on the Statement of Financial Position.
# At 30 June 2012 the deferred tax asset balance included a deferred tax liability in respect of unrealised gains on the financial asset of
$2,128,000 (2011: deferred tax asset on unrealised losses of $2,774,000). Refer note 4d).
45
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
3.
Operating Segment Information (continued)
The Group’s net investment into its funds management business activities as at 30
June 2012 is:
Capital invested in controlled entity
Subordinated loan to controlled entity
30 June
2012
$ ’000
12,500
1,150
13,650
30 June
2011
$ ’000
12,500
1,150
13,650
The Group’s business activities are conducted in Australia. Cash & cash equivalents, and fixed term
deposits with maturities greater than 90 days and less than 365 days of approximately $7.5 million
(2011: $5.0 million) were held by the funds management business to meet its regulatory and
operating requirements.
4.
Income Tax
a) Income tax expense recognised during the year
through profit or loss:
Current income tax expense
Prior year adjustments
Deferred income tax expense 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
Consolidated
2012
$ ’000
2011
$ ’000
Company
2012
$ ’000
2011
$ ’000
(6,299)
99
707
(5,493)
(2,206)
8
(80)
(2,278)
(530)
99
80
(351)
(272)
15
(295)
(552)
(4,897)
(2)
(4,899)
(1,356)
(4,897)
(1,356)
66
(1,290)
(2)
(4,899)
66
(1,290)
46
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
4.
Income Tax (continued)
Consolidated
2011
2012
Company
2011
2012
$
’000
c) Income tax attributable to the financial year differs
from the prima facie amount payable on operating
profit. The difference is reconciled as follows:
$ ’000
$ ’000
$ ’000
Operating profit before income tax expense
19,153
8,070
4,445
2,365
Prima facie income tax expense
on operating profit at 30%
Prior year adjustments
Share purchase plan
Other non-assessable income and
non-deductible expenses
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
(5,746)
(2,421)
(1,333)
(709)
99
56
8
40
99
56
15
40
98
(5,493)
95
(2,278)
827
(351)
102
(552)
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
-
1,286
-
(2,128)
1,042
99
1,379
52
2,774
333
-
1,286
-
(2,129)
(46)
99
1,379
52
2,774
(131)
200
4,637
(889)
4,173
47
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
4.
Income Tax (continued)
e) Tax consolidation
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.
Members of the tax consolidated group have entered into a tax funding agreement. The tax
funding agreement requires payments to/from the head entity to be recognised via an inter-entity
receivable / payable which is at call. The amounts receivable or payable under the tax funding
agreement are due upon receipt of the funding advice from the head entity. The head entity may
also require funding to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are
recognised as amounts receivable from or payable to other entities in the Group. Any difference
between the amounts assumed and amounts receivable or payable under the tax funding
agreement are recognised as a contribution to or distribution from wholly-owned tax consolidated
entities.
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
2012
$ ’000
21,976
9,066
31,042
2011
$ ’000
13,311
320
13,631
Company
2012
$ ’000
-
-
-
2011
$ ’000
-
-
-
Magellan Asset Management Limited (MAM), a controlled entity, is entitled to receive management
and administration fees for acting as trustee and responsible entity of the Unlisted Funds, and for
acting as trustee and investment manager of MCIF. MAM is the Investment Manager of the
Frontegra MFG Funds and 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 mandates 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. The Group has
received performance fees of $8.8 million in the year primarily in respect of Magellan Global Fund
and the Colonial First State Magellan Global Option.
48
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
6.
Earnings Per Share
The following reflects the earnings and weighted average share data used in the 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
Consolidated
2012
$ ’000
2011
$ ’000
13,660
5,792
152,393
147,933
9.0 cents
3.9 cents
13,660
5,792
161,537
157,479
8.5 cents
3.7 cents
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)
152,393
147,933
Weighted average number of shares on assumed exercise of:
MFG 2011 Options (‘000) – shares deemed to be issued
for nil consideration
Class B shares
Weighted average number of shares for
diluted earnings per share (‘000)
-
9,144
670
8,876
161,537
157,479
49
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
6.
Earnings Per Share (continued)
b) Further information
The Company has on issue 10.2 million Class B shares (2011: 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 2012, the total weighted
average number of securities for the purposes of calculating the diluted earnings per share would
be 161,536,536 (2011: 157,477,197).
The Company has on issue 7.9 million MFG 2016 Options (2011: 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. Further details of the terms of these options and shares
are included in note 15.
7.
