Annual Report
for the year ended 30 June 2016
MAGELLAN FINANCIAL GROUP LIMITED: ABN 59 108 437 592
Five year summary(1)
(1) Where accounting classifications have changed, or where changes in accounting policy are adopted retrospectively,
comparatives have been revised and may differ from results previously reported. The above Statement of Profit or Loss and
Statement of Financial Position extracts are derived from the published financial statements.
Excludes gain on the in-specie distribution in February 2013.
As reported in the Group’s funds under management (FUM) announcements published on the Australian Securities Exchange.
Calculated using management fees (excluding services and performance fees) for the relevant year divided by the average
of month end FUM over the same year.
(2)
(3)
(4)
30 June 201630 June 2015 30 June 201430 June 2013 30 June 2012Group ResultsTotal Revenue$'000333,805284,912148,109120,90635,846Total Expenses$'00074,10454,60337,63025,90416,693Net Profit Before Tax(2)$'000259,701230,309110,47995,00219,153Net Profit After Tax(2)$'000198,357174,29582,93966,60013,660Effective Tax Rate%23.624.324.929.928.7Funds Under Management(3)Average Funds Under Management$m39,43730,96619,9239,3513,381Total Funds Under Management$m40,49536,38123,51314,6954,006Funds Under Management comprises: - Retail$m12,0419,8096,6934,5421,750 - Institutional$m - Australia/NZ$m4,4153,8712,8892,4241,924 - North America$m9,1458,4624,6902,891306 - Rest of World$m14,89414,2399,2414,83826Average Base Management Fee (per annum)(4)bps6666676671Funds Management BusinessTotal Revenue$'000315,268255,889139,13586,78632,660Total Expenses$'00071,48352,58936,61625,20716,361Net Profit Before Tax$'000243,785203,300102,51960,77316,299Employee Expenses/ Total Expenses%58.859.464.469.169.5Cost to Income Ratio (expense/revenue)%22.720.626.329.350.1Cost to Income Ratio (excluding performance fees)%26.824.826.743.869.3AssetsTotal Assets - MFG Group$'000392,379346,678236,851193,441155,805Net Assets - MFG Group$'000355,369303,443206,587153,039147,216Net Tangible Asset per share$2.071.781.241.020.91Shareholder ValueBasic Earnings Per Share(2)cents123.5109.253.343.69.0Diluted Earnings Per Share(2)cents115.5101.848.940.08.5Dividends Per Share (Interim and Final)(2)cents89.374.938.321.54.5Other InformationNumber of Employees10191695844Average Number of Employees9680645138
Contents
Chairman’s Report
Chief Executive Officer’s Annual Letter
Directors’ Report
Auditor's Independence Declaration
Consolidated Statement of Profit or Loss
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Basis of Preparation
1
Summary of Significant Accounting Policies
Results for the Year
2
3
4
5
6
Segment Information
Earnings Per Share
Dividends
Income Tax
Revenue
Operating Assets and Liabilities
7
Receivables
8
Property, Plant and Equipment
Payables
9
10 Provisions
Group and Capital Structure
11 Financial Assets
12 Interests in Controlled Entities
13 Investment in Associate
14 Contributed Equity
15 Share Purchase Plan
16 Parent Entity Information
Other Items
17 Related Party Disclosures
18 Statement of Cash Flows Reconciliation
19 Capital and Financial Risk Management
20 Contingent Assets, Contingent Liabilities and Commitments
21 Auditor's Remuneration
22 Events Subsequent to Reporting Date
Directors’ Declaration
Independent Auditor’s Report
Corporate Sustainability and Responsibility Report
Corporate Information
Shareholder Information
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MAGELLAN FINANCIAL GROUP LIMITED
Chairman’s Report
for the year ended 30 June 2016
Dear Shareholders
Such is the passage of time – ten years in fact. This annual report marks the tenth for the Magellan Financial Group
and covers another successful year of client focus and overall business development.
In short, our fully diluted earnings per share for the financial year have risen by 13.5% to $1.155 and our fully franked
dividends per share for the year totalled $0.893, representing an increase of 19%. At 30 June 2016 we employed 101
very talented people, up from 91 at the same time last year. Our funds under management at 30 June 2016 stood at
$40.5 billion, an 11% increase over the prior year.
As in previous years, this report contains a detailed letter from our Chief Executive Officer, Hamish Douglass, together
with the group’s financial statements, both of which we would encourage you to read carefully.
Somehow the last ten years simultaneously feels like a long time and no time at all. When we look back we do so with
a great sense of pride as the firm that was started in a serviced office has now grown into a meaningful investment
management firm serving a global array of retail and institutional clients and partners.
That sense of pride stems from the collective efforts of all at Magellan who have contributed over the years, from the
early few at foundation to the most recent joiners, and the fact we have a common purpose in mind - to build a firm
that we all believe in.
We greatly value our culture and every individual’s contribution.
Above all we value the respect and trust our clients and partners have shown us. We are very conscious that this trust
must always be deserved, as undeserved trust cannot be sustained. Trust founded on a flimsy or false foundation will
always eventually crumble.
Although much has changed over the last ten years, many things remain the same. We are unwavering in our want to
act rationally and fairly. We remain committed to reducing bureaucratic folly and always looking to simplify. We fully
recognise that we will inevitably get some things wrong and that it is important to use these times to learn. We believe
in the adage that a mistake is only an error, but it becomes a mistake when you fail to correct it.
When we look back we also notice that an important element in our development has been to ask ourselves honestly:
what are we solving for? Be it in our business processes, investment processes or in our product development, we
have come to understand the power of truly trying to solve the problem and the significant value that a diversity of
thought brings to that process.
Being in any business is inherently tricky. Market dynamics, competition, business cycles, government interaction and
a myriad of other factors all combine to produce a complex system. Furthermore, within this system, the participants
adapt to change as they interact and the emergent behaviour can sometimes be difficult to understand let alone
predict.
In our opinion, the best way for our business to navigate these waters is to remain focused on our clients and their
advisors. It is in our shareholders’ interests that our clients are our top priority. We remain committed to being clear
about what we are aiming to achieve for our clients and equally committed to doing what we say we will do.
We firmly believe our journey has only just begun and we are all looking forward to the next ten years, but what will
they bring? We obviously cannot know with any degree of certainty. We nevertheless think deeply about what might
happen and the things we could do as we grow. We are a believer that opportunity comes to the prepared mind.
3
MAGELLAN FINANCIAL GROUP LIMITED
However, in reality, as John Lennon so beautifully put it, “life is what happens to you while you’re busy making other
plans”, and as the last ten years have shown us, that is indeed the most exciting part.
Our Annual General Meeting will be held on Thursday 13 October 2016 and as usual we welcome any and all discussion.
We hope to see you there.
Brett Cairns
Executive Chairman
11 August 2016
4
MAGELLAN FINANCIAL GROUP LIMITED
Chief Executive Officer’s Annual Letter
for the year ended 30 June 2016
Dear Shareholder,
I am delighted to write to you as a shareholder in Magellan Financial Group Limited (“the Group”) for the year ended
30 June 2016.
OVERVIEW OF RESULTS
The Group had a successful year which was characterised by continued strong growth in funds under management
(which increased by 11% from $36.4 billion to $40.5 billion for the 12 months to 30 June 2016) and strong growth
both in earnings and dividends.
For the year ended 30 June 2016:
Average funds under management increased by 27% to $39.4 billion ($31.0 billion in 2015);
the Group’s net operating profit after tax increased by 14% to $198.4 million ($174.3 million in 2015);
fully diluted earnings per share increased by 13% to 115.5 cents (101.8 cents in 2015); and
dividends increased by 19% to 89.3 cents fully franked (74.9 cents in 2015)
The Directors have declared a final fully franked dividend of 38.0 cents per ordinary share in respect of the 2016
financial year (37.8 cents in 2015). A fully franked interim dividend of 51.3 cents per share was paid in March 2016
(37.1 cents in March 2015). The final dividend will be paid on 26 August 2016. The Directors have confirmed the policy
of paying a dividend of 75% to 80% of the net profit after tax (NPAT) of the Group’s funds management business,
with the calculation to include any crystallised performance fees. Performance fees fluctuate materially from period to
period. The payment of dividends by the Group will be subject to available franking credits and corporate, legal and
regulatory considerations.
The following table summarises the Group’s profitability over the past two financial years:
For the year ended 30 June 2016, the Group’s Other Revenue was $19.2 million ($30.6 million in 2015). The Other
Revenue includes interest income, dividend and distribution income, net gains on sale of financial assets and net foreign
exchange gains. The Group’s Other Revenue in 2016 primarily comprised distributions from the Group’s holdings in
Magellan funds of $11.9 million and an accounting gain for the period for which the Magellan Global Equities Fund was
treated as an associate of $4.0 million. In 2015 the Group’s Other Revenue included distributions from the Group’s
holdings in Magellan funds of $13.8 million and gains of $10.4 million from the sale of holdings in the Group’s funds to
seed the $50 million investment in the Magellan Global Equities Fund. Investors should note that the Group’s Other
Revenue may fluctuate significantly from year to year and will primarily depend upon the level of distributions paid and
any gains or losses on sales of the Group’s underlying investments in its funds.
5
30 June30 JuneChange20162015$'000$'000%Management, performance and services fees314,643254,28124%Other revenue19,16230,631-37%Revenue333,805284,91217%Expenses(74,104)(54,603)36%Profit before tax expense259,701230,30913%Tax expense(61,344)(56,014)10%Profit after tax expense198,357174,29514%Effective tax rate23.6%24.3%Key StatisticsEarnings per share (cents per share)123.5109.213%Diluted earnings per share (cents per share)115.5101.813%Dividends (interim and final) (cents per share, fully franked)89.374.919%
MAGELLAN FINANCIAL GROUP LIMITED
As at 30 June 2016, the Group is in a strong financial position:
the Group had investment assets (cash and cash equivalents, financial assets and investment in associate) of
$328.3 million (30 June 2015: $283.6 million) and shareholders’ funds of $355.4 million (30 June 2015: $303.4
million); and
the Group’s NTA per share diluted for the conversion of the Class B Shares was $2.07 (30 June 2015: $1.78 also
diluted for MFG 2016 Options).
Funds Management Business
For the year ended 30 June 2016, the Group’s funds management business generated revenues of $315.3 million
($255.9 million for 2015) and had expenses of $71.5 million ($52.6 million for 2015), which resulted in a profit before
tax of $243.8 million ($203.3 million for 2015). Revenue included performance fees of $48.0 million ($43.4 million for
2015). Performance fees fluctuate significantly from period to period.
The highlights for our funds management business include:
deepening penetration of the Global Equities and Global Listed Infrastructure strategies with retail Australian
investors, advisers and brokers. As at 30 June 2016, total retail funds under management was $12.0 billion ($9.8
billion at 30 June 2015) and retail inflows over the 12 months were $2.3 billion ($1.4 billion for the 12 months to
30 June 2015):
The retail component of the Global Equities strategy1 received $2.0 billion of net retail inflows over the period
($1.3 billion to 30 June 2015), bringing total retail funds under management for the strategy to approximately
$10.9 billion ($9.1 billion at 30 June 2015). Retail net inflows continue to benefit from the strong support of
the ASX quoted versions of our Global Equities strategy, Magellan Global Equities Fund/Magellan Global
Equities Fund (Currency Hedged), and the new arrangements with AMP and BT/Westpac who have funds on
their respective platforms replicating the Magellan Global Fund;
The retail component of the Global Listed Infrastructure strategy2 received $365 million of net retail inflows
over the period ($197 million to 30 June 2015) bringing total retail funds under management for the strategy
to approximately $1.15 billion ($0.7 billion at 30 June 2015). Retail net inflows reflect the outstanding
investment performance of the Global Listed Infrastructure strategy. In May 2016, Colonial First State
launched a replica version of the Magellan Infrastructure Fund on its platform.
continued solid support from institutional clients with $1.8 billion of net institutional inflows over the period ($3.8
billion to 30 June 2015). Total institutional funds under management was $28.4 billion from more than 110
clients3 ($26.6 billion from more than 100 clients at 30 June 2015).
The following table summarises the profitability of the funds management business over the past two financial years:
________________________
(1) The retail component of the Global Equities strategy includes Magellan Global Fund (retail portion), Magellan High Conviction Fund, Magellan Global Fund (Hedged) (retail
portion), Magellan Global Equities Fund (quoted fund), Magellan Global Equities Fund (Currency Hedged) (quoted fund) & retail separately managed accounts for the Global
Equity strategy.
(2) The retail component of the Global Listed Infrastructure strategy includes Magellan Infrastructure Fund (retail portion), Magellan Infrastructure Fund (Unhedged) (retail
portion) and retail separately managed accounts for the Global Listed Infrastructure strategy.
(3) The number of clients includes separately managed accounts and institutional investors in local and offshore vehicles.
(4) Pursuant to the agreement, Frontier Partners is entitled to receive 25% of net management fees from Frontier MFG Funds and 20% of management fees from all institutional
mandate clients in the US and agreed institutional mandate clients in Canada.
(5) Based on daily average of London 4pm exchange rates of the 12 month period.
6
30 June30 JuneChange20162015$'000$'000%RevenueManagement fees258,392203,47827%Performance fees48,01443,41311%Services fees8,2377,8545%Interest and other income6251,144-45%315,268255,88923%ExpensesEmployee expense42,01431,21335%US marketing and consulting fees(4)7,1685,49031%Fund administration and operational costs7,0685,94819%Information technology expense3,6062,29957%Foreign and witholding taxes2,05513nmOccupancy expense1,27885250%Other expense8,2946,77422%71,48352,58936%Profit before tax expense243,785203,30020%Key StatisticsAverage funds under management ($ million)39,43730,96627%Average AUD/USD exchange rate(5)0.72840.8368Average number of employees968020%Employee expenses / total expenses58.8%59.4%Cost / income22.7%20.6%Cost / income, excl. performance fees26.7%24.8%
MAGELLAN FINANCIAL GROUP LIMITED
Revenues increased by 23% to $315.3 million driven by a 24% increase in total management and performance fee
revenues as a result of a 27% increase in average funds under management over the period due to strong net inflows
and investment performance. Average funds under management benefited from the lower average Australian dollar
over the period. Overall the funds management business operated efficiently with a cost to income ratio (excluding
performance fees) of 26.7% in 2016 compared with 24.8% in 2015.
Expenses increased by 36% to $71.5 million. The increase in expenses included:
a 35% increase in employee expense over the prior corresponding period to $42.0 million. This is in line with
the guidance provided with the interim results in February. The increase was due to the cost of new employees
hired during the year, the full year cost of hires made in 2014/15 and increased remuneration;
a 31% increase in US marketing fees to $7.2 million due to higher management and performance fees from
US clients;
a 19% increase in fund administration and operational costs to $7.1 million, which compares with a 27%
increase in average funds under management over the period;
a 57% increase in IT costs to $3.6 million primarily related to the implementation of new IT projects;
an increase in occupancy costs of 50% to $1.3 million. The Group relocated its Sydney head office in June
2016 and incurred one-off pre-tax costs of approximately $0.5 million. We are budgeting for occupancy costs
of approximately $3.2 million in 2016/17; and
an expense of $2.1 million for US state taxes and withholding taxes. This includes a provision of $1.3 million
for prior years taxes that have not been provided for previously.
We have continued to make investments in people and capability. During the period, we made 10 net hires which
included hiring:
A Chief Risk Officer;
A Chief Operating Officer for North America;
A senior Portfolio Manager in our Infrastructure Team;
Senior key account managers in New South Wales and North America; and
An infrastructure investment specialist focussed on institutional clients.
In the 2016/17 financial year we are planning to invest further in people and capability. Whilst we have largely
completed the build out of the Investment team we are planning to make additional hires in many areas of the business
including in Distribution (both in Australia and the United States), Compliance, Trading, Finance, Operations and
Administration. We are also planning to establish a public policy institute based in Australia and we plan to hire a team
of 3 people in 2016/17 (including an Executive Director to head the institute).
We expect Group employee expenses to increase by approximately 15-18% in the 2016/17 financial year which reflects
the annualised cost of employees hired in 2015/16, remuneration increases and planned hires.
The following table sets out total employee numbers:
__________________________
(6) Partly reflects divisional transfer of the Performance & Reporting team from Business Support & Control to Distribution in 2H16
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30 June30 June30 June201620152014Investment - Portfolio Managers/Analysts332922 - Dealers332363224Governance & Advisory441Distribution(6)302115Risk, Compliance & Company Secretarial453Business Support & Control(6)202318Administration768Total1019169Average number of employees968064
MAGELLAN FINANCIAL GROUP LIMITED
Funds Under Management (FUM)
At 30 June 2016, the Group had funds under management of $40.5 billion, split between global equities (83%) and
infrastructure equities (17%). This compares with funds under management of $36.4 billion at 30 June 2015. The
increase in funds under management was driven by net inflows of $4.1 billion, investment performance of $0.8 billion
less cash distributions (net of reinvestment) of approximately $0.8 billion.
The following table sets out the composition of funds under management:
It should be noted that our retail business has higher fees than our institutional business and our infrastructure
enhanced beta product has lower fees than other institutional mandates.
As we have indicated previously, we consider that the theoretical capacity of our Global Equities and Global Listed
Infrastructure strategies is approximately US$50 billion in total. We carefully take into account the investment universe,
the market capitalisation established for the strategy and liquidity requirements in ascertaining the theoretical capacity
of each of our strategies. This theoretical capacity is not static and should be approximately indexed to changes in the
values of world equity markets over time. Broadly this theoretical capacity should be indexed for world market
movements from 1 July 2013, subject to the impact of price movements on our investment universe.
We have been actively working on three new related global equity products that we intend to seed then launch
progressively over the next 12 to 18 months. These products will be primarily targeted towards international
institutional investors. It will take time for each of these products to build investment track records and it is unlikely
that any of these products will attract meaningful funds under management for at least 3 to 5 years. Any success with
these new products would be incremental to the theoretical capacity of the Group’s existing products.
At 30 June 2016, the Group was managing $40.5 billion (equating to approximately US$30.2 billion). It should be noted
that the above capacity numbers are purely theoretical and should in no way be taken as a forecast or indication as to
the level of funds under management the Group may have in the future.
Retail Funds Under Management
At 30 June 2016, the Group had total retail funds under management of $12.0 billion. We experienced total net retail
inflows of $2.3 billion for the 12 months to 30 June 2016, compared with $1.4 billion for the previous financial year.
The Group experienced average monthly retail net inflows of approximately $195 million over the 12 months to 30
June 2016, compared with $120 million over the previous corresponding period.
__________________________
(7) Calculated using management fees (excluding services and performance fees) for the relevant period divided by the average of month end FUM over the same period.
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$million30 June30 June30 June201620152014Retail12,0419,8096,693Institutional - Australia/New Zealand4,4153,8712,889 - North America9,1458,4624,690 - Rest of World14,89414,2399,24128,45426,57216,820Total FUM40,49536,38123,513PercentageRetail30%27%28%Institutional - Australia/New Zealand11%11%12% - North America23%23%20% - Rest of World37%39%40%70%73%72%Total FUM100%100%100%FUM subject to Performance Fees (%)38%37%37%Institutional FUM (%) - Active85%85%81% - Enhanced Beta15%15%19%Breakdown of FUM (A$ million) - Global Equities33,723 31,015 19,443 - Global Listed Infrastructure 6,772 5,366 4,070 Average Base Management fee (bps) per annumexcluding Performance Fees(7)66 66 67
MAGELLAN FINANCIAL GROUP LIMITED
The increase in retail net inflows over the past 12 months is largely attributable to:
strong support from our new arrangements with AMP and BT/Westpac in addition to our longstanding relationship
with Colonial First State (operated by Commonwealth Bank). As at 30 June 2016 funds under management in our
replica versions of the Magellan Global Fund available at Colonial First State, AMP and BT/Westpac was $2.0
billion ($1.5 billion at 30 June 2015). The Magellan Global Equity strategy was represented in over 120 model
portfolios across the AMP Group, BT/Westpac and the Commonwealth Bank at 30 June 2016;
our ASX quoted funds, the Magellan Global Equities Fund and Magellan Global Equities Fund (Currency Hedged)
combined had strong net inflows of $385 million over the 12 months to 30 June 2016 and average monthly net
inflows of approximately $32 million. The combined funds under management from these two funds was $623
million as at 31 July 2016 and the combined number of unitholders was over 12,000; and
an increase in retail inflows into our Global Listed Infrastructure strategy. The total net retail inflows into our
Infrastructure strategy were $365 million over the 12 months to 30 June 2016 ($197 million to 30 June 2015).
We believe we are developing a robust retail business in Australia and New Zealand focused on global equities and
global infrastructure that should benefit from the secular trends of compulsory superannuation over the years ahead.
We have:
relationships with over 500 independent financial advice firms(8);
strong relationships and extensive representation with 4 of the top 6 major institutionally aligned advice firms
(Commonwealth Bank, BT/Westpac, AMP and IOOF). Collectively, these firms have approximately 6,800 aligned
advisers;
an ASX quoted version and unlisted version of the Magellan Global Fund. The funds are available as currency
hedged and currency unhedged;
an ASX quoted version of the Magellan Infrastructure Fund, the Magellan Infrastructure Fund (Currency Hedged),
which was seeded on 19 July 2016 and commenced trading on 22 July 2016;
separate versions of the Magellan Global Fund available at Commonwealth Bank, BT/Westpac and AMP. Each of
these funds will have strong model portfolio representation across these groups;
a replica version of the Magellan Infrastructure Fund and a currency hedged version of the Magellan Global Fund
launched at Colonial First State in May 2016;
developed strong relationships with each of the key research firms and have strong ratings from Zenith, Lonsec
and Morningstar for both our Global Equity and Global Listed Infrastructure strategies; and
a highly experienced Australian and New Zealand relationship focussed Distribution team with 11 account
managers and offices in Sydney, Melbourne, Brisbane, Perth and Auckland.
The following table sets out the investment performances of the Magellan Global Fund, the Magellan Infrastructure
Fund and the Magellan High Conviction strategy since their inception:
Extremely pleasing is the performance of our Global Listed Infrastructure strategy. The Magellan Infrastructure Fund
has outperformed its benchmark by 12.6% in the 12 months to 30 June 2016 and continued outperformance over 3
and 5 years.
The Global Equity strategy performed in line with the market over the past 12 months and its longer term performance
remains materially above its benchmark and above our objective of 9% per annum net of fees over the full investment
cycle.
_________________________
(8) Includes Dealer Groups that have more than $200,000 funds under management with the Group.
(9) Calculations are based on exit price with distributions reinvested, after ongoing fees and expenses but excluding individual tax, member fees and entry fees (if applicable).
Annualised performance is denoted with “p.a.” for the relevant period.
(10) Inception date for the Magellan Global Fund and Magellan Infrastructure Fund is 1 July 2007 and the inception date for Magellan High Conviction Strategy is 1 January 2013.
(11) The Global Listed Infrastructure benchmark is comprised of the following: from inception to 31 December 2014 the benchmark is UBS Developed Infrastructure and Utilities
NTR Index (AUD Hedged) and from 1 January 2015 onwards, the benchmark is the S&P Global Infrastructure NTR Index (AUD Hedged).
9
Investment Performance for the period to 30 June 2016(9)1 Year3 Years5 YearsSinceInception (10)%% p.a.% p.a.% p.a.Magellan Global Fund-0.113.119.010.6 MSCI World NTR Index ($A)0.414.614.74.0Magellan Infrastructure Fund17.817.315.48.6 Global Listed Infrastructure Benchmark ($A)(11)5.212.111.15.3Magellan High Conviction Strategy-1.314.8-20.9
MAGELLAN FINANCIAL GROUP LIMITED
Given our medium to long term focus, however, it is not unreasonable to expect some periods when the funds will not
outperform or will lag their benchmarks. Further, given our focus on high-quality/low volatility investments in our
Global Equity strategy and our tight definition of what constitutes infrastructure, it can also reasonably be expected
that returns may underperform broader based benchmarks in strongly rising markets due to the cap on volatility and
our definition of infrastructure. Over the cycle, however, we believe the strategies will produce an appropriate risk
adjusted performance while maintaining our focus on capital preservation, particularly in adverse market conditions.
These are key tenets of the Group’s approach that we believe are well understood by the adviser community and our
clients.
The retail component of the Global Equity strategy(12) had funds under management of approximately $10.9 billion at
30 June 2016. The retail Global Equity strategy experienced total retail net inflows of $2.0 billion and average monthly
retail net inflows of approximately $164 million over the 12 months to 30 June 2016. This compares with the retail
Global Equity strategy’s total net inflows of $1.3 billion and the average monthly retail net inflows of $104 million over
the 12 months to 30 June 2015.
The following chart sets out the monthly retail net inflows into the Global Equity strategy over the past three years:
Retail Global Equity Strategy FUM & Net Inflows(12)
The retail component of the Global Listed Infrastructure strategy(13) had funds under management of approximately
$1.15 billion at 30 June 2016. The retail Global Listed Infrastructure strategy experienced total retail net inflows of
$365 million and average monthly retail net inflows of approximately $30 million over the 12 months to 30 June 2016.
This compares with the retail Global Listed Infrastructure strategy’s total net inflows of $197 million and the average
monthly retail net inflows of $16 million over the 12 months to 30 June 2015.
