Navigator Global Investments Limited
ASX Appendix 4E
(ASX:NGI)
For the year ended 30 June 2019
Results for announcement to the market
(all comparisons to the year ended 30 June 2018)
Amounts in USD’000
30 June 2019
Revenue from ordinary activities
Up
28% To
114,867
Earnings before interest, tax, depreciation, amortisation and impairment
Up
10%
to
37,652
Profit from ordinary activities after tax attributable to members
Up
306%1
to
26,843
Net profit for the period attributable to members
Up
306%1
to
26,843
1 Reflects the impact of the US Tax Cuts and Jobs Act, (‘HR1’) that was passed into law on 22 December 2017. One of the key
provisions of HR1 was to reduce the US Federal tax rate from 35% to 21% from 1 January 2018. The application of this change in tax
rate resulted in a reduction in the carrying value of the Group’s deferred tax assets by $35.5 million during the year ended 30 June 2018,
with a corresponding increase to income tax expense in the income statement for this amount during the same period.
Dividends
Final 2018 dividend per share (paid 31 August 2018)
Interim 2019 dividend per share (paid 8 March 2019)
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 9.0 cents
USD 8.0 cents
0%
0%
Conduit
foreign
income %
100%
100%
Ex-dividend date:
Record date:
Payment date:
14 August 2019
15 August 2019
30 August 2019
NGI dividends are determined in US dollars. However, shareholders will receive their dividend in Australian dollars. Currency conversion will
be based on the closing foreign exchange rate on the record date of 15 August 2019.
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 2019
30 June 2018
USD 40.63 cents
USD 35.79 cents
Additional Appendix 4E requirements can be found in the Directors’ Report and the 30 June 2019 Financial Report and accompanying notes.
This report is based on the 30 June 2019 Financial Report (which includes consolidated financial statements audited by Ernst & Young).
Navigator Global Investments Limited
and its controlled entities
ACN 101 585 737
Annual Report
30 June 2019
Annual Report 2018 | From the Chairman
1
Navigator Global Investments Limited
ACN 101 585 737
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
2019 Snapshot
From the Chairman & CEO
12 Operating & financial review
22 Directors’ report
38
Lead auditor’s independence declaration
39 Financial statements
82 Directors’ declaration
83
Independent auditor’s report
89 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
2019 Snapshot
t
n
e
m
e
g
a
n
a
m
$US 14.2 bn
↓ 15%
5
.
9
7
.
6
1
2
.
4
1
r
e
d
n
u
s
t
e
s
s
a
i
g
n
s
o
C
l
FY17
FY18
FY19
4
.
5
0
1
$US 105.4 m
↑ 40%
2
.
1
7
5
.
5
7
$US 37.7 m
↑ 10%
17.0 US cents
↑ 6%
FY17
FY18
FY19
7
.
7
3
2
.
4
3
8
.
9
2
FY17
FY18
FY19
0
.
7
1
0
.
6
1
0
.
4
1
FY17
FY18
FY19
e
u
n
e
v
e
r
e
e
f
t
n
e
m
e
g
a
n
a
M
A
D
T
B
E
I
e
r
a
h
s
r
e
p
s
d
n
e
d
v
d
i
i
l
a
t
o
T
Annual Report 2019 | 2019 Snapshot
5
From the Chairman
& CEO
From the
Chairman
& CEO
This past year has seen big changes for the Navigator Global Investments Limited Group (‘the Group’), and with change, there are
always opportunities and challenges.
The financial year started with a peak in our assets under management (‘AUM’) of $16.7 billion, the result of an excellent year of
asset raising by the Lighthouse team in the 2018 financial year as well as the transition of $5.4 billion of client relationships from the
Mesirow Advanced Strategies (‘MAS’) transaction, which is discussed further below.
As discussed during last year’s results presentation, we did not expect to maintain that peak of AUM in this financial year. We took
pains to point out that it was unlikely that we would retain all of the assets which transitioned. This proved to be true, and unfortunately
was further compounded by some very difficult global markets during the December 2018 quarter which we believe prompted
redemptions to occur faster than anticipated.
Despite the reduction in AUM from the peak over the past 12 months, we encourage our shareholders to take a broader focus than just
that headline number. We have definitely experienced some positives over the year as well, not least of which is delivering a record
FY19 EBITDA of $37.7 million.
We remain focused on executing on both our investment and business strategy. As an asset management firm with more than 20 years
of experience, we know that underlying the short-term fluctuations in markets are long term business and credit cycles. It takes
discipline to stay true to your process and not be distracted by noise. We also know that remaining keenly focused on creating value for
our clients will be the way we continue to build a successful, long-term business.
