Annual Report
for the year ended 30 June 2019
MAGELLAN FINANCIAL GROUP LIMITED: ABN 59 108 437 592
Five year summary(1)
Group Results
Total Revenue
Total Expenses
Net Profit Before Tax
Net Profit After Tax
Adjusted Revenue(2)
Adjusted Expenses(2)
Adjusted Net Profit After Tax(2)
Effective Tax Rate
Funds Under Management(3)
Average Funds Under Management
Closing Funds Under Management
Funds Under Management comprises:
- Retail
- Institutional
Average Base Management Fee (per annum)(4)
Funds Management Business(2)
Total Revenue
Total Expenses
Net Profit Before Tax
Net Profit Before Tax and before performance fees(2)
Employee Expenses/ Total Expenses
Cost to Income Ratio (expense/revenue)
Cost to Income Ratio (excluding performance fees)
Assets
Total Assets
Net Assets
Net Tangible Assets Per Share
Shareholder Value
Basic Earnings Per Share
Diluted Earnings Per Share
Adjusted Basic and Diluted Earnings Per Share(2)
Dividends Per Share
Franking
Other Information
Number of Employees
Average Number of Employees
$'000
$'000
$'000
$'000
$'000
$'000
$'000
%
$m
$m
$m
$m
bps
$'000
$'000
$'000
$'000
%
%
%
$'000
$'000
$
cents
cents
cents
cents
%
30 June
2019
30 June
2018
30 June
2017
30 June
2016
30 June
2015
617,387
124,050
493,337
376,947
577,251
104,024
364,225
23.6
75,819
86,718
23,216
63,502
62
561,326
101,537
459,789
376,182
61.8
18.1
21.3
452,598
181,988
270,610
211,791
452,598
101,010
268,897
21.7
59,034
69,509
19,182
50,327
65
338,268
333,805
284,912
82,141
256,127
196,225
338,268
82,141
74,104
259,701
198,357
333,805
74,104
54,603
230,309
174,295
284,912
54,603
196,225
198,357
174,295
23.4
23.6
24.3
45,667
50,597
15,159
35,438
66
39,437
40,495
12,041
28,454
66
30,966
36,381
9,809
26,572
66
428,705
329,188
315,268
255,889
97,275
331,430
291,841
53.4
22.7
25.0
80,908
248,280
226,774
58.5
24.6
26.3
71,483
243,785
196,425
58.8
22.7
26.5
52,589
203,300
160,401
59.4
20.6
24.8
800,291
734,022
3.44
674,943
620,433
2.92
493,981
447,611
2.60
392,379
355,369
2.07
346,678
303,443
1.78
213.1
213.1
205.9
185.2
75
122.0
122.0
154.9
134.5
100
116.9
114.1
114.1
85.6
100
123.5
115.5
115.5
89.3
100
109.2
101.8
101.8
74.9
100
125
125
124
116
108
104
100
96
91
80
(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 Consolidated Statement of Profit or Loss and Consolidated
Statement of Financial Position extracts are derived from the published financial statements. This table includes non-IFRS information as
defined in section 1.4.1 of the Directors’ Report.
Adjustments are made for strategic, non-cash or unrealised items to provide additional meaningful information (refer to section 1.4.1 of
the Directors’ Report and note 2(a) in the financial statements for the breakdown of these items).
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.
(3)
(4)
(2)
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 Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
1
Basis of preparation
Results for the Year
2
3
4
5
6
7
Segment Information
Earnings Per Share
Dividends
Revenue
Taxation
Notes to the Consolidated Statement of Cash Flows
Operating Assets and Liabilities
Receivables
Property, Plant and Equipment
8
9
10 Payables
11 Provisions
Capital Structure
12 Financial Assets
13 Contributed Equity
14 Share Purchase Plan
Group Structure
15 Parent Entity Information
16 Subsidiaries
Transactions
17 Business Combinations
18
Intangibles
Other Items
19 Related Party Disclosures
20 Capital and Risk Management
21 Contingent Assets, Contingent Liabilities and Commitments
22 Auditor's Remuneration
23 Subsequent Events
Directors’ Declaration
Independent Auditor’s Report
Corporate Sustainability and Responsibility Report
Corporate Information
Shareholder Information
3
6
15
36
37
38
39
40
41
42
46
50
51
52
55
58
59
60
61
62
63
66
67
69
70
72
74
76
78
84
85
86
87
88
94
99
100
MAGELLAN FINANCIAL GROUP LIMITED
Chairman’s Report
for the year ended 30 June 2019
Dear Investor,
I am delighted to write to you as a shareholder in Magellan Financial Group Limited (“Magellan”). Magellan’s financial
results for the year ended 30 June 2019 are more than satisfactory:
• Magellan’s reported net profit after tax increased by 78% to $376.9 million. Excluding amortisation relating to the
acquisitions of Airlie Funds Management and Frontier Partners, the gains in our Principal Investments portfolio and
the costs associated with capital raisings for our funds, Magellan’s adjusted profit after tax increased by 35% to
$364.2 million.
• Total dividends (interim, final and performance fee dividends) increased by 38% to 185.2 cents per share.
• Net profit before tax and before performance fees for the Funds Management Segment increased by 29% to
$376.2 million. Including performance fees, net profit before tax for the Funds Management Segment increased
by 39% to $459.8 million.
I encourage you to read the CEO report by Brett Cairns which provides a comprehensive review of our 2018/19
financial results.
I am pleased to report that the management changes we announced in October 2018, where Brett Cairns was
appointed CEO and I assumed the role of Chairman, have occurred seamlessly. Brett is doing an outstanding job as
CEO and looks after all the key operational functions of Magellan. Brett has an extremely detailed understanding of
our business and a vision for simplifying the way managed funds are administered for investors in Australia. I
continue to look after the investment functions of Magellan in my role as Chief Investment Officer and remain focused
on developing the strategy for the group in conjunction with Brett and the Board. I continue to skip to work every
day and have never been happier or more engaged. I can assure you I am not going anywhere – I love what I do
at Magellan.
I would also like to thank our outstanding Directors who act as a key sounding board to Brett and myself. In June
we announced that Hamish McLennan was appointed Deputy Chairman of Magellan and Robert Fraser was appointed
Chairman of Magellan Asset Management Limited, the Responsible Entity and main operating subsidiary of Magellan.
These appointments strengthen the governance framework of both Magellan and Magellan Asset Management
Limited. I thank both Hamish and Rob for agreeing to take on the additional responsibilities.
Our job at Magellan is to add value for all our stakeholders. This starts with delivering strong investment performance
for our clients who have entrusted us to manage money on their behalf. I am proud of the investment performance
that has been delivered by the Magellan investment team over many years.
We also add value by providing investment insight and servicing our clients with unrelenting focus. Our client
relationship and communications teams are second to none. I would encourage you to read our new investor
magazine (2019 INREVIEW) which was sent to our investors recently. This is a first-class publication and I hope you
enjoy reading it. If you did not receive a copy please contact our office (phone 02 9235 4888) and we would be
happy to mail one to you.
It is critical that we retain outstanding people. This involves creating a positive working environment, supporting our
employees’ career ambitions and having a fair and aligned incentive system.
If we do these things we should be in a position to create value for our shareholders. It is important for you as
shareholders to appreciate that we do not put your interests first. We will act in the interests of our clients and
employees even if it comes at financial cost to our reported profits. We believe this mindset of putting our clients
and employees first is the best model to create significant long-term shareholder value.
It is pleasing that since we established Magellan in 2006 we have generated approximately $55 billion in combined
stakeholder value (measured by realised and unrealised profits and dividends) for clients invested in Magellan
strategies and for Magellan shareholders. We are proud of the value that has been created to date.
3
We believe that to create long-term enduring value, the concept of a partnership with our clients is important. A
partnership exists where both parties in the relationship benefit. A very good example of our partnership is the
Magellan Global Trust. In October 2017 we completed the initial public offering of the Magellan Global Trust which
raised $1.57 billion. As part of this raising we offered Magellan shareholders and investors in Magellan funds the
right to receive Loyalty Units that entitled them to additional units in the Trust worth 6.25% of the value of units
allotted to them under the Priority Offer. The financial cost of the Loyalty Units and the full expenses of the raising
totalled $81 million. This cost was borne by Magellan.
In addition, an investor in the Magellan Global Trust has been able to reinvest distributions back into units in the
trust at a 5% discount to the net asset value and participate in a unit purchase plan to buy up to $15,000 of units at
a 5% discount to the net asset value. For a Magellan investor that subscribed for $30,000 of units under the Priority
Offer for the Magellan Global Trust, subsequently participated in the distribution reinvestment plan and unit purchase
plan and takes up their full priority entitlement in the upcoming Magellan High Conviction Trust raising, the aggregate
additional benefit they will have received is $6,566.
The question you may ask is why Magellan would voluntarily pay these costs when we could probably raise additional
funds under management without incurring these expenses. The answer to this question is twofold:
• Treating investors in our funds as partners and providing real tangible benefits is likely to make them more engaged
and loyal investors over the long-term, and may attract more investors into our funds; and
• Every dollar we pay upfront to people investing additional capital into our closed end funds has resulted in
materially more than two dollars of shareholder value to date.
We believe that this partnership approach is a win-win outcome for investors in our funds and our shareholders.
Every time you see Magellan incur an expense related to such activities in the future you should celebrate. The larger
the expense the greater the quantum of potential shareholder value creation. We have only scratched the tip of an
iceberg on the potential of our partnership thinking and I would envisage us making more partnership investments
in the future. While we will expense these costs up front for accounting purposes, you should think of the expense
as an investment in the future of the business. Importantly the Board excludes these expenses from profits when
determining the amount of dividends.
We have today announced a raising for a new closed end trust to be listed on the ASX, the Magellan High Conviction
Trust. As part of this raising we will have a priority offering to investors in the Magellan Global Trust, the unlisted
Magellan High Conviction Fund and shareholders in Magellan. Under the priority offering and subject to the terms of
the offer, eligible investors will have the right to subscribe for up to $50,000 of units in the Magellan High Conviction
Trust and will receive Loyalty Units worth 7.5% of the value of their application made under the priority offer. In
addition, we are offering investors subscribing under the general public offer IPO Foundation Units worth 2.5% of
the value of an application made under the general public offer. The cost of these additional units will be paid for by
Magellan.
We are addressing potential concerns regarding conflicted remuneration by proceeding with an offer structure
whereby we do not pay any fees to brokers or advisers to handle the offer. This has led us to proceed with the
raising without appointing a broker syndicate to whom such fees would ordinarily be paid. We are passing the typical
offer costs back to investors in the form of IPO Foundation Units. We hope that investors will find the offer attractive.
We are also developing a new retirement product for the Australian market. We believe with interest rates nearing
zero and with the ongoing retirement of the “baby boomers” there is a large unmet client need for a new approach
to investing in the retirement phase. We anticipate making a meaningful upfront contribution of approximately $50
million. Beyond the initial upfront amount, we don’t anticipate that Magellan will need to make additional capital
contributions to support the product. We believe we will earn an attractive financial return from this initiative.
These are just two further examples of our partnership mindset in practice.
4
I would like to say thank you to all our clients who have entrusted us to manage money on their behalf, to our
incredible colleagues at Magellan and of course to you as shareholders. I look forward to seeing you at the Annual
General Meeting in October or at one of our investor evenings next year. The 2020 Investor Evenings will be held at
the following times:
• Melbourne Friday, 21 February 2020
• Canberra Monday 24 February 2020
• Brisbane Tuesday 25 February 2020
• Adelaide Wednesday 26 February 2020
• Perth Thursday 27 February 2020
• Auckland Tuesday 3 March 2020
• Sydney Thursday and Friday, 5 and 6 March 2020
We will send you an invitation to apply for tickets to the investor evenings closer to the time.
Thank you for your ongoing support of Magellan.
Yours sincerely
Hamish M Douglass
Chairman
13 August 2019
5
MAGELLAN FINANCIAL GROUP LIMITED
Chief Executive Officer’s Annual Letter
for the year ended 30 June 2019
Dear Shareholder,
I am delighted to present this report for Magellan Financial Group Limited (“the Group” or “Magellan”) for the year
ended 30 June 2019.
OVERVIEW OF MAGELLAN
For those who might be new to Magellan this section provides a brief overview of the business. For those who are
more familiar with Magellan’s business, please feel free to skip to the next section “Overview of Results”, which
provides a detailed discussion of results for the financial year.
Magellan is a specialist fund manager that has four core investment strategies – Global Equities, Global Listed
Infrastructure, Sustainable and Australian Equities (via Airlie Funds Management). We manage these strategies on
behalf of retail investors in Australia and New Zealand and institutional investors located around the world.
The Group’s Funds Management segment is our core business and is the driver of the Group’s revenues, profitability
and, therefore, dividends paid to shareholders.
The primary component of the Group’s revenues is the management fees that we earn on the investment strategies
we manage for our clients. Management fees are based on funds under management (“FUM”) and thus management
fee revenue will be driven by the Group’s FUM. Changes in FUM itself are driven primarily by investment performance
and also by client inflows and outflows. From time to time we may also earn performance fees if our funds and
mandates achieve certain performance hurdles. These fees are lumpy and do not occur evenly from period to period.
Our clients, of course, have a choice as to who manages their money, and so it is crucial we focus on them and
achieving the investment outcomes we aim to deliver. We have invested significantly in our investment team,
developed key systems and processes and built scalable operations and risk management frameworks, all aimed to
deliver for our clients.
We have also developed a strong distribution team to work with our clients and their advisers. Our distribution team
prides itself on building long standing relationships and delivering high standards of communication and insightful
events.
As a fund manager, our business is heavy in human capital. Although not noted in our balance sheet, people are our
biggest asset and, as our profit and loss statement shows, they are also our largest expense (apart from payments
for tax). Payments to employees make up roughly 60% of our adjusted operating expense base. Given the nature
of our business, we believe it is very important to foster a culture amongst our team where everyone is encouraged
to think and act like owners of the business. We are pleased our voluntary employee share purchase plan has resulted
in approximately 65% of employees being Magellan shareholders.
The remaining 40% of adjusted operating expenses include such things as marketing and distribution costs, funds
administration costs including custody and registry, legal and professional fees, rent and so on. About half of these
expenses are variable in nature with some moving in line with changes in FUM (and therefore revenue) and others
being a function of the number of investors and their activity (statement communications for example). The other
half of these non-employee related costs result from the day-to-day running of the business, such as office tenancies
and information technology expenses which tend to be fixed in nature.
We have focused on developing the business to ensure scalability as the business grows and currently our core cost-
to-income ratio is 21.3% (excluding the positive impact of performance fees).
Although our business is relatively capital light, we do believe it is essential to maintain a strong balance sheet and
accordingly Magellan had $609.5 million of net tangible assets as at 30 June 2019. Our liabilities comprise of day-to-
day payables and provisions for employee entitlements and tax, together with deferred lease incentives for our
offices. We have no borrowings although for funding flexibility, we do maintain a $50 million undrawn debt facility.
We believe a strong balance sheet that can withstand almost any market condition is important for our clients as
well as shareholders.
A meaningful portion of the Group’s capital is invested in our strategies alongside our clients via our Principal
Investments portfolio. This is shown in our accounts under the Principal Investment business segment. Through the
Principal Investments we invest in our funds (for example the Magellan Global Fund) and are also able to seed new
strategies and initiatives. The Group earns revenue from these investments through distributions from the funds and,
if these investments grow over time, we may realise a capital gain (or capital loss, if these investments decline over
6
time). It is important to note that these earnings may fluctuate significantly from period to period and while growing,
are not a core driver of the business.
Up until 1 July 2018, only the realised gains or losses on our Principal Investments were recorded in reported
earnings, with anything unrealised being accounted for in Comprehensive Income. Since 1 July 2018 accounting
standards have changed and we are now required to include unrealised gains/losses in the Group’s reported earnings.
Given the size of our Principal Investments this change will bring some unwanted noise into our reported earnings
at various times and as such we will endeavour to be clear in our discussions and financial accounts as to what
portion of our earnings are derived from the core business and what is the result of investment gains or losses, some
of which may not yet be realised.
As at 30 June 2019 the Group has net assets of $734.0 million, of which $124.5 million are classified as intangible.
These intangible assets arose following the purchases of Airlie Funds Management (“Airlie”) and Frontier Group
(“Frontier”) and comprise values attributed to customer relationships and goodwill.
Accounting standards dictate that some intangible assets (like customer relationships) are treated as having finite
useful lives while others (such as goodwill) are deemed to have indefinite useful lives.
The value of those intangible assets with fixed lives are required to be amortised (i.e. written-off) typically in equal
yearly amounts over their life, with that amortisation amount being accounted for as an expense against earnings in
each year. Goodwill, on the other hand, has no fixed useful life and therefore is subject to a yearly impairment test,
with any recognised impairment also being accounted for as an expense against earnings in that year.
It is important to note that while these amortisation and impairment expenses (if any) reduce our reported earnings,
they are not cash items. Furthermore, in the case of customer relationships, the amortisation over set periods
implicitly assumes customers leave by those times and are not replaced, an assumption from a management point
of view we would expect not to be the case.
Therefore, when reviewing our financial statements and results we believe it is important to consider several different
measures to gain an overall understanding of the business and its performance.
Firstly, an analysis of our statutory reported earnings is clearly important, but when doing so it is also important to
be mindful of the inherent assumptions and assorted items which are included in that measure.
As such, we also think a metric whereby we make certain adjustments provides additional meaningful information
about the performance of the business, particularly in comparative analysis. Such adjustments include adding back
non-cash items such as amortisation, because we consider departing clients would be replaced, and unrealised
gain/losses, because they are unrealised. We also adjust for items that relate to transaction costs of strategic
initiatives, for example the Magellan Global Trust (ASX: MGG) offer costs we incurred in the 2018 financial year as
part of its initial public offering (“IPO”) and funding of the discounts offered on the recent MGG Unit Purchase Plan
(“UPP”) and Distribution Reinvestment Plan (“DRP”).
Thirdly, as our business consists of a dominant Funds Management segment and a portfolio of Principal Investments,
each should be considered separately. Our Principal Investments portfolio can be considered by assessing its value
per share, whilst the Funds Management segment can be reviewed by considering the net profit before tax of that
segment, both with and without performance fees (due to their lumpy nature).
We discuss each of these measures in the analysis below.
Finally, a word on tax. Our effective tax rate is below the company tax rate (currently 30%) because Magellan has
the benefit of being declared an Offshore Banking Unit (“OBU”). The benefit of an OBU is that assessable offshore
income, net of costs, is taxed at a concessional rate of 10%. Our assessable domestic income is still taxed at the
company tax rate and so our actual overall tax rate will depend on the mix of our offshore and onshore businesses.
Currently our effective tax rate is 23.6%.
The remainder of this report discusses the business in more detail and the Group’s financial results for the year
ended 30 June 2019.
OVERVIEW OF RESULTS
We are pleased with the results the Group has achieved this year which was characterised by a 28% growth in
average FUM to $75.8 billion (average FUM of $59.0 billion for the year ended 30 June 2018), the key driver of the
Group’s profitability.
For the year ended 30 June 2019, the Group reported net profit after tax of $376.9 million, which represents an
increase of 78% over the previous corresponding period ($211.8 million for the year ended 30 June 2018).
7
Adjusted for unrealised or non-cash items and costs relating to strategic initiatives, the Group’s net profit after tax
increased by 35% to $364.2 million for the year ended 30 June 2019 ($268.9 million for the year ended 30 June
2018).
Adjusted financial measures in 2019 are adjusted for non-cash amortisation expense of $4.5 million, unrealised
capital gains from the Principal Investments segment of $40.1 million and costs related to strategic initiatives of
$15.5 million.
Adjusted earnings per share increased at a slightly slower pace of 33% to 205.9 cents per share (154.9 cents per
share for the year ended 30 June 2018).
In the period, the Group earned performance fees before tax of $83.6 million. As we have discussed previously it is
important to note performance fees can, and usually do, vary significantly from period to period. Whilst this does not
detract from their value, it can distort near term comparative analysis.
We therefore draw shareholders’ attention to the change in profit before tax and performance fees of our Funds
Management business. This increased 29% to $376.2 million for the year ended 30 June 2019(1) ($291.8 million for
the year to 30 June 2018).
Earnings before tax from Principal Investments totalled $53.4 million, of which $12.8 million came from distributions,
$0.6 million from realised capital gains and $40.1 million attributed to unrealised capital gains. Earnings from
distributions and realised capital gains/losses are included in other revenue in the table below.
The Directors have declared total dividends of 185.2 cents per share for the year ended 30 June 2019. This is an
increase of 38% over the 2018 financial year. In respect of the six months to June 2019, the Directors have declared
a total dividend of 111.4 cents per share, franked at 75% (90.0 cents per share, 100% franked, in 2018) which will
be paid on 29 August 2019. The dividend payment comprises:
A Final Dividend of 78.0 cents per share; and
A Performance Fee Dividend of 33.4 cents per share.
•
•
The Company’s policy is to pay Interim and Final Dividends of 90% to 95% of the net profit after tax of the Group’s
Funds Management business excluding performance fees. Net profit after tax of the Funds Management business
excludes amortisation of intangibles and costs related to strategic initiatives. In addition to the Interim and Final
Dividends, the Group will pay an annual Performance Fee Dividend of 90% to 95% of the net crystallised performance
fees after tax. Any Performance Fee Dividend will be paid annually alongside the Final Dividend. The payment of
dividends by the Group will be subject to corporate, legal and regulatory considerations.
As we have previously noted, dividends are likely to be less than 100% franked due to the combination of our high
payout ratio and our below 30% tax rate. Although the Board has a policy of paying out franking credits to the
maximum extent possible over time, the level of franking attached to dividends may vary from period to period.
The following table summarises the Group’s profitability over the past two financial years(2):
Management and services fees
Performance fees
Other revenue
Adjusted Revenue
Adjusted expenses
Adjusted net profit before tax
Adjusted tax expense
Adjusted net profit after tax
Transaction costs related to strategic initiatives (after tax)(3)
Amortisation expense of intangible assets
Net unrealised change in fair value of financial assets (after tax)
Total non-IFRS adjustments
Profit after tax
Key Statistics
Diluted earnings per share (cents per share)
Adjusted diluted earnings per share (cents per share)
30 June
2019
$'000
472,486
83,631
21,134
577,251
30 June
2018
$'000
385,775
39,772
27,051
452,598
Change
%
22%
110%
(22%)
28%
(104,024)
(101,010)
473,227
(109,002)
351,588
(82,691)
364,225
268,897
(10,856)
(4,518)
28,095
12,722
(55,702)
(1,404)
-
(57,106)
376,947
211,791
213.1
205.9
122.0
154.9
3%
35%
32%
35%
n/m
n/m
n/m
n/m
78%
75%
33%
Dividends
Interim and Final Dividends (cents per share)
Annual Performance Fee Dividend (cents per share)
Total Dividends (cents per share)
________________
(1) Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period.
(2) Adjusted financial measures are adjusted for non-cash items (amortisation expense and unrealised gains/losses) and transaction costs related to strategic initiatives. A
27%
124%
38%
151.8
33.4
185.2
119.6
14.9
134.5
reconciliation to the reported profit and loss statement is outlined in Section 1.4 of the Directors’ Report.
Includes MGG UPP costs, MGG DRP discount funding costs (current year only) and net offer costs relating to the MGG IPO.
(3)
8
FUNDS MANAGEMENT SEGMENT
For the year ended 30 June 2019, the Group’s Funds Management segment profit before tax increased by 39% to
$459.8 million ($331.4 million for 2018). Excluding performance fees, profit before tax grew by 29% to $376.2
million(4) ($291.8 million for 2018). The following table summarises the profitability of the Funds Management
business over the past two financial years:
Revenue
Management fees
Performance fees
Services fees
Interest and other income
Expenses
Employee expense
Fund administration and operational costs
IT and information services expense
Occupancy expense
Marketing expense
US marketing and consulting fees
Other expense
Profit before tax expense
30 June
2019
$'000
30 June
2018
$'000
467,786
83,631
4,700
5,209
561,326
62,770
15,976
6,226
4,298
3,382
-
8,885
101,537
459,789
381,074
39,772
4,701
3,158
428,705
51,935
14,665
4,588
4,276
11,102
4,206
6,503
97,275
331,430
Change
%
23%
110%
0%
65%
31%
21%
9%
36%
1%
(70%)
(100%)
37%
4%
39%
Profit before tax and before performance fees(4)
376,182
291,841
29%
Key Statistics
Average funds under management ($ million)
Average AUD/USD exchange rate
Average number of employees
Employee expenses / total expenses
Cost / income
Cost / income, excl. performance fees(4)
Revenues
75,819
0.7155
125
61.8%
18.1%
21.3%
59,034
0.7752
116
53.4%
22.7%
25.0%
28%
(8%)
8%
The key driver of revenue is FUM and this is discussed in detail in the next section. Revenues for the 12 months
ended 30 June 2019 increased by 31% to $561.3 million. This was driven by a 23% increase in total management
fees revenue as a result of a 28% increase in average FUM over the period attributable to strong investment
performance and net inflows.