The following chart sets out the monthly retail net inflows into the Global Listed Infrastructure strategy over the past
three years:
Retail Global Listed Infrastructure Strategy FUM & Net Inflows(13)
__________________________
(12) The retail component of the Global Equity strategy includes Magellan Global Fund (retail portion), Magellan High Conviction Fund, Magellan Global Fund (Hedged) (retail
portion), Magellan Global Equities Fund (quoted fund), Magellan Global Equities Fund (Currency Hedged) (quoted fund) and retail separately managed accounts for the
Global Equity strategy.
(13) The retail component of the Global Listed Infrastructure strategy includes Magellan Infrastructure Fund (retail portion), Magellan Infrastructure Fund (Unhedged) (retail
portion) and retail separately managed accounts for the Global Listed Infrastructure strategy.
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MAGELLAN FINANCIAL GROUP LIMITED
Retail inflows have generally been seasonal (January and June tend to be the weakest months) and can be lumpy, due
to events such as winning a new dealer group that transitions funds to the Group.
Institutional Funds Under Management
At 30 June 2016, the Group had total institutional funds under management of $28.4 billion from more than 110
clients(14). We experienced institutional net inflows of $1.8 billion for the 12 months to 30 June 2016, which compares
with net inflows of $3.8 billion for the 12 months to 30 June 2015.
We are pleased with the quality and depth of our pipeline of potential new business and we are confident that we will
see solid institutional interest in our global equities and global listed infrastructure capabilities over time.
The following table and chart sets out the percentage of management and services fee revenue generated by the top
30 institutional clients. The table highlights that our business is highly diversified by client with only three clients
representing more than 2% of total management and services fee revenue.
Institutional Client Diversity(15)
The development of the Group’s institutional funds management business is progressing well, particularly in North
America, United Kingdom (UK) and Asia-Pacific.
For the 12 months to 30 June 2016, we experienced institutional net inflows of $0.5 billion from clients in the North
America, bringing the total funds under management to approximately $9.1 billion ($8.4 billion at 30 June 2015).
Our UK business remains strong. At 30 June 2016, the Group had total funds under management of approximately
$11.7 billion from clients in the UK ($11.7 billion at 30 June 2015). At 30 June 2016 our important relationship with
St. James’s Place has total funds under management of $6.0 billion ($6.1 billion at 30 June 2015). The UK infrastructure
fund that replicates our Core Infrastructure (Enhanced Beta) strategy has funds under management of approximately
$3.1 billion at 30 June 2016 ($2.9 billion at 30 June 2015).
We are also making good progress in the Asia-Pacific region. At 30 June 2016, the Group had total funds under
management of approximately $5.6 billion from institutional investors in the Asia-Pacific region ($4.5 billion at 30 June
2015). We remain focused on specific target markets in our region, primarily Australia and Singapore.
__________________________
(14) The number of clients includes separately managed accounts and institutional investors in local and offshore vehicles.
(15) Management & Services fees for the 12 months to 30 June 2016 for separately managed accounts and institutional investors in local and offshore vehicles. Excludes
Performance fees.
11
Cumulative Total Management and Services FeesTop Institutional Clients5102030%18243136
MAGELLAN FINANCIAL GROUP LIMITED
Investments in Magellan’s Funds and Principal Investments
At 30 June 2016, the Group had total net Principal Investments of $208.2 million (net of tax liabilities, settlement
receivables/payables and accruals), compared with net Principal Investments of approximately $189.4 million at 30
June 2015.
The Group’s Principal Investments include investments in Magellan Unlisted Funds, the ASX quoted Magellan Global
Equities Fund and Magellan Global Equities Fund (Currency Hedged), listed shares, a number of small unlisted
investments and surplus cash after allowing for the Group’s working capital requirements. We intend to allocate any
surplus cash generated by the Group, after allowing for dividends of 75% to 80% of the net profit after tax from the
Funds Management business, to Principal Investments.
Over time we aim to earn satisfactory returns for shareholders through the sensible deployment of the Group’s capital,
while maintaining capital strength to underpin the business. The Board has established a pre-tax return hurdle of 10%
per annum over the business cycle for the Principal Investments. We intend for the Group to maintain a very strong
balance sheet including a high level of liquidity to ensure our business will withstand almost any market condition or
unforeseen event.
The Group’s Principal Investments portfolio has returned pre-tax 1.0%, 13.9% and 20.5% per annum over the last 1,
3 and 5 years respectively. Excluding the effect of the Group’s investment in Magellan Flagship Fund, which was
disposed of by way of in-specie distribution to shareholders in February 2013, the portfolio returned pre-tax 14.6% per
annum over the period 1 July 2007 to 30 June 2016. The inception date of 1 July 2007 has been chosen to reflect the
first purchase date of the investments in the Magellan Global Fund and Magellan Infrastructure Fund.
The following table sets out a summary of the Group’s Principal Investments as at 30 June 2016:
MFG Group’s Principal Investments
I would like to thank all my colleagues at Magellan for the outstanding job they have done over the years. It is a
privilege to work with such an incredibly focussed and talented team of people.
Thank you for your ongoing interest and support of Magellan Financial Group Limited.
Yours faithfully,
Hamish M Douglass
CEO and Chief Investment Officer
11 August 2016
__________________________
(16) Magellan Unlisted Funds includes the Magellan Global Fund, Magellan Infrastructure Fund, Magellan Global Fund (Hedged), Magellan Infrastructure Fund (Unhedged),
Magellan High Conviction Fund, the Frontier MFG Funds and Magellan Wholesale Plus Global Fund.
(17) Listed shares/funds include MGF Plus Portfolio, Magellan Global Equities Fund and Magellan Global Equities Fund (Currency Hedged) excluding receivables/payables (refer
to footnote 18)
(18) Other comprises receivable/payables and unlisted funds and shares.
(19) Deferred tax liability arising from changes in the fair value of financial assets and net capital losses carried forward.
(20) Based on the aggregate of 161,581,205 ordinary shares on issue at 30 June 2016 (including exercised MFG 2016 options) and 10,293,175 ordinary shares being the ordinary
shares into which the 10,200,000 Class B Shares would be entitled to convert at 30 June 2016 (30 June 2015, it is based on 160,276,422 ordinary shares and 10,210,057
ordinary shares into which the 10,200,000 Class B Shares would have been entitled to convert at 30 June 2015).
12
$million30 June30 June20162015Cash2.32.1Magellan Unlisted Funds(16)131.3127.6Listed shares/funds(17)74.761.8Other(18)11.212.4Total219.5203.9Deferred tax liability(19)(11.3)(14.5)Net Principal Investments208.2189.4Net Principal Investments per share (cents)(20)121.1111.0
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
The Directors of Magellan Financial Group Limited (the “Company” and “MFG”) submit their financial report for the
Company and its controlled entities which together form the consolidated entity (the “Group”) in respect of the year
ended 30 June 2016.
1. Operations and Activities
1.1 Company Overview
The Company is a listed public company and incorporated in Australia. The Group’s main operating company is
Magellan Asset Management Limited (MAM). The shares and options of the Company are publicly traded on the
Australian Securities Exchange under ASX Codes: MFG and MFGOC (until 24 June 2016) respectively. The Company
also has on issue unlisted Class B shares.
The Company’s principal place of business is Level 36, 19 Martin Place, Sydney, New South Wales, 2000 (previously
Level 7, 1 Castlereagh Street, Sydney, New South Wales, 2000 until 27 June 2016).
1.2 Principal Activity
The principal activity of the Group is funds management with the objective of offering international investment funds
to high net worth and retail investors in Australia and New Zealand, and institutional investors globally.
1.3 Dividends
During the year, dividends amounting to $143,002,000 were paid representing 89.1 cents per share (June 2015:
$93,920,000 representing 58.9 cents per share). Refer to note 4 in the financial statements for further details.
Since the end of the year, the Directors have declared a fully franked final dividend of 38.0 cents per share in respect
of the year ended 30 June 2016 (June 2015: 37.8 cents per share), which represents approximately $61,401,000.
The Directors have affirmed the policy of paying a dividend of 75% to 80% of the net profit after tax (NPAT) of the
Group’s funds management business, with the NPAT calculation to include any crystallised performance fees, which
may fluctuate materially from period to period. The payment of dividends by the Group will be subject to available
franking credits and corporate, legal and regulatory considerations.
1.4 Review of Financial Results and Operations
The Group’s net profit after tax for the year ended 30 June 2016 was $198,357,000 compared with net profit after tax
of $174,295,000 for the prior year. Total operating expenses of $74,104,000 compared with total operating expenses
of $54,603,000 for the previous corresponding year.
The Group is in a strong financial position with an extremely strong balance sheet and at 30 June 2016 reported:
-
-
investment assets (including cash and cash equivalents, financial assets and investment in associate) of
$328,302,000 (June 2015: $283,626,000) and shareholders’ funds of $355,369,000 (June 2015: $303,443,000);
and
NTA per share of $2.07 (June 2015: $1.78) diluted for the conversion of the Class B Shares and for the prior
year ended 30 June 2015 diluted for MFG 2016 Options.
Refer to the Chief Executive Officer’s Annual Letter on page 5 for further information, including details on the Group’s
strategy and future outlook.
Likely Developments and Expected Result of Operations
1.5
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. Additional comments on expected results of operations of the Group are included in this report
under the review of operations at section 1.4 and refer to the Chief Executive Officer’s Annual Letter for further
information.
13
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
Significant changes in the State of Affairs
1.6
There were no significant changes in the state of affairs of the Group that occurred during the year not otherwise
disclosed in this report or the financial statements.
Events Subsequent to the end of the Financial Year
1.7
On 19 July 2016, the Group seeded Magellan Infrastructure Fund (Currency Hedged) (MICH) (ASX ticker code: MICH)
with $10,000,000 of its own capital. MICH is an ASX quoted version of the unlisted Magellan Infrastructure Fund and
will invest in a portfolio of between 20 and 40 currency hedged investment grade infrastructure securities. MICH
commenced trading on the ASX on 22 July 2016.
On 3 August 2016, the Group reported on the ASX its funds under management were $41.5 billion as at 29 July 2016.
Other than the above and the final dividend in respect of the year ended 30 June 2016 discussed at section 1.3, the
Directors are not aware of any other matter or circumstance not otherwise dealt with in this report that has significantly
affected 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.
Environmental Regulation
1.8
The Group is not subject to any particular or significant environmental regulation under Commonwealth, State or
Territory legislation.
1.9 Unissued Shares
MFG 2016 Options
As at the date of this report, there were no unexercised MFG 2016 Options (Options) (1,050,023 unexercised MFG
2016 Options at 30 June 2015). The 10,683 Options that had not been exercised by 30 June 2016 expired on that
date. Refer to note 14(d)(ii) for further details.
Refer to section 3.6 in the Remuneration Report for the Options exercised and held by the Directors and Key
Management Personnel of the Group during the year. The MFG 2016 Options are not entitled to dividends or
distributions and ordinary shares issued on exercise of the options rank equally with all other ordinary shares from the
date the ordinary shares are issued.
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 dividends
and convert into the Company’s ordinary shares on 21 November 2016 in accordance with a conversion formula (June
2015: 10,200,000 MFG Class B Shares). Refer to note 14(d)(iii) for further details. The service conditions attached to
the conversion of the MFG Class B shares into MFG ordinary shares were satisfied on 1 July 2012.
14
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
2.
Directors and Officers
Directors
2.1
The following persons unless otherwise stated were Directors of the Company during the year and up to the date of
this report:
Name
Brett Cairns
Hamish Douglass
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Directorship
Executive Chairman
CEO and Chief Investment Officer
Non-Executive Director and Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Appointed
22 Jan 2007
21 Nov 2006
23 Apr 2014
20 Dec 2006
1 Mar 2016
23 Apr 2014
Secretaries
2.2
Mr Geoffrey Stirton was the Company Secretary of the Company during the year and up to the date of this report.
There are no other officers of the Company.
2.3
Information on Directors and Officers
Brett Cairns
Executive Chairman
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. Brett has a BE (Hons), Master of Business Administration
and a Doctorate of Philosophy from the University of Sydney.
Hamish Douglass
CEO and Chief Investment Officer
Hamish is the co-founder of the Company. He is a former member of the Australian Government’s Foreign Investment
Review Board (FIRB), a former member of the Australian Government’s Financial Literacy Board, former Acting
President of the Australian Government’s Takeovers Panel and former Co-Head of Global Banking at Deutsche Bank,
Australasia. He was a Director of Magellan Flagship Fund Limited from September 2006 until 6 February 2013. Hamish
holds a BCom from the University of NSW.
Robert Fraser
Non-Executive Director – Senior Independent Director, Chairman of Audit and Risk Committee and member of the
Remuneration and Nominations Committee
Robert is a company director and corporate adviser with over 27 years of investment banking experience, specialising
in mergers and takeovers, corporate and financial analysis, capital management and equity capital markets. He is
presently the Managing Director of TC Corporate Pty Limited, the corporate advisory division of Taylor Collison Limited
stockbrokers of which he is a Director and principal. Robert has a Bachelor of Economics and Bachelor of Laws (Hons)
degrees from the University of Sydney and is also qualified as a licensed business broker and licensed real estate agent.
Robert currently serves on the Boards of ARB Corporation Limited (since February 2004), F.F.I. Holdings Limited (since
October 2011) and Gowing Bros Limited (since April 2012).
15
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
2.3
Information on Directors and Officers (continued)
Paul Lewis
Non-Executive Director, Chairman of Remuneration and Nominations Committee and member of the Audit and Risk
Committee
Paul was Managing Partner and Chief Executive – Asia for PA Consulting Group, based in Hong Kong from 1992 – 2004,
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 2009 was a member
of British Telecom’s Global Advisory Board. Paul is currently an adviser to NAB Private Wealth, a member of NAB
Business Advisory Council, Chairman of Growth Mantra, Deputy National Chairman of the Australian British Chamber
of Commerce, and a board member of Optal Limited, IPScape Limited, Ipro Solutions Pty Limited and Cure Cancer
Australia Foundation. Paul is a Fellow of the Australian Institute of Company Directors.
Hamish McLennan
Non-Executive Director and member of the Audit and Risk Committee and Remuneration and Nominations Committee.
Hamish McLennan has over 30 years’ experience in the media industry. He is currently Chairman of REA Group Limited,
a global online real estate advertising company. He was previously Executive Vice President, Office of the Chairman,
News Corporation, and Global Chairman & CEO of Young & Rubicam (Y&R) in New York, part of WPP, the world’s
largest communications services group. Mr McLennan joined Young & Rubicam in 2002 as Chairman and CEO of Y&R
Brands Australia/New Zealand, one of the largest marketing services groups in Australasia, and led the firm’s global
business operations from 2006 to 2011. He was also previously Executive Chairman and Chief Executive Officer (March
2014 to July 2015) and Chief Executive Officer and Managing Director (February 2013 to March 2014) of Australian
media company Ten Network Holdings Limited. He has previously served on the Boards of Directors for the United
Negro College Fund (UNCF) and the US Ad Council.
Karen Phin
Non-Executive Director and member of the Audit and Risk Committee and Remuneration and Nominations Committee.
Karen has over 20 years’ capital markets experience advising a range of top Australian companies on their capital
management and funding strategies. Until 2014, Karen was Managing Director and Head of Capital Management
Advisory at Citigroup in Australia and New Zealand. From 1996 – 2009, she worked at UBS where she was also a
Managing Director and established and led the Capital Management Group. Prior to joining Citigroup, Karen spent 12
months at ASIC as a Senior Specialist in the Corporations group. Karen is currently a member of the Takeovers Panel
and the ASX Tribunal. Karen has a Bachelor of Arts/Law (Honours) from the University of Sydney and is a graduate of
the AICD.
Geoffrey Stirton
Company Secretary
Geoffrey has over 20 years’ experience in financial services in various company secretarial, finance and management
roles and has held Group Company Secretary roles at The Trust Company, Investa Property Group and MLC Limited.
Geoffrey holds a Bachelor of Commerce degree from the University of NSW, is a Chartered Accountant, a Fellow of the
Governance Institute of Australia and a Fellow of the Australian Institute of Company Directors.
16
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
Directors’ Meetings
2.4
The number of meetings of the Board and Board Committees, held during the year ended 30 June 2016 and the
number of those meetings attended by each Director are set out below:
Directors’ Interests
2.5
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.
17
HeldAttendedHeldAttendedHeldAttendedB Cairns77----H Douglass77----P Lewis77101044R Fraser77101044H McLennan221111K Phin77101044BoardAudit & Risk Committee Remuneration & Nominations Committeewhile a Directorwhile a memberwhile a member
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited)
This Remuneration Report outlines the remuneration arrangements of the Group for the year ended 30 June 2016.
The report details the remuneration arrangements for the Non-Executive Directors and Key Management Personnel
(KMP) of the Group. KMP are defined as those persons and corporate entities having authority and responsibility for
planning, directing and controlling activities of the Group, directly or indirectly.
In the 2016 financial year, the KMP for the Group included the Executive Chairman, the Chief Executive Officer (CEO)
and Chief Investment Officer, and the Group’s senior executives as set out below.
The Remuneration Report has been prepared and audited against the disclosure requirements of the Corporations Act
2001.
Remuneration Philosophy and Principles
The Group’s remuneration philosophy is centred on fair compensation for performance and contribution that achieves
business outcomes. It aims to balance short term and long term incentives appropriately, including encouraging broad
based employee ownership in the Group. Importantly, incentives motivate each employee to achieve agreed business
objectives which align to long term business outcomes.
The key drivers of the Group’s remuneration philosophy and principles are:
Promoting staff behaviour that is in the best interest of clients;
Attracting and retaining outstanding staff;
Building a culture that rewards performance, maintaining the Group’s reputation and mitigating risk; and
Encouraging staff to think like long term owners of the Group.
Broadly the Group’s remuneration arrangements for employees comprise the following components:
A fixed remuneration amount (inclusive of superannuation);
A variable incentive which is determined annually. Variable incentives are discretionary (except where noted
below) and may be in the range of 0 to 100% of the fixed remuneration amount or higher in exceptional
circumstances. The variable incentive is paid partly as a current year cash bonus and partly as a conditional
deferred cash bonus amount; and
An offer of voluntary participation in the Group’s Share Purchase Plan (SPP), to encourage long term ownership
in the Group.
Variable remuneration
With the exception of the CEO and the portfolio managers of the Group’s Global Listed Infrastructure strategies
(Infrastructure Portfolio Managers), the variable incentive amount is determined by reference to an employee’s
individual performance and contribution, and the overall performance of the Group. Variable remuneration is not
determined on a formulaic basis but is part of an overall performance appraisal process.
The Board believes incentives should be aimed at areas where employees have direct influence over the outcome
and that are in the best interests of the business and its clients.
18
NamePositionTerm as KMPNon-Executive DirectorsRobert FraserDirectorFull YearPaul LewisDirectorFull YearHamish McLennanDirector1 Mar 2016 - 30 Jun 2016Karen PhinDirectorFull YearExecutive DirectorsBrett CairnsExecutive ChairmanFull YearHamish DouglassCEO & Chief Investment OfficerFull YearGroup ExecutivesNerida CampbellChief Operating OfficerFull YearFrank CasarottiGeneral Manager - DistributionFull YearGerald StackHead of InvestmentsFull YearKirsten MortonChief Financial OfficerFull Year
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Remuneration Philosophy and Principles (continued)
Variable remuneration (continued)
The Board does not believe it is appropriate to use measures such as earnings per share or the share price
performance of the Group in determining these employees’ annual variable remuneration. Such arrangements
could misalign the interests of the employee with those of the Group’s clients and ultimately be detrimental to the
long-term interests of shareholders.
The CEO’s variable incentive is capped at 100% of his fixed remuneration and is dependent upon the performance
of the investment strategies, measured over three years, for which he has primary responsibility. The Board
believes that setting the basis of the CEO’s variable incentive with reference to investment performance provides
an important alignment with the Group’s clients, and is in the best long term interest of shareholders.
The Infrastructure Portfolio Managers have a variable remuneration arrangement that is directly tied to the net
revenues, less certain allocated costs, of the Group’s Global Listed Infrastructure business. The Board considers
that this arrangement appropriately rewards and aligns these employees’ interests with those of the Group’s
clients and shareholders.
Share Purchase Plan
The Group does not operate a specific long term incentive plan, however the Group offers participation in the SPP
as a means to align employees with shareholders, encourage employees to think and act like business owners
and to create value over the longer term.
o The Group does not offer share grants to employees as the Board does not believe that grants create
alignment with shareholders through true ownership, as employees are not required to pay for shares
through these instruments.
o The Group does not grant share options to Directors or employees given the asymmetric payoff structure
of options which creates a lack of alignment between employees and shareholders.
The Group’s SPP is a subscription for shares by SPP participants at the prevailing market price. The Group provides
financial assistance to the SPP participants to acquire the Group’s shares via a full recourse, interest-free loan,
and thus the SPP participant bears the full risks and benefits of being a shareholder. Refer to section 3.2 for
further information about the SPP.
The Board believes promoting meaningful broad based ownership should start at Board level and therefore the
Group also offers participation in the SPP to Non-Executive Directors.
The SPP provides participants with the opportunity to acquire a meaningful ownership in the Group and, unlike
many option and performance share plans, participants are required to pay for the shares over time. The interest-
free component of the full recourse loan provides real value to SPP participants and is expensed by the Group
through the Group’s Consolidated Statement of Profit or Loss.
Remuneration of Non-Executive Directors
3.1
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.
Non-Executive Director Fees
The Board believes that Non-Executive Director fees should be modest and that when combined with a meaningful
ownership stake, Non-Executive Directors’ interests are better aligned with the shareholders when considering
important strategic issues such as executive compensation, acquisitions, dividend policy, and capital management.
On that basis, remuneration comprises modest Directors’ fees (inclusive of superannuation) and the non-cash expense
to the Group of providing the full recourse, interest-free loans under the SPP. These payments form part of the Non-
Executive Director Remuneration Cap set out in clause 50(a) of the Constitution, which currently stands at $500,000.
The Group has reimbursed or borne expenses incurred by the Non-Executive Directors in the discharge of their duties
of $1,301 (June 2015: $1,429).
Non-Executive Director SPP Participation
The Non-Executive Directors are eligible to participate in the Group’s SPP which is described in section 3.2. Promoting
a true ownership culture across the Group is an important objective and offering SPP participation to Non-Executive
Directors is considered a key element in this pursuit. The Group provides participating Non-Executive Directors with a
full recourse, interest-free loan to finance the purchase of the Group’s shares at the prevailing market price on issue
date. An equitable mortgage is held over the shares acquired under the SPP. All dividends associated with the shares
are swept to repay the loan and the equitable mortgage is not discharged until the loan is fully repaid.
19
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Remuneration of Non-Executive Directors (continued)
3.1
Offering the SPP to Non-Executive Directors is an important part of the Group’s remuneration structure as it provides
a way for Non-Executive Directors to have a meaningful, non-option like ownership stake. The Board does not put in
place any minimum share ownership thresholds however the SPP structure delivers a shareholding often many multiples
of the value of their Director’s fees. Importantly, Directors are fully invested in the Group at the beginning of their
tenure rather than waiting many years to accumulate a meaningful ownership position.
Financing is often required by Directors seeking to establish a meaningful ownership in a company, particularly if that
stake is a multiple of their director fees. In the Board’s opinion it would be counterproductive to a true long term
ownership position if that source of financing was external to the Group, as short term share price movements may
impact the provision of that financing. The Board believes that the Group is in the best position to absorb any such
short term share price movements, allowing the Non-Executive Directors to focus on the long term best interests of all
the Group’s shareholders. The Board believes that providing full recourse financial assistance to Non-Executive
Directors under the SPP does not hinder their independence from management and that establishing a meaningful
ownership stake that is a multiple of a Non-Executive Director’s annual fees promotes independent thought and
engagement that will be in the long-term interests of the Group’s shareholders.
As the financing provided to Non-Executive Directors is full recourse, participating Non-Executive Directors are liable
to repay the loan irrespective of the performance of the Group’s shares. Furthermore, the Group’s shareholders must
approve the provision of financing to the Non-Executive Directors by way of a vote.
Retirement benefits for Non-Executive Directors
No retirement benefits (other than superannuation) are provided to Non-Executive Directors.
Remuneration of Executive Directors and Other KMP
3.2
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.
Executive Directors
The Executive Directors’ remuneration is determined by the Board, which may utilise the services of external advisors.
In respect of the year ended 30 June 2016 it comprised fixed compensation and, in respect of Mr Douglass only, a
variable compensation amount.
On 26 November 2015, Mr Douglass entered into an amended employment contract with the Group. As a result, some
of the terms of Mr Douglass’ employment contract have changed. A summary of the changes to Mr Douglass’
remuneration is provided in section 3.5.
Fixed remuneration
Fixed remuneration is structured as a total employment cost package, which may be received as a combination of cash,
non-cash benefits and superannuation contributions.
Fixed remuneration for both Mr Douglass and Dr Cairns was unchanged from the previous year.
Variable remuneration
Mr Douglass is entitled to receive a variable incentive amount up to but not exceeding 100% of fixed remuneration
each financial year. The amount of variable incentive awarded to Mr Douglass in respect of the year ended 30 June
2016 was determined with reference to the achievement by Mr Douglass of agreed criteria and performance metrics
relating to the performance of the investment strategies under his control over the three year period to 30 June 2016.