Dividends
Declared and paid during the period
Fully franked final dividend for the year ended 30 June 2011:
1.5 cents per ordinary share (2010: nil)
Fully franked interim dividend for the year ended 30 June 2012:
1.5 cents per ordinary share (2011: nil)
Consolidated
2012
$’000
2,278
2,288
4,566
2011
$’000
-
-
-
The Directors have proposed a final fully franked dividend of 3.0 cents per ordinary share in
respect of the 2012 financial year, which represents $4.6 million. In accordance with accounting
standards, the dividend has not been provided for in the 30 June 2012 financial statements. The
dividend when paid will give rise to a franking debit of $2.0 million.
Franking credit balance
The amount of franking credits available for
subsequent financial years are:
Franking credits arising from income tax paid
and payable
Franking debits arising from the payment of
dividends throughout the year
8.
Cash and cash equivalents
Cash at bank
Company
2012
$ ’000
2011
$ ’000
2,412
1,002
6,156
1,410
(1,957)
6,611
-
2,412
Consolidated
Company
2012
$ ’000
1,052
1,052
2011
$ ’000
1,625
1,625
2012
$ ’000
2011
$ ’000
454
454
695
695
50
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
8.
Cash and cash equivalents (continued)
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.
9.
Trade and other receivables
Trade receivables
2011 MFG Option exercise proceeds receivable
Other
Related party receivables
- Controlled entity
- Other related parties
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
2012
$ ’000
8,796
-
10
8,806
-
832
2011
$ ’000
3,417
4,088
42
7,547
-
894
9,638
8,441
2012
$ ’000
-
-
10
10
1,980
832
2,822
2011
$ ’000
-
4,088
42
4,130
303
894
5,327
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
-
-
175
352
-
-
175
352
30,565
30,565
27,352
12,197
27,879
12,197
16,845
17,372
The movement in the carrying value of the Group’s current financial assets can be analysed as
follows:
Balance at 1 July
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
2012
$ ’000
27,879
(209)
-
30,368
(27,155)
(362)
44
30,565
2011
$ ’000
27,057
(1,029)
352
27,111
(16,122)
(9,390)
(100)
27,879
51
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
10.
Financial Assets (continued)
b) Non-current
Available-for-sale financial assets
(by domicile of primary stock exchange)
- Listed shares – Australia
- Magellan Flagship Fund Limited
- Listed shares – United States
- Listed shares – Switzerland
- Listed shares – Netherlands
- Listed shares – Hong Kong
- Listed subordinated bank notes - Australia
- Unlisted funds - Magellan
- Magellan Global Fund
- Magellan Infrastructure Fund
- Frontegra MFG Global Equity Fund
- Frontegra MFG Core Infrastructure Fund
- Unlisted fund - Other
- Unlisted shares - Other
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
42,167
7,522
1,445
133
62
1,708
41,695
2,988
5,273
2,597
1,830
175
32,746
42,167
32,746
5,776
1,437
125
51
-
35,262
2,777
-
-
1,806
-
7,522
1,445
133
62
1,708
41,695
2,988
5,273
2,597
1,830
175
5,776
1,437
125
51
-
35,262
2,777
-
-
1,806
-
107,595
79,980
107,595
79,980
The movement in the fair value of the Group’s non-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
Changes in fair value
Balance at 30 June
c) Fair Value Disclosures
i) Financial Assets carried at Fair Value
2012
$ ’000
79,980
11,336
(34)
-
16,313
107,595
2011
$ ’000
67,595
10,992
(2,772)
(352)
4,517
79,980
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: quoted prices in active markets for identical assets or liabilities. The fair value of
these investments is based on quoted bid prices.
• Level 2: valuation techniques using market observable inputs. 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.
52
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
10.
Financial Assets (continued)
c) Fair Value Disclosures (continued)
• Level 3: valuation techniques using non market observable inputs. The Group invests in
unlisted trusts which typically invest in unlisted companies. The Group has an investment in
an unlisted company. 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.
Available-for-sale financial assets at fair value
- Level 1: Listed shares and subordinated bank
notes
- Level 2: Unlisted funds - Magellan
- Level 3: Unlisted fund – Other
- Level 3: Unlisted shares - Other
Listed shares and subordinated notes
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
53,037
52,553
1,830
175
40,135
38,039
1,806
53,037
40,135
52,553
38,039
1,830
1,806
-
175
-
107,595
79,980 107,595 79,980
The fair value of the Group’s investments in listed shares and subordinated notes 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.
Unlisted funds - Magellan
The fair values of investments in the Unlisted Funds and Frontegra MFG Funds are calculated using
the redemption 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.
Unlisted funds – Other
‘Unlisted fund – Other’ comprises units a private equity fund, for which there is no active market.
The fund invests 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 price provided by the fund’s 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
53
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
10.
Financial Assets (continued)
c) Fair Value Disclosures (continued)
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
Purchase of unlisted shares
Balance at 30 June
2012
$ ’000
1,806
24
175
2,005
2011
$ ’000
1,761
45
-
1,806
There were no transfers in or out of level 3 during the current year.
ii) Held-to-maturity financial assets
Fixed and floating rate securities are recognised at amortised cost and have a carrying value of nil
at 30 June 2012 (2011: $0.3 million).