Over the year, average Retail FUM increased by 18% and average Institutional FUM increased by 33%. Average
Base Management fee for the year was 0.62% compared with 0.65% last year. The reduction in the average Base
Management fee percentage is largely a result of a change in the mix of FUM, with Airlie contributing for the full
year, compared with four months in the previous year.
Performance fees before tax for the year totalled $83.6 million compared with $39.8 million last year. For the current
year, $42.7 million of performance fees were earned in the first half, and $40.9 million were earned in the second
half. Although not reflected this year, performance fees can, and very often do, vary significantly from period to
period.
As a result of the acquisition of Frontier, the Group also now receives revenues relating to Frontier’s third-party fund
manager distribution business (excluding Magellan) which has been included in other revenue.
Expenses
In considering the operating expenses of the Funds Management segment we exclude costs such as those associated
with the IPO of the Magellan Global Trust (ASX: MGG) and funding of the discounts offered on the recent MGG UPP
and the MGG DRP.
We view these amounts as investments in building FUM and underpinning our long-term partnership approach, which
we discuss further in the next section, rather than contributing to day-to-day operating expenses.
Overall, the Funds Management business operated efficiently with a cost to income ratio (excluding performance
fees) of 21.3% compared with 25.0% for the 12 months to 30 June 2018.
Expenses increased by 4% to $101.5 million. This increase in costs was primarily the result of a 21% increase in
employee expense over the prior corresponding period to $62.8 million (driven mainly by the full year inclusion of
Airlie and Frontier and deferred staff bonus payments), a 9% increase in fund administration and operational costs
reflecting an increase in FUM, and a 36% increase in IT and information services expense due to some systems
improvements, data and research subscriptions and the full year adoption of Airlie and Frontier information systems
costs.
_______________________
(4) Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period.
9
These increases in costs were partially offset by a reduction in US marketing fees and Group marketing expenses.
US marketing fees paid to Frontier ceased from 1 January 2018 because the Group acquired Frontier and the decline
in marketing expenses primarily reflects our withdrawal from the partnership with Cricket Australia in March 2018
and the cessation of marketing initiatives supporting that sponsorship.
The following table sets out total employee numbers:
Investment
- Portfolio Managers/Analysts
- Dealers
Distribution & Marketing
Other
Frontier
Airlie
Total
Average number of employees
30 June
2019
30 June
2018
29
3
32
31
41
12
9
26
3
29
33
38
11
13
125
125
124
116
As at 30 June 2019, the Group had 125 employees. We are pleased with the talent employed across the business
and the bench strength of the management team and expect future increases in employee numbers resulting from
organic growth to be modest over time reflecting scalability. Such increases, however, are unlikely to occur evenly
from one year to the next as the various areas of our business reach resource constraints at different points as we
grow.
We expect Funds Management segment expenses for the year ended 30 June 2020 to be in the range of $115-$120
million. The increase from the current year reflects growth in employee expenses (driven by anticipated new hires,
deferred bonus payments and remuneration increases), marketing initiatives including increased event investment
and increases in general costs reflecting FUM and unitholder growth.
It should be noted that our ultimate expenses for the year will depend on a number of market related variables such
as foreign exchange rates, FUM levels and unitholder activity. Although we pay close attention to our costs and have
a cost conscience culture, our current cost to income ratio of 21.3% means incremental changes in expenses will not
be a material driver of profitability. For example, a $5 million increase in our expenses has roughly the same impact
on profits as would an annualised revenue reduction of a 1% decline in our FUM (something which can happen from
day to day merely due to market movements).
Funds Under Management
As at 30 June 2019, the Group had FUM of $86.7 billion, split between global equities (74%), infrastructure equities
(17%) and Australian equities (9%). This compares with FUM of $69.5 billion at 30 June 2018. The increase in FUM
was driven by investment performance of approximately $13.6 billion less cash distributions (net of reinvestment) of
approximately $0.8 billion and net inflows of $4.4 billion. As we have previously noted, given the size of the Group’s
FUM, investment performance is the key driver of FUM movement.
The following table sets out the composition of FUM:
$billion
Retail
Institutional
Total FUM
Retail
Institutional
FUM subject to Performance Fees (%)
Institutional FUM (%)
- Active
- Enhanced Beta
Breakdown of FUM (A$ billion)
- Global Equities
- Global Listed Infrastructure
- Australian Equities
30 June
2019
23.2
63.5
86.7
30 June
2018
19.2
50.3
69.5
30 June
2017
15.2
35.4
50.6
27%
73%
33%
88%
12%
64.0
15.2
7.5
28%
72%
34%
89%
11%
52.7
10.3
6.5
30%
70%
38%
87%
13%
42.3
8.3
-
Average Base Management fee (bps) per annum
excluding Performance Fees(5)
_____________________
(5) 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.
66
62
65
10
Retail FUM
The Group’s retail business is focused on retail investors in Australia and New Zealand which we target through two
key channels:
•
Broker advised and financial advisers; and
•
Self-directed retail investors.
At 30 June 2019, the Group had total retail FUM of $23.2 billion. We experienced total net retail inflows of
$1.5 billion for the 12 months to 30 June 2019 (including the proceeds of the MGG UPP), compared with $1.9 billion
for the previous financial year which included the proceeds from the MGG IPO of $1.57 billion.
The Group experienced average monthly retail net inflows of approximately $121 million over the 12 months to 30
June 2019 (including the proceeds of the MGG UPP), compared with $23 million over the previous corresponding
period (excluding the proceeds of the MGG IPO).
We continue to see strong support for our global investment strategies across all three key retail channels, with
global infrastructure experiencing solid inflows during the year. Our combined active ETF unitholder base grew
approximately 28% over the year to reach nearly 29,000, and our combined exchange quoted products had total
FUM of $4.2 billion as at 30 June 2019, with over 63,000 direct unitholders.
Along with the continued growth in our retail business, we remain extremely focused on those clients and their
advisers for whom we already manage money. Our very experienced retail Distribution team is highly focused on our
existing relationships and aims to support and partner with our adviser network by delivering clear and relevant
information in a timely manner.
The following table sets out the investment performance of the Magellan Global Fund, the Magellan Infrastructure
Fund, the Magellan High Conviction Fund and the Airlie Australian Share Fund since their inceptions.
Investment Performance for the period to 30 June 2019(6)
3 Years
5 Years
1 Year
Since
Inception
(7)
Magellan Global Fund
MSCI World NTR Index ($A)
Magellan Infrastructure Fund
Global Listed Infrastructure Benchmark ($A)(8)
%
20.2
12.0
16.5
12.4
% p.a. % p.a. % p.a.
12.3
6.4
16.0
13.1
17.5
14.0
10.6
8.8
12.4
7.8
9.1
6.1
Magellan High Conviction Fund
13.1
17.6
16.2
16.2
Airlie Australian Share Fund
S&P/ASX 200 Accum. Index
3.8
11.5
-
-
-
-
7.4
14.0
Overall, we are pleased with the performance achieved to date, particularly given market conditions.
Risk controls and portfolio construction considerations are important elements of Magellan’s overall investment
process, particularly in managing downside risks. This risk focus has been an essential element in navigating recent
market conditions as Hamish Douglass and the investment team remain clearly focused on the core objective of
producing satisfactory returns for our investors over the medium to long-term whilst minimising the risk of permanent
capital loss.
Partnership Approach
Over the years we have noted our belief that it is important in building an enduring business with long-term value
that we always maintain a mindset of partnership as, at its heart, the owners of a business are, in effect, partners
with their clients. Partnerships by their very nature provide mutual benefits to those involved, and the long-term
prospects of our business naturally sink or swim by the value and benefits our products and services provide our
clients in exchange for the fees we earn.
______________
(6) 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).
(7)
Annualised performance is denoted with “p.a.” for the relevant period.
Inception date for the Magellan Global Fund and Magellan Infrastructure Fund is 1 July 2007, the inception date for Magellan High Conviction Fund is 1 July 2013 and
the inception date for the Airlie Australian Share Fund is 1 June 2018.
(8) 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).
11
We consider the successful launch of the Magellan Global Trust (ASX: MGG) in October 2017 to be a case in point.
We believe there have been real tangible benefits resulting from the offer of Loyalty Units paid for by the owners of
the business to those who have partnered with the business (i.e. eligible shareholders and fund unitholders), because
those benefits have been mutual.
We have ensured this has been extended to the recent UPP offer by MGG. On 8 March 2019 MGG announced that it
had received applications totalling approximately $277 million under the offer, representing a significant take up of
around 50%. In the context of a partnership, Magellan paid to MGG consideration equal to the 5% discount
associated with the offer in order to minimise dilution. The amount of this consideration totalled $14.6 million.
We intend to be consistent in this approach. Today we announced the intention to undertake an IPO for units in a
new ASX-listed investment trust, the Magellan High Conviction Trust (“Trust”)(9). The Trust replicates the investment
strategy of our open-ended unlisted Magellan High Conviction Fund, which has developed an outstanding track
record, and offers investors the ability to invest in this strategy through a closed-ended ASX-listed investment trust.
Like the IPO of MGG, we have established a priority offering for eligible shareholders and investors in MGG and
Magellan High Conviction Fund to subscribe for units in the Trust. This priority offering carries with it with a loyalty
bonus in the form of additional units in the Trust equal to 7.5% of the value of their allotment under the priority
offer.
Again, like the IPO of MGG, Magellan is paying for all the costs of the capital raising and the cost of the Loyalty Units.
We are also addressing potential concerns regarding conflicted remuneration by proceeding with an offer structure
that does not pay any fees to brokers or advisers to handle the offer. As such, we are proceeding without appointing
a broker syndicate to whom such fees would ordinarily be paid.
Furthermore, we are passing these savings back to investors by way of IPO Foundation Units for those who participate
in the wholesale/general public offer. This will be paid in the form of additional units in the Trust equal to 2.5% of
their allotment, again paid for by Magellan.
As with MGG, these strategic initiatives will result in a material one-off expense in the 2020 financial year which will
be disclosed following the completion of the offer. As noted above, we view these amounts as investments in building
FUM and underpinning our long-term partnership approach, and as such will be excluded from the Funds
Management segment when calculating shareholder dividends.
We are excited by the prospects of continuing to build upon our partnerships within the retail sector which we believe
will deepen and broaden our relationships and thereby add layers of resilience to our business over time.
Retirement Income
We continue to make progress developing a client solution for retirement income; however, we are not finished. This
is a large and growing area and one that is not easily solved. Any solution requires a number of critical areas to be
resolved with external parties (for example, regulatory and tax) and the timing of such resolutions is difficult to
determine. Whilst there is a risk we may not be able to satisfactorily resolve these issues, we remain confident that
a product solution will be available over the next 6-12 months.
We anticipate establishing and supporting the product with an upfront contribution of around $50 million. This dollar
value is similar to the amount we seeded the Magellan Global Equities Fund (ASX: MGE) in 2015. We do not anticipate
to make any additional contributions beyond this initial amount.
Institutional FUM
At 30 June 2019, the Group had total institutional FUM of $63.5 billion from more than 140 clients(10). During the 12
months to 30 June 2019, we experienced institutional net inflows of $2.9 billion, which compares with net inflows of
$2.5 billion for the previous financial year.
Although our institutional clients are located around the world, the Group seeks to implement a targeted approach
to institutional distribution and therefore most of our institutional clients are based in North America, the UK and
Australia/NZ. In February 2018, the Group acquired our North American distribution partner, Frontier. We view North
America as a key market for our institutional distribution activities and we are delighted to have Bill Forsyth, Frontier’s
founder and Chairman, leading this activity.
_____________
(9) Units in the Magellan High Conviction Trust (the Trust) are to be issued by Magellan Asset Management Limited (“MAM”) (ABN 31 120 593 946, AFS Licence No 304
301). MAM may vary the terms of, or withdraw the offer for units in the Trust at any time. Nothing in this letter constitutes an offer to sell, or the solicitation of an offer
to buy, any financial products. Investors should consider obtaining professional investment advice and should consider the product disclosure statement (PDS) for the
Trust in deciding whether to participate in the offer for units in the Trust or to continue to hold units in Trust. The PDS can be found at
www.magellanhighconvictiontrust.com.au
(10) The number of clients includes separately managed accounts and institutional investors in local and offshore vehicles.
12
We view our institutional business as well diversified by client. The following table and chart set out the percentage
of management and services fees revenue generated by the top 30 institutional clients and highlights only four clients
represent more than 2% of total management and services fees revenue.
Institutional Client Diversity(11)
s
e
e
F
i
s
e
c
v
r
e
S
&
t
n
e
m
e
g
a
n
a
M
l
a
t
o
T
f
o
%
10%
8%
6%
4%
2%
0%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Top 30 Institutional Clients
Top Institutional Clients
%
5
20
10
26
20
32
30
36
On 31 December 2017 we closed our core global equities strategies managed by Hamish to new institutional
investors(12). We do, however, expect to see continued inflows from existing institutional clients that have reserved
capacity.
Our global listed infrastructure strategies continue to see interest from institutional investors, and we believe
Magellan is well positioned to grow in this space given our unique approach to defining infrastructure and the
consistent long-term investment outperformance the team has achieved. We believe the theoretical capacity of our
global listed infrastructure strategies is approximately US$16-17 billion. At 30 June 2019 the Group’s infrastructure
FUM was US$10.6 billion.
We are also pleased with the development of our next generation of global equities strategies, the Sustainable
strategies, which have been renamed from Low Carbon strategies.
Our Global Sustainable strategy, managed by Dom Giuliano, and our US Sustainable strategy managed by Alan
Pullen, have produced excellent results, outpacing their benchmarks. Importantly the Global Sustainable strategy is
nearing its three year anniversary and we are seeing increasing interest and discussions with a number of potential
investors.
We believe both these strategies are well positioned on the back of solid track records and a thoughtful, differentiated
sustainable investment approach. We estimate the theoretical capacity of the Sustainable strategies is approximately
US$20 billion.
PRINCIPAL INVESTMENTS
The Group’s Principal Investments is a sub-set of the Group’s balance sheet that is invested in Magellan funds, listed
shares and a small number of unlisted investments. It also includes surplus cash after allowing for the Group’s
working capital requirements. At 30 June 2019, the Group had net Principal Investments of $323.1 million, compared
with $280.4 million at 30 June 2018.
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 portfolio.
The Group’s Principal Investments portfolio has returned pre-tax 18.6%, 16.8% and 15.8% per annum over the last
1, 3 and 5 years respectively. Excluding the effect of the Group’s previous investment in MFF Capital Investments
Limited, which was disposed of by way of an in-specie distribution to shareholders in February 2013, the portfolio
returned pre-tax 11.8% 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.
______________
(11) Management and services fees for the 12 months to 30 June 2019 for separately managed accounts and institutional investors in local and offshore vehicles. Excludes
Performance fees.
(12) U.S. mutual fund will remain open with some allocated capacity.
13
The following table sets out a summary of the Group’s Principal Investments as at 30 June 2019.
The Group’s Principal Investments
$million
Cash
Magellan Unlisted Funds(13)
Listed shares/funds(14)
Other(15)
Total
Deferred tax liability(16)
Net Principal Investments
30 June
2019
4.6
213.4
125.7
3.8
347.5
(24.4)
323.1
30 June
2018
0.4
173.4
100.9
15.1
289.8
(9.4)
280.4
Net Principal Investments per share (cents)(17)
182.5
159.1
CAPITAL MANAGEMENT
As at 30 June 2019, the Group’s financial position included:
•
investment assets (cash and cash equivalents and financial assets) of $539.3 million (30 June 2018: $445.6
million). The Group’s cash position at 30 June 2019 was $198.2 million and current receivables were $123.8
million. Dividends of $197.3 million are due to be paid to shareholders on 29 August 2019;
net assets of $734.0 million (30 June 2018: $620.4 million) which includes $124.5 million of intangible assets
following the acquisitions of Airlie and Frontier;
net tangible assets per share of $3.44 (30 June 2018: $2.92); and
total liabilities of $66.3 million which relate predominantly to payables and provisions. The Group has no debt
but has access to a debt facility of $50 million which is currently undrawn.
•
•
•
Although our business is capital light, we continually think about the use of capital balancing the following needs:
•
maintaining a strong balance sheet in proportion to the scale of our business to ensure the continued support
of our clients;
ensuring flexibility for growth whether that be through new fund launches or strategic opportunities; and
delivering capital efficiency, solid dividends and returns for shareholders.
•
•
As such, our need for and use of capital may vary from time-to-time as we consider new opportunities and seek to
build diversity and resilience in the business, sensibly, over time.
A good example of this is today’s launch of the Magellan High Conviction Trust and the broader partnership approach
discussed above.
With this in mind, today we also announced the launch of an institutional placement to raise $275 million which will
strengthen our balance sheet and provide significant flexibility to continue to invest in growth opportunities.
CLOSING REMARKS
It has been a pleasure to be the CEO over most of the past financial year and I would like to thank our entire team
for their dedication and passion. It makes a difference.
Thanks also to Hamish and the Board for their support during the year. The changing of roles with Hamish has
worked extremely well and we are all looking forward to another successful year ahead.
Yours faithfully,
Brett Cairns
CEO
13 August 2019
____________________
(13) Magellan Unlisted Funds as outlined in Note 12 of the Financial Statements.
(14) Listed shares/funds include seed portfolios and Magellan’s listed funds (as outlined in Note 12 of the Financial Statements) excluding receivables/payables (refer to
footnote 15).
(15) Other comprises receivable/payables and unlisted funds and shares.
(16) Net deferred tax liability arising from changes in the fair value of financial assets offset by the deferred tax asset relating to the unused tax loss arising on issuance of
loyalty units to unitholders under the Magellan Global Trust priority offer.
(17) Based on the aggregate of 177,087,458 ordinary shares on issue at 30 June 2019 (30 June 2018, it is based on 176,211,167 ordinary shares).
14
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
The Directors of Magellan Financial Group Limited (the “Company” or “MFG”) present 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 2019.
1.
Operations and Activities
Company Overview
1.1
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.
Principal Activity
1.2
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.
Dividends
1.3
During the year ended 30 June 2019, dividends amounting to $289,281,000 were paid representing 163.8 cents per
ordinary share (June 2018: $157,909,000 representing 91.7 cents per ordinary share).
On 13 August 2019, the Directors declared a total dividend of 111.4 cents per ordinary share (75% franked) in
respect of the six months to 30 June 2019 (June 2018: 90.0 cents per ordinary share 100% franked). The dividend
payments comprise a Final Dividend of 78.0 cents per ordinary share and a Performance Fee Dividend of 33.4 cents
per share (June 2018: Final Dividend of 75.1 cents per ordinary share and a Performance Fee Dividend of 14.9 cents
per ordinary share). The amount of the Final and Performance Fee Dividend expected to be paid on 29 August 2019,
but not recognised as a liability as at 30 June 2019, is approximately $197,275,000 (June 2018: $158,591,000).
The Company’s policy is to pay Interim and Final Dividends of 90% to 95% of the net profit after tax of the Group’s
funds management business excluding performance fees. Net profit after tax of the funds management business
excludes amortisation of intangibles and costs related to strategic initiatives. In addition to the Interim and Final
Dividends, the Directors will pay an annual Performance Fee Dividend of 90% to 95% of net crystallised performance
fees after tax. Any Performance Fee Dividend will be paid annually alongside the Final Dividend. The payment of
dividends by the Group will be subject to corporate, legal and regulatory considerations.
1.4
Review of Financial Results and Operations
1.4.1 Reconciliation of Net Profit After Tax to Adjusted Net Profit After Tax
The Group’s net profit after tax (“Statutory net profit”) and earnings per share are prepared in accordance with
Australian Accounting Standards. The Group also reports a number of non-IFRS financial measures including
‘adjusted revenue’, ‘adjusted net profit after tax’ and ‘adjusted basic and diluted EPS’ which are shown below. Refer
to section 1.4.2 for further details on non-IFRS financial measures.
The Group’s statutory net profit after tax for the year ended 30 June 2019 was $376,947,000 up $165,156,000 on
the prior year. The Group’s adjusted net profit after tax was $364,225,000 (June 2018: $268,897,000) which excludes
various non-IFRS adjustments as shown on the following page.
15
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
1.
Operations and Activities (continued)
1.4
Review of Financial Results and Operations (continued)
1.4.1 Reconciliation of Net Profit After Tax to Adjusted Net Profit After Tax (continued)
Management and services fees
Performance fees
Other revenue
Total revenue
Adjust for: net unrealised change in fair value of financial assets
Adjusted revenue
Total expenses
Adjust for: costs related to stategic initiatives(A)
Adjust for: amortisation of intangible assets
Adjusted expenses
Income tax expense
Tax expense on above adjustments
Adjusted income tax expense
30 June 2019
30 June 2018
Statutory
Non-IFRS
Statutory
Non-IFRS
$'000
$'000
$'000
$'000
472,486
472,486
385,775
385,775
83,631
61,270
83,631
61,270
39,772
27,051
39,772
27,051
617,387
617,387
452,598
452,598
(40,136)
577,251
-
452,598
(124,050)
(124,050)
(181,988)
(181,988)
15,508
4,518
(104,024)
79,574
1,404
(101,010)
(116,390)
(116,390)
(58,819)
(58,819)
7,388
(109,002)
(23,872)
(82,691)
Net Profit after income tax expense for the year
376,947
211,791
Adjusted Net Profit after income tax expense for the year
364,225
268,897
Basic and diluted earnings per share
Adjusted basic and diluted earnings per share
213.1
122.0
205.9
154.9
(A)
Includes MGG UPP costs and MGG DRP discount funding costs (current year only) and net offer costs relating to the MGG IPO.
1.4.2 Non-IFRS Financial Measures
Non-IFRS financial measures are measures that are not defined or specified under IFRS. The Directors believe non-
IFRS financial measures assist in providing additional meaningful information about the performance of the business
and period-to-period comparability by adjusting for strategic, non-cash or unrealised items which affect the Group’s
statutory financial results.
Non-IFRS financial measures should be viewed in addition to, and not as a substitute for, the Group’s statutory
results. These measures may also differ from non-IFRS measures used by other companies.
The Group’s non-IFRS financial measures are presented with reference to the Australian Securities & Investments
Commission (ASIC) Regulatory Guide 230 Disclosing non-IFRS financial information, issued in December 2011. Non-
IFRS financial measures are not subject to audit or review.
1.4.3 Statement of Financial Position
The Group is in a strong financial position and at 30 June 2019 reported:
•
•
Investment assets (including cash and cash equivalents and financial assets) of $539,281,000 (June 2018:
$445,634,000) and shareholders’ funds of $734,022,000 (June 2018: $620,433,000); and
NTA per share of $3.44 (June 2018: $2.92).
Refer to the Chief Executive Officer’s Annual Letter on page 6 for further information, including details on the Group’s
results, strategy and future outlook.
16
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
1.
Operations and Activities (continued)
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.
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.
1.7
Events Subsequent to the End of the Financial Year
Capital Raising
On 13 August 2019, the Group announced a capital raising comprising a fully underwritten $275 million
Institutional Share Placement (“Placement”) to institutional investors. The Placement will comprise an issue of
4.98 million new MFG ordinary shares at a price of $55.20 per share. The new shares to be issued under the
Placement will represent approximately 2.7% of MFG’s expanded issued capital and will rank equally with existing
MFG ordinary shares from the date of issue. As the new shares will be allotted after the record date for the 2019
Final and Performance Fee Dividends, the new shares will not carry an entitlement to those dividends.
Launch of Magellan High Conviction Trust
On 13 August 2019 the Group announced its intention to undertake an initial public offering of the Magellan High
Conviction Trust (“MHCT”), a closed ended investment vehicle to be listed on the ASX. MHCT will replicate the
Magellan High Conviction Fund investment strategy that has returned 16.6% per annum net of fees since
inception on 1 July 2013 to 31 July 2019.
The offer will proceed via a priority offer to underlying investors in MFG, MGG and the Magellan High Conviction Fund
and a wholesale/general public offer. Under the priority offer, eligible applicants can apply for up to 33,334 units
equivalent to approximately $50,000 and will receive a loyalty reward of additional units (“Loyalty Units”) worth 7.5%
of the value of the units allotted to them under the priority offer subject to the terms and conditions outlined in the
PDS. In addition, applicants under the wholesale/general public offer will receive additional units (“IPO Foundation
Units”) worth 2.5% of the value of the units allotted to them subject to the terms and conditions outlined in the PDS.
