Annual Report
for the year ended 30 June 2017
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.
Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period.
(2)
(3)
(4)
(5)
30 June 201730 June 201630 June 2015 30 June 201430 June 2013Group ResultsTotal Revenue$'000338,268333,805284,912148,109120,906Total Expenses$'00082,14174,10454,60337,63025,904Net Profit Before Tax(2)$'000256,127259,701230,309110,47995,002Net Profit Before Tax and before performance fees(5)$'000234,621212,341n/an/an/aNet Profit After Tax(2)$'000196,225198,357174,29582,93966,600Effective Tax Rate%23.423.624.324.929.9Funds Under Management(3)Average Funds Under Management$m45,66739,43730,96619,9239,351Total Funds Under Management$m50,59740,49536,38123,51314,695Funds Under Management comprises: - Retail$m15,15912,0419,8096,6934,542 - Institutional$m35,43828,45426,57216,82010,153Average Base Management Fee (per annum)(4)bps6666666766Funds Management BusinessTotal Revenue$'000329,188315,268255,889139,13586,786Total Expenses$'00080,90871,48352,58936,61625,207Net Profit Before Tax$'000248,280243,785203,300102,51960,773Net Profit Before Tax and before performance fees(5)$'000226,774196,425n/an/an/aEmployee Expenses/ Total Expenses%58.558.859.464.469.1Cost to Income Ratio (expense/revenue)%24.622.720.626.329.3Cost to Income Ratio (excluding performance fees)%26.326.524.826.743.8AssetsTotal Assets - MFG Group$'000493,981392,379346,678236,851193,441Net Assets - MFG Group$'000447,611355,369303,443206,587153,039Net Tangible Asset per share$2.602.071.781.241.02Shareholder ValueBasic Earnings Per Share(2)cents116.9123.5109.253.343.6Diluted Earnings Per Share(2)cents114.1115.5101.848.940.0Dividends Per Share(2)cents85.689.374.938.321.5Other InformationNumber of Employees108100916958Average Number of Employees10496806451
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 2017
Dear Shareholders
We are pleased to present the Annual Report for Magellan Financial Group (“Magellan”) for the financial year ended
30 June 2017.
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.
In short, for the financial year, our fully diluted earnings per share were $1.141 and our fully franked dividends per
share totalled $0.856. This compares with the equivalent earnings and dividends per share of $1.155 and $0.893
respectively for the last financial year.
It is important to note that these measures contain Performance Fees, and that these fees by their very nature fluctuate
significantly, especially over relatively short periods of time. The lumpy nature of these fees does not detract from their
value, but it can obscure overall comparative analysis.
For example, over the past two years we have seen the following:
Funds Management profit before tax ($ million)
Before Performance Fees
Net Performance Fee contribution
Total
Dividends (cents per share)
Before Performance Fees
Net Performance Fee contribution
Total
Average FUM ($ billion)
2017
226.8
21.5
248.3
78.8
6.8
85.6
45.67
2016
196.4
47.4
243.8
72.9
16.4
89.3
39.44
% change
15.5%
(54.6%)
1.8%
8.1%
(58.5%)
(4.1%)
15.8%
You will notice that before including Performance Fees our Funds Management profit before tax increased 15.5%,
broadly in line with the increase in average funds under management (“FUM”). Growth in dividends before Performance
Fees lagged somewhat at 8.1%, mainly due to this year’s one-off conversion of previous non-dividend paying Class B
shares into dividend paying ordinary shares.
All things being equal, it is FUM that drives the economics of our business and we are pleased to have continued to
receive solid support from our clients and their advisors, which resulted in $4.0 billion of net inflows. This, coupled with
satisfactory investment returns, led to our average FUM increasing 15.8% over the year to 30 June 2017, and as at 31
July 2017 our FUM stood at $49.6 billion.
It may be FUM that mathematically drives our economics, but it is trust that is at the heart of our business. Those
who choose to allow us to manage their, or their client’s, money do so because they trust we will do so diligently and,
perhaps more importantly, that we will do what we say we will do.
We have remarked before that we must deserve this trust, as if we do not, it will inevitably mean nothing. We aim to
build a culture that values this seamless web of deserved trust and have that culture infer all our actions and decisions,
be they undertaking portfolio investments, interacting with our clients and their advisors, developing new products, or
working amongst our team.
Continually developing our business is also important in this regard and we must always look to improve and grow.
This is important because there is a strong natural tendency over time to become stolid, allow bureaucracy to creep in
and choke off thinking, and ultimately become set in our ways. Undertaking new initiatives is just as important for our
clients and our staff as it is for our shareholders.
One thing we have firmly in our minds, however, is that we cannot trick ourselves into believing the success of any
initiative we undertake is a certainty, irrespective of how confident we are, or how much work we put in. Bertrand
Russell got it right when he noted that “not to be absolutely certain is one of the essential things in rationality.”
We certainly strive to act rationally and as such we accept first and foremost there is a chance we will get things wrong.
The irony here is that there is one thing we can be certain about – over time there will be slip-ups. The key from a
long-term business perspective is that these slip-ups are not fatal. As Yogi Berra put it, we need to avoid the “wrong
mistakes.”
3
MAGELLAN FINANCIAL GROUP LIMITED
How can we do that? Constantly aiming for simplicity is important, as a reduction in complexity almost always is
accompanied by a reduction in risk. Focussing on our customers and truly understanding the job they are effectively
hiring our products to perform also materially reduces the chances of making a mistake in managing our existing
products or developing new products, and the risk of eventually losing relevance over time.
Our development of what are now known as Active ETFs highlights many of these points. The success of this
undertaking was far from certain, but we did understand the job required – to provide a simple, efficient and robust
solution to allow investors, particularly those that are self -directed, access to our investment strategies via the ASX.
The evidence to date is that it is working. Our three Active ETFs have attracted over $1 billion in FUM and, importantly,
some 18,500 unitholders since the initial launch a little over two years ago. We are delighted that our clients and their
advisors are utilising our Active ETFs for their efficiency and ease of use. Equally as pleasing is that we also know that
a large number of the unitholders are self-directed investors and, significantly, the vast majority had not previously
had a relationship with Magellan, be it as a shareholder or investor in any of our unlisted funds.
Whilst we are pleased with this achievement, we recognise there is a very substantial and growing base of self-directed
investors with whom we are yet to connect. We also recognise that making this connection will require time and an
investment in a number of further initiatives. In this regard, we are very excited and proud to partner with Cricket
Australia to sponsor the domestic test series for the next few years.
Overall these initiatives will result in a material increase in our currently modest marketing expenditure. Even though
careful consideration has been given to these undertakings, we cannot be certain whether we will reach these self-
directed investors in a meaningful way, and whether they will be interested in investing with Magellan. Time will tell.
Finally, in this vein, we announced yesterday our intention to launch the Magellan Global Trust (“MGT”), which is a
closed-ended investment vehicle to be listed on the ASX1. We believe MGT offers some important and unique long-
term benefits to investors, particularly regarding the nature of the on-going relationship between Magellan, in its
capacity as investment manager, and MGT.
For instance, Magellan will pay for MGT’s establishment and new issue costs, in cash, ensuring investors have their
entire investment at work from the outset, rather than suffer the usual leakage associated with such offerings. Similarly,
Magellan will pay cash to MGT to reflect the cost of any discount associated with the re-investment plan for cash
distributions. This will ensure that those investors who do not wish to participate in the plan are not disadvantaged
due to dilution.
At the heart of our approach is the belief that our association with all our funds is one of partnership, and acting like
a partner is essential to developing enduring, long-term relationships with all our investors.
In this same regard, we are also extremely pleased to be able to offer all our existing eligible shareholders and investors
in our retail strategies a valuable loyalty bonus, via a priority offer, should they wish to invest in MGT. This loyalty
bonus will be paid for by Magellan and is worth 6.25% of the priority offer allotted amount2. This is a significant
undertaking for our firm, and one we believe is very worthwhile.
As we view all those who invest with us – be it as shareholders or in our funds – as partners, we will endeavour to
always act accordingly.
Our Annual General Meeting will be held on Thursday 12 October 2017 and as usual we welcome any and all discussion.
We hope to see you there.
Brett Cairns
Executive Chairman
10 August 2017
________________________
1. The Product Disclosure Statement (“PDS”) for the Magellan Global Trust (“MGT”) is expected to be lodged with the Australian Securities and Investments
Commission (“ASIC”), and will be made available, in mid-August 2017 ahead of the opening of the offer for interests in MGT (“Offer”). Further details
about the MGT and the Offer will be provided once the PDS has been lodged with ASIC. Magellan will also make the PDS available through its website
at www.magellangroup.com.au at that time. All investments carry risks and the PDS will provide details of the risks that may affect an investment in
the MGT. The PDS should be read and considered in deciding whether to participate in the Offer or to continue holding units in the MGT. Magellan may
vary the timing and terms of, or withdraw the offer for Units in the MGT at any time.
2. Subject to the vesting and other conditions to be outlined in the Product Disclosure Statement
4
MAGELLAN FINANCIAL GROUP LIMITED
Chief Executive Officer’s Annual Letter
for the year ended 30 June 2017
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 2017.
OVERVIEW OF RESULTS
The Group had a successful year which was characterised by:
•
strong growth in average funds under management (which increased by 16% from $39.4 billion to $45.7 billion
for the 12 months to 30 June 2017);
solid growth in management and services fees (which increased 15% to $307.2 million); and
solid growth in the underlying profitability before tax (excluding performance fees) of the Funds Management
business (which increased by 15% to $226.8 million).
•
•
The Group reported net profit after tax of $196.2 million for the 2017 financial year ($198.4 million for 2016). The net
profit reflects:
•
lower performance fees of $21.7 million for the 12 months to 30 June 2017 compared with $48.0 million for the
12 months to 30 June 2016. Excluding performance fees, underlying profitability grew by around 10%.
Performance fees fluctuate materially from period to period; and
lower dividend and distribution income on the Group’s holdings in Magellan Funds and other investments of $5.5
million for the 12 months to 30 June 2017 ($11.9 million in 2016). Distributions received from Magellan Funds in
part depend upon realised capital gains by the individual funds and can fluctuate materially from period to period.
•
The Directors have declared total fully franked dividends of 47.2 cents per share in respect of the June 2017 half year
(38.0 cents in 2016). The dividend payment comprises a Final Dividend of 41.5 cents per share and a Performance Fee
Dividend of 5.7 cents per share. The Directors have determined that separating payments into Interim, Final and
yearly Performance Fee Dividends aligns the Interim and Final Dividends with the underlying profitability of the Funds
Management business and makes any variance more transparent for shareholders given the lumpy and variable nature
of performance fees.
A fully franked Interim Dividend of 38.4 cents per share was paid in March 2017 (51.3 cents in March 2016). The Final
Dividend and the Performance Fee Dividend will both be paid on 28 August 2017.
The Directors have confirmed the policy of paying Interim and Final Dividends of 75% to 80% of the underlying net
profit after tax of the Group’s funds management business. However, the calculation will now exclude any crystallised
performance fees. Instead, in addition to the Interim and Final Dividends, the Directors have adopted a new policy of
paying an annual Performance Fee Dividend of 0% to 100% of the net crystallised performance fees after tax. Any
Performance Fee Dividends will be paid annually alongside the Final Dividend. The payment of dividends by the Group
will be subject to available franking credits and corporate, legal and regulatory considerations. The payment of
Performance Fee Dividends will also be subject to capital needs of the Group.
The following table summarises the Group’s profitability over the past two financial years:
________________________
(1) Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period.
5
30 June30 JuneChange20172016$'000$'000%Management and services fees307,179266,62915%Performance fees21,69648,014-55%Other revenue9,39319,162-51%Revenue338,268333,8051%Expenses(82,141)(74,104)11%Profit before tax expense256,127259,701-1%Tax expense(59,902)(61,344)-2%Profit after tax expense196,225198,357-1%Effective tax rate23.4%23.6%-1%Key StatisticsProfit before tax expense and before performance fees ($ millions)(1)234.6212.310%Earnings per share (cents per share)116.9123.5-5%Diluted earnings per share (cents per share)114.1115.5-1%DividendsInterim and Final Dividends (cents per share, fully franked)79.9n/aAnnual Performance Fee Dividend (cents per share, fully franked)5.7n/aTotal Dividends (cents per share, fully franked)85.689.3-4% MAGELLAN FINANCIAL GROUP LIMITED
As at 30 June 2017, the Group is in a strong financial position:
•
the Group had investment assets (cash and cash equivalents, financial assets and investment in associate) of
$411.1 million (30 June 2016: $328.3 million) and shareholders’ funds of $447.6 million (30 June 2016: $355.4
million); and
the Group’s NTA per share was $2.60 (30 June 2016: $2.07 diluted for the conversion of the Class B Shares).
Funds Management Business
For the year ended 30 June 2017, the Group’s funds management business generated profit before tax of $248.3
million ($243.8 million for 2016). Underlying profit before tax and before performance fees(2) grew by 15% to $226.8
million ($196.4 million for 2016).
The highlights for our funds management business include:
•
Continued support for our Global Equities and Global Listed Infrastructure strategies with retail Australian
investors, advisers and brokers. As at 30 June 2017, total retail funds under management was $15.2 billion ($12.0
billion at 30 June 2016) and retail net inflows over the 12 months were $1.7 billion ($2.3 billion for the 12 months
to 30 June 2016);
Continued support from institutional clients with net institutional inflows of $2.3 billion over the period ($1.8 billion
to 30 June 2016). Total institutional funds under management was $35.4 billion from more than 120 clients(3)
($28.5 billion from more than 110 clients at 30 June 2016); and
Solid investment performance of both our Global Equities and Global Listed Infrastructure strategies.
•
•
•
The following table summarises the profitability of the funds management business over the past two financial years:
Revenues for the year ended 30 June 2017 increased by 4% to $329.2 million. This was driven by a 16% increase in
total management fee revenues as a result of a 16% increase in average funds under management over the period
due to strong net inflows and investment performance. Overall the funds management business operated efficiently
with a cost to income ratio (excluding performance fees) of 26.3% in 2017 compared with 26.5% in 2016.
__________________________
(2) Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period.
(3) The number of clients includes separately managed accounts and institutional investors in local and offshore vehicles.
(4) Pursuant to the agreement, Frontier Partners is entitled to receive 25% of net management fees from Frontier MFG Funds and 20% of management fees from all institutional
mandate clients in the US and agreed institutional mandate clients in Canada.
(5) Based on daily average of London 4pm exchange rates of the 12 month period.
6
30 June30 JuneChange20172016$'000$'000%RevenueManagement fees300,529258,39216%Performance fees21,69648,014-55%Services fees6,6508,237-19%Interest and other income313625-50%329,188315,2684%ExpensesEmployee expense47,31242,01413%US marketing and consulting fees(4)7,8957,16810%Fund administration and operational costs8,6207,06822%Information technology expense3,7583,6064%Marketing expense3,0372,8118%Occupancy expense3,1551,278147%Other expense7,1317,538-5%80,90871,48313%Profit before tax expense248,280243,7852%Profit before tax and before performance fees(2)226,774196,42515%Key StatisticsAverage funds under management ($ million)45,66739,43716%Average AUD/USD exchange rate(5)0.75380.72843%Average number of employees104968%Employee expenses / total expenses58.5%58.8%Cost / income24.6%22.7%Cost / income, excl. performance fees26.3%26.5% MAGELLAN FINANCIAL GROUP LIMITED
Expenses increased by 13% to $80.9 million. The increase in expenses included:
•
•
•
a 13% increase in employee expense over the prior corresponding period to $47.3 million. This is slightly
above guidance provided with the interim results in February 2017 of 9-12% due to higher payments to the
infrastructure team as a result of performance fees crystallised during the 6 months to 30 June and a payment
on the retirement of a staff member;
an increase in US marketing fees to $7.9 million as a result of higher management fees from US clients;
an increase in occupancy costs to $3.2 million. This is due to the move to new head office premises in Sydney
and the increase is in line with guidance previously provided.
We expect Group employee expenses to increase by approximately 5-8% in the 2018 financial year which reflects the
annualised cost of employees hired in 2016/17, remuneration increases and planned hires.