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 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. The Group’s
arrangements with MLI are described in note 16(d).
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 provides 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 offer is made; and
ii) such further number of shares as requested and approved by the Board, subject to:
54
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
11.
Share Purchase Plan (SPP) (continued)
(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 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 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 is
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.
Participants are required to apply 25% of their after tax annual bonus each year to repay the loan
until the loan has been fully repaid. The maximum term of the loan for employee participants is 10
years. Any outstanding balance at the end of 10 years must be repaid by the employee.
Employees are not entitled to repay their loan early.
Participating Non-executive Directors were previously required to repay the loan on the fifth
anniversary of the date of issue of their shares, 17 September 2012, but during the year MFG
shareholders approved an extension for repayment of their loans until 17 September 2016. The
extension to the repayment of the loans has increased the period over which the unamortised
portion of the SPP expense is recognised, resulting in a lower SPP expense for this and future
financial years.
Loans to Participants under the Plan are secured on the shares issued to that Participant. The
shares are not 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 are 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 otherwise rank equally with all other issued ordinary shares.
55
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
11.
Share Purchase Plan (SPP) (continued)
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 the participant 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
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
1,658
186
1,658
186
Amounts due later than one year and within ten years
4,661
6,135
4,661
6,319
6,321
6,319
6,135
6,321
Included in current loans is an amount of $1.0 million, which based on the Company’s share price at balance
date, the Directors expect will be repaid within 12 months.
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
21 September 2011
5-day weighted average share price
$1.66
$0.52
$0.78
$1.35
$1.75
$1.20
56
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
11.
Share Purchase Plan (SPP) (continued)
The value of shares securing the loans to Participants at balance date applying the Company’s 30
June 2012 closing market price of $2.15 was $14.4 million (2011: $8.3 million). No amounts are
past due or 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 2012
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
$4.7m
2.6 years
7.0%
$0.1m
1.9 years
5.0%
$0.9m
3.3 years
5.3%
$1.4m
4.4 years
5.5%
$0.2m
4.4 years
5.5%
September 2011 tranche
Face value of loans
Estimated weighted average duration of loans
Imputed interest rate
Amounts recognised in profit or loss in respect of the SPP loans are as follows:
$0.7m
6.8 years
4.0%
$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%
-
-
-
Included in:
Interest income
Employee benefits expense
Net credit to profit or loss before tax
Consolidated
2012
$ ’000
477
(288)
189
2011
$ ’000
422
(287)
135
Company
2012
$ ’000
2011
$ ’000
477
(288)
189
422
(287)
135
Both the change 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 not cash items and
therefore are not reflected within the Group’s cash flow statement. 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 in note 2(p).
57
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
12.
Property, Plant and Equipment
Consolidated
2012
2011
Leasehold
Improvement
s
$ ’000
117
-
-
-
Equipment,
Fixtures
and Fittings
$ ’000
613
-
144
-
Total
$ ’000
730
-
144
-
Leasehold
Improvement
s
$ ’000
119
(2)
-
-
Equipment,
Fixtures and
Fittings
$ ’000
512
2
99
-
Total
$ ’000
631
-
99
-
117
757
874
117
613
730
91
-
-
21
394
-
-
96
485
-
-
117
72
-
(8)
27
291
-
8
95
363
-
-
122
112
490
602
91
394
485
5
267
272
26
219
245
Cost at 1 July
Reclassification
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
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 2012 is $nil (2011:$ nil).
13.
Trade and Other Payables
Current
Trade payables
Accrued expenses
Other payables
Consolidated
Company
2012
$ ’000
-
3,831
634
4,465
2011
$ ’000
2012
$ ’000
2011
$ ’000
49
1,671
375
2,095
-
47
-
47
-
42
-
42
58
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
14.
Statement of Cash Flows Reconciliation
a) Reconciliation of Net Profit after Tax to Net Cash Flows from Operating Activities:
Consolidated
Company
2012
$ ’000
13,660
7
-
(894)
117
2011
2012
$ ’000
$ ’000
2011
$ ’000
5,792
4,094
1,813
(216)
232
7
-
(216)
232
(950)
(894)
(950)
122
-
-
(3,124)
(246)
(3,124)
(246)
-
2
(476)
288
(4,182)
(25)
(3,011)
175
8,139
2,735
-
(2,400)
19
2
(421)
287
1,380
35
(476)
288
1,226
23
-
19
(421)
287
767
23
(949)
(2,385)
(735)
897
918
175
5
897
2
1,164
2,735
1,164
13,411
8,064
(724)
2,636
578
(476)
288
1,028
(421)
287
578
(476)
288
1,028
(421)
287
894
950
894
950
Net profit after tax
Adjusted for:
Losses / (gains) on sale of available for sale financial
assets
Change in carrying value of held to maturity financial
assets
Dividends and distributions from available for sale
financial assets reinvested
Depreciation
Tax paid
Dividend received from subsidiary
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 / (outflows) from operating
activities
b) Non-cash financing and investing activities:
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
59
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
15.
