Navigator Global Investments Limited
ASX Appendix 4E
(ASX:NGI)
For the year ended 30 June 2018
Results for announcement to the market
(all comparisons to the year ended 30 June 2017)
Amounts in USD’000
30 June 2018
Revenue from ordinary activities
Up
14%
to
83,198
Earnings before interest, tax, depreciation, amortisation and impairment
Up
15%
to
34,212
Profit from ordinary activities after tax attributable to members1
Down
(174%)
to
(13,056)
Net profit for the period attributable to members1
Down
(174%)
to
(13,056)
1 Net profit for the period includes a US$35.5 million tax expense arising from the reduction in the carrying value of the Group’s deferred
tax assets due to the change in the US Federal Tax Rate on 1 January 2018.
Dividends
Final 2017 dividend per share (paid 1 September 2017)
Interim 2018 dividend per share (paid 9 March 2018)
The directors have determined an unfranked final dividend of United States (US) 9.0 cents
per share (with 100% conduit foreign income credits). The dividend dates are:
Amount per ordinary
share
Franked
%
USD 8.0 cents
USD 7.0 cents
0%
0%
Conduit
foreign
income %
100%
100%
Ex-dividend date:
Record date:
Payment date:
16 August 2018
17 August 2018
31 August 2018
NGI dividends are determined in US dollars. However, shareholders will receive their dividend in Australian dollars. Currency conversion will
be based on the foreign exchange rate on the record date of 17 August 2018.
Dividend Policy
The Company has set a policy of paying a dividend of 70% to 80% of the earnings before interest, depreciation, amortisation, impairment
expense and tax (EBITDA). Dividends will by unfranked, however may have conduit foreign income credits attached.
The payment of dividends will be subject to corporate, legal and regulatory considerations.
The above policy allows the NGI Group to retain a portion of cash generated from operating activities, and to therefore have funds available
to make additional investments into the Lighthouse Funds where such investments further the overall operating interests of the Group, or to
act on external investment and/or acquisition opportunities as and when they may arise.
A dividend reinvestment plan does not operate in respect to dividends of the Company.
Net tangible assets
Per ordinary share
30 June 2018
20 June 2017
USD 35.79 cents
USD 30.79 cents
Additional Appendix 4E requirements can be found in the Directors’ Report and the 30 June 2018 Financial Report and accompanying notes.
This report is based on the 30 June 2018 Financial Report (which includes consolidated financial statements audited by Ernst & Young).
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Annual Report 2018 | Directors’ Report
17
Navigator Global Investments Limited
and its controlled entities
ACN 101 585 737
(formerly HFA Holdings Limited)
Annual Report
30 June 2018
Annual Report 2018 | From the Chairman
1
Navigator Global Investments Limited
ACN 101 585 737
The Company changed its name from HFA Holdings Limited effective from 6 November 2017
Principal Office
Level 9, 39 Sherwood Road
Toowong QLD 4066
+61 7 3218 6200
www.navigatorglobal.com.au
Registered Office
Level 21
10 Eagle Street
Brisbane QLD 4000
Shareholder information and inquiries
All inquiries and correspondence regarding shareholdings should be directed
to the share registry provider:
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Locked Bag A14
Sydney South NSW 1235
1300 554 474
+61 2 8280 7111
www.linkmarketservices.com.au
Table of contents
5
6
2018 Highlights
From the Chairman & CEO
10 Operating and financial review
18 Directors’ report
32
Lead auditor’s independence declaration
34 Financial statements
72 Directors’ declaration
73
Independent auditor’s report
78 Shareholder information
Unless otherwise indicated, the numbers in this financial report have been presented in
US Dollars (USD)
Innovative Investment Solutions
A different approach. A passion to be better.
2018 Highlights
Closing assets under management (AUM)
Net investment flows
US$16.7 billion
Up 76% from 30 June 2017
US$6.7 billion
16.7
8.4
8.7
8.4
9.5
1.3
5.4
FY2014
FY2015
FY2016
FY2017
1 July 2018
FY2014
FY2015
FY2016
FY2017
FY2018
0.1
0.1
0.7
-0.2
Net operating revenue
US$79.8 million
Up 17% from FY2017
58.7
63.5
64.4
79.8
68.3
2018 financial year saw AUM close at
$16.7 billion,
a $7.2 billion increase on the prior year.
This was driven by a $1.8 billion increase
from the existing Lighthouse business,
as well as an additional $5.4 billion which
transitioned on 1 July 2018 from Mesirow
Advanced Strategies.
FY2014
FY2015
FY2016
FY2017
FY2018
EBITDA
Total dividends per share
US$34.2 million
Up 15% from FY2017
16.0 US cents
Up 14% from FY2017
27.6
28.8
29.5
29.8
34.2
16.0
14.0
12.0
10.5
8.0
FY2014
FY2015
FY2016
FY2017
FY2018
FY2014
FY2015
FY2016
FY2017
FY2018
Annual Report 2018 | 2018 Highlights
5
From the Chairman & CEO
A strong end to an
exceptional year
2018 has proven to be a transformative year for the Navigator Global Investments Limited
Group.
In recent years we have made investments in our distribution team, our investment team
and our information technology systems which has allowed us to continue to innovate and
evolve. This has paved the way for strong growth and performance in 2018, topped off
with a 48% increase in AUM from closing a transaction with Mesirow Financial. This is the
most significant growth of AUM that we have seen in the Group’s history, and as at 1 July
2018 the Group’s AUM stands at a record $16.72 billion.
Change of name
2018 saw us change our Company name to Navigator
Global Investments Limited. This name change was
overwhelmingly supported by shareholders, and we believe
has been well received by external stakeholders.
We chose this name so that it resonated with our existing
investment brand of Lighthouse Partners, and would have
relevance and flexibility in the future as we grow.
Acquisition of client assets from Mesirow Financial’s Multi-
Manager Hedge Fund Business
In early March 2018, the Group entered into an agreement to acquire substantially all of
the client assets of Mesirow Advanced Strategies (‘MAS’) the multi-manager hedge fund
division of Mesirow Financial. We were very pleased that this transaction closed on 1 July
2018 with the transition of $5.39 billion of assets under management to Lighthouse on that
date.
Aside from the purely financial benefits from such a substantial increase in assets under
management, we believe the transaction will also provide other benefits. The transitioned
assets are largely in credit and other lending strategies, and include some less liquid
strategies than our existing Lighthouse business. When combined with Lighthouse’s
proprietary managed account platform, we believe this has the opportunity to create a
unique offering which will benefit both our new and existing clients.
The transaction structure is somewhat unusual, in that there is no agreed component to the purchase price, and instead is wholly deferred and
contingent in nature. The contingent consideration that may be paid in the future will be determined under an earnout payment over seven
years, calculated as an agreed percentage of EBITDA generated by the transitioned assets. The structure reflects both parties’ commitment to
achieve the best outcomes for the transitioning clients, as well as our intentions to have a close relationship with Mesirow as a partner in the
future.
We’re also pleased to welcome many of the talented individuals from MAS, who bring with them an enormous amount of investment and client
knowledge. We are confident that they will mesh well with our Lighthouse culture.
We see this transaction as an important milestone for the Group. It creates further scale, expands our skill set and enhances our distribution
opportunities.
Growing global distribution
We have continued to see additional opportunities present themselves in geographical areas such as Japan and the Middle East, and we are
pleased to have delivered some key mandate wins from these regions over the year. We also raised additional assets in North America and
Europe, evidence that we have a well-rounded distribution team which is working successfully around the globe. We maintain our focus on
global distribution opportunities, and hope to gain access to even more market areas over the coming year.
The MAS transaction also brings us a significant number of new client relationships. We welcome the opportunity to work with so many new
clients, and we look forward to ensuring that they continue to receive a high level of service and support, as well as also illustrating the full
extent of our investment capabilities and services.
Annual Report 2018 | From the Chairman & CEO
6
From the Chairman & CEO
Investment performance
After the markets had a relatively quiet first half of the year, the second half of the 2018 financial year brought change to the investment
landscape. We see indications of frequent shifting of market sentiment as global expansion faced uncertainty in the form of trade tensions
turning into tariffs, inflation starting to rear its head, and coordinated global growth beginning to diverge. At the same time, some trends persist
as growth stocks continued to outperform value stocks with technology stocks leading the way, and small-capitalisation stocks dramatically
outperformed their large-cap counterparts broadly. How long these trends continue is open for question as we start to consume widely
divergent fiscal and monetary policies globally.
Long-term bond rates have fluctuated towards the end of this financial year as markets focused on the potential adverse impact that growing
trade tensions may have on the path of future global growth. Two U.S. Federal Reserve rate increases and indications that two more may follow
later this year have boosted the U.S. dollar and led to pressures on emerging markets. The European Central Bank has indicated that it will end
its bond buying program, although at a later date than initially thought, while the Bank of Japan has kept its existing monetary policy in place.
Consumer sentiment has varied considerably but weakened at the end of the year, which pushed U.S. gross domestic product projections down
even as the June 2018 quarter came in at 4.1%. Nevertheless, U.S. economic growth and corporate profitability remain strong even as Europe
and Asia show signs of slowing. In keeping with that contrast, U.S. equity markets were positive for the June 2018 quarter, driven by large-cap
technology names, while many markets in Asia and across the emerging markets were down significantly.
While predicting markets is extremely difficult, it is worthwhile to consider the range of possible outcomes from current levels. This year, the six-
month correlation of daily changes in the S&P and the 10-year Treasury yield, a formal measure of the strength of the relationship, is only 27%,
which is half the level of a year ago. We think it is quite possible that, at some point, we will see a market where economic cycles, equity
multiple compression, and the unwinding of global quantitative easing creates a scenario where both stocks and bonds actually lose money at
the same time. Our multi-strategy funds, built to maintain low correlation to both equity and bond markets, may prove quite beneficial if the
trusted diversification benefit between stocks and bonds breaks down.
Strategic investments
The Group holds investments in certain funds managed by Lighthouse. These investments are made and held for a variety of reasons,
including creating a more visible alignment of interests between Lighthouse and their clients, as well as providing seed money to commence a
performance track record for new products. Whilst we only added a modest $416,000 to these investments during this financial year, we expect
to invest several more million into the Lighthouse funds over the next few years in order to support strategic goals and operating requirements.
From time to time the Group also makes strategic investments in external entities. These usually take the form of small stakes in start-up
entities where we see innovation and knowledge which might help us further build our own skills, products or processes. We monitor the
progress of these entities closely, and while we see promise in the potential for success of these new businesses, we are aware that every new
business faces challenges and uncertainties in the early stages. We take this into consideration when assessing the value that these
investments should be held at on the balance sheet.
Unfortunately, not every decision can be a successful one. During 2017 we took a 40% equity stake in a start-up investment manager
specialising in the commodities space, and we provided funding for their operations over this time. Whilst we continue to believe in the talent
and skills of the principals, expected opportunities and mandates have not come to fruition, and hence the business model has not made
sufficient progress for us to continue our support. The business has spent the past several months rationalising operations, and we have
recorded an impairment loss of $1.9 million for the 2018 financial year.
FY18 operating performance
The Operating and Financial Review on pages 10 to 16 sets out detailed information on the Group’s activities for the 2018 financial year. We
take this opportunity to highlight a few key points:
Results from core operating activities
The core investment management operating activities of the Group earned $33.6 million for the 2018 financial year, up 10% on 2017.
Management and platform fee revenue growth came from Customised Solutions, as it is this part of the business which has achieved growth
over the past year. The Group also earned higher performance fee revenue this year, which is a result of a higher proportion of our AUM being
able to earn performance fees than has been the case historically, coupled with positive investment performance in the relevant portfolios
across the year.
The first half trend of higher operating expenses continued in the second half of the year, and overall costs were higher by $9.6 million
compared to 2017. The largest component of this relates to staff costs, and reflects the fact that we have grown our staff numbers to 90 people
as at 30 June 2018. We have also continued to spend to make ongoing enhancements to investment processes and technology platforms
across the business. We see positive opportunities to continue to expand our client base. Fundamental to this is ensuring we have skilled staff
who continue to deliver quality services to our clients, as well as encouraging ideas which lead to innovation and an evolution of our service
offerings.
Annual Report 2018 | From the Chairman & CEO
7
From the Chairman & CEO
5 year historical performance
The Board considers EBITDA to be the most relevant measure of the Company’s overall financial performance. Given the nature of our
operations, and taking into account timing differences arising from trade receivables and payables, EBTIDA is largely consistent with the cash
flows generated by operating activities. EBITDA for 2018 grew 15% on the prior year, and the Board is pleased that Navigator has also
delivered a corresponding increase in the dividend paid to shareholders. It has been very satisfying to see the Group achieve positive growth in
both dividends and share price over the past five financial years:
2014
2015
2016
2017
2018
EBITDA (USD 000’s)
Cash flows from operating activities (USD 000’s)
Dividends per share for the financial year (US cents)
27,6241
27,898
8.0
28,8392
28,193
10.5
29,4901
30,125
12.0
29,848
30,088
14.0
34,212
32,921
16.0
Dividend amount for the financial year (USD 000’s)
11,602
16,847
19,752
22,648
25,941
Dividend payout as a % of EBITDA
42%
58%
67%
76%
76%
Closing share price (dollars)
AUD 1.05
AUD 2.07
AUD 2.29
AUD 2.40
AUD 5.34
Change in share price (dollars)
AUD 0.15
AUD 1.02
AUD 0.22
AUD 0.11
AUD 2.94
1 Underlying earnings before interest, tax, depreciation and amortisation from continuing operations.
2 Underlying earnings before interest, tax, depreciation and amortisation from continuing operations, adjusted for the loss on settlement and conversion of convertible notes.
Dividends
The Directors have determined an unfranked dividend of
9.0 cents per share (with 100% conduit foreign income
credits) payable 31 August 2018. Added to the interim
dividend of 7.0 cents per share, this brings the total for the
year to 16.0 US cents per share, which is a 14% increase
on the prior year.
The FY2018 combined interim and final dividends equates
to a payout ratio of 76% of EBITDA.
The Directors are satisfied that the current capital
management policy of paying a dividend of between 70-
80% of EBITDA continues to strike the right balance
between rewarding shareholders and ensuring the Group
can retains sufficient resources to take advantage of any
growth opportunities which may arise.
Outlook
10.5
12.0
8.0
16.0
14.0
2014
2015
2016
2017
2018
The MAS transaction is certainly a milestone transaction. Our goal is to see the transitioned assets integrate seamlessly into the existing
Lighthouse business.
In the future we will be reporting to shareholders and the market on the new combined AUM base and operations. Whilst $5.39 billion is a
substantial increase, we have been cautious in pointing out in our announcements about the transaction that we believe there is likely to be a
somewhat heightened level of attrition of these transitioned assets in the short term. This should be taken into consideration when assessing
the longer term impact on revenue from the transitioned assets, as well as expectations for total Group AUM over the next one to two years.
We operate in a competitive global industry, competing not only with our direct peers for client assets but against the asset management sector
as a whole. One of the key competitive pressures is on management fee rates, and we have felt the effects of this in our business this year.
The Group’s overall average fee rate is likely to be impacted again next year with the change in proportional allocation of AUM between
Commingled Funds and Customised Solutions from 1 July 2018 as a result of the MAS transaction, as well as from potential growth in Platform
Service only client assets.
Annual Report 2018 | From the Chairman & CEO
8
From the Chairman & CEO
At Lighthouse, we believe our managed account platform provides a better model for investing in hedge funds, and that our approach,
infrastructure, and risk management system together provide us a structural advantage that is rare in the alternative asset management sector.
This belief has allowed us to build truly differentiated alternative asset portfolios with exclusive exposures, and it spurs our evolution.
We believe hedge funds, and more specifically portfolios focused on alpha-oriented managers with limited market and factor exposures, prove
their worth across a range of potential market outcomes. Our focus is to improve the efficiency by which our portfolios seek their objectives by
proactively finding the best mix of talent globally; improving access to research, data, and analysis; and reducing overall costs. We are focused
on those objectives across the firm and believe our managed account platform and risk analytics provides an excellent toolkit to achieve them.
We would like to extend the Board’s appreciation to all of our staff across the Group for their efforts in what has been a truly amazing year of
achievement. Every part of the business is fundamental in delivering quality investment management services for our clients, and for ensuring
that Lighthouse maintains a reputation for quality and integrity in the marketplace. We also consider ourselves fortunate to have employees
who find it a rewarding to push for ways to evolve and grow our business. One of our best assets is our organisational culture, and it is
ultimately this which drives future benefits for both our clients and shareholders.
We would also like to welcome all our new employees who come to us from MAS. We are confident that they will be valuable additions to our
team, and will be an integral part of future successes.
Michael Shepherd
Chairman
Sean McGould
Chief Executive Officer
Annual Report 2018 | From the Chairman & CEO
9
Operating and financial review
We deliver
innovative
investment solutions
centred around
alternative
investments to a
range of clients
around the world
Navigator Global Investments Limited is the ultimate parent entity of
Lighthouse Investment Partners, LLC (‘Lighthouse’).
Lighthouse is a global investment management firm which offers hedge fund solutions
to investors who are looking to diversify their asset mix and realize growth with a lower
correlation to traditional equity and fixed income allocations.
Lighthouse believes the most effective way to achieve diversification from traditional
markets is through exposure to intelligently designed and actively managed portfolios of
hedge fund strategies. Lighthouse’s overall objective is to create and deliver innovative
investment solutions that compound investor capital.
Lighthouse has offices in New York, Chicago, Palm Beach Gardens, London and Hong
Kong. As at 1 July 2018, Lighthouse is managing $16.7 billion of assets.
Lighthouse has an investor base that spans North America, Europe, the Asia-Pacific
and the Middle East. It includes high net worth individuals, family offices, endowments,
foundations, trusts, investment banks, benefit plans, pension funds, healthcare and
insurance companies.
Lighthouse managed accounts program
Entrepreneurial and innovative, Lighthouse has since its inception employed proprietary
managed accounts. We believe this has allowed us to build truly differentiated
alternative asset portfolios with idiosyncratic exposures, and it spurs our continuing
evolution.
Lighthouse invests in portfolios of actively managed hedge funds that seek to diversify
traditional market exposures. Our objective is to create and deliver innovative
investment solutions that safely compound investor capital.
Each managed account is typically owned by at least one Lighthouse fund and is
managed by Lighthouse. Hedge fund managers are authorised by Lighthouse to trade
the assets within each managed account. An Investment Advisory Agreement sets out
investment guidelines and parameters within which the hedge fund manager may
operate.
Lighthouse investors can place their assets in commingled funds or in customised
solutions. We now typically structure all our hedge fund allocations within our proprietary
managed account framework.