On 7 August 2017 the Group announced it had entered into a 3 year agreement with Cricket Australia to become the
naming rights sponsor for the Australian domestic Test series. The sponsorship provides an attractive and highly
scalable platform to promote the Magellan brand and to build awareness of, and grow the market for, investing in
global equities.
We expect the Group’s marketing expense to increase materially in the 2018 financial year (to approximately $11.0-
$11.5 million) as we invest in our retail business. This increased spend is in line with our strategy to increase our
penetration with self-directed investors and includes the rollout of a brand advertising campaign to build awareness of
and grow the market for investing in global equities, a sponsorship (and supporting initiatives) with Cricket Australia
which provides a highly scalable platform to promote our brand and the development of a new website which will
create an improved user experience for our clients.
We are no longer pursuing the establishment of a public policy institute as flagged in last year’s results.
The following table sets out total employee numbers(6):
__________________________
(6) Historical figures have been restated to reflect business division transfers (Legal team from Business Support & Control to Risk, Compliance, Legal & Company Secretarial
and Performance and Reporting team from Business Support & Control to Distribution).
7
30 June30 June20172016Investment-Portfolio Managers/Analysts3332-Dealers333635Governance & Advisory54Distribution3530Risk, Compliance, Legal & Company Secretarial87Business Support & Control1717Administration77Total108100Average number of employees10496 MAGELLAN FINANCIAL GROUP LIMITED
Funds Under Management (FUM)
At 30 June 2017, the Group had funds under management of $50.6 billion, split between global equities (84%) and
infrastructure equities (16%). This compares with funds under management of $40.5 billion at 30 June 2016. The
increase in funds under management was driven by net inflows of $4.0 billion, investment performance of
approximately $6.7 billion less cash distributions (net of reinvestment) of approximately $0.6 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.
We consider that the theoretical capacity of our Global Equities, Global Listed Infrastructure and Low Carbon strategies
is approximately US$85 billion in total.
At 30 June 2017, the Group was managing $50.6 billion (equating to approximately US$38.8 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 2017, the Group had total retail funds under management of $15.2 billion. We experienced total net retail
inflows of $1.7 billion for the 12 months to 30 June 2017, compared with $2.3 billion for the previous financial year.
The Group experienced average monthly retail net inflows of approximately $147 million over the 12 months to 30
June 2017, compared with $195 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.
8
$million30 June30 June30 June201720162015Retail15,15912,0419,809Institutional-Australia/New Zealand4,9394,4153,871-North America10,9199,1458,462-UK16,23112,38212,331-Rest of World3,3492,5121,90835,43828,45426,572Total FUM50,59740,49536,381PercentageRetail30%30%27%Institutional-Australia/New Zealand10%11%11%-North America21%23%23%-UK32%31%34%-Rest of World7%6%5%70%70%73%Total FUM100%100%100%FUM subject to Performance Fees (%)38%38%37%Institutional FUM (%)-Active87%85%85%-Enhanced Beta13%15%15%Breakdown of FUM (A$ million)-Global Equities42,316 33,723 31,015 -Global Listed Infrastructure8,281 6,772 5,366 Average Base Management fee (bps) per annumexcluding Performance Fees(7)66 66 66 MAGELLAN FINANCIAL GROUP LIMITED
We believe we are developing a robust retail business in Australia and New Zealand focused on global equities and
global listed 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);
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 available at Commonwealth Bank and BT/Westpac;
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 12 account
managers and offices in Sydney, Melbourne, Brisbane, Adelaide, Perth and Auckland.
On 9 August 2017 we announced the intention to undertake an initial public offering for units in a new ASX-listed
investment trust, the Magellan Global Trust (“Trust”)(9). The Trust will offer investors the ability to invest in a new
global equities strategy managed by Magellan while targeting a cash distribution yield of 4% per annum. We believe
that these features and other structural efficiencies that we have built around the Trust will make this an appealing
investment proposition.
Further, we are undertaking a priority offering to our shareholders and investors in Magellan’s retail strategies to offer
these investors an invitation to subscribe for units in the Trust. Magellan will reward these investors with a loyalty
bonus in the form of additional units in the Trust equal to 6.25% of the value of their allotment under the priority
offer(10). This priority offer will engage with approximately 250,000 to 300,000 individuals who are invested in Magellan
and its retail strategies either directly or indirectly and represents an opportunity to build an attractive closed end
vehicle of scale.
Magellan is paying for all the costs of the capital raising and the cost of the loyalty bonus. These will result in a material
one off expense in the 2018 financial year. Further details of the financial impact resulting from the Magellan Global
Trust raising will be disclosed following the completion of the offer. We believe this initiative will strengthen our retail
business and provide an attractive additional investment platform for retail investors.
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:
Includes Dealer Groups that have more than $200,000 funds under management with the Group.
_________________________
(8)
(9) The Product Disclosure Statement (“PDS”) for the Magellan Global Trust (“Trust”) is expected to be lodged with the Australian Securities and Investments Commission
(“ASIC”), and will be made available, in mid-August 2017 ahead of the opening of the offer for interests in MGT (“Offer”). Further details about the MGT and the Offer will
be provided once the PDS has been lodged with ASIC. Magellan will also make the PDS available through its website at www.magellangroup.com.au at that time. All
investments carry risks and the PDS will provide details of the risks that may affect an investment in the Trust. The PDS should be read and considered in deciding whether
to participate in the Offer or to continue holding units in the Trust. Magellan may vary the timing and terms of, or withdraw the offer for Units in the Magellan Global Trust
at any time.
(10) Subject to the vesting and other conditions to be outlined in the Product Disclosure Statement.
(11) Calculations are based on exit price with distributions reinvested, after ongoing fees and expenses but excluding individual tax, member fees and entry fees (if applicable).
Annualised performance is denoted with “p.a.” for the relevant period.
(12) Inception date for the Magellan Global Fund and Magellan Infrastructure Fund is 1 July 2007 and the inception date for Magellan High Conviction Strategy is 1 January 2013.
(13) The Global Listed Infrastructure benchmark is comprised of the following: from inception to 31 December 2014 the benchmark is UBS Developed Infrastructure and Utilities
NTR Index (AUD Hedged) and from 1 January 2015 onwards, the benchmark is the S&P Global Infrastructure NTR Index (AUD Hedged).
9
Investment Performance for the period to 30 June 2017(11)1 Year3 Years5 YearsSinceInception (12)%% p.a.% p.a.% p.a.Magellan Global Fund15.414.318.411.0 MSCI World NTR Index ($A)14.712.818.05.0Magellan Infrastructure Fund8.612.915.68.6Global Listed Infrastructure Benchmark ($A)(13)12.48.312.66.0Magellan High Conviction Strategy20.816.3-20.9 MAGELLAN FINANCIAL GROUP LIMITED
We are pleased with the results to date particularly given the volatility experienced in global stock markets in response
to the dramatic fall in US long term bond yields earlier in the year, the backdrop of the Brexit referendum and the
outcome of the US election. Given our medium to long term focus, 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(14) had funds under management of approximately $13.4 billion at
30 June 2017. The retail Global Equity strategy experienced total retail net inflows of $1.2 billion and average monthly
retail net inflows of approximately $101 million over the 12 months to 30 June 2017. This compares with the retail
Global Equity strategy’s total net inflows of $2.0 billion and the average monthly retail net inflows of $164 million over
the 12 months to 30 June 2016.
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(14)
The retail component of the Global Listed Infrastructure strategy(15) had funds under management of approximately
$1.8 billion at 30 June 2017. The retail Global Listed Infrastructure strategy experienced total retail net inflows of $552
million and average monthly retail net inflows of approximately $46 million over the 12 months to 30 June 2017. This
compares with the retail Global Listed Infrastructure strategy’s total net inflows of $365 million and the average monthly
retail net inflows of $30 million over the 12 months to 30 June 2016.
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(15)
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.
__________________________
(14) 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.
(15) The retail component of the Global Listed Infrastructure strategy includes Magellan Infrastructure Fund (retail portion), Magellan Infrastructure Fund (Unhedged) (retail
portion), Magellan Infrastructure Fund (Currency Hedged) (quoted fund) and retail separately managed accounts for the Global Listed Infrastructure strategy.
10
MAGELLAN FINANCIAL GROUP LIMITED
Institutional Funds Under Management
At 30 June 2017, the Group had total institutional funds under management of $35.4 billion from more than 120
clients(16). We experienced institutional net inflows of $2.3 billion for the 12 months to 30 June 2017, which compares
with net inflows of $1.8 billion for the 12 months to 30 June 2016.
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, low carbon and global listed infrastructure capabilities over time.
We have recently informed existing and prospective institutional clients that we will be closing our global equities
strategies managed by me to new investors no later than 31 December 2017(17).
During the year we seeded and launched a new investment strategy that is initially being marketed to wholesale and
institutional investors globally. The Low Carbon strategy leverages Magellan’s existing investment processes and
philosophies and incorporates a proprietary low carbon overlay in portfolio construction which screens out companies
based on their carbon emissions intensity and limits the overall carbon emissions of the portfolio through a portfolio
carbon emissions intensity cap. It also excludes companies with fossil fuel exposures or interests, for example
companies engaged in the extraction, storage and transportation of fossil fuels.
We initially launched a global equities version of this strategy with Magellan’s Deputy Chief Investment Officer, Dom
Giuliano promoted to Portfolio Manager of this strategy. We have now launched a U.S. mutual fund and Irish UCITS
sub-fund for this strategy and are also making it available to separately managed accounts. Although it will take time
to develop a track record and generate meaningful client investment we are seeing a good level of preliminary interest
in this strategy. We have also seeded two complementary Low Carbon strategies and expect to launch U.S. mutual
funds around these in FY18.
During the year we also launched a U.S. mutual fund and Irish UCITS sub-fund for the Select Infrastructure strategy
and are building interest in this strategy in these regions.
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(18)
The development of the Group’s institutional funds management business is progressing well.
At 30 June 2017, the Group managed funds from clients in North America of approximately $10.9 billion ($9.1 billion
at 30 June 2016).
Our Australian/NZ business remains strong. As at 30 June 2017 the Group had total funds under management of
approximately $4.9 billion from clients in Australia/NZ ($4.4 billion as at 30 June 2016).
We are also making strong progress with clients outside Australia/NZ and North America, managing funds for Rest of
World clients of $19.6 billion as at 30 June 2017 ($14.9 billion as at 30 June 2016). We remain focused on specific
target markets, primarily the UK and Singapore. Our UK business remains strong. At 30 June 2017, the Group had
total funds under management of approximately $16.2 billion from clients in the UK(19) ($12.4 billion at 30 June 2016).
The UK infrastructure fund that replicates our Core Infrastructure (Enhanced Beta) strategy has funds under
management of approximately $3.3 billion at 30 June 2017 ($3.1 billion at 30 June 2016).
__________________________
(16) The number of clients includes separately managed accounts and institutional investors in local and offshore vehicles.
(17) U.S. mutual fund will remain open with some allocated capacity.
(18) Management & Services fees for the 12 months to 30 June 2017 for separately managed accounts and institutional investors in local and offshore vehicles. Excludes
Performance fees.
(19) Including UK clients invested in the Group’s MFG Global Fund (Irish UCITS fund offered to institutional clients in our target markets, outside Australia and the United States).
11
0.0%2.0%4.0%6.0%8.0%10.0%123456789101112131415161718192021222324252627282930% of Total Management & Services FeesTop 30 Institutional Clients MAGELLAN FINANCIAL GROUP LIMITED
Investments in Magellan’s Funds and Principal Investments
At 30 June 2017, the Group had total net Principal Investments of $251.0 million (net of tax liabilities, settlement
receivables/payables and accruals), compared with net Principal Investments of approximately $208.2 million at 30
June 2016.
The Group’s Principal Investments include investments in Magellan Unlisted Funds, the ASX quoted Magellan Global
Equities Fund, Magellan Global Equities Fund (Currency Hedged), Magellan Infrastructure 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 the payment of
dividends, 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 16.0%, 14.8% and 19.7% 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 10.8% per
annum since inception from 1 July 2007. 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 2017:
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
10 August 2017
__________________________
(20) 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, Magellan Wholesale Plus Global Fund, Magellan Wholesale Plus Infrastructure Fund and the MFG Infrastructure
Fund – Service Class
(21) Listed shares/funds include MGF Plus Portfolio, Global Low Carbon Portfolio, Low Carbon (US) Portfolio, International Portfolio, International Low Carbon Portfolio, Magellan
Global Equities Fund, Magellan Global Equities Fund (Currency Hedged) and Magellan Infrastructure Fund (Currency Hedged) excluding receivables/payables (refer to
footnote 22)
(22) Other comprises receivable/payables and unlisted funds and shares.
(23) Deferred tax liability arising from changes in the fair value of financial assets and net capital losses carried forward.
(24) Based on the aggregate of 172,076,468 ordinary shares on issue at 30 June 2017 (30 June 2016, it is based on 161,581,205 ordinary shares and 10,293,175 ordinary shares
into which the 10,200,000 Class B Shares would have been entitled to convert at 30 June 2016).
12
$million30 June30 June201720163.42.3160.0131.3102.974.75.011.2271.3219.5(20.3)(11.3)251.0208.2CashMagellan Unlisted Funds(20)Listed shares/funds(21)Other(22)TotalDeferred tax liability(23)Net Principal InvestmentsNet Principal Investments per share (cents)(24)145.8121.1 MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
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 2017.
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 of the Company are publicly traded on the Australian Securities
Exchange under ASX Code: MFG.
The Company’s principal place of business is Level 36, 19 Martin Place, Sydney, New South Wales, 2000.
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 $127,478,000 were paid representing 76.4 cents per share (June 2016:
$143,002,000 representing 89.1 cents per share). Refer to note 4 in the financial statements for further details.
Since the end of the year, the Directors have declared total fully franked dividends of 47.2 cents per share in respect
of the half year ended 30 June 2017 (June 2016: 38.0 cents per share). The dividend payment comprises a Final
Dividend of 41.5 cents per share and a Performance Fee Dividend of 5.7 cents per share, which together represents
approximately $81,220,000.
The Directors have confirmed the policy of paying Interim and Final Dividends of 75% to 80% of the underlying net
profit after tax (NPAT) of the Group’s funds management business. However, the calculation will now exclude any
crystallised performance fees. Instead, in addition to the Interim and Final Dividends, the Directors have adopted a
new policy of paying an annual Performance Fee Dividend of 0% to 100% of net performance fees after tax. Any
Performance Fee dividends will be paid annually alongside the Final Dividend. The payment of dividends by the Group
will be subject to available franking credits and corporate, legal and regulatory considerations. The level of payment of
performance fee dividends will also be subject to the capital needs of the Group.
1.4 Review of Financial Results and Operations
The Group’s net profit after tax for the year ended 30 June 2017 was $196,225,000 compared with net profit after tax
of $198,357,000 for the prior year. Total operating expenses of $82,141,000 compared with total operating expenses
of $74,104,000 for the previous corresponding year.
The Group is in a strong financial position with an extremely strong balance sheet and at 30 June 2017 reported:
-
investment assets (including cash and cash equivalents, financial assets and investment in associate) of
$411,131,000 (June 2016: $328,302,000) and shareholders’ funds of $447,611,000 (June 2016:
$355,369,000); and
- NTA per share of $2.60 ($2.07 at 30 June 2016 diluted for the conversion of Class B Shares).
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 in
the Chief Executive Officer’s Annual Letter.
13
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
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 4 August 2017, the Group reported on the ASX its funds under management were $49.6 billion as at 31 July 2017.
On 7 August 2017, the Group announced it had signed a 3 year agreement with Cricket Australia to become the naming
rights sponsor for the Australian domestic Test series. This sponsorship provides a highly scalable platform to promote
the Magellan brand and to build awareness of and grow the market for investing in global equities. The commercial
terms of the agreement are confidential.
On 9 August 2017 the Group announced its intention to undertake the initial public offering of the Magellan Global
Trust (“Trust”), a closed ended investment vehicle to be listed on the ASX. The Trust will offer investors the ability to
invest in a new global equities strategy managed by Magellan while targeting a cash distribution yield of 4% per annum.
A product disclosure statement for the Magellan Global Trust (“Trust”) is expected to be lodged with the Australian
Securities & Investments Commission in August 2017, with the offer period for the initial public offering of the Trust to
open in late August. A priority offer is expected to be made to existing Magellan shareholders and investors. Should
they wish to invest in the Trust, the Group would reward these investors with a valuable loyalty bonus in the form of
additional units in the Trust.