The costs of these Loyalty Units and IPO Foundation Units and all costs related to the offer will be paid for by the
Group. It is not practicable to estimate the cost to the Group as there is uncertainty as to the size of the offer and
the MHCT net asset value per unit at the time that the Loyalty Units and IPO Foundation Units are issued. Further
details of the MHCT raising will be disclosed following the completion of the offer.
Funds Under Management at 31 July 2019
On 6 August 2019, the Group reported to the ASX that its funds under management was $89.7 billion as at 31 July
2019.
Other than the items above and the dividends disclosed in respect of the six months ended 30 June 2019 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.
17
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
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
Chief Executive Officer(A)
Chairman and Chief Investment Officer(B)
Non-Executive Director
Non-Executive Director and Chairman of MAM(C)
Non-Executive Director
Non-Executive Director and Deputy Chairman(D)
Non-Executive Director
Appointed
22 January 2007
21 November 2006
1 July 2017
23 April 2014
20 December 2006
1 March 2016
23 April 2014
(A) On 5 October 2018, Dr Cairns was appointed Chief Executive Officer of the Group. Prior to this Dr Cairns held the position of
Executive Chairman.
(B) On 5 October 2018, Mr Douglass was appointed Chairman of the MFG Board. Prior to this Mr Douglass was Chief Executive
Officer of the Group. Mr Douglass remains Chief Investment Officer.
(C) On 5 June 2019, Mr Fraser was appointed Chairman of the MAM Board.
(D) On 5 June 2019, Mr McLennan was appointed Deputy Chairman of the MFG Board.
Secretary
2.2
Marcia Venegas was Company Secretary from 20 March 2019 to the date of this report. Mrs Venegas replaced
Geoffrey Stirton, who was Company Secretary from 1 July 2018 to 20 March 2019.
2.3
Information on Directors and Officers
Brett Cairns
Chief Executive Officer
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 three 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
Chairman 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 the 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 & Risk Committee and the Remuneration & Nominations Committee
John 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 has served
in executive or advisory positions with a number of organisations. John co-founded 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 and Fuji Xerox – Document Management Solutions. He is a columnist with The Australian
newspaper writing on both business and sport and 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.
18
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
2.
Directors and Officers (continued)
2.3
Information on Directors and Officers (continued)
Robert Fraser
Non-Executive Director, Chairman of the Audit & Risk Committee and member of the Remuneration & Nominations
Committee, Chairman of MAM (Responsible Entity and main operating subsidiary of MFG)
Robert is a company director and corporate adviser with over 30 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 Bachelor of Economics and Bachelor of Laws (Hons)
degrees from the University of Sydney and is also qualified as a licensed business agent and licensed real estate
agent. Robert currently serves on the Boards of ARB Corporation Limited (since February 2004), F.F.I. Holdings
Limited (since October 2011) and MFF Capital Investments Limited (since May 2019). He was previously a Director
of a number of other public companies, including Gowing Bros Limited (April 2012 – December 2016).
Paul Lewis MBE
Non-Executive Director, Chairman of the Remuneration & Nominations Committee and member of the Audit & 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 Deputy National Chairman of the Australian
British Chamber of Commerce, Chair of IPScape Limited, Chair of GWS Giants Foundation, and a board member of
Volt Bank and Optal Limited. He was previously Chair of the NAB Private Advisory Board, NAB Business Advisory
Board and British Telecom Global Advisory Board. Paul is a Fellow of the Australian Institute of Company Directors,
and was awarded an MBE in June 2018.
Hamish McLennan
Deputy Chairman, Non-Executive Director and member of the Audit & Risk Committee and the Remuneration &
Nominations Committee
Hamish 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, and Chairman of HT&E Limited (appointed 30 October 2018), an Australian media and entertainment
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 & Risk Committee and the Remuneration & 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 Non-Executive Director of
IMF Bentham Ltd (since August 2017) and ARB Corporation Limited (since June 2019) and is 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.
19
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
2.
Directors and Officers (continued)
2.3
Information on Directors and Officers (continued)
Marcia Venegas
Company Secretary, Chief Risk Officer and Head of Risk, Compliance and Legal
Marcia was appointed Company Secretary of the Company on 20 March 2019. Marcia has been the Chief Risk Officer
of MFG since November 2015. Prior to MFG, Marcia was Chief Compliance Officer at Platinum Asset Management in
Sydney for five years. Before that, Marcia held senior roles including Chief Compliance Officer at Dodge & Cox in the
US. Marcia brings more than 20 years’ experience in the financial services industry in Australia and the US, during
which time she has been responsible for national and international regulatory requirements, the development and
maintenance of governance, risk and compliance frameworks, licensing, proxy voting, training and liaising with
regulators, auditors and clients. Marcia holds a Bachelor of Arts from the University of Wollongong.
2.4
Directors’ Meetings
The number of meetings of the Board and Board Committees, held during the year ended 30 June 2019 and the
number of those meetings attended by each Director are set out below:
Board
Audit & Risk
Committee
Remuneration &
Nominations
Committee
B Cairns
H Douglass
J Eales
R Fraser
P Lewis
H McLennan
K Phin
Held
Attended
Held
Attended
Held
Attended
while a Director
while a member
while a member
6
6
6
6
6
6
6
6
6
6
6
6
6
6
-
-
8
8
8
8
8
-
-
8
8
7
8
8
-
-
2
2
2
2
2
-
-
2
2
2
2
2
2.5
Directors’ Interests
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.
20
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited)
This Remuneration Report outlines the remuneration arrangements for the Key Management Personnel (“KMP”) of
the Group for the year ended 30 June 2019. 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 2019 financial year, the KMP for the Group included the Chairman and Chief Investment Officer, the Chief
Executive Officer (“CEO”), the Non-Executive Directors and the Group’s Executives as set out below(A).
Name
Term as KMP
Position
Non-Executive Directors
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Executive Directors
Brett Cairns
Director
Director
Director
Director
Director
Chairman
CEO
Hamish Douglass
CEO & Chief Investment Officer
Full Year
Full Year
Full Year
Full Year
Full Year
1 July 2018 to 4 October 2018
5 October 2018 to 30 June 2019
1 July 2018 to 4 October 2018
Chairman & Chief Investment Officer
5 October 2018 to 30 June 2019
Group Executives (Other KMP)
Kirsten Morton
Marcia Venegas
Craig Wright
Chief Financial Officer
Head of Risk, Compliance and Legal/Company Secretary
Head of Governance & Advisory
Full Year
Full Year
Full Year
(A) With senior management changes in the 2019 financial year and the formation of an Executive Committee, the Board reviewed
the composition of the Group Executive KMP and determined that the members of the Executive Committee were the Group
Executive KMP as they had authority and responsibility for planning, directing and controlling the activities of the Group.
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 while maintaining the Group’s reputation and mitigating risk; and
Encouraging staff to think and act 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.
21
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
Variable remuneration
The Board believes variable incentives should be aimed at areas where employees have a direct influence over the
business and the outcomes that are aligned to the best interests of the Group’s clients. If these objectives are met,
the interests of shareholders will be served. 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 annual variable remuneration. Such
arrangements could misalign the interests of the employee with those of the Group’s clients and ultimately be
detrimental to the long-term interests of shareholders.
With the exception of the Chief Investment Officer and certain 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 Chief Investment Officer’s variable incentive is capped at 200% 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 Chief Investment Officer’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 Lead Portfolio Manager for the Group’s Global Listed Infrastructure strategy has a variable remuneration
arrangement that is directly tied to the net revenues, less certain allocated costs, of the Group’s Global Listed
Infrastructure business and the performance of the investment strategies for which he has primary responsibility.
The Board considers that this arrangement appropriately rewards and aligns his interests with those of the Group’s
clients and shareholders.
Certain portfolio managers have variable remuneration arrangements that incorporate two components:
•
A discretionary component in the range of 0-100% of fixed remuneration or higher in certain circumstances;
and
A performance component in the range of 0-200% of fixed remuneration dependent upon the performance of
the investment strategies for which they are responsible.
•
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 again 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 for up to either 75% or 100% 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 relevant 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 interest in the Group and,
unlike many option and performance share plans, participants are required to pay for the shares. 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.
22
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
The Board believes promoting meaningful broad based ownership should start at Board level and therefore the Group
also offers SPP participation to Non-Executive Directors. The Board does not require 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 appropriately 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 14 to the financial statements.
3.2
Remuneration of Non-Executive Directors
The Board periodically 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, capital management,
corporate transactions, development of corporate culture and ethical business practices.
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 $750,000.
The following table outlines the Non-Executive Directors’ fees (inclusive of superannuation) for the Board and
Committees of both the Group and Magellan Asset Management Limited for the year ended 30 June 2019:
Board (Group)
Audit & Risk Committee
Remuneration & Nominations Committee
Position
Non-Executive Director
Chairman
Member
Chairman
Member
Fees ($)
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 $731 (June 2018: $1,221).
No retirement benefits (other than superannuation) are provided to Non-Executive Directors.
Changes to remuneration of Non-Executive Directors from 1 July 2019
From 1 July 2019, the following changes to Non-Executive Director remuneration will be implemented:
•
Non-Executive Directors’ fees will increase 3% per annum. The change represents the first increase in Non-
Executive Director fees since the year ended 30 June 2014. The Board determined that a small annual increase
in Non-Executive Director fees is appropriate given the increasing size and complexity of the business whilst
remaining in line with the Group’s philosophy that Non-Executive Director fees should be modest; and
• Mr Fraser’s appointment as Chair to the Magellan Asset Management Limited Board will result in an additional
fee of $25,000 per annum for this role (pro-rata payment from appointment on 5 June 2019 to 30 June 2019).
There will be no additional fee for the Deputy Chair of the Group.
23
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
3.3
Remuneration of Executive Directors and Other KMP
The below table provides a summary of Executive Directors and Other KMP remuneration structures for the 2019
financial year.
Fixed remuneration
(incl. of superannuation)
Brett Cairns
$1,500,000
Hamish
Douglass
$2,500,000
Other KMP
Market-based base salary
Variable remuneration
SPP participation
Not entitled to receive variable
incentive payments in 2019
Ability to participate in SPP
Up to 200% of fixed compensation
based on the performance of the
Group’s Global Equity strategy over
a three year period
Not entitled to participate in
SPP as he owns 22.2 million
shares which provide a material
alignment with shareholders
Generally up to 100% of fixed
remuneration based on individual
performance / contribution and the
overall performance of the Group
Ability to participate in SPP
Mr Douglass’ remuneration structure
Mr Douglass is Magellan’s co-founder, Chief Investment Officer and Lead Portfolio Manager of Magellan’s Global
Equities strategies. Previously Mr Douglass also served as CEO and in October 2018 moved to the role of Chairman
of the Group’s Board of Directors, with Dr Cairns moving to the role of CEO and assuming all operational
responsibilities. This management change was made to allow Mr Douglass more time to focus on his key roles as
Chief Investment Officer and the Lead Portfolio Manager of Magellan’s Global Equities strategies. Mr Douglass’
remuneration remains unchanged and the Board believes it is important for Mr Douglass’ remuneration to continue
to be tied to the performance of the investment strategies under his control. Mr Douglass is responsible for managing
$64.0 billion of funds under management (as at 30 June 2019). Focusing on client outcomes and achieving Magellan’s
investment objectives will ultimately be in shareholders’ interests.
Mr Douglass’ remuneration outlined below took effect from 1 July 2018 for a minimum of three years. Mr Douglass’
remuneration is subject to a maximum total annual remuneration cap of $7,500,000 over this period.
Mr Douglass’ fixed remuneration (inclusive of superannuation) for the year ended 30 June 2019 was $2,500,000
(2018: $3,476,832).
On an annual basis, Mr Douglass is eligible to receive variable compensation being a maximum amount of up to but
not exceeding 200% 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 upfront.
Instead payment is deferred over the subsequent three financial years which is consistent with the medium term
focus of Mr Douglass’ variable remuneration arrangements.
In addition, Mr Douglass’ substantial shareholding in the Group, along with his investments in the Group’s investment
strategies, creates strong alignment with clients and shareholders.
24
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
The Board, in consultation with Mr Douglass, determined the performance metrics and underlying quantitative
measures that apply for the relevant period for Mr Douglass’ variable remuneration. For the year ending 30 June
2019, the metrics were:
Performance
Metrics
Ranking of the
Global Equity
Strategy
in Peer Group(A)
(rolling 3 years as at
30 June each year)
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)
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 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%)
25%
The percentage paid is in the range of 0% to 100%
dependent on the absolute performance achieved as per the
below table:
100%
50% to 100%
(sliding scale)
0%
12% p.a. or greater
8% p.a. to 12% p.a.
Less than 8% p.a.
2019 outcome
Mr Douglass received
100% of this
component in 2019,
based on a 1st Quartile
ranking
Mr Douglass received
100% of this
component in 2019,
based on absolute
performance of 19.23%
p.a.
25%
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)
Achieves Benchmark Index + 2.5% p.a.
or greater
Achieves Benchmark Index to
Benchmark Index + 2.5% p.a.
Mr Douglass received
100% of this
component in 2019,
based on gross
investment
performance of 19.23%
p.a. against Benchmark
Index of 14.0% p.a.
0%
Achieves less than Benchmark Index p.a.
25%
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%
Mr Douglass received
100% of this
component in 2019,
based on Down Market
Capture of 72.92%
(A) Ranking determined by reference to Magellan Global Fund’s quartile positioning in Global Equity sector for the 3 year total
(B)
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).
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 2019, Mr Douglass will receive a total variable incentive of $5,000,000 (June
2018: $3,162,396) 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.
Dr Cairns’ remuneration structure
Dr Cairns’ fixed remuneration is subject to annual review and, for the year ended 30 June 2019, was increased to
$1,500,000 (inclusive of superannuation) (2018: $1,250,000). For the year ended 30 June 2019, Dr Cairns was not
entitled to a variable incentive.
25
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
Changes to Dr Cairns’ remuneration structure from 1 July 2019
As a result of Dr Cairns’ appointment to the role of Chief Executive Officer in October 2018, the Board determined it
was appropriate to review Dr Cairns’ remuneration structure. From 1 July 2019, Dr Cairns’ remuneration is outlined
below:
Fixed
remuneration
Annual base salary will increase to $1,545,000 per annum (inclusive of superannuation) effective 1
July 2019
Fixed remuneration to increase by 3% each year
•
Variable
remuneration
SPP
participation
Review
•
•
•
•
•
•
•
•
•
Eligible to receive variable remuneration of up to 50% of fixed remuneration based on performance
metrics the Board believes are important to the long term success of the business and over which Dr
Cairns has direct influence
Four performance metrics for the 2020 financial year are: Delivery of Key Strategic Projects;
Leadership, People and Culture; Compliance, Governance and Cybersecurity and Operational
Effectiveness
The Remuneration and Nominations Committee will determine the amount to be awarded on an annual
basis with regard to the determined performance metrics
The Board will, in consultation with Dr Cairns, review the performance metrics that will apply, and
their respective weightings, from 1 July each year
Subject to approval by shareholders, eligible to participate in a one-off SPP offer of $5,000,000 with a
tenure of 10 years
Subject to approval by shareholders, 100% financial assistance provided by the Group on full recourse
and interest free basis
100% of annual awarded variable remuneration (net of tax) and all dividends earned on SPP shares
will be directed to repayment of the SPP financial assistance
Arrangements relating to Dr Cairns’ remuneration package to be reviewed in 3 years’ time
In considering the appropriate structure for Dr Cairns’ remuneration as CEO, the Board believes it is important for
incentives to be aligned to the Group’s strategy and aimed at areas where Dr Cairns has a direct influence over the
outcome. As previously outlined to shareholders, the key driver of creating shareholder value is servicing and
retaining the Group’s existing clients and the funds the Group already manages on behalf of clients by achieving our
stated investment objectives. Over time, shareholder value can also be created by additional earnings growth via net
new client business either via flows into existing products or via the launch of new products.
As CEO, Dr Cairns is not responsible for managing client money and, therefore, the Board believes it would be
inappropriate for incentives to be based on investment performance. Dr Cairns is responsible for ensuring the Group
operates to the highest standard and to ensure operational areas that underpin the Group’s reputation and confidence
of clients in the Group such as compliance, cybersecurity and fund operations are managed appropriately. Further,
the Group’s employees are key to the success of the Group and achievement of the Group’s strategy and the ability
to foster and retain key talent and protect the Group’s cultural values is a priority for the business. Dr Cairns is also
integral to a number of strategic projects under development that if successful, could create significant shareholder
value. Execution of these projects without encouraging undue risks is therefore also a component of Dr Cairns’
remuneration.
Remuneration structure 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. 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.
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 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 align their interests with the long term interests of shareholders.
26
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
Summary of 2019 variable remuneration outcomes
(a) Variable remuneration outcomes for 2019
The tables below outline the variable remuneration outcomes (as a % of fixed remuneration) for Executive Directors
and Other KMP for the 2019 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
n.a.
KMP
Brett
Cairns
Hamish
Douglass
100%
Kirsten
Morton
95%
Marcia
Venegas
80%
Craig
Wright
90%
Comments
• No entitlement to receive variable incentive payments in 2019.
• 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 2019
• The performance metrics and relative weightings of these are outlined in section 3.3
• Completed full integration of Airlie and centralised US operations resulting in lower recurring
cost base for the benefit of shareholders
• Well progressed on rationalisation initiatives (primarily from recent acquisitions) and
simplification of supplier arrangements delivering cost and resource efficiencies
• Procurement review of key supplier arrangements in investment operations delivered
recurring cost savings
• Continued enhancement of operational processes across business support and control
functions with a focus on knowledge transfer, risk and costs to support the Group’s strategic
initiatives and maximise efficiencies
• Enhanced the Group’s Risk Management Framework including fully integrating Airlie
•
• Streamlined processes to create or increase efficiencies across risk, compliance, legal and
Implemented new compliance and regulatory requirements
company secretarial functions
• Provided risk and compliance advice on strategic initiatives and new products
• Leading the project management of strategic initiatives across the Group, including the
initial public offering of the Magellan High Conviction Trust and other products currently
under development
• Overseeing the Group’s IT infrastructure & security and business continuity planning
• Overseeing the Group’s UCITS investment company based in Ireland
• Overseeing the establishment of a new co-mingled fund in respect of the High Conviction
investment strategy to make that strategy available to institutional investors globally
27
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
(b) Split between cash and conditional deferred cash bonus components of 2019 variable remuneration
The below table provides a summary of variable remuneration outcomes for Executive Directors and Other KMP for
the years ended 30 June 2019 and 30 June 2018. 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.
Variable incentive outcomes
Cash Bonus (A)
Conditional
Deferred Cash
Bonus (B)
Total variable
remuneration
awarded
Fixed
remuneration
(incl.
superannuation)
Total variable
remuneration
awarded
as % of fixed
remuneration
$
$
$
$
%
Executive Directors(C)
H Douglass
2019
2018
-
-
5,000,000
3,162,396
5,000,000
3,162,396
2,500,000
3,476,832
Group Executives (Other KMP)
K Morton
M Venegas
C Wright
Total KMP(D)
2019
2018
2019
2018
2019
2018
2019
2018
312,462
274,500
227,100
181,686
252,207
233,250
127,863
175,500
81,900
99,564
95,418
141,750
440,325
450,000
309,000
281,250
347,625
375,000
463,500
450,000
386,250
375,000
386,250
375,000
791,769
689,436
5,305,181
3,579,210
6,096,950
4,268,646
3,736,000
4,676,832
200%
91%
95%
100%
80%
75%
90%
100%
(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 in 2018 or 2019.
(D) Comparative information does not include remuneration details for executives who are no longer KMP in 2019. As a result, the
amount disclosed in the 2018 Remuneration Report differs from the amount above.
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 2019 is $12,643,169 and payable over the years ending 30 June 2020, 30 June
2021 and 30 June 2022 (June 2018: $9,823,552 and payable over the years ended 30 June 2019, 30 June 2020 and
30 June 2021).
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.
28
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
3.4
The total amount paid or payable to KMP of the Group is detailed below:
Details of Remuneration
Short Term Benefits
Leave Benefits
Salary
Cash
Bonus
(A )
Conditional
Deferred Cash
Bonus paid
(B)
Super-
annuation
Total Cash
Remuneration
(C )
Short
term
(D)
Long
term
(D)
Other
Benefits
(E )
Total Statutory
Remuneration
(F )
$
$
$
$
$
$
$
$
$
73,059
73,059
88,339
86,758
80,000
80,000
73,059
73,059
73,059
73,059
1,479,469
1,229,951
2,479,469
3,456,783
442,969
429,951
365,719
354,951
365,719
354,951
-
-
-
-
-
-
-
-
-
-
-
-
-
-
312,462
274,500
227,100
181,686
252,207
233,250
-
-
-
-
-
-
-
-
-
-
-
-
1,981,291
927,159
155,250
96,750
62,438
29,250
84,918
37,668
6,941
6,941
8,392
8,242
-
-
6,941
6,941
6,941
6,941
20,531
20,049
20,531
20,049
20,531
20,049
20,531
20,049
20,531
20,049
80,000
80,000
96,731
95,000
80,000
80,000
80,000
80,000
80,000
80,000
1,500,000
1,250,000
4,481,291
4,403,991
931,212
821,250
675,788
585,936
723,375
645,918
-
-
-
-
-
-
-
-
-
-
(1,911)
23,645
(127,063)
170,963
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,141)
7,167
(1,304)
(2,136)
5,763
(586)
8,486
36,389
-
-
32,254
-
21,970
15,986
17,363
22,379
-
-
19,171
23,435
14,324
18,463
-
-
-
-
1,981
5,115
110
888
2,858
6,526
101,970
95,986
114,094
117,379
80,000
80,000
99,171
103,435
94,324
98,463
1,498,089
1,273,645
4,354,228
4,574,954
940,538
869,921
674,594
584,688
764,250
651,858
Non-Executive Directors
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Executive Directors
Brett Cairns
H Douglass
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Group Executives (Other KMP)
K Morton
M Venegas
C Wright
Total KMP( G)
2019
2018
2019
2018
2019
2018
2019
2018
5,520,861
6,212,522
791,769
689,436
2,283,897
1,090,827
131,871
129,310
8,728,398
8,122,095
(125,656)
40,739
199,053
36,389
77,777
92,792
8,721,258
8,450,329
(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) The total represents the cash amounts actually received by the Group KMP, as distinct from the accounting expense. As a
result, it does not align to Australian Accounting Standards.
(D) Comprises annual leave and long service leave entitlements accrued but not taken during the year. Mr Douglass' long service
leave accrual was reduced by $168,400 on 1 July 2018 reflecting Mr Douglass' lower base salary effective 1 July 2018. Ms
Morton's short-term entitlements annual leave also includes an amount of $17,038 for annual leave paid out during the year
ended 30 June 2019 (June 2018: $16,537).
(E) 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.
(F) No non-monetary benefits or other short term benefits not otherwise disclosed above were paid during the years ended 30
June 2019 and 30 June 2018.
(G) Comparative information does not include remuneration details for executives who are no longer KMP in 2019. As a result, the
amount disclosed in the 2018 Remuneration Report differs from the amount above.
29
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 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, Chairman 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. 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.
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 22,212,727 ordinary shares (2018: 22,212,727 ordinary 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, CEO
The CEO is employed under a contract with MAM, with effect from 1 January 2015 and which will continue indefinitely
until terminated.
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.
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 one month written notice 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 one month written
notice. 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.
30
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
3.6
The number of ordinary shares held during the year by each KMP is set out below:
Shareholdings
Non-Executive Directors
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Executive Directors
Brett Cairns
Hamish Douglass(A )
Group Executives (Other KMP)
Kirsten Morton
Marcia Venegas
Craig Wright
Opening
balance
1 July
2017
24,262
599,109
Net
Additions/
(disposals)
53,354
-
Closing
balance
30 June
2018
77,616
599,109
1,725,000
(225,000)
1,500,000
100,248
89,312
1,024,523
22,203,127
18,896
2,126
18,896
-
-
-
9,600
-
763
-
100,248
89,312
1,024,523
22,212,727
18,896
2,889
18,896
Net
Additions/
(disposals)
Closing
balance
30 June
2019
-
-
-
-
-
10,000
-
-
-
-
77,616
599,109
1,500,000
100,248
89,312
1,034,523
22,212,727
18,896
2,889
18,896
(A)
Prior years restated for ordinary shares disclosed in Appendix 3Y dated 6 August 2019.
The Board does not grant options to KMP or employees of the Group under its remuneration policy.