Commingled funds
Customised solutions
Lighthouse manages a number of multi-strategy and strategy-
focused funds. The funds utilise Lighthouse's proprietary
managed accounts which own and control the assets and
liabilities, and authorise external fund managers to trade the
assets within certain guidelines.
The two largest strategies for the commingled funds are:
Diversified – which is a multi-strategy, absolute return
strategy with low correlation and beta to traditional markets.
Global Long/Short – which is global long/short equity fund
seeking equity-like returns with lower volatility than traditional
global equity investments.
Customised solutions offers investors who are able to commit to a
significant investment size the ability to access the benefits of the
managed account structure in their own customised portfolio.
Lighthouse is able to work closely with large strategic investors to
customise their alternative investment exposure and meet specific
needs across middle office, risk monitoring and investment
advisory services. Investors can choose some or all of the
available services depending on their own requirements, and fees
are structured accordingly.
Lighthouse has a number of sizeable strategic clients, and
believes that customised client solutions will represent a significant
area of growth in the future.
Annual Report 2018 | Operating and financial review
10
Operating and financial review
The global asset management industry is a highly competitive space. Our focus is on the alternatives sector, and more specifically multi-
manager hedge funds solutions.
Our purpose is to protect and grow our investors’ assets, and we seek to achieve this through diversification from traditional markets with
exposure to intelligently and actively managed portfolios of hedge fund strategies.
Our core values, and the guiding force behind our business philosophy, are:
Our success depends on three key factors
M • We earn revenue from
U
A
managing assets on behalf of
our clients (which we refer to
as "Assets Under
Management" or "AUM").
s • The revenue we earn on our
e
AUM depends on the
t
a
management and
r
performance fees we are
entitled to charge for our
services.
e
e
F
We seek to attract and retain
AUM by offering quality
investment products and
services, and delivering
competitive performance and
features.
Our ability to do this can also
be impacted by external
factors such as global
markets and investor
sentiment.
Our commingled investment
products pay us management
and performance fees based
on disclosed rates, whilst our
institutional clients can
negotiate fees with us.
We operate in a highly
competitive market, and there
is pressure from investors to
negotiate lower fee rates
across the global investment
management industry.
l
e • Our success relies on
p
o
e
P
attracting and retaining
talented employees.
It is our employees who use
their skills and knowledge to
enable us to provide quality
investment products and
services, to innovate to meet
changing investor needs and
to respond to compliance
requirements in what is a
highly regulated industry.
To attract, motivate and
retain quality employees NGI
needs to offer competitive
compensation and incentive
packages.
Annual Report 2018 | Operating and financial review
11
Operating and financial review
Assets under management
Composition of AUM as at 30 June 20181
Total AUM - USD billions
16.7
8.4
8.7
8.4
9.5
June 2014
June 2015
June 2016
June 2017
1 July 2018
AUM has grown by $7.2 billion, or 76%, over the 12 months to 1
July 2018. A significant proportion of this growth is due to $5.4
billion of assets under management acquired in a transaction with
Mesirow Advanced Strategies (MAS) which closed on 1 July 2018.
67% of these transitioned assets are Customised Solutions clients.
The remaining increase for the year was due to $1.3 billion of net
inflows and $0.5 billion of positive investment performance.
The movements in Commingled Fund and Customised Solutions
due to net flows and the impact of investment performance over
the half year were as follows:
Commingle Funds AUM Movement
1.69
0.27
6.39
4.43
Endowments &
foundations, 9%
Other
institutions,
23%
Lighthouse
employees,
2%
Investor
Type
Individuals,
12%
Pensions, 54%
Americas,
73%
Investor
Geography
Asia-Pacific,
6%
Europe,
15%
Middle East,
6%
1
Composition is based on Lighthouse AUM as at 30 June 2018 and excludes
the AUM transitioned from MAS as at 1 July 2018
June 2017
Net Flows
Performance
1 July 2018
Customised Solutions AUM Movement
5.05
0.24
10.33
5.04
June 2017
Net Flows
Performance
1 July 2018
Notes on AUM:
Net flows includes monies received by Lighthouse for
applications effective 1 July 2018, and accordingly
excludes monies received by Lighthouse which were
effective 1 July 2017. This convention in relation to the
reporting of net flows and AUM has been consistently
applied by the NGI Group since January 2008.
Performance includes investment performance, market
movements, the impacts of foreign exchange on non-
USD denominated AUM and distributions (if any).
30 June 2018 and 1 July 2018 AUM is estimated and is
based on performance estimates which may be subject
to revision near the 20th business day of the month and
upon final audit. AUM excludes a non-discretionary long-
only managed account structured for a single investor.
AUM may include transfers from other Lighthouse Funds
that occurred on the first day of the following month.
Annual Report 2018 | Operating and financial review
12
Operating and financial review
Fee rates
People
Management fees
Employees by department
As a business, our success is strongly linked to the knowledge and
experience of our people. As at 30 June 2018 we have 90
employees across our various functional departments.
t
n
e
m
t
r
a
p
e
d
y
b
s
e
e
y
o
p
m
E
l
30
20
Investment
Distribution
Operations
Legal & Compliance
HR & Administration
Technology
Corporate
3
13
11
7
6
As part of the transaction with MAS, 56 former MAS staff accepted
offers of employment with Lighthouse. As at 1 July 2018 the
Group has a total of 146 employees, of which 46 are investment
professionals.
The average net management fee for the 2018 financial year was
0.70%pa.
The net management fee rate represents the blended net
management fee rate across all AUM. This decrease has been
largely driven by increases in AUM in Commingled Fund share
classes which have a lower management fee. In some cases, the
fee structure for these share classes allow Lighthouse to earn a
performance fee.
t
e
a
r
e
e
f
t
n
e
m
e
g
a
n
a
m
t
e
N
.
a
.
p
0.75%
0.74%
0.73%
0.71%
FY14
FY15
FY16
FY17
FY18
0.70%
Performance fees
Fees are a key consideration for investors, and there is pressure to
reduce fees across the broader asset management industry. We
engage with clients and potential clients to ensure that fees are
structured to provide an alignment of interests.
We have created share classes in our Commingled Funds to
provide more optionality for these investors to select a fee
structure which best suits their requirements.
Fee arrangements for Customised Solution clients are negotiated
individually. Whilst most arrangements involve only a
management fee, some clients also have a performance fee
component as part of their fee structure.
Portfolios within both Commingled Funds and Customised
Solutions which have the potential to earn a performance fee are
approximately 12% of AUM as at 30 June 2018 (2017: 12%). This
percentage can fluctuate within any given annual period. Due to
improved investment performance in relevant portfolios,
performance fee income for the 2018 year was $7.7m, up $6.1m or
388% on the prior year.
Annual Report 2018 | Operating and financial review
13
Operating and financial review
Summary of the Navigator Group FY18 result
EBITDA up 15%
Management and platform fee income
Performance fee income
Distribution costs
Net revenue
Other income
Operating expenses1
Result from operating activities1
Net finance income / (costs), excluding interest
Share of loss of equity accounted investee
Earnings before interest, tax, depreciation, amortisation and
impairment losses (EBITDA)
Net interest income
Depreciation and amortisation
Impairment losses
Profit before income tax
Income tax expense2
Net profit / (loss) after income tax
Basic EPS (cents per share)
Consolidated US$’000
2018
75,518
7,680
(3,413)
79,785
1,694
2017
71,157
1,574
(4,417)
68,314
494
(47,909)
(38,278)
33,570
1,020
(378)
30,530
(58)
(624)
34,212
29,848
216
(979)
(1,873)
31,576
(44,632)
(13,056)
(8.05)
59
(706)
(572)
28,629
(10,946)
17,683
10.91
% change
6%
388%
23%
17%
243%
(25%)
10%
1,859%
39%
15%
266%
(39%)
(227%)
10%
(308%)
(174%)
(174%)
1 Excludes net finance income / (costs) including interest, depreciation, amortisation, impairment losses and share of loss of equity accounted investee. These
items have been excluded so as to present the expenses and result arising from the Group’s core operating activities.
2 $35.5 million of the income tax expense relates to the restatement of the Group’s deferred tax assets due to the reduction in the US Federal income tax rate from
35% to 21%. Page 46 includes further information in relation to the income tax expense impact of this reduction.
The above presentation of the Group’s results is intended to provide a measure of the Group’s performance before the impact of expense items
such as depreciation, amortisation and impairment losses, and non-operating items such as net interest income. Net profit before and after
income tax reconciles to the consolidated income statement on page 35.
Management and platform fee income
Management and platform fee income of $75.518 million has
increased 6% on the prior year. This has been driven by:
a 16% increase in average AUM; offset by
a 7 basis point decrease in the average annual gross fee
rate from 0.80% to 0.73%.
The reduction in the average annual gross fee rate has been
driven primarily by changes to fee structures within Commingled
Funds. Whilst fee rates in relation to Commingled Funds have
historically been relatively stable, there was a 5 basis point
reduction in Commingled Fund fees this year. This was a result of
a number of factors, including:
the transfer of monies within Commingled Funds to a lower
fee class which also has a 10% performance fee; and
net AUM flows into Commingled Funds classes with lower
management fee rates.
In addition, the average fee rate earned in relation to Customised
Solutions has reduced in the 2nd half of FY18, even though on an
annual comparison basis the average fee rates for FY17 and FY18
are similar.
Overall, we have seen the impact of an increase in fee pressure
over this year, and consider there is potential for a further
reduction in the Group’s average fee rate. The average fee rate is
also likely to be impacted by the change in proportional allocation
of AUM between Commingled Funds and Customised Solutions
from 1 July 2018 as a result of the MAS transaction.
Annual Report 2018 | Operating and financial review
14
Operating and financial review
Performance fee income
The Group earns performance fees on selected Commingled
Funds and Customised Solutions portfolios. The fees represent an
agreed share of investment outperformance of a fund or portfolio
over a defined benchmark and/or high watermark, and may be
subject to hurdles.
Performance fee revenue for the year was $7.7 million, an
increase of $6.1 million on the previous financial year.
Approximately 65% of the performance fees have been earned
from Commingled Funds. Share classes have been introduced to
some Commingled Funds which have a fee structure that has a
lower management fee, but allows Lighthouse to earn a
performance fee. As noted above, whilst a transfer of AUM to
these fee classes has led to a reduction in the average
management fee rate for Commingled Funds, it has contributed to
the increase in performance fees this year.
AUM which has the potential to earn performance fees is
approximately 12% of total AUM as at 30 June 2018 (2017: 12%).
Performance fees are variable in nature, and it is difficult to
forecast how much, if any, performance fee revenue will be earned
by the Group in future periods.
Distribution costs
Distribution costs relate to third party distribution arrangements in
place for Lighthouse, whereby Lighthouse makes ongoing
payments to third parties in relation to clients they have introduced
to Lighthouse and who continue to be invested in Lighthouse
portfolios.
Distribution costs as a percentage of revenue was 4.5% (2017:
6.2%). This reduction is mainly due to a restructure of
arrangements with a third party distribution partner, whereby
distribution payments ceased in relation to relevant investor assets
which were reallocated to different share classes within the
Commingled Funds with a lower management fee.
Other income
Other income relates to rent, outgoings and operating costs
charged to portfolio managers who sublease office space in the
Group’s New York and London offices.
Lighthouse commenced occupancy of new larger premises in New
York in August 2017, and as a result sub-lease and expense on-
charging arrangements have increased since that time.
Operating expenses
Operating expenses increased by $9.7 million compared to the
prior year. The increase is primarily due to:
Employee costs
There was a $6.9 million (24%) increase in employee costs for the
Group as compared to the prior period. There are a number of
factors which has led to this increase:
an increase in headcount to 90 employees (2017: 80);
the increase in staff included the hire of an investment team
of 4 people in New York in July 2017 to establish the Inlet
Point brand;
an increase in bonus remuneration paid to Lighthouse staff
due to:
-
-
higher performance fee revenue, of which 50% is
allocated to the Lighthouse Incentive Bonus pool in
accordance with the Group’s remuneration policy; and
an additional amount approved at the Board’s discretion
for the 2017 calendar year to acknowledge the success
in asset raising efforts over that period.
Occupancy costs
The Group took occupancy of new office premises in New York in
August 2017, and as a result occupancy costs have increased by
$0.8m.
Professional fees
Professional fees for the year are $3.6 million. The $1.0 million
increase is driven by an increase in tax advisory fees, legal fees
for new client mandates and continued consulting spend in relation
to key investment functions and product development.
A portion of the tax advisory fees are on-charged to portfolio
managers, and this is included in other income.
Information and technology expenses
There has been a $0.4m or 33% increase in information and
technology expenses. This is due to increased IT support costs
associated with the New York and London premises, as well as a
new contract for data centre services, including infrastructure
support and disaster recovery / business continuity.
Share of loss of equity accounted investee and impairment
losses
The Group holds a 40% interest in a US based limited partnership
which commenced operations in July 2016. The Group has written
down the remaining balance of this interest, and no further share
of loss from the equity accounted investee will be incurred.
In addition, the Group has provided $1.7m of funding to the entity
which was classified as a non-current unsecured loan to an equity
accounted investee. Based on an assessment of the likely
prospects of the associate, both the equity investment and
unsecured loan have been written down to nil as at 30 June 2018.
This has resulted in an impairment loss of $1.9 million being
recognised.
Income tax expense
The US Tax Cuts and Jobs Act, (‘HR1’) was passed into law on 22
December 2017. One of the key provisions of HR1 is to reduce
the US Federal tax rate from 35% to 21% from 1 January 2018.
The application of this change in tax rate results in a reduction in
the carrying value of the Group’s deferred tax assets by $35.5
million, with a corresponding increase to income tax expense in
the income statement for this amount.
The HR1 has not impacted the gross value of the Group’s existing
tax losses available to off-set its current and future tax liabilities,
and it is not expected to impact the future timing of when the
Group uses all of its tax losses and transitions into a tax payable
position.
Excluding the impact of the reduction in the carrying value of the
Group’s deferred tax assets due to the change in the US Federal
tax rate, the Group has a non-cash accounting income tax
expense for the year of $9.1 million (2017: $10.9 million),
representing an effective tax rate for the year of 29.0%
(2017: 38.2%).
Annual Report 2018 | Operating and financial review
15
Operating and financial review
Financial position remains solid
Assets
Cash
Receivables
Investments
Intangible assets
Recognised deferred tax assets
Liabilities
Net tangible assets per share
Consolidated US$’000
2018
2017
38,212
14,628
16,459
95,078
61,878
16,271
35.79
33,153
11,230
14,455
95,423
106,302
12,234
27.41
Sources and uses of cash
Intangible assets
The Group primarily used cash generated from operating activities
during the six months to 31 December 2017 to pay dividends to
shareholders:
+ $32.9 million generated from operating activities
- $24.4 million paid to shareholders as dividends
- $1.9 million paid for leasehold improvements and
acquisition of equipment
- $1.7 million loaned to associate
Investments
The Group holds two key types of investments: investment in
Lighthouse funds and investment in external entities.
The Group may hold investments in Lighthouse funds for a
number of reasons, such as to meet regulatory commitments,
to meet the contractual requirement of a customised client
mandate, or to seed a new product which will be offered to
external investors in the future. During the period, the Group’s
holdings in Lighthouse funds increased by $1.4 million to
$10.8 million.
The Group also invests in a number of external entities. The
investments are each relatively small and strategic in nature,
and may provide interesting synergistic opportunities for
Lighthouse. The Directors consider that these investments
offer valuable insights into evolving market practices and
technologies within the financial services sector. The
combined fair value of these investments as at 30 June 2018
is $5.6 million (30 June 2017: $5.0 million).
Receivables
Receivables relates mainly to management and performance fees
which have not yet been paid as at 30 June 2018. The increase in
this balance compared to the prior year is mainly due to the
increase in performance fee revenue.
When the Company acquired Lighthouse in January 2008, it
recognised $499.5 million of goodwill in relation to the transaction.
An impairment loss of $405.7 million was recognised against the
goodwill balance in the 2009 financial year. The Company has
continued to carry a written-down goodwill balance of $93.8 million
since that time.
Deferred tax assets
The Group’s balance sheet includes a deferred tax asset of $61.8
million which is comprised of carried forward tax losses and
deductible temporary differences relating to the US tax
consolidated group.
The significant reduction in the deferred tax asset compared to 30
June 2017 is mainly due to the impact of HR1 and the resulting
reduction in the US Federal corporate tax rate from 35% to 21%.
It is not expected that the Group will be in a tax payable position
for a number of years other than in relation to some relatively
nominal US state-based taxes.
Liabilities
The Group’s liabilities as at 30 June 2018 comprise trade and
other payables, and provisions for employee benefits. The Group
does not have any loans or borrowings as at reporting date.
On 27 July 2018 the Group entered into a $15 million line of credit
arrangement. The facility has been put in place to provide the
Group with access to funding if considered necessary. This
arrangement is undrawn.
Annual Report 2018 | Operating and financial review
16
Annual Report 2018 | Directors’ Report
17
Directors’ report
The Directors
present their report
together with the
financial statements
of the Group
comprising Navigator
Global Investments
Limited (‘Navigator’
or ‘the Company’)
and its subsidiaries
for the year ended
30 June 2018 and
the auditor’s report
thereon.
The Directors of the Company at
any time during or since the end of
the financial year are:
Michael Shepherd, AO
Fernando (Andy) Esteban
Chairman and Independent Non-
Executive Director
Independent Non-Executive Director
Appointed 16 December 2009
Appointed 18 June 2008
Chairman of the Remuneration and
Nominations Committee
Chairman of the Audit and Risk
Committee
Member of the Audit and Risk
Committee
Member of the Remuneration and
Nominations Committee
Michael has extensive experience in
financial markets and the financial
services industry having held a range of
senior positions including Vice Chairman
of ASX Limited, and directorships of
several of ASX’s subsidiaries including
Australian Clearing House Pty Ltd.
Currently, Michael is Chairman of the
Shepherd Foundation, an independent
director of Investsmart Group Limited, and
is an independent Compliance Committee
Member for UBS Global Asset
Management (Australia) Limited. Michael
is also a Senior Fellow (SF Fin), Life
Member and past President of the
Financial Services Institute of Australasia
and a Member of the Australian Institute of
Company Directors.
Andy holds a Bachelor of Business
majoring in Accounting, is a CPA and a
Member of the Australian Institute of
Company Directors.
He has over 35 years’ experience in the
financial services industry, of which 21
years were with Perpetual Trustees
Australia Ltd. In 1999 he established FP
Esteban and Associates, a private
business specialising in implementing and
monitoring risk management and
compliance frameworks in the financial
services industry.
He has provided consulting services to a
number of domestic and global
organisations in Australia and South East
Asia. From July 2005 until June 2008 he
was an independent director of Credit
Suisse Asset Management (Australia) Ltd.