The performance metrics and relative weightings of these which are used to determine Mr Douglass’ variable
remuneration are outlined in section 3.5. For the year ended 30 June 2016, Mr Douglass was awarded variable
remuneration of 35% of his fixed remuneration (excluding long service leave) (100% awarded for the year ended 30
June 2015). Mr Douglass’ variable incentive for 2016 will be paid in 36 equal monthly instalments if he remains
employed by the Group. In prior years, Mr Douglass’ variable incentive was paid partly as a current year cash bonus
and partly as a deferred cash bonus over 12 months. Mr Douglass has agreed not to receive any of his variable
incentive up front and to instead defer payment over the subsequent three financial years which is consistent with the
medium term focus of Mr Douglass’ variable remuneration arrangements. In circumstances of death or incapacity, the
payment of any unpaid monthly instalments as at the termination date will be accelerated. Further information is
provided in section 3.5.
20
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.2
Remuneration of Executive Directors and Other KMP (continued)
Executive Directors (continued)
Mr Douglass’ variable incentive is purely determined in relation to the performance of the investment strategies under
his control. Importantly, the three year performance period emphasises the Group’s medium to long term focus for its
investment strategies. This client focussed structure of Mr Douglass’ variable incentive is considered to be very
important and, when combined with Mr Douglass’ substantial shareholding in the Group, is considered to provide an
appropriately incentivised overall remuneration outcome.
Mr Douglass is not entitled to participate in the Group’s SPP as the Board considers him to be sufficiently aligned with
shareholders through his ownership of 11.1 million shares and 10.2 million Class B shares.
Dr Cairns is not entitled to receive any variable incentive.
Details of the remuneration paid to the Executive Directors is detailed in section 3.3. Details of the employment
agreements of the Executive Directors are described in section 3.5.
Group Executives (Other KMP)
Other KMP remuneration comprises fixed and variable remuneration that takes into account the individual’s experience,
abilities, achievements, and contribution to the Group.
Fixed remuneration
Other KMP fixed remuneration is structured as a total employment cost package, which may be received as a
combination of cash, non-cash benefits and superannuation contributions. Fixed remuneration is reviewed annually to
ensure that it is competitive and reasonable, however there are no guaranteed increases to the fixed remuneration
amount. Other KMP fixed remuneration increased approximately 5% from the previous year reflecting movements in
market salaries (year to 30 June 2015: unchanged from the prior year). The Board considers this increase in fixed
remuneration to be modest in the context of the growth in profitability of the Group. A summary of the link between
performance and remuneration paid by the Group is provided in section 3.9.
Variable remuneration
The Board considers that indicators for the determination of annual variable compensation such as movements in the
Group’s share price or earnings per share, may encourage behaviour that is not in the best long term interests of clients
and subsequently the Group and its shareholders. The Board’s primary objective is that Other KMP are motivated to
build long term client relationships and provide support for the generation of investment returns for investors in the
funds managed by the Group which will ultimately deliver shareholder wealth over the long term. The Board believes
that the participation in the Group’s SPP by Other KMP closely aligns their interests with the long term interests of
shareholders.
The CEO determines the amount of variable incentive to be paid to Other KMP, taking into consideration the individual’s
performance and contribution during the year. The variable compensation of Other KMP (excluding Mr Stack) is
discretionary and may be in the range of 0 to 100% of fixed remuneration (higher in exceptional circumstances) and
comprises a cash bonus amount and a conditional deferred cash bonus payable in 36 equal monthly instalments over
the course of the next three financial years. The deferred cash bonus was historically paid in 12 equal monthly
instalments and has been extended to 36 equal monthly instalments for Other KMP. Entitlement to the deferred cash
bonus is dependent on Other KMP being employed by the Group at the time of payment.
Ms Campbell’s variable incentive is determined with reference to the achievement of various business management
outcomes, including cost management and control, and the delivery of key business strategic and operational projects.
For the year ended 30 June 2016, Ms Campbell was awarded variable remuneration of 100% of fixed remuneration
(excluding long service leave) (awarded 100% for the year ended 30 June 2015). Key business outcomes that Ms
Campbell delivered during the year included:
Overseeing the Group’s IT infrastructure and business continuity planning;
Overseeing the selection of new head office premises and relocation of the Group’s head office;
Overseeing the Group’s UCITS investment company based in Ireland.
Establishing a legal and operating structure for Magellan’s US business; and
21
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.2
Remuneration of Executive Directors and Other KMP (continued)
Group Executives (Other KMP) (continued)
Mr Casarotti’s variable incentive is determined with reference to the success of the Group in achieving objectives with
regard to the building of distribution relationships, support of clients and investors, and the building of the Group’s
brand in the Australian and offshore markets. For the year ended 30 June 2016, Mr Casarotti was awarded variable
remuneration of 100% of fixed remuneration (excluding long service leave) (awarded 90% for the year ended 30 June
2015). Key business outcomes that Mr Casarotti delivered during the year included:
Overseeing the Distribution Team which achieved total net retail inflows of $2.3 billion and $1.8 billion of net
institutional inflows;
Promoting and maintaining the client focussed culture within the Group’s Distribution Team;
Deepening the Group’s relationships with Colonial First State/Commonwealth Bank, BT/Westpac and AMP;
Overseeing the strategy to develop and deepen relationships with stockbrokers as key target supporters of
the Group’s ASX quoted funds; and
Overseeing the development of the Group’s client servicing and distribution presence in North America.
Mr Stack’s variable compensation is determined as approximately 9% of net revenues earned by the Group in respect
of the investment strategies for which he is a portfolio manager, less internal allocation of costs. For the year ended
30 June 2016, Mr Stack was awarded variable remuneration of 535% of fixed remuneration (excluding long service
leave) (awarded 412% for the year ended 30 June 2015).
Ms Morton’s variable incentive is determined with reference to the Group’s finance function. For the year ended 30
June 2016, Ms Morton was awarded variable remuneration of 100% of fixed remuneration (excluding long service
leave). Key achievements that Ms Morton delivered during the year included:
Leading the Group’s Finance Team;
Overseeing the Group’s taxation framework, including negotiating with US tax authorities on withholding
taxes;
Implementing a new cloud based expense management system;
Promoting and maintaining a culture of excellence within the Finance Team; and
Integrating the new US legal structure into the Group’s financial reporting.
SPP Participation
Other KMP are eligible to participate in the Group’s SPP which is described later in this report. Other KMP remuneration
includes the non-cash expense to the Group of providing interest-free loans under the SPP.
Details of the remuneration paid to Other KMP is provided in section 3.3. Details of the employment agreements of
Other KMP are described in section 3.5 of this report.
22
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.2
Remuneration of Executive Directors and Other KMP (continued)
Summary of variable remuneration outcomes
The below table provides a summary of variable remuneration outcomes for Executive Directors and Group Executives
for the years ended 30 June 2016 and 30 June 2015. The table outlines the portion of variable remuneration awarded
for each financial year that is paid in cash and the portion that is deferred over subsequent financial years. This differs
to the Total Cash Bonus outlined in the statutory accounting table provided in section 3.3(a) which represents an
executives’ cash bonus received throughout the financial year. This is comprised of the 2016 cash bonus and deferred
cash bonus from prior financial years that was paid throughout the 2016 financial year.
(A) Cash Bonus represents the portion of Group Executives’ awarded variable remuneration that is paid in cash after the release of
the Group’s Annual Report.
(B) Conditional Deferred Cash Bonus for the year ended 30 June 2016 represents the portion of Group Executives’ awarded variable
remuneration for 2016 that is deferred and is paid in cash in 36 equal monthly instalments in future financial years, subject to
continued employment with the Group. Conditional Deferred Cash Bonus for the year ended 30 June 2015 represents the portion
of Group Executives’ awarded variable remuneration for 2015 that was deferred and paid in cash in 12 equal monthly instalments
over the course of the year ended 30 June 2016.
(C) Dr Cairns is not entitled to any variable incentive.
(D) Ms Morton has been determined as a KMP in the year ended 30 June 2016.
23
Variable incentive outcomesCash Bonus (A)Conditional Deferred Cash Bonus (B)Total variable remuneration awarded$$$$%Executive Directors(C)H Douglass2016- 442,456 442,456 1,250,000 35%2015650,000 600,000 1,250,000 1,250,000 100%Group Executives (Other KMP)N Campbell2016272,439 173,811 446,250 446,250 100%2015237,500 187,500 425,000 425,000 100%F Casarotti2016272,439 173,811 446,250 446,250 100%2015216,250 166,250 382,500 425,000 90%G Stack20161,337,893 1,047,525 2,385,418 446,250 535%2015949,088 803,616 1,752,704 425,000 412%K Morton(D)2016227,750 137,250 365,000 365,000 100%20162,110,521 1,974,853 4,085,374 2,953,750 20152,052,838 1,757,366 3,810,204 2,525,000 Total KMPFixed remuneration (incl. superannuation)Total variable remuneration awarded as % of fixed remuneration
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.2
Remuneration of Executive Directors and Other KMP (continued)
Share Purchase Plan (SPP)
The Board believes promoting broad based ownership of the Group is an effective way of aligning the conduct and
performance of employees and Non-Executive Directors with the interests of shareholders and to encourage them to
think and act like owners of the business. To promote meaningful ownership by individuals, the Group has in place a
SPP whereby employees and Non-Executive Directors are invited to subscribe for shares in the Group. The number of
shares offered to any one participant is agreed by the Board following a recommendation by the CEO. Participants are
generally required to make an upfront contribution of 25% of the value of the shares purchased with the remaining
subscription funded via an interest-free, full recourse loan provided by the Group.
Participants enter into an equitable mortgage agreement with the Group over the loan in respect of the shares and the
shares cannot be sold until the loan is repaid. The loan term is five years for Non-Executive Directors and 10 years for
employees.
The loan is compulsorily repaid by participants via the following means:
dividends associated with the shares are withheld and swept to repay the loan; and
in respect of Group employees, 25% of an employee’s after tax bonus payment is retained and swept to repay
the loan.
As the loan is full recourse, to the extent the share price falls below the SPP Offer issue price, participants are still
required to pay the full loan balance.
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 Group’s shares as at 30 June in each year since inception of the Group are provided
below together with the issue price of shares under the SPP:
30 June 2007
30 June 2008
30 June 2009
30 June 2010
30 June 2011
30 June 2012
30 June 2013
30 June 2014
30 June 2015
30 June 2016
MFG share
closing price
$2.20
$0.53
$0.55
$1.13
$1.32
$2.15
$9.64
$10.93
$17.40
$22.25
SPP Offer date
10 September 2007
20 October 2008
8 September 2009
10 November 2010
2 March 2011
30 September 2011
12 March 2013
29 October 2013
22 September 2014
13 November 2014
2 September 2015
6 September 2016
SPP Offer issue price
of MFG shares
$1.66
$0.52
$0.78
$1.35
$1.75
$1.20
$7.33
$10.02
$13.23
$13.64
$18.88
The non-cash expense to the Group of providing interest-free loans under the SPP forms part of the total remuneration
of the employee participants and in the case of the Non-Executive Directors also forms part of the Remuneration Cap
set out in clause 50(a) of the Constitution.
The SPP provides an effective long term incentive to the employees who participate in the Plan as participants are fully
exposed to future movements in the Group’s share price. As the SPP is not a grant of shares, no performance hurdles
apply to (1) the invitation to participate; (2) the issue of shares; or (3) the release of shares for sale by the participant
under the SPP. The Board has not set a policy for minimum shareholding requirements for executives and Non-
Executive Directors as the SPP provides meaningful alignment for shareholders. Further details of the SPP are set out
in note 15 to the financial statements.
24
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.3
(a)
Details of Remuneration
The total amount paid or payable to Non-Executive Directors and KMP of the Group is detailed below:
(A) The total cash bonus amount includes the current year cash bonus and deferred components of the prior year bonus which have
been paid in cash over the course of the current year (refer to further details at section 3.3(b)).
(B) Includes long service entitlements accrued during the year.
(C) Other benefits represent the expense of providing interest-free loans to Participants in the Share Purchase Plan (refer to further
details at section 3.2). These are non-cash items.
(D) No termination benefits, non-monetary benefits or other short term benefits not otherwise disclosed above were paid during the
years ended 30 June 2016 and 30 June 2015.
(E) Dr Cairns was a Non-Executive Director until his appointment as Executive Chairman on 1 January 2015. For the year ended 30
June 2015, Dr Cairns’ remuneration includes the period 1 July 2014 to 31 December 2014 whilst he served as a Non-Executive
Director and for the period 1 January 2015 to 30 June 2015 whilst fulfilling his role as Executive Chairman.
(F) Mr McLennan was appointed on 1 March 2016 and remuneration for the year ended 30 June 2016 is shown for the period 1 March
2016 to 30 June 2016.
(G) Other benefits include $100,000 accrued in the current year in relation to the investment restriction contract with Mr Douglass
(June 2015: $100,000). For further details refer section 3.5
(H) Mr Casarotti’s salary was adjusted downward from $426,942 due to him taking unpaid leave during the year ended 30 June 2016.
(I) Ms Morton has been determined as a KMP in the year ended 30 June 2016.
25
Post-Long-OtherTotalemploymentterm BenefitsBenefitsBenefitsSalaryTotal Cash Bonus(A)SuperannuationOther(B)(C)(D)$$$$$$Non-Executive DirectorsBrett Cairns(E)2016- - - - - - 201573,059 - 6,941 - 14,331 94,331 Robert Fraser201686,758 - 8,242 - 20,796 115,796 201586,758 - 8,242 - 13,864 108,864 Paul Lewis201680,000 - - - - 80,000 201580,000 - - - 28,663 108,663 Hamish McLennan(F)201624,353 - 2,314 - - 26,667 Karen Phin201673,059 - 6,941 - 17,157 97,157 201573,059 - 6,941 - 11,438 91,438 Executive DirectorsH Douglass(G)20161,230,692 600,000 19,308 20,504 100,000 1,970,504 20151,231,217 1,250,000 18,783 20,416 100,000 2,620,416 Brett Cairns(E)20161,230,692 - 19,308 - - 1,250,000 2015615,609 - 9,391 - 14,332 639,332 Group Executives (Other KMP)N Campbell2016426,942 459,939 19,308 10,237 3,293 919,719 2015406,217 387,500 18,783 6,635 13,174 832,309 F Casarotti(H)2016411,342 438,689 19,308 10,002 - 879,341 2015406,217 366,250 18,783 6,647 - 797,897 G Stack2016426,942 2,141,509 19,308 10,061 10,184 2,608,004 2015406,217 1,481,588 18,783 6,644 25,032 1,938,264 K Morton(I)2016345,692 352,750 19,308 - 3,503 721,253 20164,336,472 3,992,887 133,345 50,804 154,933 8,668,441 20153,378,353 3,485,338 106,647 40,342 220,834 7,231,514 Short Term BenefitsTotal KMP
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.3
(b)
Details of Remuneration (continued)
The components of the total cash bonus paid or conditionally payable to KMP of the Group are below:
(A) The bonus earned in respect of the current year that is paid in cash after the release of the Group’s Annual Report.
(B) The conditional deferred cash bonus for the year ended 30 June 2015 has been paid in 12 equal instalments in the year ended
30 June 2016. The conditional deferred cash bonus for the year ended 30 June 2014 was paid in 12 equal instalments during the
year ended 30 June 2015.
(C) The total cash bonus amount includes the current year cash bonus and deferred components of the prior year bonus which have
been paid in cash over the course of the current year and reflected in section 3.3(a).
(D) The conditional deferred cash bonus for the year ended 30 June 2016 is payable in 36 equal monthly instalments. Entitlement to
the deferred cash bonus amounts is dependent on the KMP being employed by the Group at the time of the payment. The
conditional deferred cash bonus for the year ended 30 June 2015 was paid in 12 equal instalments during the year ended 30 June
2016. Refer to note 1(r) for the accounting policy on the conditional deferred cash bonus component of the annual bonus.
(E) Dr Cairns is not entitled to any variable incentive.
(F) Ms Morton has been determined as a KMP in the year ended 30 June 2016.
The conditional deferred cash bonus payable by the Group to the Executive Directors, Other KMP and employees in
respect of the year ended 30 June 2016 is $6,938,188 and payable over the years ended 30 June 2017, 30 June 2018
and 30 June 2019 (June 2015: $5,045,000 and payable over the year ended 30 June 2016).
26
Cash Bonus (A)Conditional Deferred Cash Bonus paid (B)Total Cash Bonus(C)Conditional Deferred Cash Bonus(D)$$$$Executive DirectorsH Douglass2016- 600,000 600,000 442,456 2015650,000 600,000 1,250,000 600,000 B Cairns(E)2016- - - - 2015- - - - Group Executives (Other KMP)N Campbell2016272,439 187,500 459,939 173,811 2015237,500 150,000 387,500 187,500 F Casarotti2016272,439 166,250 438,689 173,811 2015216,250 150,000 366,250 166,250 G Stack20161,337,893 803,616 2,141,509 1,047,525 2015949,088 532,500 1,481,588 803,616 K Morton(F)2016227,750 125,000 352,750 137,250 Total KMP20162,110,521 1,882,366 3,992,887 1,974,853 20152,052,838 1,432,500 3,485,338 1,757,366 Short Term Benefit - Cash Bonus
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Service Agreements
3.4
Remuneration and other terms of employment for the Non-Executive Directors are formalised in service agreements
with the Group.
The following table outlines the Non-Executive Directors’ fees for the Board and Committees of both the Group and
Magellan Asset Management Limited for the year ended 30 June 2016:
(A) Fees are inclusive of base fees and superannuation.
Brett Cairns
Dr Brett Cairns became Executive Chairman on 1 January 2015. Prior to 1 January 2015, Dr Cairns was a Non-Executive
Director and held the role of Chairman of the Group, Chairman of the Remuneration & Nominations Committee and
Member of the Audit & Risk Committee. Refer to further details at section 3.5 of this report.
As a result of Dr Cairns’ appointment to Executive Chairman he resigned as a Member of the Audit & Risk Committee
and Chairman and Member of the Remuneration & Nominations Committee. Simultaneously the following changes
were made:
Mr Fraser was appointed Senior Independent Director; and
Mr Lewis was appointed Chairman of the Remuneration & Nominations Committee.
Robert Fraser
Non-Executive Director – Senior Independent Director, Chairman of Audit & Risk Committee and Member of
Remuneration & Nominations Committee
Commenced on 23 April 2014
Term of appointment is 3 years unless the Director is not re-elected by shareholders of the Group.
Paul Lewis
Non-Executive Director, Chairman of Remuneration & Nominations Committee (from 1 January 2015) and Member of
Audit & Risk Committee
Commenced on 20 December 2006
Term of appointment is 3 years unless the Director is not re-elected by shareholders of the Group.
Karen Phin
Non-Executive Director, Member of Audit & Risk Committee and Remuneration & Nominations Committee
Commenced on 23 April 2014
Term of appointment is 3 years unless the Director is not re-elected by shareholders of the Group.
Hamish McLennan
Non-Executive Director, Member of Audit & Risk Committee and Remuneration & Nominations Committee
Commenced on 1 March 2016
Term of appointment is 3 years unless the Director is not re-elected by shareholders of the Group.
27
PositionFees ($)(A)Board (Group)Non-Executive Director70,000 Audit & Risk CommitteeChairman25,000 Member10,000 Remuneration & Nominations CommitteeChairman- Member-
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Employment Agreements
3.5
The Executive Directors and Other KMP are engaged under employment agreements with Magellan Asset Management
Limited (MAM), a controlled entity of the Group.
Hamish Douglass, CEO and Chief Investment Officer
The Executive 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, which applied for the year to 30 June 2016, Mr Douglass:
received fixed compensation structured as a total employment cost package of $1,250,000 per annum,
inclusive of statutory superannuation contributions, which was received as a combination of cash, non-cash
benefits and superannuation contributions. Fixed compensation was subject to review for the period
commencing 1 July 2016; and
is eligible to receive in respect of each of the three (3) financial years to 30 June 2014, 30 June 2015 and 30
June 2016, variable compensation being a maximum variable incentive amount of up to but not exceeding
100% of his fixed compensation for that financial year. The amount of the variable incentive received is wholly
based on the investment performance of the Group’s Global Equity strategy applying the following
performance metrics and relative weighting set out in the table below. The Board, in consultation with the
Executive Director, determined the underlying quantitative measures for each of the performance metrics that
apply, which were subject to review for the period commencing 1 July 2016.
Variable
Performance
Weighting
Percentage Paid/Performance Measures
Remuneration
Metrics
Criteria
Ranking of the
Global Equity
Strategy
in Peer Group(A)
(rolling 3 years as at
30 June each year)
Investment
Performance of
the Global
Equity Strategy
Absolute
Performance
(Gross Return)
33.3%
of the Global Equity
Strategy (measured
in USD)
(rolling 3 years as at
30 June each year)
33.3%
The percentage paid is in the range of 0% to
100% dependent on the ranking quartile band
achieved as per the below table:
100%
50% to 100%
(sliding scale)
0%
1st Quartile
Bottom of 2nd
Quartile to top of
2nd Quartile
3rd and 4th Quartile
(bottom 50%)
Mr Douglass received 50% of this component
in 2016, based on a 2nd Quartile ranking
The percentage paid is in the range of 0% to
100% dependent on the absolute
performance achieved as per the below table:
100%
50% to 100%
(sliding scale)
0%
12% p.a. or greater
8% p.a. to 12% p.a.
Less than 8% p.a.
Mr Douglass received 0% of this component in
2016, based on absolute performance of
7.26% p.a.
(A)
Ranking to be determined by reference to Magellan Global Fund’s quartile positioning in Global Equity sector for
the 3 year total return as set out in the Morningstar Australian Institutional Sector Survey as at June of each
year (or if that survey ceases to be published, an equivalent replacement survey).
28
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.5
Employment Agreements (continued)
Relative gross
investment
performance of the
Global Equity
Strategy against its
Benchmark Index(B)
(rolling 3 years as at
30 June each year )
33.3%
The percentage paid is in the range of 0% to
100% dependent on pre-determined relative
performance differences above the Benchmark
Index as per the below table:
100%
50% to 100%
(sliding scale)
0%
Achieves Benchmark
Index + 2.5% p.a.
or greater
Achieves Benchmark
Index to Benchmark
Index + 2.5% p.a.
Achieves less than
Benchmark Index
p.a.
Mr Douglass received 56.2% of this
component in 2016, based on relative gross
investment performance of 7.26% p.a. against
Benchmark Index of 6.95% p.a.
(B)
The Benchmark Index is the MSCI World Net Total Return (in USD), a free-float adjusted market capitalisation
weighted index designed to measure the equity performance of 24 developed markets. Index results assume the
reinvestment of all distributions of capital gain and net investment income using a tax rate applicable to non-
resident institutional investors who do not benefit from double taxation treaties. The returns are calculated using
published index data on a daily basis. Daily returns are compounded to calculate the monthly and longer term
returns.
In respect of the year ended 30 June 2016, Mr Douglass will receive a total variable incentive of $442,456 (June 2015:
$1,250,000) payable in 36 equal monthly instalments. Mr Douglass’ entitlement to variable incentive amounts is
dependent on him being employed by the Group at the time of the payment and, where relevant, is also subject to the
termination arrangements described in “Termination arrangements”.
Mr Douglass 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, 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)
(b)
(c)
shares in a company;
interests in a managed investment scheme; or
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 this investment restriction MAM shall pay Mr Douglass an amount of $500,000 on
or before 15 July 2017. If Mr Douglass ceases employment before 15 July 2017, MAM is not required to make the
payment in part or in whole.
Mr Douglass’ contract does not specify a shareholding ownership requirement, however as one of the founders of the
business Mr Douglass and his associates hold 11,087,000 ordinary shares in addition to 10,200,000 Class B shares,
details of which are set out at section 3.6 in this report.
MFG Class B shares have no entitlement to receive a dividend and 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.
29
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.5
Employment Agreements (continued)
Changes to Mr Douglass’ remuneration from 1 July 2016
Mr Douglass’ employment agreement required a review of fixed remuneration from 1 July 2016. The Board completed
a review of the employment agreement in November 2015, the details of which are discussed below.
Commencing 1 July 2016, Mr Douglass’ annual fixed remuneration in respect of any financial year will change to be an
amount equal to 1.5% of the average annual operating profit before income tax expense for the Funds Management
operating segment (as per the segment note in the audited annual financial statements for the Group) for the three
immediately preceding financial years, subject to any adjustments agreed between the Board and Mr Douglass. The
structure of the variable incentive for Mr Douglass remains unchanged and continues to be focused on the medium
term performance (preceding three years) of the Global Equity strategy under the direct control of Mr Douglass. Mr
Douglass can earn variable compensation up to 100% of his annual fixed remuneration. The payment of the variable
incentive will be deferred over the subsequent three financial years (paid in 36 equal monthly instalments) and is
dependent on Mr Douglass being employed by the Group at the time of the payment and, where relevant, is also
subject to the termination arrangements described in “Termination arrangements”. Unlike for other employees, Mr
Douglass has agreed not to receive any of his variable incentive upfront which is consistent with the medium term
focus of Mr Douglass’ variable remuneration arrangements.
The Board believes that this arrangement is appropriate given Mr Douglass’ role as co-founder, CEO and CIO of the
Group, and Lead Portfolio Manager of the Group’s Global Equity strategy. When viewed in aggregate, the Board believes
that Mr Douglass’ remuneration structure focuses Mr Douglass on delivering superior outcomes for both clients and
shareholders over the medium term.