The Group intends to fund the costs of the offer and loyalty bonus units. Subject to the size of the offer this may result
in a material one off expense and impact the assets and liabilities of the Group in the financial year ended 30 June
2018. Further details of the financial impact resulting from the Magellan Global Trust raising will be disclosed following
the completion of the offer.
Other than the above and the dividends in respect of the half year ended 30 June 2017 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.
14
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
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
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Directorship
Executive Chairman
CEO and Chief Investment Officer
Non-Executive Director
Non-Executive Director and Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Appointed
22 Jan 2007
21 Nov 2006
1 Jul 2017
23 Apr 2014
20 Dec 2006
1 Mar 2016
23 Apr 2014
Secretaries
2.2
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), 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.
Hamish is a Director of Victor Chang Cardiac Research Institute. He holds a BCom from the University of NSW.
John Eales AM
Non-Executive Director and member of the Audit and Risk Committee and Remuneration and Nominations Committee.
John Eales AM graduated from the University of Queensland in 1991 before taking to the international rugby stage. He
debuted for the Wallabies in 1991 and captained the side from 1996 until the end of his Test career in 2001. He
participated in two successful World Cup campaigns, captaining the latter in 1999, and led Australia through three
Bledisloe Cups, two Tri-Nations and a British & Irish Lions series victory.
After retiring from rugby in 2001, he has served in executive or advisory positions with a number of organisations.
John cofounded the Mettle Group in 2003 – a corporate consultancy which was acquired by Chandler Macleod in 2007
– and currently sits on the boards of Flight Centre Travel Group, Fuji Xerox – Document Management Solutions and
the Australian Rugby Union. He is a columnist with The Australian newspaper writing on both business and sport, an
occasional lecturer at the University of Notre Dame in Sydney, and he has served as a consultant to major Australian
companies, including Westpac. John is the author of two books, Learning from Legends Sport and Learning from
Legends Business.
He was made a Member of the Order of Australia in 1999 for services to the community and rugby.
15
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
2.3
Information on Directors and Officers (continued)
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 28 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) and F.F.I. Holdings Limited
(since October 2011). He was previously a Director of Gowing Bros Limited (April 2012 – December 2016).
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 a member of NAB Business Advisory Council, Chairman of
Growth Mantra, Deputy National Chairman of the Australian British Chamber of Commerce, Chair of IPScape Limited,
and a board member of Optal Limited, Grassroots Pty Ltd, Ipro Solutions Pty Limited and Cure Cancer Australia
Foundation. He was also Chair of the NAB Private Advisory Board. 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
(appointed 21 February 2012 and Chairman since 10 April 2012), 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 Ascham School Council of Governors. 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 30 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 2017
Directors’ Meetings
2.4
The number of meetings of the Board and Board Committees, held during the year ended 30 June 2017 and the
number of those meetings attended by each Director are set out below:
Directors’ Interests
2.5
During the year ended 30 June 2017, Magellan Asset Management Limited (a wholly owned entity of MFG) paid fees
to International Quarterback Pty Limited (IQ) for consulting services. Mr Eales has a non-material shareholding in IQ
and was formerly a director of IQ.
On 9 August 2017, Magellan Asset Management Limited appointed Taylor Collison Limited as Lead Arranger and a Joint
Lead Manager in respect of the Broker Firm Offer and the General Public Offer for intended initial public offering of the
Magellan Global Trust. Mr Fraser is a director of Taylor Collison Limited and has a non-material shareholding in that
company. No amounts were paid or payable to Taylor Collison by any entity in the Group in respect of this transaction
during the year ended 30 June 2017 and up to the date of this report.
All transactions were conducted on arm’s length terms. Apart from the above, 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----J Eales------R Fraser778833P Lewis778833H McLennan778833K Phin778833BoardAudit & Risk Committee Remuneration & Nominations Committeewhile a Directorwhile a memberwhile a member MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited)
This Remuneration Report outlines the remuneration arrangements of the Group for the year ended 30 June 2017.
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 2017 financial year, the KMP for the Group included the Executive Chairman, the Chief Executive Officer (CEO)
and Chief Investment Officer, the Non-Executive Directors 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
3.1
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 and is subject to some level of deferred payment; and
An offer of voluntary participation in the Group’s Share Purchase Plan (SPP), to encourage long term ownership
in the Group.
Variable remuneration
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. If these objectives are met, the interests of shareholders
will be satisfied. 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.
18
NamePositionTerm as KMPNon-Executive DirectorsRobert FraserDirectorFull YearPaul LewisDirectorFull YearHamish McLennanDirectorFull YearKaren PhinDirectorFull YearExecutive DirectorsBrett CairnsExecutive ChairmanFull YearHamish DouglassCEO & Chief Investment OfficerFull YearGroup ExecutivesFrank CasarottiGeneral Manager - DistributionFull YearKirsten MortonChief Financial OfficerFull YearGerald StackHead of InvestmentsFull YearMarcia VenegasHead of Risk, Compliance and LegalFull YearCraig WrightHead of Governance & AdvisoryFull YearFormer Group ExecutiveNerida CampbellChief Operating OfficerCeased 1 Feb 2017 MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
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.
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 discretionary and 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 an outcome of an overall performance appraisal process.
Variable remuneration may be in the range of 0-100% of the fixed remuneration amount or higher in exceptional
circumstances.
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 aligning the basis of the CEO’s variable incentive to investment performance provides an important calibration
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.
Variable incentives are paid partly as a current year cash bonus and partly as a conditional deferred cash bonus amount
over periods up to three years.
Share Purchase Plan (SPP)
The Group does not operate a specific long term incentive plan, however the Group offers voluntary 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. 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 the employees are not required to
pay for shares through these instruments. 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, generally up to 75% of the subscription value, via a full recourse, interest-
free loan, and thus the SPP participant bears the full risks and benefits of being a shareholder. The Board believes the
Group is best placed to offer stable financing arrangements to establish and support meaningful ownership as it would
be counterproductive to a true long term ownership position if short term share price movements were to impact an
employee’s own financing of this loan. The full recourse loan is compulsorily repaid via dividends paid on associated
shares plus 25% of the employees after tax variable incentive. As the loan is full recourse, participants are liable to
repay the loan irrespective of the performance of the Group’s shares.
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.
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 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
Non-Executive Director’s fees. Importantly, this also allows Non-Executive Directors to be fully invested in the Group
at the beginning of their tenure rather than waiting many years to accumulate a meaningful ownership position. 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 promotes
independent thought and engagement that will be in the long-term interests of the Group’s shareholders. The Group’s
shareholders must approve the provision of financing to the Non-Executive Directors by way of a vote at the Annual
General Meeting.
Further details of the SPP are set out in note 15 to the financial statements.
19
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
Remuneration of Non-Executive Directors
3.2
The Board regularly 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.
Remuneration and other terms of employment for the Non-Executive Directors are formalised in service agreements
with the Group. Non-Executive Directors are appointed for a term of three years unless the Non-Executive Director is
not re-elected by shareholders of the Company.
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 Directors’ fees (inclusive of superannuation) and the non-cash expense to the
Group of providing the full recourse, interest-free loans under the SPP described in section 3.1. Together, these 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 intends to seek shareholder approval to raise the cap to $750,000 at the Group’s 2017 Annual
General Meeting.
The following table outlines the Non-Executive Directors’ fees (inclusive of superannuation) for the Board and
Committees of both the Group and Magellan Asset Management Limited for the year ended 30 June 2017:
Board (Group)
Audit & Risk Committee
Remuneration & Nominations Committee
Position
Non-Executive Director
Chairman
Member
Chairman
Member
Fees ($)
70,000
25,000
10,000
-
-
The Group has reimbursed or borne expenses incurred by the Non-Executive Directors in the discharge of their duties
of $1,286 (June 2016: $1,301).
No retirement benefits (other than superannuation) are provided to Non-Executive Directors.
Remuneration of Executive Directors and Other KMP
3.3
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 below table provides a summary of Executive Directors and Other KMP remuneration structures for the 2017
financial year.
Fixed remuneration
(incl. of superannuation)
$1,250,000
Brett Cairns
Hamish
Douglass
1.5% of the average annual
operating profit before income tax
expense of the Funds Management
business for the three immediately
preceding financial years
Gerald Stack Market-based base salary
Other KMP
Market-based base salary
Variable remuneration
Not entitled to receive variable
incentive payments
Up to 100% of fixed compensation
based on the performance of the
Group’s Global Equity strategy over a
three year period
Up to 10% of net revenues earned by
the Group in respect of investment
strategies for which he is portfolio
manager, less an internal allocation of
certain costs
Generally up to 100% of fixed
remuneration based on individual
performance / contribution and the
overall performance of the Group
SPP participation
Ability to participate in SPP
Not entitled to participate in
SPP as he owns 21.7 million
shares which provide a
material alignment with
shareholders
Ability to participate in SPP
Ability to participate in SPP
20
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
Mr Douglass’ remuneration structure
The Board considers that Mr Douglass is performing two distinct roles. He is both the Chief Executive Officer and the
Chief Investment Officer/Lead Portfolio Manager for the Group’s global equity strategies. The Board considers that Mr
Douglass’ remuneration takes into account both of these roles. At a high level Mr Douglass’ annual fixed remuneration
can be attributed primarily to his role as Chief Executive Officer and is tied to the medium term profitability of the
Group’s Funds Management business, and his variable remuneration can be attributed to his role as Chief Investment
Officer/Lead Portfolio Manager and is entirely based on the performance of the Group’s Global Equity strategy.
The Board recognises that Mr Douglass’ remuneration structure is not a typical remuneration arrangement but it
believes the structure fairly compensates Mr Douglass for the roles he is performing.
Mr Douglass’ remuneration structure focuses him on delivering positive medium to long term outcomes for both clients
and shareholders and not on actions simply to maximise short term profitability. In addition, Mr Douglass’ substantial
shareholding in the Group, along with his personal investments in the Group’s investment strategies, also creates strong
alignment with clients and shareholders.
Following a review, for the period commencing 1 July 2016, Mr Douglass’ annual fixed remuneration was adjusted from
a fixed amount of $1,250,000 per annum to an amount equal to 1.5% of the average annual operating profit before
income tax expense for the Group’s Funds Management business for the three immediately preceding financial years,
subject to any adjustments agreed between the Board and Mr Douglass. Mr Douglass’ fixed remuneration (inclusive
of superannuation) for the year ended 30 June 2017 was $2,748,023.
The below table outlines Mr Douglass’ annual fixed remuneration as a percentage of the three year average annual
operating profit before tax expense for the Funds Management business over the past five financial years. The Board
believes that 1.5% is an appropriate level of compensation having regard to Mr Douglass’ historical remuneration and
the roles he is performing.
3 year average annual operating profit before tax for
Funds Management business ($’000)(A)
5-year compound average growth rate
Mr Douglass' fixed remuneration ($’000)
5-year compound average growth rate
Mr Douglass' fixed remuneration as % of 3 year average
operating profit for Funds Management business(A)
(A) For the three immediately preceding financial years
2017
2016
2015
2014
2013
183,201
122,466
60,132
27,756
7,987
137%
2,748
62%
1,250
1,250
1,250
400
1.5%
1.0%
2.1%
4.5%
5.0%
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.
On an annual basis, Mr Douglass is eligible to receive variable compensation being a maximum amount of up to but
not exceeding 100% of his fixed compensation for that financial year. Mr Douglass’ annual variable incentive is
determined in relation to the performance of the investment strategies under his control over a three year period.
Importantly, the three year performance period emphasises the Group’s medium to long term focus for its investment
strategies and the needs of clients. Achieving superior investment returns for clients over the medium to long term
will ultimately be in shareholders’ interests. Mr Douglass does not receive any of his variable incentive up front. Instead
payment is deferred over the subsequent three financial years which is consistent with the medium term focus of Mr
Douglass’ variable remuneration arrangements.
The Board, in consultation with Mr Douglass, determined the performance metrics and underlying quantitative
measures that apply which are subject to an annual review ahead of the next financial year. For the year ending 30
June 2017, the metrics are:
21
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
Performance
Metrics
Ranking of the Global
Equity Strategy
in Peer Group(A)
(rolling 3 years as at
30 June each year)
Weighting
33.3%
Percentage Paid/Performance Measures
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)
1st Quartile
Bottom of 2nd Quartile to top of
2nd Quartile
0%
3rd and 4th Quartile (bottom
50%)
2017 outcome
Mr Douglass received
100% of this component
in 2017, based on a 1st
Quartile ranking
Absolute Performance
(Gross Return)
of the Global Equity
Strategy (measured in
USD)
(rolling 3 years as at
30 June each year)
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 the absolute performance achieved as per
the below table:
33.3%
100%
50% to 100%
(sliding scale)
0%
12% p.a. or greater
8% p.a. to 12% p.a.
Less than 8% p.a.
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
55.4% of this component
in 2017, based on
absolute performance of
8.43% p.a.
Mr Douglass received
100% of this component
in 2017, based on relative
gross investment
performance of 8.43%
p.a. against Benchmark
Index of 5.24% p.a.
(A) Ranking 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).
(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 2017, Mr Douglass will receive a total variable incentive of $2,339,021 (June
2016: $442,456) 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” in Section 3.5.
As part of an annual review, the Board, in consultation with Mr Douglass, determined to add an additional performance
metric to the three current variable performance metrics for Mr Douglass’ 2018 variable remuneration. Therefore, Mr
Douglass’ 2018 variable incentive will be determined by four performance metrics with equal weight distributions. The
additional metric and underlying quantitative measures are outlined below.
Performance Metric
Down Market Capture of the
Global Equity Strategy (measured
in USD) against its Benchmark
Index (rolling 3 years as at 30
June each year)
Weighting
25%
Percentage Paid/Performance Measures
The percentage paid is in the range of 0% to 100% dependent on
the Down Market Capture achieved as per the table below:
100%
100% to 50%
(sliding scale)
0%
Achieves Down Market Capture less
than 75%
Achieves Down Market Capture of
75% to less than 100%
Achieves Down Market Capture
greater or equal to 100%
Down Market Capture measures how the Global Equity Strategy performs relative to the MSCI World Net Total Return
Index in every month over a rolling 3 year period where the return on this Index is negative. The Board believes Down
Market Capture is an important metric to include as it is in line with one of the key objectives of the Global Equity
strategy to minimise the risk of permanent capital loss.
22
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
2017 Remuneration Report (Audited) (continued)
3.
Fixed remuneration for 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.
Dr Cairns’ fixed remuneration is subject to annual review and was unchanged from the previous year.
Fixed remuneration for Other KMP is reviewed annually to ensure that it is competitive and reasonable, however there
are no guaranteed increases to the fixed remuneration amount.
Variable remuneration for Other KMP
When considering variable remuneration, the Board’s primary objective is that KMP are motivated to build valuable
long term client relationships and generate returns for investors in the funds managed by the Group which will
ultimately deliver shareholder wealth over the long term.
The CEO determines the amount of variable incentive to be paid to Other KMP, subject to review and approval by the
Remuneration and Nominations Committee, 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. Entitlement to the deferred cash bonus is dependent on Other KMP being employed by the Group at
the time of payment.
The Board believes that the CEO’s and Chairman’s shareholdings and the participation in the Group’s SPP by Other
KMP closely aligns their interests with the long term interests of shareholders.
Summary of 2017 variable remuneration outcomes
(a) Variable remuneration outcomes for 2017
The tables below outline the variable remuneration outcomes (as a % of fixed remuneration) for KMP for the 2017
financial year and provide an overview of key achievements and business outcomes delivered by Other KMP that were
considered when determining their variable remuneration for the year.