Contributed Equity
Contributed equity
Consolidated
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
115,395
114,529
115,770
2011
$ ’000
114,904
115,395
114,529
115,770
114,904
a) Movement during the year of Group securities on issue
Balance at 1 July 2011
Issue of shares under share purchase plan (SPP)
Balance at 30 June 2012
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
Shares
’000
151,893
665
MFG 2016
Options
Class B
Shares
‘000
7,882
-
’000
10,200
-
152,558
7,882
10,200
MFG
2011
Options
MFG
2016
Options
Class B
Shares
‘000
6,034
‘000
’000
7,882
10,200
Shares
’000
147,198
3,526
(3,526)
-
(2,508)
1,169
151,893
-
-
-
-
-
-
-
-
7,882
10,200
* 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 2011
Issue of shares under SPP
Recognition of SPP expense for the year
Balance at 30 June 2012
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
60
Value
Consolidated
Company
$‘000
114,529
578
288
$‘000
114,904
578
288
115,395
115,770
Value
Consolidated
$‘000
108,630
4,584
1,028
287
114,529
Company
$‘000
109,005
4,584
1,028
287
114,904
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
15.
Contributed Equity (continued)
a) Movement during the year of Group securities on issue (continued)
The key terms and rights attaching to the MFG 2016 Options are as follows:
MFG 2016 Options can be exercised during any two month period following the
announcement of the Company’s full or half year results in each year prior to the expiry
date. 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
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.
- Subject to Mr Douglass meeting certain service conditions, which were satisfied on 1 July
2012, the Class B shares will convert on the first business day after 21 November 2016 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 2012 the 10,200,000 the Class B shares
would be entitled to convert to 9,153,500 ordinary shares, being equal to 0.06 times 152,558,341
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 benefited the Group, particularly during the early stages
of the funds management business in the extreme markets of the last five 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.
61
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies
a) Financial Risk Management Objectives, Policies and Processes
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.
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 Unlisted Funds of which a controlled entity of the Group is the Responsible
entity and Investment Manager, and a small, direct portfolio of investments, two unlisted United
States institutional mutual funds, being the Frontegra MFG Funds of which a controlled entity of
the Group is the Investment Manager.
The investment portfolios of Magellan Flagship Fund Limited, the Unlisted Funds and the Frontegra
MFG Funds are managed on a daily basis by the Investment Manager (MAM) 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, the Product Disclosure Statement (PDS) of the Magellan unlisted funds, and the
prospectuses of the Frontegra MFG Funds.
The Group earns management fees on funds under management, which are based on a
percentage of the value of the funds portfolios. 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 and portfolios that it manages. These performance fees are reliant on
the performance of the funds and 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 net profit and 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.
62
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
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 and its holdings in the Magellan Flagship Fund
Limited, the Unlisted Funds and the Frontegra MFG Funds.
(i) Equity Price Risk
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 +20% and -21% (in AUD) and +31% and -29% (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 occur
within the portfolio over a 12 month period. 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 and the Company’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:
Impact on net profit for the year
Impact on available-for-sale reserve, net of
tax
Total impact on net profit and equity
Assumptions and explanatory notes
Group
Company
2012
$ ’000
-
3,766
3,766
2011
$ ’000
6
2,799
2,805
2012
$ ’000
-
3,766
3,766
2011
$ ’000
6
2,799
2,805
i) The Group and the Company 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 and the Company 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.
63
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
Impact arising on entitlements to management fees
Base fees earned from funds under management will be impacted by movements in the underlying
prices in local currency, exchange rate movements, or a combination of both.
Each incremental increase of 5% in the average value of funds under management of the Group
during the years ended 30 June 2012 and 30 June 2011 would have increased the base
management fees recognised in net profit and equity as follows:
Group
Company
Impact on net profit for the year
Total impact on net profit and equity
Assumptions and explanatory notes
2012
$ ’000
769
769
2011
$ ’000
477
477
2012
$ ’000
2011
$ ’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 Group has different performance fee arrangements with some of the funds and the wholesale
portfolio mandates to which it provides investment management services. The Group’s entitlement
to these fees is dependent on performance relative to absolute targets, index relative targets, high
watermarks or some combination of these. These fees also accrue over different calculation
periods, ranging from 1 month to 3 years. The fees recognised in the Statement of
Comprehensive Income are characterised as follows:
Based on performance relative to a market index
Based on performance relative to an absolute
return hurdle
Based on performance relative to both a market
index and an absolute return hurdle
Total performance fees
2012
$ ’000
1,233
154
7,679
9,066
Group
2011
$ ’000
2012
$ ’000
Company
2011
$ ’000
53
260
7
320
-
-
-
-
-
-
-
-
(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.