The revised annual fixed remuneration arrangement was reached via a mutual agreement between the Board and Mr
Douglass. Basing the fixed annual remuneration on the three year historical profitability of the funds management
business incentivises Mr Douglass to make business decisions that are in the medium to long term interest of the Group
and not on actions to simply maximise short term profitability. In addition, the arrangement meets an objective to
remove the need to re-negotiate remuneration arrangements regularly and the potential distraction that this may entail.
Whilst the Board appreciates that Mr Douglass’ fixed annual remuneration could rise materially in absolute terms over
the longer term, if the profitability of the Group grows materially, it believes the arrangement is properly aligned and
proportionate with the interests of shareholders.
The variable incentive remains driven directly by the medium term performance of the Group’s Global Equity strategy.
This is an important mechanism to ensure that Mr Douglass is focused on delivering outstanding investment returns
for clients over a medium to long term period. Achieving superior investment returns for clients over the medium to
long term will ultimately be in shareholders’ interests.
In addition to Mr Douglass’ remuneration structure which focuses him on delivering positive medium to long term
outcomes for both clients and shareholders, Mr Douglass’ substantial shareholding in the Group and personal
investments in the Group’s investment strategies also create strong alignment with clients and shareholders.
For the 2017 financial year, Mr Douglass’ fixed remuneration is calculated as $2,748,023 (inclusive of superannuation),
compared with fixed remuneration for the 2016 financial year of $1,250,000 (inclusive of superannuation).
Termination arrangements
Termination arrangements within Mr Douglass’ employment contract are as follows:
Termination with cause: The Board may immediately terminate Mr Douglass’ employment agreement with cause.
Under these circumstances, Mr Douglass will be paid the statutory requirements of any accrued fixed remuneration (eg
accrued base salary and superannuation) and accrued leave entitlements (eg annual and long service leave) at the
termination date, after set-off of any loss suffered by the Group from the acts of Mr Douglass which led to his
termination.
Termination without cause: Either the Board or Mr Douglass can terminate Mr Douglass’ employment contract at any
time by providing not less than 12 months written notice. Under these circumstances, Mr Douglass will be paid the
statutory requirements of any accrued fixed remuneration (eg accrued base salary and superannuation), accrued leave
entitlements (eg annual and long service leave) at the termination date and any other amounts approved by the Board
in its absolute discretion subject to all applicable laws and regulations.
30
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.5
Employment Agreements (continued)
Termination arrangements (continued)
Termination due to death or incapacity: In addition to the statutory requirements of any accrued fixed remuneration
(eg accrued base salary and superannuation) and accrued leave entitlements (eg annual and long service leave) at the
termination date, Mr Douglass will be paid:
any outstanding variable remuneration attributable to any previous financial year;
a pro-rata variable remuneration component for the period from 1 July of that year to the termination date; and
an amount equal to 200% of Mr Douglass’ fixed remuneration, subject to Mr Douglass (and his associates)
maintaining a minimum shareholding in the Group (inclusive of Class B shares) of 20 million shares throughout
the period from execution of the revised employment contract in November 2015 to termination, and subject to a
maximum amount of $10 million.
If the event of termination due to death or incapacity were to occur in financial year 2017, the amount equal to 200%
of Mr Douglass’ fixed remuneration would be $5,496,046. This payment would be additional to the other payments
referenced above.
As required under the Corporations Act 2001, the Group will be seeking shareholder approval at its 2016 annual general
meeting for the payment, in the event of a termination of Mr Douglass’ employment due to the death or incapacity of
Mr Douglass, of an amount in excess of 100% of the average of Mr Douglass’ fixed remuneration for the three financial
years preceding termination.
Dr Brett Cairns, Executive Chairman
The Executive Chairman is employed under a contract with MAM, with effect from 1 January 2015 and which will
continue indefinitely until terminated.
Under the terms of the contract, Dr Cairns is entitled to a fixed base salary of $1,250,000 per annum (inclusive of
superannuation). Dr Cairns is not entitled to receive variable incentive payments. The contract is subject to review
annually, from 1 July 2016.
MAM may terminate the contract at any time by giving not less than three months written notice or providing payment
in lieu of that notice, or at any time without notice if serious misconduct has occurred. Dr Cairns may terminate the
contract at any time by giving three months written notice.
In the event of termination of Dr Cairns’ contract, his termination payment would comprise any accrued fixed
compensation, including superannuation, after set-off of any loss suffered by the Group from the acts of Dr Cairns
which led to his termination; and any amounts of accrued annual and long service leave.
Under the contract, Dr Cairns is restrained from soliciting employees and clients of MAM or any related company of
MAM for a period of six months after termination of employment.
For the year ended 30 June 2016, Dr Cairns received remuneration of $1,250,000.
Group Executives (Other KMP)
Other KMP have rolling employment contracts with MAM. MAM may terminate the contract at any time by giving not
less than three months written notice (for Ms Morton, this is not less than one month) or providing payment in lieu of
that notice, or at any time without notice if serious misconduct has occurred. Other KMP may terminate the contract
at any time by giving three months written notice (for Ms Morton, this is not less than one month). On termination,
the Other KMP are required to repay any loan amounts outstanding in respect of shares acquired under the Group’s
SPP in accordance with the SPP terms and conditions.
In the event of the termination of an Other KMP contract, their termination payment would comprise any accrued fixed
compensation, including superannuation, after set-off of any loss suffered by MAM from the acts of that Other KMP
which led to their termination; and any amounts of accrued annual and long service leave.
31
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Shareholdings
3.6
The number of ordinary shares and Class B shares held during the year by each KMP, including their personally-related
parties, is set out below:
(A) Mr McLennan was appointed as a Director on 1 March 2016 and the opening balance as at 1 July 2015 represents the number of
ordinary shares held by him and his associates as at the date of his appointment.
(B) There were no additions or disposals of Class B shares during the year (June 2015: nil). Refer to note 14(d)(iii) for the key terms
and conditions of the MFG Class B Shares.
(C) The opening balance at 1 July 2015 represents the shareholding from the date Ms Morton was a KMP.
The Board does not grant options to Non-Executive Directors, KMP or employees of the Group under its remuneration
policy.
32
OpeningNetOpeningNetClosingbalanceAdditions/balanceAdditions/balance1 July 2014(disposals)1 July 2015(disposals)30 June 2016Non-Executive DirectorsRobert Fraser - Ordinary shares501,358 97,751 599,109 - 599,109 Paul Lewis - Ordinary shares1,946,399 (96,399)1,850,000 (50,000)1,800,000 Hamish McLennan - Ordinary shares(A)- - 36,300 - 36,300 Karen Phin - Ordinary shares16,192 73,120 89,312 - 89,312 Executive DirectorsHamish Douglass - Ordinary shares10,817,709 269,291 11,087,000 - 11,087,000 - Class B shares(B)10,200,000 - 10,200,000 - 10,200,000 Brett Cairns - Ordinary shares1,006,948 - 1,006,948 17,575 1,024,523 Group Executives (Other KMP)Nerida Campbell - Ordinary shares699,619 (251,019)448,600 - 448,600 Frank Casarotti - Ordinary shares656,927 - 656,927 (156,927)500,000 Gerald Stack - Ordinary shares410,963 20,156 431,119 26,483 457,602 Kirsten Morton(C) - Ordinary shares- - 18,896 - 18,896
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Unitholdings in Magellan Funds
3.7
The number of units held during the year by each Non-Executive Director and KMP, including their personally-related
parties, in funds managed by the Group, is set out below:
(A) Includes the reinvestment of 30 June 2014 and 30 June 2015 distributions in the years ended 30 June 2015 and 30 June 2016
respectively.
(B) In addition to the above holdings, Mr Douglass and Mr Casarotti selected a Magellan Global Fund product via their superannuation
funds and currently have holdings of 428,891 units in the Magellan Global Select fund and 242,961 units in the Magellan Wholesale
Global Share fund at a value of $596,116 and $526,885 respectively as at 30 June 2016 (June 2015: 417,532 and 236,792 units
at a value of $580,745 and $513,270 respectively).
Unless specified above, no other Non-Executive Directors or KMP held units in Magellan Funds.
33
OpeningAdditions/OpeningAdditions/Closingbalance(disposals)balance(disposals)balance1 July 2014(A)1 July 2015(A)30 June 2016Magellan Global FundDirectorsPaul Lewis351,437 12,856 364,293 105,203 469,496 Hamish Douglass(B)1,206,312 44,128 1,250,440 162,261 1,412,701 Group Executives (Other KMP)Nerida Campbell53,782 1,967 55,749 7,234 62,983 Gerald Stack55,022 2,012 57,034 7,399 64,433 Frank Casarotti(B)- - - - - Magellan Infrastructure FundDirectorsPaul Lewis39,624 1,088 40,712 1,134 41,846 Group Executives (Other KMP)Gerald Stack72,071 1,979 74,050 2,062 76,112 Magellan High Conviction FundDirectorsHamish Douglass1,482,751 36,971 1,519,722 72,354 1,592,076 Magellan Global Equities FundDirectorsBrett Cairns- 40,000 40,000 111 40,111 Hamish Douglass- 75,000 75,000 500,418 575,418 Magellan Global Equities Fund (Currency Hedged)DirectorsBrett Cairns- - - 10,000 10,000 Hamish Douglass- - - 500,000 500,000
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
Loans to KMP
3.8
The Group has made full recourse interest-free loans to Non-Executive Directors and Other KMP in connection with
shares acquired under the Group’s SPP. As at 30 June 2016, four KMP held a loan (June 2015: four). The terms and
conditions of the loans, including repayment terms, are disclosed in section 3.2 of the Remuneration Report. There are
no other related party transactions with the KMPs other than those disclosed.
(A) The loans of Dr Cairns and Mr Lewis were repaid in full during the year ended 30 June 2015.
(B) The loan of Ms Campbell was repaid in full during the year ended 30 June 2016.
(C) The opening balance at 1 July 2015 represents the loan balance from the date Ms Morton was a KMP.
34
SPP SharesOpeningLoansLoansacquired Loanmade(repaid)during yearBalanceFace valueCarrying valueNumber$$$$$DirectorsBrett Cairns(A)2016- - - - - - 2015- 724,500 - (724,500)- - Robert Fraser2016- 963,727 - (87,096)876,631 807,018 201597,751 - 999,993 (36,266)963,727 868,325 Paul Lewis(A)2016- - - - - - 2015- 764,750 - (764,750)- - Karen Phin2016- 795,078 - (71,885)723,193 665,792 201580,645 - 824,997 (29,919)795,078 716,371 Group Executives (Other KMP)N Campbell(B)2016- 11,156 - (11,156)- - 2015- 80,831 - (69,675)11,156 11,007 G Stack201626,483 338,669 374,999 (170,373)543,295 525,809 201520,156 286,140 199,998 (147,469)338,669 327,830 K Morton(C)2016- 242,984 - (39,149)203,835 188,929 Closing Loan Balance
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
3.
2016 Remuneration Report (Audited) (continued)
3.9
Link Between Performance and Remuneration Paid by the Group
(A) Fixed compensation comprises salary, superannuation and accrued long service leave.
(B) Variable compensation comprises cash bonuses and share based payments outlined in Table 3.3(a) and a discretionary payment
to the former Chairman in 2014.
(C) Excluding in-specie distribution of 9.16 cents per share for the year ended 30 June 2013. Dividends paid have been fully franked.
35
20162015201420132012Total revenue ($'000)333,805 284,912 148,109 120,906 35,846 Total expenses ($'000)74,104 54,603 37,630 25,904 16,693 Net operating profit ($'000)198,357 174,295 82,939 66,600 13,660 Basic earnings per share (cents per share)123.5 109.2 53.3 43.6 9.0 Diluted earnings per share (cents per share)115.5 101.8 48.9 40.0 8.5 Dividends paid (cents per share)(C)89.3 74.9 33.0 8.0 3.0 Closing share price (ASX code: MFG) 22.25$ 17.40$ 10.93$ 9.64$ 2.15$ Total KMP remuneration:- fixed compensation ($)(A)4,520,621 3,525,342 3,370,5132,295,866818,750- variable compensation ($)(B)4,147,820 3,706,172 3,156,6992,348,390590,1978,668,4417,231,5146,527,2124,644,2561,408,947% growth in net operating profit14%110%25%388%136%% growth in diluted earnings per share13%108%22%371%130%% growth in total KMP remuneration20%11%41%230%30%Total KMP remuneration as % of net operating profit4%4%8%7%10%
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2016
4.
Other
Indemnification and Insurance of Directors and Officers
4.1
The Group insures the Directors and Officers of the Group in office to the extent permitted by law for losses, liabilities,
costs and charges 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.
During the year, the Group paid insurance premiums to insure the Directors and Officers of the Company. The terms
of the contract prohibit the disclosure of the premiums paid.
4.2 Auditor
Ernst & Young continues in office in accordance with section 327 of the Corporation Act 2001.
4.3 Non-audit Services
During the year, Ernst & Young, the Group’s auditor, has performed other services in addition to its statutory duties.
Details of the amounts paid or payable to the auditor are set out in note 21 to the financial report.
The Directors, in accordance with advice received from the Audit and Risk 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 for the following reasons:
all non-audit services have been reviewed by the Audit and Risk Committee to ensure that they do not impact
the impartiality and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
Auditor’s Independence Declaration
4.4
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set
out on page 36.
4.5 Rounding of Amounts
The Company is of a kind referred to in the Australian Securities & Investments Commission’s Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191 and amounts in the Directors’ Report have been rounded to the
nearest thousand dollars in accordance with that Legislative Instrument, or in certain cases, the nearest dollar.
This report is made in accordance with a resolution of the Directors.
Brett Cairns
Executive Chairman
Sydney
11 August 2016
36
MAGELLAN FINANCIAL GROUP LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
37
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 30 June 2016
The Consolidated Statement of Profit or Loss is to be read in conjunction with the accompanying notes to the
Financial Statements.
38
30 June30 June20162015Note$’000$’000RevenueManagement fees6(a)258,392203,014Performance fees6(b)48,01443,413Services fees6(c)8,2377,854Interest income2,0892,548Dividend and distribution income 11,881 13,788 Net gain on sale of available-for-sale financial assets6(f) 1,055 11,578 Net gain on deemed disposal of available-for-sale financial assets attributable to MGE12(a) - 1,484 Net foreign exchange gain1651,232Group's share of profit for the period MGE was an associate13(a)3,961 - Other 11 1 Total revenue 333,805 284,912 ExpensesEmployee expenses42,06531,311Non-Executive Director fees284338US marketing/consulting fee expense7,1685,490Fund administration and operational costs7,1515,974Information technology expense 3,606 2,299 Marketing expense 2,811 2,402 Legal and professional fees 1,734 1,330 Occupancy expense 1,278 852Travel and entertainment expense 1,120 1,474 Auditor's remuneration21 769 639Depreciation and amortisation expense8(a)280317Foreign and withholding taxes 2,055 13Loss on disposal of property, plant and equipment 14 21 External unitholders' share of MGE's net profit while MGE was a controlled fund12(a) - 506 Group's share of net loss for the period MGE was an associate13(a) - 104 Net loss on deemed disposal of interest in associate - MGE, transferred from the Consolidated Statement of Other Comprehensive Income13(a)1,296 - Other 2,473 1,533 Total expenses 74,104 54,603 Operating profit before income tax expense 259,701 230,309 Income tax expense5(a)(61,344)(56,014)Net operating profit for the year 198,357 174,295 Basic earnings per share (cents per share)3123.5 cents109.2 centsDiluted earnings per share (cents per share)3115.5 cents101.8 centsConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
for the year ended 30 June 2016
The Consolidated Statement of Other Comprehensive Income is to be read in conjunction with the accompanying
notes to the Financial Statements.
39
30 June30 June20162015$’000$’000Net operating profit for the year198,357 174,295 Other comprehensive incomeItems that may or have been reclassified to profit or loss in future years, net of taxNet changes in the fair value of available-for-sale financial assets(14,725) 24,165 Net (gain)/loss on sale of available-for-sale financial assets6(f)(1,055)(11,578)Net changes in the fair value of available-for-sale financial assets attributable to MGE while MGE was a controlled fund12 (a) - 5,476 External unitholders' share of movement in available-for-sale reserve while MGE was a controlled fund12 (a) - (3,992)Net (gain)/loss on deemed disposal of controlling interest in MGE12 (a) - (1,484)Net loss on deemed disposal of interest in associate - MGE13(a)1,296 - Share of revaluation of available-for-sale financial asset of associate13(a) - (1,296)Income tax benefit/(expense) on the above items5(a)3,511(4,475)Exchange differences on translation of foreign operation(52) - Other comprehensive income for the year, net of tax(11,025)6,816Total comprehensive income for the year 187,332 181,111 Consolidated EntityNote
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2016
The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes to the
Financial Statements.
40
30 June30 June20162015$’000$’000AssetsCurrent assetsCash and cash equivalents18(c)120,36293,934Financial assets11 1,719 349Receivables7 53,747 54,850 Loans - share purchase plan 151,5311,396Prepayments403354Total current assets 177,762 150,883 Non-current assetsFinancial assets11206,221139,498Investment in associate13 - 49,845 Loans - share purchase plan 15 7,482 5,849 Property, plant and equipment8914603Total non-current assets 214,617 195,795 Total assets 392,379 346,678LiabilitiesCurrent liabilitiesPayables9 21,161 14,332 Provisions10 218 - Income tax payable 7,032 16,471 Total current liabilities 28,411 30,803 Non-current liabilitiesDeferred tax liabilities5(c) 7,257 11,347 Provisions10 1,342 1,085 Total non-current liabilities 8,599 12,432 Total liabilities 37,010 43,235 Net assets 355,369 303,443 EquityContributed equity14 111,073 103,477 Available for sale reserve 21,359 32,332 Foreign currency translation reserve(52) - Retained profits 222,989 167,634 Total attributable to members of the Group 355,369 303,443 Total equity 355,369 303,443NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
for the year ended 30 June 2016
The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes to
the Financial Statements.
41
Contributed EquityForeign currency translation reserveRetained ProfitsAvailable for Sale ReserveTotal2016$’000$’000$’000$’000$’000Equity - 1 July 2015103,477 - 167,63432,332303,443Net profit for the year - - 198,357 - 198,357 Other comprehensive income - (52) - (10,973)(11,025)Total comprehensive income for the year - (52) 198,357 (10,973)187,332Transactions with owners in their capacity as owners:Issue of securities: - under share purchase plan (SPP)14(a) 4,631 - - - 4,631 - on exercise of MFG 2016 Options14(a) 2,745 - - - 2,745 - transaction costs arising on share issue14(a)(10) - - - (10)Dividends paid4 - - (143,002) - (143,002)SPP expense for the year14(a) 230 - - - 230 Total transactions with equity holders in their capacity as equity owners 7,596 - (143,002) - (135,406)Equity - 30 June 2016111,073(52)222,98921,359355,3692015Equity - 1 July 201493,812 - 87,25925,516206,587Net profit for the year - - 174,295 - 174,295Other comprehensive income - - - 6,8166,816Total comprehensive income for the year - - 174,295 6,816181,111Transactions with owners in their capacity as owners:Issue of securities: - under share purchase plan (SPP)14(a) 7,063 - - - 7,063 - on exercise of MFG 2016 Options14(a) 2,241 - - - 2,241 - transaction costs arising on share issue14(a)(17) - - - (17)Dividends paid4 - - (93,920) - (93,920)SPP expense for the year14(a) 378 - - - 378Total transactions with equity holders in their capacity as equity owners9,665 - (93,920) - (84,255)Equity - 30 June 2015103,477 - 167,63432,332303,443Attributable to Equity Holders of the Consolidated EntityNote
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2016
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial
Statements.
42
30 June30 June20162015$’000$’000Cash flows from operating activitiesManagement, services and consulting fees received 260,342 198,142 Performance fees received 56,121 33,349 Interest received 1,674 2,123 Dividends and distributions received3664,069Tax paid(71,198)(50,440)Payments to suppliers and employees (inclusive of GST)(65,770)(49,955)Other revenue received10 11 Net cash inflows/(outflows) from operating activities18(a) 181,545 137,299 Cash flows from investing activitiesProceeds from sale of available-for-sale financial assets3,51623,235Purchase of available-for-sale financial assets(18,607)(62,360)Net matured term deposits classified as loans and receivables(1,370)(49)Net cash outflow on deconsolidation of controlled fund - (27)Net cash flows from foreign exchange transactions70241Payments for property, plant and equipment8(a)(694)(557)Net cash inflows/(outflows) from investing activities(17,085)(39,517)Cash flows from financing activitiesProceeds from issue of securities 2,685 3,631 Proceeds from repayment of SPP loans 1,264 861 Dividends paid4(142,028)(91,875)Net cash inflows/(outflows) from financing activities(138,079)(87,383)Net increase / (decrease) in cash and cash equivalents 26,381 10,399Effects of exchange rate movements on cash and cash equivalents47667Cash and cash equivalents at the beginning of the year 93,934 82,868 Cash and cash equivalents at the end of the year18(c) 120,362 93,934 NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies
This financial report is for Magellan Financial Group Limited (the “Company” or “MFG”) and its controlled entities
(the “Group”) for the year ended 30 June 2016. The report was authorised for issue in accordance with a
resolution of the Directors on 11 August 2016.
The principal accounting policies adopted in the preparation of this financial report are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of Preparation
The financial report is a general purpose financial report which is presented in Australian dollars and has been
prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board and other mandatory professional reporting requirements.
The Company is a for-profit entity for the purpose of preparing this financial report.
Compliance with IFRS
The financial report complies with Australian Accounting Standards (“AASB”) and International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board.
Historical Cost Convention
This financial report has been prepared on a going concern basis and under the historical cost convention except
for assets and liabilities which are measured at fair value.
Changes in Accounting Policy, Accounting Standards and Interpretations
(i) New and Amended Standards and Interpretations
The accounting policies adopted are consistent with those of the previous financial year and corresponding
reporting period except for the adoption of the new standards and amendments which became mandatory for
the first time this reporting period commencing 1 July 2015. The adoption of these standards and amendments
did not result in any adjustments to the amounts or disclosures in the current or prior year.
(ii) Accounting Standards and Interpretations Issued But Not Yet Effective
The Australian and International Accounting Standards issued but not yet mandatory for the 30 June 2016
reporting period have not been adopted by the Group or Company in the preparation of this financial report. The
assessment of the impact of the new standards and interpretations which may have a material impact on the
Group is set out below:
AASB 9: Financial Instruments (AASB 9), AASB 2012-6: Amendments to Australian Accounting
Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures and AASB 2013-9
Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and
Financial Instruments (effective 1 July 2018)
AASB 9 contains new requirements for classification, measurement and de-recognition of financial assets
and liabilities, replacing the recognition and measurement requirements in AASB 139 Financial Instruments:
Recognition and Measurement. Under the new requirements the four current categories of financial assets
will be replaced with two measurement categories: fair value and amortised cost, and financial assets will
only be measured at amortised cost where very specific conditions are met.
AASB 9 was revised in December 2014 to include new hedge accounting requirements including changes to
hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and
disclosures. It also introduced a new expected-loss impairment model that requires credit losses to be
recognised when financial instruments are first recognised and to recognise full lifetime expected losses on
a more timely basis.
At 30 June 2016, the Group continues to evaluate the recognition and disclosure requirements of this
standard but does not anticipate it will have a material financial impact as the carrying values of its
investments approximate fair value and the Group does not apply hedge accounting. The adoption of this
standard is however expected to result in a change in the presentation of fair value movements within the
Consolidated Statement of Profit or Loss and Consolidated Statement of Other Comprehensive Income and
may also impact the type of information disclosed in the notes to the financial statements.
43
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(a)
Basis of Preparation (continued)
(ii)
Accounting Standards and Interpretations Issued But Not Yet Effective (continued)
AASB 15: Revenue from Contracts with Customers (effective 1 July 2017) (AASB 15)
AASB 15 supercedes the revenue recognition guidance in AASB 118 Revenue, AASB 111 Construction
Contracts and related interpretations. Although AASB 15 is principles-based, it is a significant change
from the current revenue requirements and will involve more judgements and estimates. The core
principle in AASB 15 is that an entity recognises revenue at an amount that reflects the consideration to
which the entity expects to be entitled to receive in exchange for selling goods or services to customers.
AASB 15 has also introduced specific criteria for determining whether to capitalise certain costs,
distinguishing between those costs associated with obtaining a contract (eg sales commissions) and
those costs associated with fulfilling a contract.
At 30 June 2016, the Group does not anticipate there will be any material change to the timing or
manner of recognition for management, services or performance fees as these fees are currently
recognised as revenue only when they are highly probable and the revenue recognition for interest
income is unaffected as it is excluded from AASB 15. However the recognition basis relating to the US
marketing/consulting fee expense may change as it may be required to be capitalised and amortised
over the life of the relevant investment management agreements. Capitalisation is only permitted when
the costs are expected to be recovered. As a result, the Group continues to analyse the treatment of the
marketing/consulting fee expense and the extent of information required to meet the additional
disclosures required under AASB 15, so as to understand the extent of impact on the Group’s systems,
processes and controls.