Variable
remuneration
outcome
85%
KMP
Hamish
Douglass
Frank
Casarotti
105%(A)
Kirsten
Morton
100%
Gerald
Stack
Marcia
Venegas
673%(A)
75%
Craig
Wright
95%
Comments
• Based on agreed criteria and performance metrics relating to the performance of the
investment strategies under his control over the three year period to 30 June 2017
• The performance metrics and relative weightings of these are outlined in section 3.3
• Overseeing the Distribution team which achieved total net retail inflows of $1.7 billion and
net institutional inflows of $2.3 billion
• Promoting and maintaining a client focussed culture within the Group’s Distribution team
• Deepening the Group’s relationship with key stakeholders in the Bank/AMP aligned channel
• Overseeing the development of the Group’s self-directed strategy and initiatives
• Leading the Group’s Business Support and Control teams, including Finance, Investment
Operations and Administration
• Streamlining and simplifying the Group’s business operational functions in Australia and the
US, including embedding business intelligence systems and processes to manage key
operational risks
• Up to 10% of net revenues earned by the Group in respect of investment strategies for which
he is portfolio manager, less an internal allocation of certain costs
• Leading the Group's Legal, Risk, Compliance and Company Secretarial teams in support of
the Group's strategic goals
• Overseeing and enhancing the risk and compliance frameworks in all jurisdictions in which
the Group operates
• Establishing standards and policies required for new products and ensuring compliance with
new regulatory requirements in Australia and the United States
• Resolving compliance issues and providing advice to the business to enable the Group to
implement its strategic goals within the regulatory requirements
• Overseeing the project management of strategic initiatives across the Group, including the
establishment of the Group’s new U.S. mutual funds
• Overseeing the Group’s IT infrastructure and business continuity planning
• Overseeing the Group’s UCITS investment company based in Ireland including the
establishment of two new sub-funds
Nerida
Campbell
-
• Ms Campbell concluded employment with the Group on 1 February 2017 resulting in no
variable incentive entitlement in respect of the 2017 financial year
(A) Includes a 10-year service bonus payment
23
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
(b) Split between cash and conditional deferred cash bonus components of 2017 variable remuneration
The below table provides a summary of variable remuneration outcomes for Executive Directors and Other KMP for the
years ended 30 June 2017 and 30 June 2016. 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.
(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 represents the portion of Group Executives’ awarded variable remuneration for the financial year
that is deferred and is paid in cash in 36 equal monthly instalments in future financial years, subject to continued employment
with the Group.
(C) Dr Cairns is not entitled to any variable incentive.
(D) Mr Casarotti's and Mr Stack's variable incentive includes a 10-year service bonus payment.
(E) Mr Wright and Ms Venegas have been determined as KMP in the year ended 30 June 2017.
(F) Ms Campbell concluded employment with the Group on 1 February 2017 resulting in no variable incentive entitlement in respect
of the 2017 financial year.
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 2017 is $6,918,742 and payable over the years ended 30 June 2018, 30 June 2019
and 30 June 2020 (June 2016: $6,938,188 and payable over the years ended 30 June 2017, 30 June 2018 and 30 June
2019).
Details of the remuneration paid to Executive Directors and Other KMP is provided in section 3.4. Details of the
employment agreements of Executive Directors and Other KMP are described in section 3.5 of this report.
24
Variable incentive outcomesCash Bonus (A)Conditional Deferred Cash Bonus (B)Total variable remuneration awarded$$$$%Executive Directors(C)H Douglass2017- 2,339,021 2,339,021 2,748,023 85%2016- 442,456 442,456 1,250,000 35%Group Executives (Other KMP)F Casarotti(D)2017340,750 209,250 550,000 525,000 105%2016272,439 173,811 446,250 446,250 100%K Morton2017247,000 153,000 400,000 400,000 100%2016227,750 137,250 365,000 365,000 100%G Stack(D)20171,755,109 1,366,453 3,121,562 464,000 673%20161,337,893 1,047,525 2,385,418 446,250 535%M Venegas(E)2017167,250 87,750 255,000 340,000 75%C Wright(E)2017198,121 113,004 311,125 327,500 95%Former Group ExecutiveN Campbell(F)2017- - - 525,000 -2016272,439 173,811 446,250 446,250 100%20172,708,230 4,268,478 6,976,708 5,329,523 20162,110,521 1,974,853 4,085,374 2,953,750 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 2017
3.
2017 Remuneration Report (Audited) (continued)
3.4
The total amount paid or payable to Non-Executive Directors and KMP of the Group is detailed below:
Details of Remuneration
(A) The cash bonus amount includes the current year cash bonus.
(B) The conditional deferred cash bonus paid is the deferred components of prior years’ bonuses which have been paid in cash over
the course of the current year.
(C) Includes long service entitlements accrued during the year.
(D) Other benefits represent the expense of providing interest-free loans to Participants in the Share Purchase Plan (refer to further
details at section 3.1). These are non-cash items.
(E) No non-monetary benefits or other short term benefits not otherwise disclosed above were paid during the years ended 30 June
2017 and 30 June 2016.
(F) Other benefits include $100,000 accrued in the current year in relation to the investment restriction contract with Mr Douglass
(June 2016: $100,000). For further details refer to note 20(b).
(G) Salary reduced due to taking leave without pay during the year ended 30 June 2017.
(H) Mr Wright and Ms Venegas have been determined as KMP in the year ended 30 June 2017.
(I) Ms Campbell concluded employment with the Group on 1 February 2017. The remuneration table above reflects her expense up
to this date. Payments shown under the Termination Payments column above reflect statutory entitlements and other discretionary
related amounts.
25
Short Term BenefitsPost-employment BenefitsLong-term BenefitsOther BenefitsTermination PaymentsTotalSalaryCash Bonus(A)Conditional Deferred Cash Bonus paid (B)Super-annuationOther(C)(D)(E)$$$$$$$Non-Executive DirectorsRobert Fraser201786,758 - - 8,242 - 20,796 - 115,796 201686,758 - - 8,242 - 20,796 - 115,796 - - Paul Lewis201780,000 - - - - - - 80,000 201680,000 - - - - - - 80,000 - - Hamish McLennan201773,059 - - 6,941 - 5,450 - 85,450 201624,353 - - 2,314 - - - 26,667 - - Karen Phin201773,059 - - 6,941 - 17,157 - 97,157 201673,059 - - 6,941 - 17,157 - 97,157 Executive DirectorsBrett Cairns20171,230,384 - - 19,616 - - - 1,250,000 20161,230,692 - - 19,308 - - - 1,250,000 H Douglass(F)20172,728,407 - 147,485 19,616 253,597 100,000 - 3,249,105 20161,230,692 - 600,000 19,308 20,504 100,000 - 1,970,504 - - Group Executives (Other KMP)F Casarotti(G)2017465,535 340,750 57,937 19,616 20,589 - - 904,427 2016411,342 272,439 166,250 19,308 10,002 - - 879,341 - - K Morton2017380,384 247,000 45,750 19,616 - 3,503 - 696,253 2016345,692 227,750 125,000 19,308 - 3,503 - 721,253 - - - - - - - - G Stack(G)2017439,256 1,755,109 349,175 19,616 10,160 16,372 - 2,589,688 2016426,942 1,337,893 803,616 19,308 10,061 10,184 - 2,608,004 - - M Venegas(G)(H)2017299,687 167,250 25,260 19,616 - 775 - 512,588 - - C Wright(H)2017307,884 198,121 93,487 19,616 - 3,528 - 622,636 Former Group ExecutiveN Campbell(I)2017294,807 - 33,797 11,442 - - 432,597 772,643 2016426,942 272,439 187,500 19,308 10,237 3,293 - 919,719 20176,459,220 2,708,230 752,891 170,878 284,346 167,581 432,597 10,975,743 20164,336,472 2,110,521 1,882,366 133,345 50,804 154,933 - 8,668,441 Total KMP MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 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
Mr Douglass is employed under a contract with MAM, with effect from 1 March 2008 and which will continue indefinitely
until terminated. Mr Douglass’ employment agreement required a review of fixed remuneration from 1 July 2016. The
terms of the contract are outlined below.
Fixed and variable compensation
Mr Douglass is entitled to fixed and variable compensation as outlined in Section 3.3.
Investment restrictions
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, MFF Capital Investments Limited, MAM and
related entities, and any managed investment scheme in which MAM acts as trustee or responsible entity. These
restrictions would have ceased to apply prior to 1 July 2017, if a third party acquired control of MAM or MFG, or if the
employment contract was terminated for any reason. The restrictions do not apply in respect of any investment in: (a)
shares in a company; (b) interests in a managed investment scheme; or (c) other interests in an entity, which represent
less than 10% of the issued shares in that company, interests in that managed investment scheme or other interests
in that other entity respectively.
In consideration for complying with this investment restriction MAM paid Mr Douglass an amount of $500,000 on 14
July 2017 as specified in his employment agreement.
Shareholding requirement
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 21,792,277 ordinary shares (2016: 11,087,000 ordinary shares in addition
to 10,200,000 Class B Shares).
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.
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; and
a pro-rata variable remuneration component for the period from 1 July of that year to the termination date.
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.
26
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
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 2017, Dr Cairns received remuneration of $1,250,000 (2016: $1,250,000).
Group Executives (Other KMP)
Other KMP have rolling employment contracts with MAM. MAM may terminate the contracts at any time by giving not
less than three months written notice (for Ms Morton, Mr Wright and Ms Venegas 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, Mr Wright and Ms
Venegas this is not less than one month). On termination, 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.
27
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 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) On 22 November 2016 the MFG Class B Shares converted to 10,305,277 ordinary shares. Refer to note 14(d)(iii) for the key terms
and conditions of the MFG Class B Shares.
(B) The opening balance at 1 July 2016 represents the shareholding from the date Mr Wright and Ms Venegas were KMP.
(C) Closing balance reflects balance held at date of cessation of employment.
The Board does not grant options to Non-Executive Directors, KMP or employees of the Group under its remuneration
policy.
28
OpeningNetClosingNetClosingbalanceAdditions/balanceAdditions/balance1 July 2015(disposals)30 June 2016(disposals)30 June 2017Non-Executive DirectorsRobert Fraser-Ordinary shares599,109 - 599,109 - 599,109 Paul Lewis-Ordinary shares1,850,000 (50,000)1,800,000 (75,000)1,725,000 Hamish McLennan-Ordinary shares36,300 - 36,300 63,948 100,248 Karen Phin-Ordinary shares89,312 - 89,312 - 89,312 Executive DirectorsBrett Cairns-Ordinary shares1,006,948 17,575 1,024,523 - 1,024,523 Hamish Douglass-Ordinary shares11,087,000 - 11,087,000 10,705,277 21,792,277 -Class B Shares(A)10,200,000 - 10,200,000 (10,200,000)- Group Executives (Other KMP)Frank Casarotti-Ordinary shares656,927 (156,927)500,000 - 500,000 Kirsten Morton-Ordinary shares18,896 - 18,896 - 18,896 Gerald Stack-Ordinary shares431,119 26,483 457,602 14,178 471,780 Marcia Venegas(B)- Ordinary shares--- 2,126 2,126 Craig Wright(B)-Ordinary shares--18,896 - 18,896 Former Group ExecutiveNerida Campbell-Ordinary shares(C)448,600 - 448,600 (27,600)421,000 MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 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 2015 and 30 June 2016 distributions in the years ended 30 June 2016 and 30 June 2017
respectively.
(B) In addition to the above holdings, Mr Douglass and Mr Casarotti selected the Magellan Global Fund product via their employer
superannuation account and currently have holdings of 440,031 and 39,898 units at a value of $696,480 and $63,151 respectively
as at 30 June 2017 (June 2016: 428,891 and 242,961 units at a value of $596,116 and $526,885 respectively). Mr Casarotti also
reweighted into his SMSF with 24,916 units in a Magellan Global Fund product at a value of $61,588 and 200,000 units in Magellan
Global Equities Fund (reflected in the table above) at a value of $554,000 (June 2016: Nil).
(c) Reflects balance held at date of cessation of employment.
(D) The opening balance at 1 July 2016 represents the unitholding from the date Mr Wright was a KMP.
Unless specified above, no other Non-Executive Directors or KMP held units in Magellan Funds.
29
OpeningAdditions/ClosingAdditions/Closingbalance(disposals)balance(disposals)balance1 July 2015(A)30 June 2016(A)30 June 2017Magellan Global FundDirectorsHamish Douglass(B)1,250,440 162,261 1,412,701 125,024 1,537,725 Paul Lewis364,293 105,203 469,496 36,424 505,920 Group Executives (Other KMP)Frank Casarotti(B)- - - - - Gerald Stack57,034 7,399 64,433 5,705 70,138 Former Group ExecutiveNerida Campbell(C)55,749 7,234 62,983 5,574 68,557 Magellan Infrastructure FundDirectorsPaul Lewis40,712 1,134 41,846 332,936 374,782 Group Executives (Other KMP)Gerald Stack74,050 2,062 76,112 5,685 81,797 Magellan High Conviction FundDirectorsHamish Douglass1,519,722 72,354 1,592,076 127,414 1,719,490 Magellan Global Equities FundDirectorsBrett Cairns40,000 111 40,111 407 40,518 Hamish Douglass75,000 500,418 575,418 11,651 587,069 Group Executives (Other KMP)Frank Casarotti- -- 200,000 200,000 Gerald Stack- - - 100,000 100,000 Craig Wright(D)- -15,134 (8,000)7,134 Magellan Global Equities Fund (Currency Hedged)DirectorsBrett Cairns- 10,000 10,000 - 10,000 Hamish Douglass- 500,000 500,000 10,385 510,385 Magellan Infrastructure Fund (Currency Hedged)Group Executives (Other KMP)Gerald Stack- - - 210,000 210,000 MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 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 2017, seven KMP held a loan (June 2016: four). The terms and
conditions of the loans, including repayment terms, are disclosed in note 15 of the financial statements. There are no
other related party transactions with the KMPs other than those disclosed.
(A) The opening balance at 1 July 2016 represents the loan balance from the date Ms Venegas and Mr Wright were KMP.
(B) The loan of Ms Campbell was repaid in full during the year ended 30 June 2016.
(C) The face value represents the loan balance due to be repaid to the Company. The carrying value represents the loan balance as
required by the accounting standards (for further detail, please refer to note 1(s))
30
SPP SharesOpeningLoansLoansacquired Loanmade(repaid)during yearBalanceFace value(C)Carryingvalue(C)Number$$$$$DirectorsRobert Fraser2017- 876,631 - (74,682)801,949 754,904 2016- 963,727 - (87,096)876,631 807,018 Hamish McLennan201763,948 - 999,987 (24,556)975,431 898,421 2016- - - - - - Karen Phin2017- 723,193 - (61,613)661,580 622,798 2016- 795,078 - (71,885)723,193 665,792 Group Executives (Other KMP)K Morton2017- 203,835 - (43,475)160,360 152,488 2016- 242,984 - (39,149)203,835 188,929 G Stack201714,178 543,295 249,994 (203,918)589,371 574,927 201626,483 338,669 374,999 (170,373)543,295 525,809 M Venegas(A)20172,126 - 49,982 (816)49,166 48,091 C Wright(A)2017- 206,704 - (36,655)170,049 159,448 Former Group ExecutiveN Campbell(B)2017- - - - - - 2016- 11,156 - (11,156)- - Closing Loan Balance MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
3.
2017 Remuneration Report (Audited) (continued)
3.9
Link Between Performance and Remuneration Paid by the Group
(A) Excluding in-specie distribution of 9.16 cents per share for the year ended 30 June 2013. Dividends paid have been fully franked.
(B) As at 30 June
(C) Fixed compensation comprises salary, superannuation and accrued long service leave.
(D) Variable compensation comprises cash bonuses and interest-free loans provided under the SPP outlined in Table 3.4 and a
discretionary payment to the former Chairman in 2014.
31
20172016201520142013Total revenue ($'000)338,268 333,805 284,912 148,109 120,906 Total expenses ($'000)82,141 74,104 54,603 37,630 25,904 Net operating profit ($'000)196,225 198,357 174,295 82,939 66,600 Basic earnings per share (cents per share)116.9 123.5 109.2 53.3 43.6 Diluted earnings per share (cents per share)114.1 115.5 101.8 48.9 40.0 Total Dividends paid (cents per share)(A)85.6 89.3 74.9 33.0 8.0 Closing share price (ASX code: MFG)(B)28.84$ 22.25$ 17.40$ 10.93$ 9.64$ Total KMP remuneration:-fixed compensation ($)(C)6,914,444 4,520,621 3,525,342 3,370,5132,295,866-variable compensation ($)(D)4,061,299 4,147,820 3,706,172 3,156,6992,348,39010,975,7438,668,4417,231,5146,527,2124,644,256Number of KMPs12109108% growth in net operating profit-1%14%110%25%388%% growth in diluted earnings per share-1%13%108%22%371%% growth in total KMP remuneration27%20%11%41%230%Total KMP remuneration as % of net operating profit6%4%4%8%7% MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2017
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 33.