Annual Report 2018 | Directors’ Report
18
Directors’ report
Andrew Bluhm
Randall Yanker
Sean McGould
Non-Executive Director
Independent Non-Executive Director
Executive Director and
Chief Executive Officer
Appointed 17 October 2012
Appointed 14 October 2014
Appointed 3 January 2008
Member of the Audit and Risk
Committee
Member of the Remuneration and
Nominations Committee
Andrew is the founder and principal of
Chicago-based DSC Advisors, LP (DSC),
which is the investment manager of
Delaware Street Capital Master Fund,
LP. Delaware Street Capital Master Fund,
LP holds a substantial shareholding in
NGI.
DSC invests in a wide array of companies
and industries seeking to identify and
acquire undervalued securities and sell-
short overvalued securities.
Prior to forming DSC, he was a founder
and Principal of Walton Street Capital,
LLC, and prior thereto worked as a Vice
President at JMB Realty Corporation and
as an Associate at Goldman Sachs.
Randall has extensive experience in the
investment management industry, and in
particular hedge funds. He co-founded
Alternative Asset Managers, L.P. (‘AAM’)
in 2004, which is a private investment firm
with primary focus on making strategic
investments in the asset management
sector.
Prior to AAM, Randall was responsible for
establishing multi-billion dollar global
alternative investment and hedge fund
platforms as CEO of Lehman Brothers
Alternative Investment Management, and
before that as a Managing Director of
Swiss Bank Corp.
He is a graduate of Harvard College
(1983) with a degree in Economics, and
serves on the board and is a Trustee of
The New School University, a Trustee of
SEI Advisors’ Inner Circle Fund III, and
Advisory Board member of HF2 Financial
Management.
Sean is the co-founder of Lighthouse and
has served as its Chief Executive Officer,
President and Co-Chief Investment Officer
since inception.
He supports the investment team in the
manager search, selection and review
process and is the Chairman of the
Investment Committee. Sean has been
overseeing all aspects of the portfolios
since August 1996.
For more than 20 years, Sean has been
investing in various alternative investment
strategies. Prior to founding Lighthouse,
Sean was the director of the Outside
Trader Investment Program at Trout
Trading Management Company and was
responsible for the allocation of the fund’s
assets to external alternative asset
strategies. Prior to Trout, Sean worked for
Price Waterhouse and passed the
Certified Public Accountant examination.
Annual Report 2018 | Directors’ Report
19
Directors’ report
Board and Committee meetings
Change of Company name
The agenda for meetings is prepared by the Company Secretary in
consultation with the Chairman and Chief Executive Officer, and is
set to ensure adequate coverage of strategic, financial,
governance and compliance matters.
Board papers are circulated in advance of the meetings. Senior
executives are invited to attend board meetings, however the
directors may have closed sessions without executive involvement
during meetings at their discretion.
The number of meetings of the Company’s board of directors and
of each board committee held during the year ended 30 June
2018, and number of meetings attended by each director were:
The Company changed its name from HFA Holdings Limited
(ASX:HFA) to Navigator Global Investments Limited (ASX:NGI)
effective from 6 November 2017.
Principal activities
The principal activity of the Group during the course of the financial
year was the provision of investment management products and
services to investors globally through wholly-owned subsidiary
Lighthouse Investment Partners, LLC.
Board
Audit & Risk
Remuneration
Meetings
Committee
& Nominations
Operating and financial review
Director
Michael Shepherd
Fernando Esteban
Andy Bluhm
Randall Yanker
Sean McGould
A
9
9
9
9
9
B
9
8
8
9
9
A
3
3
3
-
-
Committee
B
3
3
3
-
-
A
2
2
-
2
-
B
2
2
-
1
-
A – Eligible to attend
B - Attended
Company secretary
Ms Amber Stoney BCom (Hons) CA holds the position of company
secretary. Amber has held this position for most of her tenure at
NGI, specifically for the periods 15 March 2007 to 20 November
2008, 18 July 2011 to 9 May 2016 and from 27 June 2016. Amber
also holds the position of Chief Financial Officer of NGI. Prior to
joining the Company in 2003, Amber was a senior manager at
KPMG, specialising in the funds management industry.
Corporate governance
The NGI Group recognises the value of good corporate
governance. The board believes that effective governance
processes and procedures add to the performance of the HFA
Group and engenders the confidence of the investment
community.
The Company has adopted Listing Rule 4.10.3 which allows
companies to publish their corporate governance statement on
their website rather than in their annual report. The directors have
reviewed the statement, and a copy of the statement, along with
any related disclosures, is available at:
http://www.navigatorglobal.com.au/site/about/corporate-
governance
Information on the operations and financial position of the Group
and its business strategies and prospects is included in this annual
financial report on pages 10 to 16.
Dividends
The directors have determined an unfranked dividend of United
States (US) 9.0 cents per share (with 100% conduit foreign income
credits). The dividend will be paid on 31 August 2018.
The aggregate amount of the proposed dividend will be paid out of
the balance of the parent entity profits reserve as at 30 June 2018.
Declared and paid
during the year
ended 30 June
2018
Cents
per
share
Final 2017
ordinary
Interim 2018
ordinary
Total amount
8.0
7.0
Total amount
USD’000
Date of payment
13,042
1 September 2017
11,348
9 March 2018
24,390
Together with the unfranked interim dividend of USD 7.0 cents per
share paid to shareholders on 9 March 2018, the total dividend to
be paid in relation to the year ended 30 June 2018 will be USD
16.0 cents per share.
Significant changes in state of affairs
In the opinion of the directors there were no significant changes in
the state of affairs of the Group that occurred during the financial
year not otherwise disclosed in this financial report.
Likely developments and expected results
Further information on likely developments in the operations of the
Group and the expected results of operations have been included
in this annual financial report on pages 10 to 16.
Annual Report 2018 | Directors’ Report
20
Directors’ Report
Events subsequent to end of financial year
Directors’ interests
The relevant interest of each director in the shares issued by the
Company at the date of this report is as follows:
Director
Ordinary
Notes
shares
Michael
Shepherd
Fernando
Esteban
Andy
Bluhm
125,000
125,000 shares are held
indirectly by Tidala Pty Ltd
as Trustee for the Shepherd
Provident Fund
27,000
27,000 shares are held
indirectly by FJE
Superannuation Fund
26,101,982
26,101,982 shares are held
indirectly by Delaware
Street Capital Master Fund,
LP (DSC). Mr Bluhm is the
founder and principal of
DSC Advisors, LP, which is
the investment manager of
DSC
Sean
McGould
19,438,084
19,436,084 shares are held
indirectly by SGM Holdings,
LLC
Mesirow Advanced Strategies
On 1 July 2018 the Group’s United States subsidiary, Lighthouse
Investment Partners, LLC (‘Lighthouse’) completed an agreement
with Mesirow Financial (‘Mesirow’) under which it acquired the right
to manage $5.39 billion of client assets from Mesirow Advanced
Strategies (‘MAS’), the multi-manager hedge fund division of
Mesirow (‘the transitioned assets’).
Under the transaction, Lighthouse acquired the contractual rights
to act as investment manager of these assets, along with some
related de minimus intellectual property, tangible property and
prepayments. As part of the transaction, Lighthouse also made
employment offers to 56 of the MAS staff, and these staff
commenced as Lighthouse employees on 1 July 2018.
The Group did not acquire any equity interests in Mesirow as part
of the transaction.
The purchase consideration is a contingent consideration
arrangement. Under the agreement, there is no upfront
consideration at acquisition date, other than reimbursement in
cash of an immaterial amount for transferred prepaid operating
expenses.
The transaction does not require an issue of equity by the
Company or for the Company to obtain debt funding.
The contingent consideration that may be paid in the future will be
determined under an earnout payment over seven years,
calculated as an agreed percentage of EBITDA generated by the
transitioned assets above a floor amount. Significant assumptions
must be made in estimating the contingent consideration, including
but not limited to, the retention level of the assets over the full
earnout period and the operating expenses required to support
these assets.
The Group is still in the process of assessing the fair values of the
acquired assets and assumed liabilities in relation to the
transaction. As a result, as at the date of this report the Group is
not in a position to determine and disclose:
the fair value of assets acquired as at acquisition date;
the amount of any goodwill or gain from a bargain
purchase which may arise on the transaction; or
the revenue and profit or loss of the combined entity for
the reporting period ending 30 June 2018 as though the
acquisition had occurred as at 1 July 2017.
As at 30 June 2018, approximately $1 million of acquisition costs
has been incurred in relation to the transaction.
Line of Credit arrangement
On 27 July 2018 the Group entered into a $15 million line of credit
arrangement. The facility has been put in place to provide the
Group with access to funding if considered necessary. This
arrangement is undrawn.
There has not arisen in the interval between the end of the
reporting period and the date of this report, any other item,
transaction or event of a material nature, likely to affect
significantly the operations of the Group, the results of those
operations, or the state of affairs of the Group, in future financial
years.
Annual Report 2018 | Directors’ Report
21
Directors’ report
Remuneration report (audited)
This Remuneration
Report for the
Company and its
controlled entities for
the year ended
30 June 2018 forms
part of the Directors’
Report and is audited
in accordance with
section 300A of the
Corporations Act
2001.
Contents
Overview of remuneration policy and structure
Relationship between remuneration policy and company performance
Variable compensation arrangements for the 2018 financial year
Non-executive director remuneration
Key management personnel remuneration disclosures
23
25
26
27
28
Reporting in United States dollars
In this report the remuneration and benefits reported have been presented in US dollars
(‘USD’). This is consistent with the functional and presentation currency of the Company.
Where compensation for Australian-based employees is paid in Australian dollars, it is
converted to USD for reporting purposes based on either specific transaction exchange
rates, or the average exchange rate for the payment period as appropriate. The Australian
dollar based compensation paid during the year ended 30 June 2018 was converted to USD
at an average exchange rate of AUD/USD 0.7734 (2017: AUD/USD 0.7564).
The Remuneration Report outlines the remuneration arrangements for the Group’s key management personnel (‘KMP’). KMP are those
persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the activities of the Group.
The KMP during FY18 were:
Name
Non-Executive Directors
Michael Shepherd
Chairman and Non-Executive Director
Fernando Esteban
Non-Executive Director
Andy Bluhm
Non-Executive Director
Randall Yanker
Non-Executive Director
Executive Director
Sean McGould
Executives
Group Chief Executive Officer and President & Co-Chief Investment Officer, Lighthouse
Investment Partners, LLC
Kelly Perkins
Co-Chief Investment Officer, Lighthouse Investment Partners, LLC
Scott Perkins
Executive Managing Director, Lighthouse Investment Partners, LLC
Rob Swan
Chief Operating Officer, Lighthouse Investment Partners, LLC
Amber Stoney
Chief Financial Officer and Company Secretary, Navigator Global Investments Limited
Annual Report 2018 | Directors’ Report
Term as KMP
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
22
Operations are based in the United States
NGI is an Australian company listed on the Australian Securities
Exchange, however its Group operations are predominantly based
in the United States. The Board is cognisant that remuneration
arrangements in place must meet the standards and benchmarks
applicable to the United States funds management industry in
order to:
attract and retain high quality staff.; and
operate efficiently in the jurisdictions where our staff are
based.
These standards and benchmarks may diverge from arrangements
which would be considered industry practice within Australia.
Directors’ report
Remuneration report (audited)
Overview of remuneration policy and
structure
The overall objectives of the Group’s remuneration policies
are to:
support the business strategy of the Group by
attracting, retaining and rewarding quality executives
and staff;
encourage appropriate performance and results to
uphold client and shareholder interests;
properly reflect each individual’s duties and
responsibilities.
Embedding a culture that rewards performance whilst
maintaining integrity, reputation and mitigating risk.
The NGI Group’s approach to setting remuneration is influenced by
the following key factors:
Simplicity
The Board believes that having a simple, direct metric for setting
annual variable remuneration provides an incentive structure that is
easily understandable to both staff and shareholders. An increase
in operating results and cash flows therefore correlates into both an
increase in the available bonus pool for Lighthouse staff and a
higher dividend payment for shareholders.
This simplicity also translates into the Board and the CEO being
able to exercise discretion in allocating bonuses to individuals
based on their performance and contribution, and the overall
performance of the Group. Whilst individual results are important,
we also encourage a culture which is able to reward effort and
commitment.
The Board believes the current arrangements are consistent with
common industry practice in the United States, and allow the
employees to focus on achieving results for clients, which is
ultimately in the long-term interests of shareholders.
Variable remuneration is the major component of
remuneration
The remuneration arrangements in place for Lighthouse are
structured around setting a relatively low fixed remuneration
amount, and having the opportunity to earn variable remuneration
as a major component of overall remuneration. The Board
believes this provides a dynamic basis to be able to easily adjust
the Group’s total remuneration expenses, and is also consistent
with US industry practice.
This approach to remuneration has been in place at Lighthouse
since prior to its acquisition in January 2008. The Lighthouse KMP
have each earned a $250,000 base salary since that time, and this
has not been increased in over 10 years. In addition, select
Lighthouse KMP have had bonus entitlements specified in their
employment contracts since Lighthouse joined the NGI Group, and
these contractual arrangements remain in place (see page 29 for
additional details).
Annual Report 2018 | Directors’ Report
23
Directors’ report
Remuneration report (audited)
Remuneration structure
The remuneration of staff across the Group, including our senior
executives, is comprised of three elements:
Fixed remuneration
Variable remuneration
Non monetary benefits
Base salary, as well as leave entitlements and employer
contributions to superannuation and retirement plans. Lighthouse
employees are entitled to additional benefits that include
educational assistance, adoption assistance and health care
benefits.
Fixed remuneration is determined by reference to benchmark
information where available, and having regard to responsibilities,
performance, qualifications and experience. For senior Lighthouse
employees, it is also determined in accordance with the general
principle that fixed remuneration is the smaller component of their
overall compensation package.
Fixed remuneration is reviewed at least annually, or on promotion,
to ensure that it is competitive and reasonable. There are no
guaranteed increases to the fixed remuneration amount.
The amount of fixed remuneration is not dependent on the
satisfaction of a performance condition, or the performance of the
Group or business unit, the Company's share price, or dividends
paid by the Company.
The variable component of senior executives’ remuneration is
comprised of potential participation in a bonus pool and ability to
participate in equity incentive schemes when made available.
The Board believes that short-term incentive arrangements should
motivate senior executives and other staff to create wealth for both
the Company's shareholders and our investment clients. The
Group seeks to recognise the contributions and achievements of
individuals towards these goals.
Individual performance appraisals are conducted at least annually
for all employees, including senior executives, as part of the annual
remuneration review process. These performance appraisals assist
the Board and CEO to make appropriate remuneration decisions,
particularly in relation to short-term incentives. The Board and CEO
exercise their discretion when determining the amount of short-term
incentive compensation awarded to an individual employee.
Lighthouse employees are able to make investments into
Lighthouse managed funds without incurring a management fee.
There is no incremental cost incurred by the Group in providing fee-
free investment management services via the Lighthouse funds to
employees. Having employees invest their own assets into
Lighthouse managed funds is viewed positively by clients and
potential clients as it demonstrates an alignment of interest between
the Lighthouse employee and future investment results for clients.
Nil fee arrangements for employees is common practice in the
United States asset management industry.
Annual Report 2018 | Directors’ Report
24
Directors’ report
Remuneration report (audited)
As outlined in the discussion of the remuneration policy above, the
Group’s remuneration is structured so that variable remuneration is
a significant component of remuneration packages, and makes up
the majority of overall remuneration for Lighthouse senior
executives. For the 2018 financial year, the proportion of fixed
remuneration as compared to performance linked remuneration
across the Group was as follows:
Fixed Remuneration
Variable Remuneration
Chief Executive Officer
25%
75%
Relationship between remuneration policy
and company performance
In designing the remuneration policy and structure, the Board has
had regard to what it considers to be the key measure of the
profitability of the Company: earnings before interest, tax,
depreciation, amortisation, and impairment losses from continuing
operations (EBITDA).
As an asset management business, the Group’s EBITDA is largely
consistent with the cash flow which it generates from its operating
activities, and which is available to pay dividends to shareholders.
Chief Financial Officer
91%
9%
It is for this reason that NGI’s dividend policy has been set as a
pay-out ratio based on EBITDA.
The following table shows how cash bonuses paid to KMP compares
to EBITDA and cash flows from operating activities over the past 5
years:
USD’000
2018
2017
2016
2015
2014
EBITDA
34,212
29,848
29,4901
28,8392
27,6241
Cash flows from
operating activities
Dividends paid during
the financial year
Closing share price
(AUD dollars)
Change in share price
(AUD dollars)
32,921
30,088
30,125
28,193
27,898
24,390
21,023
17,222
15,965
8,033
5.34
2.40
2.29
2.07
1.05
2.94
0.11
0.22
1.02
0.15
KMP cash bonus
3,967
3,293
3,858
3,185
3,194
KMP bonus as a % of
EBITDA
KMP bonus as a % of
dividends paid during
the financial year
12%
11%
13%
11%
12%
16%
16%
22%
20%
40%
1 Underlying earnings before interest, tax, depreciation, amortisation from continuing
operations.
2 Underlying earnings before interest, tax, depreciation and amortisation from continuing
operations, adjusted for the loss on settlement and conversion of convertible notes.
Other executive KMP
22%
78%
All other staff
52%
48%
Short-term incentive arrangements
The Board has established a simple, direct correlation between
rewarding staff and delivering value to shareholders through
company performance and cash flow. The two metrics driving
variable remuneration are:
Company performance metric
Basis of variable
Lighthouse EBITDA
(excluding performance fees,
before bonuses and adjusted for
other specified items)
Performance fees
remuneration
30% allocated to Lighthouse
general bonus pool
50% allocated to Lighthouse
incentive fee bonus pool
The Board retains the discretion to vary the final amounts approved
after calculation based on the above metrics, to ensure that they
can also factor in extenuating circumstances, such as exceptional
results in asset raising or investment results, or a negative change
in macro-economic conditions.
Long term incentive arrangements
The Group does not currently have any equity incentive schemes or
other long-term incentive arrangements in place.
The Group’s senior executives hold significant shareholdings in the
Company due to historical transactions and employee incentive
plans. As at 30 June 2018, the CEO owns 12.0% (30 June 2017:
12.0%) of the Company’s shares on issue, and other Lighthouse
executives also hold a meaningful number of shares (as disclosed
on page 30).
The Board acknowledges that an equity incentive scheme is a
common component of corporate remuneration structures. Due to
the already significant level of senior executive shareholdings, the
Board considers that there is a clear alignment of interest to
incentivise them to deliver long term growth for the benefit of all
shareholders. The Board will continue to review equity incentive
schemes going forward as a means to continue to align
management and shareholders.