Acquisition of client relationships from Mesirow Advanced Strategies
In early March 2018, the Group entered into an agreement to acquire substantially all of the client assets of MAS, the multi-manager
hedge fund division of Mesirow Financial (‘Mesirow’). The transaction closed on 1 July 2018 with the transition of $5.4 billion of assets
under management to Lighthouse on that date.
Twelve months on from transition date, we continue to manage 58% of the AUM transitioned, or $3.1 billion. The transaction was
negotiated and closed in a relatively short timeframe, and as such we appreciated that there would be some uncertainty as to the exact
number of clients and assets that we would retain post-transition. Redemption activity for the MAS business had picked up prior to the
transaction, and we anticipated that this would continue post-transaction before stabilising. However, it is fair to say the size and speed
of redemption activity was more than we expected.
While the transaction was successful from an AUM perspective, as a board we are focused on more than just the headline AUM. We
remain satisfied that the MAS transaction has been and will continue to be positive for the Group. The transaction has been accretive to
EBITDA in the first 12 months, and we expect this to continue as the client relationships settle and we scale the ongoing operating costs
relevant to the remaining clients accordingly. The earnout calculation for the first 12 months ending 30 June 2019 has not been formally
agreed with the vendor as at the date of this report. However, the Group estimates that any earnout amount payable for this period will
be nominal or nil.
The terms of the transaction were unusual, whereby any purchase consideration that may be paid in the future will be determined under
earnout payment terms over seven years, calculated as an agreed percentage of EBITDA generated by the transitioned assets above a
floor amount below which no payment would be made. We believe this structure has ensured that the Group has both protection from
the risks associated with the post-transition redemption activity, and ensured we are compensated for the considerable time and effort
involved in an asset transition of this scale.
We anticipate a stabilisation of MAS customised clients over the next 12 months. This view is based on the best information currently
available to us. As always, we caution that it is difficult to predict future outcomes, so our expectations may prove to be better or worse
based on actual future events.
7
Annual Report 2019 | From the Chairman & CEO
From the
Chairman
& CEO
Corporate governance
Strong governance and a culture which values ethics and integrity are a key priority for the Navigator board.
Our core values
As a business, we are very aware that people are the heart of everything we do.
That’s why our core values are centered around how we want employees to behave with our clients, our managers and with each other.
These values have been the guiding force within our Lighthouse business since the beginning, and the Navigator board formally adopted
these values in May 2019 to ensure that we articulate them externally as well as internally:
Ethics & Integrity
Do the right thing at all times
and in all circumstances,
whether or not anyone is
watching
Teamwork
Work together and use all of the
resources of the firm to make
decisions that will maximise
value
Professionalism
Treat all people (internally and
externally) with respect and
dignity
Client Loyalty
Do more than is expected by the
client
Continuous Improvement
& Excellence
All employees are responsible for
proactively achieving regular,
incremental improvements
Corporate responsibility and sustainability
Going hand-in-hand with our core values and focus on people is how our organisation meets its broader responsibilities as a global corporate
citizen. A key objective for the 2020 financial year will be publishing a Corporate Sustainability and Responsibility Report to set out how our
Group currently meets our environmental, social and governance responsibilities. Even more importantly, we will outline the projects and
initiatives we will be implementing in the short and medium term to make a positive impact on the planet, on our people and on the local
societies our business forms a part of.
Board composition
We consider that the stability in the membership of our board over the past 5 years has been important to the efficient functioning of the Group.
While our board is relatively small with only five directors, given the singular focus of our strategy and operations on alternative investment
management, and the diverse global locations of the various directors, we believe that a board of this size is the right fit for the Navigator Group.
While stability is valuable, change is also a positive force. During the 2020 financial year the board has approved a key objective to appoint a
female director in a positive step to achieving gender diversity at a board level.
8
Annual Report 2019 | From the Chairman & CEO
From the
Chairman
& CEO
Major initiatives
Aside from our day to day investment management activities for our clients, we’ve also focused on several key
projects and initiatives during the year:
Integration of MAS assets into existing operations
Our goal with our new clients from MAS is to integrate them into our existing processes and systems at
Lighthouse. This has been a large undertaking, and we estimated that this would take 12 to 18 months.
Integration of the investment management teams and processes has occurred smoothly, and for the past
six months we have been satisfied that the investment team is functioning as a cohesive unit, with the
combined knowledge benefiting all of our clients.
We continue to make progress on the migration of the historical MAS data, and the adaption of consistent
client reporting formats and procedures. This has been a complicated undertaking as MAS operated on a
different technology backbone. As such, we have moved cautiously particularly in relation to the data
migration to ensure clients receive the same, if not higher, level of service.