AASB 16: Leases (effective 1 July 2019) (AASB 16)
AASB 16 supercedes the lease accounting guidance in AASB 117 Leases and related interpretations. A lease
is defined as a contract, or part of a contract, that conveys the right to use an asset for a period of time in
exchange for consideration. The definition if based on the premise of control, where a lease is identified
when a customer has the right to (1) obtain substantially all of the economic benefits from the use of the
identified asset; and (2) direct the use of the identified asset.
AASB 16 will provide a single model for accounting for leases by lessees. Leases other than low value and
short-term leases must be recognised on the balance sheet of lessees. The lessee will recognise an asset,
reflecting its right to use the underlying asset, and a liability, in respect of its obligation to make lease
payments. Expenses in respect of leases will include amortisation of the right-of-use asset and interest
expense in respect of the lease liability.
At 30 June 2016, the Group continues to evaluate the recognition and disclosure requirements of this
standard, the financial and disclosure impacts of which are yet to be determined with the choice of transition
yet to be decided. Further information will be provided in coming financial periods as these requirements
are clarified.
Principles of Consolidation
(b)
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as
at 30 June 2016 (collectively referred to in this financial report as the “Group”). Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Specifically, the Group controls an investee if and only
if the Group has:
power over the investee where existing rights give it the current ability to direct the relevant activities
of the investee;
exposure, or rights, to variable returns from its involvement with the investee; and
the ability to use its power over the investee to affect its returns.
The Group considers all relevant facts and circumstances in assessing whether it has power over an investee,
including:
the contractual arrangement(s) with the other vote holders of the investee;
rights arising from other contractual arrangements; and
the Group’s voting rights and potential voting rights.
44
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
Principles of Consolidation (continued)
(b)
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements or control. Consolidation of a controlled entity ceases when the
Group loses control of the controlled entity.
Assets and liabilities, income and expenses of a controlled entity acquired or disposed of during the year are
included in the consolidated financial statements from the date the Group gains control until the date the Group
ceases to control the controlled entity.
Controlled Entities
i)
Controlled entities are entities over which the Group has power to control, which is when the Group is exposed,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. When the Group has less than a majority of the voting or
similar rights of an entity, the Group also considers the following when assessing whether it has the power of
control over the entity: contractual arrangements with the other voting holders of the entity, rights arising from
other contractual arrangements and the Group’s voting rights and potential voting rights.
Controlled entities are fully consolidated from the date control commenced and deconsolidated from the date
that control ceased. Refer to note 12 for all controlled entities. The Group re-assesses whether or not it controls
an investee if facts and circumstances indicate that there are changes to one or more of the three elements of
control. Assets, liabilities, income and expenses of a controlled entity acquired or disposed of during the year are
included in the consolidated financial statements from the date the group obtains control and until the date the
group ceases to control the controlled entity. Any change in the ownership interest of a controlled entity, without
a loss of control is accounted for as an equity transaction.
All inter-entity balances and transactions between entities in the Group, including unrealised profits or losses,
have been eliminated in full on consolidation. Accounting policies of the controlled entities have been changed
where necessary to ensure consistency with those policies adopted by the Group.
Associates
ii)
An associate is an entity over which the Group exercises significant influence but not control over its financial and
operating policies. Significant influence is the power to participate in the financial and operating policy decisions
of the investee but is not control or joint control of those policies. Investments in associates are accounted for
using the equity method of accounting in the consolidated financial statements. When necessary, adjustments
are made to the financial statements of controlled entities to bring their accounting policies and reporting dates
into line with the Group’s accounting policies.
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 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 other
comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount
of the investment. Dividends or distributions received or receivable from an associate are recognised in the
Company’s Statement of Profit or Loss and Statement of Other Comprehensive Income as income, while in the
consolidated financial statements they reduce the carrying value of the investment.
Structured Entities
iii)
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity and the relevant activities are directed by means of contractual arrangements
under AASB 12 Disclosure of Interests in Other Entities (AASB 12). The Group has assessed whether the funds
in which it invests (as set out in note 11) and is appointed Investment Manager or Sub-Adviser, should be
classified as structured entities. The Group has considered the voting rights and other similar rights afforded to
investors in these funds, including the rights to remove the Investment Manager or redeem holdings. The Group
has concluded that the funds in which it invests are not structured entities under AASB 12.
45
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(b)
Principles of Consolidation (continued)
Changes in Ownership Interests
iv)
When the Group ceases to have control, joint control or significant interest, any retained interest in the entity is
remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value
becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an
associate or financial asset. In addition, any amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities,
which means that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
Business Combinations
(c)
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. Acquisition costs arising on the issue of equity instruments are recognised directly in equity.
Segment Reporting
(d)
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. The chief operating
decision maker has been determined as the Chief Executive Officer and Chief Investment Officer, Mr Hamish
Douglass.
Foreign Currency Translation
(e)
The Group’s consolidated financial statements are presented in Australian dollars, which is also the parent
company’s functional currency.
Transaction and balances
i)
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
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 Reuters London 4pm exchange rates at reporting date. The fair values of
financial assets are determined using the Reuters London 4pm exchange rates at reporting date. Foreign currency
exchange differences relating to financial assets are included in net changes in fair value in the Consolidated
Statement of Profit or Loss. All other foreign currency exchange differences are presented separately in the
Consolidated Statement of Profit or Loss as net gains/losses on foreign exchange.
Group companies
ii)
On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate
of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange
rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation
are recognised in Other Comprehensive Income and accumulated in a separate reserve within equity. On disposal
of a foreign operation, the component of Other Comprehensive Income relating to that particular foreign
operation is recognised in profit or loss.
Revenue Recognition
(f)
Management Fees
Management fees arise from providing:
investment management services as investment manager and sub-advisor to the funds and external wholesale
client mandates set out at note 6; and
Trustee and Responsible Entity services where the Group acts as Trustee and Responsible Entity to the funds
as set out in note 6.
Management fee revenue, which is based on a percentage of the fund’s or mandate’s portfolio value, is recognised
in the Consolidated Statement of Profit or Loss as it is earned and calculated in accordance with the Investment
Management Agreements, mandates and Constitutions of the funds as set out in note 6.
46
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(f)
Revenue Recognition (continued)
Services Fees
Services fee revenue is recognised in the Consolidated Statement of Profit or Loss as it is earned and calculated
in accordance with the Services Agreement.
Performance Fees
The Group may earn performance fees from its retail funds, some institutional mandates and Magellan Flagship
Fund Limited (MFF). Where a performance fee is applicable to an institutional client mandate, the base
management fee will generally be lower than earned from mandates where no performance fee applies. The
Group’s entitlement to performance fees for any given performance period is dependent on the portfolio
outperforming certain hurdles, which may be index relative hurdles, absolute return hurdles or a combination of
both. Performance fees are generally subject to either a high water mark arrangement or a deficit clause, which
ensures that fees are not earned more than once on the same performance. The Group’s entitlement to
performance fees from MFF is dependent on MFF’s total shareholder return exceeding 10% per annum,
compounded annually, over prescribed performance periods.
Performance fees are recognised in the Consolidated Statement of Profit or Loss only when the Group’s
entitlement to the fee becomes certain, which is at the end of the relevant performance period. Performance
periods for the Group’s performance fee arrangements range from three months to four years.
Refer to note 6 for further details on the management, services and performance fees.
Interest Income
Interest income is recognised on an accruals basis using the effective interest rate method.
Dividend and Distribution Income
Dividend and distribution income is recognised when it is declared.
Net Gain/Loss on Sale of Available for Sale Assets
The gain or loss on disposal of AFS assets is calculated as the difference between the carrying amount of the
asset at the date of disposal and the net proceeds from disposal and is included in the Consolidated Statement
of Profit or Loss and Consolidated Statement of Other Comprehensive Income in the year of disposal.
Expenses
(g)
Expenses are recognised in the Consolidated Statement of Profit or Loss on an accruals basis. Directors’ fees
(including superannuation) and related employment taxes are included as an expense in the Consolidated
Statement of Profit or Loss as incurred. Information regarding the Directors’ remuneration is included in section
3.3 of the Remuneration Report.
Income Tax
(h)
The income tax expense/benefit is the tax payable/receivable on the current year’s taxable income based on the
current income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements,
and to unused tax losses. Taxable profit differs from net profit as reported in the Consolidated Statement of Profit
or Loss and Consolidated Statement of Other Comprehensive Income as items of income or expense are taxable
or deductible in years other than the current year and in addition some items are never taxable or deductible.
Deferred tax assets and liabilities are recognised for all deductible temporary differences and unused tax losses
carried forward to the extent that it is probable that future taxable amounts will be available against which the
deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be
utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and recognised only to the extent
that it is probable that future taxable profits will be available against which the asset can be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are recognised only to the extent that it is probable
that future taxable profits will allow the deferred tax asset to be recovered.
47
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(h)
Income Tax (continued)
Current tax and deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of reporting date.
Tax Consolidation - Australia
MFG and its wholly owned Australian controlled entities formed a tax consolidated group for the purpose of the
tax consolidation legislation, on 1 July 2007. MFG is the head entity of the tax consolidated group.
Under the tax consolidation legislation, the head entity and each controlled entity continues to account for its
own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated
group continues to be a standalone taxpayer in its own right. In addition, MFG also recognised the 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.
On forming the tax consolidation group, each entity in the tax consolidated group entered into a tax sharing
agreement, which limits the joint and several liability of the wholly owned entities in the case of a default of the
head entity, MFG. The Company has also entered into a tax funding agreement under which the wholly owned
entities fully compensate MFG for any current tax payable assumed and are compensated by MFG for any current
tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to
MFG under the tax consolidation legislation. The funding amount is determined by reference to the amounts
recognised in the financial report. Assets and liabilities arising under the tax funding agreement with the tax
consolidated entities are recognised as related party receivables or payables and these amounts are due upon
demand from MFG or the relevant entity.
MFG may also require payment of interim funding amounts to assist with its obligations to pay tax instalments
and the funding amounts are also recognised as related party receivables or payables. 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.
Offshore Banking Unit
Magellan Asset Management Limited, a controlled entity of MFG, and a member of MFG’s tax consolidation group,
was declared an Offshore Banking Unit (“OBU”) on 31 July 2013. Under current Australian tax legislation,
assessable offshore banking (“OB”) income derived from the Group’s OB funds management and advisory
activities provided to clients outside of Australia and New Zealand, net of costs, is subject to a concessional tax
rate of 10%. Revenues earned from non-resident clients that are invested in the Group’s Global Equities strategy
meet the current definition of assessable OB income. The amount of assessable OB income, net of costs, in a
financial year that will be subject to the 10% concessional tax rate is determined with reference to the current
legislation’s definitions of assessable OB income, exclusive OB deductions and general OB deductions. For further
details refer to note 5(d).
Goods and Services Tax (GST)
(i)
Revenue, expenses and assets (with the exception of receivables) are recognised net of the amount of GST,
except when GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of that purchase or as an expense. Receivables and payables
are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is
included in the Consolidated Statement of Financial Position as a receivable or payable.
Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis. The GST component of
cash flows arising from financing activities which are recoverable from, or payable to the taxation authority, is
presented as operating cash flows.
48
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
Financial Assets and Liabilities
(j)
The Group classifies its financial assets into one of the four following categories: financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.
Designation is re-evaluated at each financial year end, but there are restrictions on reclassifying to other
categories. Financial liabilities are classified as financial liabilities at amortised cost. Classification of financial
assets and liabilities depends on the purpose for which the assets and liabilities were acquired. The Group’s
classifications are set out below:
Financial
asset/liability
Cash
Receivables
Financial assets
Payables
Classification
Valuation basis
Fair value through profit or loss
Loans and receivables
Loans and receivables
Available-for-sale
Held for trading
Financial liability at amortised cost
Fair value
Amortised cost
Amortised cost
Fair value
Fair value
Amortised cost
Refer to note 1(k)
Refer to note 1(l)
Refer to note 1(n)
Refer to note 1(n)
Refer to note 1(n)
Refer to note 1(q)
Derecognition of Financial Assets and Financial Liabilities
Financial assets and financial liabilities are derecognised when the Group no longer controls the contractual rights
that comprise the financial instrument which is normally the case when the instrument is sold.
Cash and Cash Equivalents
(k)
Cash includes cash at bank and deposits. 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.
Term deposits with a term of 90 days or less from the date of inception are classified as cash equivalents. For
term deposits with a term of greater than 90 days refer also to note 1(n) iii).
Receivables
(l)
Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method, less any allowance for uncollectible amounts. This is the original invoice amount rendered for
management, administration and performance fees, less a provision for any uncollected debt. Collectability of
receivables is reviewed regularly and bad debts are written off when identified. A specific provision for doubtful
debts is made where there is objective evidence that the Group will not be able to collect the original receivable
amount. Financial difficulties of the debtor or default payments are considered objective evidence of impairment.
The amount of the impairment loss is the receivable carrying amount compared with the present value of
estimated future cash flows, discounted at the original effective interest rate.
Derivatives
(m)
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.
(n)
The Company’s financial assets comprise and are classified as follows:
Financial Assets
Type of
Financial asset
Listed shares and quoted
funds
Subordinated bank notes
Unlisted funds
Unlisted shares
Term deposits
Classification
Valuation basis
Available-for-sale
Fair value
Refer to note 1(n) i)
Available-for-sale
Available-for-sale
Available-for-sale
Loans and receivables
Fair value
Fair value
Fair value
Amortised cost
Refer to note 1(n) i)
Refer to note 1(n) i)
Refer to note 1(n) i)
Refer to note 1(n) iii)
49
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(n)
Financial Assets (continued)
Available-for-Sale Financial Assets
i)
Available-for-sale financial assets are assets that are not classified in any other financial asset category. These
assets are carried at fair value. Changes in the fair value of available-for-sale financial assets are recognised in
the available for sale reserve in the Consolidated Statement of the Financial Position and included in the
Consolidated Statement of Profit or Loss and Consolidated Statement of Other Comprehensive Income until the
asset is disposed or impaired. When available-for-sale financial assets are sold or impaired, cumulative gains
recognised in the available for sale reserve are recognised in the Consolidated Statement of Profit or Loss.
Cumulative losses are recognised in the available for sale reserve to the extent that they reverse previously
recorded gains, and when previously recorded gains have been reversed in full, any impairment loss below original
cost (when significant and prolonged) is recognised in the Consolidated Statement of Profit or Loss.
In assessing whether an available-for-sale asset is impaired, the Board considers 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. Available-for-sale financial assets are classified as non-current assets unless management
intends to dispose of the assets within 12 months of reporting date.
Purchases and Sales of Financial Assets
ii)
All purchases and sales of financial assets are recognised on the trade date, being the date that the Group
commits to purchase or sell the asset. Purchases or sales of financial assets are purchases or sales under contracts
that require delivery of the assets or settlement within the period generally established by regulation or
convention in the market place.
Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from
operating activities, as movements in the fair value of these securities represent the Group’s main income
generating activity.
Loans and Receivables
iii)
Term deposits with a term greater than 90 days from the date of inception are classified as loans and receivables.
The deposits are initially recognised at fair value and then carried at amortised cost using the effective interest
rate method. They are classified as current assets where the term to maturity from reporting date is less than 12
months and as non-current assets where the term to maturity is greater than 12 months. When investments are
disposed the net gain or loss on sale is recognised in the Consolidated Statement of Profit or Loss at the date of
sale.
Impairment of Assets
(o)
All non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Where an indicator or objective evidence of impairment exists, an
estimate of the asset’s recoverable amount is made. An impairment loss is recognised in the Consolidated
Statement of Profit or Loss for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
50
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
(p)
Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical
cost includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the
asset’s carrying amount or recognised as a separate asset.
Depreciation and Amortisation
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:
Leasehold improvements
Furniture and fittings
Computer equipment
- over the life of the relevant lease
- over three to five years
- over three to five years
The assets’ residual values and useful lives are reviewed at each reporting date. An asset’s carrying amount is
written down to recoverable amount where an indicator of impairment or objective evidence exists. An impairment
loss is recognised in the Consolidated Statement of Profit or Loss where the asset’s carrying amount is greater
than its estimated 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. Gains and losses on disposals are determined by comparing proceeds with
the carrying amount. These are included in the Consolidated Statement of Profit or Loss.
Payables
(q)
Payables comprise trade creditors and accrued expenses owing by the Group at reporting date which are unpaid.
Trade creditors represent liabilities for goods and services received by the Group prior to the end of the year that
remain unpaid at reporting date. They are unsecured and usually paid within 30 days of recognition. Payables
are recognised at amortised cost at the point where the Group becomes obliged to make payments in respect of
the purchase of these goods and services.
A dividend payable to shareholders of the Group is recognised for the amount of any dividend declared,
determined or publicly recommended by the Directors on or before reporting date but not paid at reporting date.
(r)
Employee Expenses and Entitlements
Wages, Salaries and Annual Leave
Liabilities for wages and salaries (including non-monetary benefits) and annual leave are recognised in payables
within accrued employee entitlements and are measured at the amounts expected to be paid when the liabilities
are settled.
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that
are expected to be settled within 12 months from reporting date are recognised in respect of employees’ services
up to reporting date and included as current liabilities in the Consolidated Statement of Financial Position. They
are 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 measured at the rates paid or payable. Employee benefit
on-costs are included in accrued employee entitlements in the Consolidated Statement of Financial Position and
employee expenses in the Consolidated Statement of Profit or Loss when the employee entitlements to which
they relate are recognised.
Bonus Plan
A liability and an expense are recognised for the bonus plan where the Group is contractually obliged or where
there is past practice that has created a constructive obligation to pay the relevant bonuses.
The cash bonus is paid within three months of reporting date. The conditional deferred cash bonus is paid in 12-
36 equal instalments (depending on the employee) in the following financial year and payment of the deferred
cash bonus is conditional on an eligible employee being employed at the time of payment. The deferred cash
bonus for each month is expensed in the Consolidated Statement of Profit or Loss as incurred.
51
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
(r)
Employee Expenses and Entitlements (continued)
Long Service Leave
Liabilities for long service leave are recognised when employees reach a qualifying period of continuous service
and are measured at the amount expected to be settled within 12 months from reporting date. Any amount which
is expected to be payable after 12 months from reporting date is classified as a non-current liability and measured
as the present value of expected future payments. Consideration is given to expected future wage and salary
levels, experience of employee departures and periods of service and discounted using corporate bond rates at
reporting date, with terms to maturity that match, as closely as possible, the estimated future cash outflows.
Share Purchase Plan
(s)
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 reporting date, and of the changes in carrying value of the loans and employee
benefits expense recognised in profit or loss are provided in note 15.
Leases
(t)
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases. Net rental payments for operating leases are recognised as an expense in the Consolidated
Statement of Profit or Loss on a straight-line basis over the period of the lease.
A make-good provision is recognised at the point in time when changes are made to the Company’s leased
premises. The provision is the present value of an estimate of the cost to restore the premises back to the
condition at the inception of the lease. A corresponding asset is recognised in leasehold improvements within
property, plant and equipment and depreciated over the remaining life of the relevant lease (refer to note 1(p)).
Contributed Equity
(u)
The Group’s ordinary shares, MFG 2016 Options and MFG Class B Shares are classified as equity and recognised
at the value of consideration received by the Group. Incremental costs directly attributable to the issue of new
shares are recognised in equity as a deduction, net of tax.
Earnings Per Share
(v)
Basic earnings per share is calculated as net profit/(loss) after income tax expense for the year divided by the
weighted average number of ordinary shares on issue. Diluted earnings per share is calculated by adjusting the
basic earnings per share to take into account the effect of any costs associated with dilutive potential ordinary
shares and the weighted average number of additional ordinary units that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares. Refer to note 3 for further details.
Rounding of Amounts
(w)
The Group is of a kind referred to in the Australian Securities & Investments Commission’s Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191 and amounts in the financial statements have been rounded
to the nearest thousand dollars in accordance with that Legislative Instrument, or in certain cases, the nearest
dollar.
52
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
1.
Summary of Significant Accounting Policies (continued)
Parent Entity Financial Information
(x)
The financial information for the parent entity, MFG, (disclosed in note 16) has been prepared on the same basis
as the Group’s consolidated financial statements, except for investments in subsidiaries which are accounted for
at cost in the financial statements of MFG. Dividends received from associates are recognised in the Consolidated
Statement of Profit or Loss, rather than being deducted from the carrying amount of the investment.
Critical Accounting Estimates and Judgements
(y)
The preparation of the financial statements requires the Directors to make judgements, estimates and
assumptions that affect the amounts reported in the financial statements. The Directors base their judgements
and estimates on historical experience and various other factors they believe to be reasonable under the
circumstances, but which are inherently uncertain and unpredictable, the result of which forms the basis of the
carrying values of assets and liabilities. As such, actual results could differ from those estimates.
The main area where a higher degree of judgement or complexity arises or where assumptions and estimates
are significant to the financial statements is the valuation of unlisted investments. The valuation techniques used,
which involve estimates, are discussed in detail at note 19(h). Apart from the above and as the Company’s cash
and cash equivalents are provided by strongly rated financial institutions, none of the other assets or liabilities
are subject to significant judgement or complexity due to the timing of when revenues or expenses are accrued
and recognised.
53
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
2.
Segment Information
The Group’s business activities are organised into the following reportable operating segments for internal
management purposes:
Funds Management
The funds management activities of the Group, which are undertaken by the controlled entities Magellan Asset
Management Limited (MAM) and MFG Services LLC (MFGS). For further details on these entities refer to note
13.
The funds management activities undertaken by MAM, comprises acting as:
Trustee, Responsible Entity and Investment Manager for the following managed investment schemes
offered primarily to Australian and New Zealand investors:
o Magellan Global Fund
o Magellan Global Fund (Hedged)
o Magellan Infrastructure Fund
o Magellan Infrastructure Fund (Unhedged)
o Magellan High Conviction Fund (collectively, the Unlisted Magellan Funds);
Responsible Entity and Investment Manager for Magellan Global Equities Fund (MGE) and Magellan Global
Equities Fund (Currency Hedged) (MHG) which are registered managed investment schemes quoted on
the Australian Securities Exchange (ASX) under the AQUA rules, and offered primarily to Australian
investors (collectively, the ASX Quoted Funds);
Trustee and Investment Manager for the Magellan Core Infrastructure Fund (MCIF), which is an
unregistered managed investment scheme offered to Australian wholesale investors;
Investment Manager for the MFG Global Fund, a fund authorised under the European Communities
(Undertakings for Collective Investment in Transferable Securities (UCITS)) and offered to global
institutional clients;
Sub-adviser to the Frontier MFG Global Equity Fund, Frontier MFG Global Plus Fund and the Frontier MFG
Core Infrastructure Fund, which are offered to wholesale investors in the United States (collectively, the
Frontier MFG Funds);
Investment research and administrative services provider to Magellan Flagship Fund Limited (MFF), and
investment research provider to a mandate; and
Investment Manager or Sub-adviser to other external wholesale client mandates.
MFGS acts as a service company providing MAM with services of investment analysts and distribution personnel
based in the United States of America. MFGS employs US based personnel and is the lessee of US premises.
Current tax liabilities and deferred tax assets/liabilities that arise from the operations of the Funds Management
business are based on the relevant tax rate and included within the Corporate segment. Non-Executive Director
fees relating to the MAM Board are included in the Funds Management segment.
Principal Investments
The principal investment portfolio is comprised of the Company’s investments in the ASX Quoted Funds, the
Unlisted Magellan Funds, the Frontier MFG Funds, a select portfolio comprising Australian and international listed
companies, cash, other investments and net deferred tax assets/liabilities arising from changes in fair value of
these investments. Investments in ASX Quoted Funds and Unlisted Magellan Funds may comprise a controlled
fund or associate, usually arising where the Group has initially provided seed capital for the fund.
Corporate
The corporate segment includes interest income on the Company’s Share Purchase Plan (SPP) loans and cash
(including term deposits), corporate costs including Non-Executive Director fees relating to the MFG Board and
Committees, all current tax liabilities and deferred tax assets/liabilities excluding those arising from changes in
the fair value of financial assets which are shown in Principal Investments.
No operating segments have been aggregated to form the above reportable operating segments and inter-
segment revenues and expenses (where applicable) have been eliminated on consolidation.
54
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
2. Segment Information (continued)
(a) Segment financial results
The operating results of the Group’s operating segments, excluding income tax expense, are as follows:
(A)
Includes adjustments for intra-segment transactions, elimination of $5,316,000 income and $5,316,000 expense under
the transfer pricing agreement within the Funds Management segment. Refer to note 12 for further details.
55
Funds ManagementPrincipal InvestmentsCorporateConsolidated Entity(A)30 June 2016$’000$’000$’000$’000RevenueManagement fees 258,392 - - 258,392 Performance fees 48,014 - - 48,014 Services fees 8,237 - - 8,237 Interest income 516 43 1,530 2,089 Dividend and distribution income - 11,881 - 11,881 Net gain/(loss) on sale of available-for-sale financial assets - 1,055 - 1,055 Net foreign exchange gain/(loss) 109 56 - 165 Group's share of MGE's net profit while MGE was an associate - 3,961 - 3,961 Other - - 11 11 Total revenue 315,268 16,996 1,541 333,805 ExpensesEmployee expense 41,822 - 13 41,835 Employee expense - SPP 192 - 38 230 Non-Executive Director fees 167 - 117 284 Other expenses 29,302 83 1,074 30,459 Net loss on deemed disposal of interest in associate - MGE, transferred from the Consolidated Statement of Other Comprehensive Income - 1,296 - 1,296 Total expenses 71,483 1,379 1,242 74,104 Operating profit before income tax expense 243,785 15,617 299 259,701 Other comprehensive incomeNet changes in fair value of available-for-sale financial assets - (14,725) - (14,725)Net (gain)/loss on sale of available-for-sale financial assets - (1,055) - (1,055)Net loss on deemed disposal on interest in associate - MGE - 1,296 - 1,296 Exchange differences on translation of foreign operations(52) - - (52)Other comprehensive income for the year, before tax(52)(14,484) - (14,536)Total comprehensive income for the year, before tax 243,733 1,133 299 245,165
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
2. Segment Information (continued)
(a) Segment financial results (continued)
(B)
Includes adjustments for inter-segment transactions, removal of the effects of the loss of control of Magellan Global
Equities Fund (refer to note 12) and netting of items on the Consolidated Statement of Financial Position.