Annual Report 2018 | Directors’ Report
25
Directors’ report
Remuneration report (audited)
Variable compensation arrangements for the
2018 financial year
The particular arrangements which relate to variable remuneration
for the Group as at 30 June 2018 are:
Lighthouse
General pool
All Lighthouse staff, including Lighthouse executives, are eligible to
participate in the Lighthouse general bonus pool, the amount of
which is calculated as 30% of Lighthouse’s EBITDA (before the
bonus pools and excluding performance fee revenue and adjusted
for other specified items).
Allocation of the Lighthouse general bonus pool to staff (other
than as noted below) is determined by the CEO in accordance
with remuneration structure and guidelines established by the
Remuneration and Nominations Committee.
No individual bonus can be greater than 10% of the
Lighthouse general bonus pool without board approval.
A bonus for the CEO is determined and approved by the board
based on an assessment of his performance for the previous
calendar year. This bonus amount forms part of the overall
Lighthouse general bonus pool.
In accordance with their service agreements, Kelly Perkins
and Rob Swan are entitled to semi-annual compensation
calculated as 1.25% and 1.00% respectively of the gross
revenue of Lighthouse Investment Partners, LLC. This is paid
on a semi-annual basis, and forms part of the Lighthouse
general bonus pool.
Due to particularly strong net inflow results for the 2017 calendar
year, the Board exercised its discretion to increase the Lighthouse
general bonus pool by $459,000.
Incentive fee pool
Senior members of the Lighthouse investment team are eligible to
participate in a bonus pool determined as 50% of performance fee
revenue earned by the Lighthouse business from its Commingled
Funds and Customised Solutions portfolios.
This pool is allocated at the discretion of the CEO based on his
assessment of the contribution of each eligible staff member to the
creation of the performance fee revenue. These staff members
may still also receive an allocation from the general bonus pool.
CEO remuneration arrangements
The board considers that Mr McGould is performing two distinct
roles. He is both:
Chief Executive Officer of the NGI Group; and
Co-Chief Investment Officer of Lighthouse.
The Board considers that Mr McGould’s remuneration needs to
take into account both of these roles, and that it should also be
structured so that it is consistent with remuneration principles
which operate in the United States alternative asset management
industry. In particular, this means that Mr McGould’s remuneration
is substantially weighted towards variable remuneration.
Mr McGould has a base salary of $250,000, which has remained
unchanged since the Company acquired the Lighthouse business
in 2008. Mr McGould is also entitled to receive health care
benefits and retirement benefits.
The Board has not set specific key performance indicators (KPIs)
for the CEO. Instead, the Board awards the Mr McGould a
discretionary bonus amount at the end of each calendar year,
taking into account the following factors:
investment results achieved for clients, assessed in
comparison to peers;
achievement of board-approved budgets and targets, strategic
goals, capital and business restructuring and development of
new business opportunities;
growth in AUM, through both net investment flows and
investment performance of Lighthouse portfolios;
Group financial results and dividends paid to shareholders;
Given Mr McGould’s low base salary, his variable remuneration is
not capped as a % of base salary, as is commonly the case in
Australia. Instead, the CEO’s bonus is capped at a maximum of
10% of the Lighthouse general bonus pool. In practice, this means
that Mr McGould’s variable remuneration is constrained by the
profitability of the Group’s operating business unit.
Corporate
A discretionary bonus pool of A$60,000 has been allocated for staff
who directly contribute to the operation of the listed parent
company, namely staff involved in finance and company secretarial
functions in Australia. The Remuneration and Nominations
Committee recommends a bonus amount for the Chief Financial
Officer, which is allocated from the Corporate bonus pool.
Annual Report 2018 | Directors’ Report
26
Directors’ report
Remuneration report (audited)
Non-executive director remuneration
Non-executive directors may receive director fees. The
Company’s policy is to remunerate non-executive directors at
market rates for comparable companies having regard to the time
commitments and responsibilities assumed. The aggregate of non-
executive director fees is capped at a maximum of $750,000 per
annum (including superannuation), as approved by shareholders
at the AGM held on 20 November 2014.
Current fees paid to non-executive directors are USD:
Chairman
Non-executive directors
USD 150,000 per annum (plus
superannuation)
USD 80,000 per annum (plus
superannuation)
Actual remuneration for non-executive directors for the financial
year ended 30 June 2018 was $331,850 (2017: $331,850).
A Bluhm has elected not to receive remuneration from the
Company for his role as a non-executive director.
Non-executive directors’ fees cover all main board activities and
membership of any committee. Executive and non-executive
directors may be reimbursed for reasonable expenses properly
incurred in their role as a director. Non-executive directors are not
entitled to participate in executive remuneration schemes, may not
receive performance-linked equity or bonus payments, and are not
provided with retirement benefits other than statutory
superannuation entitlements. Non-executive directors are not
entitled to any benefits or payments on retirement from office.
Annual Report 2018 | Directors’ Report
27
Directors’ report
Remuneration report (audited)
Key management personnel remuneration disclosures
Directors’ and executive officers’ remuneration
The following remuneration was paid to KMPs:
Benefit Category
Short-term
Post-
employment
Other long-
term
Total
Cash salary &
fees
Cash bonus
Other1
Pension &
superannuation
Long service
leave
$
$
$
$
$
$
Non-Executive Directors
Michael Shepherd
Fernando Esteban
Randall Yanker
Executive Director
Sean McGould
Executives
Kelly Perkins
Scott Perkins
Rob Swan
Amber Stoney
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
150,000
150,000
80,000
80,000
80,000
80,000
250,000
250,000
-
-
-
-
-
-
850,000
700,000
250,000
1,175,000
250,000
1,025,000
250,000
1,000,000
250,000
250,000
250,000
208,488
230,395
775,000
920,000
770,000
22,173
23,076
1,518,488
3,967,173
1,540,395
3,293,076
-
-
-
-
-
-
19,533
18,432
19,533
18,432
19,533
18,432
19,533
18,434
-
-
78,132
73,730
14,250
14,250
7,600
7,600
-
-
7,500
23,700
16,500
25,850
16,500
23,700
16,500
24,600
15,569
14,849
94,419
-
-
-
-
-
-
-
-
-
-
-
-
164,250
164,250
87,600
87,600
80,000
80,000
1,127,033
992,132
1,461,033
1,319,282
1,286,033
1,067,132
1,206,033
1,063,034
3,6162
249,846
13,6212
281,941
3,616
5,661,828
134,549
13,621
5,055,371
1 Other short term fixed remuneration amounts relate to health care benefits paid on behalf of Lighthouse staff.
2 Reflects the allocation of long service provision movements into the appropriate financial year.
Annual Report 2018 | Directors’ Report
28
Directors’ report
Remuneration report (audited)
Analysis of cash bonuses included in remuneration
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to key management personnel of the Group in
the current reporting period are detailed below:
Included in
remuneration
Proportion of
remuneration which is
performance based
% Vested in year
% Forfeited in year
Sean McGould
Kelly Perkins
Scott Perkins
Rob Swan
Amber Stoney
$850,000
$1,175,000
$1,000,000
$920,000
$22,173
75%
80%
78%
76%
9%
100% 1
100% 2
100% 3
100% 2
100% 4
0%
0%
0%
0%
0%
1 Sean McGould’s cash bonus is paid annually on a calendar year basis. The 2018 bonus included above relates to the amount paid for the 12 months ended
31 December 2017. Mr McGould’s discretionary bonus for the six month period ended 30 June 2018 has not yet been determined.
2 As per their service agreements, Kelly Perkins and Rob Swan are entitled to semi-annual compensation calculated as 1.25% and 1.00% respectively of the
gross revenue of Lighthouse Investment Partners, LLC. No amounts vest in future financial years in respect of the financial year ended 30 June 2018. These
arrangements have been in place since the acquisition of Lighthouse in 2008.
3 Scott Perkins’ cash bonus is paid annually on a calendar year basis. The 2018 bonus included above relates to the amount paid for the 12 months ended
31 December 2017. Mr Perkins’ discretionary bonus relating to the six month period ended 30 June 2018 and has not yet been determined.
4 The short-term incentive plan for Amber Stoney is discretionary and no amounts vest in future financial years in respect of the financial year ended 30 June
2018. Per her revised remuneration arrangements effective from 1 July 2016, Ms Stoney’s short term incentive cash bonus is capped at 10% of her combined
annual base salary and superannuation.
Contractual arrangements
The Group has entered into service agreements with each
member of key management personnel, excluding non-executive
directors. These agreements specify the duties and obligations to
be fulfilled.
After such termination other than for Good Cause Termination, a
payment of $1,000,000 multiplied by the number of days since the
fiscal year ending before termination divided by 365 will be made
in lieu of any unpaid bonus.
Refer to pages 27 and 28 for details regarding the appointment
and remuneration of non-executive directors.
Sean McGould and Scott Perkins are entitled to participate in
incentive plans, including equity based plans.
Lighthouse senior executives
Sean McGould, Scott Perkins, Kelly Perkins and Rob Swan
entered into service agreements commencing on 7 March 2011.
The agreements were for an initial term of four years and
thereafter automatically extend for a one year term unless either
the Group or the employee gives not less than sixty days’ notice of
their intention not to extend the agreement.
The Group may terminate the agreement at any time for gross
negligence or willful misconduct (‘Good Cause Termination’). In
these circumstances there is no entitlement to a termination
payment.
The Group may terminate the agreement for any reason other than
gross negligence or willful misconduct at any time by giving not
less than sixty days’ notice.
The employee may terminate the agreement at any time if the
Group fails to comply in any material respect with the terms of the
agreement, there is a material reduction in the compensation
opportunities or there is a material and unconsented change to
responsibilities.
The employee may terminate the agreement and their employment
at any time for any reason other than those noted above by giving
not less than sixty days’ notice.
Kelly Perkins and Rob Swan, in addition to their base salary, are
entitled to semi-annual compensation calculated as 1.25% and
1.00% respectively of the gross revenue of Lighthouse Investment
Partners, LLC for the relevant six month period and are entitled to
participate in equity based plans.
The above arrangements have been in place since NGI acquired
Lighthouse in 2008.
Navigator Global Investments senior executives
Amber Stoney is engaged pursuant to an executive services
agreement. Ms Stoney’s working hours are 25 hours per week for
a base salary to A$300,000 per annum inclusive of
superannuation, and a cap to any short-term incentive bonus of
10% of this amount.
The Group may terminate Ms Stoney’s executive services
agreement at any time, without notice for a number of reasons
including bankruptcy, gross negligence or willful and serious
misconduct. In these circumstances there is no entitlement to a
termination payment. Ms Stoney may terminate the agreement at
any time by giving 6 months’ notice and the Group may terminate
the agreement at any time by giving 6 months’ notice or payment
in lieu.
Annual Report 2018 | Directors’ Report
29
Directors’ report
Remuneration report (audited)
Analysis of performance rights over equity instruments granted as remuneration
As at 30 June 2017 and 30 June 2018 there were no outstanding performance rights granted to any key management person of the Group.
Additional information
Movement in shares
The movement during the reporting period in the number of shares in the Company held, directly, indirectly or beneficially, by key management
personnel, including their related parties, is as follows:
Balance
1 July 2017
Purchases
Sales
Balance
30 June 2018
Directors
Michael Shepherd1
Fernando Esteban2
Andy Bluhm3
Sean McGould4
Executives
Scott Perkins
Kelly Perkins
Rob Swan
Amber Stoney5
125,000
27,000
26,101,982
19,438,084
2,936,512
2,405,624
2,936,512
180,374
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
125,000
27,000
26,101,982
19,438,084
2,936,512
2,405,624
2,936,512
180,374
1
2
3
4
5
125,000 shares are held indirectly by Tidala Pty Ltd as Trustee for the Shepherd Provident Fund.
27,000 shares are held indirectly by FJE Superannuation Fund.
26,101,982 shares are held indirectly by Delaware Street Capital Master Fund, LP (DSC). Mr Bluhm is the founder and principal of DSC Advisors, LP, which is
the investment manager of DSC.
19,436,084 shares are held indirectly by SGM Holdings, LLC.
162,396 shares are held indirectly by AJ Stoney Family Trust.
Other transaction with key management personnel
There were no other transactions with key management personnel during the year.
Annual Report 2018 | Directors’ Report
30
Directors’ report
Indemnification and insurance
Rounding of amounts
In accordance with ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191 dated 24 March
2016, amounts in the financial report and directors’ report have
been rounded off to the nearest thousand dollars, unless otherwise
stated.
This report is made in accordance with a resolution of directors:
Michael Shepherd, AO
Chairman and Non-Executive Director
F P (Andy) Esteban
Non-Executive Director
Dated at Sydney this 9th day of August 2018
The Company has a Deed of Indemnity, Insurance and Access in
place with each of the Directors (‘the Deeds’). Pursuant to the
Deeds, the Company indemnifies each Director to the extent
permitted by law for losses and liabilities incurred by the Director
as an officer of the Company or of a subsidiary. This indemnity
remains in force for a period of 7 years from the date the Director
ceases to hold office as a director of the Company.
In addition, the Company will advance reasonable costs incurred
or expected to be incurred by the Director in defending relevant
proceedings on terms determined by the Board. No such
advances were made during the financial year.
During the year, the Group paid insurance premiums to insure the
Directors and Officers of the Company. The terms of the contract
prohibit the disclosure of the premiums paid.
Auditor
Ernst & Young is the auditor of the Group in accordance with
section 327 of the Corporations Act 2001. Shareholders approved
the appointment of Ernst & Young at the Annual General Meeting
on 3 November 2017, and the appointment became effective on
that date.
Prior to 3 November 2017, the Group’s auditor was KPMG.
Non-audit services
There were no non-audit services provided by the entity’s auditors
during the financial year.
Details of remuneration paid to auditors is presented in Note 22 of
the financial statements.
Indemnification and insurance
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young Australia, as part of the
terms of its audit engagement agreement against claims by third
parties arising from the audit (for an unspecified amount).
No payment has been made to indemnify Ernst & Young Australia
during or since the end of the financial year.
Auditor’s independence declaration
The lead auditor’s independence declaration as required under
section 307C of the Corporations Act 2001 is set out on page 32
and forms part of the directors’ report for the financial year ended
30 June 2018.
Environmental regulation
The Group is not subject to any particular or significant
environmental regulation under Commonwealth, State or Territory
legislation.
Annual Report 2018 | Directors’ Report
31
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
Auditor’s Independence Declaration to the Directors of Navigator
Global Investments Limited
As lead auditor for the audit of Navigator Global Investments Limited for the financial year ended 30
June 2018, 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 Navigator Global Investments Limited and the entities it controlled
during the financial year.
Ernst & Young
Rebecca Burrows
Partner
9 August 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
32
Annual Report 2018 | Financial Statements
33
Financial statements
35
Income statement
38 Statement of changes of equity
36 Statement of comprehensive
income
39 Statement of cash flows
37 Statement of financial position
40 Notes to the financial statements
Results for the year
1. Operating segments
Net revenue
2.
Expenses
3.
Finance income and costs
4.
Cash
5.
Income tax
6.
Dividends
7.
Earnings per share
8.
Operating assets and
liabilities
9.
10.
11.
Trade and other receivables
Investments recognised at fair
value
Investment in equity accounted
investee
12. Plant and equipment
Intangible assets
13.
14. Trade and other payables
Employee benefits
15.
Capital and risk
16. Capital management
17. Capital and reserves
18. Financial risk management
Group structure
Other disclosures
Basis of preparation
19. Group entities
20. Parent entity disclosures
21. Related parties
22. Auditors’ remuneration
23. Commitments
24. Contingent liabilities
25. Subsequent events
26. Corporate information
27. Statement of compliance
28. Basis of measurement
29. Functional and presentation
currency
30. Other accounting policies
72 Directors’ declaration
73
Independent auditor’s report
Annual Report 2018 | Financial Statements
34
Income statement
For the year ended 30 June 2018
Operating revenue
Distribution costs
Net revenue
Other income
Operating expenses
Results from operating activities
Finance income
Finance costs
Share of loss of equity accounted investee
Impairment losses
Profit before income tax
Income tax expense
Profit / (loss) for the year
Profit / (loss) attributable to members of the parent
Earnings per share
Basic earnings per share
Diluted earnings per share
The accompanying notes form part of these consolidated financial statements
Note
2(a)
2(b)
2(a)
3(a)
4(a)
4(a)
11
3(b)
6
8
8
Consolidated US$’000
2018
83,198
(3,413)
79,785
1,694
(48,888)
32,591
1,306
(70)
(378)
(1,873)
31,576
(44,632)
(13,056)
2017
72,731
(4,417)
68,314
494
(38,984)
29,824
259
(258)
(624)
(572)
28,629
(10,946)
17,683
(13,056)
17,683
Consolidated US cents
2018
(8.05)
(8.05)
2017
10.91
10.91
Annual Report 2018 | Financial Statements
35
Statement of comprehensive income
For the year ended 30 June 2018
Profit / (loss) attributable to members of the parent
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Change in fair value of available-for-sale financial asset
Income tax on other comprehensive income
Other comprehensive income for the year
Note
4(b)
4(b)
Consolidated US$’000
2018
(13,056)
2017
17,683
633
153
786
910
(346)
564
Total comprehensive income / (loss) for the year
(12,270)
18,247
The accompanying notes form part of these consolidated financial statements
Annual Report 2018 | Financial Statements
36
Statement of financial position
As at 30 June 2018
Consolidated US$’000
Note
2018
2017
Assets
Cash
Trade and other receivables
Current tax assets
Total current assets
Investments recognised at fair value
Investment in equity accounted investee
Plant and equipment
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Total current liabilities
Trade and other payables
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
The accompanying notes form part of these consolidated financial statements
5(a)
9
6(b)
10
11
12
6(c)
13
14
15
14
15
17
17(b)
38,212
14,628
2
52,842
16,459
-
2,688
61,878
95,078
2,310
178,413
231,255
3,326
11,785
15,111
1,052
108
1,160
16,271
214,984
257,355
31,368
(73,739)
214,984
33,153
11,230
6
44,389
14,455
500
1,158
106,302
95,423
1,651
219,489
263,878
2,656
8,772
11,428
689
117
806
12,234
251,644
257,355
28,950
(34,661)
251,644
Annual Report 2018 | Financial Statements
37
Statement of changes in equity
For the year ended 30 June 2018
Consolidated US$’000
Amounts attributable to equity holders of the parent
Note
Share
Capital
Share
Based
Payments
Reserve
Fair Value
Reserve
Translation
Reserve
Parent
Entity
Profits
Reserve
Accum-
ulated
Losses
Total Equity
257,355
13,326
931
850
12,394
(30,436)
254,420
Balance at 1 July 2016
Net profit for the year
Transfer to parent entity profits
reserve1
Other comprehensive income
Net change in available-for-sale
financial assets
Income tax on other
comprehensive income
Total other comprehensive
income, net of tax
Total comprehensive income
for the year, net of tax
20
4(b)
4(b)
Dividends to equity holders
7
Total transactions with owners
Balance at 30 June and 1 July
2017
Net profit / (loss) for the year
Transfer to parent entity profits
reserve1
Other comprehensive income
Net change in available-for-sale
financial assets
Income tax on other
comprehensive income
Total other comprehensive
income, net of tax
Total comprehensive income
for the year, net of tax
20
4(b)
4(b)
Dividends to equity holders
7
Total transactions with owners
Balance at 30 June 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
910
(346)
564
564
-
-
-
-
-
-
-
-
-
-
-
17,683
17,683
21,908
(21,908)
-
-
-
-
-
-
-
910
(346)
564
21,908
(4,225)
18,247
(21,023)
(21,023)
-
-
(21,023)
(21,023)
257,355
13,326
1,495
850
13,279
(34,661)
251,644
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
633
153
786
786
-
-
-
-
-
-
-
-
-
-
-
-
(13,056)
(13,056)
26,022
(26,022)
-
-
-
-
-
-
-
-
-
-
633
153
786
26,022
(39,078)
(12,270)
(24,390)
(24,390)
-
-
(24,390)
(24,390)
257,355
13,326
2,281
850
14,911
(73,739)