31
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
3.7
The number of units held during the year by each KMP in funds managed by the Group, is set out below:
Unitholdings in Magellan Funds
Opening Additions/
Closing Additions/
Closing
balance (disposals)
balance (disposals)
1 July 2017
(A ) 30 June 2018
balance
(A ) 30 June 2019
Magellan Global Fund
Directors
Hamish Douglass(B)
Paul Lewis
Magellan Infrastructure Fund
Directors
Hamish Douglass(B)
Paul Lewis
Magellan High Conviction Fund( C )
Directors
Hamish Douglass(B)
Group Executives (Other KMP)
Craig Wright
Magellan Global Equities Fund
Directors
Brett Cairns
Hamish Douglass(B)
Group Executives (Other KMP)
Marcia Venegas
Craig Wright
Magellan Global Equities Fund (Currency Hedged)
Directors
Brett Cairns
Hamish Douglass(B)
Magellan Infrastructure Fund (Currency Hedged)
Group Executives (Other KMP)
Marcia Venegas
Magellan Global Trust( D)
Directors
Brett Cairns
Hamish Douglass(B)
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Group Executives (Other KMP)
Kirsten Morton
Marcia Venegas
Craig Wright
Airlie Australian Share Fund
Directors
Karen Phin
2,014,953
505,920
38,558
15,954
2,053,512
521,873
121,007
35,253
2,174,518
557,126
101,174
374,782
-
34,939
101,174
409,721
-
18,909
101,174
428,629
1,719,489
152,750
1,872,239
1,469,078
3,341,317
-
94,932
94,932
(56,237)
38,695
40,518
627,069
-
7,440
732
10,602
3,344
134
41,250
637,671
3,344
7,574
1,228
55,816
-
(7,574)
42,478
693,487
3,344
-
10,000
510,385
178
9,103
10,178
519,488
394
353
10,572
519,841
-
-
-
-
-
-
-
-
-
-
-
-
3,508
3,508
45
3,553
72,198
72,198
12,635
84,833
14,386,425
14,386,425
579,809
14,966,234
217,598
174,283
92,198
72,019
72,198
27,625
10,830
36,101
217,598
174,283
92,198
72,019
72,198
27,625
10,830
36,101
66,701
16,664
12,635
12,628
12,635
7,615
427
(36,101)
284,299
190,947
104,833
84,647
84,833
35,240
11,257
-
-
-
19,049
19,049
Includes the reinvestment of June and December distributions in the years ended 30 June 2018 and 30 June 2019 respectively.
(A)
(B) Prior years restated to include units disclosed in the Appendix 3Y dated 6 August 2019. In addition to the above holdings, Mr Douglass selected
the Magellan Global Fund product via his employer superannuation account and currently has holdings of 459,428 units at a value of $982,166
as at 30 June 2019 (June 2018: 450,260 at a value of $821,003).
Includes Class A and Class B units of the Magellan High Conviction Trust.
If KMP were eligible and participated in the Magellan Global Trust Unit Purchase Plan (“UPP”) in the year ended 30 June 2019, additions include
units issued under the UPP offer on 13 March 2019 at $1.5327 per new unit. These units were issued on the same terms as other investors in
the UPP offer.
(D)
(C)
Unless specified above, no other KMP held units in Magellan Funds.
32
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 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 2019, six KMP held a loan (June 2018: seven). The terms and
conditions of the loans, including repayment terms, are disclosed in note 14 of the financial statements. There are
no other related party transactions with the KMPs other than those disclosed.
SPP Shares
Opening
Loans
Loans
Closing Loan Balance
acquired
Loan
made
(repaid)
during year
Balance
Face
value(A)
Carrying
value(A)
Number
$
$
$
$
$
Directors
John Eales
Robert Fraser
2019
2018
2019
2018
Hamish McLennan 2019
Karen Phin
2018
2019
2018
Group Executives (Other KMP)
K Morton
M Venegas
C Wright
2019
2018
2019
2018
2019
2018
-
976,243
-
(87,394)
888,850
836,413
53,354
-
999,987
(23,744)
976,243
901,837
-
-
-
-
-
-
-
-
-
-
-
-
712,311
801,949
916,791
975,431
587,659
661,580
110,305
160,360
25,056
49,166
126,470
170,049
-
-
-
-
-
-
-
-
-
-
-
-
(160,116)
552,195
546,585
(89,638)
712,311
689,238
(104,747)
812,044
779,054
(58,640)
916,791
864,629
(132,097)
455,562
450,851
(73,921)
587,659
568,623
(67,342)
42,963
42,869
(50,055)
110,305
108,049
(25,056)
(24,110)
-
-
25,056
24,946
(61,877)
64,593
64,000
(43,579)
126,470
123,020
(A) 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 14 of the financial statements)
33
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
3.
2019 Remuneration Report (Audited) (continued)
3.9
Link Between Performance and Remuneration Paid by the Group
Total revenue ($'000)
Total expenses ($'000)
Net profit after tax ($'000)
Diluted earnings per share (cents per share)
Adjusted revenue ($'000)(A )
Adjusted expenses ($'000)(A )
Adjusted net profit after tax ($'000)(A )
Adjusted diluted earnings per share (cents per share)(A )
Total Dividends paid (cents per share)
Closing share price (ASX code: MFG)(B)
2019
2018
2017
2016
2015
617,387
124,050
376,947
213.1
577,251
104,024
364,225
205.9
185.2
452,598
181,988
211,791
122.0
452,598
101,010
268,897
154.9
134.5
338,268
82,141
196,225
114.1
338,268
82,141
196,225
114.1
85.6
333,805
74,104
198,357
115.5
333,805
74,104
198,357
115.5
89.3
284,912
54,603
174,295
101.8
284,912
54,603
174,295
101.8
74.9
$
51.00
$
23.30
$
28.84
$
22.25
$
17.40
Total KMP remuneration(C ):
- fixed compensation ($)(D)
- variable compensation ($)(E )
Number of KMPs
% growth in net profit after tax
% growth in adjusted net profit after tax
% growth in diluted earnings per share
% growth in adjusted diluted earnings per share
% growth in total KMP remuneration
% growth in dividends paid
5,567,815
8,782,415
6,608,195
4,520,621
3,525,342
3,153,443
4,448,273
3,594,905
4,147,820
3,706,172
8,721,258 13,230,688 10,203,100
8,668,441
7,231,514
10
78%
35%
75%
33%
-34%
38%
12
8%
37%
7%
36%
30%
57%
12
-1%
-1%
-1%
-1%
18%
-4%
10
14%
14%
13%
13%
20%
19%
9
110%
110%
108%
108%
11%
96%
4%
Total KMP remuneration as % of net profit after tax
(A) Adjusted financial measures are adjusted for non-cash items (amortisation expense and unrealised gains/losses) and transaction
6%
4%
5%
2%
costs related to strategic initiatives.
(B) As at 30 June.
(C) As reported in historical Annual Reports and has not been adjusted for changes to KMP.
(D) Fixed compensation comprises salary, superannuation and leave benefits outlined in Table 3.4.
(E) Variable compensation comprises cash bonuses and other benefits outlined in Table 3.4.
34
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ REPORT
for the year ended 30 June 2019
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 and its
subsidiaries as permitted by the Corporations Act 2001. 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.
Non-audit Services
4.3
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 22 to the financial statements.
The Directors, in accordance with advice received from the Audit & Risk Committee, are satisfied that the provision
of those non-audit services during the year 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 & Risk Committee to ensure that they do not impact the
impartiality and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
Auditor’s Independence Declaration
4.4
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set
out on page 36.
Rounding of Amounts
4.5
The Company is of a kind referred to in the ASIC 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.
Hamish M Douglass
Chairman
Sydney
13 August 2019
35
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 the financial report of Magellan Financial Group Limited for the
financial year ended 30 June 2019, 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
13 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
36
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 30 June 2019
Revenue
Management fees
Performance fees
Services fees
Advisory fees
Dividend and distribution income
Interest income
Net change in the fair value of financial assets
- Realised
- Unrealised
Net gain on sale of available-for-sale financial assets
Net foreign exchange gain/(loss)
Total revenue
Expenses
Employee expenses
Non-Executive Director fees
Fund administration and operational costs
Information technology and information services expense
Occupancy expense
Legal and professional fees
Marketing expense
Travel and entertainment expense
US marketing/consulting fee expense
Auditor's remuneration
Depreciation expense
Amortisation expense
Foreign and withholding taxes
Transaction costs related to strategic initiatives
Finance costs
Other expenses
Total expenses
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
467,786
83,631
4,700
3,017
12,824
2,907
577
40,136
-
1,809
617,387
62,865
420
16,126
6,226
4,298
3,447
3,382
2,391
-
1,019
416
4,518
139
15,508
425
2,870
124,050
381,074
39,772
4,701
1,224
17,275
2,701
-
-
4,011
1,840
452,598
52,038
419
14,866
4,588
4,276
2,474
11,102
1,932
4,206
863
494
1,404
137
80,766
300
2,123
181,988
Note
5(a)
5(b)
5(c)
12
12
12
22
18
2(a)
20(c)
Net profit before income tax expense
493,337
270,610
Income tax expense
6(a)
(116,390)
(58,819)
Net profit after income tax for the year
376,947
211,791
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
3
3
213.1 cents
213.1 cents
122.0 cents
122.0 cents
The Consolidated Statement of Profit or Loss is to be read in conjunction with the accompanying notes to the
Financial Statements.
37
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
for the year ended 30 June 2019
Net profit after income tax for the year
Other comprehensive income
Items previously classified as available-for-sale financial assets:(A)
Net changes in the fair value
Net (gain)/loss on sale
Income tax (expense)/benefit on the above items
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Note
12
6(a)
Consolidated Entity
30 June
2019
$’000
30 June
2018
$’000
376,947
211,791
-
-
-
1,650
1,650
24,703
(4,011)
(6,312)
933
15,313
Total comprehensive income for the year
378,597
227,104
(A)
Investments in the Principal Investments Portfolio were classified as ‘financial assets at fair value through profit or loss’ (“FVTPL”) on 1 July
2018. Previously these investments were classified as ‘available-for-sale’ (“AFS”) financial assets held at fair value through other
comprehensive income (“FVOCI”). Refer to note 1(c) for further details.
The Consolidated Statement of Comprehensive Income is to be read in conjunction with the accompanying notes
to the Financial Statements.
38
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2019
Assets
Current assets
Cash and cash equivalents
Financial assets
Receivables
Loans - share purchase plan
Prepayments
Total current assets
Non-current assets
Financial assets
Loans - share purchase plan
Property, plant and equipment
Net deferred tax asset
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Payables
Provisions
Income tax payable
Total current liabilities
Non-current liabilities
Net deferred tax liability
Deferred lease incentives
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Available-for-sale reserve
Foreign currency translation reserve
Retained profits
Total equity attributable to members of the Group
Total equity
Note
7(c)
12
8
14
12
14
9
6(d)
18
10
11
6(d)
11
13
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
198,188
2,009
123,812
3,616
895
328,520
339,084
7,603
576
-
124,508
471,771
800,291
169,095
1,972
108,622
3,298
1,079
284,066
274,567
9,344
624
1,324
105,018
390,877
674,943
31,793
1,802
19,355
52,950
20,612
1,247
29,702
51,561
9,151
2,114
2,054
13,319
66,269
734,022
243,150
-
2,500
488,372
734,022
734,022
-
1,982
967
2,949
54,510
620,433
218,877
55,088
850
345,618
620,433
620,433
The Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes to the
Financial Statements.
39
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2019
2019
Equity - 1 July 2018
Adoption of AASB 9
Restated equity - 1 July 2018
Net profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares:
- for acquisition of Frontegra Asset Management, Inc.
- under Share Purchase Plan ("SPP")
- transaction costs arising on share issue net of tax
Dividends paid
SPP expense for the year
Total transactions with equity holders in their
capacity as equity owners
Note
1(c)
13(a)
13(a)
13(a)
4
13(a)
Attributable to Equity Holders of the Consolidated Entity
Contributed
Equity
Foreign
currency
translation
reserve
Retained
Profits
Available for
Sale Reserve
Total Equity
$’000
$’000
$’000
$’000
$’000
218,877
850
345,618
55,088
620,433
55,088
400,706
(55,088)
-
-
620,433
-
218,877
-
-
-
21,672
2,187
(31)
-
445
24,273
-
850
-
1,650
1,650
376,947
-
376,947
-
-
-
-
-
-
-
-
-
(289,281)
-
(289,281)
-
-
-
-
-
-
-
-
-
376,947
1,650
378,597
21,672
2,187
(31)
(289,281)
445
(265,008)
Equity - 30 June 2019
243,150
2,500
488,372
-
734,022
2018
Equity - 1 July 2017
Net profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares:
- for acquisition of Airlie Funds Management Pty Limited
- under SPP
- transaction costs arising on share issue net of tax
Dividends paid
SPP expense for the year
Total transactions with equity holders in their
capacity as equity owners
115,250
(83)
291,736
40,708
447,611
-
-
-
-
933
933
211,791
-
211,791
-
14,380
14,380
211,791
15,313
227,104
13(a)
13(a)
13(a)
4
13(a)
97,113
6,013
(77)
-
578
103,627
-
-
-
-
-
-
-
-
-
(157,909)
-
(157,909)
-
-
-
-
-
-
97,113
6,013
(77)
(157,909)
578
(54,282)
Equity - 30 June 2018
218,877
850
345,618
55,088
620,433
The Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes to
the Financial Statements.
40
MAGELLAN FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2019
Cash flows from operating activities
Management and services fees received
Performance fees received
Advisory fees received
Dividends and distributions received
Interest received
Finance costs paid
Tax paid
Payments to suppliers and employees (inclusive of GST)
Transaction costs related to strategic initiatives paid
Net cash inflows/(outflows) from operating activities
Cash flows from investing activities
Proceeds from sale of financial assets
Purchase of financial assets
Net matured term deposits
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Net cash inflows/(outflows) from investing activities
Cash flows from financing activities
Net proceeds from issue of shares
Proceeds from repayment of SPP loans
Dividends paid
Net cash inflows/(outflows) from financing activities
Net increase / (decrease) in cash and cash equivalents
Effects of exchange rate movements on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
Note
486,150
80,004
3,217
152
2,439
(425)
(115,794)
(125,734)
(15,218)
314,791
399,854
30,817
-
6,285
2,016
(212)
(59,183)
(128,478)
(80,766)
170,333
2,147
(2,628)
(37)
(372)
4
(1,632)
(2,518)
19,419
(6,081)
161
(139)
25
(8,668)
4,717
463
208
2,266
2,160
(287,596)
(156,948)
(285,228) (154,219)
27,045
2,048
20,831
2,021
169,095
198,188
146,243
169,095
7(a)
9
7(c)
The Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes to the Financial
Statements.
41
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
Overview
Magellan Financial Group Limited (the “Company” or “MFG”) is a for-profit entity that is incorporated and domiciled
in Australia. The Company is listed on the Australian Securities Exchange (ticker code: MFG). The principal activities
of the Company and its subsidiaries (the “Group” or “Consolidated Entity”) are described in note 2 Segment
Information. This financial report was authorised for issue in accordance with a resolution of the Directors on 13
August 2019 and the Directors have the power to amend and reissue this financial report.
1. Basis of Preparation
This general purpose financial report is presented in Australian dollars and has been prepared in accordance with
the Corporations Act 2001, Australian Accounting Standards (“AASB”) and Interpretations issued by the Australian
Accounting Standards Board and other mandatory professional reporting requirements. It also complies with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
This financial report has been prepared on a going concern basis and under the historical cost convention except for
financial assets and liabilities at fair value through profit or loss. All amounts in this financial report are rounded to
the nearest thousand dollars ($’000) in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, unless stated otherwise.
(a) Accounting Policies
The accounting policies adopted in the preparation of this financial report are contained within the notes to which
they relate. The policies adopted in the preparation of this financial report are consistent with those of the previous
financial year except for the adoption of new standards effective as of 1 July 2018 that are described in note 1(c).
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet
effective.
(b) Critical Accounting Estimates and Judgements
In applying the Group’s accounting policies, a number of estimates and assumptions have been made concerning
the future. 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. As a
result, actual results could differ from those estimates.
The main areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are
significant to the financial statements are:
•
•
Estimation of useful lives and impairment of intangible assets including goodwill - refer to note 18;
Deferred tax asset arising from unused tax loss - refer to note 6(d).
(c) New and Amended Accounting Standards and Interpretations Effective 1 July 2018
The Group applied, for the first time from 1 July 2018, AASB 15: Revenue from Contracts with Customers (“AASB
15”) and AASB 9: Financial Instruments (“AASB 9”) which require restatement of previous financial statements. The
nature and effect of these changes are disclosed below.
•
AASB 15: Revenue from Contracts with Customers
AASB 15 superseded AASB 118 Revenue and AASB 111 Construction Contracts. Although AASB 15 is principles-
based, it is a significant change from the previous revenue requirements and involves more judgements and
estimates as revenue is recognised when control of a good or service transfers to a customer, or on satisfaction
of performance obligations under contracts, which replaces the existing notion of risks and rewards.
There was no impact on the Group upon adoption of AASB 15 on 1 July 2018. The Group’s revenue recognition
of interest income, net change in the fair value of financial assets and foreign exchange gains/(losses) was
unaffected as these items are excluded from the scope of AASB 15. However, AASB 15 introduced a new
concept that variable revenue is recognised to the extent that it is highly probable that there will be no significant
reversal of the amount. This applies to the Group’s management and performance fees as these revenues vary
based on portfolio values and performance returns respectively.
42
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
1. Basis of Preparation (continued)
(c) New and Amended Accounting Standards and Interpretations Effective 1 July 2018 (continued)
•
•
AASB 15: Revenue from Contracts with Customers (continued)
Under AASB 15, there was no change in the Group’s recognition of management fees as the fees are based on
net assets under management at the end of the month/quarter and any uncertainty related to the fees is
resolved at the end of the same month/quarter. Therefore, management fee revenues continue to be
recognised when invoiced, which corresponds directly with the delivery of performance obligations by the
Group.
The Group’s material performance fee agreements can have a broad range of outcomes and market volatility
remains a key factor of uncertainty. Accordingly, performance fee revenue is not recognised until the uncertainty
is resolved or almost resolved. To assess uncertainty and therefore the potential reversal of performance fee
revenue, additional factors are now considered to determine if a portion of the Group’s performance fee revenue
should be recognised prior to the end of the performance fee measurement period.
AASB 9: Financial Instruments
AASB 9 contains new requirements for the classification, measurement and derecognition of financial assets
and liabilities, replacing the recognition and measurement requirements in AASB 139: Financial Instruments:
Recognition and Measurement (“AASB 139”). Under the new requirements the four previous categories of
financial assets have been 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 comprehensive income. This option is irrevocable and applies only to equity instruments which
are not held for trading. AASB 9 also includes new hedge accounting requirements and an expected-loss
impairment model that requires credit losses to be recognised on a more timely basis.
The Group adopted AASB 9 on 1 July 2018. At this time, the investments held by the Group in the Principal
Investment Portfolio (refer note 12) were classified as ‘financial assets at fair value through profit or loss’
(“FVTPL”). Previously these investments were classified under AASB 139 as ‘available-for-sale (“AFS”) financial
assets held at fair value through other comprehensive income’ (“FVOCI”). The change in classification arises as
the investments do not meet the AASB 9 criteria for classification at amortised cost because their cash flows do
not represent solely payments of principal and interest. Therefore, the accumulated fair value of these
investments in the ‘available-for-sale’ reserve, net of tax, was transferred to retained profits on 1 July 2018.
Financial impacts of adopting AASB 9 as at 1 July 2018
As a consequence of the above, the Group’s retained profits increased by $55,088,000 and the available-for-
sale reserve decreased by the same amount, as shown below:
Equity ($’000)
Effect on available-
for- sale reserve
(net of tax)
Effect on retained
profits
Opening balance – AASB 139
Reclassify investments from available-for-sale to FVTPL
Opening balance – AASB 9
55,088
(55,088)
-
345,618
55,088
400,706
In addition, the classification of the ‘available-for-sale’ financial assets into the appropriate AASB 9 categories
as at 1 July 2018 is shown below:
Financial assets ($’000)
FVTPL
AFS
Financial assets under AASB 139
Reclassify investments from available-for-sale to FVTPL
Opening balance – AASB 9
-
274,567
274,567
274,567
(274,567)
-
Amortised
cost
292,331
-
292,331
43
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
1. Basis of Preparation (continued)
(c) New and Amended Accounting Standards and Interpretations Effective 1 July 2018 (continued)
•
AASB 9: Financial Instruments (continued)
Impact on comparative periods prior to 1 July 2018
In accordance with the transitional provisions of AASB 9 the Group elected not to restate comparatives.
Accordingly, there was no impact on the profit or loss for the year ended 30 June 2018.
As a consequence of adopting AASB 9 from 1 July 2018 and not restating comparatives, the net unrealised
change in fair value of financial assets is presented differently in the year ended 30 June 2019 compared with
the prior year ended 30 June 2018. In the year ended 30 June 2019, the net unrealised change in fair value of
financial assets of $40,136,000 was recorded in profit or loss. However, for the year ended 30 June 2018 the
net unrealised gain of $16,681,000 remains in comprehensive income. This presentation difference impacts the
statement of profit or loss, statement of comprehensive income, segment result and net profit used to calculate
earnings per share.
The net realised change in fair value of financial assets is recorded in profit or loss in all periods presented.
However, it is described as ‘net change in the fair value of financial assets – realised’ in the year ended 30 June
2019 and ‘Net gain on sale of available-for-sale financial assets’ in the year ended 30 June 2018.
Other impacts
In addition, under AASB 9, expected credit losses on financial assets are recorded either on a 12-month or
lifetime basis. The Group applies the simplified approach and records lifetime expected losses on all eligible
financial assets. The revised methodology for calculating impairment did not have a material impact on the
financial statements.
Several other amendments and interpretations apply for the first time in the reporting period commencing 1 July
2018 but did not result in any adjustments to the amounts recognised in the financial statements or disclosures.
(d) Accounting Standards and Interpretations Issued But Not Yet Effective
•
AASB 16: Leases (effective 1 July 2019)
AASB 16 Leases (“AASB 16”) supersedes AASB 117 Leases (“AASB 117”). AASB 16 provides a new lessee
accounting model which requires lessees to recognise the right-to-use assets, and liabilities to make lease
payments, for leases with a term of more than 12 months unless the underlying asset is of low value. Expenses
in respect of leases include amortisation of the right-of-use asset and interest expense in respect of the lease
liability.
The Group will adopt AASB 16 from 1 July 2019. The Group will apply the modified retrospective approach on
transition and will reflect any impacts of the change of the new standard on a cumulative basis as an adjustment
to the opening balance of retained earnings at 1 July 2019, the adoption date.
For practical expediency lease contracts identified and ongoing as at 1 July 2019 and which are accounted for
as leases under AASB 117 will continue to be accounted for as lease contacts under AASB 16. The Group will
not restate comparatives in accordance with the transitional provisions of AASB 16.
On adoption of AASB 16, the Group will recognise lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of AASB 117. These liabilities will be measured at the present
value of the remaining lease payments, discounted using an estimate of the borrowing rate. The weighted
average borrowing rate applied to the lease liabilities on 1 July 2019 is 4.0%. The lease liability recognised as
at 1 July 2019 will be $19,279,000.
The associated right-of-use assets for premises and other leases will be measured at the amount as if the
standard had always been applied, being $15,817,000. After adjusting for amounts currently recorded on the
balance sheet (representing the difference between the cumulative lease expense recognised and cash paid on
these leases), this results in a net impact on retained earnings of approximately $699,000.
44
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
1. Basis of Preparation (continued)
(d) Accounting Standards and Interpretations Issued But Not Yet Effective (continued)
•
AASB 16: Leases (effective 1 July 2019) (continued)
In applying AASB 16 for the first time, the Group will use the following practical expedients permitted by the
standard:
• A single discount rate can be applied to a portfolio of leases with reasonably similar characteristics; and
• The accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019
as short-term leases.
(e) Foreign Currency Translation
Both the functional and presentation currency of MFG is Australian dollars. Transactions in foreign currencies are
initially recorded in the functional currency by applying the 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 profit or
loss. All other foreign currency exchange differences are presented separately in the profit or loss as net gains/losses
on foreign exchange.
(f) Goods and Services Tax (“GST”)
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.
(g) Expenses
Expenses are recognised in the profit or loss on an accruals basis. Net rental payments for operating leases are
recognised as an expense in the profit or loss on a straight-line basis over the period of the lease. Directors’ fees
(including superannuation), related employment taxes and sponsorship and advertising are included as an expense
in profit or loss as incurred. Information regarding the Directors’ remuneration is included in sections 3.2 and 3.4 of
the Remuneration Report.