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
10 August 2017
32
MAGELLAN FINANCIAL GROUP LIMITED
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s independence declaration to the Directors of Magellan
Financial Group Limited
As lead auditor for the audit of Magellan Financial Group Limited for the financial year ended 30 June
2017, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Magellan Financial Group Limited and the entities it controlled during
the financial year.
Ernst & Young
Rita Da Silva
Partner
10 August 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
33
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 30 June 2017
The Consolidated Statement of Profit or Loss is to be read in conjunction with the accompanying notes to the
Financial Statements.
34
Consolidated Entity30 June30 June20172016Note$’000$’000RevenueManagement fees6(a)300,529258,392Performance fees6(b)21,69648,014Services fees6(c)6,6508,237Interest income1,9412,089Dividend and distribution income5,501 11,881 Net gain on sale of available-for-sale financial assets6(f)2,259 1,055 Net foreign exchange gain/(loss)(308)165Group's share of profit for the period MGE was an associate13(a)-3,961Other-11Total revenue 338,268 333,805 ExpensesEmployee expenses47,37042,065Non-Executive Director fees338284US marketing/consulting fee expense7,8957,168Fund administration and operational costs8,7917,151Information technology expense3,758 3,606 Marketing expense3,037 2,811 Legal and professional fees1,688 1,734 Occupancy expense3,155 1,278Travel and entertainment expense1,712 1,120Auditor's remuneration21611 769Depreciation and amortisation expense8(a)392280Foreign and withholding taxes199 2,055Loss on disposal of property, plant and equipment18 14Net loss on deemed disposal of interest in associate - MGE, transferred from the Consolidated Statement of Other Comprehensive Income13-1,296Other3,177 2,473Total expenses 82,141 74,104 Net profit before income tax expense 256,127 259,701 Income tax expense5(a)(59,902)(61,344)Net profit after income tax for the year 196,225 198,357 Basic earnings per share (cents per share)3116.9 cents123.5 centsDiluted earnings per share (cents per share)3114.1 cents115.5 cents MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
for the year ended 30 June 2017
The Consolidated Statement of Other Comprehensive Income is to be read in conjunction with the accompanying
notes to the Financial Statements.
35
30 June30 June20172016$’000$’000Net profit after income tax for the year196,225 198,357 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 assets30,619(14,725)Net (gain)/loss on sale of available-for-sale financial assets6(f)(2,259)(1,055)Net loss on deemed disposal of interest in associate - MGE13 - 1,296 Income tax (expense)/benefit on the above items5(a)(9,011)3,511Exchange differences on translation of foreign operation(31)(52)Other comprehensive income for the year, net of tax 19,318 (11,025)Total comprehensive income for the year 215,543 187,332 Consolidated EntityNote
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2017
The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes to the
Financial Statements.
36
30 June30 June20172016$’000$’000AssetsCurrent assetsCash and cash equivalents18(c)146,243120,362Financial assets11 1,775 1,719Receivables7 71,290 53,747 Loans - share purchase plan 151,9401,531Prepayments926403Total current assets 222,174 177,762 Non-current assetsFinancial assets11263,113206,221Loans - share purchase plan 15 7,817 7,482 Property, plant and equipment8877914Total non-current assets 271,807 214,617 Total assets 493,981 392,379LiabilitiesCurrent liabilitiesPayables9 22,336 21,161 Provisions10 880 218 Income tax payable 4,863 7,032 Total current liabilities 28,079 28,411 Non-current liabilitiesDeferred tax liabilities5(c) 15,651 7,257 Deferred lease incentives 1,831 - Provisions10 809 1,342 Total non-current liabilities 18,291 8,599 Total liabilities 46,370 37,010 Net assets 447,611 355,369 EquityContributed equity14 115,250 111,073 Available for sale reserve 40,708 21,359 Foreign currency translation reserve(83)(52)Retained profits 291,736 222,989 Total attributable to members of the Group 447,611 355,369 Total equity 447,611 355,369NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2017
The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes to
the Financial Statements.
37
Contributed EquityForeign currency translation reserveRetained ProfitsAvailable for Sale ReserveTotal2017$’000$’000$’000$’000$’000Equity - 1 July 2016111,073(52)222,98921,359355,369Net profit for the year - - 196,225 - 196,225 Other comprehensive income - (31) - 19,349 19,318 Total comprehensive income for the year - (31) 196,225 19,349 215,543 Transactions with owners in their capacity as owners:Issue of securities: - under share purchase plan (SPP)14(a) 4,004 - - - 4,004 - transaction costs arising on share issue14(a)(110) - - - (110)Dividends paid4 - - (127,478) - (127,478)SPP expense for the year14(a) 283 - - 283 Total transactions with equity holders in their capacity as equity owners 4,177 - (127,478) - (123,301)Equity - 30 June 2017115,250(83)291,73640,708447,6112016Equity - 1 July 2015103,477 - 167,63432,332303,443Net profit for the year - - 198,357 - 198,357Other 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 - - - 230Total transactions with equity holders in their capacity as equity owners7,596 - (143,002) - (135,406)Equity - 30 June 2016111,073(52)222,98921,359355,369Attributable to Equity Holders of the Consolidated EntityNote
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2017
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial
Statements.
38
30 June30 June20172016$’000$’000Cash flows from operating activitiesManagement and services fees received 297,851 260,342 Performance fees received 5,750 56,121 Interest received 1,576 1,674 Dividends and distributions received596366Tax paid(61,609)(71,198)Payments to suppliers and employees (inclusive of GST)(79,473)(65,770)Other revenue received - 10 Net cash inflows/(outflows) from operating activities18(a) 164,691 181,545 Cash flows from investing activitiesProceeds from sale of available-for-sale financial assets9,3503,516Purchase of available-for-sale financial assets(24,748)(18,607)Net matured term deposits classified as loans and receivables107(1,370)Net cash flows from foreign exchange transactions170Payments for property, plant and equipment8(a)(368)(694)Net cash inflows/(outflows) from investing activities(15,658)(17,085)Cash flows from financing activitiesProceeds from issue of securities 1,978 2,685 Proceeds from repayment of share purchase plan loans 1,899 1,264 Dividends paid4(126,708)(142,028)Net cash inflows/(outflows) from financing activities(122,831)(138,079)Net increase / (decrease) in cash and cash equivalents 26,202 26,381Effects of exchange rate movements on cash and cash equivalents(321)47Cash and cash equivalents at the beginning of the year 120,362 93,934 Cash and cash equivalents at the end of the year18(c) 146,243 120,362 NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 2017. The report was authorised for issue in accordance with a resolution
of the Directors on 10 August 2017.
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 2016. 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 2017 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 accounting standards and interpretations which may have a material impact on the Group
is set out below:
•
AASB 9: Financial Instruments (AASB 9) (effective 1 July 2018)
AASB 9 contains new requirements for the 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. Equity securities are measured
at fair value through profit or loss unless an election is made at initial recognition, to present fair value
changes in other comprehensive income. This option is irrevocable and applies only to equity instruments
which are not held for trading. Gains and losses in other comprehensive income are not recycled on disposal
of the securities, however the cumulative gain or loss may be transferred within equity.
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.
39
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
(a)
Basis of Preparation (continued)
(ii)
Accounting Standards and Interpretations Issued But Not Yet Effective (continued)
•
•
•
AASB 9: Financial Instruments (AASB 9) (effective 1 July 2018) (continued)
At 30 June 2017, the Group continues to evaluate the classification, measurement and disclosure
requirements of this standard, the financial and disclosure impacts of which are yet to be determined. Further
information will be provided in future financial reports as management finalises its assessment. The adoption
of the 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 required disclosure in the notes to the financial statements.
AASB 15: Revenue from Contracts with Customers (effective 1 July 2018) (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.
The Group does not anticipate subsequent to adoption of AASB 15 from 1 July 2018 onwards there will be
any material change to the timing or manner of recognition for management, services or performance fees.
The recognition of interest income, investment gains/losses and foreign exchange gains/losses are unaffected
as they are excluded from the scope of AASB 15.
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 is 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 provides 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 recognises 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 include amortisation of the right-of-use asset and interest expense in respect
of the lease liability.
The Group anticipates the adoption of AASB 16 from 1 July 2019 onwards to result in increased disclosure.
The Group expects that whilst there will be a requirement to gross up for the recognition of right of use assets
and lease liabilities on the Consolidated Statement of Financial Position on adoption, these amounts are
expected to approximately equal each other on initial recognition on 1 July 2019 and the impacts on the
Statement of Profit or Loss on prior, current and future financial years are also not expected to be material.
The Group expects to apply the modified retrospective approach on transition and reflect any impacts on
transition to the new standard on a cumulative basis as an adjustment to the opening balance of retained
earnings at 1 July 2019, the adoption date. Comparatives would not be restated. For practical expediency
those lease contracts previously accounted for as leases under AASB 117 and Interpretation 4 identified and
ongoing as at 1 July 2019 would continue to be accounted for as lease contacts in accordance with the new
standard.
40
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
Principles of Consolidation
(b)
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at
30 June 2017 (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.
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 associates to bring their accounting policies and reporting dates into line with the
Group’s accounting policies.
41
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
(b)
Principles of Consolidation (continued)
ii)
Associates (continued)
The Group’s share of an associate’s post-acquisition profit or loss is recognised in profit or loss, and its share of
post-acquisition movements in reserves, including its available for sale reserve, is recognised in 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 as income, while in the consolidated financial statements they reduce the
carrying value of the investment in the Statement of Financial Position.
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.
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 where
denominated in a foreign currency are translated to Australian dollars 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.
42
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
(e)
Summary of Significant Accounting Policies (continued)
Foreign Currency Translation (continued)
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.
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 prior to 1 January
2017 MFF Capital Investments 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. Up until 31 December
2016, 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. There is no entitlement
to performance fees for MFF from 1 January 2017 onwards.
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.
43
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
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 are recognised for all deductible temporary differences and unused tax credits and 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 reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
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. MFG 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).
44
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
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.
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 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 depends on the purpose for which
the assets and liabilities were acquired. The Group’s classifications are set out below:
Financial
asset/liability
Receivables
Financial assets
Payables
Classification
Valuation basis
Loans and receivables
Loans and receivables
Available-for-sale
Held for trading
Financial liability at amortised cost
Amortised cost
Amortised cost
Fair value
Fair value
Amortised cost
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.
45
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
1.
Summary of Significant Accounting Policies (continued)
(n)
The Company’s financial assets comprise and are classified as follows:
Financial Assets
Type of
Financial asset
Listed shares and quoted
funds
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
Loans and receivables
Fair value
Fair value
Amortised cost
Refer to note 1(n) i)
Refer to note 1(n) i)
Refer to note 1(n) iii)
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 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
investing 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.
46
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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.
47
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 high quality 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.
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.
48
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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.
49
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 12.
The funds management activities undertaken by MAM, comprises acting as:
•
Responsible Entity and Investment Manager for the following managed investment schemes offered
primarily to Australian and New Zealand investors (collectively, the Unlisted Magellan Funds):
o Magellan Global Fund
o Magellan Global Fund (Hedged)
o Magellan Infrastructure Fund
o Magellan Infrastructure Fund (Unhedged)
o Magellan High Conviction Fund;
•
•
•
•
•
•
•
Responsible Entity and Investment Manager for Magellan Global Equities Fund (MGE), Magellan Global
Equities Fund (Currency Hedged) (MHG) and Magellan Infrastructure Fund (Currency Hedged) (MICH)
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 and MFG Select Infrastructure Fund, funds 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 advisor for the MFG Low Carbon Global Fund and MFG Infrastructure Fund which are US
domiciled open-ended mutual funds;
Investment research and administrative services provider to MFF Capital Investments 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.
50
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 $6,301,000 income (June 2016: $5,316,000) and
$6,301,000 expense (June 2016: $5,316,000) under the transfer pricing agreement within the Funds Management segment.
Refer to note 12 for further details.
51
Funds ManagementPrincipal InvestmentsCorporateConsolidated Entity(A)30 June 2017$’000$’000$’000$’000RevenueManagement fees 300,529 - - 300,529 Performance fees 21,696 - - 21,696 Services fees 6,650 - - 6,650 Interest income 534 64 1,343 1,941 Dividend and distribution income - 5,501 - 5,501 Net gain/(loss) on sale of available-for-sale financial assets - 2,259 - 2,259 Net foreign exchange gain/(loss)(221)(87) - (308)Other - - - - Total revenue 329,188 7,737 1,343 338,268 ExpensesEmployee expense 47,072 - 15 47,087 Employee expense - SPP 240 - 43 283 Non-Executive Director fees 200 - 138 338 Other expenses 33,396 172 865 34,433 Total expenses 80,908 172 1,061 82,141 Operating profit before income tax expense 248,280 7,565 282 256,127 Other comprehensive incomeNet changes in fair value of available-for-sale financial assets - 30,619 - 30,619 Net (gain)/loss on sale of available-for-sale financial assets - (2,259) - (2,259)Exchange differences on translation of foreign operations(31) - - (31)Other comprehensive income for the year, before tax(31)28,360 - 28,329Total comprehensive income for the year, before tax 248,249 35,925 282 284,456 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 2017
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 2016: $20,000,000).
The Group’s net investment in the funds management business activities was $13,204,000 (June 2016:
$13,204,000), 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.
52
Funds Management(A)Principal InvestmentsCorporateConsolidated Entity30 June 2017$’000$’000$’000$’000Cash and cash equivalents 34,977 3,367 107,899 146,243 Financial assets 1,775 263,113 - 264,888 Receivables and other assets 68,148 4,838 107 73,093 Loans - SPP - - 9,757 9,757 Total assets 104,900 271,318 117,763 493,981 Payables and provisions 25,751 - 105 25,856 Tax liabilities - 20,279 235 20,514 Total liabilities 25,751 20,279 340 46,370 Net assets 79,149 251,039 117,423 447,611 30 June 2016Cash 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 3,12837,010 Net assets 55,320 208,168 91,881 355,369
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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) As the MFG 2016 Option period expired on 30 June 2016, there were no unexercised options as at 30 June 2017. In the
prior year ended 30 June 2016, the MFG 2016 Options are considered to be potential ordinary shares for the purposes of the
diluted earnings per share calculation and were included in the determination of diluted earnings per share to the extent they
were dilutive.
(B) The MFG Class B Shares were converted on 22 November 2016 (refer to note 14(d)(iii) for further detail). Up until conversion,
the Class B Shares were 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 were 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 MFG Class B Shares would convert applying a conversion factor of 0.0637028.
There were no unconverted MFG Class B Shares as at 30 June 2017.
53
30 June30 June20172016Basic earnings per shareNet profit after income tax attributable to shareholders ($'000)196,225 198,357 Weighted average number of shares for basic EPS ('000)167,892 160,635 Basic EPS (cents)116.9 123.5 Diluted earnings per shareNet profit attributable to shareholders ($'000)196,225 198,357 Weighted average number of shares for diluted EPS ('000)171,954 171,716 Diluted EPS (cents)114.1 115.5 Reconciliation of earnings used in calculating earnings per shareNet profit after income tax expense used in the calculation of basic and diluted EPS ($'000)196,225 198,357 Consolidated EntityWeighted average number of securitiesWeighted average number of ordinary shares on issue used in calculating basic EPS ('000)167,892 160,635 Add adjustments: - equivalent number of unexercised MFG 2016 Options(A)- 791 - equivalent number of MFG Class B Shares(B)4,062 10,290 Weighted average number of shares used in calculating diluted EPS ('000)171,954 171,716
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
4. Dividends
(i) Dividend declared
On 10 August 2017, the Directors declared total fully franked dividends of 47.2 cents per share in respect of the
half year ended 30 June 2017 (June 2016: 38.0 cents per share). The dividend payment comprises a Final Dividend
of 41.5 cents per share and a Performance Fee Dividend of 5.7 cents per share. The total amount of the declared
dividends are expected to be paid on 28 August 2017, but not recognised as a liability, is approximately
$81,220,000.
(ii) Imputation credits
The imputation credit account at 30 June is as follows:
The payment of the dividends declared by the directors on 10 August 2017 will reduce the franking account balance
shown above by approximately $34,809,000.