214,984
1 Relates to the net profit of the parent entity (Navigator Global Investments Limited).
The accompanying notes form part of these consolidated financial statements
Annual Report 2018 | Financial Statements
38
Statement of cash flows
For the year ended 30 June 2018
Cash flows from operating activities
Cash receipts from operating activities
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Income taxes paid
Consolidated US$’000
Note
2018
2017
84,752
(51,995)
32,757
216
(52)
73,487
(43,424)
30,063
46
(21)
Net cash from operating activities
5(b)
32,921
30,088
Cash flows from investing activities
Acquisition of plant and equipment
Acquisition of investments
Proceeds from disposal of investments
Distributions from investments received
(Acquisition) / redemption of other non-current assets
Net cash used in investing activities
Cash flows from financing activities
Loan to associate
Dividends paid to equity holders
Net cash used in financing activities
Net increase in cash
Cash balance at 1 July
Effect of exchange rate fluctuations on cash balances held in foreign currencies
Cash balance as at 30 June
5(a)
The accompanying notes form part of these consolidated financial statements
(1,924)
(416)
4
38
349
(343)
(4,861)
2,953
200
(726)
(1,949)
(2,777)
(1,666)
(24,390)
(26,056)
4,916
33,153
143
38,212
(85)
(21,023)
(21,108)
6,203
27,014
(64)
33,153
Annual Report 2018 | Financial Statements
39
Notes to the financial statements
For the year ended 30 June 2018
Results for the Year
This section of the notes to the financial statements focuses on the results and performance of the Navigator Global Investments Limited Group.
On the following pages you will find disclosures explaining the Group’s results for the year, segment information, taxation and earnings per
share.
Where an accounting policy or key estimate is specific to a single note, the policy or estimate is described in the note to which it relates.
Operating segments
As at 30 June 2018, the Group had one reportable segment, being
the US based Lighthouse Group, which operates as a global
absolute return funds manager for investment vehicles.
Corporate includes assets and liabilities and corporate expenses
relating to the corporate parent entity, Navigator Global
Investments Limited, and balances that are eliminated on
consolidation of the Group and are not considered to be operating
segments.
No operating segments have been aggregated to form the above
reportable operating segments.
The CEO and board of directors review internal management
reports on a monthly basis to monitor the operating results of its
business units for the purpose of making decisions about resource
allocation and performance assessment. Business unit
performance is evaluated based on the financial information as set
out below, as well as other key metrics such as Assets under
Management and the average net management fee rate.
Lighthouse US$’000
Corporate US$’000
Consolidated US$’000
Operating revenue
Distribution costs
Net revenue
Other income
Operating expenses (excluding depreciation
and amortisation)
2018
2017
82,933
72,662
(3,413)
(4,417)
79,520
68,245
1,694
494
(47,139)
(37,513)
Result from operating activities
34,075
31,226
Net finance income / (costs) (excluding
interest)
Share of loss of equity accounted investee
879
(378)
16
(624)
2018
265
-
265
-
(770)
(505)
141
-
2017
2018
2017
69
-
69
-
83,198
72,731
(3,413)
(4,417)
79,785
68,314
1,694
494
(765)
(47,909)
(38,278)
(696)
33,570
30,530
(74)
-
1,020
(378)
(58)
(624)
Earnings before interest, tax,
depreciation, amortisation and
impairment losses
Interest revenue
Depreciation and amortisation
Impairment loss
Reportable segment profit / (loss) before
income tax
34,576
30,618
(364)
(770)
34,212
29,848
204
(974)
(1,873)
49
(702)
(572)
12
(5)
-
10
(4)
-
216
(979)
(1,873)
59
(706)
(572)
31,933
29,393
(357)
(764)
31,576
28,629
Income tax expense
(44,632)
(10,946)
-
-
(44,632)
(10,946)
Reportable segment profit / (loss) after
income tax
Segment assets
Segment liabilities
Net assets
(12,699)
18,447
(357)
(764)
(13,056)
17,683
214,817
249,016
16,438
14,862
231,255
263,878
(15,980)
(11,920)
(291)
(314)
(16,271)
(12,234)
198,837
237,096
16,147
14,548
214,984
251,644
Annual Report 2018 | Financial Statements
40
Notes to the financial statements
For the year ended 30 June 2018
Net revenue
a) Revenue
Management and platform service fee income
Performance fee income
Operating revenue
Rent, outgoings and other operating expenses on-charged to sublease tenants
Other income
Consolidated US$’000
2018
75,518
7,680
83,198
1,694
1,694
2017
71,157
1,574
72,731
494
494
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is received.
Revenue is measured at the fair value of the consideration
received or receivable.
The specific methods used for each category of revenue are
outlined below.
Management and platform service fees
Management and platform service fees are received for providing:
platform oriented services to individual clients. Platform
services can incorporate some or all of the following functions
- fund structuring, corporate governance, investment advice,
middle and back office operations, investment and back office
due diligence, investment monitoring and any other mutually
agreed upon service;
investment management services to commingled funds and
individual clients. Investment management services can
incorporate investment management and platform services.
Management and platform service fee revenue is based on a
percentage of the commingled fund or client portfolio value and is
calculated in accordance with the applicable offer document,
constituent document and/or investment management agreement.
The revenue is recognised in the income statement as the services
are provided.
Performance fees
Performance fees may be received from some commingled fund
share classes and some individual client portfolios. Where a
performance fee arrangement is in place, the management fee is
generally lower than earned from commingled fund share classes
and individual client portfolios where no performance fee is
applicable.
The entitlement to performance fees for any given performance
period is dependent on the portfolio achieving a positive
performance, and in some cases in outperforming an agreed
hurdle. Performance fees are also subject to a high watermark
arrangement which ensures that fees are not earned more than
once on the same performance. The amount of the performance
fee is calculated in accordance with the applicable offer document,
constituent document and/or investment management agreement,
and is generally determined as an agreed percentage of the
performance greater than the high watermark, and in some cases
greater than the agreed hurdle.
Performance fees are recognised in the income statement only
when the entitlement to receive the fee becomes certain, which is
at the end of the relevant performance period. Performance
periods for performance fee arrangements range from between
1 month to 1 year.
Rent, outgoings and other operating expenses on-
charged to sublease tenants
Other income relates to rent, outgoings and other operating
expenses charged to portfolio managers who sub-lease London
and New York office space held by Lighthouse. Income is
recognised when it is receivable under the terms of these
arrangements.
Major revenue source
22% (2017: 27%) of the Group’s operating revenue relates to
management fees and performance fees earned on the Lighthouse
Diversified Fund, which is a commingled fund.
26% (2017: 27%) of the Group’s operating revenue relates to
management fees and performance fees earned on the Lighthouse
Global Long/Short Fund, which is a commingled fund.
The Group’s largest individual client represents 9% of operating
revenue (2017: 9%).
The Group’s three largest individual clients combined represent
19% of operating revenue (2017: 20%).
Annual Report 2018 | Financial Statements
41
Notes to the financial statements
For the year ended 30 June 2018
Net revenue (continued)
b) Distribution costs
Total distribution costs
Distribution costs are payments to financial advisors, platforms and
other third parties for the provision of placement services. These
costs are recognised on an accrual basis.
Expenses
a) Other operating expenses
Employee expenses
Professional and consulting fees
Occupancy expenses
Information and technology expenses
Travel costs
Depreciation
Amortisation of intangible assets
Other expenses
Total expenses
The majority of operating expenses are recognised as the services
are received.
Certain costs, including payments made under operating leases
and capitalised costs such as plant and equipment, software and
trademark assets, are charged evenly over the life of the relevant
contract or useful life of the asset. Lease incentives received are
recognised as an integral part of the total lease expense, over the
term of the lease. The Group is not a party to any finance leases.
Leases are operating leases and the leased assets are not
recognised on the Group's statement of financial position.
Consolidated US$’000
2018
(3,413)
2017
(4,417)
Consolidated US$’000
2018
(35,477)
(3,567)
(3,067)
(1,743)
(1,475)
(634)
(345)
(2,580)
(48,888)
2017
(28,572)
(2,529)
(2,305)
(1,308)
(1,338)
(361)
(345)
(2,226)
(38,984)
Employee expenses
The largest operating expense is employee expenses. Employee
expenses includes salaries and wages, together with the cost of
other benefits provided to employees such as contributions to
superannuation and retirement plans, health care benefits,
educational assistance and cash bonuses. It also includes
regulatory costs such as payroll tax.
Employee expenses for the year ended 30 June 2018 includes
contributions to defined contribution superannuation and pension
plans of $875 thousand (2017: $798 thousand).
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions to a separate entity
and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in profit or
loss in the periods during which services are rendered by
employees.
Annual Report 2018 | Financial Statements
42
Notes to the financial statements
For the year ended 30 June 2018
Expenses (continued)
b) Impairment losses
Impairment of available-for-sale assets
Impairment of investment in equity accounted investee
Impairment of unsecured loan to equity accounted investee
Total impairment loss
Consolidated US$’000
2018
-
(122)
(1,751)
(1,873)
2017
(196)
(376)
-
(572)
The Group’s has a 40% interest in a US based limited partnership. During the 2018 financial year the Group provided a $1,666 thousand (2017:
$85 thousand) of funding to the entity which was classified as a non-current unsecured loan to an equity accounted investee. Based on an
assessment of the likely prospects of the associate, both the equity investment and unsecured loan have been written down to nil as at 30 June
2018. This has resulted in an impairment loss of $1,873 thousand being recognised for the financial year.
Finance income and costs
a) Recognised directly in profit or loss
Finance income
Interest income on bank deposits
Interest income on convertible promissory notes
Net foreign exchange gain
Net change in fair value of financial assets at fair value through profit or loss
Distribution income from available-for-sale financial asset
Total finance income
Finance costs
Bank charges
Net foreign exchange loss
Net change in fair value of financial assets at fair value through profit or loss
Total finance costs
Net finance costs recognised in profit or loss
Consolidated US$’000
2018
2017
216
-
92
960
38
1,306
(70)
-
-
(70)
1,236
46
13
-
-
200
259
(65)
(80)
(113)
(258)
1
Annual Report 2018 | Financial Statements
43
Notes to the financial statements
For the year ended 30 June 2018
Finance income and costs (continued)
a) Recognised directly in profit or loss (continued)
Interest income is recognised in profit or loss as it accrues.
Distribution income is recognised on the date that the Group’s right
to receive payment is established.
Foreign currency gains and losses are reported on a net basis as
either finance income or finance costs depending on whether
foreign currency movements result in a net gain or net loss
position for the reporting period.
Financial assets at fair value through profit or loss are carried in
the statement of financial position at fair value, with changes in fair
value reported in the profit or loss on a net basis as either finance
income or finance costs depending on whether the fair value
movements result in a net gain or net loss position for the reporting
period.
b) Recognised directly in other comprehensive income
Change in fair value of available-for-sale financial assets
Income tax expense recognised directly in equity
Finance income attributable to equity holders recognised directly in equity
Recognised in:
Fair value reserve
Consolidated US$’000
2018
633
153
786
786
2017
910
(346)
564
564
Foreign currency translation differences recognised in other
comprehensive income represent exchange differences from the
translation at balance date of entities whose functional currency is
different to the Group’s presentation currency.
Available-for-sale financial assets are carried in the statement of
financial position at fair value, with changes in fair value reported
in other comprehensive income and presented in the fair value
reserve in equity. Where a decline in fair value is significant or
prolonged, it is recognised as an impairment loss in the profit or
loss. On derecognition of an available-for-sale financial asset, any
cumulative gain or loss in the fair value reserve is reclassified to
profit or loss.
The income tax expense recognised directly in equity for the year
ended 30 June 2018 includes a $355 thousand movement relating
to the impact of the change in the US federal statutory corporate
rate from 35% to 21% on tax balances carried directly in equity.
Refer to note 6 for additional detail regarding this change in tax
rate.
Annual Report 2018 | Financial Statements
44
Notes to the financial statements
For the year ended 30 June 2018
Cash
a) Cash
Cash at bank
Consolidated US$’000
2018
38,212
2017
33,153
At balance date, AUD deposits earn interest of 1.30% (2017:
1.30%); USD deposits earn interest between 0% and 1.499%
(2017: 0.01%).
The carrying amount of these assets is a reasonable
approximation of fair value. The Group’s exposure to interest rate
and foreign currency risk on cash is disclosed in note 18.
b) Reconciliation of cash flows from operating activities
Cash flows from operating activities
Note
3(a)
3(a)
3(b)
11
4(a)
4(a)
4(a)
4(a)
Profit for the year
Adjustments for:
Depreciation expense
Amortisation of intangible assets
Impairment losses
Share of loss of equity accounted investee
Interest revenue on convertible promissory notes
Distributions from available-for-sale financial asset
Net foreign exchange loss
Fair value (gain) / loss on financial assets at fair value through profit or loss
Income tax expense, less income tax paid
Operating cash flow before changes in working capital and provisions
(Increase) / decrease in receivables
(Increase) / decrease in other current assets
Increase / (decrease) in payables
Increase / (decrease) in deferred rent expense
Increase in employee benefits
Net cash from operating activities
Consolidated US$’000
2018
(13,056)
634
345
1,873
378
-
(38)
(92)
(960)
44,580
33,664
(3,605)
(198)
(282)
331
3,011
32,921
2017
17,683
361
345
572
624
(13)
(200)
80
113
10,925
30,490
(1,012)
(142)
69
(251)
934
30,088
Annual Report 2018 | Financial Statements
45
Notes to the financial statements
For the year ended 30 June 2018
Income tax
The Company is the only Australian resident tax-paying entity
within the Group. Non-Australian entities within the Group are part
of a US consolidated tax group.
Income tax expense comprises current and deferred tax and is
recognised in profit or loss, except to the extent that it relates to
items recognised directly in equity or in other comprehensive
income.
As at 31 December 2017 the Group revised its estimated annual
effective rate to reflect a change in the US federal statutory
corporate rate from 35% to 21% effective from 1 January 2018.
The rate change is administratively effective at the beginning of the
a) Reconciliation of effective tax rate
Group’s financial year, resulting in the use of a blended rate for the
annual period. The application of this lower blended corporate tax
rate reduced income tax expense for the year ended 30 June 2018
by $2,113 thousand, resulting in an effective tax rate for the year
ended 30 June 2018 of 29.0%, compared to 38.2% for the
corresponding prior period.
In addition, the Group recognised an income tax expense of
$35,480 thousand related to the adjustment in the carrying value of
existing deferred tax assets to reflect the new corporate tax rate.
Profit before income tax
Income tax using the Company’s domestic tax rate of 30% (2017: 30%)
Effect of tax rates in foreign jurisdictions
Non-deductible / non-assessable amounts included in accounting profit
Deductible amounts not included in accounting profit
Current year tax losses for which no deferred tax asset is initially recognised
Changes in estimates related to prior years
Effect of change in tax rate under newly enacted US tax legislation on deferred tax assets
Total income tax expense reported in profit or loss
b) Current tax assets and liabilities
Current tax assets
Current tax assets represent the amount of income taxes
receivable or payable to the relevant tax authority, using tax rates
current at reporting date.
Consolidated US$’000
2018
31,576
(9,473)
(470)
133
89
(344)
913
(35,480)
(44,632)
2017
28,629
(8,589)
(2,315)
(310)
115
(78)
231
-
(10,946)
Consolidated US$’000
2018
2
2017
6
Annual Report 2018 | Financial Statements
46
Notes to the financial statements
For the year ended 30 June 2018
Income tax (continued)
c) Deferred tax assets
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for temporary differences related to
investments in wholly-owned subsidiaries to the extent that it is
probable that they will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by reporting
date.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset, and they relate to income taxes levied by
the same tax authority on a tax consolidated group of entities.
Deferred tax assets – US Group
Deferred tax assets have been recognised in respect of the following items:
Carried forward tax losses
Goodwill and intangible assets
Employee benefits
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Other items
In determining the amount of current and deferred tax, the Group
takes into account the impact of uncertain tax positions and whether
additional taxes and interest may be due. This assessment relies on
estimates and assumptions and may involve interpretations of tax
law and judgements about future events. New information may
become available that causes the Group to change its judgement
regarding the calculation of tax balances, and such changes will
impact the profit or loss in the period that such a determination is
made.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
The carrying value of both recognised and unrecognised deferred
tax assets are reassessed at each reporting date.
Consolidated US$’000
2018
27,582
30,400
2,597
217
(754)
1,836
61,878
2017
38,239
61,197
2,895
(285)
(914)
5,170
106,302
As at 30 June 2018 it is considered more likely than not that the
US Group’s carried forward tax losses and deductible temporary
differences will be fully recovered. This position is supported by
the current profitability of the US Group which is expected to
continue into the future.
Carried forward tax losses relating to the US Group which existed
prior to 1 January 2018 have a life of 20 years, and will expire
during the period from 2029 to 2038. Any tax losses incurred after
1 January 2018 will have an indefinite life.
Deferred tax assets – Australian Group
Deferred tax assets have not been recognised in respect of the following items:
Deductible temporary differences
Tax losses
Annual Report 2018 | Financial Statements
Consolidated US$’000
2018
62,456
3,704
66,160
2017
65,000
3,213
68,213
47
Notes to the financial statements
For the year ended 30 June 2018
Income tax (continued)
c) Deferred tax assets (continued)
Unrecognised deferred tax assets relating to the Australian Group
consist of deductible temporary differences (including impairment
losses recognised in previous financial years), and carried forward
operating tax losses.