(h) Impairment of Non-Financial Assets
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 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.
45
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
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 segment provides investment funds management to high net worth and retail investors in
Australia and New Zealand, and institutional investors globally. The funds management activities include:
•
Acting as Responsible Entity/Trustee (“RE”) and/or Investment Manager (“IM”) for the following funds:
Magellan Global Fund
Magellan Global Fund (Hedged)
Magellan Infrastructure Fund
Magellan Infrastructure Fund (Unhedged)
Magellan High Conviction Fund
Magellan Global Equities Fund
Magellan Global Equities Fund (Currency Hedged)
Magellan Infrastructure Fund (Currency Hedged)
Magellan Global Trust
Magellan Core Infrastructure Fund
Airlie Australian Share Fund
Airlie Concentrated Share Fund
MFG Global Fund
MFG Select Infrastructure Fund
MFG Global Sustainable Fund
Frontier MFG Global Equity Fund(B)
Frontier MFG Global Plus Fund(B)
Frontier MFG Core Infrastructure Fund(B)
Frontier MFG Select Infrastructure Fund(B)
Australian fund type
Unlisted registered fund
Unlisted registered fund
Unlisted registered fund
Unlisted registered fund
Unlisted registered fund
ASX Quoted registered fund
ASX Quoted registered fund
ASX Quoted registered fund
ASX Listed Trust - registered fund
Unlisted unregistered fund
Unlisted registered fund
Unlisted unregistered fund
Irish fund type
UCITS(A)
UCITS(A)
UCITS(A)
United States fund type
Open-ended mutual fund
Open-ended mutual fund
Open-ended mutual fund
Open-ended mutual fund
RE
��
���
���
�
�
�
�
�
IM
IM
IM
(A) UCITS are funds authorised under the European Communities (Undertakings for Collective Investment in Transferable
Securities (“UCITS”)) and offered to global institutional clients.
(B) Collectively, the Frontier MFG Funds.
•
•
Investment research and administrative services provider to MFF Capital Investments Limited, and investment
research provider to a mandate; and
Investment Manager or Sub-adviser to other external wholesale client mandates.
Current tax liabilities and deferred tax assets/liabilities that arise from the operations of the funds management
business are included within the Corporate segment.
Principal Investments
The principal investment portfolio is comprised of the Company’s investments in the ASX Quoted Funds/Listed Trust,
the Unlisted Magellan Funds, the Frontier MFG Funds, MFG Global Sustainable Fund and 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.
Corporate
The corporate segment includes interest income on the Company’s SPP loans and cash (including term deposits),
corporate costs including Non-Executive Directors’ fees relating to the Company’s 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.
46
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
2. Segment Information (continued)
(a) Segment Financial Results
The operating results of the Group’s operating segments, excluding income tax expense, are as follows:
Funds
Management
(A)
Consolidated Entity
Principal
Investments
Corporate Consolidated
Entity
30 June 2019
$’000
$’000
$’000
$’000
Segment revenue
Management fees
Performance fees
Services fees
Advisory fees
Dividend and distribution income
Interest income
Net change in the fair value of financial assets
- Realised
- Unrealised
Net foreign exchange gain/(loss)
Total segment revenue
Segment expenses
Employee expense
Employee expense - SPP
Non-Executive Directors' fees
Other expenses
Total segment expenses
Total segment operating profit before income tax expense
467,786
83,631
4,700
3,017
-
413
-
-
-
-
12,824
5
-
-
-
-
-
2,489
467,786
83,631
4,700
3,017
12,824
2,907
-
-
577
40,136
1,809
561,326 53,524 2,537 617,387
577
40,136
(18)
-
-
48
1,779
62,398
372
252
38,515
101,537
459,789 53,373
62,420
-
445
-
420
-
151
40,739
151 2,336 104,024
201 513,363
22
73
168
2,073
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income for the year, before tax
Total comprehensive income for the year, before tax
1,650
-
1,650
-
461,439 53,373
-
1,650
- 1,650
201 515,013
Reconciliation of Segment Operating Profit Before Tax to Net Profit After Tax
Segment operating profit before income tax expense
Individually significant items and amortisation of intangibles:
Amortisation of intangible assets (B)
Transaction costs related to strategic initiatives
Magellan Global Trust Unit Purchase Plan costs(C)
Magellan Global Trust Dividend Reinvestment Plan discount funding costs(D)
Offer costs relating to Magellan Global Trust IPO(E)
Offer costs of issuing MGG loyalty units(E)
Interim distribution income from Magellan Global Trust (F)
Net profit before income tax expense
Income tax expense
Net profit for the year
Consolidated Entity
30 Jun
2019
$’000
30 Jun
2018
$’000
513,363
351,588
(4,518)
(1,404)
(15,003)
(505)
-
-
-
493,337
(116,390)
376,947
-
-
(23,801)
(56,965)
1,192
270,610
(58,819)
211,791
(A)
Includes elimination of income and expense under the transfer pricing agreements between the Company’s controlled entity,
Magellan Asset Management Limited (“MAM”), and US controlled entities within the Funds Management segment.
(B) Relates to amortisation expense on intangible assets acquired in Airlie, Frontier Partners Inc, Frontegra Strategies LLC and
Frontegra Asset Management Inc. (together referred to as “Frontier Group”) (refer to note 18).
(C) Relates primarily to MFG’s payment to Magellan Global Trust (“MGG”) to ensure unitholders who did not participate in the
MGG Unit Purchase Plan (“UPP”) suffer no dilution as a result of the UPP discount.
(D) Relates to MFG’s payment to MGG (only with respect to the year ended 30 June 2019) to ensure unitholders who do not
participate in the MGG Dividend Reinvestment Plan (“DRP”) suffer no dilution as a result of any DRP discount.
(E) Relates to net offer costs incurred in relation to the MGG capital raising in the year ended 30 June 2018.
(F) Relates to the distribution declared for the half year ended 31 December 2017 on the MGG loyalty units.
47
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
2. Segment Information (continued)
(a) Segment Financial Results (continued)
30 June 2018
$’000
$’000
$’000
$’000
Funds
Management
(A)
Consolidated Entity
Principal
Investments
Corporate Consolidated
Entity
Segment revenue
Management fees
Performance fees
Services fees
Advisory fees
Dividend and distribution income
Interest income
Net change in the fair value of financial assets
- Realised
- Unrealised
Net gain/(loss) on sale of available-for-sale financial assets
Net foreign exchange gain
Total segment revenue
Segment expenses
Employee expense
Employee expense - SPP
Non-Executive Directors' fees
Other expenses
Total segment expenses
Total segment operating profit before income tax expense
Other comprehensive income
Net changes in fair value of available-for-sale financial assets
Net (gain)/loss on sale of available-for-sale financial assets
Exchange differences on translation of foreign operations
Other comprehensive income for the year, before tax
Total comprehensive income for the year, before tax
381,074
39,772
4,701
1,224
-
351
-
-
-
1,583
428,705
51,437
498
250
45,090
97,275
331,430
-
-
933
933
332,363
-
-
-
-
16,083
5
-
-
3,914
159
20,161
-
-
-
201
201
19,960
24,703
(3,914)
-
20,789
40,749
-
-
-
-
-
2,345
-
-
97
98
2,540
23
80
169
2,070
2,342
198
-
(97)
-
(97)
101
381,074
39,772
4,701
1,224
16,083
2,701
-
-
4,011
1,840
451,406
51,460
578
419
47,361
99,818
351,588
24,703
(4,011)
933
21,625
373,213
(A)
Includes elimination of income and expense under the transfer pricing agreements between the Company’s controlled entity,
MAM, and US controlled entities within the Funds Management segment.
48
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
2. Segment Information (continued)
(b) Segment Assets and Liabilities
The assets and liabilities of the Group’s segments are as follows:
30 June 2019
Total assets
Total liabilities
Net assets
30 June 2018
Total assets
Total liabilities
Net assets
Funds
Management
Consolidated Entity
Principal
Investments
Corporate
Total
$’000
281,204
32,902
248,302
$’000
235,301
24,163
211,138
$’000
351,363
43,580
307,783
$’000
263,238
-
263,238
$’000
$’000
167,724
(10,213)
177,937
800,291
66,269
734,022
$’000
$’000
176,404
30,347
146,057
674,943
54,510
620,433
An operating segment is a distinguishable component of the Group that is engaged in business activities from which
the Group earns revenues and incurs expenses, whose operating results are regularly reviewed by the Group’s chief
operating decision maker in order to make decisions about the allocation of resources to the segment and assess its
performance, and for which discrete financial information is available. The chief operating decision makers have been
determined as the Chairman and Chief Investment Officer, Mr Hamish Douglass and Chief Executive Officer, Dr Brett
Cairns.
49
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
3. Earnings Per Share (EPS)
Basic EPS is calculated as net profit/(loss) after income tax expense for the year divided by the weighted average
number of ordinary shares on issue. Diluted EPS is calculated by adjusting the basic EPS to take into account the
effect of any costs associated with dilutive potential ordinary shares and the weighted average number of additional
ordinary units that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
Basic EPS
Net profit attributable to shareholders ($'000)
Weighted average number of shares for basic EPS ('000)
Basic EPS (cents)
Diluted EPS
Net profit attributable to shareholders ($'000)
Weighted average number of shares for diluted EPS ('000)
Diluted EPS (cents)
Consolidated Entity
30 Jun
2019
30 Jun
2018
376,947
176,865
213.1
211,791
173,553
122.0
376,947
176,865
213.1
211,791
173,553
122.0
50
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
4. Dividends
During the year ended 30 June 2019
Prior year final dividend paid
Prior year performance dividend paid
Total prior year final and performance fee dividend paid
Interim dividend paid
Total dividends declared and paid during the year
During the year ended 30 June 2018
Prior year final dividend paid
Prior year performance dividend paid
Total prior year final and performance fee dividend paid
Interim dividend paid
Total dividends declared and paid during the year
Total
$’000
132,335
26,256
158,591
130,690
Consolidated Entity
Cents per
Share
Franking
Date Paid
%
75.1
14.9
90.0
73.8
100% 27 August 2018
100% 27 August 2018
75% 28 February 2019
289,281
163.8
71,413
9,808
81,221
76,688
157,909
41.5
5.7
47.2
44.5
91.7
100% 28 August 2017
100% 28 August 2017
100% 20 February 2018
(a) Dividend Declared
On 13 August 2019, the Directors declared a total dividend of 111.4 cents per ordinary share (75% franked) in
respect of the six months to 30 June 2019 (June 2018: 90.0 cents per ordinary share 100% franked). The dividend
comprises a Final Dividend of 78.0 cents per ordinary share and a Performance Fee Dividend of 33.4 cents per share
(June 2018: Final Dividend of 75.1 cents per ordinary share and a Performance Fee Dividend of 14.9 cents per
ordinary share).
A dividend payable to shareholders of the Group is only recognised for the amount of any dividend declared by the
Directors on or before the end of the financial year, but not paid at reporting date. Accordingly, the Final Dividend
and Performance Fee Dividend totalling approximately $197,275,000 are not recognised as liabilities and will be paid
on 29 August 2019.
(b) Imputation Credits
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
Total imputation credits available for subsequent reporting periods based on a tax
rate of 30% (June 2018: 30%)
56,442
62,461
The above amount comprises the balance of the imputation account as at the end of the reporting period, adjusted
for franking credits that will arise from the payment of income tax liabilities after the end of the year.
The dividend declared by the Directors on 13 August 2019 will be partially franked out of existing franking credits,
or out of franking credits arising from the payment of income tax.
51
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
5. Revenue
Prior to the adoption of AASB 15 on 1 July 2018 (refer to note 1(c)), revenue was recognised in the Consolidated
Statement of Profit or Loss as it was earned and calculated in accordance with the relevant agreement.
From 1 July 2018, revenue from contracts with clients is recognised when there is a right to invoice the client at an
amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. This
method corresponds directly with the delivery of performance obligations by the Group to its clients.
(a) Management Fees
Management fees are based on a percentage of the portfolio value of the fund or mandate and calculated in
accordance with the Investment Management Agreement or Constitution.
The management fees received/receivable during the year were:
Magellan Global Fund
Magellan Global Fund (Hedged)
Magellan Global Equities Fund
Magellan Global Equities Fund (Currency Hedged)
Magellan Global Trust
Magellan lnfrastructure Fund
Magellan lnfrastructure Fund (Unhedged)
Magellan Infrastructure Fund (Currency Hedged)
Magellan High Conviction Fund
Magellan Core Infrastructure Fund
MFG Global Fund
Frontier MFG Funds
MFG Select Infrastructure Fund
The Airlie Concentrated Share Fund
Other funds and mandates
Total management fees
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
134,537
125,788
6,982
16,415
1,110
25,423
16,302
7,526
2,662
8,464
734
18,819
19,265
669
1,028
5,996
13,042
833
15,990
13,706
6,620
1,437
6,960
526
16,443
14,464
434
895
207,850
157,940
467,786
381,074
52
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
5. Revenue (continued)
(b) Performance Fees
Prior to the adoption of AASB 15 on 1 July 2018 (refer to note 1(c)), performance fees were recognised in the
Consolidated Statement of Profit or Loss only when the Group’s entitlement to the fee became certain, which was at
the end of the relevant performance period.
From 1 July 2018, performance fee arrangements give rise to variable consideration. An estimate of the variable
consideration is recorded when it is highly probable that a significant revenue reversal in the amount of cumulative
revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently
resolved.
Prior to the adoption of AASB 15, performance fees were recognised in the Consolidated Statement of Profit or Loss
only when the Group’s entitlement to the fee became certain, which was at the end of the relevant performance
period.
Performance fees may be earned from funds, mandates and MFF Capital Investments Limited (“MFF”). The Group’s
entitlement to a performance fee for any given performance period is dependent on outperforming certain hurdles.
These hurdles may be index relative (including in some cases a fixed percentage above an index), absolute return,
both absolute return and index relative, or total shareholder return. Performance fees received/receivable for funds
and mandates during the year were:
Based on performance relative to both market index and
absolute return hurdle
Magellan Global Fund
Magellan Global Fund (Hedged)
Magellan Global Equities Fund
Magellan Global Equities Fund (Currency Hedged)
Magellan Global Trust
Magellan lnfrastructure Fund
Magellan lnfrastructure Fund (Unhedged)
Magellan Infrastructure Fund (Currency Hedged)
High watermark
unit price ($)(A)
2.4095
1.6760
3.6622
3.3103
1.6715
1.4295
1.6275
3.1301
Consolidated Entity
30 June
30 June
2019
$’000
13,756
661
1,527
115
1,700
125
19
4
2018
$’000
18,352
692
2,015
101
36
2,910
2,906
357
Based on performance relative to absolute return hurdle
Magellan High Conviction Fund (Class A/B)
1.8711(A)/1.1417(B)
7,240
3,666
Based on total shareholder return
MFF Capital Investments Limited
Based on performance relative to a market index
Other funds and mandates
Total performance fees earned
(A) The high watermark shown as at 30 June 2019 and adjusted for distributions.
-
various
1,000
1,000
57,484
83,631
7,737
39,772
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. Some mandates have a cap on the performance
fee that can be charged in a given measurement period. Amounts in excess of a cap and carried forward to future
measurement periods (“Carried Forward Performance Fees”) may be recognised as performance fees in future
periods subject to various conditions being satisfied, which may or may not occur. At 30 June 2019, the Group has
a contingent asset in respect of Carried Forward Performance Fees that could range from nil to $7,056,000 (30 June
2018: nil) (refer to note 21 (b)).
The Group’s entitlement to future performance fees from Magellan funds is dependent on the unit price of the fund
exceeding the high-water mark. The high-water mark is the unit price at the end of the most recent calculation
period for which the Group was entitled to a performance fee, less any intervening income and capital distributions.
The calculation periods for all Magellan funds (except for MGG) are 6 months in duration ending 30 June and 31
December each year. The calculation period for MGG is 6 months in duration ending 31 March and 30 September
each year.
53
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
5. Revenue (continued)
(c) Services Fees
Services fees arise from providing investment research and administrative services. Services fees from MFF, a listed
investment company, comprised of a fixed quarterly base fee of $1,000,000 which amounted to $4,000,000 in total
for the year ended 30 June 2019 (30 June 2018: $4,000,000). Additionally, in the year ended 30 June 2019, MAM
provided research to an institutional mandate and earned services fees of $700,000 (June 2018: $701,000) 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:
Australia & New Zealand
United Kingdom & Ireland
United States
Canada
Asia
Consolidated Entity
30 June
30 June
2019
$’000
353,617
105,444
73,968
5,620
17,468
2018
$’000
283,360
73,850
53,574
5,458
9,305
Total management, services and performance fees
556,117
425,547
(e) Management, Services and Performance fees by Investor Type
Fees by type of investor across global equities and infrastructure strategies is as follows:
Management and services fees
- Retail
- Institutional
Performance fees
- Retail
- Institutional
Total management, services and performance fees
Total Retail
Total Institutional
Total management, services and performance fees
(f) Interest Income
Interest income is recognised on an accruals basis.
(g) Dividend and Distribution Income
Dividend and distribution income is recognised when it is declared.
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
251,184
221,302
217,006
168,769
48,975
34,656
34,347
5,425
556,117
425,547
300,159
255,958
251,353
174,194
556,117
425,547
54
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
6. Taxation
(a) Reconciliation of Income Tax Expense
The income tax expense for the year is reconciled to the accounting net profit as follows:
Note
6(c)
Net profit before income tax expense
Prima facie income tax expense at 30% (2018: 30%)
Effect of amounts which are non-deductible/(assessable) in calculating
taxable income:
- effect of concessional tax rate on offshore banking unit (OBU)
- non-assessable income and non-deductible expenses
- US state and local taxes (net of tax credits)
- differences in overseas tax rates
- over/(under) provision of prior year income tax
- imputed interest and expense relating to SPP
- tax effect of franked dividends/distributions received
Income tax expense reported in the Consolidated Statement of
Profit or Loss
- changes in fair value of available-for-sale financial assets
- sale of available-for-sale financial assets recycled through profit or loss
Income tax (expense)/benefit reported in the Consolidated
Statement of Comprehensive Income
(b) Components of Income Tax Expense
Income tax attributable to net profit from ordinary activities comprises:
The major components of income tax expense are:
Current income tax expense
Deferred income tax expense/(benefit)
Differences in overseas tax rates
US state and local taxes (net of tax credits)
Over/(under) provision of prior year income tax
Income tax expense reported in the Consolidated Statement of
Profit or Loss
Consolidated Entity
30 June
2019
$’000
30 June
2018
$’000
493,337
(148,001)
270,610
(81,183)
34,801
(2,278)
(1,242)
257
47
13
13
(116,390)
-
-
-
30 June
2019
$’000
(104,963)
(10,489)
257
(1,242)
47
(116,390)
22,386
595
(830)
50
102
29
32
(58,819)
(7,515)
1,203
(6,312)
30 June
2018
$’000
(81,049)
22,908
50
(830)
102
(58,819)
(c) Offshore Banking Unit
MAM, a controlled entity of MFG and a member of the Australian tax consolidated group, was declared an OBU on
31 July 2013. 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% and is determined with reference to current Australian tax legislation definitions of assessable OB
income, exclusive OB deductions and general OB deductions.
For the year ended 30 June 2019, the Company’s effective tax rate was 23.6% (June 2018: 21.7%), which includes
tax paid net of tax credits in foreign jurisdictions. This rate is below the Australian company tax rate of 30% primarily
as a result of MAM’s qualifying OB income, net of costs. The impact of the OBU on income tax expense recognised
in the Consolidated Statement of Profit or Loss is summarised at note 6(a).
55
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
6. Taxation (continued)
(d) Net Deferred Tax (Liability)/Asset
(i) Deferred tax (liability)/asset balances comprise:
Consolidated Entity
30 June
2019
$’000
30 June
2018
$’000
Amounts recognised in the Consolidated Statement of Financial Position:
- Deferred tax liabilities from changes in the fair value of financial assets
- Deferred tax assets from movements in accruals, provisions and other items
- Deferred tax assets from costs that are deductible over 5 years
Total net deferred tax (liability) relating to temporary differences
(39,737)
7,412
7,813
(24,512)
(26,613)
5,135
5,712
(15,766)
Deferred tax asset relating to unused tax loss arising on issuance of
loyalty units to unitholders under MGG priority offer
Total net deferred tax (liability)/asset
15,361
17,090
(9,151)
1,324
(ii) The reconciliation of movements in the deferred tax asset/(liability) is as follows:
Opening balance
(i) Movement in temporary differences
- changes in the fair value of financial assets
- accruals, provisions and other items
- costs that are deductible over 5 years
- acquired deferred tax asset from subsidiaries
(ii) Movement in unused tax loss
- capital loss on issuance of loyalty units to unitholders under MGG
priority offer
Closing balance - net deferred tax (liability)/asset
Consolidated Entity
30 June
2019
$’000
1,324
30 June
2018
$’000
(15,651)
(13,124)
2,277
2,101
-
(6,312)
106
5,712
379
(1,729)
17,090
(9,151)
1,324
Key Estimate and Judgement
At 30 June 2019, the Group’s net deferred tax liability of $9,151,000 includes a deferred tax asset of $15,361,000
(30 June 2018: $17,090,000) relating to the unused capital loss on the issuance of loyalty units to eligible unitholders
of MGG under the priority offer. At 30 June 2019, the deferred tax asset has been recognised on the basis that it is
sufficiently probable that the capital loss will be offset against capital gains that are expected to be realised from the
Principal Investments Portfolio.
56
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
6. Taxation (continued)
(e) Tax Consolidation
MFG and its wholly owned Australian subsidiaries formed a tax consolidated group for income tax purposes. The
entities in the tax consolidated group have entered a tax sharing agreement, which limits the joint and several liability
of the subsidiaries in the case of a default of MFG. The subsidiaries also entered a tax funding agreement whereby
each will compensate MFG for the amount of tax payable that would be calculated as if the subsidiary was a tax
paying entity. MFG, as head entity, and the subsidiaries in the tax consolidated group continue to account for their
own current and deferred tax amounts. The amounts are measured as if each entity in the tax consolidated group
continues to be a standalone taxpayer in its own right. The current or deferred tax balances are transferred to MFG
via intercompany balances and recognised as related party tax receivables or payables.
There is also a US tax consolidated group for income tax purposes which includes several US based entities.
During the year, income tax liabilities of $104,312,000 (June 2018: $84,149,000) were assumed by MFG. Payments
totalling $105,957,000 (June 2018: $64,568,000) were made to MFG from the other entities under the tax sharing
and funding agreement and $17,936,000 (June 2018: $19,581,000) remains receivable as at 30 June 2019. Refer to
note 19(d)(ii) for the related party tax transactions.
Accounting Policy for Tax
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. Taxable profit differs from net profit
reported in the Consolidated Statement of Profit or Loss and the Consolidated Statement of 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.
Current Tax
Current tax assets or liabilities are amounts receivable or payable in relation to income taxes attributable to taxable
profits of the current or prior financial years, less income tax instalments paid. The tax rates and laws used to
calculate current taxes are those that are enacted or substantively enacted as at the reporting date.
Deferred Tax
Deferred tax balances arise when there are temporary differences between accounting carrying amounts and the tax
bases of assets and liabilities in the consolidated entity’s financial report. Deferred tax is not recognised if it arises
from the initial recognition of goodwill or an asset or liability in a transaction other than a business combination which
affects neither taxable income nor accounting profit or from investments in subsidiaries, or foreign operations in
certain circumstances.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise the temporary differences and losses. 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
the tax benefit will be realised.
Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets
and current tax liabilities and the deferred tax assets and deferred tax liabilities relates to income taxes levied by the
same taxation authority and for which the tax consolidated group intends either to settle current tax liabilities and
assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which
significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted for each
jurisdiction by the end of reporting date and expected to apply when the temporary differences reverse.
Current and deferred tax is recognised in the profit or loss, except to the extent that it relates to items recognised in
comprehensive income or directly in equity. In this case, the tax is recognised in comprehensive income or equity
respectively.
57
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
7. Notes to the Consolidated Statement of Cash Flows
(a) Reconciliation of Net Profit after Tax to Net Cash Flows from Operating Activities
Net profit after income tax expense
Adjusted for:
Net change in fair value of financial assets
- Realised
- Unrealised
Net (gain)/loss on disposal of available-for-sale financial assets
Dividends and distributions reinvested
Depreciation and amortisation expense
Net foreign exchange gain
Imputed interest on loans under SPP
Employee expense on loans under SPP
Net change in fair value of financial assets recorded as dividends and distribution income
(Increase)/decrease in receivables
(Increase)/decrease in prepayments
(Increase) in net deferred tax asset/increase in net deferred tax liability
Increase/(decrease) in payables and provisions
Increase/(decrease) in income tax payable
Effects of exchange rates on cash and cash equivalents
Net cash inflows from operating activities
(b) Non-Cash Financing and Investing Activities
Issue of MFG shares for acquisition of Frontegra Asset Management Inc.