56
Funds ManagementPrincipal InvestmentsCorporateEliminations(B)Consolidated Entity30 June 2015$’000$’000$’000$’000$’000RevenueManagement fees 203,478 - - (464)203,014 Performance fees 43,413 - - - 43,413 Services fees 7,854 - - - 7,854 Interest income 477 40 2,031 - 2,548 Dividend and distribution income 13,261 827 (300)13,788 Net gain/(loss) on sale of available-for-sale financial assets - 11,578 - - 11,578 Net gain/(loss) on deemed disposal of available-for-sale financial assets attributable to MGE - 1,484 - - 1,484 Net foreign exchange gain/(loss)667262 303 - 1,232 Other - - 1 - 1 Total revenue 255,889 26,625 3,162 (764) 284,912 ExpensesEmployee expense 30,918 - 15 - 30,933 Employee expense - SPP 295 - 83 - 378 Non-Executive Director fees 175 - 163 - 338 Other expenses 21,201 993 614(464)22,344 External unitholders' share of MGE's net profit while MGE was a controlled fund - - 506 - 506 Group's share of net loss for the period MGE was an associate - 104 - - 104 Total expenses 52,589 1,097 1,381 (464) 54,603 Operating profit before income tax expense 203,300 25,528 1,781 (300) 230,309 Other comprehensive incomeNet changes in fair value of available-for-sale financial assets - 24,165 - - 24,165 Net (gain)/loss on sale of available-for-sale financial assets - (11,578) - - (11,578)Net changes in the fair value of available-for-sale financial assets attributable to MGE while MGE was a controlled fund - - 5,476 - 5,476External unitholders share of movement in available-for-sale reserve while MGE was a controlled fund - - (3,992) - (3,992)Net (gain)/loss on deemed disposal of controlling interest in MGE - - (1,484) - (1,484)Share of revaluation of available-for-sale financial asset of associate - (1,296) - - (1,296)Other comprehensive income for the year, before tax - 11,291 - - 11,291 Total comprehensive income for the year, before tax 203,300 36,819 1,781 (300) 241,600
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
2. Segment Information (continued)
(b) Segment assets and liabilities
The assets and liabilities of the Group’s segments are as follows:
(A) The Funds Management segment maintains a minimum of $20,000,000 in liquid assets (including cash and cash equivalents
to meet regulatory and operating requirements) (June 2015: $20,000,000).
The Group’s net investment in the funds management business activities was $13,204,000 (June 2015:
$12,500,000), with $12,500,000 capital invested in Magellan Asset Management Limited and $704,000 capital
invested in MFG Services LLC. Both entities are controlled by MFG. Refer to note 12 for further details).
57
Funds Management(A)Principal InvestmentsCorporateConsolidated Entity30 June 2016$’000$’000$’000$’000Cash and cash equivalents 33,224 2,265 84,873 120,362 Financial assets 1,719 206,221 - 207,940 Receivables and other assets 42,984 10,957 1,123 55,064 Loans - SPP - - 9,013 9,013 Total assets 77,927 219,443 95,009 392,379 Payables and provisions 22,607 7 107 22,721 Tax liabilities - 11,268 3,021 14,289 Total liabilities 22,607 11,275 3,128 37,010 Net assets 55,320 208,168 91,881 355,369 30 June 2015Cash and cash equivalents 29,424 2,084 62,426 93,934 Financial assets 349 139,498 - 139,847 Receivables and other assets 43,598 12,151 58 55,807 Loans - SPP - - 7,245 7,245 Investment in associate - 49,845 - 49,845 Total assets 73,371 203,578 69,729 346,678 Payables and provisions 15,336 7 74 15,417 Tax liabilities - 14,543 13,275 27,818 Total liabilities 15,336 14,550 13,34943,235 Net assets 58,035 189,028 56,380 303,443
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
3. Earnings Per Share (EPS)
Weighted average number of securities
The reconciliation of the weighted average number of shares on a fully diluted basis used to calculate diluted
EPS is below:
(A) The MFG 2016 Options expired by 30 June 2016. In the current and prior year ended 30 June 2015, the MFG share price
was above the MFG 2016 Options exercise price. During the current and prior year ended 30 June 2015, the MFG 2016 Options
are considered to be potential ordinary shares for the purposes of the diluted earnings per share calculation and have been
included in the determination of diluted earnings per share to the extent they are dilutive.
(B) The Class B shares (refer to note 14(d)(iii)) are considered to be potential ordinary shares for the purposes of the diluted
earnings per share calculation and have been included in the determination of diluted earnings per share to the extent they are
dilutive. The equivalent number of Class B shares for the purposes of calculating the diluted earnings per share has been
determined as the weighted average number of ordinary shares into which the Class B shares would convert applying a
conversion factor of 0.0637028.
58
30 June30 June20162015Basic earnings per shareNet profit attributable to shareholders ($'000)198,357 174,295 Weighted average number of shares for basic EPS ('000)160,635 159,639 Basic EPS (cents)123.5 109.2 Diluted earnings per shareNet profit attributable to shareholders ($'000)198,357 174,295 Weighted average number of shares for diluted EPS ('000)171,716 171,175 Diluted EPS (cents)115.5 101.8 Reconciliation of earnings used in calculating earnings per shareNet profit after income tax expense used in the calculation of basic and diluted EPS ($'000)198,357 174,295 Consolidated EntityWeighted average number of securitiesWeighted average number of ordinary shares on issue used in calculating basic EPS ('000)160,635 159,639 Add adjustments: - equivalent number of unexercised MFG 2016 Options(A)791 1,270 - equivalent number of Class B Shares(B)10,290 10,266 Weighted average number of shares used in calculating diluted EPS ('000)171,716 171,175
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
4. Dividends
(i) Dividend declared
On 11 August 2016, the Directors declared a fully franked final dividend of 38.0 cents per share in respect of the
year ended 30 June 2016 (June 2015: 37.8 cents per share). The amount of the declared dividend expected to
be paid on 26 August 2016, but not recognised as a liability, is approximately $61,401,000.
(ii) Imputation credits
The imputation credit account at 30 June is as follows:
The payment of the final dividend declared by the directors on 11 August 2016 will reduce the franking account
balance shown above by approximately $26,316,000.
59
30 June30 June20162015$’000$’00030 June 2016Fully franked interim dividend for the year ended 30 June 2016:- 51.3 cents per ordinary share: paid 4 March 2016 82,418 - Fully franked final dividend for the year ended 30 June 2015:- 37.8 cents per ordinary share: paid 26 August 2015 60,584 - 30 June 2015Fully franked interim dividend for the year ended 30 June 2015:- 37.1 cents per ordinary share: paid 9 March 2015 - 59,293 Fully franked final dividend for the year ended 30 June 2014:- 21.8 cents per ordinary share: paid 1 September 2014 - 34,627 Total dividends declared and paid during the year143,00293,920Consolidated Entity30 June30 June20162015$’000$’000Imputation creditsImputation credits at reporting date35,099 24,869 Imputation credits that will arise from payment of income tax payable4,925 5,424 Total imputation credits available for subsequent reporting periods based on a tax rate of 30% (June 2015: 30%)40,024 30,293 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
5. Income Tax
(a) Reconciliation of income tax expense
The income tax expense for the year can be reconciled to the accounting net profit as follows:
(b) Components of income tax expense
Income tax attributable to net profit from ordinary activities comprises:
(c) Net deferred tax asset/(liability)
(i) Deferred tax liability balances comprise temporary differences attributable to:
60
30 June30 June20162015Note$’000$’000Operating profit before income tax expense 259,701 230,309 Prima facie income tax expense at 30% (77,910)(69,093)Effect of amounts which are non-deductible/(assessable) in calculatingtaxable income: - effect of concessional tax rate on offshore banking unit (OBU)5(d) 15,467 11,815 - over/(under) provision of prior year tax13693 - imputed interest and expense relating to share purchase plan 3614 - tax effect of franked dividends/distributions received(44)(14) - differences in overseas tax rates(33) - - non-assessable income and non-deductible expenses1,0041,171Income tax expense reported in the Consolidated Statement of Profit or Loss(61,344)(56,014) - changes in fair value of available-for-sale financial assets3,194(7,948) - sale of available-for-sale financial assets recycled through profit or loss3173,473Income tax expense/(benefit) reported in the Consolidated Statement of Other Comprehensive Income 3,511 (4,475)Consolidated Entity30 June30 June20162015$’000$’000The major components of income tax expense are:Current income tax benefit/(expense)(61,447)(56,107)Differences in overseas tax rates(33) - Over/(under) provision of prior year income tax13693Income tax expense reported in the Consolidated Statement of Profit or Loss(61,344)(56,014)Consolidated Entity30 June30 June20162015$’000$’000Amounts recognised in Consolidated Statement of Profit or Loss: - changes in the fair value of financial assets(11,268)(14,543) - accruals 4,011 3,196 Total net deferred tax liabilities(7,257)(11,347)Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
5. Income Tax (continued)
(c) Net deferred tax asset/(liability) (continued)
(ii) Reconciliation of deferred tax liability is as follows:
(d) Offshore Banking Unit
MAM was declared an Offshore Banking Unit (OBU) on 31 July 2013 (refer to note 1(h) for further details). In
the year ended 30 June 2016, the Company’s effective tax rate was 23.6% (June 2015: 24.3%), which is below
the Australian company tax rate of 30% primarily as a result of the income, net of costs, of the OBU attracting a
concessional tax rate of 10%. The income tax expense of the OBU recognised in the Consolidated Statement of
Profit or Loss is as follows:
(e) Tax consolidation
During the year, income tax liabilities of $57,679,000 (June 2015: $49,488,000) were assumed by MFG, the head
entity of the tax consolidated group. Payments totalling $61,116,000 (June 2015: $44,292,000) were made to
MFG from the other entities in the tax consolidated group under the tax funding agreement during the year. At
30 June 2016, $3,945,000 (June 2015: $6,577,000) remains receivable from other entities in the tax consolidated
group. Refer to notes 1(h) and 17(d)(ii) for further details on the tax consolidated group and transactions.
61
30 June30 June20162015$’000$’000Opening balance(11,347)(7,460)Movement in temporary differences during the year: - changes in the fair value of financial assets4,090(3,887)Closing balance - net deferred tax liabilities(7,257)(11,347)Consolidated Entity30 June30 June20162015$’000$’000Operating profit before income tax expense 259,701 230,309 Prima facie income tax expense at 30%(77,910)(69,093)less: effect of concessional tax rate of: - 10% on OBU net profit 15,467 11,815 less: over/(under) provision of prior year tax 136 93less: imputed interest and expense relating to share purchase plan 36 14less: tax effect of franked dividends/distributions received(44)(14)less: differences in overseas tax rates(33) - less: non-assessable income and non-deductible expenses 1,004 1,171Income tax expense recognised in Consolidated Statement of Profit or Loss (61,344)(56,014)Group's effective tax rate23.6%24.3%Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
6. Revenue
(a) Management fees
The management fees received/receivable during the year were:
(b) Performance fees
During the year ended 30 June 2016, performance fees were earned on the following funds and mandates as the
total shareholder return, market index and/or relative hurdles were met:
(c) Services fees
Services fees arise from providing investment research and administrative services to Magellan Flagship Fund
Limited (MFF) and research services under a mandate. Services fee revenue relating to MFF is calculated at
1.25% per annum (excluding GST, payable quarterly in arrears) of the market value of all assets less total
indebtedness of MFF divided by the weighted average number of MFF shares on issue during the quarter and
multiplied by the lesser of (i) the number of shares on issue at 30 June 2013 or (ii) the weighted average number
of shares on issue during the relevant quarter. The services fees are reduced by an amount equivalent to MFF’s
Managing Director and Portfolio Manager’s base remuneration of $1,000,000 per annum inclusive of
superannuation (capped amount) and associated payroll related costs; and travel and incidental expenses up to
an amount of $120,000 per annum. Services provided by MAM included the provision of investment research and
administrative services to MFF. Services fees earned from MFF for the year ended 30 June 2016 were $7,525,000
(30 June 2015: $7,354,000).
62
30 June30 June20162015$’000$’000Magellan Global Fund 103,957 88,986 Magellan Global Fund (Hedged) 3,226 883 Magellan lnfrastructure Fund 8,219 6,433 Magellan lnfrastructure Fund (Unhedged) 3,135 1,497 Magellan High Conviction Fund 4,104 3,017 Magellan Global Equities Fund 5,470 223 Magellan Global Equities Fund (Hedged) 262 - Magellan Core Infrastructure Fund 921 1,144 MFG Global Fund 13,326 10,045 Frontier MFG Funds 9,663 7,176 Other mandates 106,109 83,610 Total management fees during the year 258,392 203,014Consolidated Entity30 June30 June20162015$’000$’000Magellan Global Fund 23,397 27,554 Magellan Global Fund (Hedged) 8 54 Magellan lnfrastructure Fund 3,587 2,276 Magellan lnfrastructure Fund (Unhedged) 1,695 294 Magellan High Conviction Fund 16 3,702 Magellan Global Equities Fund 794 - Magellan Flagship Fund 2,000 2,000 Other funds and mandates16,5177,533Total performance fees during the year 48,014 43,413Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
6. Revenue (continued)
(c) Services fees (continued)
Additionally, in the year ended 30 June 2016, MAM provided research services to an institutional mandate and
earned service fees of $712,000 (30 June 2015: $500,000) under a fixed fee arrangement. In the prior year,
MAM acted as the Investment Manager for this institutional mandate for the period 1 July 2014 to 13 October
2014 and the management fees earned during that period were $1,258,000 (2016: nil).
(d) Management, services and performance fees by geographic location
The geographical breakdown of the management, services and performance fees is as follows:
(e) Management, services and performance fees by investor type
The breakdown of the management, services and performance fees by type of investor across the global equities
and infrastructure strategies is as follows:
(f) Net gain on sale on available-for-sale financial assets
63
30 June30 June20162015$’000$’000Australia 207,675 173,193 United States 55,367 29,794 United Kingdom & Ireland 39,773 44,784 Canada 5,695 4,693 Asia 6,133 1,817 Total management, services and performance fees 314,643 254,281Consolidated Entity30 June30 June20162015$’000$’000Management and services fees- Retail 151,898 120,970 - Institutional 114,731 89,898 Performance fees- Retail 36,483 36,535 - Institutional11,531 6,878 Total management, services and performance fees 314,643 254,281 Total Retail 188,381 157,505Total Institutional 126,262 96,776 Total management, services and performance fees 314,643 254,281 Consolidated Entity30 June30 June20162015$’000$’000Net gain/(loss) from: - disposal of units in unlisted investments(84) 10,420 - disposal of listed investments 1,139 1,158 Total net gain on sale of available-for-sale financial assets 1,055 11,578 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
7. Receivables
8. Property, Plant and Equipment
(a) Reconciliation
Reconciliations of the carrying amount for each class of property, plant and equipment at the beginning and
end of the financial year are set out below:
Property, plant and equipment is held by Magellan Asset Management Limited and MFG Services LLC.
64
30 June30 June20162015$’000$’000Fees receivable 40,752 42,571 Distributions receivable from Funds 10,957 12,150 Other 2,038 129 Total receivables 53,747 54,850 Consolidated EntityLeaseholdOfficeTotalLeaseholdOfficeTotalImprove-Equipment,Improve-Equipment,mentsFixture &mentsFixture &FittingsFittings$’000$’000$’000$’000$’000$’000At cost2361,361 1,597 4698671,336less: accumulated depreciation and impairment losses145538 683 284449733Total property, plant & equipment 91 823 914 185 418 603 30 June 201630 June 2015Consolidated EntityLeaseholdOfficeTotalLeaseholdOfficeTotalImprove-Equipment,Improve-Equipment,mentsFixture &mentsFixture &FittingsFittings$’000$’000$’000$’000$’000$’000Carrying amount at beginning of year185418603100286386Additions55639 694 254303557Disposals(90)(13)(103) - (23)(23)Depreciation expense(59)(221)(280)(169)(148)(317)Carrying amount at end of year91823914185418603Consolidated Entity30 June 201630 June 2015
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
9. Payables
10. Provisions
(a) Reconciliation
Reconciliation of the carrying amount of provisions (other than employee and investment restriction provisions)
at the beginning and end of the financial year is set out below:
The Group is required to restore its leased premises to their original condition at the end of the respective lease
terms. The Group does not have an obligation to make good premises for the current year. In the prior year a
provision was recognised for the present value of the estimated expenditure required to remove any leasehold
improvements. These costs were capitalised as part of the cost of the leasehold improvements and amortised
over the term of the lease.
65
30 June30 June20162015$’000$’000CurrentSurplus lease provision 218 - Total current provisions 218 - Non-CurrentEmployee entitlements - long service leave 942 696 Provision for investment restriction contract20(b) 400 300 Provision for make-good - 89 Total non-current provisions 1,342 1,085 NoteConsolidated Entity30 June30 June20162015$’000$’000CurrentCarrying amount at beginning of year - - Additional provision charged to the Consolidated Statement of Profit or Loss 218 - Carrying amount at end of year 218 - Non-CurrentCarrying amount at beginning of year 89 - Additional provision charged to leasehold improvements27 89 Discharge of make good lease provision(116) - Carrying amount at end of year - 89 NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
11. Financial Assets
(A)
(B)
Comprises term deposits of $1,719,000 (June 2015: $349,000) which are held with an Australian bank and pledged against bank
guarantees in respect of the Group’s future lease obligations. In the event that the Group does not meet its lease payments, the
bank has the right to apply the deposits in settlement of the amount paid by the bank under the guarantees.
The fund was registered on 24 December 2014 and commenced trading on the ASX on 5 March 2015. In the financial year ended
30 June 2015, MFG was assessed to have significant influence over the operations of the fund with a 24.3% ownership interest.
As a result, MFG’s investment in the fund was accounted for as an investment in associate at 30 June 2015. On 12 August 2015,
the Group no longer had significant influence over MGE at which point the investment ceased being accounted for as an associate
and was classified as an available-for-sale financial asset. Refer to notes 12(a) and 13 for further details.
(C) MFG seeded the fund on 4 August 2015 with a $15,000,000 investment. This fund commenced trading on the ASX on 10 August
(D)
2015. The investment is accounted for as an available-for-sale financial asset. Refer to notes 12(b) and 13 for further details.
At 30 June 2016 the Group held the following investments: Magellan Global Fund 1.2% (2015: 1.2%), Magellan Global Fund
(Hedged) 0.2% (2015: 0.5%), Magellan Infrastructure Fund 0.3% (2015: 0.3%), Magellan Infrastructure Fund (Unhedged) 0.6%
(2015: 1.1%), Magellan High Conviction Fund 9.1% (2015: 10.3%), Magellan Wholesale Plus Global Fund 4.2% (2015: 23.2%),
Frontier MFG Core Infrastructure Fund 2.0% (2015: 2.2%), Frontier MFG Global Plus Fund 14.9% (2015: 52.9%).
66
30 June30 June20162015$’000$’000Current(i) Financial assets classified as loans and receivablesTerm deposits(A) 1,719 349 Total current financial assets 1,719 349 Non-Current(ii) Available-for-sale financial assetsInvestments in listed shares (by domicile of primary stock exchange) - United States 9,471 8,996 - United Kingdom 764 1,116 - Australia 300 387 - France 437 378 - Switzerland 634 323 - Netherlands - 220 - Germany - 164 Investments in ASX Quoted funds - Magellan Global Equities Fund(B) 49,273 - - Magellan Global Equities Fund (Currency Hedged)(C) 13,800 - Total listed/quoted investments 74,679 11,584 Investments in unlisted funds - Magellan Global Fund84,210 81,208 - Magellan Global Fund (Hedged)620 625 - Magellan Infrastructure Fund2,932 2,605 - Magellan Infrastructure Fund (Unhedged)2,472 2,124 - Magellan High Conviction Fund23,440 24,478 - Magellan Wholesale Plus Global Fund5,531 5,535 - Frontier MFG Core Infrastructure Fund5,615 4,552 - Frontier MFG Global Plus Fund6,466 6,447 - Other81 165 Investments in unlisted shares - Other175 175 Total unlisted investments 131,542 127,914 Total non-current financial assets 206,221 139,498 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
11. Financial Assets (continued)
(a) Reconciliations
The movement in the carrying value of the Group’s financial assets is as follows:
(A) The 30 June 2016 balance includes a reclassification to financial assets of the holding in MGE at Fair Value ($54,106,000) from
an investment in associate upon loss of significant influence on 12 August 2015. Refer to note 13(a) for further details.
12. Interests in Controlled Entities
The Group’s controlled entities at reporting date are set out below:
(A) MGE was controlled up to 31 May 2015.
Magellan Asset Management Limited (“MAM”) and Magellan Capital Partners Pty Limited have share capital
consisting solely of ordinary shares that are held directly by Magellan Financial Group Limited (“MFG”), and the
proportion of ownership interests held equals the voting right held by MFG. The country of incorporation is also
the principal place of business.
MFG Services LLC (“MFGS”), a Delaware limited liability company, was formed on 3 August 2015. MFGS is a
service company operating in the United States of America and provides MAM with investment research and
distribution services. MFGS has share capital consisting solely of one common interest that is held directly by
MFG, and its proportion of ownership of MFGS equals the voting right held by MFG.
Transactions between MFGS and MAM are subject to transfer pricing arrangements. Transfer pricing is determined
on a cost plus basis.
The Group incorporates the assets, liabilities and results of all controlled entities in accordance with the accounting
policy described in note 1(b) i).
67
30 June30 June20162015$’000$’000CurrentOpening balance at 1 July349302Cash placed on term deposit1,58447Matured term deposits(214) - Closing balance 1,719 349 Non-currentOpening balance at 1 July139,498125,558Acquisitions(A)84,88519,389Disposals(2,382)(29,564)Net changes in fair values of investments(15,780)24,115Closing balance 206,221 139,498 Consolidated Entity30 June30 JuneName of entityCountry of incorporation20162015Magellan Asset Management LimitedAustralia100%100%Magellan Capital Partners Pty LimitedAustralia100%100%MFG Services LLCUnited States of America100%- Magellan Global Equities Fund(A)- - Ownership interest
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
12. Interests in Controlled Entities (continued)
Loss of control of Magellan Global Equities Fund
(a)
Magellan Global Equities Fund (MGE) ceased to be a controlled entity of the Group in the financial year ended 30
June 2015.
Magellan Global Equities Fund (MGE) was registered as a managed investment scheme on 24 December 2014.
At 24 December 2014, the Group had a 100% ownership interest in MGE and as a result it was a controlled entity
from that date.
On 2 March 2015, the Group seeded MGE with $50,000,000 and MGE commenced trading on the ASX on 5 March
2015. External investor applications into MGE since this date have diluted the Group’s interest. Consequently MGE
ceased to be a controlled fund on 31 May 2015.
As at 31 May 2015, being the date that MFG ceased to control MGE. MGE’s assets and liabilities were as follows:
The following items attributable to MGE had been recognised within the Consolidated Statement of Other
Comprehensive Income for the year ended 30 June 2015:
net changes in the fair value of available-for-sale financial assets (unrealised) up to 31 May 2015 of
$5,476,000; and
$50,317 relating to realised investment gains which have been included in the net changes in the fair value
of available-for-sale financial assets of $24,165,000.
68
At 31 May 2015$’000AssetsCash and cash equivalents29,732 Receivables6 Investments161,781 Total assets191,519 LiabilitiesPayables1,079 Net assets attributable to unitholders 190,440 Total liabilities191,519 Net assets of MGE at date of loss of control - 31 May 2015-
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
12. Interests in Controlled Entities (continued)
During consolidation
During the year ended 30 June 2015, for the period whilst MGE was consolidated from 24 December 2014 to 31
May 2015, the following amounts were recognised in the Consolidated Statement of Profit or Loss and
Consolidated Statement of Other Comprehensive Income relating to the external unitholders of MGE:
(A) Treated as a finance cost as a result of the units on issue in MGE being classified as a financial liability in accordance
with AASB 132 Financial Instruments – Presentation.
At the loss of control
The loss of control was accounted for in accordance with note 1(b) iv) and had the following impacts on the
Consolidated Statement of Profit or Loss and Consolidated Statement of Other Comprehensive Income in the
year ended 30 June 2015:
(A) This represents the unrealised gains on available-for-sale investments held by MGE that were previously recognised in the
Group’s available-for-sale reserve and have been reclassified to the Consolidated Statement of Profit and Loss on the loss
of control of MGE.
Following the loss of control as at 31 May 2015, the investment in MGE was accounted for as an associate. Refer
to note 12 for further details.