54
30 June30 June20172016$’000$’000For the year ended 30 June 2017Fully franked interim dividend for the year ended 30 June 2017:- 38.4 cents per ordinary share: paid 2 March 2017 66,077 - Fully franked final dividend for the year ended 30 June 2016:- 38.0 cents per ordinary share: paid 26 August 2016 61,401 - For the year ended 30 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 Total dividends declared and paid during the year127,478143,002Consolidated Entity30 June30 June20172016$’000$’000Imputation creditsImputation credits at reporting date41,226 35,099 Imputation credits that will arise from payment of income tax payable7,591 4,925 Total imputation credits available for subsequent reporting periods based on a tax rate of 30% (June 2016: 30%)48,817 40,024Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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:
55
30 June30 June20172016Note$’000$’000Net profit before income tax expense 256,127 259,701 Prima facie income tax expense at 30% (2016: 30%)(76,838)(77,910)Effect of amounts which are non-deductible/(assessable) in calculatingtaxable income: - effect of concessional tax rate on offshore banking unit (OBU)5(d) 16,259 15,467 - over provision of prior year tax623136 - imputed interest and expense relating to share purchase plan 2136 - tax effect of franked dividends/distributions received28(44) - differences in overseas tax rates1(33) - US state and local taxes (net of tax credits)(666) - - non-assessable income and non-deductible expenses6701,004Income tax expense reported in the Consolidated Statement of Profit or Loss(59,902)(61,344) - changes in fair value of available-for-sale financial assets(9,689)3,194 - sale of available-for-sale financial assets recycled through profit or loss678317Income tax (expense)/benefit reported in the Consolidated Statement of Other Comprehensive Income(9,011)3,511Consolidated Entity30 June30 June20172016$’000$’000The major components of income tax expense are:Current income tax expense(59,860)(61,447)Differences in overseas tax rates1(33)US state and local taxes (net of tax credits)(666) - Over/(under) provision of prior year income tax623136Income tax expense reported in the Consolidated Statement of Profit or Loss(59,902)(61,344)Consolidated Entity30 June30 June20172016$’000$’000Amounts recognised in Consolidated Statement of Financial Position: - Deferred tax liabilities from changes in the fair value of financial assets(20,301)(11,268) - Deferred tax assets from movements in accruals 4,650 4,011 Total net deferred tax liabilities(15,651)(7,257)Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 2017, the Company’s effective tax rate was 23.4% (June 2016: 23.6%), which includes taxes
paid net of tax credits in foreign jurisdictions and 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 summarised at Note 5 (a).
(e) Tax consolidation
During the year, income tax liabilities of $58,188,000 (June 2016: $57,679,000) were assumed by MFG, the head
entity of the tax consolidated group. Payments totalling $52,187,000 (June 2016: $61,116,000) were made to MFG
from the other entities in the tax consolidated group under the tax sharing and funding agreement during the year.
At 30 June 2017, $9,596,000 (June 2016: $3,945,000) 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.
56
30 June30 June20172016$’000$’000Opening balance(7,257)(11,347)Movement in temporary differences during the year: - changes in the fair value of financial assets(9,033)3,275 - accruals639815Closing balance - net deferred tax liabilities(15,651)(7,257)Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
6. Revenue
(a) Management fees
The management fees received/receivable during the year were:
(b) Performance fees
During the year ended 30 June 2017, 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 MFF Capital Investments
Limited (MFF) and research services under a mandate. Prior to 1 January 2017 services fee revenue relating to
MFF was 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. During the year the service agreement between MFF and the
Company was renegotiated resulting in a fixed fee of $1,000,000 per quarter effective 1 January 2017.
57
30 June30 June20172016Note$’000$’000Magellan Global Fund 112,732 103,957 Magellan Global Fund (Hedged) 4,946 3,226 Magellan lnfrastructure Fund 10,372 8,219 Magellan lnfrastructure Fund (Unhedged) 5,649 3,135 Magellan High Conviction Fund 4,614 4,104 Magellan Global Equities Fund 9,599 5,470 Magellan Global Equities Fund (Currency Hedged) 564 262 Magellan Infrastructure Fund (Currency Hedged) 469 - Magellan Core Infrastructure Fund 807 921 MFG Global Fund 17,565 13,326 Frontier MFG Funds 10,237 9,663 MFG Infrastructure Fund - service class 161 - Other mandates 122,814 106,109 Total management fees during the year 300,529 258,392Consolidated Entity30 June30 June20172016$’000$’000Magellan Global Fund 11,144 23,397 Magellan Global Fund (Hedged) 959 8 Magellan lnfrastructure Fund 895 3,587 Magellan lnfrastructure Fund (Unhedged) 907 1,695 Magellan High Conviction Fund 3,083 16 Magellan Global Equities Fund 1,003 794 Magellan Global Equities Fund (Currency Hedged) 120 - Magellan Infrastructure Fund (Currency Hedged) 43 - MFF Capital Investments Limited 2,000 2,000 Other funds and mandates1,54216,517Total performance fees during the year 21,696 48,014Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
6. Revenue (continued)
(c) Services fees (continued)
Services provided by MAM included the provision of investment research and administrative services to MFF, a
listed investment company. Services fees earned from MFF for the year ended 30 June 2017 were $5,954,000 (30
June 2016: $7,525,000).
Additionally, in the year ended 30 June 2017, MAM provided research services to an institutional client and earned
service fees of $696,000 (30 June 2016: $712,000) under a fixed fee arrangement.
(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
58
30 June30 June20172016$’000$’000Australia 214,789 207,675 United Kingdom & Ireland 59,060 55,367 United States 43,513 39,773 Canada 5,161 5,695 Asia 6,352 6,133 Total management, services and performance fees 328,875 314,643Consolidated Entity30 June30 June20172016$’000$’000Management and services fees- Retail 170,634 151,898 - Institutional 136,545 114,731 Performance fees- Retail 20,006 36,483 - Institutional1,690 11,531 Total management, services and performance fees 328,875 314,643 Total Retail 190,640 188,381Total Institutional 138,235 126,262 Total management, services and performance fees 328,875 314,643 Consolidated Entity30 June30 June20172016$’000$’000Net gain/(loss) from: - disposal of units in unlisted investments - (84) - disposal of listed investments 2,259 1,139 Total net gain on sale of available-for-sale financial assets 2,259 1,055 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
7. Receivables
8. Property, Plant and Equipment
(a) Reconciliation
Reconciliations of the recoverable 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.
59
30 June30 June20172016$’000$’000Fees receivable 66,026 40,752 Distributions receivable from Funds 4,838 10,957 Other 426 2,038 Total receivables 71,290 53,747 Consolidated EntityLeaseholdOfficeTotalLeaseholdOfficeTotalImprove-Equipment,Improve-Equipment,mentsFixture &mentsFixture &FittingsFittings$’000$’000$’000$’000$’000$’000At cost3031,649 1,952 2361,3611,597less: accumulated depreciation190885 1,075 145538683Total property, plant & equipment 113 764 877 91 823 914 30 June 201730 June 2016Consolidated EntityLeaseholdOfficeTotalLeaseholdOfficeTotalImprove-Equipment,Improve-Equipment,mentsFixture &mentsFixture &FittingsFittings$’000$’000$’000$’000$’000$’000Carrying amount at beginning of year91823914185418603Additions73295 368 55639694Disposals(6)(7)(13)(90)(13)(103)Depreciation expense(45)(347)(392)(59)(221)(280)Carrying amount at end of year11376487791823914Consolidated Entity30 June 201730 June 2016
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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. A provision has been recognised for the present value of the estimated expenditure required to remove any
leasehold improvements. These costs have been capitalised as part of the cost of the leasehold improvements and
amortised over the term of the lease.
60
30 June30 June20172016$’000$’000Trade payables and accruals 4,029 5,032 Accrued employee entitlements 14,824 12,987 US marketing/consulting costs payable 2,143 1,703 Taxes payable - GST and Fringe Benefits Tax 1,340 1,439 Total payables 22,336 21,161 Consolidated Entity30 June30 June20172016$’000$’000CurrentEmployee entitlements - long service leave 380 - Provision for investment restriction contract 500 - Surplus Lease Provision - 218 Total current provisions 880 218 Non-CurrentEmployee entitlements - long service leave 799 942 Provision for investment restriction contract20(b) - 400 Provision for make-good 10 - Total non-current provisions 809 1,342 NoteConsolidated Entity30 June30 June20172016$’000$’000CurrentCarrying amount at beginning of year 218 - Additional provision charged to the Consolidated Statement of Profit or Loss - 218 Discharge of surplus lease provision(218) - Carrying amount at end of year - 218 Non-CurrentCarrying amount at beginning of year - 89 Additional provision charged to leasehold improvements10 27 Discharge of make good lease provision - (116)Carrying amount at end of year 10 - NoteConsolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
11. Financial Assets
(A)
Comprises term deposits of $1,775,000 (June 2016: $1,719,000) which are held with major Australian and US banks 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 banks have the right to apply the deposits in settlement of the amount paid by the banks under the guarantees.
(B) MFG seeded the fund on 2 March 2015 with a $50,000,000 investment. This fund commenced trading on the ASX on 5 March
2015. The investment is accounted for as an available-for-sale asset. Refer to note 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
2015. The investment is accounted for as an available-for-sale asset, holding 31.4% of the fund (June 2016: 48.1%).
(D) MFG seeded the fund on 19 July 2016 with a $10,000,000 investment. This fund commenced trading on the ASX on 22 July
(E)
(F)
2016. The investment is accounted for as an available-for-sale asset. Refer to note 12(a) for further details.
At 30 June 2017 the Group held the following investments: Magellan Global Fund 1.2% (June 2016: 1.2%), Magellan Global
Fund (Hedged) 0.2% (June 2016: 0.2%), Magellan Infrastructure Fund nil (June 2016: 0.3%), Magellan Infrastructure Fund
(Unhedged) nil (June 2016: 0.6%), Magellan High Conviction Fund 9.1% (June 2016: 9.1%), Magellan Wholesale Plus Global
Fund 1.1% (June 2016: 4.2%), Frontier MFG Core Infrastructure Fund 1.8% (June 2016: 2.0%), Frontier MFG Global Plus Fund
1.9% (June 2016: 14.9%).
MFG seeded the fund on 11 April 2017 with a $5,000,000 investment. The fund commenced trading on the same day. The
investment is accounted for as an available-for-sale asset. Refer to note 12(a) for further details.
(G) MFG seeded the fund on 18 May 2017 with a $USD 1,000,000 investment. This fund commenced trading on 22 May 2017. The
investment is accounted for as an available-for-sale asset. Refer to note 12(a) for further details.
61
30 June30 June20172016$’000$’000Current(i) Financial assets classified as loans and receivablesTerm deposits(A) 1,775 1,719 Total current financial assets 1,775 1,719 Non-Current(ii) Available-for-sale financial assetsInvestments in listed shares (by domicile of primary stock exchange) - United States 14,301 9,471 - United Kingdom 728 764 - Australia 76 300 - France 847 437 - Switzerland 1,508 634 - Netherlands 242 - - Germany 225 - - Other 474 - Investments in ASX Quoted funds - Magellan Global Equities Fund(B) 56,837 49,273 - Magellan Global Equities Fund (Currency Hedged)(C) 16,965 13,800 - Magellan Infrastructure Fund (Currency Hedged)(D) 10,655 - Total listed/quoted investments 102,858 74,679 Investments in unlisted funds(E) - Magellan Global Fund103,160 84,210 - Magellan Global Fund (Hedged)739 620 - Magellan Infrastructure Fund- 2,932 - Magellan Infrastructure Fund (Unhedged)- 2,472 - Magellan High Conviction Fund29,905 23,440 - Magellan Wholesale Plus Global Fund6,434 5,531 - Magellan Wholesale Plus Infrastructure Fund(F)5,124 - - Frontier MFG Core Infrastructure Fund5,799 5,615 - Frontier MFG Global Plus Fund7,534 6,466 - MFG Infrastructure Fund - service class(G)1,304 - - Other81 81 Investments in unlisted shares - Other175 175 Total unlisted investments 160,255 131,542 Total non-current financial assets 263,113 206,221 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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.
12. Interests in Controlled Entities
The Group’s controlled entities at reporting date are set out below:
Magellan Asset Management Limited (“MAM”) and Magellan Capital Partners Pty Limited have share capital
consisting solely of ordinary shares that are held wholly and directly by Magellan Financial Group Limited (“MFG”),
which also holds all the voting rights. 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).
62
30 June30 June20172016$’000$’000CurrentOpening balance at 1 July1,719349Cash placed on term deposit1,9391,584Matured term deposits(1,883)(214)Closing balance 1,775 1,719 Non-currentOpening balance at 1 July206,221139,498Acquisitions(A)35,68784,885Disposals(7,154)(2,382)Net changes in fair values of investments28,359(15,780)Closing balance 263,113 206,221 Consolidated Entity30 June30 JuneName of entityCountry of incorporation20172016Magellan Asset Management LimitedAustralia100%100%Magellan Capital Partners Pty LimitedAustralia100%100%MFG Services LLCUnited States of America100%100%Ownership interest
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
12. Interests in Controlled Entities (continued)
Interests in other entities
(a)
The Group’s investments in other entities are set out in note 11. During the year additional interests were taken in
the following entities:
•
•
•
The Magellan Infrastructure Fund (Currency Hedged) was seeded by the Group with $10,000,000 on 19
July 2016. This fund commenced trading on the ASX on 22 July 2016. At 30 June 2017, the Group had a
12.6% (30 June 2016: nil) interest in the fund.
The Magellan Wholesale Plus Infrastructure Fund was seeded by the Group with $5,000,000 investment
on 11 April 2017. This fund commenced trading on the same day. As at 30 June 2017, the Group had an
88.0% (30 June 2016: nil) interest in the fund.
The MFG Infrastructure Fund - service class (a US Mutual Fund for which MAM is the investment advisor)
was seeded by the Group with $USD 1,000,000 investment on 18 May 2017. This fund commenced trading
on 22 May 2017. As at 30 June 2017, the Group had a 100.0% (30 June 2016: nil) interest in the fund.
13. Investment in Associate
At 30 June 2017, the Group had no investments in associates. In the prior year, Magellan Global Equities Fund
(“MGE”) was accounted for as an associate in the consolidated financial statements of the Group for the period
over which the Group had significant influence (namely the period of 1 July 2015 to 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 2017,
the Group had a 6.7% interest (30 June 2016: 8.9%) in MGE (refer to note 11 for further details).
In the prior financial year ended 30 June 2016, the Group recognised a gain of $3,961,000 in the Consolidated
Statement of Profit or Loss for the period for which MGE was classified as an associate. This represented the
Group’s share of the associate’s net profit for that period. Also in addition the deemed disposal of the interest in
MGE as an associate on 12 August 2015 also resulted in the Group transferring 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 financial year ended 30 June 2015. 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) 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.
63
30 June 201730 June 2016$’000$’000Opening balance- 49,845Add: share of profit/(loss) for the year- 3,961 Add: dividend received- 300 Less: classification as an Available-for-Sale Financial Asset on loss of significant influence(A)- (54,106)Closing balance - 30 June- -
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
14.
Contributed Equity
(A) 1,039,340 MFG 2016 Options were exercised during the 30 June 2016 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 in the prior year ended 30 June 2016 and 10,683 Options expired
unexercised. 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.
64
30 June30 June20172016Note$’000$’000Ordinary Shares(a)115,250111,073MFG 2016 Options(b)- - MFG Class B Shares(c)- - Total contributed equity115,250111,073Consolidated Entity30 June30 June30 June30 June2017201620172016Number of sharesNumber of shares'000'000$’000$’000(a) Ordinary SharesOpening balance161,189160,276111,073103,477Shares issued on exercise of MFG 2016 Options(A)391648 - 2,745Shares issued on conversion of MFG Class B Shares10,305 - - - Shares issued under SPP1912654,0044,631SPP expense for year - - 283230less: transaction costs arising on share issue - - (110)(10)Closing balance - Ordinary Shares172,076161,189115,250111,073(b) MFG 2016 OptionsOpening balance - 1,050 - - Shares issued on exercise of MFG 2016 Options(A) - (1,039) - - Expiry of MFG 2016 Options - (11) - - Closing balance - MFG 2016 Options - - - - (c) MFG Class B SharesOpening balance10,20010,200 - - MFG Class B Shares converted to MFG ordinary shares(10,200) - - - Closing balance - MFG Class B Shares - 10,200 - - Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
14.