Issue of MFG shares for acquisition of Airlie Funds Management Pty Limited
Issue of MFG shares under the SPP
Dividends paid to SPP Participants applied as repayment against SPP loan balance
Imputed interest on SPP loans
Employee expense on SPP loans
Value of units issued to MFG in lieu of distributions for Principal Investments
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
376,947
211,791
(577)
(40,136)
-
-
-
(4,011)
(16,242)
4,934
(395)
1,898
(1,809)
(1,840)
(487)
445
(3,238)
(673)
578
-
(14,638)
(30,649)
184
35
10,475
(22,908)
9,279
(5,464)
(10,347)
21,957
1
14
314,791
170,333
Consolidated Entity
30 June
30 June
2019
$’000
21,672
-
1,934
1,685
487
445
16,242
2018
$’000
-
97,113
5,439
961
673
578
395
Note
17
14
14
14
(c) Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and short term deposits with a maturity of 90 days or less that are
readily convertible to known amounts of cash and subject to an insignificant risk of change in value.
For the purposes of the Consolidated Statement of Cash Flows, cash includes cash and cash equivalents of
$198,188,000 (June 2018: $169,095,000). Term deposits with maturity dates greater than 90 days from inception
date are included in financial assets (refer to note 12).
58
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
8. Receivables
Fees receivable comprise management, services and performance fees. From 1 July 2018, these amounts are initially
recognised at the fair value of the amounts due. An impairment analysis is performed at each balance date to
measure expected credit losses. Expected credit losses are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The Group applies the simplified approach for trade receivables
whereby the loss allowance is based on lifetime expected credit losses at each balance date.
Prior to the adoption of AASB 9 on 1 July 2018, receivables were initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less any allowance for uncollectible amounts.
Fees receivable
Distributions receivable from Magellan Funds
Other
Total receivables
Receivables past due were $2,652,000 at 30 June 2019 (June 2018: $1,301,000).
Consolidated Entity
30 June
30 June
2019
$’000
115,731
7,641
440
2018
$’000
93,272
14,888
462
123,812
108,622
59
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
9. Property, Plant and Equipment
Property, plant and equipment assets are stated at cost less accumulated depreciation and impairment. These assets
are depreciated on a straight-line basis over their estimated useful lives and are tested for impairment when there
is an indication of impairment. Useful life details of the assets are:
•
•
•
Leasehold improvements
Furniture and fittings
Computer equipment
life of the relevant lease
3 to 5 years
3 to 5 years
An item of property, plant and equipment is derecognised upon disposal of an asset. Any gain or loss on disposal
(calculated by comparing sale proceeds with the carrying amount) is recognised in the profit or loss in that year.
Consolidated Entity
30 June 2019
30 June 2018
Leasehold
Improve-
Office
Equipment,
Total
Leasehold
Improve-
Office
Equipment,
Total
ments
Fixture &
Fittings
ments
Fixture &
Fittings
$’000
$’000
$’000
$’000
$’000
$’000
At cost
less: accumulated depreciation
Total property, plant & equipment
Movements:
Carrying amount at beginning of year
Additions
Acquisition of subsidiaries
Disposals
Depreciation expense
Net foreign exchange differences
Carrying amount at end of year
391
232
159
58
128
1,719
1,302
417
2,110
1,534
576
566
244
624
372
321
263
58
113
31
(7)
(416)
- 3 3
- - - -
-
(15)
(73)
2
58
(7)
(389)
159
417
576
(27)
1,872
1,306
566
2,193
1,569
624
764
108
122
(10)
(421)
3
566
877
139
122
(25)
(494)
5
624
60
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
10. Payables
Payables represent liabilities for goods and services received prior to the end of the year and that remain unpaid at
reporting date. Trade payables are unsecured and are recognised at the amount due to suppliers. Accruals represent
amounts due for supplies and services received but not invoiced at reporting date.
Trade payables and accruals
Unsettled trades
Accrued employee entitlements
Taxes payable - GST and Fringe Benefits Tax
Total payables
Employee Entitlements
Consolidated Entity
30 June
30 June
2019
$’000
9,366
3,843
16,185
2,399
2018
$’000
4,981
-
13,403
2,228
31,793
20,612
Employee entitlements comprise wages, salaries, annual leave and bonuses.
Liabilities for wages and salaries and annual leave are measured at the amounts expected to be paid when the
liabilities are settled and include related on-costs, for example payroll tax. Bonuses are recognised in respect of
employee services up to the end of the reporting period. A liability and an expense are recognised for the employee
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 balance date. The conditional
deferred cash bonus is paid in 12 or 36 equal instalments (depending on the employee) in the following financial
year or years 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.
Maturities of Financial Liabilities
At 30 June 2019, the Group’s financial liabilities comprise trade creditors and payables which mature in 1 year or less
(June 2018: 1 year or less).
61
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
11. Provisions
Employee entitlements - long service leave
Onerous lease provision
Total current provisions
Employee entitlements - long service leave
Other employee entitlements
Onerous lease provision
Provision for make-good
Total non-current provisions
Consolidated Entity
30 June
30 June
2019
$’000
1,472
330
1,802
722
763
538
31
2,054
2018
$’000
1,247
-
1,247
698
239
-
30
967
(i)
(ii)
(i)
(ii)
(iii)
Long service leave
(i)
Liabilities for long service leave are recognised when employees reach a qualifying period of continuous service. Non-
current liabilities are measured as the present value of expected future payments and are expected to be paid after
12 months of reporting date. Current liabilities are measured at the amount expected to be settled within 12 months
of the reporting date. 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.
(ii) Onerous lease provision
An onerous lease provision is recognised when the expected benefits to be derived by the Group from a lease are
lower than the unavoidable costs under the lease. The provision is measured at the present value of the lower of
the expected cost of terminating the lease and the expected net cost of continuing with the lease. The movement
in the total onerous lease provision relates to an additional provision for a premise that is in excess to the Group’s
needs.
(iii) Provision for make-good
A make-good provision is recognised for the present value of the estimated expenditure required to restore office
premises back to the condition at lease inception. A corresponding asset is recognised in leasehold improvements
within property, plant and equipment and is depreciated over the remaining life of the relevant lease.
62
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
12. Financial Assets
Current
(i) Financial assets at amortised cost
Term deposits(A)
Total current financial assets
Non-Current
(ii) Financial assets at fair value through profit or loss(B)
Investments in listed shares (by domicile of primary stock exchange)
- United States
- Europe and UK
Investments in quoted funds/ASX listed trust (C)
- Magellan Global Equities Fund
- Magellan Global Equities Fund (Currency Hedged)
- Magellan Infrastructure Fund (Currency Hedged)
- Magellan Global Trust
Total quoted/listed investments
Investments in unlisted funds(C)
- Magellan Global Fund
- Magellan Global Fund (Hedged)
- Magellan High Conviction Fund
- Magellan W holesale Plus Global Fund
- Magellan W holesale Plus Infrastructure Fund
- Frontier MFG Core Infrastructure Fund
- Frontier MFG Global Plus Fund
- MFG Global Sustainable Fund (D)
- Other
Investments in unlisted shares
- Other
Total unlisted investments
Total non-current financial assets
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
2,009
2,009
1,972
1,972
6,285
1,234
79,218
21,632
13,101
4,215
2,714
263
64,413
18,313
11,097
4,086
125,685
100,886
138,191
111,992
921
784
39,398
32,801
9,020
6,330
7,245
10,703
7,532
5,451
6,026
8,839
1,569
-
22
81
-
175
213,399
173,681
339,084
274,567
(A) Comprises term deposits held with major Australian banks and pledged against bank guarantees in respect of the Group’s
future lease obligations. In the event 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) The Group adopted AASB 9 on 1 July 2018. At this time, the investments held by the Group in the Principal Investments
portfolio were classified as ‘fair value through profit or loss’. Previously these investments were classified under AASB 139
as ‘available-for-sale (“AFS”) financial assets held at fair value through comprehensive income’. Refer to note 1 (c) for
further details.
(C) At 30 June 2019 the Group held the following investments: Magellan Global Equities Fund 5.6% (June 2018: 6.1%),
Magellan Global Equities Fund (Currency Hedged) 21.4% (June 2018: 27.3%), Magellan Infrastructure Fund (Currency
Hedged) 3.5% (June 2018: 6.2%), Magellan Global Trust 0.2% (June 2018: 0.2%), Magellan Global Fund 1.3% (June
2018: 1.2%), Magellan Global Fund (Hedged) 0.2% (June 2018: 0.2%), Magellan High Conviction Fund 6.9% (June 2018:
7.0%), Magellan Wholesale Plus Global Fund 1.0% (June 2018: 1.0%), Magellan Wholesale Plus Infrastructure Fund 16.7%
(June 2018: 41.6%), Frontier MFG Core Infrastructure Fund 1.3% (June 2018: 1.1%), Frontier MFG Global Plus Fund 3.5%
(June 2018: 1.9%) and MFG Global Sustainable Fund 4.7% (June 2018: nil).
(D) On 8 February 2019, MFG purchased US$1,000,000 of units in MFG Global Sustainable Fund.
63
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
12. Financial Assets (continued)
The movement in the Group’s financial assets is as follows:
Current
Opening balance
Term deposit of acquired subsidiary
Cash placed on term deposit
Matured term deposits
Closing balance
Non-current
Opening balance
Acquisitions
Disposals
Net change in fair value
- Realised
- Unrealised(A)
Net change in fair value recorded as dividend and distribution income
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
1,972
-
2,151
(2,114)
2,009
1,775
358
2,331
(2,492)
1,972
274,567
263,113
22,713
8,784
(2,147)
(18,022)
577
40,136
4,011
16,681
3,238
-
Closing balance
(A) The net unrealised gain on financial assets was recorded in comprehensive income in the year ended 30 June 2018 (refer
339,084
274,567
to note 1(c)).
64
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
12. Financial Assets (continued)
Financial Assets Accounting Policies (effective from 1 July 2018)
Initial Recognition and Measurement
Financial assets are classified, at initial recognition, based on whether they will be subsequently measured at
amortised cost or fair value through profit or loss. The classification of financial assets at initial recognition depends
on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. The
Group initially measures financial assets at their fair value.
Subsequent Measurement
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with
the net change in fair value recognised in the statement of profit or loss. The net change in fair value does not
include dividend and distribution income.
Financial assets at fair value through profit or loss are classified as non-current assets unless management intends
to dispose of the assets within 12 months of reporting date.
Financial assets at amortised cost are carried using the effective interest rate method. Gains or losses are recognised
in profit or loss when the financial asset is derecognised or impaired. The Group assesses on a forward looking basis
the expected credit losses associated with financial assets at amortised cost. The impairment methodology applied
depends on whether there has been a significant increase in credit risk.
Purchases and sales are recognised on trade date, being the date the Group commits to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Payments for purchases and proceeds from sale of investment securities are classified as cash flows from investing
activities.
Financial Assets Accounting Policies (prior to the adoption of AASB 9 on 1 July 2018)
Financial assets at fair value through profit or loss were previously classified as available-for-sale financial assets
carried at fair value. Changes in the fair value of available-for-sale financial assets were recognised in the available-
for-sale reserve and included in other comprehensive income until the asset was disposed or impaired. When
available-for-sale financial assets were sold or impaired, cumulative gains recognised in the available-for-sale reserve
were recognised in profit or loss. Cumulative losses were recognised in the available-for-sale reserve to the extent
that they reversed previously recorded gains, and when previously recorded gains had been reversed in full, any
impairment loss below original cost (when significant and prolonged) was recognised in profit or loss. Previously
when assessing whether an available-for-sale asset was impaired, the Board considered a number of quantitative
and qualitative factors, which included the current market price of the asset, research performed internally by
experienced equity analysts, and, where appropriate, external research that provided guidance on the long-term
underlying value of the asset.
Financial assets at amortised cost were classified as loans and receivables and carried at amortised cost using the
effective interest rate method.
Structured Entities
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 12) and to which it has been 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.
65
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
13. Contributed Equity
Ordinary shares are issued by MFG, classified as equity and recognised at the value of consideration received.
Incremental costs directly attributable to the issue of new shares are recognised in equity as a deduction, net of tax.
Ordinary Shares
Total contributed equity
(a) Ordinary Shares
Opening balance
Shares issued for acquisition of Airlie(i)
Shares issued for acquisition of FAM(ii)
Shares issued under SPP(iii)
SPP expense for year
less: transaction costs arising on share issue net of tax
Closing balance - Ordinary Shares
Consolidated Entity
30 June
30 June
2019
$’000
2018
$’000
243,150
218,877
243,150
218,877
Note
(a)
Note
17
Consolidated Entity
30 June
30 June
30 June
30 June
2019
2018
2019
2018
Number of
shares
’000
Number of
shares
’000
$’000
$’000
176,211
172,076
218,877
115,250
-
788
88
-
-
3,857
-
97,113
-
278
-
-
21,672
2,187
445
(31)
-
6,013
578
(77)
177,087
176,211
243,150
218,877
(i) In accordance with the sale agreement, the ordinary shares were placed in escrow in the name of the former shareholders.
The ordinary shares will be released in equal amounts on the anniversary date of issue, being 1 March, over five years until
2023.
(ii) In accordance with the sale agreement, 689,066 of the 787,507 ordinary shares issued were placed in escrow in the name of
the former shareholder. The escrowed shares will be released in equal amounts on the anniversary date of issue, being 1
October, over seven years until 2025.
(iii) Of the 177,087,458 ordinary shares on issue at 30 June 2019, 911,016 ordinary shares are held by employees and Non-
Executive Directors under the SPP (June 2018: 1,088,300). Refer to note 14 for further details.
Terms and Conditions
Ordinary shares are fully paid and 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.
66
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
14. Share Purchase Plan
The Group has put in place a Share Purchase Plan (the “Plan” or “SPP”) for its employees and Non-Executive Directors
(“Participants”). MFG provides financial assistance to Participants to invest in MFG shares in order to align more
closely the interests of Participants with the interests of the shareholders of the Group.
The financial assistance provided to Participants is by way of a full recourse interest free loan (“SPP loan”). The SPP
loan is secured by the MFG shares issued under the SPP to that Participant. The maximum SPP loan term is 10 years
and for Non-Executive Director Participants it is 5 years, except where an extension is approved by MFG shareholders.
Any outstanding balance at the end of the SPP loan term must be repaid by the Participant. A Participant who ceases
to be employed and has a SPP loan balance must repay the total amount owing under the SPP loan within 3 months
of cessation, or such longer period determined by the Board.
The issue price for shares issued under an SPP offer 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.
Shares issued under an SPP have the same rights as all other MFG ordinary shares except they are placed in a trading
lock. Following full repayment of the SPP loan, the holding lock and any security over the shares issued under the
SPP is released and the Participant shall be entitled to retain his or her shares issued under the SPP.
Repayment of a SPP loan occurs either by applying an amount equal to 25% of the Participant’s after tax annual
cash bonus and/or applying dividends received on their shares issued under the SPP. Dividends paid to Participants
and applied as a repayment of the SPP loans amounted to $1,686,000 for the year ended 30 June 2019 (June 2018:
$961,000).
SPP 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 the SPP loans are recognised within
interest income in the profit or loss. The cost of providing the benefit to Participants is recognised as an employee
expense in the profit or loss on a straight-line basis over the expected life of the SPP loan.
Amounts recognised at 30 June 2019 in respect of the SPP loans are:
Current - SPP loans due within 1 year
Non-current - SPP loans due later than 1 year and within 10 years
Total SPP loans
SPP interest income
SPP employee expense
Net SPP income/(expense) in the Consolidated Statement of Profit or Loss
Consolidated Entity
30 June
30 June
2019
$’000
3,616
7,603
2018
$’000
3,298
9,344
11,219
12,642
487
(445)
42
673
(578)
95
Both the change in the carrying value of the SPP loans recorded in interest income and the cost of providing the
benefit to Participants recorded in employee expense are non-cash items and therefore are not reflected in the
Group’s Consolidated Statement of Cash Flows. Over the life of the SPP loans, the amounts credited to interest
income and the amounts recognised as employee expense will exactly offset each other.
At 30 June 2019, the total value of MFG shares securing the SPP loans to all Participants applying MFG’s closing share
price of $51.00 was $46,462,000 (June 2018: $25,357,000). Expected credit losses are provided for credit losses
that result from default events that are possible within the next 12-months. No amounts are past due or permanently
impaired as the SPP provides that any shortfall between the SPP loan and the value of MFG shares under the SPP is
recoverable from the Participant. An impairment analysis is performed at each reporting date to measure expected
credit losses.
67
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
14. Share Purchase Plan (continued)
The face value of the SPP loans outstanding at 30 June 2019, along with the total number of shares issued under
the SPP and the share price at which they were issued are:
Share issue
price
Total number of
shares issued
under SPP
30 June
30 June
2019
2018
Consolidated Entity
$10.02
186,200
SPP issue
29 October 2013 tranche
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
22 September 2014 tranche
$13.23
342,609
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
13 November 2014 tranche
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
$13.64
243,155
14 September 2015 tranche
$18.88
265,443
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
16 September 2016 tranche
$23.51
126,038
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
18 November 2016 tranche
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
$20.85
63,948
18 September 2017 tranche
$24.47
202,536
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
16 November 2017 tranche
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
13 March 2018 tranche
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
$24.99
53,354
$24.93
22,061
17 September 2018 tranche
$27.92
88,784
Face value of loans ($)
Estimated weighted average duration of loans
Imputed interest rate
-
-
-
144,000
0.2 years
3.4%
496,000
1,241,000
0.7 years
1.0 years
3.0%
3.0%
1,276,000
1,664,000
0.7 years
1.5 years
2.8%
2.8%
1,027,000
1,869,000
1.3 years
2.4 years
2.2%
2.2%
1,084,000
1,691,000
1.8 years
2.3 years
1.8%
1.8%
812,000
917,000
2.1 years
2.8 years
2.1%
2.1%
3,677,000
4,474,000
3.4 years
4.5 years
2.4%
2.4%
889,000
976,000
2.9 years
3.7 years
2.2%
2.2%
439,000
550,000
3.3 years
4.2 years
2.4%
2.4%
2,208,000
4.6 years
2.3%
-
-
-
Total number of MFG ordinary shares held by Participants at end of year
911,016
1,088,300
68
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
15. Parent Entity Information
Assets
Current assets
Non-current assets
Total Assets
Liabilities
Current liabilities
Non-current liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Available for sale reserve
Retained profits
Total Equity
Net profit after income tax expense for the year
Comprehensive income after income tax expense for the year
Total comprehensive income for the year
Parent Entity
30 June
2019
30 June
2018
$’000
$’000
165,377
497,546
662,923
155,089
408,357
563,446
23,791
20,485
29,435
9,129
44,276
38,564
618,647
524,882
243,525
219,252
-
57,983
375,122
247,647
618,647
524,882
358,772
186,300
-
14,381
358,772
200,681
The financial information for the parent entity, Magellan Financial Group Limited, has been prepared on the same
basis as the Group’s consolidated financial statements, except for investments in subsidiaries. Investments in
subsidiaries are accounted for at cost less impairment expense, in the financial statements of the parent entity.
Dividends received from subsidiaries are recognised in the parent entity’s profit or loss rather than being deducted
from the carrying amount of the investment.
Contingent Assets and Liabilities of MFG
(a)
At 30 June 2019, MFG has no contingent assets or contingent liabilities (June 2018: nil).
(b) Commitments of MFG
MFG has committed to pay an amount to MGG, at each distribution period where a DRP is offered, to ensure
unitholders in MGG suffer no dilution where a MGG unitholder participates in the DRP. Refer to note 21(b) for further
details.
69
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
16. Subsidiaries
At 30 June, the Group’s subsidiaries were:
Country of incorporation/
% equity interest (a)
30 June
30 June
Note
Principal place of business
2019
2018
Magellan Asset Management Limited ("MAM")
- Airlie Funds Management Pty Limited ("Airlie")
MGT Investment Corp Pty Limited ("MGTI")
Magellan Capital Partners Pty Limited
MFG Services LLC ("MFGS")
Frontier North American Holdings Inc. ("FNAH")
(b)
(c)
(d)
(e)
- Frontier Partners Inc.
- Frontegra Strategies LLC
Australia
Australia
Australia
Australia
100
100
100
100
United States of America
100
United States of America
80
United States of America
100
United States of America
100
100
100
100
100
100
80
100
100
- Frontegra Asset Management Inc.
(f)
United States of America
100
-
- MFG High Conviction Master Fund GP LLC
United States of America
100
-
Inset names indicate that shares are held by the company immediately above.
All material subsidiaries have a 30 June reporting date.
(a) The proportion of ownership interest is equal to the proportion of voting power held.
(b) Airlie was acquired by MAM on 1 March 2018.
(c) A special purpose vehicle formed on 9 August 2017 to subscribe for loyalty units for eligible unitholders of MGG
under the priority offer. At 30 June 2019, this entity was dormant.
(d) A Delaware limited liability company formed on 3 August 2015. MFGS is a service company and provides MAM
with investment research and distribution services.
(e) A Delaware limited liability company formed on 26 January 2018. FNAH is a US holding company of the Frontier
Group. FNAH is 20% owned by a former shareholder of the Frontier Group. MFG has a call option over the
remaining 20% of the issued share capital of FNAH, the acquirer of the Frontier Group and a controlled entity
of MFG. The minority shareholder of FNAH, Mr Bill Forsyth, holds a put option over his interest in the issued
share capital of FNAH. The options can be exercised by either party during the period 1 January 2026 to 31
March 2026, at an exercise price based on a multiple of annualised average earnings for a specified period. In
addition to the above, MFG holds a further call option to purchase the remaining 20% of the issued share capital
of FNAH for $1. This option can be triggered at any time prior to 31 December 2025 in certain circumstances.
At the date of this report, the Group has no expectation that this call option would be triggered. The Group has
determined that it has a present ownership interest in the non-controlling interest of FNAH.
(f) Frontegra Asset Management Inc. was acquired by FNAH on 1 October 2018.
Transactions between MAM and foreign entities are subject to transfer pricing arrangements.
The Group’s investments in other entities are set out in note 12.
70
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
16. Subsidiaries (continued)
Principles of Consolidation
The consolidated financial report of the Group comprises the financial statements of the Company and its subsidiaries.
Subsidiaries are entities over which the Group has the power to govern the financial and operating policies, is exposed
to variable returns from its involvement in the entity and has the ability to affect those returns. Assets and liabilities,
income and expenses of a subsidiary are included from the date the Group gains control until control ceases. On
consolidation, assets and liabilities and income and expenses of foreign operations are translated at the reporting
date and date of transaction respectively. Equity and reserve balances are translated at the date of transaction. The
foreign exchange differences arising on translation are recognised in comprehensive income and accumulated in the
foreign currency translation reserve. When the foreign operation is disposed, amounts in other comprehensive
income relating to that foreign operation are recognised in the consolidated statement of profit or loss. All inter-
entity assets, liabilities, equity, income, expenses and cash flows relating to transactions within the Group are
eliminated in full on consolidation. When necessary, adjustments are made to the results of subsidiaries to bring
them into line with the Group’s accounting policies.
Foreign Subsidiaries
On consolidation, the assets and liabilities of foreign subsidiaries whose functional currency differs from the
presentation currency are translated into Australian dollars at the rate of exchange at reporting date. Exchange
differences arising on retranslation are taken directly to the foreign currency translation reserve in equity. On disposal
of a foreign subsidiary, the deferred cumulative amount recognised in equity relating to that particular foreign
operation is recognised in the consolidated statement of comprehensive income.
71
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
17. Business Combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the fair values (at acquisition date) of assets acquired, equity issued, liabilities incurred or assumed and
the amount of any non-controlling interest in the acquired entity at the date of acquisition. For each business
combination, the Group elects whether to measure the non-controlling interest in the acquired entity at fair value or
at the proportionate share of the acquiree’s identifiable net assets. Transaction costs related to acquisitions are
expensed as incurred to the profit or loss.
The excess of consideration paid and non-controlling interest in the acquired entity over the fair value of the
identifiable net assets acquired is goodwill. Goodwill and fair value adjustments arising on an acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Goodwill
arising from business combinations is included in intangible assets (refer to note 18).