64
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
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 other comprehensive income.
At balance date, the Group and the Company’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 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
Increase / (decrease) in
equity
2012
$ ’000
(8)
-
-
-
2011
$ ’000
2012
$ ’000
(2)
(1,399)
-
-
-
(12)
(131)
(6)
2011
$ ’000
(525)
(11)
(131)
(5)
Increase / (decrease) in
net profit
Increase / (decrease) in
equity
2012
$ ’000
(8)
-
-
-
2011
$ ’000
(2)
-
-
-
2012
$ ’000
(1,399)
(12)
(131)
(6)
2011
$ ’000
(525)
(11)
(131)
(5)
The Group and the Company held negligible foreign cash at 30 June 2012. The Group and the
Company’s direct foreign currency exchange exposure arises on non-monetary assets held directly,
and through its holdings in the US dollar denominated Frontegra MFG Funds. The movements in
foreign currencies on available for sale financial assets are 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 the Company have exposure would have an
opposite impact of materially similar magnitude on amounts recognised directly in net profit and
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, the Unlisted Funds, and the Frontegra MFG Funds.
Magellan Flagship Fund Limited is listed on the Australian Securities Exchange and its market value
is denominated in Australian dollars.
65
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies (continued)
b) Market Risk (continued)
These entities’
(ii) Currency Risk (continued)
The Unlisted Funds are denominated in Australian dollars. The Frontegra MFG Funds are US dollar
denominated.
investment portfolios comprise companies predominantly
denominated in foreign currencies, and with extensive operating exposure to global currency
fluctuations which will drive portfolio values. 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.
Base fees earned from funds under management will be impacted by movements in the underlying
prices in local currency, exchange rate movements, or a combination of both. For the year ended
30 June 2012, 96% of the Group’s base management fee revenue was exposed to movements in
the Australian dollar relative to other currencies (30 June 2011: 96%).
(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 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 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 50 basis points in floating interest rates would be as follows:
Group
Company
2012
$ ’000
2011
$ ’000
2012
$ ’000
2011
$ ’000
Decrease in net profit and equity
109
101
44
61
A decrease of 50 basis points in floating rate interest rates would have an equal but opposite
effect on the annual interest income and the net profit.
66
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies (continued)
c) Liquidity Risk
Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting
obligations associated with financial liabilities. The Group and the Company manage liquidity risk
by maintaining sufficient cash reserves to cover its liabilities.
As at 30 June 2012, the Group had an obligation to settle trade creditors of $4.5 million (2011:
$2.1 million) within 30 days. The Group had cash reserves of $1.1 million (2011: $1.6 million) and
a further $9.6 million (2011: $10.0 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 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 under the IBPAs include clearing and settlement of transactions,
securities lending and acting as custodian for the Company and the Unlisted Funds’ assets. Under
an addendum to the IPBAs, Merrill Lynch International (Australia) Limited may provide financing
services to the Company and the Unlisted Funds. The IPBAs with MLI are in a form that is typical
of prime brokerage arrangements. In acting as custodian of the Unlisted Funds’ assets, MLI is
required to comply with the relevant provisions of the Corporations Act, applicable ASIC
regulatory guides and class orders relating to registered managed investment scheme property
arrangements with custodians. Each of the Company and Unlisted Funds’ securities held by MLI
may be used by MLI for its own purposes. In relation to the Unlisted Funds’, MLI’s right of use
over the Unlisted Funds’ securities is subject to an agreed limit of A$200 million (in the case of the
Magellan Global Fund) and A$100 million (in the case of the Magellan Infrastructure Fund).
Securities of the Unlisted Funds so utilised by MLI become the property of MLI and each of the
Unlisted Funds will have a right against MLI for the return of equivalent securities. In the event of
MLI becoming insolvent the Company and the Unlisted Funds would rank as unsecured creditors
and the Company or the Unlisted Funds may not be able to recover such equivalent securities in
full.
67
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
16.
Financial Risk Management Objectives and Policies (continued)
d) Credit Risk (continued)
Magellan Flagship Fund Limited has also entered into an IPBA with MLI. MLI’s right of use over
Magellan Flagship Fund Limited’s securities is subject to an agreed limit of A$200 million. Details of
this arrangement with MLI are provided in Magellan Flagship Fund Limited’s Annual Report.