As at 30 June 2018, it is not probable that the Australian Group will
produce sufficient taxable profits against which these deferred tax
assets can be utilised and therefore the deferred tax assets remain
unrecognised.
Dividends
a) Dividends paid
The following dividends were paid by the Company:
$62,456 thousand (30 June 2017: $65,000 thousand) of the
deductible temporary differences not recognised relate to an
impairment write-down taken during the year ended 30 June 2009
on the carrying value of the Lighthouse Group. The movement in
this balance relates to foreign currency movements only. The
realisation of this tax asset is subject to the application of relevant
tax legislation and the structure of any future business transactions
in relation to the Lighthouse Group, if and when any such
transaction was to occur.
Tax losses relating to the Australian Group and deductible
temporary differences do not expire under current tax legislation.
Interim ordinary dividend for the year ended 30 June 2018 of USD 7.0 cents
Final ordinary dividend for the year ended 30 June 2017 of USD 8.0 cents
Interim ordinary dividend for the year ended 30 June 2017 of USD 6.0 cents
Final ordinary dividend for the year ended 30 June 2016 of USD 7.0 cents
Consolidated US$’000
2018
11,348
13,042
-
-
24,390
2017
-
-
9,606
11,417
21,023
The Directors have determined a final unfranked dividend of 9.0
cents per share (with 100% conduit foreign income credits). The
dividend will be paid on 31 August 2018.
The aggregate amount of the proposed dividend will be paid out of
the balance of the parent entity profits reserve as at 30 June 2018.
b) Dividend franking account
The dividends have not been provided for as at 30 June 2018, and
there are no income tax consequences.
Amount of franking credits available to shareholders of Navigator Global Investments Limited
for subsequent financial years
Dividends paid and declared during the 2018 financial year have
been unfranked. The movement in the franking account balance
relates to foreign currency movements only.
Consolidated US$’000
2018
761
2017
792
Annual Report 2018 | Financial Statements
48
Notes to the financial statements
For the year ended 30 June 2018
Earnings per share
Basic earnings per share
Diluted earnings per share
Reconciliation of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit from continuing operations attributable to ordinary equity holders of the
Company used in calculating basic and diluted earnings per share
Consolidated US$’000
2018
(8.05)
(8.05)
2017
10.91
10.91
Consolidated US$’000
2018
(13,056)
2017
17,683
Weighted average number of shares used in calculating basic and diluted earnings per share
Issued ordinary shares at 1 July
17
Weighted average number of ordinary shares used in calculating basic,
diluted and underlying earnings per share
The Company did not have any potential ordinary shares
outstanding at balance date. The weighted average number of
shares used in calculating basic and diluted earnings per share are
therefore the same.
’000 shares
2018
162,148
162,148
2017
162,148
162,148
Annual Report 2018 | Financial Statements
49
Notes to the financial statements
For the year ended 30 June 2018
Operating assets and liabilities
This section of the notes to the financial statements provides information on the operating assets and liabilities of the Navigator Global
Investments Limited Group, including explanations of the Group’s key assets used to generate operating results and the corresponding
liabilities. Information on other assets and liabilities can be found in the following sections:
Section 1 – Cash; Deferred tax assets
Section 3 – Capital and reserves
Where an accounting policy or key estimate is specific to a single note, the policy or estimate is described in the note to which it relates.
Trade and other receivables
Trade receivables due from Group managed products
Trade receivables due from externally managed products
Other receivables and prepayments
Consolidated US$’000
2018
12,660
606
1,362
14,628
2017
9,943
414
873
11,230
Trade receivables due from Group managed products comprise
management and platform service fees, performance fees, and
recoverable costs. Trade receivables due from externally managed
products comprise receivables due from a third party and relate to
management and performance fees on funds for which Lighthouse
performs investment services.
Trade receivables are non-interest bearing and are generally on 30
to 90 day terms. Trade receivables are initially recognised at fair
value, being the original invoice amount rendered for the services
or recoverable costs provided. Collectability of trade receivables is
reviewed regularly and an allowance is made against the fair value
of trade receivables for any amounts which are considered
uncollectible. There are no amounts considered uncollectible or
impaired as at 30 June 2018 or 30 June 2017.
Other receivables and prepayments relate to items such as
prepaid expenses (principally in relation to insurance policies),
rent, outgoings and other operating expenses on-charged to
sublease tenants, short-term deposits, interest receivable on cash
deposits, and pending redemptions from investments in Group
managed products.
The carrying amount of these assets is a reasonable
approximation of fair value. The Group’s exposure to credit risk,
currency risk and impairment losses related to trade and other
receivables is disclosed in note 18.
Annual Report 2018 | Financial Statements
50
Notes to the financial statements
For the year ended 30 June 2018
Investments recognised at fair value
Available-for-sale financial assets
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Available-for-sale financial assets comprise non-controlling equity
holdings in the unquoted securities of US based limited liability
companies over which the Group does not have significant
influence.
Available-for-sale financial assets are initially recognised at
transaction price plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at fair value
with changes, other than impairment losses, recognised in other
comprehensive income and presented in the fair value reserve in
equity. On derecognition of an available-for-sale financial asset,
any cumulative gain or loss in the fair value reserve is reclassified
to profit or loss.
Available-for-sale financial assets are assessed at each reporting
date to determine whether there is any objective evidence of
impairment. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset. A
significant or prolonged decline in fair value below its cost is
objective evidence of impairment.
Financial assets at fair value through profit or loss
Investments in unquoted securities of entities managed by Lighthouse
Consolidated US$’000
2018
5,638
10,821
16,459
2017
5,005
9,450
14,455
Impairment losses on available-for-sale financial assets are
recognised in profit or loss as the difference between the
acquisition cost and the current fair value, less any impairment
loss previously recognised through profit or loss. Any subsequent
recovery in the fair value of an impaired available-for-sale financial
asset in a future period will be recognised in other comprehensive
income.
Note 18 provides details on the methods used to determine fair
value, and information on exposure to credit and market rate risks
related to these investments.
Consolidated US$’000
2018
10,821
10,821
2017
9,450
9,450
These assets have been classified as fair value through profit or
loss upon initial recognition as the Group manages these assets
and evaluates performance in relation to these financial assets on
a fair value basis. These investments are measured at fair value,
and changes in their fair value are recognised in profit or loss.
Note 18 provides details on the methods used to determine fair
value, and information on exposure to credit and market rate risks
related to these investments.
Annual Report 2018 | Financial Statements
51
Notes to the financial statements
For the year ended 30 June 2018
Investment in equity accounted investee
The Group has a 40% interest in Casement Capital Management
LP, a US based limited partnership that is in the start-up phase of
developing an institutional grade investment opportunity in the
commodities trading area. This interest is accounted for using the
equity method in the consolidated financial statements. Under the
equity method, the investment in the entity is initially recognised at
cost. The carrying amount of the investment is adjusted to
recognise the Group’s share of the entity’s operating profit or loss.
The Group contributed $1,500 thousand of equity to this entity
during the year ended 30 June 2017. After application of the
equity method, the Group determines whether it is necessary to
recognise an impairment loss on its investment in the entity.
Taking into account the future funding requirements and the
likelihood of success of the business model, the directors have
assessed the carrying amount of the investment at 30 June 2018
at $Nil (30 June 2017: $500 thousand).
A reconciliation of the carrying amount of the investment in the
consolidated financial statements is set out below:
Reconciliation of the carrying amount of the Group’s investment in Casement Capital Management LP:
Opening balance 1 July
Investment into Casement Capital Management LP
Group’s share of operating loss
Impairment loss
Closing balance 30 June
Consolidated US$’000
2018
500
-
(378)
(122)
-
2017
-
1,500
(624)
(376)
500
Annual Report 2018 | Financial Statements
52
Notes to the financial statements
For the year ended 30 June 2018
Plant and equipment
Cost
Balance at 1 July 2016
Additions
Balance at 30 June and 1 July 2017
Additions
Disposals
Balance at 30 June 2018
Depreciation
Balance at 1 July 2016
Depreciation for the year
Balance at 30 June and 1 July 2017
Depreciation for the year
Disposals
Balance at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June and 1 July 2017
As at 30 June 2018
Consolidated US$’000
Furniture &
equipment
Computer
equipment &
software
Leasehold
improvements
Total
1,210
51
1,261
586
-
1,847
(894)
(64)
(958)
(110)
-
(1,068)
316
303
779
2,342
208
2,550
914
(5)
3,459
(1,994)
(221)
(2,215)
(367)
-
(2,582)
348
335
877
1,110
84
1,194
668
(282)
1,580
(598)
(76)
(674)
(157)
283
(548)
512
520
1,032
4,662
343
5,005
2,168
(287)
6,886
(3,486)
(361)
(3,847)
(634)
283
(4,198)
1,176
1,158
2,688
Recognition and measurement
Depreciation
Items of plant and equipment are measured at cost less
accumulated depreciation and impairment.
Cost includes expenditures that are directly attributable to the
acquisition of the asset. Purchased software that is integral to the
functionality of the related equipment is capitalised as part of that
equipment. Ongoing repairs and maintenance is expensed as
incurred.
An item of plant and equipment is derecognised upon disposal or
when no further future economic benefits are expected from its
use. Gains and losses on disposal of an item are determined by
comparing the proceeds from disposal with the carrying amount,
and are recognised in profit and loss.
Depreciation is recognised in the profit or loss on a straight-line
basis over the estimated useful life of the asset as follows:
Leasehold improvements:
Lease term
Computer software and equipment:
3-5 years
Furniture and equipment:
7-20 years
The residual value, the useful life and the depreciation method
applied to an asset are reassessed at least annually. The carrying
value of plant and equipment is reviewed for impairment when
events or changes in circumstances indicate the carrying value
may not be recoverable.
Annual Report 2018 | Financial Statements
53
Notes to the financial statements
For the year ended 30 June 2018
Intangible assets
Cost
Balance at 1 July 2016
Balance at 30 June and 1 July 2017
Balance at 30 June 2018
Amortisation and impairment losses
Balance at 1 July 2016
Amortisation for the year
Balance at 30 June and 1 July 2017
Amortisation for the year
Balance at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June and 1 July 2017
At 30 June 2018
Intangible assets
Goodwill
Goodwill
Trademarks
Software
Total
Consolidated US$’000
499,519
499,519
499,519
(405,718)
-
(405,718)
-
(405,718)
93,801
93,801
93,801
1,900
1,900
1,900
(808)
(95)
(903)
(95)
(998)
1,092
997
902
2,050
2,050
2,050
(1,175)
(250)
(1,425)
(250)
(1,675)
875
625
375
503,469
503,469
503,469
(407,701)
(345)
(408,046)
(345)
(408,391)
95,768
95,423
95,078
Goodwill that arises upon the acquisition of subsidiaries is included
in intangible assets. For the Group’s accounting policy relating to
the measurement of goodwill at initial recognition, see note 19.
Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses
Other intangible assets
Other intangible assets acquired by the Group, which have finite
lives, are measured at cost less accumulated amortisation and
accumulated impairment losses.
Amortisation
Except for goodwill, intangible assets are amortised on a straight-
line basis in profit or loss over their estimated useful lives, from the
date that they are available for use. The estimated useful lives for
the current and comparative periods are as follows:
Trademarks:
20 years
Capitalised software development costs:
5 years
Amortisation methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
Annual Report 2018 | Financial Statements
54
Notes to the financial statements
For the year ended 30 June 2018
Intangible assets (continued)
Impairment testing of intangible assets
Recoverable amount
The recoverable amount of the CGU was determined based on a
value-in-use calculation.
The calculation utilises five years of cash flow projections. The first
three years of these projections are based on financial forecasts
approved by the board of directors, which are then extrapolated
over an additional two years.
Revenue for the additional two years is extrapolated using an
industry long term growth rate. Investment management costs and
operating expenses are extrapolated based on ratios consistent
with the third year of the approved financial forecasts. Key
assumptions used in the calculation are discount rates, terminal
value growth rates, and the EBITDA growth rate:
Key assumption
Discount rate
Terminal value growth rate
Forecast EBITDA growth rate
(average next 5 years)
2018
15.6%
3.7%
2017
13.8%
3.2%
6%
7%
The discount rate is a post-tax measure calculated based on US
risk factors as well as other risk factors specific to the industry and
operational nature of the business, including an assumed debt
leveraging of 10% (FY17: 15%) at a market interest rate of 4.72%
(FY17: 4.44%).
The terminal growth rate is based on the forecast long-term growth
rate for Open-End Investment Funds in the United States.
The average forecast EBITDA growth rate for 5 years of cash flow
projections of 6% is considered to be reasonable in comparison to
the average EBITDA growth achieved by the US CGU for the 5
year period to 30 June 2018 of 9%.
A reasonably possible change in these assumptions would not
result in an implied impairment of this CGU.
The carrying amounts of the Group’s intangible assets are
reviewed at least annually, or when an impairment indicator exists.
An impairment loss is recognised if the carrying amount of an
asset or its related cash-generating unit (CGU) exceeds its
estimated recoverable amount.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset or CGU. For the purpose of impairment testing, assets
are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGU.
Impairment losses are recognised in profit or loss. An impairment
loss recognised in respect of a CGU is allocated first to reduce the
carrying amount of any goodwill allocated to the CGU and then to
reduce the carrying amount of the other assets in the CGU on a
pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, an impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation and amortisation, if no impairment loss had been
recognised.
Impairment testing as at 30 June
Cash generating unit
For the purpose of impairment testing, intangible assets are
allocated to a US based funds management cash generating unit
(US CGU):
Goodwill
Trademarks
Software
Consolidated US$’000
Carrying Amount
2018
93,801
902
375
2017
93,801
997
625
95,078
95,423
Impairment testing carried out on the US CGU as at 30 June 2017
and 30 June 2018 did not result in the recognition of any
impairment losses.
Annual Report 2018 | Financial Statements
55
Notes to the financial statements
For the year ended 30 June 2018
Trade and other payables
Current
Trade creditors
Deferred rent liability
Other creditors and accruals
Non-current
Deferred rent liability
Trade creditors are non-interest bearing and normally settle on
30 to 90 day terms.
Deferred rent relates to operating leases for office space.
Payments made under operating leases are charged to profit or
loss on a straight-line basis over the period of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease. Current deferred rent
represents the amount to be recognised within 12 months of
reporting date. Non-current deferred rent represents the amount to
be recognised more than 12 months from reporting date.
Employee benefits
Current
Short-term incentives
Liability for annual leave
Non-current
Liability for long service leave
Consolidated US$’000
2018
2017
75
122
3,129
3,326
14
154
2,488
2,656
1,052
689
Other creditors and accruals relate to items such accrued
distribution costs, accrued operating expenses, and product costs
and expenses.
The carrying amount of these liabilities is a reasonable
approximation of fair value. The Group’s exposure to currency and
liquidity risk related to trade and other payables is disclosed in
note 18.
Consolidated US$’000
2018
2017
11,680
105
11,785
8,648
124
8,772
108
117
Short-term benefits
Long-term benefits
Short-term employee benefit obligations are expensed as the
related service is provided. A liability is recognised for the amount
expected to be paid under short-term cash bonus or profit-sharing
plans if the Group has a present legal or constructive obligation to
pay this amount as a result of past service provided by the
employee, and the obligation can be measured reliably. These
liabilities are not discounted.
The Group’s obligation in relation to long-term employee benefits
is the amount of future benefits that employees have earned in
return for their service in the current and prior periods. That benefit
is discounted to determine its present value. The discount rate
used is the relevant corporate bond rate at reporting date.
Annual Report 2018 | Financial Statements
56
Notes to the financial statements
For the year ended 30 June 2018
Capital and risk
This section of the notes to the financial statements provides information on how Navigator Global Investments Limited manages its capital and
financial risk. On the following pages you will find disclosures explaining the Group’s:
capital management, including structure, policies, and related accounts balances; and
exposure to financial risks, including market risks, credit risk, liquidity risk, and the risk arising from financial instruments.
Where an accounting policy or key estimate is specific to a single note, the policy or estimate is described in the note to which it relates.
Capital management
Capital management of the Group focuses on aiming to ensure:
Regulatory Capital Requirements
that the Group continues as a going concern;
there is sufficient cash flow to meet operating
requirements;
flexibility is maintained for future business expansion;
and
that the payment of dividends is supported in
accordance with the Group’s dividend policy.
As at 30 June 2018 and 30 June 2017, the Company’s capital
comprises ordinary shares on issue.
In accordance with the requirements of the Central Bank of
Ireland, wholly-owned subsidiary LHP Ireland Fund Management
Limited must maintain a prescribed capital amount, determined as
a base requirement of 125 thousand Euros plus .02% of excess
over 250 million Euros in assets under management, plus an
additional .01% of the assets under management for potential
liability risk. This requirement was complied with throughout the
year.
Capital and reserves
a) Ordinary shares on issue
Ordinary shares on issue as at 30 June
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effects. The
Company does not have authorised capital or par value in respect
of issued shares. All ordinary shares rank equally with regard to
the Company’s residual assets. Ordinary shares have the right to
receive dividends as declared and are entitled to one vote per
share at general meetings of the Company.
Shares ‘000
2018
162,148
2017
162,148
Annual Report 2018 | Financial Statements
57
Notes to the financial statements
For the year ended 30 June 2018
Capital and reserves (continued)
b) Nature and purpose of reserves
Parent entity profits reserve
Translation reserve
Fair value reserve
Share-based payments reserve
The parent entity profits reserve comprises the balance of
accumulated profit for the Company not yet distributed as
dividends and represents profits available for distribution to
shareholders as dividends in future years.
The translation reserve is used to record foreign currency
differences arising from the translation of the financial statements
of operations which have a functional currency that is different to
the Group’s presentation currency.
Financial risk management
Classes of financial instruments
Definitions
Consolidated US$’000
2018
14,911
850
2,281
13,326
31,368
2017
13,279
850
1,495
13,326
28,950
The fair value reserve comprises of the increase in the fair value of
available-for-sale financial assets above their original purchase
value.
The share based payments reserve records share based
payments associated with historical performance rights and share
options.
During the years ended 30 June 2017 and 2018, the Group held the following non-derivative financial assets and liabilities:
Classification
Description
Loans and receivables
The carrying amount of these assets is a reasonable approximation of fair value
Cash
Trade and other receivables
Other financial liabilities
The carrying amount of these assets is a reasonable approximation of fair value
Financial assets at fair value
through profit or loss
Available-for-sale financial
assets
Trade and other payables
Investments in unquoted securities of entities managed by Lighthouse
Non-controlling equity holdings in US based limited liability companies over which
the Group does not have significant influence. Fair value movements in these
assets are recognised through other comprehensive income.