Interests in other entities
(b)
The Group’s investments in other entities are set out in note 11.
During the half year ended 31 December 2015, Magellan Global Equities Fund (Currency Hedged) was seeded by
the Group with $15,000,000 on 4 August 2015. This fund commenced trading on the ASX on 10 August 2015.
The Group has classified this investment as an available-for-sale financial asset. Refer to note 11 for details of
this investment as at 30 June 2016.
69
Consolidated Statement of Profit or LossConsolidated Statement of Other Comprehensive Income$’000$’000External unitholders' share of net profit of MGE, which is recognised as a finance cost(A) in the Group's results506 External unitholders' share of the unrealised gains in MGE, which have been recognised as a finance cost(A) in the Group's results(3,992)Consolidated Statement of Profit or LossConsolidated Statement of Other Comprehensive Income$’000$’000Net (gain)/loss on deemed disposal of Group's controlling interest in MGE at 31 May 2015, being the date control was lost, - reclassified to the Consolidated Statement of Profit or Loss in accordance with AASB 10 Consolidated Financial Statements(A)(1,484)Net gain on deemed disposal of available-for-sale financial assets attributable to MGE at 31 May 2015, being the date when control was lost by the Group1,484
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
13. Investment in Associate
At 30 June 2016, the Group had no investments in associates. In the prior year, the Group had a 24.3% interest
in Magellan Global Equities Fund (“MGE”) at 30 June 2015 which was accounted for as an associate at that date
in the consolidated financial statements as set out below:
(A) MGE is quoted on the ASX. The market value of the investment in MGE at 30 June 2015 using the quoted price on the
last day of trading of $2.51 was $50,200,000 (2016: not applicable). At 30 June 2015, the Group was assessed to have
significant influence over the operations of MGE with a 24.3% ownership interest and the Group operates as Investment
Manager of MGE and is the largest unitholder in MGE with the rest of the units being widely held. MGE became an
associate from 1 June 2015, subsequent to the Group losing control. On 12 August 2015 the Group was assessed as no
longer holding significant influence over MGE at which point the investment ceased being accounted for as an associate
and was classified as an available-for-sale financial asset.
(B) The reporting date for MGE is 30 June.
The Group’s investment in MGE was classified as an associate until 12 August 2015. On 12 August 2015, the
Group no longer had significant influence over MGE at which point the investment ceased being accounted for as
an associate and was classified as an available-for-sale financial asset. At 30 June 2016, the Group had an 8.9%
interest in MGE (refer to note 11 for further details).
During the period of 1 July 2015 to 12 August 2015, when MGE was classified as an associate, the Group
recognised a gain of $3,961,000 in the Consolidated Statement of Profit or Loss representing the Group’s share
of the associate’s net profit for that period. Due to the deemed disposal of the interest in MGE as an associate on
12 August 2015, the Group transferred a loss of $1,296,000 to the Consolidated Statement of Profit or Loss from
the Consolidated Statement of Other Comprehensive Income relating to the prior financial year. This loss of
significant influence has been accounted for in accordance with note 1 (b) iv).
(a) Reconciliation
The reconciliation of the movement in the carrying value of the Group’s associate, MGE, is set out below:
(A)
In the current financial year the opening balance was as at 1 July 2015. In the financial year ended 30 June 2015 the
opening balance was the cost of the Company’s investment on the date control was lost on 1 June 2015.
(B) On 12 August 2015, the Group no longer had significant influence over MGE at which point the investment ceased
being accounted for as an associate and was classified as an available-for-sale financial asset. Refer to note 11 for
further details. The fair value of the investment as at 12 August 2015 was $54,106,000.
70
Ownership interest Carrying amount30 June30 June20152015%$Magellan Global Equities Fund(A)(B)AustraliaInvestment management24.3 49,845 49,845 Total investments in associates Country of establishmentPrincipal activitiesName of entity30 June 201630 June 2015$’000$’000Opening balance(A)49,84551,545Add: share of profit/(loss) for the year3,961(104)Add: share of unrealised gains/(losses) on available-for-sale financial assets of associate in the Consolidated Statement of Comprehensive Income- (1,296)Add: dividend received300- Less: dividend receivable- (300)Less: classification as an Available-for-Sale Financial Asset on loss of significant influence(B)(54,106)- Closing balance - 30 June- 49,845
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
13. Investment in Associate (continued)
Summarised financial information - Magellan Global Equities Fund
(b)
As the Group had no investments in associates as at 30 June 2016, the table below includes summarised financial
information of MGE in relation to the year ended 30 June 2015:
(A)
For the financial year ended 30 June 2015, MGE declared a distribution of 1.5 cents per unit on 26 June 2015. The
liabilities include distributions provided for but not paid by the associate at 30 June 2015. This is applicable to funds in
Australia where unitholders are presently entitled to income at the end of the financial year. Based on the Group’s
investment of 20,000,000 units, a distribution of $300,000 was receivable by the Group for the year ended 30 June 2015
(refer to note 17(d)(iii)).
The associate had no contingent liabilities or commitments as at 30 June 2015 (2016: not applicable).
71
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
14.
Contributed Equity
(A) 1,039,340 MFG 2016 Options were exercised during the year with 647,987 ordinary shares issued by 30 June 2016 and 391,353
shares relating to MFG 2016 Options exercised by 30 June 2016 and issued on 4 July 2016.
(d)
Terms and Conditions
Ordinary Shares
(i)
Fully paid ordinary shares entitle the holder to receive dividends declared and proceeds on winding up the
Company in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder
to one vote, either in person, or by proxy, at a meeting of the Company.
MFG 2016 Options
(ii)
The MFG 2016 Options (‘Options’) expired on 30 June 2016 and 10,683 Options expired unexercised. Prior to this
date the Options were able to be exercised during any two month period commencing two business days following
the announcement of the Group’s full and half year results in each year prior to the expiry date, except for the
final exercise period which commenced on the date that is two business days after the release of the results for
the half year to 31 December 2015 and ended on 30 June 2016. Upon exercise of each Option, the Option holder
is issued one new ordinary share in the Company.
The in-specie distribution on 19 February 2013 had the effect of reducing the exercise price of the Options by
$0.3589 per Option. The adjusted exercise price of each Option at 30 June 2016 is $2.6411 (June 2015: $2.6411).
72
30 June30 June20162015Note$’000$’000Ordinary Shares(a)111,073103,477MFG 2016 Options(b)- - MFG Class B Shares(c)- - Total contributed equity111,073103,477Consolidated Entity30 June30 June30 June30 June2016201520162015Number of sharesNumber of shares'000'000$’000$’000(a) Ordinary SharesOpening balance160,276158,842103,47793,812Shares issued on exercise of MFG 2016 Options(A)6488482,7452,241Shares issued under SPP2655864,6317,063SPP expense for year - - 230378less: transaction costs arising on share issue - - (10)(17)Closing balance - Ordinary Shares161,189160,276111,073103,477(b) MFG 2016 OptionsOpening balance1,0501,898 - - Shares issued on exercise of MFG 2016 Options(A)(1,039)(848) - - Expiry of MFG 2016 Options - 30 June 2016(11) - - - Closing balance - MFG 2016 Options - 1,050 - - (c) MFG Class B SharesOpening balance10,20010,200 - - Closing balance - MFG Class B Shares10,20010,200 - - Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
14.
Contributed Equity (continued)
(d)
Terms and Conditions (continued)
MFG 2016 Options (continued)
(ii)
Options were not entitled to dividends or distributions. Ordinary shares issued on exercise of the Options ranked
equally with all other ordinary shares from the date of issue. An ordinary share issued on exercise of an Option
was only entitled to receive a dividend or distribution where the Option was exercised and the ordinary share
was issued on or before the record date for that distribution. Ordinary shares issued pursuant to the exercise of
an Option were not issued until after the record date for any dividend or distribution payable in respect of the
half year period immediately prior to the exercise period during which that option was exercised. The holder of
an Option could only participate in new issues of the Company if the holder exercised that option and became
the holder of ordinary shares on or prior to the record date for the new issue of ordinary shares.
MFG Class B Shares
(iii)
The MFG Class B Shares were issued to Mr Hamish Douglass with certain service conditions which were satisfied
on 1 July 2012. Incorporating the effect of the in-specie distribution made to the Company’s shareholders on 19
February 2013, the MFG Class B Shares will convert into the number of ordinary shares equal to 0.0637028 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 conversion of the MFG Class B Shares will occur on 21 November 2016. The maximum
number of ordinary shares that will be issued on conversion of all MFG Class B Shares is 10,829,476. Prior to the
in-specie distribution on 19 February 2013, the conversion factor was 0.06 times and the maximum number of
ordinary shares that would have been issued on conversion was 10,200,000.
Mr Douglass holds 10,200,000 MFG Class B Shares which at 30 June 2016 are entitled to convert into 10,290,344
ordinary shares of the Company on 21 November 2016.
Based on the Company’s ordinary shares on issue (including shares issued from Options being exercised prior to
30 June 2016), the 10,200,000 MFG Class B Shares would be entitled to convert to 10,293,175 ordinary shares
being equal to 0.0637028 times 161,581,205 securities at 30 June 2016 (comprising 161,189,852 ordinary shares
on issue and 391,353 ordinary shares issued on 4 July 2016 relating to the final tranche of MFG 2016 Options
exercised). The MFG Class B shares have no entitlement to receive dividends and until the MFG Class B Shares
are converted into ordinary shares they confer no rights to participate in any bonus issue or subscribe for new
securities in the Company unless the Directors determine otherwise in accordance with the Terms of Issue of the
MFG Class B Shares.
73
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
15. Share Purchase Plan (SPP)
The Group has put in place a Share Purchase Plan (the ‘Plan’ or ‘SPP’) for its employees and Non-Executive
Directors (‘Participants’). The Plan provides assistance to Participants to invest in shares in the Company in order
to align more closely the interests of Participants with the interests of the shareholders of the Group. At 30 June
2016, 978,251 ordinary shares were held by the Participants under the SPP (June 2015: 1,237,221).
Employees are invited to subscribe 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 (ended 30 June) prior to the financial year in which the offer is made; and
ii) such further number of shares approved by the Board, subject to:
where the total amount of the financial assistance being provided to an employee Participant will exceed
$750,000 or will exceed three times the amount of an employee Participant’s annual base salary inclusive
of superannuation, the prior approval of the Board is required; and
the maximum amount of financial assistance that may be provided by the Company to an individual
employee is $1,000,000;
and, in each case:
iii) subject to a maximum of $750,000 worth of shares per employee in each financial year, other than in the
case of a new employee where the Board may resolve, in its absolute discretion, to offer initially 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 an amount equal to 25% of their after tax annual cash 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. The maximum term of the loan for Non-Executive Director Participants is 5 years, except where
shareholder approval is given to an extension.
Any outstanding balance at the end of 10 years must be repaid by the employee. Although employees are not
entitled to repay their loan early, the Board may from time to time permit an early repayment under certain
circumstances.
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 the amount of the dividends is 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.
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 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).
74
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
15. Share Purchase Plan (SPP) (continued)
If a Participant ceases to be an employee whilst a loan to that Participant is outstanding, the Participant must:
i)
ii)
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
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 outstanding under the loan after the application of the
proceeds of sale.
The carrying value of the SPP loans at 30 June was:
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 shares traded in the five business days prior to the offer
date. The table below sets out the prices at which the shares were issued under the Plan.
Offer date
Share Issue Price
10 September 2007
20 October 2008
8 September 2009
10 November 2010
2 March 2011
21 September 2011
12 March 2013
29 October 2013
22 September 2014
13 November 2014
14 September 2015
$1.66
$0.52
$0.78
$1.35
$1.75
$1.20
$7.33
$10.02
$13.23
$13.64
$18.88
The value of shares securing the loans to Participants at reporting date applying the Company’s 30 June 2016
closing market price of $22.25 was $21,766,000 (June 2015: $21,528,000). 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.
75
30 June30 June20162015$'000$'000Current SPP loans due within 1 year1,531 1,396 Non-currentSPP loans due later than 1 year and within 10 years7,482 5,849 Total SPP loans9,013 7,245 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
15. Share Purchase Plan (SPP) (continued)
The following information has been used to determine the carrying value of the loans as at:
76
30 June30 June20162015September 2009 trancheFace value of loans ($)- 600 Estimated weighted average duration of loans- 0.3 yearsImputed interest rate- 5.3%November 2010 trancheFace value of loans ($)- 35,000 Estimated weighted average duration of loans- 0.3 yearsImputed interest rate- 5.5%September 2011 tranche Face value of loans ($)- 78,000 Estimated weighted average duration of loans- 0.3 yearsImputed interest rate- 4.0%March 2013 trancheFace value of loans ($)90,000 402,000 Estimated weighted average duration of loans0.1 years0.8 yearsImputed interest rate3.4%3.4%October 2013 trancheFace value of loans ($)638,000 1,086,000 Estimated weighted average duration of loans0.9 years2.1 yearsImputed interest rate3.4%3.4%September 2014 trancheFace value of loans ($)2,526,0003,332,000Estimated weighted average duration of loans2.2 years3.6 yearsImputed interest rate3.0%3.0%November 2014 trancheFace value of loans ($)2,123,0002,311,000Estimated weighted average duration of loans3.0 years4.1 yearsImputed interest rate2.8%2.8%September 2015 trancheFace value of loans ($)3,636,000- Estimated weighted average duration of loans4.0 years- Imputed interest rate2.2%- Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
15.
Share Purchase Plan (SPP) (continued)
Amounts recognised in the Consolidated Statement of Profit or Loss in respect of the SPP loans are:
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 non-cash items and therefore are not reflected
within the Group’s Consolidated Statement of Cash Flows. 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. Refer
to note 1(s) for further details.
Parent Entity Information
16.
The accounting policies of the parent entity, Magellan Financial Group Limited, which have been applied in
determining the financial information shown below, are the same as those applied in the Group’s consolidated
financial statements. Refer to note 1 for a summary of the significant accounting policies relating to the Group.
Summary financial information
(a)
The individual financial report for the parent entity shows the following aggregate amounts:
77
30 June30 June20162015$'000$'000Interest income350 424 Employee benefits expense(230)(378)Net SPP income/(expense) in the Consolidated Statement of Profit or Loss120 46 Consolidated Entity30 June 201630 June 2015$’000$’000Statement of Financial PositionAssetsCurrent assets 94,651 75,046 Non-current assets 226,907 208,047 Total Assets 321,558 283,093 LiabilitiesCurrent liabilities 6,948 16,554 Non-current liabilities 11,235 14,514 Total Liabilities 18,183 31,068 Net Assets 303,375 252,025 EquityContributed equity111,448 103,852 Available for sale reserve24,252 32,916 Retained profits167,675 115,257 Total Equity303,375 252,025 Statement of Profit or Loss and Other Comprehensive IncomeNet profit for the year after income tax expense195,420 154,763 Other comprehensive income, net of income tax expense(8,664)8,312 Total comprehensive income for the year186,756 163,075 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
16.
Parent Entity Information (continued)
Guarantees entered into by MFG
(b)
During the year a guarantee was provided by MFG to the landlord of MFGS’ New York office premises guaranteeing
the payment and performance of MFGS’ obligations under the lease ($1,873,000 of lease commitments as at 30
June 2016).
Other than noted above as at 30 June 2016, the Group has no other guarantees.
Contingencies and Commitments of MFG
(c)
At 30 June 2016, MFG has no contingent assets, contingent liabilities or commitments.
17. Related Party Disclosures
Ultimate Parent Entity
(a)
Magellan Financial Group Limited is the ultimate parent entity.
(b)
Transactions with Related Parties
Interests in controlled entities are set out in note 12.
(c)
Key Management Personnel
(i)
The Directors of the Company unless otherwise stated during the year and up to the date of this report were:
Directors
Name
Brett Cairns
Hamish Douglass
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Directorship
Executive Chairman
CEO and Chief Investment Officer
Non-Executive Director and Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Appointed
22 Jan 2007
21 Nov 2006
23 Apr 2014
20 Dec 2006
1 Mar 2016
23 Apr 2014
Other Key Management Personnel (KMP)
(ii)
In addition to the Directors, the following persons also had authority for the strategic direction and management
of the Group, directly or indirectly, during the financial year:
Nerida Campbell
Gerald Stack
Frank Casarotti
Kirsten Morton
Chief Operating Officer
Head of Investments
Head of Distribution
Chief Financial Officer
78
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
17. Related Party Disclosures (continued)
(c)
Key Management Personnel (continued)
(iii)
KMP of the Group received the following amounts during the financial year:
Remuneration of KMP
(A) Ms Kirsten Morton was not a KMP for the year ended 30 June 2015.
Refer to section 3.3 of the Remuneration Report on page 24 for further details.
(d)
Transactions with Other Related Parties
The following transactions occurred with other related parties:
(i) Dividends of $186,000,000 representing $14.88 per share were paid by MAM to MFG during the year ended
30 June 2016 (June 2015: $136,420,000 representing $10.91 per share). In addition, during the prior financial
year ended 30 June 2015, a dividend of $42,000 was paid by Magellan Capital Partners Pty Limited to MFG (30
June 2016: nil).
(i) During the financial year, MAM’s income tax liabilities of $57,679,000 (June 2015: $49,488,000) were assumed
by MFG, the head entity of the tax consolidated group. Payments totalling $61,116,000 (June 2015: $44,292,000)
were received by MFG from MAM under the tax funding agreement during the year and $3,945,000 was receivable
by MFG from MAM in respect of amounts arising from the transfer of MAM’s tax liability to the Company (June
2015: $6,577,000). Refer to note 1(h) for further details on the tax consolidated group.
(iii) During the prior year ended 30 June 2015, MFG’s associate, MGE (refer to note 12 for further details) declared
a distribution of 1.5 cents per unit on 26 June 2015. Based on MFG’s investment of 20,000,000 units as at 30
June 2015, a distribution of $300,000 was receivable by MFG for the year ended 30 June 2015 (received during
the year ended 30 June 2016).
79
30 June30 June20162015(A)$$Short term benefits - Salary4,336,472 3,378,353 - Cash Bonus3,992,887 3,485,338 Post-employment benefits133,345 106,647 Long-term benefits50,804 40,342 Other benefits154,933 220,834 Total remuneration paid to KMP8,668,441 7,231,514 Consolidated Entity30 June30 June20162015Note$'000$'000Dividends received from controlled entities(i)186,000 136,462 Amounts receivable by MFG under the tax funding agreement from MAM(ii)3,945 6,577 Amounts received by MFG pursuant to tax funding agreement from MAM(ii)61,116 44,292 Net amounts received/(paid) by MFG to/from MAM for expense reimbursements59 116 Distribution receivable by MFG from associate, MGE(iii)- 300
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
18.
Statement of Cash Flows Reconciliation
(a)
Reconciliation of Net Operating Profit after Tax to Net Cash Flows from Operating Activities
(b)
Non-cash financing and investing activities
Reconciliation of cash
(c)
Reconciliation of cash at the end of the year (as shown in the Consolidated Statement of Cash Flows) to the
related item in the financial report:
Term deposits with maturity dates greater than 90 days from inception date are included in financial assets (refer
note 11).
80
30 June30 June20162015$’000$’000Net operating profit after income tax expense 198,357 174,295Adjusted for:Net (gain)/loss on disposal of available-for-sale financial assets(1,055)(11,578)Net (gain)/loss on deemed disposal of available-for-sale financial assets attributable to MGE1,296(1,484)Loss on disposal of property, plant and equipment - 21 Dividends and distributions reinvested(12,353)(388)Depreciation294317External unitholders' share of MGE net profit while MGE was a controlled fund - 506Group's share of net (gain)/loss for the period MGE was an associate(3,961)104Issued Capital Costs(14)- Net foreign exchange (gain)/loss(165)(1,232)Imputed interest on loans under the SPP(350)(424)Employee expense on loans under SPP230378(Increase)/decrease in receivables2,147(31,515)(Increase)/decrease in prepayments(51)(101)Increase/(decrease) in net deferred tax liabilities(4,090)(905)Increase/(decrease) in payables(7,926)3,280Increase/(decrease) in income tax payable9,2146,025Effects of exchange rates on cash and cash equivalents(28)- Net cash inflows from operating activities181,545 137,299 Consolidated Entity30 June30 June20162015$’000$’000Issue of ordinary shares under SPP 4,0385,673Imputed interest on loans under SPP(350)(424)Share based payments under SPP230378Acquisition of additional units in Magellan Unlisted Funds and Frontier MFG Funds through distribution reinvestment12,353388Dividend entitlement of SPP holders applied directly against SPP loan balance975 2,045 Consolidated EntityCash and cash equivalents 120,362 93,934
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management
Capital management
(a)
The Group’s approach to capital management remained unchanged during the year, which was to ensure that
the Group continues as a going concern, it has sufficient cash flow to meet its operating requirements, it is able
to support the payment of dividends to shareholders in accordance with the Group’s dividend policy, and it retains
the flexibility to retain capital if required for future business expansion. The Group’s capital consists entirely of
shareholder equity. The Group has no external net borrowings at 30 June 2016 (June 2015: nil).
The Directors believe that the Group’s core business, funds management, is scalable over time and the funds
under management should continue to grow without the need to make material additional capital investment into
the business.
A controlled entity of the Company, Magellan Asset Management Limited (“MAM”), is subject to regulatory
financial requirements by virtue of holding an Australian Financial Services Licence (“AFSL”). During the year
ended 30 June 2016, MAM maintained the required net tangible assets of 10% of the three year average of
MAM’s revenues and satisfied the liquidity requirements of cash and cash equivalents which is 50% of the required
net tangible assets, in accordance with ASIC Regulatory Guide 166. Notwithstanding the liquidity requirements
of the AFSL, the Directors of MAM determined on 18 October 2013 that MAM would hold a greater amount of
cash and cash equivalents being at least $20,000,000.
Financial risk management
(b)
The activities of the Group expose it to various types of risks, both direct and indirect: liquidity risk, price risk,
currency risk, interest rate risk and credit risk.
Exposure to risk occurs through the impact of the Group’s net profit and total equity arising from:
changes in the value of the Group’s investment portfolios and changes in other financial assets and
liabilities; and
the effect of market foreign exchange rate movements on the Group’s funds under management and
the consequential impact on the management, services and performance fees earned.
The Group’s investment assets comprise strategic investments in:
unlisted and ASX quoted funds of which MAM, a wholly owned entity of the Group, is the Responsible
Entity and Investment Manager (Magellan Funds);
a direct portfolio of investments; and
two unlisted institutional mutual funds in the United States of America, being Frontier MFG Funds, of
which MAM is the Investment Manager.
The investment portfolios of the Magellan Funds and the Frontier MFG Funds are managed on a daily basis by
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 or the Product Disclosure
Statement (PDS) of the Magellan Funds, and the prospectuses of the Frontier MFG Funds.
Liquidity risk
(c)
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial
liabilities on the due date or will be forced to sell financial assets at a value which is less than they are worth.
The Group manages liquidity risk by maintaining sufficient cash reserves to cover its liabilities. In October 2013,
the Board of MFG determined that the Group would maintain a minimum amount of $20,000,000 in cash and
cash equivalents and a minimum amount of liquid assets equal to 0.5% of the Group’s funds under management
subject to a maximum amount of $100,000,000.
As at 30 June 2016, the Group had an obligation to settle trade creditors and other payables of $21,161,000
(June 2015: $14,332,000) within 30 days. In addition, the Group also has an obligation to pay the fully franked
final dividend of 38.0 cents per share in respect of the year ended 30 June 2016 amounting to approximately
$61,401,000 on 26 August 2016 (refer to note 4(i)).
81
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Liquidity risk (continued)
(c)
The Group had cash (including term deposits maturing within 30 days) of $120,362,000 (June 2015: $93,934,000)
and a further $53,747,000 (June 2015: $54,850,000) of receivables to cover these liabilities.
At 30 June 2016, the Group reported current assets of $177,762,000 and current liabilities of $28,411,000
resulting in a net current asset surplus of $149,351,000. After taking into account the final dividend for the year
ended 30 June 2016 totalling $61,401,000, this would result in a net current asset surplus of $87,950,000.
Accordingly the Group has sufficient liquid funds and current assets to meet its current liabilities.
Maturities of financial liabilities
At 30 June 2016, the Group’s financial liabilities comprise trade creditors and payables which mature in 1 year or
less (June 2015: 1 year or less).
Price risk
(d)
Price risk is the risk that the value of the Group’s direct and indirect investments in equities will increase or
decrease as a result of changes in market prices, caused by factors specific to the individual stock or the market
as a whole. Price risk exposure arises from the Group’s investments in listed equities, Magellan Funds, the Frontier
MFG Funds and from the Group’s entitlement to investment management and performance fees on funds under
management.
All of the Group’s investments are carried at fair value with changes arising from available-for-sale investments
reflected in other comprehensive income. Over the past 10 years, the annual movement in the MSCI World Net
Total Return Index has varied between +31% and -30% (in USD) and +33% and -21% (in AUD). The past
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 reasonably linear.
Impact arising from the Group’s own investments
Each incremental increase of 5% in the market prices of the Group’s investments held at reporting date would
have had the following impact on net operating profit and equity:
Assumptions and explanatory notes
(i)
the Group holds an investment in an unlisted fund that invests in unlisted equities. The fair value of this
fund is determined by a Directors’ valuation. The underlying values of the unlisted equities are determined
by the fund’s investment manager 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 the fund.