Overall, we have been pleased with the level of integration achieved over the past 12 months, and
acknowledge the contribution of the team to the integration process whilst continuing to meet their on-
going responsibilities to clients.
Continued investment in the platform
A key initiative which we have launched in earnest towards the end of this financial year is the development of
additional tools for our manager platform. Our goal is to replace a number of existing off-the-shelf products
with more customised tools for use by our portfolio managers that provides improved scalability, workflow
transparency and better information security than our existing arrangements.
The creation of the proprietary platform requires the use of specialist consultants as well as dedicated internal
information technology staff. We have expensed $1.5 million on consultants during the 2019 financial year,
and expect a similar level of spend in the coming financial year to see the system completed.
Whilst this is a big investment of time and resources for our business, we see this as the next evolution in our
systems technology to give us a competitive edge.
Platform services business
We have continued to develop our presence as a potential provider in the Platform Services space. This
represents an evolution of our current service model to offer our existing managed account platform to
clients for their customised use.
We believe the competitive advantage of our platform is that it has been developed with our proprietary
knowledge of managing multi-manager hedge fund portfolios for more than 20 years. We have built it and
continually evolved it for our own use.
We believe the functionality of the platform, with powerful reporting tools which assists investment
analysis and risk management needs, can make a tangible difference to an investor’s investment process
when combined with the experience and expertise we have developed over these last two decades.
We are pleased with progress made to date with this new business line, with a dedicated team having
completed a significant amount of prospecting activity as they refine how we position and price our
service.
9
Annual Report 2019 | From the Chairman & CEO
From the
Chairman
& CEO
Investment performance
The investment performance of our strategies was most definitely a year of two halves.
The significant volatility and market dislocation experienced in the December 2018 quarter led to negative investment results
across our portfolios, particularly in the global long/short space, although not nearly as bad as experienced in the markets.
Investment performance saw improvement in the second half of the financial year. Our hedge fund strategies broadly performed
well throughout the half, generating positive returns in upwardly trending markets, while protecting capital in periods of market stress like
experienced in May 2019.
Current global markets present some very interesting challenges. Institutional investors appear to be wrestling with the two, seemingly
contradictory, paths that the equity and fixed income markets are taking. Fixed income markets appear to indicate fears of a global economic
slowdown, while equity markets reach for all time highs. If Central Bankers are successful in promoting economic growth, bond market duration,
let alone the trillions in negative yielding assets, will prove problematic. If they are unsuccessful or only modestly successful, equity investors
may find valuations troublesome. In this odd, late cycle environment, we hold that diversification outside of traditional asset classes makes
sense.
Our approach remains consistent: we seek to invest in differentiated strategies by partnering with specialised investment talent. We are focused
on terms and structures that create alignment with our investors’ goals and allow for flexibility to both find new and interesting opportunities and
to manage risk in times of crisis. We believe hedge funds that are focused on idiosyncratic returns with discipline around hedging and liquidity
are well positioned to serve investors ably over the intermediate to long term.
Global distribution
We continue to see opportunities for new and increased mandates across the globe, and particularly pleasing was a large mandate win in
February 2019 from the Middle East. We maintain our focus on global distribution opportunities, and continue to work on building new
relationships, while deepening existing ones. In the shorter term, we continue to see good opportunities in Asia, particularly Japan and the
Middle East as our most promising markets.
FY19 operating performance
The Operating and Financial Review on pages 12 to 21 sets out detailed information on the Group’s activities for the 2019 financial year. We
take this opportunity to highlight a few key points:
The investment management operating activities of the Group earned a record EBITDA of $37.7 million for the 2019 financial year, up
10% on 2018. Management fee revenue growth came primarily from the Customised Solutions business.
Operating expenses (after the offset of revenue from the provision of office space and services and excluding reimbursement of fund
operating expenses) were higher by $19.4 million compared to 2018. This reflects the significant increase in scale to our operations
across all major expense areas from the 1 July transition of MAS client relationships, as well as costs relating specifically to MAS
transition activities.
The largest component of this relates to employee costs, and reflects the fact that we have grown our staff numbers to 139 people as
at 30 June 2019. We have also continued to spend to make ongoing enhancements to investment processes and technology
platforms across the business.