Note
5
9
14
10
10
Annual Report 2018 | Financial Statements
58
Notes to the financial statements
For the year ended 30 June 2018
Financial risk management (continued)
Derecognition of financial instruments
Offset of financial instruments
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in
a transaction in which substantially all the risks and rewards of
ownership are transferred.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position only when the
Group has a legal right to offset the amounts and intends either to
settle on a net basis or to realise the asset and settle the liability
simultaneously.
The Group derecognises a financial liability when its contractual
obligations are discharged or cancelled or expire.
Fair value of financial instruments
Fair value hierarchy
The Group classifies fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in making the
measurements. The different levels of fair value hierarchy are:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data.
Fair value measurements
The following table shows the fair values of financial assets and their levels in the fair value hierarchy.
Note
Level 1
Level 2
Level 3
Total
30 June 2017
Available-for-sale financial assets
Investment in unquoted securities of
externally managed entities
10
Financial assets at fair value through profit
or loss
Investments in unquoted securities of entities
managed by Lighthouse
10
Available-for-sale financial assets
Investment in unquoted securities of
externally managed entities
Financial assets at fair value through profit
or loss
Investments in unquoted securities of entities
managed by Lighthouse
10
10
-
-
-
-
-
5,005
5,005
9,450
-
9,450
30 June 2018
-
5,638
5,638
10,821
-
10,821
There were no transfers between levels during the financial years ended 30 June 2018 or 30 June 2017.
Annual Report 2018 | Financial Statements
59
Notes to the financial statements
For the year ended 30 June 2018
Financial risk management (continued)
Valuation techniques used to derive level 2 and level 3 fair values
The fair value of financial instruments that are not in an active
market are determined using valuation techniques. These
valuation techniques maximise the use of observable market data
where it is available. If the significant inputs required to fair value
an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable
market data, the instrument is included in level 3, as is the case for
unlisted equity securities.
Specific valuation techniques used to value level 2 and level 3
financial instruments include:
Share in unquoted securities of entities managed by Lighthouse
The Group holds investments in entities managed by Lighthouse.
Each investment entity has an external administrator who is
responsible for determining the fair value of the underlying
investments of each entity and using this to calculate the net asset
value per share at which any investor in the entity can redeem
their investment holding (‘the exit price’). The fair value of these
investments as at 30 June 2018 and 30 June 2017 is the exit price
as calculated and provided by the external administrator of the
investment entities. All significant inputs required to fair value the
investments are therefore observable.
Movement in Level 3 assets
Unquoted securities of externally managed entities
The shares held in other externally managed entities are unquoted
and are considered level 3 as the inputs to the fair value are not
based on observable market prices.
Boutique asset manager
The fair value of this investment has been determined with
reference to publicly available current industry valuation multiples,
and then applying a liquidity/marketability discount to take into
account the unlisted nature of this investment.
Operator of an online marketplace for alternative investments
The fair value of this investment is based on a sale transaction
between existing equity holders which occurred in May 2018, and
then applying a liquidity/marketability discount to take into account
the unlisted nature of the investment.
Text analytics platform provider
The fair value of this investment is based on the price per share of
additional capital issued by the entity as part of a Series B capital
raising which commenced in May 2018.
The following table presents the change in Level 3 assets for the financial years ended 30 June 2018 and 30 June 2017:
Consolidated US$’000
Note
Investment
in unquoted
securities
Investment in
promissory
notes
Deferred
consideration
receivable
Total
Opening balance 30 June 2016
2,889
686
Receipt of deferred revenue recognised on sale of subsidiary
Movement due to foreign exchange losses and change in
estimates
Increase in fair value through other comprehensive income
Investments in convertible promissory notes
Interest income on convertible promissory notes
Increase in fair value through profit or loss
Conversion of promissory notes to equity
Investments in unquoted securities
Impairment of unquoted securities
Closing balance 30 June 2017
Increase in fair value through other comprehensive income
Closing balance 30 June 2018
10
10
-
-
910
-
-
-
1,202
200
(196)
5,005
633
5,638
-
-
150
13
353
(1,202)
-
-
-
-
-
There were no transfers in or out of Level 3 during the financial year ended 30 June 2018.
178
(212)
34
-
-
-
-
-
-
-
-
-
-
Annual Report 2018 | Financial Statements
3,753
(212)
34
910
150
13
353
-
200
(196)
5,005
633
5,638
60
Notes to the financial statements
For the year ended 30 June 2018
Financial risk management (continued)
Financial Risk Management
Currency risk
The Group is exposed to currency risk on revenue, expenses,
receivables and payables that are denominated in a currency other
than the respective functional currencies of the Group entities. The
following significant exchange rates applied during the year:
AUD/USD: Average rate
AUD/USD: 30 June spot rate
2018
.7753
.7391
2017
0.7545
0.7692
At reporting date, the Group’s direct exposure to currency risk
relates to:
AUD denominated transactions and balances recognised by
Navigator Global Investments Limited which has a functional
currency of USD. Due to Navigator Global Investments
Limited’s position as the parent entity of the Australian listed
group, it retains a number of working capital balances
denominated in AUD.
AUD denominated balances recognised by the Lighthouse
Group which has a functional currency of USD. These
balances comprise receivables due from a third party which
relate to management and performance fees on funds for
which Lighthouse performs investment services.
The following table summarises the sensitivity of the balance of
financial instruments held at reporting date to movement in the
AUD/USD exchange rate, with all other variables held constant.
AUD/USD: appreciation of 10%,
net of tax
AUD/USD: depreciation of 10%,
net of tax
Consolidated US$’000
2018
2017
51
(51)
6
(6)
The Group has direct and indirect exposure to credit risk, liquidity
risk and market risk (including currency risk, interest rate risk and
equity price risk) arising from its activities.
These risks can impact the Group’s net profit and total equity value
through:
fluctuations in the value of the Group’s investments and other
financial assets and liabilities;
the effect of market risks on the Group’s Assets Under
Management (AUM), which can impact management,
platform and performance fees; and
the amount of interest earned on the Group’s cash balances.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s cash deposits
and receivables. The carrying amount of these financial assets
represents the Group’s maximum credit risk exposure.
Cash and lease guarantee deposits
Cash and lease guarantee deposits held in Australia are held with
bank counterparties which are rated A-1+ (Standard & Poor’s).
Cash and lease guarantee deposits held in the United States are
held in deposit accounts which are rated A-2 (Standard & Poor’s).
Trade and other receivables
At reporting date, 87% of the Group's trade and other receivables
related to amounts receivable from products managed by the
Group (2017: 89%).
As at reporting date, the Group did not have any receivables which
were past due. Based on historic default rates, the Group believes
that no impairment allowance is necessary in respect of trade and
other receivables.
Market risk
Market risk is the risk that changes in market prices, such as
interest rates, foreign exchange rates and equity prices will affect
the Group’s income or the value of its holdings of financial
instruments.
Interest rate risk
As at 30 June 2018, the Group’s exposure to interest rate risk
relates primarily to the Group’s cash.
A change in interest rates at reporting date would not have
impacted the carrying value of the Group's variable rate deposits,
and would therefore not have impacted the Group's equity or profit
or loss.
Annual Report 2018 | Financial Statements
61
Notes to the financial statements
For the year ended 30 June 2018
Financial risk management (continued)
Price risk
The Group is exposed to price risk in relation to the value of its
investments, and indirectly through the impacts on management
and performance fees earned from the fluctuations in the value of
the AUM in the investment products it manages due to market
price movements.
The following table summarises the sensitivity of management and
platform fees to a change in AUM due to movements in market
prices:
Consolidated US$’000
2018
2017
Investments
The Group’s investments comprise:
Profit or loss (decrease) /
increase
Fair value + 5%, net of tax
2,550
2,033
Fair value - 5%, net of tax
(2,550)
(2,033)
The impact of any change to management and platform fees due
to changes in AUM from inflows and outflows of assets by clients
due to changes in market prices has not been estimated.
Performance fees
The Group earns performance fees from some of its funds and
clients. The Group’s entitlement to performance fees varies
between the relevant funds and clients, and generally is dependent
on the relevant fund or client portfolio outperforming a high
watermark and in some cases a benchmark hurdle over a
performance period. Given the nature of performance fees, the
Group is subject to the risk that in any given financial year it may
earn no performance fees.
financial assets at fair value through profit or loss, which are
comprised of investments in the unquoted securities of
investment funds
available-for-sale financial assets which are comprised of
investments in the unquoted securities US based limited
liability companies.
The following table summarises the sensitivity of the fair value
(after tax) of these assets to movements in market prices:
Profit or loss (decrease) /
increase
Fair value + 5%, net of tax
Fair value - 5%, net of tax
Equity (decrease) / increase
Fair value + 5%, net of tax
Fair value - 5%, net of tax
Consolidated US$’000
2018
2017
384
(384)
200
(200)
288
(288)
153
(153)
Management and platform fees
The Group earns management and platform fees as a percentage
of the assets it manages on behalf of its funds and clients.
Management and platform fees will be impacted by changes in the
value of these assets from movements in the individual prices of
the underlying securities held as well as the fluctuations in
exchange rates for assets which are not denominated in USD.
Annual Report 2018 | Financial Statements
62
Notes to the financial statements
For the year ended 30 June 2018
Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in
meeting the obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The
Group’s approach to managing liquidity is to ensure, as far as
possible, that it has sufficient resources available to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group’s reputation.
The Group maintains 12 month rolling forecasts, which assist it in
monitoring cash flow requirements. The Group ensures that it has
sufficient cash on demand to meet operational requirements. This
approach excludes the potential impact of extreme circumstances
which cannot be predicted.
The following are the contractual maturities of non-derivative financial liabilities as at balance date:
Consolidated US$’000
Note
Carrying
value
Cont-
ractual
cash flows
6 months
or less
6-12
months
1-2 years
2-5 years
More than
5 years
14
2,502
(2,502)
(2,502)
14
3,204
(3,204)
(3,204)
-
-
-
-
-
-
-
-
30 June 2017
Trade and other payables -
current
30 June 2018
Trade and other payables -
current
Trade and other payables
It is not expected that the cash flows included in the maturity
analysis for these liabilities could occur significantly earlier, or at
significantly different amounts.
Annual Report 2018 | Financial Statements
63
Notes to the financial statements
For the year ended 30 June 2018
Group structure
This section of the notes to the financial statements outlines how the Navigator Global Investments Limited’s group structure affects the financial
position and performance of the Group as a whole. On the following pages you will find disclosures explaining the Group’s composition, key
parent entity disclosures and discontinued operations.
Where an accounting policy or key estimate is specific to a single note, the policy or estimate is described in the note to which it relates.
Group entities
The Group’s consolidated financial statements include the financial statements of Navigator Global Investments Limited and its subsidiaries:
Name
Country of incorporation
% Equity interest
2018
2017
HFA Lighthouse Holdings Corp
HFA Lighthouse Corp
LHP Investments, LLC
Lighthouse Investment Partners, LLC
Lighthouse Partners NY, LLC
Lighthouse Partners UK, LLC
North Rock Capital Management LLC
Lighthouse Partners Limited (HK)
LHP Ireland Fund Management Limited
United States
United States
United States
United States
United States
United States
United States
Hong Kong
Ireland
LDO 906 Limited
Cayman Islands
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Business combinations
The purchase method of accounting is used to account for all
business combinations regardless of whether equity instruments or
other assets are acquired. Cost is measured as the fair value of
the assets given, shares issued or liabilities incurred or assumed
at the date of exchange.
Basis of consolidation
The consolidated financial statements are those of the Group,
comprising Navigator Global Investments Limited (the parent
company, formally HFA Holdings Limited) and all entities that
Navigator Global Investments Limited controlled during the period
and at reporting date.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement in the investee and has the
power to affect those returns through its power over the investee.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group losses
control of the subsidiary. The assets, liabilities, income and
expenses of a subsidiary are included in the consolidation financial
statements from the date the Group gains control, until the date
the Group ceases to control the subsidiary.
All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
Annual Report 2018 | Financial Statements
64
Notes to the financial statements
For the year ended 30 June 2018
Parent entity disclosures
As at, and throughout the financial year ended 30 June 2018, the parent company of the Group was Navigator Global Investments Limited.
Result of the parent entity
Profit for the year
Total comprehensive income for the year
Financial position of the parent at year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent comprising of:
Share capital
Retained earnings
Parent entity profits reserve
Translation reserve
Share based payments reserve
Total equity
Company US$’000
2018
2017
26,022
26,022
21,908
21,908
16,821
283,833
(183)
(292)
15,210
282,224
(197)
(315)
283,541
281,909
257,355
257,355
2,397
14,911
5,070
3,808
2,397
13,279
5,070
3,808
283,541
281,909
Annual Report 2018 | Financial Statements
65
Notes to the financial statements
For the year ended 30 June 2018
Other disclosures
This section includes information that the Directors do not consider to be significant in understanding the financial performance and position of
the Group, but must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the
Corporations Regulations.
Related parties
Key management personnel remuneration
The key management personnel remuneration included in ‘employee expenses’ (see note 3) is as follows:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Individual directors’ and executives’
remuneration disclosure
Apart from the details disclosed in this note, no director has
entered into a material contract with the Group since the end of the
previous financial year and there were no material contracts
involving directors' interests existing at year-end.
Other related party transactions
Lighthouse Investment Partners, LLC
Lighthouse Investment Partners, LLC (Lighthouse) is a wholly
owned subsidiary of the Group and is a registered investment
advisor under the Investment Advisors Act of 1940 and operates
as general partner and investment manager for the Lighthouse
investment products.
During the financial year Lighthouse recognised management,
platform service fees and performance fees received or receivable
of $83,197,714 (2017: $72,731,155 from investment products for
which Lighthouse acts as general partner and investment manager
or platform service provider. Amounts receivable from these
products at 30 June 2018 were $12,660,017 (2017: $9,942,741).
Investment in products
As at 30 June 2018, Group entities hold $10,822,366 of
investments in products for which they act as investment manager
or platform service provider (2017: $9,450,482 Refer note 10 for
additional detail.
During the financial year, the Group recognised distributions from
its investments in these products of $nil (2017: $nil).
Consolidated US$
2018
2017
5,563,793
4,907,201
3,616
94,419
13,621
134,549
5,661,828
5,055,371
Equity accounted investee
As disclosed in note 11, the Group holds a 40% interest in a US
based limited partnership which commenced operations in July
2016.
In addition to the $1,500,000 equity provided to the entity, the
Group also provided an additional $1,750,597 as an unsecured
loan to the entity for operating costs. The Group also provided
certain operational support to the entity, including legal and
compliance assistance and office space.
As at 30 June 2018, the entity has not made material progress in
meeting is business objectives and has operated at a loss since its
inception. The Group has determined that it will not provide any
further funding to the entity after 30 June 2018. As such, it is
considered that it is unlikely that the entity will make a return of
equity or repay the funding provided, and as such these amounts
have been written down to nil, resulting in an impairment expense
for the 2018 financial year of $1,872,597 (2017: $375,890)
Other
There have been no guarantees provided or received for any
related party receivables.
For the years ended 30 June 2018 and 30 June 2017, the Group
has not raised a provision for doubtful debts relating to amounts
owed by related parties. Additional information regarding the
Group’s assessment of credit risk in relation to related party
receivables and investments is disclosed in note 18.
Annual Report 2018 | Financial Statements
66
Notes to the financial statements
For the year ended 30 June 2018
Auditors’ remuneration
Audit and review services
EY (FY17: KPMG): Audit and review of financial reports
Audit firms other than EY (FY17: other than KPMG): Audit and review of financial reports
Services other than statutory audit
Audit firms other than EY (FY17: other than KPMG): Taxation and other advisory services
Consolidated US$
2018
2017
245,864
66,139
312,003
19,903
19,903
287,620
17,425
305,045
38,850
38,850
Commitments
Operating lease commitments
Group as lessee
The Group has entered into operating leases on office equipment
and premises. These leases have a remaining life of between 2
months and 10 years.
Future minimum lease payments payable under non-cancellable
operating leases as at 30 June are as follows:
Within one year
After one year but not more than
five years
More than five years
Consolidated US$’000
2018
2,155
7,712
8,067
2017
1,815
7,845
9,720
17,934
19,380
Group as lessor
The Group has entered into operating leases to sub-lease office
premises. These leases have a remaining life of 2 years.
Future minimum lease payments receivable under these sub-
leases as at 30 June are as follows:
Within one year
After one year but not more than
five years
More than five years
Consolidated US$’000
2018
630
1,728
2,179
4,537
2017
238
257
-
495
Contingent liabilities
Investment fund related obligations
Sale of Certitude
The Company’s subsidiary Lighthouse Investment Partners, LLC
acts as the Investment Manager for certain private investment
funds under Delaware Law, Cayman Islands Law and Irish
Law. Due to its role as Investment Manager the subsidiary may be
subject to contingent liabilities as a result of its obligations to the
funds. The directors of Lighthouse Investment Partners, LLC
consider that all obligations have been met to 30 June 2018.
The Share Sale Agreement for the sale of Certitude Global
Investments Limited completed on 30 April 2015 included a
number of representations to, and warranties and indemnities for
the benefit of, the purchaser. These representations, warranties
and indemnities relate to potential losses arising from the conduct
of the Certitude business as a responsible entity whilst a member
of the Group. As part of the sale, the Company has purchased a
professional indemnity and directors and officer insurance policy
which provides run-off cover for a period of 7 years from the date
of the sale.
Annual Report 2018 | Financial Statements
67
Notes to the financial statements
For the year ended 30 June 2018
Subsequent events
Events occurring after reporting period
Mesirow Advanced Strategies
Line of Credit arrangement
On 27 July 2018 the Group entered into a $15 million line of credit
arrangement. The facility has been put in place to provide the
Group with access to funding if considered necessary. This
arrangement is undrawn.
Other than noted above, there has not arisen in the interval
between the end of the reporting period and the date of this report,
any other item, transaction or event of a material nature, likely to
affect significantly the operations of the Group, the results of those
operations, or the state of affairs of the Group, in future financial
years.
On 1 July 2018 the Group’s United States subsidiary, Lighthouse
Investment Partners, LLC (‘Lighthouse’) completed an agreement
with Mesirow Financial (‘Mesirow’) under which it acquired the right
to manage $5.39 billion of client assets from Mesirow Advanced
Strategies (‘MAS’), the multi-manager hedge fund division of
Mesirow (‘the transitioned assets’).