(ii) a decrease of 5% in the market prices of the Group’s investments held at reporting date would have an
equal and opposite effect to the changes disclosed above.
(iii) the Group recognises impairment losses on available-for-sale investments in accordance with the accounting
policy disclosed in note 1(n)i). 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.
82
30 June30 June20162015$’000$’000Impact on available-for-sale reserve, net of tax7,878 7,180 Total impact on net operating profit and equity7,8787,180 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Price risk (continued)
(d)
Impact arising on entitlements to management, services and performance fees
The Group earns management fees on funds under management, which are based on a percentage of the value
of the clients’ and the funds’ portfolios, and service fees from MFF based on an agreed methodology described
in note 6(c). Management fees and services fees 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, and the market value of MFF’s portfolio less borrowings, during
the years ended 30 June 2016 and 30 June 2015 would have increased the base management fees recognised
in net operating profit and equity as follows:
Assumptions and explanatory notes
(i)
a decrease of 5% in the average value of funds under management of the Group and the market value of
MFF’s portfolio less borrowings 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.
Performance fees
The Group earns performance fees from its funds, from some institutional client mandates and MFF to which it
provides investment research and administrative services. Where a performance fee is applicable to an
institutional client mandate, the base management fee will generally be lower than that earned from mandates
where no performance fee applies. The Group’s entitlement to performance fees for any given performance
period is dependent on the portfolio outperforming certain hurdles, which may be index relative hurdles, absolute
return hurdles or a combination of both. Performance fees are generally subject to either a high water mark
arrangement or a deficit clause, which ensures that fees are not earned more than once on the same
performance. The Group’s entitlement to performance fees from MFF is dependent on MFF’s total shareholder
return exceeding 10% per annum, compounded annually, over prescribed performance periods. These fees also
accrue over different calculation periods, ranging from three months to four years. The fees recognised in the
Consolidated Statement of Profit or Loss are characterised as follows:
Currency risk
(e)
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 has direct exposure to currency risk on foreign currency
denominated:
-
-
-
investments designated as available-for-sale (refer note 11);
cash balances and term deposits (refer note 18(c) and note 11); and
payables and receivables, such as income receivable from foreign investments, outstanding settlements
on purchase or sale of foreign investments and management and performance fees invoiced in foreign
currency (refer notes 7 and 9).
83
30 June30 June20162015$’000$’000Impact on net operating profit and equity for the year10,185 7,918 Total impact on net operating profit and equity for the year10,1857,918 Consolidated Entity30 June30 June20162015$’000$’000Based on performance relative to a market index 6,627 2,822 Based on performance relative to a return hurdle207 5,692 39,180 32,899 Based on total shareholder return2,000 2,000 Total performance fees48,01443,413 Based on performance relative to both a market index and a return hurdleConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Currency risk (continued)
(e)
At 30 June 2016, had the Australian dollar strengthened by 10% relative to each currency to which the Group
had significant exposure, with all other variables held constant, the impact on the Group’s equity and net profit
would have been:
A decrease of 10% in the Australian dollar relative to each currency would have an equal and opposite impact to
those disclosed above.
The Group also has indirect exposure to foreign currency via its investments in unlisted funds. The Magellan
Funds are denominated in Australian dollars and the Frontier MFG Funds are US dollar denominated. The
underlying investment portfolios of these funds comprise entities 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 foreign currency movement on the underlying portfolios.
The Group’s management, services and performance fees are also indirectly exposed to fluctuations in foreign
currency where the management, service and performance fees earned from funds under management and MFF
are subject to adverse movements in the exchange rate of the Australian dollar relative to foreign currencies. For
the year ended 30 June 2016, approximately 92% of the Group’s management, service and performance fees
were indirectly exposed to movements in the Australian dollar relative to other currencies (June 2015: 92%).
Interest rate risk
(f)
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market
interest rates. The Group’s exposure to interest rate risk relates primarily to cash and cash equivalents and also
term deposits. Substantially all of the Group’s holdings of cash and cash equivalents are held with major Australian
banks. Term deposits are of relatively short duration and their fair value would not be materially affected by
changes in interest rates.
Sensitivity analysis
Based on the cash and cash equivalents held by the Group at reporting date, the sensitivity on the Group’s net
operating profit and equity of a decrease of 50 basis points in floating interest rates, assuming all other variables
remain constant is:
An increase of 50 basis points in floating rate interest rates would have an equal but opposite effect on net
operating profit and equity.
84
2016201520162015$’000$’000$’000$’000Assets denominated in:US dollars(463)(595)(1,437)(1,112)Euro21 36 (30)(52)Canadian dollars(64)(64) - - British pounds(367)(244)(53)(77)Swiss francs - - (44)(22)Consolidated EntityIncrease/(decrease) in net profit in equity 30 June 30 June30 June30 June20162015$’000$’000Impact on net operating profit and equity 466 357 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Credit risk
(g)
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 when valued at fair value. The maximum exposure to credit risk
at reporting date is therefore the carrying amount of financial assets recognised in the Consolidated Statement
of Financial Position.
The Group minimises concentrations of credit risk by ensuring cash balances and term deposits are held with and
managed by counterparties that are reputable financial intermediaries with acceptable credit ratings determined
by a recognised rating agency. In addition, credit limits are reviewed by management with reference to the
counterparty’s latest credit rating and may be updated throughout the year. During the year ended 30 June 2016,
the Group held cash and term deposits with Australian and international banks. The credit quality of Australian
banks counterparties at 30 June 2016 was rated by Standard & Poor’s as being AA-, and by Moody’s as being
Aa2 (AA- and Aa2 respectively at 30 June 2015). The credit quality of the international bank counterparty at 30
June 2016 was rated by Moody’s as Baa2 (Baa2 at 30 June 2015).
The Company has entered into an International Prime Brokerage Agreement (“IPBA”) with Merrill Lynch
International (“MLI”), a subsidiary of Bank of America. The services provided by MLI under the IPBA include
clearing and settlement of transactions, securities lending and acting as custodian for the Company’s assets.
Under an addendum to the IPBA, Merrill Lynch International (Australia) Limited may provide financing services
to the Company. The IPBA with MLI is in a form that is typical of prime brokerage arrangements. Each of the
Company’s securities held by MLI may be used by MLI for its own purposes. Securities of the Company utilised
by MLI become the property of MLI and the Company has a right against MLI for the return of equivalent
securities. In the event of MLI becoming insolvent the Company would rank as an unsecured creditor and the
Company may not be able to recover such equivalent securities in full.
Cash which MLI holds or receives on behalf of the Company 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 would rank as
an unsecured creditor and may not be able to recover the cash in full.
The Group also manages credit risk by regularly monitoring loans and receivable balances throughout the year.
A provision for doubtful debts is made where collection is deemed uncertain. At 30 June 2016, the provision for
doubtful debts was nil (June 2015: nil).
At 30 June 2016, the Group also had credit exposure to the Participants with loans under the SPP. At 30 June
2016, the outstanding balance on the loans totalled $9,013,000 (June 2015: $7,245,000). MFG ordinary shares
of 978,251 were valued at $21,766,000 (June 2015: 1,237,221 MFG ordinary shares valued at $21,528,000)
respectively were held as security for these loans. The loans were made to the Group’s employees and certain
Non-Executive Directors of the Company on a full recourse basis. Further information is provided in note 15.
The Company in its capacity as Trustee and Responsible Entity of the following registered managed investment
schemes has appointed The Northern Trust Company (“NT”) as custodian of Magellan Global Fund, Magellan
Global Fund (Hedged), Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), Magellan High
Conviction Fund, Magellan Core Infrastructure Fund, Magellan Global Equities Fund and Magellan Global Equities
Fund (Currency Hedged). The credit quality of NT’s senior debt is rated, as at 30 June 2016 by Standard and
Poor’s as A+ and by Moody’s as A2 (A+ and A2 respectively at 30 June 2015). In acting as custodian, NT 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.
At 30 June 2016 and 30 June 2015, the Group’s maximum exposure to credit risk is the carrying amount of the
financial assets recognised in the Consolidated Statement of Financial Position.
Ageing analysis of receivables
At 30 June 2016, all of the Group’s receivables are due within 0 to 30 days (June 2015: 0 to 30 days). No amounts
are impaired or past due at 30 June 2016 or 30 June 2015.
85
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Fair value measurements
(h)
The Group classifies the fair value measurements of financial assets and financial liabilities using the three level
fair value hierarchy set out below, to reflect the source of valuation inputs used when determining the fair value:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. The fair value of
these investments is based on the closing bid price for the security as quoted on the relevant exchange.
Level 2: valuation techniques using market observable inputs either directly or indirectly. The Group
invests in unlisted funds which in turn invest in liquid securities quoted on major stock exchanges. The
fair value is estimated using the redemption price provided by the unlisted fund.
Level 3: valuation techniques using non-market observable inputs. The Group invests in unlisted funds
which typically invest in unlisted entities, and has an investment in an unlisted company. The fair value
is based on a Directors’ valuation.
The table below presents the fair value measurement hierarchy of the Group’s financial assets:
(i) Unlisted Funds – Magellan and Frontier MFG Funds
The fair value of investments in the Magellan Unlisted Funds operated by the Group and the Frontier MFG Funds
are determined with reference to the redemption price at reporting 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.
(ii) Unlisted Funds – Other
Investments in Unlisted Funds – Other comprise an investment in a single private equity fund. As there is no
active market for these units, the fair value is a Directors’ valuation that is determined with reference to the unit
price of the fund. A discount is applied to the fund’s redemption unit price, as determined by the fund’s investment
manager, to reflect the illiquidity of the units. The Directors believe the estimated fair value, based on other
unlisted fund’s valuation undertaken by that fund’s investment manager, and the discount assumptions applied,
is reasonable and appropriate.
(iii) Unlisted Shares - Other
Investments in Unlisted Shares – Other comprises a shareholding in an unlisted funds management business. As
there is no active market for the shares, the Directors have valued this investment at cost after giving
consideration to that company’s most current unaudited net asset position.
86
30 June30 June20162015Note$’000$’000Assets measured at fair valueAvailable-for-sale financial assets- Level 1: listed shares and ASX quoted units74,67911,584- Level 2: unlisted funds – Magellan and Frontier MFG Funds(i)131,286127,574- Level 3: unlisted funds - other(ii)81165- Level 3: unlisted shares - other(iii)175175Total financial assets206,221139,498Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
19.
Capital and Financial Risk Management (continued)
Fair value measurements (continued)
(h)
There have been no transfers between any of the three levels in the hierarchy during the years ended 30 June
2016 and 30 June 2015, and the Group’s policy is to recognise transfers into and out of fair value hierarchy levels
as at the end of the year. The reconciliation of the fair value movements within level 3 is shown below:
The fair values of all other financial assets and liabilities approximate their carrying values in the Consolidated
Statement of Financial Position.
20. Contingent Assets, Contingent Liabilities and Commitments
(a) Commitments
Operating lease commitments
The Group has entered into non-cancellable operating leases for its office premises in Australia (Sydney,
Melbourne, Brisbane and Perth), the United States (New York and Newport Beach) and New Zealand (Auckland)
and for office equipment.
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
During the period the Group entered into a 10 year lease for its headquarters in Sydney and a 7 year lease for
premises in New York which are reflected in the commitments disclosed above.
Contingent assets and contingent liabilities
(b)
The Group has a contingent liability of $100,000 (June 2015: $200,000) in relation to the investment restriction
contract entered into with Mr Hamish Douglass on 1 July 2012. Assuming the conditions of the contract are
complied with, which requires Mr Douglass to remain in employment until 1 July 2017, the Group is required to
pay Mr Douglass $500,000 on or before 15 July 2017 (refer to further details of the contract in section 3.5 in the
2015 Remuneration Report in the Directors’ Report). At 30 June 2016, $400,000 has been provided for in the
Group’s Consolidated Statement of Financial Position (June 2015: $300,000) and as a result, the Group has a
contingent liability of $100,000 (June 2015: $200,000).
The Group has no material contingent assets as at 30 June 2016 (June 2015: nil).
Guarantees
(c)
For information about guarantees given by entities in the Group, including the Company, refer to note 16(b).
87
30 June30 June20162015$’000$’000Opening balance - 1 July340340Net change in fair value(84) - Closing Balance - 30 June256340Consolidated EntityConsolidated Entity30 June30 June20162015$’000$’000Within one year3,309814Later than one year but no later than five years11,611764More than five years15,292- Total commitments30,2121,578
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2016
21. Auditor’s Remuneration
Amounts received or due and receivable by the auditor of the Group, Ernst & Young:
(A) The Magellan Funds comprise Magellan Global Fund, Magellan Global Fund (Hedged), Magellan High Conviction Fund,
Magellan lnfrastructure Fund, Magellan lnfrastructure Fund (Unhedged), Magellan Core Infrastructure Fund, Magellan
Global Equities Fund and Magellan Global Equities Fund (Currency Hedged).
22.
Events Subsequent to Reporting Date
On 19 July 2016, the Group seeded Magellan Infrastructure Fund (Currency Hedged) (“MICH”) (ASX ticker code:
MICH) with $10,000,000 of its own capital. MICH is an ASX quoted currency hedged version of the unlisted
Magellan Infrastructure Fund and will invest in a portfolio of between 20 and 40 currency hedged investment
grade infrastructure securities. MICH commenced trading on the ASX on 22 July 2016.
On 3 August 2016, the Group reported on the ASX its funds under management were $41.5 billion as at 29 July
2016.
Other than the above matters and the final dividend in respect of the year ended 30 June 2016 (refer to note
4(i)), the Directors are not aware of any other matter or circumstance not otherwise dealt with in this financial
report that has significantly or may significantly affect the Group’s operations, the results of those operations or
the Group’s state of affairs in future years.
88
30 June30 June20162015$$(a) Ernst & Young AustraliaAudit servicesStatutory audit and review of the financial reports: - the Company99,500 95,500 - the Magellan Funds(A)180,000 128,500 Other assurance services: - Regulatory required audits45,000 40,000 - Other49,000 63,500 373,500 327,500 Non-audit servicesTaxation services281,840 168,925 Total remuneration of Ernst & Young Australia655,340 496,425 (b) Related practices of Ernst & Young AustraliaAudit servicesStatutory audit of the financial reports: - MFG Investment Fund Plc - MFG Global Fund36,703 72,278 36,703 72,278 Non-audit servicesTaxation services76,591 70,186 Total remuneration of related firms of Ernst & Young Australia113,294 142,464 Total auditor's remuneration768,634 638,889 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ DECLARATION
In the Director’s opinion,
b)
the financial statements and notes set out on pages 38 to 88 are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2016 and of its
performance for the financial year ended on that date; and
(ii) complying with Accounting Standards, the Corporations Regulations 2001, International Financial
Reporting Standards as disclosed in note 1 and other mandatory professional reporting requirements, and
c)
there are reasonable grounds to believe 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 ended 30 June 2016.
This declaration is made in accordance with a resolution of the Directors.
Brett Cairns
Executive Chairman
11 August 2016
89
MAGELLAN FINANCIAL GROUP LIMITED
INDEPENDENT AUDITOR’S REPORT
90
MAGELLAN FINANCIAL GROUP LIMITED
91
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE SUSTAINABILITY AND
RESPONSIBILITY REPORT
Magellan is committed to acting responsibly and ethically in all areas of its business. The Group seeks to
engender a culture of building trust with all that do business with us.
Responsible Investment
Magellan is committed to responsible investment and became a signatory to the United Nations Principles
of Responsible investment (“UNPRI”) in March 2012. The UNPRI is the globally recognised accord for
responsible investing. Environmental, Social and Governance (“ESG”) issues are considered to be a natural
component of Magellan’s investment process, as gaining a robust understanding of these issues is a key
part to assessing the outlook for future cash flow generation and risks facing investors. Magellan maintains
an ESG Policy, which outlines how ESG issues are incorporated into Magellan’s investment analysis
framework and investment process.
Magellan considers proxy voting rights as an important power, which if exercised diligently can enhance
client returns. Magellan believes these should be managed with the same care as any other asset managed
on behalf of its clients. Magellan maintains a Proxy Voting Policy set of Corporate Governance Principles
which outline its approach to proxy voting and engagement with portfolio companies. These policies and
all proxy voting records are available to Magellan’ clients, however, given Magellan’s concentrated
portfolios, proxy voting records are not made publicly available.
As a long term investor, Magellan is committed to engaging with portfolio companies on ESG matters.
During the year ended 30 June 2016 Magellan engaged with many portfolio companies on a number of
material topics and has been successful in effecting positive changes on a number of occasions.
Environment
Magellan understands the importance of mitigating its impact on the environment and is committed to
environmental sustainability. Given the nature of Magellan’s business and as a services firm of 101
employees, with approximately 80% of employees based in the head office in Sydney, Magellan has a
relatively small environmental footprint. There are three main areas where Magellan’s environmental
footprint lies – premises, energy and travel. Magellan aims to ensure that where possible, business
operations are conducted in the most environmentally sustainable way possible. For example, Magellan
has recently relocated its head office to a 4.5 star NABERS1 rated office building and energy efficiency was
one of the criteria in the selection of its new head office premises. Magellan also continues to build
awareness amongst its employees and focus on areas where it can make an impact including recycling.
Magellan has also recently become a signatory to the Carbon Disclosure Project’s (“CDP”) climate change
program. CDP holds the largest global collection of self-reported climate change, water and forest-risk data
in an effort to transform the way the world does business to prevent dangerous climate change and protect
natural resources.
GHG emissions by Scope (metric tonnes CO2e)
Scope 1
Scope 2
Total GHG emissions
Total per employee
Total per $ million of revenue
Calendar Year 2015
0
97
97
1.05
0.3
As outlined in the table above, Magellan’s GHG emissions are relatively small, particularly on a per employee
and per revenue basis., Magellan’s Scope 1 & 2 emissions intensity for 2015 of 0.3 tonnes CO2e per million
dollars of revenue puts Magellan among the lowest emissions intensity companies globally.
__________________________
(1) NABERS is a national rating system that measures the environmental performance of Australian buildings, tenancies and homes. NABERS is managed nationally by the NSW
Office of Environment and Heritage, on behalf of Commonwealth, state and territory governments.
92
MAGELLAN FINANCIAL GROUP LIMITED
Within Magellan’s funds management business, as discussed in the section titled “Responsible Investment”,
Magellan considers Environmental issues as a natural component of its investment process, particularly
where such issues may impact the future cash flows of the companies in which it is invested. Magellan
aims to engage with portfolio companies where it considers a material potential environmental issue has
arisen.
People
As a funds management company, Magellan’s people are integral to the success of the company. Magellan
takes an active involvement in staff wellbeing, staff engagement, motivation and career development.
Magellan implements a number of initiatives to promote staff engagement and retention. Middle and senior
management seek regular feedback from employees and Magellan also undertakes annual performance
reviews with all employees to discuss performance against a set of internal performance objectives, to
identify development areas as well as any training requirements.
Magellan strongly believes that staff engagement and satisfaction goes well beyond direct financial
compensation. Magellan’s annual leave policy encourages staff to take their full statutory requirement over
each annual period by providing an additional week of leave if they do so. The aim is to ensure that staff
maintain an appropriate work life balance. Magellan also enables flexible work arrangements to assist
employees to balance their work, personal and family responsibilities.
Magellan promotes staff ownership of the Company and encourages staff to think like owners as a way of
engaging and retaining staff. Magellan believes the Company’s Share Purchase Plan (SPP), described in
section 3.2 in the Director’s Report, is a transparent and essential program which improves staff retention
and aligns the long-term interests of the staff with shareholders through a sense of ownership. As at 30
June 2016 approximately 75% of employees had an individual shareholding in the Company.
Magellan is committed to workplace diversity and recognises the value of attracting and retaining
employees with different backgrounds, knowledge, experience and abilities. Magellan maintains a Diversity
Policy that outlines the Group’s commitment to diversity in the workplace and provides a framework to
achieve the Group’s diversity goals for the business. The Group’s policy is to recruit and manage on the
basis of competence and performance regardless of age, race, gender, nationality, beliefs, sexuality,
physical ability or cultural background. In the 2016 financial year, the Board reviewed the measurable
objectives it has set to achieve improvement in the diversity of employees. These objectives for female
representation are 33% for independent directors, 40% for senior management (classified by Magellan as
Key Management Personnel) and 40% for the overall Group. As outlined in Magellan’s gender diversity
statistics in the chart below, Magellan has good gender diversity with almost two thirds of Heads of Division2
roles held by women.
As Magellan’s staff numbers have increased sizeably over the past few years, the Company’s retention
remains high. At Magellan, culture is very important and the Company will continue to monitor retention
rates.
_____________
(2) Heads of division refers to employees who are responsible for a division or function within the organization. This statistic includes KMP, excluding the Executive Chairman
and CEO.
93
MAGELLAN FINANCIAL GROUP LIMITED
Community
Magellan believes an active contribution to community is important and actively seeks to give back
throughout the year. Magellan does not generally make corporate donations as the Group prefers to focus
on delivering satisfactory returns inclusive of regular dividend payments and allowing shareholders to
determine which charities to donate to. Instead, Magellan prefers to focus its efforts on employee
participation for fund raising initiatives.
Magellan’s efforts over the past financial year include:
Supporter of Rotary Club fund-raising initiative Bobbin Head Cycle Classic
Employee participation in JPMorgan Corporate Challenge
Employee participation in UN Women’s International Women’s Day breakfast
Ovarian Cancer Research Foundation's White Shirt Day
Magellan is also a participating fund manager in the Future Generation Global Investment Company. The
Future Generation Global Investment Company is an ASX listed investment company that invests in global
fund managers. Participating fund managers manage the capital entirely pro-bono in order for 1.0% of net
assets each year can be donated to Australian non-profits committed to young Australians affected by
mental health issues. Magellan is a foundation member and received an initial allocation of ~10% of the
assets under management at time of IPO.
94
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE INFORMATION
Directors
Brett Cairns - Chairman
Hamish Douglass – CEO and Chief Investment Officer
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Company Secretary
Geoffrey Stirton
Registered Office
Magellan Financial Group Limited
Level 36, 19 Martin Place
Sydney NSW 2000
Telephone: +61 2 9235 4888
Fax: +61 2 9235 4800
Email: info@magellangroup.com.au
Auditors & Tax Advisors
Ernst & Young
200 George Street
Sydney NSW 2000
Share Registrar
Boardroom Pty Limited
Level 12,
Grosvenor Place
225 George 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 (ordinary shares): MFG
Website
http://www.magellangroup.com.au
Corporate Governance Statement
The Corporate Governance Statement for MFG can be found at the Corporate Governance tab at
http://www.magellangroup.com.au
95
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 4 AUGUST 2016
Distribution of Shareholders
Analysis of the numbers of shareholders by size of holding at 4 August 2016 is presented below:
Holding
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 of Ordinary Shares
Number of
Holders
7,010
4,652
729
788
94
Number of
Ordinary
Shares
3,369,443
10,809,483
5,302,364
21,270,667
120,829,248
Percentage
of Shares
on Issue
%
2.09
6.69
3.28
13.16
74.78
13,273
161,581,205
100.00
3,695
856,947
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company as at 4 August 2016 are listed below:
Holder Name
HSBC Custody Nominees (Australia) Limited
Magellan Equities Pty Limited
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Midas Touch Investments Pty Ltd
National Nominees Limited
BNP Paribas Noms Pty Ltd
Nota Bene Investments Pty Ltd
Pershing Australia Nominees Pty Ltd
Emmanuel Capital Pty Ltd
Mr David Doyle
BNP Paribas Nominees Pty Ltd
Mr Christopher John Mackay
Aljamat Pty Ltd
Jash Pty Limited
PAJ Lewis Pty Ltd
Mr Philip Alan Kenneth Naylor & Mrs Andrea Naylor
PAJ Lewis Superannuation Fund Pty Ltd
Citicorp Nominees Pty Limited
Mr Matthew David Webb
Number of
Ordinary
Shares
20,351,591
16,888,949
16,276,133
11,488,630
10,296,300
7,418,985
2,995,420
2,851,497
2,023,154
2,000,000
1,500,000
1,397,036
1,390,385
1,310,000
1,130,331
925,000
914,167
875,000
642,159
517,788
Percentage
of Shares
on Issue
12.60
10.45
10.07
7.11
6.37
4.59
1.85
1.76
1.25
1.24
0.93
0.86
0.86
0.81
0.70
0.57
0.57
0.54
0.40
0.32
Total shares held by the twenty largest shareholders
103,192,525
63.85
Total ordinary shares on issue
161,581,205
96
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 4 AUGUST 2016
Substantial Shareholders
The substantial shareholders in the Company’s Register of Substantial Shareholders at 4 August 2016 are listed
below:
Shareholder
Hamish Douglass, Midas Touch Investments Pty Ltd and associates(A)(B)
Chris Mackay and associates(C)
Number
of
Ordinary
Shares
11,087,000
18,615,610
Percentage
of Shares
on issue
%
6.86
11.52
(A) Date of last Appendix 3Y notice lodged on 2 August 2016
(B) Mr Douglass holds 10,200,000 Class B Shares which at 30 June 2016 were entitled to convert into 10,293,175 ordinary shares
of the Company on 21 November 2016 (refer to note 14(d)(iii) for further details).
(C) Date of the last substantial shareholder notice lodged on 1 December 2015
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 ordinary shares.
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