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 2019 grew 10% on the prior year, and the Board is pleased that Navigator has also
delivered an increase in the dividend paid to shareholders:
2015
2016
2017
2018
2019
EBITDA (USD 000’s)
Cash flows from operating activities (USD 000’s)
Dividends per share for the financial year (US cents)
Dividend amount for the financial year (USD 000’s)
Dividend payout as a % of EBITDA
28,8392
28,193
10.5
16,847
58%
29,4901
30,125
12.0
19,752
67%
29,848
30,088
14.0
22,648
76%
34,212
32,921
16.0
26,058
76%
37,652
22,565
17.0
27,335
73%
Closing share price (dollars)
AUD 2.07
AUD 2.29
AUD 2.40
AUD 5.34
AUD 3.94
Change in share price (dollars)
↑ AUD 1.02
↑ AUD 0.22
↑ AUD 0.11
↑ AUD 2.94
↓ AUD 1.40
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.
10
Annual Report 2019 | From the Chairman & CEO
From the
Chairman
& CEO
Dividends
The Directors have determined an
unfranked dividend of 9.0 cents per share
(with 100% conduit foreign income
credits) payable 30 August 2019. Added
to the interim dividend of 8.0 cents per
share, this brings the total for the year to
17.0 US cents per share, which is a 6%
increase on the prior year.
The FY2019 combined interim and final
dividends equates to a payout ratio of
73% 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
5
.
5
0
.
5
0
.
7
0
.
5
0
.
8
0
.
6
0
.
9
0
.
7
0
.
9
0
.
8
Final
Interim
FY15
FY16
FY17
FY18
FY19
As always at Navigator, we see the best way forward is to keep an unwavering focus – which is to deliver on our investment objectives for
clients and to maintain a high quality of service. It also means to continue to find ways to enhance our processes, systems and products so that
we differentiate ourselves from our competitors.
We will continue to promote our managed account platform, as we believe it provides a better model for investing in hedge funds. 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 differentiated alternative asset portfolios with exclusive exposure, 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 see many trends which indicate that markets are likely to continue to be unpredictable in the short term, but in our view, it is better to pay
more attention to broader phenomena such as business and credit cycles rather than headlines. While the timing and scale of those cycles can
prove difficult to predict, they are indeed a regular part of the investment landscape, and keeping to our asset allocation risk discipline is the best
way to navigate our way through.
We would like to extend the Board’s appreciation to all of our employees across the Group for their efforts over the past year. As a business
centered around meeting our client’s investment needs, we appreciate the contributions that they make individually and collectively to providing
our clients with the best possible levels of investment expertise and service. The Lighthouse name continues to represent a reputation for
quality and integrity in the marketplace.
Michael Shepherd
Chairman
Sean McGould
Chief Executive Officer
11
Annual Report 2019 | From the Chairman & CEO
From the
Chairman
& CEO
Operating &
financial review
Operating &
financial
review
We deliver innovative investment solutions centred around
alternative investments to a range of clients around the world
Navigator Global Investments Limited (‘NGI’) 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 realise 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.
As at 30 June 2019, Lighthouse is managing $14.2 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.
As a global business with a global client base, Lighthouse has offices in New York, Chicago, Palm Beach Gardens, London, Hong Kong
and Tokyo.
US$14.2 bn
Total AUM
23+
Year track record
139
Total employees
42
Investment professionals
1000+
Investors worldwide
13
Annual Report 2019 | Operating & 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.
Operating &
financial
review
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 success depends on three key factors
M
U
A
We earn revenue from managing
assets on behalf of our clients
(which we refer to as "Assets Under
Management" or "AUM").
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.
s
e
t
a
r
e
e
F
The revenue we earn on our AUM
depends on the management and
performance fees we are entitled to
charge for our services.
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
p
o
e
P
Our success relies on 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.
Assets under management
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 a global long/short equity
fund seeking equity-like returns with lower volatility than
traditional global equity investments.
Lighthouse managed accounts program
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.
Both our commingled funds and customised solutions clients utilise our proprietary 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 a Lighthouse entity. Hedge fund managers are
authorised by Lighthouse to trade the assets within each managed account in accordance with defined investment guidelines and parameters.
Lighthouse investors can place their assets in commingled funds or in customised solutions. We typically structure all our hedge fund allocations
within our proprietary managed account framework.
14
Annual Report 2019 | Operating & financial review
As at 30 June 2019 the Group had AUM of $14.2 billion. Whilst our goal is to integrate the MAS client relationships
acquired into our existing operations, for this transitional year we have provided a breakdown of our AUM across Commingled
Funds and Customised Solutions clients for both the legacy Lighthouse assets and the MAS assets:
Operating &
financial
review
From a Lighthouse perspective, the Lighthouse Customised
Solutions funds saw growth from net inflows of $350 million for the
year, however the Lighthouse Commingled funds experienced net
redemptions of $670 million. The majority of these redemptions
were from the Lighthouse Global Long/Short Funds. As global
equity markets have continued to advance higher, it has created
challenging conditions for hedged equity approaches. We have
seen this type of market environment before and it is important that
we continue to follow our stated investment process.