Frontegra Asset Management Inc
The Group’s US holding company, Frontier North America Holdings Inc (“FNAH”), acquired Frontegra Asset
Management Inc on 1 October 2018 for consideration of US$19,181,000 (A$26,509,000), comprising of cash of
$US3,500,000 (A$4,837,000) and 787,507 MFG ordinary shares amounting to US$15,681,000 (A$21,672,000). The
fair value of the MFG ordinary shares issued was A$27.52 per share, being the price of MFG ordinary shares on the
date of acquisition.
Frontegra Asset Management Inc is part of the Frontier Group, a privately-owned group of companies which MFG
entered into an agreement to acquire on 5 February 2018 (refer to the 30 June 2018 financial statements for
additional information).
In accordance with the sale agreement, 689,066 of the total ordinary shares issued were placed in escrow (“escrowed
shares”) on 1 October 2018. The escrowed shares will be released in equal amounts over seven years following
acquisition. As a result, one seventh of the escrowed shares will be released each anniversary date, with the first
anniversary date being 1 October 2019. The escrowed shares have the same rights as MFG ordinary shares, except
that the escrowed shares have a trading lock placed on them, preventing them being sold.
Transaction costs of $22,000 have been expensed as incurred and are included within legal and professional fees in
the Consolidated Statement of Profit or Loss.
The cash outflow for the acquisition of Frontegra Asset Management Inc. net of cash acquired was $1,632,000.
Frontegra Asset Management Inc. has contributed revenues of $943,000 and net profit after tax of $797,000 to the
Group for the period since acquisition, being 1 October 2018 to 30 June 2019.
If the acquisition had occurred from the beginning of the year, the Group’s revenue and net profit after tax for the
full year ended 30 June 2019 would have been $623,140,000 and $378,298,000 respectively.
72
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
17. Business Combinations (continued)
The fair values of the assets and liabilities of Frontegra Asset Management Inc at 1 October 2018 were:
Assets
Current assets
Cash and cash equivalents
Receivables
Prepayments
Intangibles - customer relationships
Total assets
Liabilities
Payables
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration
$’000
3,205
1,998
27
2,418
7,648
1,337
1,337
6,311
20,198
26,509
Of the $1,998,000 receivables, the acquired trade receivables comprised $1,689,000, representing amounts invoiced
to clients. At acquisition date, no amounts were expected to be uncollectable. Goodwill of $20,198,000 is attributable
to expected synergies arising from the acquisition.
(a) Business Combinations in the Prior Year
During the year ended 30 June 2018, the following companies were acquired:
•
•
•
Frontier Partners Inc on 5 February 2018;
Airlie Funds Management Pty Limited on 1 March 2018; and
Frontegra Strategies LLC on 2 April 2018.
The details of the companies acquired are included in the 30 June 2018 financial statements.
73
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
18.
Intangibles
30 June 2019
At cost
less: accumulated amortisation and impairment
Total intangible assets
Movement:
Carrying amount at beginning of year
Acquisition of subsidiaries
Amortisation expense
Net foreign exchange differences
Carrying amount at end of year
30 June 2018
At cost
less: accumulated amortisation and impairment
Total intangible assets
Movement:
Carrying amount at beginning of year
Acquisition of subsidiaries
Amortisation expense
Net foreign exchange differences
Carrying amount at end of year
Note
17
Note
Consolidated Entity
Definite lives
Indefinite lives
Customer
Relationships
Goodwill
Total
$’000
25,727
(5,922)
19,805
21,529
2,418
(4,518)
376
19,805
$’000
104,703
-
104,703
83,489
20,198
-
1,016
104,703
$’000
130,430
(5,922)
124,508
105,018
22,616
(4,518)
1,392
124,508
Definite lives
Indefinite lives
Customer
Relationships
Goodwill
Total
$’000
22,933
(1,404)
21,529
-
22,601
(1,404)
332
21,529
$’000
83,489
-
83,489
-
82,994
-
495
83,489
$’000
106,422
(1,404)
105,018
-
105,595
(1,404)
827
105,018
Intangible assets comprise goodwill and customer relationships resulting from the acquisition of Airlie and the Frontier
Group.
Intangible assets are recognised at fair value at the date of acquisition and subsequently measured at cost less any
accumulated amortisation and accumulated impairment losses. The useful lives of intangible assets are assessed as
either definite or indefinite.
Customer relationships
Customer relationships relate to existing agreements with clients and relationships with unitholders in the case of
the funds. These assets have been determined to have a definite life, being the expected client attrition profile, which
is as follows:
- Customer relationships – Airlie
5 years
- Customer relationships – Frontier Group 7 years
Customer relationships are recognised at fair value at the date of acquisition and amortised on a straight-line basis
over the useful lives stated above. Amortisation expense is recognised in the statement of profit or loss.
74
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
18.
Intangibles (continued)
Goodwill
Goodwill represents the excess of the consideration paid for the business combination over the fair value of the
identifiable net assets acquired or liabilities assumed at the date of acquisition. It comprises the value of expected
synergies arising from the acquisitions and the value of the workforce in place at Airlie and the Frontier Group.
Goodwill has an indefinite life and is initially recognised at cost and subsequently measured at cost less any
accumulated impairment losses.
Impairment
Impairment tests are carried out annually for goodwill (or when circumstances indicate the carrying value may not
be recoverable). In addition, impairment tests for all assets are performed when there is an indication of impairment.
All goodwill has been allocated to one cash generating unit (CGU), being the Funds Management segment (FM CGU)
(refer to note 2). The recoverable amount of the FM CGU has been determined using the value-in-use approach.
Value-in-use represents the present value of the CGU’s estimated future pre-tax cash flows of fee revenue, net
income and operating expenses.
The estimated future cash flows are based on financial budgets approved by the Directors for a period of one year.
Cash flows beyond the approved budget period are extrapolated using a growth rate of 6% based on external
forecasts of long-term global equity market returns. A pre-tax discount rate of 12% was applied to the cash flow
projections.
Based on current economic conditions and the Funds Management segment performance, no reasonably possible
change in a key assumption used in the determination of the recoverable amount is expected to result in impairment
of goodwill amounts recognised at 30 June 2019.
Key Estimate and Judgement
Judgement is used to assess the recoverable value of goodwill, the estimated useful life of acquired intangibles, in
the assessment of impairment indicators for acquired intangibles and, where required, in determining the recoverable
amount.
The carrying amount of goodwill is based on judgements including the basis of assumptions and forecasts used for
determining cashflows for the Funds Management CGU, headroom availability and sensitivities of the forecasts to
reasonably possible changes in assumptions. The Group undertakes an annual assessment to evaluate whether the
carrying value of goodwill on the Consolidated Statement of Financial Position is impaired. The estimation of future
cash flows and the discount rates applied requires significant judgement.
75
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
19. Related Party Disclosures
Ultimate Parent Entity
(a)
Magellan Financial Group Limited is the ultimate parent entity.
Transactions with Related Parties
(b)
Interests in subsidiaries are set out in note 16 and transactions with the related parties are set out below.
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:
Directors
(i)
The Directors of the Company unless otherwise stated during the year and up to the date of this report were:
Name
Appointed
Brett Cairns
Hamish Douglass
John Eales
Robert Fraser
Paul Lewis
Hamish McLennan
Karen Phin
Directorship
Chief Executive Officer(A)
Chairman and Chief Investment Officer(B)
Non-Executive Director
Non-Executive Director and Chairman of MAM(C)
Non-Executive Director
Non-Executive Director and Deputy Chairman(D)
Non-Executive Director
22 January 2007
21 November 2006
1 July 2017
23 April 2014
20 December 2006
1 March 2016
23 April 2014
(A) On 5 October 2018, Dr Cairns was appointed Chief Executive Officer of the Group. Prior to this Dr Cairns held the position of
Executive Chairman.
(B) On 5 October 2018, Mr Douglass was appointed Chairman of the MFG Board. Prior to this Mr Douglass was Chief Executive
Officer of the Group. Mr Douglass remains Chief Investment Officer.
(C) On 5 June 2019, Mr Fraser was appointed Chairman of the MAM Board.
(D) On 5 June 2019, Mr McLennan was appointed Deputy Chairman of the MFG Board.
No Director has or has had any interest in a contract entered into up to the date of this report with the Company or
any related entity other than as disclosed in this report.
Other Key Management Personnel (“KMP”)
(ii)
Other Key Management as disclosed below are those whom, the Board deemed, most accurately met the definition
during the financial year:
Kirsten Morton
Marcia Venegas
Craig Wright
Chief Financial Officer
Head of Risk, Compliance and Legal
Head of Governance & Advisory
With senior management changes in the 2019 financial year and the formation of an Executive Committee, the Board
reviewed the composition of the Group Executive KMP and determined that the members of the Executive Committee
were the Group Executive KMP as they had authority and responsibility for planning, directing and controlling the
activities of the Group.
(iii) Remuneration of KMP
KMP of the Group received the following amounts during the financial year:
Short term benefits
- Salary
- Cash bonus
Post-employment benefits
Long-term benefits
Other benefits
Total remuneration paid to KMP
(A) Comparative information does not include details of payments made to former Other KMP.
Refer to section 3.4 of the Remuneration Report for further details.
Consolidated Entity
30 June
2019
$
30 June
2018(A)
$
5,520,861
3,075,666
131,871
40,739
(47,879)
8,721,258
6,212,522
1,780,263
129,310
36,389
291,845
8,450,329
76
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
19. Related Party Disclosures (continued)
Transactions with Other Related Parties
(d)
The following transactions occurred with entities in the Group:
Revenue with Controlled Entities
Dividends
Reimbursed expenses
Expenses with Controlled Entities
Expense reimbursements
Outstanding balances with Controlled Entities
Receivables
- Tax funding agreement - receivable
- Tax funding agreement - received
- Loan receivable
Equity contribution to Controlled Entities
- Cash
- Non-cash
Equity returned from Controlled Entities
- Cash
Transfer Pricing between Controlled Entities
- Service fees
- Recharged expenses
30 June
30 June
2019
$
2018
$
Note
(i)
332,306,213
232,863,638
201,581
200,000
51,509
314,468
(ii)
(ii)
17,935,731
19,581,107
105,956,905
64,567,450
5,344
10,548
4,837,260
59,620,935
21,672,193
111,735,958
97,391
493,980
14,368,631
6,370,251
1,528,736
345,081
(i)
(ii)
Dividends from controlled entities totalling $332,306,213 comprised $332,127,844 paid by MAM to MFG (June 2018:
$211,878,998), $178,369 paid by MFGS to MFG (June 2018: $111,145) and nil paid by MGTI to MFG (June 2018:
$20,873,495).
During the year ended 30 June 2019, MAM’s and Airlie’s income tax liabilities of $104,311,529 (June 2018: $82,486,575)
were assumed by MFG, the head entity of the tax consolidated group. Payments totalling $101,870,170 (June 2018:
$63,319,038) were received by MFG from MAM under the tax funding agreement during the year and $17,394,661 was
receivable by MFG from MAM in respect of amounts arising from the transfer of MAM’s tax liability to MFG (June 2018:
$19,167,536). Payments totalling $4,086,735 were received by MFG from Airlie under the tax funding agreement and
$541,070 was receivable by MFG from Airlie in respect of amounts arising from the transfer of Airlie’s tax liability to MFG
(June 2018: $413,571).
All transactions with related parties are conducted on normal commercial terms and conditions. Receivable and
payable balances at year end are unsecured and settlement occurs in cash.
77
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management
The Group is subject to liquidity risk, price risk, foreign currency risk, interest rate risk, credit risk and translation risk
and how these risks could affect the Group’s future financial performance is discussed below.
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 liquidity 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 access to a $50 million revolving credit facility at 30 June 2019 (June 2018: $50 million) (refer note
20(c) for further detail).
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.
MAM and Airlie are subject to regulatory financial requirements by virtue of holding an Australian Financial Services
Licence (“AFSL”). During the year ended 30 June 2019, both entities satisfied the liquidity requirements under their
AFSL. MAM maintained the required net tangible assets of 10% of the three year average of MAM’s revenues and
satisfied the requirements of cash and cash equivalents which is 50% of the required net tangible assets, in
accordance with ASIC Regulatory Guide 166.
Financial Risk Management
(b)
The Board has an approved risk management framework including policies, procedures and limits and uses different
methods to measure and manage different types of risks to which it is exposed. The Group seeks to deal only with
creditworthy counterparties and these assessments are regularly reviewed. Liquidity risk is monitored through the
use of future rolling cash flow forecasts and ageing analysis of receivables.
The investment portfolios of funds managed by MAM and Airlie, which are listed in note 2, are managed on a daily
basis 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 their Product Disclosure Statement (“PDS”)
and in the case of the Frontier MFG Funds, in their prospectuses.
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. Management monitors
rolling forecasts of the Group’s liquidity reserve (comprising the undrawn borrowing facility below) and cash and cash
equivalents on the basis of expected cash flows. The Board of MFG has internal policies with respect of minimum
liquid assets and cash.
As at 30 June 2019, the Group had an obligation to settle trade creditors and other payables of $31,793,000 (June
2018: $20,612,000) within 30 days. In addition, a further obligation of $19,355,000 (June 2018: $29,702,000) is
payable between 30-150 days for the Group’s tax instalment and final income tax payment. Furthermore, the dividend
of 111.4 cents per share in respect of the six months ended 30 June 2019, amounting to $197,275,000, will be paid
on 29 August 2019 (refer to note 4(a)).
The Group had cash of $198,188,000 (June 2018: $169,095,000) and a further $123,812,000 (June 2018:
$108,622,000) of receivables to cover these liabilities.
In addition, the Group has access to a $50 million multi-currency revolving credit facility provided by a major
Australian bank. This floating rate facility may be drawn in either Australian dollars or United States dollars at any
time up to 31 January 2021. At 30 June 2019, this facility was undrawn. A facility fee applies on the amount of the
undrawn facility. For the year ended 30 June 2019, total finance costs of $425,000 (June 2018: $300,000) have been
expensed to the profit or loss. The facility is subject to annual review and the Group has complied with the financial
covenants under this facility for the year ended 30 June 2019.
78
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management (continued)
Liquidity Risk (continued)
(c)
At 30 June 2019, the Group reported current assets of $328,520,000 and current liabilities of $52,950,000 resulting
in a net current asset surplus of $275,570,000. After taking into account the final and performance fee dividend for
the year ended 30 June 2019 totalling $197,275,000, this would result in a net current asset surplus of $78,295,000.
Accordingly, the Group has sufficient liquid funds and current assets to meet its current liabilities.
Borrowings are initially recognised by the Group at fair value net of transaction costs incurred. Subsequent to initial
recognition, borrowings are stated at amortised cost. Borrowings are derecognised from the statement of financial
position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the
carrying amount of the financial liability that has been extinguished and the consideration paid, including any non-
cash assets transferred or liabilities assumed, is recognised in the profit or loss as other income or finance costs.
Finance costs include interest paid or payable on borrowings along with ancillary costs incurred in connection with
the arrangement of borrowings. Finance costs are expensed as incurred which in the case of the facility fee is the
period the facility has been provided.
Price Risk
(d)
Price risk is the risk that the value of investments in the Principal Investment Portfolio (at note 12) and management
and performance fees will increase or decrease as a result of changes in equity prices in local currency (caused by
factors specific to the individual stock or the market as a whole), exchange rate movements, or a combination of
both.
Over the past 10 financial years, the annual performance of the MSCI World Net Total Return Index has ranged
between +31% and -5% (in USD) and +33% and -1% (in AUD). The past performance of markets is not always a
reliable guide to future performance, and MFG’s Principal Investments 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.
An increase of 5% in market prices would have had the following impacts at 30 June:
Consolidated Entity
30 June
30 June
2019
$’000
11,868
11,868
2018
$’000
9,541
9,541
17,869
17,869
14,919
14,919
5% increase in market prices would result in:
- higher net change in fair value of financial assets
Impact on net profit after tax/other comprehensive income and equity(A)
5% increase in average value of funds under management would result in:
- higher base management fees
Impact on net profit after tax and equity
(A)
Investments in the Principal Investments Portfolio were classified as ‘financial assets at fair value through profit or loss’
(“FVTPL”) on 1 July 2018. Previously these investments were classified as ‘available-for-sale’ (“AFS”) financial assets held at
fair value through other comprehensive income (“FVOCI”). Refer to note 1c for further details.
A decrease of 5% in each risk factor above would have an equal but opposite impact on net profit, comprehensive
income and equity.
Assumptions and explanatory notes
• 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.
• Changes in market prices may impact inflows to, and outflows from, the Group’s funds under management. This
impact has not been estimated.
79
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management (continued)
Foreign Currency Risk
(e)
Foreign currency risk is the risk that the fair value or cash flows arising from a financial commitment or recognised
asset or liability will fluctuate due to changes in foreign exchange rates. The Group’s foreign currency risk arises on:
• Cash and term deposits denominated in foreign currency;
•
Investments denominated in foreign currency (refer note 12) along with their respective distributions
received/receivable and outstanding settlements/payments for purchases or sales of equities;
• Management and performance fees receivable denominated in a foreign currency;
• Payables denominated in a foreign currency namely supplier invoices and firm commitments; and
• Translation of US based foreign subsidiaries.
The Group’s foreign currency transactions are conducted in the following currencies: Australian dollars, United States
dollars, Great British pound, Euros and New Zealand dollars.
If the Australian dollar strengthened by 10% relative to each currency to which the Group had exposure, with all
other variables held constant, the impact on the net profit after tax would have been:
Consolidated Entity
Increase/(decrease) in net profit
Increase/(decrease) in equity
USD
GBP
$’000
$’000
Other
$’000
Total
$’000
USD
GBP
$’000
$’000
Other
$’000
Total
$’000
(2,519)
(1,642)
(2,441)
275
(6)
(14)
(706)
2
(13)
(76)
(10)
2
(2,538)
2,519 6 13 2,538
(1,732)
1,642 14
76 1,732
(3,157)
2,441 706 10 3,157
279
(275)
(2)
(2)
(279)
30 June 2019
Financial assets and liabilities
Cash and cash equivalents
Investments
Receivables
Payables
30 June 2018
Financial assets and liabilities
Cash and cash equivalents
(714)
(76)
-
(790)
714 76
- 790
Investments
Receivables
Payables
- - - -
(1,119)
(6)
(18)
(1,143)
(1,662)
(546)
(1)
(2,209)
1,662 546
1 2,209
130
4
8
142
(130)
(4)
(8)
(142)
A decrease of 10% in the Australian dollar relative to each currency would have an equal but opposite impact.
The Group also has indirect exposure to foreign currency via its investment in funds. The Magellan and Airlie Funds
(in note 12) are denominated in Australian dollars and the Frontier MFG and MFG UCITS 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. In addition,
the Group’s management and performance fees are also indirectly exposed to fluctuations in foreign currency where
fees are invoiced in a different currency to the underlying investment portfolio. For the year ended 30 June 2019,
approximately 85% of the Group’s management and performance fees were indirectly exposed to movements in the
Australian dollar relative to other currencies (June 2018: 87%).
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.
Term deposits are of relatively short duration and their fair value would not be materially affected by changes in
interest rates.
Based on the cash and cash equivalents held by the Group at reporting date, the sensitivity on the Group’s net profit
and equity of a decrease of 50 basis points in floating interest rates, assuming all other variables remain constant is
$765,000 for the year ended 30 June 2019 (June 2018: $670,000). An increase of 50 basis points in floating rate
interest rates would have an equal but opposite impact on net profit and equity.
80
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management (continued)
(g) Credit Risk
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Market
prices generally incorporate credit assessments into valuations and risk of loss is implicitly provided for in the carrying
value of financial assets and liabilities when valued at fair value.
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. For the year ended 30 June 2019, the Group held cash and term deposits with
major Australian and international banks. The credit quality of Australian banks counterparties at 30 June 2019 was
rated by Standard & Poor’s as being AA-, and by Moody’s as being Aa3 (AA- and Aa3 respectively at 30 June 2018).
The credit quality of the international bank counterparty at 30 June 2019 was rated by Moody’s as A1 (A1 at 30 June
2018).
MFG has also 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 MFG’s investment assets. The IPBA with MLI is in a
form that is typical of prime brokerage arrangements. MFG has granted MLI a fixed charge over the Company’s right,
title and interest in the assets held in custody with MLI, as security for the performance of its obligations under the
IPBA. In the event of MLI becoming insolvent, MFG would rank as an unsecured creditor and, to the extent MLI has
exercised a right of use over MFG’s securities, MFG may not be able to recover such equivalent securities in full. In
addition, cash which MLI holds or receives on behalf of MFG 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, MFG would rank as an unsecured
creditor and may not be able to recover the cash in full. At 30 June 2019 and 2018, MFG held a negligible cash
balance with MLI.
The Group also manages credit risk by regularly monitoring SPP loan and receivable balances. Receivable are typically
paid within 15 to 45 days after being invoiced. No expected credit losses were required to be recognised at 30 June
2019 (June 2018: nil). The Group also had credit exposure to SPP Participants with loans under the SPP. At 30 June
2019, the outstanding balance on the loans totalled $11,908,161 (June 2018: $13,527,453). At 30 June 2019, the
total shortfall was nil (June 2018: $92,000) which represented the difference between the face value of certain SPP
loans and the value of MFG shares under the SPP for those loans. As the SPP loans are full recourse loans, any
shortfall between the SPP loan and the value of the MFG shares under the SPP is recoverable from the Participant.
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), Magellan Infrastructure Fund (Currency Hedged), Magellan Global Trust, Airlie Australian Share Fund and
The Airlie Concentrated Share Fund. The credit quality of NT’s senior debt is rated, as at 30 June 2019 by Standard
and Poor’s as A+ and by Moody’s as A2 (A+ and A2 respectively at 30 June 2018). In acting as custodian, NT is
required to comply with the relevant provisions of the Corporations Act, applicable ASIC regulatory guides and
Regulatory Instruments relating to registered managed investment scheme property arrangements with custodians.
The Group’s maximum exposure to credit risk is the sum of the carrying amount of all cash and cash equivalents,
financial assets, receivables and SPP loans recognised in the Consolidated Statement of Financial Position.
The Group has four types of financial assets that are subject to the expected credit loss model:
• Cash and cash equivalents;
• Term deposits carried at amortised cost;
• Trade receivables from the provision of services; and
• Share purchase plan loans.
The identified impairment losses for these financial assets was not material.
81
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management (continued)
Translation Risk
(h)
The financial balances of MFG’s foreign operations are prepared in their local currency, United States dollars. For the
purposes of preparing the Group’s consolidated financial information, each foreign operation’s financial statements
are translated into Australian dollars using applicable foreign exchange rates for the reporting period. A translation
risk exists on translating the financial statements of MFG’s foreign operations. As a result, volatility in foreign
exchange rates can impact the Group’s net assets, profit or loss and comprehensive income.
The Group does not hedge translation risk.
Fair Value Disclosures
(i)
The Group measures its investments in the Principal Investment Portfolio at fair value. To provide an indication about
the reliability of the inputs used in determining fair value, the Group has classified its investments measured at fair
value into the following three levels prescribed under the accounting standards.
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. The fair value of these
investments is based on the closing price(A) 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.
(A) Prior to 1 July 2018, the fair value of these investments was based on closing bid prices. The impact of the change was not
material.
30 June 2019
Financial assets measured at fair value
Investments in quoted/listed investments
Investments in unlisted funds
Total financial assets measured at fair value
30 June 2018
Financial assets measured at fair value
Investments in quoted/listed investments
Investments in unlisted funds (i)
Investments in unlisted shares (ii)
Total financial assets measured at fair value
Consolidated Entity
Level 1
Level 2
Level 3
Note
$’000
$’000
$’000
Total
$’000
12
12
12
12
12
125,685
-
-
125,685
-
213,377
125,685
213,377
22
22
213,399
339,084
100,886
-
-
100,886
-
173,425
-
-
81
175
173,506
175
100,886
173,425
256
274,567
82
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
20. Capital and Risk Management (continued)
Fair Value Disclosures (continued)
(i)
The fair values of all other financial assets and liabilities approximate their carrying values in the Consolidated
Statement of Financial Position.
Investments in unlisted funds are set out in note 12. With the exception of the unlisted funds – other (discussed
(i)
below), the fair value of investments in unlisted funds is determined with reference to the fund’s redemption price
at reporting date. They are categorised in level 2 as inputs into the redemption unit price are directly observable
from published price quotations.
The investment in the “unlisted funds – other” set out in note 12 comprises an investment in a single private equity
fund. As there is no active market, the fair value is a Directors’ valuation that is determined with reference to the
unit price of the fund. The Directors believe the estimated fair value and the discount assumptions applied are
reasonable and appropriate.