Cash which MLI holds or receives on behalf of the Company and the Unlisted Funds is not
segregated from MLI’s own cash and may be used by MLI in the course of its business. In
the event of MLI becoming insolvent the Company and the Unlisted Funds would rank as
unsecured creditors and may not be able to recover their respective cash in full.
The credit quality of Bank of America / Merrill Lynch’s senior debt is rated, as at 30 June 2012, by
Standard & Poor’s as being A- , and by Moody’s as being Baa2 (A and A2 respectively at 30 June
2011).
At 30 June 2012 the Group and the Company had an outstanding balance totalling $6.3 million
(2011: $6.3 million) for loans to Participants under the share purchase plan and held at 30 June
2012. Company shares valued at $14.4 million (2011: $8.3 million) were held as security for these
loans. Further information Is provided in note 11. The loans were made to the Group’s employees
and certain of the Company’s Non-executive Directors on a full recourse basis.
Credit risk on cash balances, fixed term deposits and listed subordinated notes is managed by
ensuring that balances are only held with approved counterparties. Credit limits are reviewed by
management, and may be updated throughout the year. The Group holds cash balances with
Westpac Banking Corporation, Australia and New Zealand Banking Group and National Australia
Bank. The credit quality of these counterparties is rated as at 30 June 2012 by Standard & Poor’s
as being AA-, and by Moody’s as being Aa2 (AA and Aa2 respectively at 30 June 2011).
At 30 June 2012 all cash and receivables are collectable within 30 days and there are no amounts
which are past due.
68
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
17. Transactions with Related Parties
a) Magellan Asset Management Limited (‘MAM’)
(i) Subordinated Loan to MAM
The Company has provided an interest-free subordinated 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 2012 was $1,150,000 (2011:$1,150,000).
(ii) Amounts due from MAM
At balance date, a net amount of $1,980,000 (2011: $303,000 payable) was receivable by the
Company from MAM in respect of amounts arising from the transfer of MAM’s tax liability to the
Company.
b) Disclosures Relating to Key Management Personnel
Share Holdings
The number of ordinary shares held in the Company at 30 June 2012:
Balance at
1 July 2011
Acquisitions
Cancellations/
Disposals
Balance at
30 June 2012
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns (1)
Hamish Douglass
Chris Mackay
6,182,360
1,900,747
1,095,481
10,436,508
18,077,777
-
100,000
-
83,409
-
6,182,360
1,900,747
1,086,427
10,436,508
18,077,777
-
-
9,054
-
-
Other Key Management
Personnel
Nerida Campbell
660,019
-
The number of ordinary shares held in the Company at 30 June 2011:
Balance at
1 July 2010
Acquisitions
Cancellations/
Disposals
Balance at
30 June 2011
-
-
-
-
-
-
6,182,360
2,000,747
1,095,481
10,519,917
18,077,777
660,019
-
-
-
-
-
-
6,182,360
1,900,747
1,095,481
10,436,508
18,077,777
660,019
Other Key Management
Personnel
Nerida Campbell (2)
585,019
75,000
(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
69
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
The number of MFG Class B shares held in the Company at 30 June 2012:
Name
Balance at
1 July 2011
Acquisitions
Disposals
Balance at
30 June 2012
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 2011 disclosures.
The number of MFG 2016 Options (ASX: MFGOC) expiring on 30 June 2016 held at 30 June 2012:
Name
Directors
Naomi Milgrom
Paul Lewis
Brett Cairns
Hamish Douglass
Chris Mackay
Other Key Management
Personnel
Nerida Campbell
Balance at
1 July 2011
Acquisitions
Disposals
Balance at
30 June 2012
16,532
5,790
11,467
297,792
2,644,354
39,600
-
-
-
-
-
-
-
-
-
-
-
-
16,532
5,790
11,467
297,792
2,644,354
39,600
The key terms and rights attaching to the MFG 2016 Options are disclosed in note 15 (a). Option
holdings disclosed above are identical to 30 June 2011 disclosures.