Contributed Equity (continued)
(d)
Terms and Conditions (continued)
MFG Class B Shares
(iii)
10,200,000 MFG Class B Shares held by Mr Douglass were converted to 10,305,277 MFG ordinary shares on 22
November 2016. As a consequence, no MFG Class B Shares were on issue as at 30 June 2017 (30 June 2016:
10,200,000).
The MFG Class B Shares were issued to Mr Hamish Douglass with certain service conditions having been 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 converted 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 occurred on the first business day after 21 November
2016, namely 22 November 2016. The maximum number of ordinary shares that could have been issued on
conversion of all MFG Class B Shares was 10,829,476. Prior to the in-specie distribution, 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.
Based on the Company’s ordinary shares on issue, the 10,200,000 MFG Class B Shares converted to 10,305,277
ordinary shares being equal to 0.0637028 times 161,771,191 securities on 22 November 2016 (comprising
161,771,191 ordinary shares on issue and nil Options). The MFG Class B Shares had no entitlement to receive
dividends and until the MFG Class B Shares were converted into ordinary shares they conferred no rights to
participate in any bonus issue or subscribe for new securities in the Company unless the Directors determined
otherwise in accordance with the Terms of Issue of the MFG Class B Shares.
65
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 2017,
986,993 ordinary shares were held by the Participants under the SPP (June 2016: 978,251).
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. For the year
ended 30 June 2017, the Directors 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.
66
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
15. Share Purchase Plan (SPP) (continued)
Upon request from the Company, the outstanding loan amount must be repaid in full immediately without further
demand or notice upon the earliest of:
i)
any breach by the Participant of the Plan Rules where the breach is not remedied within 7 days of the
Company's notice to the Participant to do so; or
ii) an application being made to a court for an order, or an order being made, that the Participant be made
bankrupt (or any similar event in any jurisdiction as determined by the Board in its discretion).
If a Participant ceases to be an employee whilst a loan to that Participant is outstanding, the Participant must:
i)
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
16 September 2016
18 November 2016
$1.66
$0.52
$0.78
$1.35
$1.75
$1.20
$7.33
$10.02
$13.23
$13.64
$18.88
$23.51
$20.85
The value of shares securing the loans to Participants at reporting date applying the Company’s 30 June 2017
closing market price of $28.84 was $28,465,000 (June 2016: $21,766,000). 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.
67
30 June30 June20172016$'000$'000Current SPP loans due within 1 year1,940 1,531 Non-currentSPP loans due later than 1 year and within 10 years7,817 7,482 Total SPP loans9,757 9,013 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
15. Share Purchase Plan (SPP) (continued)
The following information has been used to determine the carrying value of the loans as at:
68
30 June30 June20172016March 2013 trancheFace value of loans ($)- 90,000 Estimated weighted average duration of loans- 0.1 yearsImputed interest rate- 3.4%October 2013 trancheFace value of loans ($)402,000 638,000 Estimated weighted average duration of loans0.9 years0.9 yearsImputed interest rate3.4%3.4%September 2014 trancheFace value of loans ($)1,866,000 2,526,000Estimated weighted average duration of loans2.6 years2.2 yearsImputed interest rate3.0%3.0%November 2014 trancheFace value of loans ($)1,773,000 2,123,000Estimated weighted average duration of loans2.6 years3.0 yearsImputed interest rate2.8%2.8%September 2015 trancheFace value of loans ($)2,768,000 3,636,000Estimated weighted average duration of loans2.7 years4.0 yearsImputed interest rate2.2%2.2%September 2016 trancheFace value of loans ($)2,050,000 - Estimated weighted average duration of loans4.1 years- Imputed interest rate1.8%- November 2016 trancheFace value of loans ($)898,000 - Estimated weighted average duration of loans4.0 years- Imputed interest rate2.1%- Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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:
69
30 June30 June20172016$'000$'000Interest income354 350 Employee benefits expense(283)(230)Net SPP income/(expense) included in the Consolidated Statement of Profit or Loss71 120 Consolidated Entity30 June 201730 June 2016$’000$’000Statement of Financial PositionAssetsCurrent assets 119,660 94,651 Non-current assets 284,133 226,907 Total Assets 403,793 321,558 LiabilitiesCurrent liabilities 5,093 6,948 Non-current liabilities 20,216 11,235 Total Liabilities 25,309 18,183 Net Assets 378,484 303,375 EquityContributed equity115,625 111,448 Available for sale reserve43,602 24,252 Retained profits219,257 167,675 Total Equity378,484 303,375 Statement of Profit or Loss and Other Comprehensive IncomeNet profit for the year after income tax expense179,059 195,420 Other comprehensive income, net of income tax expense19,349 (8,664)Total comprehensive income for the year198,408 186,756 Parent Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
16.
Parent Entity Information (continued)
Guarantees entered into by MFG
(b)
A guarantee has been provided by MFG to the landlord of MFGS’s New York office premises guaranteeing the
payment and performance of MFGS’s obligations under the lease, representing $1,707,000 of lease commitments
as at 30 June 2017 (30 June 2016: $1,873,000).
The Group has no material contingent assets as at 30 June 2017 (June 2016: nil).
Contingencies and Commitments of MFG
(c)
At 30 June 2017, 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.
Key Management Personnel
(c)
The Directors and senior executives considered Key Management Personnel of the Group during the year and up
to the date of this report:
(i)
The Directors of the Company unless otherwise stated during the year and up to the date of this report were:
Directors
During the year ended 30 June 2017, Magellan Asset Management Limited (a wholly owned entity of MFG) paid
International Quarterback Pty Limited (IQ) for consulting services. Mr Eales has a non-material shareholding in IQ
and was formerly a director of IQ.
On 9 August 2017, Magellan Asset Management Limited appointed Taylor Collison Limited as Lead Arranger and a
Joint Lead Manager in respect of the Broker Firm Offer and the General Public Offer for the intended initial public
offering of the Magellan Global Trust. Mr Fraser is a director of Taylor Collison Limited and also has a non- material
shareholding in that company. No amounts were paid or payable to Taylor Collison by any entity in the Group in
respect of this transaction during the year ended 30 June 2017 and up to the date of this report.
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:
Frank Casarotti
Gerald Stack
Kirsten Morton
Marcia Venegas
Craig Wright
Nerida Campbell
General Manager - Distribution
Head of Investments
Chief Financial Officer
Head of Risk, Compliance and Legal
Head of Governance & Advisory
Chief Operating Officer (ceased 1 Feb 2017)
70
NameDirectorshipAppointedBrett CairnsExecutive Chairman22 Jan 2007Hamish DouglassCEO and Chief Investment Officer21 Nov 2006John EalesNon-Executive Director1 Jul 2017Robert FraserNon-Executive Director and Senior Independent Director23 Apr 2014Paul LewisNon-Executive Director20 Dec 2006Hamish McLennanNon-Executive Director1 Mar 2016Karen PhinNon-Executive Director23 Apr 2014
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 Marcia Venegas and Mr Craig Wright were not KMPs for the year ended 30 June 2016.
Refer to section 3.3 of the Remuneration Report on page 20 for further details.
(d)
Transactions with Other Related Parties
The following transactions occurred with other related parties:
(i) Dividends of $173,000,000 representing $13.84 per share were paid by MAM to MFG during the year ended 30
June 2017 (June 2016: $186,000,000 representing $14.88 per share).
(ii) During the financial year, MAM’s income tax liabilities of $58,188,000 (June 2016: $57,679,000) were assumed
by MFG, the head entity of the tax consolidated group. Payments totalling $52,187,000 (June 2016: $61,116,000)
were received by MFG from MAM under the tax funding agreement during the year and $9,596,000 was receivable
by MFG from MAM in respect of amounts arising from the transfer of MAM’s tax liability to the Company (June
2016: $3,945,000). Refer to note 1(h) for further details on the tax consolidated group.
71
30 June30 June20172016(A)$$Short term benefits - Salary6,459,220 4,336,472 - Cash Bonus3,461,121 3,992,887 Post-employment benefits170,878 133,345 Long-term benefits284,346 50,804 Termination benefits432,597 - Other benefits167,581 154,933 Total remuneration paid to KMP10,975,743 8,668,441 Consolidated Entity30 June30 June20172016Note$'000$'000Dividends received from controlled entities(i)173,000 186,000 Amounts receivable by MFG under the tax funding agreement from MAM(ii)9,596 3,945 Amounts received by MFG pursuant to tax funding agreement from MAM(ii)52,187 61,116 Service fees paid by MAM to MFGS pursuant to transfer pricing agreement6,247 5,254 Service fees paid by MFGS to MAM pursuant to transfer pricing agreement80 62 Net amounts received/(paid) by MFG to/from MAM for expense reimbursements86 59 Net amounts received/(paid) by MFGS to/from MAM for expense reimbursements213 165
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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).
72
30 June30 June20172016$’000$’000Net profit after income tax expense 196,225 198,357Adjusted for:Net (gain)/loss on disposal of available-for-sale financial assets(2,259)(1,055)Net loss on deemed disposal of available-for-sale financial assets attributable to MGE - 1,296Loss on disposal of property, plant and equipment 18 14 Dividends and distributions reinvested(10,898)(12,353)Depreciation392280Group's share of net (gain)/loss for the period MGE was an associate - (3,961)Issued capital costs(156)(14)Net foreign exchange (gain)/loss309(165)Imputed interest on loans under the SPP(354)(350)Employee expense on loans under SPP283230(Increase)/decrease in receivables(20,357)2,147(Increase)/decrease in prepayments(527)(51)Increase/(decrease) in net deferred tax liabilities8,411(4,090)Increase/(decrease) in payables(4,634)(7,926)Increase/(decrease) in income tax payable(1,747)9,214Effects of exchange rates on cash and cash equivalents(15)(28)Net cash inflows from operating activities164,691 181,545 Consolidated Entity30 June30 June20172016$’000$’000Issue of ordinary shares under SPP 3,3524,038Imputed interest on loans under SPP(354)(350)Share based payments under SPP 283 230Acquisition of additional units in Magellan Unlisted Funds and Frontier MFG Funds through distribution reinvestment 10,898 12,353Dividend entitlement of SPP holders applied directly against SPP loan balance770 975 Consolidated EntityCash and cash equivalents 146,243 120,362
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 borrowings at 30 June 2017 (June 2016: 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
2017, 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 2017, the Group had an obligation to settle trade creditors and other payables of $22,336,000 (June
2016: $21,161,000) within 30 days. In addition, the Group also has an obligation to pay the fully franked dividends
of 47.2 cents per share in respect of the half year ended 30 June 2017. The dividend payment comprises a Final
Dividend of 41.5 cents per share and a Performance Fee Dividend of 5.7 cents per share, amounting to
approximately $81,220,000 to be paid on 28 August 2017 (refer to note 4(i)).
73
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
19.
Capital and Financial Risk Management (continued)
Liquidity risk (continued)
(c)
The Group had cash (including term deposits maturing within 30 days) of $146,243,000 (June 2016: $120,362,000)
and a further $71,290,000 (June 2016: $53,747,000) of receivables to cover these liabilities.
At 30 June 2017, the Group reported current assets of $222,174,000 and current liabilities of $28,079,000 resulting
in a net current asset surplus of $193,813,000. After taking into account the final dividend for the year ended 30
June 2017 totalling $81,220,000, this would result in a net current asset surplus of $112,593,000. Accordingly the
Group has sufficient liquid funds and current assets to meet its current liabilities.
Maturities of financial liabilities
At 30 June 2017, the Group’s financial liabilities comprise trade creditors and payables which mature in 1 year or
less (June 2016: 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.
74
30 June30 June20172016$’000$’000Impact on available-for-sale reserve, net of tax10,077 7,878 Total impact on net operating profit and equity10,0777,878 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
19.
Capital and Financial Risk Management (continued)
Price risk (continued)
(d)
Impact arising on entitlements to management and services 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 2017 and 30 June 2016 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).
75
30 June30 June20172016$’000$’000Impact on net operating profit and equity for the year11,765 10,185 Total impact on net operating profit and equity for the year11,76510,185 Consolidated Entity30 June30 June20172016$’000$’000Based on performance relative to a market index 1,408 6,627 Based on performance relative to a return hurdle3,083 207 15,205 39,180 Based on total shareholder return2,000 2,000 Total performance fees21,69648,014 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 2017
19.
Capital and Financial Risk Management (continued)
Currency risk (continued)
(e)
At 30 June 2017, 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 2017, 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 2016: 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.
76
2017201620172016$’000$’000$’000$’000Assets denominated in:US dollars(857)(463)(1,943)(1,437)Euro7 21 (105)(30)Canadian dollars - (64)(7) - British pounds(449)(367)(51)(53)Swiss francs - - (311)(44)Consolidated EntityIncrease/(decrease) in net profit in equity 30 June 30 June30 June30 June20172016$’000$’000Impact on net operating profit and equity 567 466 Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 2017 was rated by Standard & Poor’s as being AA-, and by Moody’s as being Aa3
(AA- and Aa2 respectively at 30 June 2016). The credit quality of the international bank counterparty at 30 June
2017 was rated by Moody’s as Baa2 (Baa2 at 30 June 2016).
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 2017, the provision for
doubtful debts was nil (June 2016: nil).
At 30 June 2017, the Group also had credit exposure to the Participants with loans under the SPP. At 30 June
2017, the outstanding balance on the loans totalled $9,757,000 (June 2016: $9,013,000). MFG ordinary shares of
986,993 were valued at $28,465,000 (June 2016: 978,251 MFG ordinary shares valued at $21,766,000) 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, Magellan Global Equities Fund (Currency
Hedged) and Magellan Infrastructure Fund (Currency Hedged). The credit quality of NT’s senior debt is rated, as
at 30 June 2017 by Standard and Poor’s as A+ and by Moody’s as A2 (A+ and A2 respectively at 30 June 2016).
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 2017 and 30 June 2016, 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 2017, all of the Group’s receivables are due within 0 to 30 days (June 2016: 0 to 30 days). No amounts
are impaired or past due at 30 June 2017 or 30 June 2016.
77
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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.
78
30 June30 June20172016Note$’000$’000Assets measured at fair valueAvailable-for-sale financial assets- Level 1: listed shares and ASX quoted units102,85874,679- Level 2: unlisted funds – Magellan and Frontier MFG Funds(i)159,999131,286- Level 3: unlisted funds - other(ii)8181- Level 3: unlisted shares - other(iii)175175Total financial assets263,113206,221Consolidated Entity
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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
2017 and 30 June 2016, 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, Adelaide 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:
Contingent assets and contingent liabilities
(b)
The Group has no contingent liabilities as at 30 June 2017. For the year ended 30 June 2016 contingent liabilities
totalled $100,000 in relation to the investment restriction contract entered into with Mr Hamish Douglass on 1 July
2012. At 30 June 2017, $500,000 has been provided for in the Group’s Consolidated Statement of Financial Position
(June 2016: $400,000) and as a result, the Group no longer has a contingent liability (June 2016: $100,000
contingent liability). The Group paid Mr Douglass $500,000 on 14 July 2017.
The Group has no material contingent assets as at 30 June 2017 (June 2016: nil).
Guarantees
(c)
For information about guarantees given by entities in the Group, including the Company, refer to note 16(b).
79
30 June30 June20172016$’000$’000Opening balance - 1 July256340Net change in fair value - (84)Closing Balance - 30 June256256Consolidated EntityConsolidated Entity30 June30 June20172016$’000$’000Within one year2,6743,309Later than one year but no later than five years10,82211,611More than five years13,76715,292Total commitments27,26330,212
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
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 Global Equities Fund, Magellan Global Equities Fund (Currency Hedged) Magellan Infrastructure Fund, Magellan
Infrastructure Fund (Unhedged), Magellan Core Infrastructure Fund and Magellan Infrastructure Fund (Currency Hedged).