(ii) Unlisted shares comprise a shareholding in an unlisted funds management business. During the year ended 30
June 2019, the investment was sold. In the prior year, 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.
There were no transfers between any level during the year ended 30 June 2019 or 2018 and the Group’s policy is to
recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. At 30 June 2019,
the fair value of the level 3 assets is $22,000 (June 2018: $256,000). The decrease in the fair value of level 3 assets
during the year ended 30 June 2019 is primarily due to the sale of unlisted shares.
83
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
21. Contingent Assets, Contingent Liabilities and Commitments
Commitments
(a)
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases.
The Group has entered into non-cancellable operating leases for its office premises in Australia (Sydney, Melbourne,
Brisbane, Adelaide) and the United States (Chicago) and has agreements for office equipment. The minimum lease
payments in relation to non-cancellable operating leases and agreements are as follows:
Within one year
Later than one year but no later than five years
More than five years
Total
Consolidated Entity
30 June
30 June
2019
$’000
3,165
12,460
8,454
2018
$’000
2,904
11,541
10,757
24,079
25,202
Contingent Assets and Contingent Liabilities
(b)
In accordance with the terms of the MFG Subscription and Commitment Deed, MFG will pay MGG to ensure that
unitholders in MGG who do not to participate in the MGG Dividend Reinvestment Plan (“DRP”) suffer no dilution as
result of any DRP discount. As a result, MFG has a contingent liability where MGG offers a discount to the Net Trust
Value per unit on units issued under the DRP in future periods. The quantum of the contingent liability is determined
at each distribution date of MGG and the amount is currently equal to a 5% discount to MGG’s NAV per unit multiplied
by the number of units participating in the DRP. It is not practical to estimate the future cost to the Group as there
is uncertainty as to the level of participation in the DRP, the NAV per unit and whether the DRP will be offered. For
the year ended 30 June 2019, $505,000 was paid or payable by the Group to MGG in respect of MGG’s interim and
final distributions (June 2018: $414,000).
The Group has contingent assets in respect of performance fees carried forward at 30 June 2019 (refer to note 5(b)).
Other than the above, the Group has no material contingent assets or contingent liabilities as at 30 June 2019 (June
2018: nil).
84
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
22. Auditor’s Remuneration
Amounts received or due and receivable by the auditor’s of the Group:
Ernst & Young Australia
Audit services
Audit and review of the financial reports:
- Group and controlled entities
- Magellan Funds(A)
Other assurance services(B)
Advisory services
Non-audit services
Taxation(C)
Total remuneration of Ernst & Young Australia
Network firms of Ernst & Young Australia
Audit services
Audit of the financial report - MFG Investment Fund Plc
Non-audit services
Taxation(C)
Total remuneration of network firms of Ernst & Young Australia
Other audit firms
Audit services
Audit and review of the financial reports
Other assurance services
Non-audit services
Taxation
Total remuneration of other audit firms
Consolidated Entity
30 June
30 June
2019
2018
$
$
219,200
156,700
229,300
239,300
169,700
186,000
-
46,000
618,200
628,000
149,398
186,450
767,598
814,450
66,535
66,535
48,987
48,987
24,339
-
90,874
48,987
18,568
51,000
69,568
91,426
160,994
-
-
-
-
-
Total auditor's remuneration
1,019,466
863,437
(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, Magellan Infrastructure Fund (Currency Hedged),
Magellan Global Trust, Airlie Australian Share Fund and The Airlie Concentrated Share Fund.
(B) Other assurance services consist of engagements in relation to an audit that are not the direct audit or review of financial
reports. These services include regulatory compliance, accounting advice, reviews of controls and audit of ICRs for the
Magellan Funds.
(C) Non-audit services consist of income tax return reviews for the Group $15,200 (June 2018: $33,200), tax advisory services
$52,498 (June 2018: $59,500) and income tax and distribution reviews for the Magellan Funds $81,700 (June 2018:
$93,750).
85
MAGELLAN FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
23. Subsequent Events
Capital Raising
On 13 August 2019, the Group announced a capital raising comprising a fully underwritten $275 million
Institutional Share Placement (“Placement”) to institutional investors. The Placement will comprise an issue of
4.98 million new MFG ordinary shares at a price of $55.20 per share. The new shares to be issued under the
Placement will represent approximately 2.7% of MFG’s expanded issued capital and will rank equally with existing
MFG ordinary shares from the date of issue. As the new shares will be allotted after the record date for the 2019
Final and Performance Fee Dividends, the new shares will not carry an entitlement to those dividends.
Launch of Magellan High Conviction Trust
On 13 August 2019 the Group announced its intention to undertake an initial public offering of the Magellan
High Conviction Trust (“MHCT”), a closed ended investment vehicle to be listed on the ASX. MHCT will replicate
the Magellan High Conviction Fund investment strategy that has returned 16.6% per annum net of fees since
inception on 1 July 2013 to 31 July 2019.
The offer will proceed via a priority offer to underlying investors in MFG, MGG and the Magellan High Conviction
Fund and a wholesale/general public offer. Under the priority offer, eligible applicants can apply for up to 33,334
units equivalent to approximately $50,000 and will receive a loyalty reward of additional units (“Loyalty Units”) worth
7.5% of the value of the units allotted to them under the priority offer subject to the terms and conditions outlined
in the PDS. In addition, applicants under the wholesale/general public offer will receive additional units (“IPO
Foundation Units”) worth 2.5% of the value of the units allotted to them subject to the terms and conditions outlined
in the PDS.
The costs of these Loyalty Units and IPO Foundation Units and all costs related to the offer will be paid for by the
Group. It is not practicable to estimate the cost to the Group as there is uncertainty as to the size of the offer and
the MHCT net asset value per unit at the time that the Loyalty Units and IPO Foundation Units are issued. Further
details of the MHCT raising will be disclosed following the completion of the offer.
Funds Under Management at 31 July 2019
On 6 August 2019, the Group reported to the ASX that its funds under management was $89.7 billion as at 31 July
2019.
Other than the above matters and the dividend in respect of the six months ended 30 June 2019 (refer to note 4(a)),
the Directors are not aware of any other matter or circumstance not otherwise dealt with in this financial report
that has significantly o r may significantly affect the Group’s operatio ns, the results of those operations or the
Group’s state of affairs in future years.
86
MAGELLAN FINANCIAL GROUP LIMITED
DIRECTORS’ DECLARATION
In the Directors’ opinion,
a)
the financial statements and notes set out on pages 37 to 86 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 2019 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 2019.
This declaration is made in accordance with a resolution of the Directors.
Hamish M Douglass
Chairman
13 August 2019
87
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 2019, the consolidated statement of profit or loss,
consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year then ended, notes to the
financial statements, including a summary of significant accounting policies, 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 2019 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. We have also 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,
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88
including the procedures performed to address the matters below, provide the basis for our
audit opinion on the accompanying financial report.
1. Management and Performance Fee Revenue
Why significant
How our audit addressed the key audit matter
Our procedures included:
•
•
•
•
Assessing the effectiveness of the controls in
relation to the calculation of management,
service and performance fees;
Recalculating management and service fees,
on a sample basis, in accordance with
contractual arrangements;
Assessing the performance fees recognised
for the period to 30 June 2019 from funds
and mandates, on a sample basis, and check-
ing whether they met the relevant recogni-
tion criteria. This included assessing the in-
puts into the calculation model and examining
the methodology applied in accordance with
contractual arrangements; and
Assessing the adequacy of the disclosures in
Note 5 to the financial report in accordance
with Australian Accounting Standards
The Group’s key revenue stream is management,
service 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 2019, management
fees were $467,786,000 and performance fees
were $83,631,000 which equates to 75.8% and
13.5% of total revenue respectively.
Revenue from management and performance fees
is earned and calculated in accordance with the
Investment Management Agreements and
Constitutions of the funds. Performance fees
however are dependent on the portfolio
outperforming certain hurdles and are only
recognised in the Statement of Profit and Loss
when MAM’s entitlement to the fee is highly
probable, which is at the end of the relevant
performance period.
Due to 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, this was considered a key audit
matter.
Disclosures relating to these revenue streams are
included in Note 5 to the financial report.
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 and investments in
Magellan Funds. As at 30 June 2019, the value of
these non-current financial assets, as shown in
Note 12 to the financial report was
$339,084,000, which equates to 42.4% of the
total assets held by the Group.
As described in Note 12 and Note 20 to the
financial report, the Group’s investments are
classified as ‘financial assets at fair value through
profit or loss’ (“FVTPL”) in line with Australian
Accounting Standards - AASB 9: Financial
Instruments.
Our procedures included:
•
Assessing the effectiveness of the controls
relating to the recognition and valuation of
investments;
• Obtaining and considering the assurance
reports on the controls of the Group’s
custodians and administrators in relation to
investment management services and
considering the auditor’s qualifications and
objectivity and results of their procedures;
Agreeing all investment holdings, including
cash accounts, to third party confirmations
at 30 June 2019;
•
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89
Why significant
How our audit addressed the key audit matter
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 was a key
audit matter.
•
•
Agreeing the fair value of all investments in
the portfolio held at 30 June 2019 to
independent pricing sources for listed
securities. For unlisted funds, we agreed the
investment valuations to statements from
external fund administrators; and
Assessing the adequacy of the disclosures in
Note 12 and Note 20 to the financial report
in accordance with Australian Accounting
Standards.
3. Consolidation and Equity Accounting Considerations
Why significant
How our audit addressed the key audit matter
Consolidation is an area of complexity for the
Group with judgements required on whether it has
control of, or significant influence over its
investments in Magellan 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.
This matter was considered a key audit matter as
judgement 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 subsidiaries and interests in other
entities are disclosed in Note 12 and Note 16 of
the financial report.
Our procedures included:
•
•
•
•
Evaluating the Group’s assessment of control
or significant influence for the investments,
and the accounting treatment and
presentation thereon.
Evaluating the Group’s assessment of their
ability to control or have significant
influence, in line with their accounting policy,
to confirm which entities are required to be
equity accounted, consolidated, or
accounted for as investments at fair value;
Performing our own independent assessment
of the impact of consolidating or equity
accounting funds to determine if this would
have a material impact on the financial
report; and
Assessing the adequacy of the disclosures in
Note 12 and Note 16 in accordance with
Australian Accounting Standards.
4. Goodwill Impairment Assessment
Why significant
How our audit addressed the key audit matter
Goodwill has been recognised as a result of the
Group’s historical acquisitions, representing the
excess of the purchase consideration over the fair
value of assets and liabilities acquired. On
acquisition date, the goodwill has been allocated
to the applicable Cash Generating Units (“CGUs”).
The group has goodwill of $104,703,000 as at 30
June 2019.
Our audit procedures included the following:
•
•
•
Assessing the Group’s determination of the
CGUs to which goodwill is allocated
Assessing the methodology used to calculate
the recoverable amount of each CGUs;
Agreeing the projected cash flows used in the
impairment models to the Board approved
plan of the Group;
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Why significant
How our audit addressed the key audit matter
Goodwill must be tested for impairment on at least
an annual basis. The determination of recoverable
amount requires judgement on the part of
management in both identifying and then
calculating the value of the relevant CGUs.
Recoverable amounts are based on management’s
view of variables and market conditions such as
future price and assets under management growth
rates, the timing of future operating expenditure,
and the most appropriate discount and long-term
growth rates. As such it was considered a key
audit matter.
•
•
•
•
•
•
Comparing the Group’s implied growth rate
assumption to comparable companies;
Considering the accuracy of historical cash
flow forecasts;
Assessing the methodology and assumptions
used in the calculation of the discount rate,
including comparison of the rate to market
benchmarks;
Testing the mathematical accuracy of the
impairment model for each CGU;
Considering the Group’s sensitivity analysis
and evaluated whether any reasonable
foreseeable change in assumptions could
lead to a material impairment; and
Assessing the adequacy of the disclosures in
Note 18 in accordance with Australian
Accounting Standards.
Information Other than the Financial Report and Auditor’s Report
The directors are responsible for the other information. The other information comprises the
information in the Company’s Annual Report for the year ended 30 June 2019, 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, with the exception of the Remuneration
Report and our related assurance opinion.
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 on 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.
Responsibilities of the Directors’ 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
91
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 fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events and conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including
the disclosures, and whether the financial report represents the underlying transactions
and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial
report. We are responsible for the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
92
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.
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 Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 21 to 34 of the Directors' Report
for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Magellan Financial Group Limited for the year
ended 30 June 2019, 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
13 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
93
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 everyone who does business with us.
Responsible Investment
Magellan is committed to responsible investment and became a signatory to the United Nations supported Principles
of Responsible Investment (“PRI”) in March 2012. The PRI is the globally recognised accord for responsible investing.
Magellan’s Responsible Investment Principles, which is available on our website, outlines and summarises Magellan’s
approach to responsible investing, ESG integration, engagement and proxy voting.
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 most pro cyclical resources, materials and oil and gas companies).
Magellan’s Investment team’s research reports also include a discussion of climate change risks facing companies if
material and includes a company’s emissions intensity. 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 Sustainable investment 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 profoundly affect 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. Magellan’s
Sustainable strategies provide investors with a high quality, absolute-return focused portfolio with materially lower
carbon factor risk than global markets.
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 a 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 the concentrated nature of Magellan’s portfolios, proxy voting records are not
made publicly available.
As a long-term investor, Magellan is committed to engaging with portfolio companies on material ESG matters. During
the year ended 30 June 2019 Magellan engaged with many portfolio companies on a number of material ESG topics.
Environment
Magellan understands the importance of mitigating its impact on the environment and is committed to environmental
sustainability. Magellan’s Board of Directors assesses its appetite for climate-related issues under “environmental
risk” as part of an annual review of risks impacting the company. Given the nature of Magellan’s business and as a
services firm of 125 employees, with approximately 82% of employees based in the head office in Sydney, Magellan
has a relatively small environmental footprint and the Board has determined that this risk is not material to Magellan’s
operations. Environmental risk is reviewed annually by senior management as part of the firm’s risk management
framework.
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 an environmentally sustainable way. 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 and minimising
printing.
__________________________
(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.
94
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.
Greenhouse Gas (“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
124
124
1.14
0.4
Calendar Year
2017
0
134
134
1.29
0.4
Calendar Year
2018
0
135
135
1.07
0.3
As outlined in the table above, Magellan’s GHG emissions are relatively small, particularly on a per employee and per
A$ million of revenue basis. Magellan’s Scope 1 & 2 emissions intensity for calendar year 2018 of 0.3 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. Research reports compiled by the Investment
Team include a discussion of climate change risks facing companies if material and includes a company’s emissions
intensity. If a material risk is identified, the Investment Team will incorporate cash flow impacts (either to capital
expenditure or earnings margins) to reflect the cost to the company of addressing or remediating the exposure. In
general, the majority of Magellan’s investment universe is unlikely to be exposed to material Transition Risks, however
there are some companies in the Infrastructure, Industrials and Transportation sectors which have a greater exposure
to Transition Risks. These risks will be incorporated into Magellan’s assessment of future cash flows when Transition
Risks are assessed likely and material. Magellan aims to engage with portfolio companies where it considers a material
potential environmental issue has arisen with the objective of enhancing certainty of long-term cash flow generation.
The development of Magellan’s Sustainable strategies offers investors the opportunity to invest in a high quality,
absolute-return focused portfolio with materially lower carbon factor risk than global markets.
In May 2017, Magellan became a signatory of the PRI’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 Global Trust
Magellan High Conviction Fund
Magellan Infrastructure Fund
Global Sustainable strategy
US Sustainable strategy
Carbon footprint as at 30 June 2019
(tonnes CO2e per $US million revenue)
119.2
35.5
35.8
656.8
27.2
29.5
MSCI World Index (as at 29 June 2018)
Note: portfolio carbon intensities are calculated using the weighted average carbon intensity method.
198.3
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 and career development.
Remuneration
Magellan’s Remuneration Report on page 21 of this Annual Report outlines Magellan’s approach and philosophy to
employee compensation. Our remuneration philosophy is centred on fair compensation for performance and
contribution that achieves business outcomes and is underpinned by four principles:
•
•
•
•
Promoting staff behaviour that is in the best interest of clients;
Attracting and retaining outstanding staff;
Building a culture that rewards performance while maintaining Magellan’s reputation and mitigating risk; and
Encouraging staff to think and act like long-term owners of the Group
95
Alongside competitive remuneration packages, 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 voluntary 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 2019, approximately 65% of employees had an individual shareholding in the Company.
Magellan is focused on ensuring pay equity at the time of hire, however, conducts an annual review of employee
remuneration in the same role and level for pay inequalities and adjusts compensation based on this review if
required. Variances in compensation should reflect relative performance of employees.
Engagement and retention
Magellan implements a number of other initiatives to promote staff engagement and retention. Magellan’s employee
engagement strategies are based on equality principles which are applied to remuneration, benefits and total
rewards, training and development, health and safety and access to flexible working.
All new starters have a one-on-one meeting with Dr Brett Cairns, Magellan’s CEO, to discuss Magellan’s history,
values and what Magellan stands for. 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. Based on
Magellan’s relatively small size by number of employees (125 employees as at 30 June 2019), Magellan considers
that these forums are appropriate to receive transparent feedback from employees.
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.
Magellan is committed to providing a flexible and family friendly working environment. Magellan recognises the
importance of family friendly working conditions and offers a range of initiatives to support our employees before
and after the birth/adoption of a child. Our aim is to reduce the impediments parents face in returning to work and
give employees the flexibility to choose the arrangements which best suit their circumstances.
Magellan provides Paid Parental Leave up to 12 to 15 weeks (depending on the length of employment), for all
permanent employees who have worked for Magellan for at least 12 months continuously at the time of the birth or
adoption of their child and who have or will have the responsibility for the care of that child. Employees on Parental
Leave are eligible for the annual remuneration review, variable incentive and SPP Offer whilst on leave. In addition,
if an employee returns to work during the period of Paid Parental Leave, Magellan will continue to pay the remaining
period of Paid Parental Leave in addition to their base salary and other entitlements. Magellan offers a “Keep in
Touch” Program with employees who are on Parental Leave.
Magellan also offers a Childcare Reimbursement of up to $150 per day for Primary Carers for the first 26 weeks after
returning to work, when returning to work within 12 months from the commencement of Paid Parental leave. All
Primary and Secondary Carers are entitled to a 12 month subscription to Juggle Street to source local nanny or
babysitting options for their families.
Magellan understands the importance of family and we have introduced Family Leave for all permanent employees.
Under Family Leave, if Personal/Sick Leave has been used, employees can apply for Family Leave. Family Leave is
paid leave so employees can take time out to care for a family member or manage a family situation. The amount
of Family Leave an employee can take will be reviewed by Magellan management on a case by case basis.
At Magellan, culture is very important and the Company will continue to monitor retention rates. Under the equality
principles, we aim to understand the reasons for any resignations via exit interview data.
Diversity
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, religion, sexuality, physical ability or cultural background. The policy can be found
on our website: www.magellangroup.com.au.
96
In the 2019 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 direct reports to the CEO or Chairman) and 40% for the overall Group.
The current gender representation across the Group is shown below as at 30 June 2019.
Organisational gender diversity
0%
20% 40% 60% 80% 100%
Non-executive independent directors
20%
80%
KMP
40%
Senior management
Heads of divisions
2
36%
36%
Group
42%
Female Male
60%
64%
64%
58%
Total
(#)
5
5
11
14
125
In 2018, Magellan became a sponsor of Future IM/Pact, an industry initiative that seeks to promote diversity within
the investment management industry. As part of the initiative, a dedicated website has been established to outline
what is investment management, how to get started in the industry and current opportunities for industry internships,
graduate positions and networking events. The website is available at: http://www.future-impact.com.au/. Through
this initiative, Magellan hopes to promote careers in investment management to a diverse talent pool.
In 2019, Magellan completed its first Workplace Gender Equality Report. A copy of which can be found under the
Shareholder Centre on our website: www.magellangroup.com.au
Health and Safety
Magellan maintains a Work Health & Safety Policy which outlines the obligations and responsibilities of Magellan and
its employees with respect to compliance with the Work Health & Safety regulation.
We also undertake an annual Workplace Conduct training to ensure that all employees and the Board clearly
understand what is expected from them in terms of behaviour and conduct and that the workplace remains a safe
environment for all employees.
Magellan’s Workplace Conduct Policy details our approach in relation to harassment in the workplace, including
bullying, discrimination, sexual harassment, workplace violence and vilification, and provides procedures for dealing
with complaints.
Community
Magellan believes an active contribution to community is important. Magellan does not generally make corporate
donations as the Group believes it is appropriate 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 Bloomberg Square Mile
Ticket sales from Magellan’s Investor Evenings in October 2018 donated to REACH and Rural Aid.
_____________
(2) Heads of division refers to employees who are responsible for a division or function within the organization. This statistic includes Senior Management, excluding the
Chairman and CEO.
97
Magellan is also a participating fund manager in the Future Generation Global Investment Company. 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 can be donated to Australian non-profit organisations
committed to young Australians affected by mental health issues. In the 2019 financial year, this equated to
approximately $770,000 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 the time of the IPO of the Future Generation Global
Investment Company.
During the year, Magellan became a Core Fund Manager to Hearts & Minds Investments. Hearts & Minds Investments
is an ASX listed investment company and as a Core Fund Manager, Magellan provides Hearts & Minds Investments
with our top three security recommendations on a quarterly basis. Hearts & Minds Investments foregoes any
investment fees and instead makes a donation equal to 1.5% of net assets each year to certain charities.
98
MAGELLAN FINANCIAL GROUP LIMITED
CORPORATE INFORMATION
Directors
Brett Cairns – CEO
Hamish Douglass – Chairman and Chief Investment Officer
John Eales
Robert Fraser – Chairman of MAM
Paul Lewis
Hamish McLennan – Deputy Chairman
Karen Phin
Company Secretary
Marcia Venegas
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
Auditor
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
99
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 8 AUGUST 2019
Distribution of Shareholders
Analysis of the numbers of shareholders by size of holding at 8 August 2019 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
13,960
5,941
676
685
84
Number of
Ordinary
Shares
5,798,934
13,117,107
4,884,309
17,798,321
135,488,787
Percentage
of Shares
on Issue
%
3.27
7.41
2.76
10.05
76.51
21,346
177,087,458
100.00
Number of holders with less than a marketable
parcel of Ordinary Shares
153
251
Twenty Largest Shareholders
The names of the 20 largest shareholders of the Company as at 8 August 2019 are listed below:
Number of Ordinary
Shares
Holder Name
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Midas Touch Investments Pty Ltd
Magellan Equities Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Marsev Pty Limited
Nota Bene Investments Pty Ltd
BNP Paribas Noms Pty Ltd
Mr David Doyle
Emmanuel Capital Pty Ltd
Mr Brett William Fisher Paton & Mrs Vicki Anne Paton
Aljamat Pty Ltd
Jash Pty Limited
Merrill Lynch (Australia) Nominees Pty Limited
PAJ Lewis Superannuation Fund Pty Ltd
PAJ Lewis Pty Ltd
Netwealth Investments Limited
Mr Philip Alan Kenneth Naylor & Mrs Andrea Naylor
William D Forsyth III and Martha J Forsyth
26,996,731
21,235,124
21,001,577
16,888,949
10,264,894
3,482,271
2,699,724
1,561,497
1,512,991
1,500,000
1,500,000
1,368,762
1,310,000
1,130,331
899,205
750,000
750,000
745,365
700,000
689,067
Percentage
of Shares
on Issue
15.24
11.99
11.86
9.54
5.80
1.97
1.52
0.88
0.85
0.85
0.85
0.77
0.74
0.64
0.51
0.42
0.42
0.42
0.40
0.39
Total shares held by the 20 largest shareholders
116,986,488
66.06
Total ordinary shares on issue
177,087,458
100
MAGELLAN FINANCIAL GROUP LIMITED
SHAREHOLDER INFORMATION
AS AT 8 AUGUST 2019
Substantial Shareholders
The substantial shareholders in the Company’s Register of Substantial Shareholders at 8 August 2019 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 6 August 2019
(B) Date of the last substantial shareholder notice lodged on 22 November 2016
Number
of
Ordinary
Shares
22,212,727
18,615,610
Percentage
of Shares
on issue
%
12.54
10.51
Voting Rights
Subject to the Company Constitution:
a) at meetings of shareholders, each shareholder is entitled to vote in person, by proxy, by attorney or by
representative;
b) on a show of hands, each shareholder present in person, by proxy, by attorney or by representative is entitled
to one vote; and
c) on a poll, each shareholder present in person, by proxy, by attorney or by representative is entitled to one
vote for every share held by the shareholder.
In the case of joint holdings, only one joint holder may vote.
101