Unit Holdings in the Unlisted Funds
The number of units in Magellan Global Fund held at 30 June 2012:
Acquisitions*
Disposals
Balance at
30 June 2012
Name
Directors
Paul Lewis
Hamish Douglass
Chris Mackay
Other Key Management
Personnel
Nerida Campbell
Balance at
1 July 2011
331,908
829,995
415,676
6,067
15,169
7,597
20,326
371
* including reinvestment of 30 June 2011 distributions
70
-
-
-
-
337,975
845,164
423,273
20,697
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
17. Transactions with Related Parties (continued)
b) Disclosures Relating to Key Management Personnel (continued)
The number of units in Magellan Global Fund held at 30 June 2011:
Name
Directors
Paul Lewis
Hamish Douglass
Chris Mackay
Other Key
Management
Personnel
Nerida Campbell
Acquisitions*
Disposals
Balance at
30 June 2011
Balance at
1 July 2010
326,754
817,106
409,222
5,154
12,889
6,454
-
-
-
-
331,908
829,995
415,676
-
20,326
20,010
316
* including reinvestment of 30 June 2010 distributions
The number of units in Magellan Infrastructure Fund held at 30 June 2012:
Name
Directors
Paul Lewis
Balance at
1 July 2011
Acquisitions*
Disposals
Balance at
30 June 2012
33,530
3,453
-
36,983
* including reinvestment of 30 June 2011 distributions
The number of units in Magellan Infrastructure Fund held at 30 June 2011:
Name
Directors
Paul Lewis
Balance at
1 July 2010
Acquisitions*
Disposals
Balance at
30 June 2011
29,343
4,187
-
33,530
* including reinvestment of 30 June 2010 distributions
71
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
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. The carrying amount of the Directors loans is lower
in the current period as a result of a five year loan extension.
SPP Shares
acquired
during the
year
Loan
Balance at
1 July 2011
Loans
made
Number
$
-
-
1,245,000
1,245,000
-
242,139
$
-
-
-
Name
Directors
Paul Lewis
Brett Cairns
Other Key
Management
Personnel
Nerida Campbell
Repayments
Loan Balance at 30
June 2012
Face value
$
$
Carrying
Value
$
(30,000)
(30,000)
1,215,000
1,215,000
970,343
970,343
(18,901)
223,238
176,452
Comparative information for the year ended 30 June 2011 is as follows:
SPP 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
(6,686)
242,139
173,197
Name
Directors
Paul Lewis
Brett Cairns
Other Key
Management
Personnel
Nerida Campbell
72
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
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
Share based Payment
- Under SPP (1)
Total
Consolidated
Company
2012
$
2011
$
768,948
550,000
756,513
125,000
2012
$
47,523
-
2011
$
47,110
-
49,802
48,487
2,477
2,990
40,197
1,408,947
152,632
1,082,632
40,197
90,197
148,434
198,534
(1) Share based payments represent the expense of providing interest free loans to Participants in the Share Purchase
Plan (see Directors Report – Remuneration Report – Share Purchase Plan).
18.
Contingent Assets, 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
2012
$ ’000
413
1,707
2,120
2011
$ ’000
2012
$ ’000
2011
$ ’000
305
86
391
-
-
-
-
-
-
Contingent Assets and Liabilities
The Group has a contingent asset of a non-crystallised performance fee at year end, which has not
been recognised in the financial statements in accordance with AASB 137 – Provisions, Contingent
Liabilities and Contingent Assets. Recognition of the fee is dependent upon the underlying values
of the (US dollar denominated) portfolio at 31 December 2012. As at 30 June 2012, the
performance fee payable to the Group from this mandate (ie the value had the fee crystallised at
73
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2012
18.
Contingent Assets, Liabilities and Commitments for Expenditure (continued)
30 June 2012, based on the market value of assets and the level of performance hurdles) was
approximately $4.3 million. If the value of the relevant portfolio decreased by 10% between
balance date and 31 December 2012, the fee would decrease to approximately $2.9 million.
Similarly, if the value of the relevant portfolio increased by 10% between balance date and 31
December 2012, the fee would increase to approximately $5.7 million. If the value of the relevant
portfolio were to decrease by approximately 30% between balance date and 31 December 2012,
the fee would be $nil.
The Group has a contingent liability for uncalled amounts of $0.4 million (2011: $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 assets or liabilities at balance date.
19.
Events Subsequent to Reporting Date
The Directors have proposed a fully franked dividend out of current year profits of 3.0 cents per
ordinary share in respect of the 2012 financial year, which represents $4.6 million. In accordance
with accounting standards, the dividend has not been provided for in the 30 June 2012 financial
statements.
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
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
-
3,400
-
Consolidated
Company
2012
$
2011
$
2012
$
2011
$
79,900
77,200
64,900
62,200
26,000
15,000
63,198
27,000
15,000
63,250
-
-
7,150
-
-
-
-
184,098
185,850 72,050 68,800
74
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 2012 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 2012.
On behalf of the Board
Chris Mackay
Chairman
Sydney
24 August 2012
75
MAGELLAN FINANCIAL GROUP LIMITED
INDEPENDENT AUDITOR’S REPORT
76
MAGELLAN FINANCIAL GROUP LIMITED
INDEPENDENT AUDITOR’S REPORT
77
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;
78
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
•
•
•
•
•
•
•
•
reviewing the Group’s investment activities;
approving an annual operating budget for the Group;
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 Ethics;
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)
79
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
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.
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
80
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
performance; and each Director’s performance. This review was last undertaken by the
Board in August 2012.
3.
PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING
Corporate Code of Ethics
The Company has a Corporate Code of Ethics (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 Ethics 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 Group’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, Non-executive Directors and employees
may trade in the Company’s securities and funds and in securities generally. The Policy
also places restrictions and reporting requirements, including the imposition of blackout
periods, trading windows and the need to obtain pre-trade approval.
Diversity
The Group is committed to workplace diversity and recognises the value of attracting and
retaining employees with different backgrounds, knowledge, experience and abilities. The
Group has adopted a Diversity Policy, a copy of which is available on the company’s
website. Nothing in the Policy should be interpreted or construed so as to endorse
diversity as the principal criteria for the selection and promotion of the Group’s employees
and directors. An employee or director’s skills, experience and overall prospects of adding
value to the Group shall take precedence over diversity considerations.
81
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
The Group’s objectives for achieving diversity, including gender diversity, are set by the
Board and include:
• an appropriately diverse and skilled workforce and Board, appointed on merit,
which will support the Group’s achievement of the its business objectives;
• a corporate culture characterised by inclusive practices and behaviours for the
benefit of all employees and directors; and
• a work environment that values and utilises the contributions of employees and
directors with diverse backgrounds, experiences and perspectives through improved
awareness of the benefits of workforce diversity.
The following initiatives have been implemented to assist with the achievement of the
Group’s diversity objectives:
•
flexible work arrangements to assist employees to balance their work, personal and
family responsibilities;
• parental leave, including six weeks paid maternity leave, six weeks paid adoption
leave, and one week paid paternity / partner leave;
• an annual gender pay equity review; and
• an equal opportunity recruitment process that draws a diverse pool of candidates
for all positions, including Board and senior management appointments.
As at 30 June 2012, the proportion of women employed or engaged by the Group is set out
in the table below:
Magellan Financial Group Board
Total Directors
Independent Directors
Senior Executive Positions
Organisation wide
Total
No. of
Women
% of
Women
5
3
16
44
1
1
6
17
20
33
38
39
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)
82
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
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.
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
83
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
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.
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 Annual Letter to Shareholders;
the Group’s Annual Report;
84
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
•
•
the addresses to the Annual General Meeting; and
market announcements on the Group’s website after they are disclosed to the
market.
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 Ethics) is communicated and demonstrated.
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MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE GOVERNANCE STATEMENT
The Group’s senior management reports periodically to the Audit and Risk Committee on
the effectiveness of its risk management and compliance frameworks.
Assurance
In respect of the year ending 30 June 2012 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.
86
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 20 AUGUST 2012
Distribution of Shareholders
The distribution of shareholders of the Company as at 20 August 2012 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
481
713
369
744
143
2,450
85
273,942
2,032,614
2,838,254
22,828,486
124,585,045
152,558,341
6,524
0.18
1.33
1.86
14.96
81.67
100.000
0.000
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company as at 20 August 2012 are listed
below:
Holder Name
Magellan Equities Pty Limited
Cavalane Holdings Pty Ltd
Midas Touch Investments Pty Ltd
Citicorp Nominees Pty Limited
Nota Bene Investments Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
National Nominees Limited
Emmanuel Capital Pty Ltd
JP Morgan Nominees Australia Limited
ABN Amro Clearing Sydney Nominees Pty Ltd
Smallco Investment Manager Ltd
Christopher John Mackay
BNP Paribas Nominees Pty Ltd (DRP)
Mr David Doyle
HSBC Custody Nominees (Australia) Limited
Aljamat Pty Ltd
Giwah Pty Ltd
BNP Paribas Nominees Pty Ltd (Master Custody DRP)
UBS Nominees Pty Ltd
PAJ Lewis Superannuation Fund Pty Ltd
Number of Ordinary
Shares
15,355,551
13,274,871
9,761,508
8,119,280
6,006,006
5,953,886
5,532,484
4,164,602
3,162,123
3,103,205
2,417,057
2,232,022
1,698,773
1,500,000
1,484,325
1,400,000
1,300,000
1,229,086
1,083,367
1,000,747
Percentage of
Shares in
Issue
10.08
8.70
6.40
5.32
3.94
3.90
3.63
2.73
2.07
2.03
1.58
1.46
1.11
0.98
0.97
0.92
0.85
0.81
0.71
0.66
Total shares held by the twenty largest shareholders
89,778,893
58.85
Total shares in issue
152,558,341
87
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 20 AUGUST 2012
Substantial Shareholders
The names of the substantial shareholders appearing on the Company’s
Register of Substantial Shareholders at 20 August 2012 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
10,519,917
(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
(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.
88
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE DIRECTORY
Directors
Chris Mackay – Chairman
Hamish Douglass – Managing Director and Chief Executive Officer
Naomi Milgrom AO
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
www.magellangroup.com.au
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