80
30 June30 June20172016$$(a)Ernst & Young AustraliaAudit servicesStatutory audit and review of the financial reports:-the Company102,500 99,500 -the Magellan Funds(A)183,200 180,000 Other assurance services:-Regulatory required audits36,000 45,000 -Other48,500 49,000 370,200 373,500 Non-audit servicesTaxation services100,258 281,840 Total remuneration of Ernst & Young Australia470,458 655,340 (b)Related practices of Ernst & Young AustraliaAudit servicesStatutory audit of the financial reports:-MFG Investment Fund Plc - MFG Global Fund56,801 36,703 56,801 36,703 Non-audit servicesTaxation services83,384 76,591 Total remuneration of related firms of Ernst & Young Australia140,185 113,294 Total auditor's remuneration610,643 768,634 Consolidated Entity MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
22.
Events Subsequent to Reporting Date
On 4 August 2017, the Group reported on the ASX its funds under management was $49.6 billion as at 31 July
2017.
On 7 August 2017, the Group announced it had signed a 3 year agreement with Cricket Australia to become the
naming rights sponsor for the Australian domestic Test series. This sponsorship provides a highly scalable platform
to promote the Magellan brand and to build awareness of and grow the market for investing in global equities. The
commercial terms of the agreement are confidential.
On 9 August 2017 the Group announced its intention to undertake the initial public offering of the Magellan Global
Trust (“Trust”), a closed ended investment vehicle to be listed on the ASX. The Trust will offer investors the ability
to invest in a new global equities strategy managed by Magellan while targeting a cash distribution yield of 4% per
annum.
A product disclosure statement for the Magellan Global Trust (“Trust”) is expected to be lodged with the Australian
Securities & Investments Commission in August 2017, with the offer period for the initial public offering of the
Trust to open in late August. A priority offer is expected to be made to existing Magellan shareholders and
investors. Should they wish to invest in the Trust, the Group would reward these investors with a valuable loyalty
bonus in the form of additional units in the Trust.
The Group intends to fund the costs of the offer and loyalty bonus units. Subject to the size of the offer this may
result in a material one off expense and impact the assets and liabilities of the Group in the financial year ended
30 June 2018. Further details of the financial impact resulting from the Magellan Global Trust raising will be
disclosed following the completion of the offer.
Other than the above matters and the dividends in respect of the half year ended 30 June 2017 (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.
81
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ DECLARATION
In the Directors' opinion,
a)
the financial statements and notes set out on pages 34 to 81 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 2017 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
b)
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 2017.
This declaration is made in accordance with a resolution of the Directors.
Brett Cairns
Executive Chairman
10 August 2017
82
MAGELLAN FINANCIAL GROUP LIMITED
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
INDEPENDENT AUDITOR’S REPORT
To the Members of Magellan Financial Group Limited
Report on the Audit of the Financial Report Opinion
We have audited the financial report of Magellan Financial Group Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
2017, the consolidated statement of profit or loss, the consolidated statement of other comprehensive
income, the consolidated statement of changes in equity and the consolidated statement of cash flows for
the year then ended, notes comprising a summary of significant accounting policies and other explanatory
information and the Directors’ Declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the consolidated financial position of the Group as at 30 June(cid:32)
2017 and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of the Group in accordance with the auditor independence requirements
of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to
our audit of the financial report in Australia; and we have fulfilled our other ethical responsibilities in
accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report, including in relation to these matters. Accordingly, our audit included the
performance of procedures designed to respond to our assessment of the risks of material misstatement of
the financial report. The results of our audit procedures, including the procedures performed to address the
matters below, provide the basis for our audit opinion on the accompanying financial report.
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83
MAGELLAN FINANCIAL GROUP LIMITED
1. Management and Performance Fee Revenue
Why significant
How our audit addressed the key audit matter
As part of our audit response, we assessed and
tested the design and operating effectiveness of
relevant controls in place in relation to the
calculation of management and performance fees.
We performed a recalculation of management fees,
on a sample basis, to assess whether this was in
accordance with contractual arrangements.
We assessed the performance fees which were
recognised in the year ended 30 June 2017 and
checked they met the relevant recognition criteria,
including assessing the inputs into the performance
fee calculation model and an examination of the
methodology applied in accordance with contractual
arrangements.
We assessed the adequacy of the disclosures in Note
1(f) and Note 6 to the financial report in accordance
with AASB 118.
The Group’s key revenue stream is management
and performance fees earned by Magellan Asset
Management Limited (MAM), a consolidated
subsidiary, though the Investment Management
Agreements in place with third parties and other
Magellan funds.
For the year ended 30 June 2017, management
fees were $300,529,000 and performance fees
were $21,696,000 which equates to 88.8% and
6.4% of total revenue respectively.
Revenue from management and performance
fees is earned and calculated in accordance with
the Investment Management Agreements,
Product Disclosure Statements and
Constitutions. Performance fees are dependent
on the portfolio outperforming certain hurdles
and are only recognised in the Statement of
Profit or Loss when the Group’s entitlement to
the fee is highly probable, which is at the end of
the relevant performance period. This
recognition criteria is in accordance with
Australian Accounting Standard - AASB 118:
Revenue (AASB 118).
The quantum of these revenue streams and the
impact that the variability of market based
returns can have on the recognition and earning
of performance fees results in this being a key
area of audit focus.
Disclosures relating to these revenue streams
are included in Note 6 to the financial report.
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84
MAGELLAN FINANCIAL GROUP LIMITED
2.
Investment Existence and Valuation
Why significant
How our audit addressed the key audit matter
The Group has a significant investment portfolio
consisting of listed equities, ASX quoted funds
and unlisted funds. As at 30 June 2017, the
value of these non-current financial assets, per
Note 11 of the financial report was
$263,113,000, which equates to 53% of the
total assets held by the Group.
The Group’s financial assets are classified as
‘available for sale’ and are measured at fair value
in line with Australian Accounting Standards -
AASB 139: Financial Instruments Recognition
and Measurement (AASB 139).
Pricing, exchange rates and other market drivers
can have a significant impact on the value of
these financial assets and the financial report,
therefore the valuation of the investment
portfolio is a key area of focus.
As part of our audit response, we assessed and
tested the design and operating effectiveness of the
relevant controls in place around the existence and
valuation of investments, through the assessment of
the assurance reports on internal controls reports
prepared under ASAE 3402 Assurance Reports on
Controls at a Service Organisation by other audit
firms of the Group’s custodian and administrators.
Independent confirmations were received for all
investment holdings, including cash accounts, at 30
June 2017.
We checked the valuation of all positions in the
portfolio held at 30 June 2017. To validate the fair
value in accordance with AASB 139, we checked the
listed securities to independent pricing sources and
for unlisted funds, we agreed the investment
valuations to statements from external unit registry
providers.
We evaluated the Group’s assessment of available for
sale financial assets for any additional impairment in
accordance with AASB 139 and performed an
independent assessment of the assumptions and
conclusions.
We assessed the adequacy of the disclosures in Note
11 and Note 19 to the financial report for compliance
with AASB 139, AASB 7: Financial Instruments
Disclosures and AASB 13: Fair Value Measurement.
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MAGELLAN FINANCIAL GROUP LIMITED
3. Consolidation and Equity Accounting Considerations
Why significant
How our audit addressed the key audit matter
Consolidation continues to be an area of
complexity for the Group with judgments
required over “control” and “significant
influence” for its investments in ASX quoted and
unlisted funds.
Investments may be accounted for by
consolidation, equity accounting, joint ventures
or as investments at fair value. The
determination of the appropriate accounting
depends upon the ability of the Group to exercise
control or significant influence.
Judgment is required in determining the
appropriate accounting, particularly due to the
Group’s practice of seeding funds, resulting in
the ownership percentage changing over time
and being dependent on the rate of external
investor take up. The Group’s interests in its
funds, associates and controlled entities are
disclosed in Notes 11, 12 and Note 13 of the
financial report.
Our audit procedures focused on evaluating the
Group’s assessment of control or significant
influence for the investments, and the accounting
treatment and presentation thereon.
This included evaluating the Group’s assessment of
control, in line with their accounting policy, to
confirm which entities are required to be equity
accounted, consolidated or accounted for as an
investment at fair value.
We also performed our own independent assessment
of the impact of consolidating or equity accounting
interests in funds to determine if this had a material
effect on the financial report.
We assessed the adequacy of the disclosures in Note
11, Note 12 and Note 13 associated with the Group’s
interests in funds in line with AASB 10: Consolidated
Financial Statements, AASB 12: Disclosure of
Interests in Other Entities and AASB 128;
Investments in Associates and Joint Ventures and as
applicable based on the assessment of control.
Information Other than the Financial Report and Auditor’s Report
The Directors of the Company are responsible for the other information. The other information
comprises the information in the Company’s Annual Report for the year ended 30 June 2017, but does
not include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based
upon the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the Directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or cease
operations, or have no realistic alternative but to do so.
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MAGELLAN FINANCIAL GROUP LIMITED
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Australian Auditing Standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment
and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to(cid:32)fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit(cid:32)evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not(cid:32)detecting a material
misstatement resulting from fraud is higher than for one resulting from error,(cid:32)as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override(cid:32)of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit(cid:32)procedures
that are appropriate in the circumstances, but not for the purpose of expressing an(cid:32)opinion on the
effectiveness of the entity’s internal control.
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting(cid:32)
estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in the
preparation of the financial report. We also conclude, based on the audit evidence obtained,(cid:32)whether
a material uncertainty exists related to events and conditions that may cast significant(cid:32)doubt on the
entity’s ability to continue as a going concern. If we conclude that a material(cid:32)uncertainty exists, we
are required to draw attention in the auditor’s report to the disclosures in the financial report about
the material uncertainty or, if such disclosures are inadequate, to(cid:32)modify the opinion on the financial
report. However, future events or conditions may cause an(cid:32)entity to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial report, including the(cid:32)
disclosures, and whether the consolidated financial report represent the underlying transactions(cid:32)and
events in a manner that achieves fair presentation.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
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MAGELLAN FINANCIAL GROUP LIMITED
From the matters communicated to the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 31 of the Directors' Report for the
year ended 30 June 2017.
In our opinion, the Remuneration Report of Magellan Financial Group Limited for the year ended 30
June 2017, complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Rita Da Silva
Partner
Sydney
10 August 2017
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88
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’s investment process seeks to identify high quality
companies which naturally filters out most companies from sectors that typically come with material ESG issues (eg
Magellan’s investment universe excludes pro-cyclical resources, energy and materials stocks). Magellan maintains an
ESG Policy, which outlines how ESG issues are incorporated into Magellan’s investment analysis framework and
investment process.
In September 2016, Magellan launched the first of a series of Low Carbon strategies that implement a proprietary low
carbon overlay. Magellan believes it is highly likely that the world will move further towards addressing climate change
risks by reducing carbon emissions. Climate change is therefore an increasingly important issue for global companies
and investors, with the potential to affect profoundly business models through government regulation (eg carbon
pricing), technology and changes in consumption patterns. These factors directly and indirectly impact the relative cost
of companies’ products and services, customer demand, and pricing power.
In May 2017, Magellan became a signatory of the UNPRI’s Montreal Pledge. Under the Pledge, Magellan commits to
measure and publicly disclose the carbon footprint of its actively managed investment portfolios which are outlined in
the table below.
Magellan Global Fund
Magellan High Conviction Fund
Magellan Infrastructure Fund
Global Low Carbon strategy
US Low Carbon strategy
International Low Carbon strategy
MSCI World Index
Carbon footprint as at 30 June 2017
(tonnes CO2e per $US million revenue)
26.6
25.7
366.5
27.7
27.9
29.0
200.1
Note: portfolio carbon intensities are calculated using the weighted average carbon intensity method.
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 and 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’s 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 2017 Magellan engaged with many portfolio companies on a number of material topics and was
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 108 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.
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MAGELLAN FINANCIAL GROUP LIMITED
For example, Magellan’s head office is a 4.5 star NABERS1 rated office building. Magellan also continues to build
awareness amongst its employees and focus on areas where it can make an impact including recycling.
Magellan is 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 A$ million of revenue
Calendar Year 2015
0
97
97
1.05
0.3
Calendar Year 2016
0
123.6
123.6
1.14
0.4
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 calendar year 2016 of 0.4 tonnes CO2e per A$ million
dollars of revenue puts Magellan among the lowest emissions intensity companies globally.
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 go 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 3.1 in the
Directors’ 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 2017 approximately 65% 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. The policy can be found on our
website: www.magellangroup.com.au.
__________________________
(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.
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MAGELLAN FINANCIAL GROUP LIMITED
In the 2017 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. The current
gender representation across the Group is shown below as at 30 June 2017.
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.
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 the charities to which they
donate. Instead, Magellan prefers to focus its efforts on employee participation in 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
Employee participation in volunteer days at Wayside Chapel
Further, in February 2017 Magellan hosted an Investor Gala Dinner in Melbourne which raised over $90,000 for three
charities:
•
•
•
Lighthouse Foundation
Victor Chang Cardiac Research Institute
The Reach Foundation
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 equities investment
strategies managed by prominent, Australian fund managers. Participating fund managers manage the capital entirely
pro-bono so that 1.0% of net assets each year to be donated to Australian non-profits committed to young Australians
affected by mental health issues. In the 2017 financial year, this equated to approximately $450,000 in respect of
funds managed by Magellan. Magellan is a foundation member and received an initial allocation of ~10% of the assets
under management at time of IPO.
_____________
(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.
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25%29%50%40%75%71%50%60%0%20%40%60%80%100%Non-executive independent directorsKey Management PersonnelHeads of divisionsGroupOrganisational gender diversityFemaleMale4712108Total (#)2 MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE INFORMATION
Directors
Brett Cairns - Chairman
Hamish Douglass – CEO and Chief Investment Officer
John Eales
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
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MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 3 AUGUST 2017
Distribution of Shareholders
Analysis of the numbers of shareholders by size of holding at 3 August 2017 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
7,432
4,918
691
720
83
Number of
Ordinary
Shares
3,585,407
11,230,897
5,018,149
19,609,603
132,632,412
Percentage
of Shares
on Issue
%
2.08
6.53
2.92
11.40
77.07
13,844
172,076,468
100.00
3,957
935,430
Twenty Largest Shareholders
The names of the twenty largest shareholders of the Company as at 3 August 2017 are listed below:
Holder Name
HSBC Custody Nominees (Australia) Limited
Midas Touch Investments Pty Ltd
JP Morgan Nominees Australia Limited
Magellan Equities Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Nota Bene Investments Pty Ltd
BNP Paribas Noms Pty Ltd
Emmanuel Capital Pty Ltd
Mr David Doyle
Mr Christopher John Mackay
Aljamat Pty Ltd
Pershing Australia Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Jash Pty Limited
HSBC Custody Nominees (Australia) Limited (Comnwlth Super a/c)
PAJ Lewis Pty Ltd
Citicorp Nominees Pty Limited
PAJ Lewis Superannuation Fund Pty Ltd
Mr Philip Alan Kenneth Naylor & Mrs Andrea Naylor
Number of
Ordinary
Shares
26,985,794
21,001,577
17,976,167
16,888,949
9,480,146
4,880,162
2,851,497
2,134,688
1,850,000
1,500,000
1,390,385
1,310,000
1,291,323
1,160,062
1,130,331
948,403
900,000
848,411
825,000
780,000
Percentage
of Shares
on Issue
15.68
12.20
10.45
9.81
5.51
2.84
1.66
1.24
1.08
0.87
0.81
0.76
0.75
0.67
0.66
0.55
0.52
0.49
0.48
0.45
Total shares held by the twenty largest shareholders
116,132,895
67.48
Total ordinary shares on issue
172,076,468
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MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 3 AUGUST 2017
Substantial Shareholders
The substantial shareholders in the Company’s Register of Substantial Shareholders at 3 August 2017 are listed
below:
Shareholder
Hamish Douglass, Midas Touch Investments Pty Ltd and associates(A)
Chris Mackay and associates(B)
(A) Date of last Appendix 3Y notice lodged on 2 August 2017
(B) Date of the last substantial shareholder notice lodged on 1 December 2015
Number
of
Ordinary
Shares
21,792,277
18,615,610
Percentage
of Shares
on issue
%
12.66
10.81
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
c)
to one vote; and
on a poll, each shareholder present in person, by proxy, by attorney or by representative is entitled to one
vote for every share held by the shareholder.
In the case of joint holdings, only one joint holder may vote.
Stock Exchange Listing
The Company’s ASX code is “MFG” for its ordinary shares.
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