Under the transaction, Lighthouse acquired the contractual rights
to act as investment manager of these assets, along with some
related de minimus intellectual property, tangible property and
prepayments. Lighthouse also made employment offers to 56 of
the MAS staff, and these staff commenced as Lighthouse
employees on 1 July 2018.
The Group did not acquire any equity interests in Mesirow as part
of the transaction.
The purchase consideration is a contingent consideration
arrangement. Under the agreement, there is no upfront
consideration at acquisition date, other than reimbursement in
cash of an immaterial amount for transferred prepaid operating
expenses.
The transaction does not require an issue of equity by the
Company or for the Company to obtain debt funding.
The contingent consideration that may be paid in the future will be
determined under an earnout payment over seven years,
calculated as an agreed percentage of EBITDA generated by the
transitioned assets above a floor amount. Significant assumptions
must be made in estimating the contingent consideration, including
but not limited to, the retention level of the assets over the full
earnout period and the operating expenses required to support
these assets.
The Group is still in the process of assessing the fair values of the
acquired assets and assumed liabilities in relation to the
transaction. As a result, as at the date of this report the Group is
not in a position to determine and disclose:
the fair value of assets acquired as at acquisition date;
the amount of any goodwill or gain from a bargain
purchase which may arise on the transaction; or
the revenue and profit or loss of the combined entity for
the reporting period ending 30 June 2018 as though the
acquisition had occurred as at 1 July 2017.
As at 30 June 2018, approximately $1 million of acquisition costs
has been incurred in relation to the transaction.
Annual Report 2018 | Financial Statements
68
Notes to the financial statements
For the year ended 30 June 2018
Basis of preparation
This section sets out the basis upon which the Group’s financial statements are prepared as a whole. Specific accounting policies are described
in their respective notes to the financial statements. This section also shows information on new accounting standards, amendments and
interpretations, and whether they are effective in 2018 or later years. We explain how these changes are expected to impact the financial
position and performance of the Group.
Corporate information
Functional and presentation
currency
The consolidated financial statements are presented in US dollars
(‘USD’), which is the Company’s functional currency.
The amounts contained in this financial report have been rounded
to the nearest thousand dollars in accordance with the ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 dated 24 March 2016, unless otherwise stated.
Translation of foreign currency
Transactions in foreign currencies are translated to the respective
functional currency of Group entities at rates of exchange ruling on
the date of those transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions, and from the
translation at the year-end exchange rate of monetary assets and
liabilities denominated in foreign currencies, are recognised in
profit or loss.
The financial report of Navigator Global Investments Limited (the
‘Company’, formally known as HFA Holdings Limited) for the year
ended 30 June 2018 was approved by the board of directors on
the 9th day of August 2018.
The consolidated financial statements of the Company as at and
for the year ended 30 June 2018 comprise the Company and its
subsidiaries (the ‘Group’) (see note 19).
The Company is a for profit company limited by shares
incorporated in Australia and is listed on the Australian Securities
Exchange. The registered office of the Company is Level 21, 10
Eagle Street, Brisbane QLD 4000.
Statement of compliance
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance with
the requirements of the Corporations Act 2001, Australian
Accounting Standards (AASB) and other authoritative
pronouncements of the Australian Accounting Standards Board.
The consolidated financial statements also comply with the
International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board.
During the period, disclosures reflect changes to the comparative
period to conform to the current period’s presentation.
Details of the Group’s accounting policies, including changes
during the year, are included in note 30 as well as within the
individual notes to the financial statements.
Basis of measurement
The consolidated financial statements have been prepared on a
going concern basis. The consolidated financial statements have
been prepared on a historical cost basis except for the following
items:
Items
Financial instruments at fair value
through profit or loss
Available-for-sale financial assets
measured at fair value
Measurement
basis
Fair value
Fair value
The methods used to measure fair value are discussed further in
note 18.
Annual Report 2018 | Financial Statements
69
Notes to the financial statements
For the year ended 30 June 2018
Other accounting policies
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment within
the next financial year are included in the following notes:
note 6 - recognition of deferred tax assets: availability of
future taxable profit against which carried forward tax losses
can be used;
note 13 - impairment test: key assumptions underlying
recoverable amounts of intangible assets;
AASB 9 Financial Instruments
AASB 9 brings together three aspects of accounting for financial
instruments: classification and measurement, impairment and
hedge accounting. The standard is mandatory for annual periods
beginning on or after 1 January 2018 and will be applied by the
Group from the reporting period commencing 1 July 2018.
The Group has performed an impact assessment of AASB 9.
Overall, the Group does not expect a significant impact on its
statement of financial position or income statement. The Group will
implement changes in classification of certain financial
instruments.
note 10 - fair value measurement of investments;
(a) Classification and measurement
Measurement of fair values
A number of the Group’s accounting policies and disclosures
require the determination of fair value. The methods used to
determine fair values for measurement and / or disclosure
purposes are included in the following notes:
notes 10 and 18 - investments in financial assets at fair value
through profit or loss; and
notes 10 and 18 - investments in available-for-sale financial
assets.
Changes in accounting policies
New and amended standards
The Group has adopted all of the new and revised Standards and
Interpretations issued by the Australian Accounting Standards
Board (the AASB) that are relevant to its operations and effective
for the current reporting period:
AASB 2016-1 Amendments to Australian Accounting
Standards – Recognition of Deferred Tax Assets for
Unrealised Losses
AASB 2016-2 Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 107
AASB 2017-2 Amendments to Australian Accounting
Standards – Further Annual Improvements 2014-2016 Cycle
These did not have a material impact on the disclosures or the
amounts recognised in the Group's financial statements.
Accounting standards and interpretations issued but
not yet effective
The following Australian accounting standards and interpretations
that are relevant to the Group’s operations have been issued but
are not yet effective and have not been adopted by the Group for
the year ended 30 June 2018.
The Group intends to adopt these standards, if applicable, when
they become effective.
The Group does not expect a significant impact on its statement of
financial position or income statement from applying the
classification and measurement requirements of AASB 9. It
expects to continue measuring at fair value all financial assets
currently held at fair value. For those investments in unquoted
securities of externally managed entities that are currently held as
available for sale with fair value gains and losses recorded in other
current income (OCI), the Board has applied the option to continue
to present fair value changes in OCI, and therefore the application
of AASB 9 will not have a significant impact. As a result of applying
this option, the fair value reserve associated with these
investments is prohibited from being recycled to the profit and loss
on disposal, but can be transferred within equity.
Trade receivables are held to collect contractual cash flows and
are expected to give rise to cash flows representing solely
payments of principal and interest. The Group has analysed the
contractual cash flow characteristics of these instruments and
concluded that they meet the criteria for amortised cost
measurement under AASB 9. Therefore, reclassification of these
instruments is not required.
(b)
Impairment
AASB 9 requires the Group to record expected credit losses on its
receivables on either a 12-month or lifetime basis. As the Group’s
trade receivables are short-term in nature and do not contain a
significant financing component, the Group will apply the simplified
approach and record lifetime expected losses on all trade
receivables. Due to the short-term nature of these receivables, the
fact that the majority of trade receivables relate to Group managed
products, and the historically low default rates for trade
receivables, the application of expected credit loss model is not
expected to result in the recognition of a material credit allowance.
(c) Hedge Accounting
The Group does not currently have any existing hedge
relationships.
Annual Report 2018 | Financial Statements
70
Notes to the financial statements
For the year ended 30 June 2018
Other accounting policies (continued)
AASB 15 Revenue from Contracts with Customers
AASB 16 Leases
AASB 15 establishes a comprehensive five-step model to account
for revenue arising from contracts with customers. Under AASB
15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The standard is
mandatory for annual periods beginning on or after 1 January 2018
and will be applied by the Group from the reporting period
commencing 1 July 2018. The Group plans to apply the standard
using the full retrospective method, and as a result will restate
comparatives for the financial year ended 30 June 2018 where
required.
The Group is in the business of providing fund and investment
management services to investment entities. These services are
provided based on contracts entered into with investment entities.
The impact of adopting this standard outlined in the following
sections relates to revenue contracts that the Group had in place
up to and including 30 June 2018. Contracts transitioned to the
Group as part of the transfer of investment management rights
from Mesirow Advanced Strategies (‘MAS’) on 1 July 2018 (refer
note 25) will be assessed prior to 31 December 2018 and
accounted for in accordance with the requirements of AASB 15.
(a) Sale of services
The consideration received by the Group for the provision of fund
and investment management services is in the form of
management and platform services fees, and in the case of some
customers, performance fees.
Under current fee arrangements, the Group has concluded that the
application of AASB 15 is not expected to result in a change in
timing or amount of revenue recognised in relation to these fees.
This is because of the uncertainty associated with the estimate of
performance fees, which is not included in the transaction price
until the final performance has been determined at the end of the
relevant performance period. At all times prior to this, there is a
high probability of any revenue recognised being reversed. All
relevant performance periods are 12 months or less.
(b) Principal versus agent considerations
Under its contracts with customers, the Group is entitled to
reimbursement where it pays expenses on behalf of the customer.
These reimbursements have historically been recognised on a net
basis in the income statement.
Where it has been assessed that the Group controls a specified
good or service before it is transferred to the customer, these
expenses will be presented gross from 1 July 2018, with a
corresponding increase in revenue. The value of this gross up to
both revenue and expenses in future years will depend of the
amount of customer expense and reimbursement transactions
incurred during that year and is likely to be higher with the addition
of the assets transitioned from MAS on 1 July 2018. The net
impact of the change is not expected to be material to net profit.
AASB 16 removes the classification of leases as either operating
or finance leases for a lessee, and introduces a single approach to
AASB 16 Leases
AASB 16 removes the classification of leases as either operating
or finance leases for a lessee, and introduces a single approach to
accounting for leases requiring the lessee to recognise an asset
and liability in relation to the lease. The standard does not
become mandatory until 1 January 2019, but is available for early
adoption if AASB 15 Revenue from Contracts with Customers has
also been adopted.
The Group has a number of leases for office premises and
equipment, and adoption of this standard is expected to result in
the following impacts to the Group’s consolidated financial
statements:
recording additional assets and liabilities in its balance
sheet;
removing lease payments as an operating expense and
replacing this amount with a depreciation and finance cost
expense in the income statement; and
a reclassification in the cash flow statement for payments
relating to leases from operating cash outflows to financing
cash outflows.
The full quantum of financial and disclosure impacts are yet to be
determined with the choice of transition yet to be decided. Further
information will be provided in coming financial periods.
Other Standards
The following additional new or amended standards have not yet
been adopted and are not expected to have a significant impact on
the Group’s consolidated financial statements:
AASB 2016-5 Amendments to Australian Accounting
Standards - Classification and Measurement of Share-based
Payment Transactions
AASB 2017-1 Amendments to Australian Accounting
Standards – Transfers of Investment Property, Annual
Improvements 2014–2016 Cycle and Other Amendments
AASB Interpretation 22 Foreign Currency Transactions and
Advance Consideration
AASB Interpretation 23 Uncertainty over income tax
treatments
AASB 2017-6 Amendments to Australian Accounting
Standards – Prepayment Features with Negative
Compensation
AASB 2017-7 Amendments to Australian Accounting
Standards – Long-term Interests in Associates and Joint
Ventures
AASB 2018-1 Amendments to Australian Accounting
Standards – Annual Improvements 2015-2017 Cycle
AASB 2018-2 Amendments to Australian Accounting
Standards – Plan Amendment, Curtailment or Settlement
Conceptual Framework for Financial Reporting
AASB 2014-10 Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture (Amendments to
IFRS 10 and IAS 28)
Annual Report 2018 | Financial Statements
71
Directors’ declaration
In the opinion of the directors of Navigator Global Investments Limited (the ‘Company’):
(a)
the consolidated financial statements and notes that are set out on pages 35 to 71, and the Remuneration report on pages 22 to 30 of
the Directors' report, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and
Chief Financial Officer for the financial year ended 30 June 2018.
3. The directors draw attention to note 27 to the consolidated financial statements, which includes a statement of compliance with International
Financial Reporting Standards.
Signed in accordance with a resolution of the directors.
Michael Shepherd, AO
F P (Andy) Esteban
Chairman and Non-Executive Director
Non-Executive Director
Dated at Sydney this 9th day of August 2018
Annual Report 2018 | Directors’ Declaration
72
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
Independent Auditor's Report to the Members of Navigator Global
Investments Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Navigator Global Investments Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the statement of financial position as at 30 June
2018, the income statement, statement of comprehensive income, statement of changes in equity
and 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:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2018 and of its consolidated financial performance for the year ended on that date; and
b)
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 APES 110 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 judgement, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide
a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
73
Recoverability of deferred tax assets
Refer to note 6 of the financial report
Why significant
How our audit addressed the key audit matter
Deferred tax assets represent 27% of total
assets. Assessing their recoverability was
subject to significant judgements made by the
Group in forecasting future taxable profits and
determining the availability and expected timing
of utilising the deferred tax assets against future
taxable income in accordance with tax laws in
each applicable jurisdiction.
These judgements included those concerning the
ability of the US based Lighthouse Group to earn
sufficient future taxable profits to utilise
deferred tax assets, which include prior period
tax losses, prior to the tax losses expiring.
Our audit procedures included the following:
Assessed the mathematical accuracy of the Group’s deferred
tax assets utilisation model;
Agreed the amount of unused tax losses carried forward as
deferred tax assets to prior period lodged income tax
returns;
Evaluated the company’s assumptions and estimates in
relation to the likelihood of generating sufficient future
taxable income based on most recent Board approved
forecasts, prepared by the Group, principally by performing
sensitivity analyses and evaluating and testing the key
assumptions used to determine the amounts recognised;
Ensured these assumptions and estimates were consistent
with the criteria used for testing goodwill for impairment;
Assessed the historical accuracy of the Group’s previous
future taxable profit forecasts by comparing to actual
performance;
Assessing the Group’s determination of availability and
expected timing of utilisation of deferred tax assets for
consistency with tax laws in each applicable jurisdiction; and
Assessed the adequacy of the related disclosures in the
financial report.
Recoverability of goodwill and other intangible assets
Refer to note 13 of the financial report
Why significant
How our audit addressed the key audit matter
The recoverability of goodwill and other
intangible assets is a key audit matter due to the
value of goodwill relative to total assets and the
degree of judgement involved in the impairment
assessment. Specifically, the judgement
concerning the value in use of the US based
funds management cash generating unit (“CGU”)
to which goodwill and other intangible assets
have been allocated (the Lighthouse Group).
The model used by the Group to determine value
in use is subject to significant judgement due to
the assumptions and estimations utilised in
forecasting the future cash flows of the CGU.
Our audit procedures included the following:
Assessed the mathematical accuracy of the Lighthouse
Group’s value in use model;
Evaluated the company’s assumptions and estimates in
relation to the forecast cash flows based on most recent
Board approved forecasts, prepared by the Group, principally
by performing sensitivity analysis and evaluating and testing
the key assumptions used to determine the amounts
recognised
Ensured the assumptions and estimates were consistent with
the criteria used for testing recoverability assessment of
deferred tax assets
Assessed the historical accuracy of the Group’s previous
future cash flow forecasts by comparing to actual
performance;
Involved our valuation specialists in the assessment of key
assumptions utilised in the value in use model. Where
applicable, we corroborated key assumptions with external
information; and
Performed sensitivity analysis by varying key assumptions
and assessing the impact on the recoverability of goodwill;
and
Assessed the adequacy of the related disclosures in the
financial report
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Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2018 Annual Report, but does not include the financial report
and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly 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 relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
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 the 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 the Australian Auditing Standards, we exercise professional
judgement 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.
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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 or 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 related 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.
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.
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Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors' report for the year ended 30
June 2018.
In our opinion, the Remuneration Report of Navigator Global Investments Limited for the year ended
30 June 2018, 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
Rebecca Burrows
Partner
Brisbane
9 August 2018
A member firm of Ernst & Young Global Limited
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77
Shareholder information
As at 7 August 2018
Additional information required by the Australian Securities Exchange Limited Listing Rules is set out below.
Substantial shareholdings (not less than 5%)
The following parties have a substantial relevant interest in ordinary shares of HFA Holdings Limited:
Category
Delaware Street Capital Master Fund, LP
Sean McGould, his controlled entities and associates
Vinva Investment Management
Twenty largest shareholders
Name
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Limited
BNP Paribas Nominees Pty Limited
Neweconomy.Com.Au Nominees Pty Ltd
UBS Nominees Pty Ltd
Mr Shay Shimon Hazan-Shaked
Winchester Global Trust Company Limited
Bond Street Custodians Limited
Mr Ethan J Baron
Australian Executor Trustees Limited
Mr Mark Sheffield Hancock & Brig Ian Denis Westwood
MR Shay Shimon Hazan-Shaked
CS Third Nominees Pty Ltd
Porta Group Pty Ltd
Brispot Nominees Pty Ltd
Mr Richard James Williams & Ms Jane Clare Frobisher Dunlop
Number of ordinary
shares
26,101,982
19,438,084
8,194,511
%
16.10%
11.99%
5.05%
Number of ordinary
shares held
Percentage of
capital held
64,714,800
27,171,983
22,851,743
9,030,634
3,251,795
2,252,963
1,134,978
1,093,099
971,483
900,000
742,719
600,000
593,862
518,002
422,252
400,000
392,302
380,000
373,074
326,000
39.91%
16.76%
14.09%
5.57%
2.01%
1.39%
0.70%
0.67%
0.60%
0.56%
0.46%
0.37%
0.37%
0.32%
0.26%
0.25%
0.24%
0.23%
0.23%
0.20%
Annual Report 2018 | Shareholder Information
78
Shareholder information
As at 7 August 2018
Distribution of shareholdings
Range
1-1,000
1,001-5,000
5,001-10,000
10,001-50,000
50,001 – 100,000
100,001 and over
Total
Number of holders
of ordinary shares
% of holders
Number of ordinary
shares
% of share
668
1,070
413
407
45
54
25.14%
40.27%
15.54%
15.32%
1.69%
2.03%
329,462
2,876,872
3,130,800
8,803,281
3,076,401
143,931,081
2,657
100.00%
162,147,897
0.20%
1.77%
1.93%
5.43%
1.90%
88.77%
100.00%
The number of shareholders holding less than a marketable parcel of ordinary shares is 110.
Voting rights
Ordinary Shares
The Company has 162,147,897 fully paid ordinary shares on
issue.
The fully paid ordinary shareholders of the Company are entitled to
vote at any meeting of the members of the Company and their
voting rights are:
on a show of hands – one vote per shareholder; and
on a poll – one vote per fully paid ordinary shares.
On-market buy-back
There is no current on-market buy-back.
Unquoted equity securities
There are no unquoted equity securities.
Annual Report 2018 | Shareholder Information
79
Shareholder information
As at 7 August 2018