Investment performance impact
After a difficult first half of the financial year in terms of investment
performance across the Group’s portfolios, investment returns
improved in the second half, off-setting the $680 million reduction
in AUM from performance in the first half to settle at a $50 million
increase to AUM for the full year.
.
Our opening AUM as at 1 July 2018 of $16.7 billion was a
milestone for the Group. It reflected both an excellent year of
asset raising by the Lighthouse business over the previous
financial year, as well as the significant boost of transitioning $5.4
billion of client relationships from MAS.
With our expectation that we would not retain all of the transitioned
assets, the $2.5 billion reduction to AUM over the 12 months to
30 June 2019 should be viewed with this in mind.
Net fund flows for the year
The driver for the reduction in AUM for the year was net outflows,
with a higher than normal level of outflows experienced across
both Lighthouse and MAS, resulting in a combined $2.6 billion of
net outflows. Given the significant volatility of markets across the
year, and in particular the impacts this had on investment returns
in the December 2018 quarter, it is not unexpected that we would
see redemptions for the year higher than our historical levels.
The majority of the decrease in AUM was driven by anticipated
redemptions from the transitioned MAS relationships, which totaled
$2.3 billion across the year. The size of redemptions was
approximately $1.1 billion for both Commingled funds and
Customised Solutions client. As a result, 12 months after the
transition of the assets we continue to manage a little under half of
the AUM from the MAS Commingled funds, and two thirds of the
MAS Customised Client AUM. We anticipate a stabilisation of
MAS customised clients over the next 12 months. This view is
based on the best information currently available to us, but as
always may prove to be better or worse based on actual future
events.
15
Annual Report 2019 | Operating & financial review
Fee rates
People
Operating &
financial
review
Employees by department
The Group has 139 employees across the following functional
divisions as at 30 June 2019 (2018: 90):
t
n
e
m
t
r
a
p
e
d
y
b
s
e
e
y
o
p
m
E
l
Investment
Distribution
Operations
42
30
24
Legal & Compliance
16
HR & Administration
8
Technology
15
Corporate
4
With the acquisition of the MAS client relationships on 1 July 2018,
the Group also welcomed 56 former MAS staff on that date.
These staff were employed across all functional divisions of
Lighthouse, although the highest increases to staff numbers were
to Investments, Distributions and Operations.
There was also an increase in staff numbers in the Technology
division to ensure that there are sufficient resources to manage the
transition of historical MAS client data to Lighthouse systems, as
well as to focus on other Lighthouse technology initiatives for the
managed account platform and the development of a proprietary
trading system.
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 which
have a lower management fee rate and include a performance fee
so as to provide more optionality for investors to select a fee
structure which best suits their requirements.
Fee arrangements for Customised Solutions 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.
Management fees
The average management fee for the 2019 financial year was
0.68% per annum (2018: 0.73% per annum).
This management fee rate represents the blended net
management fee rate across all AUM. While there a number of
factors which impact the average management fee rate across
periods, a key driver is the change in the relative proportion of
AUM invested in Customised Solutions versus Commingled funds.
Customised Solutions generally have a lower management fee, so
as the proportion of total AUM which is invested by Customised
Solutions clients increases, there is a reduction in the average fee
rate.
a
p
%
e
e
f
t
n
e
m
e
g
a
n
a
m
e
g
a
r
e
v
A
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
0.80%
0.73%
0.68%
53%
60%
66%
FY17
FY18
FY19
a
s
a
%
o
f
T
o
t
a
l
A
U
M
C
u
s
t
o
m
i
s
e
d
S
o
u
t
i
o
n
s
A
U
M
l
70%
60%
50%
40%
30%
20%
10%
0%
In previous financial reports, the Group provided both:
“gross” average fee rates which were calculated using gross
management fee revenue without a reduction for fee rebates or
distribution expense; and
“net” average fee rates, which were calculated on management fee
revenue less both fee rebates and distribution expense.
The Group has adopted a policy of recognising fee rebates directly against
management fee revenue, and the above “average management fee” rates
are calculated based on management fee revenue (net of fee rebates)
without a reduction for distribution expense.
Performance fees
The difficult markets over the past year, particularly in the
December 2018 quarter, have resulted in the Group earning
performance fee income for the 2019 year of $1.1m, down $6.5m
or 85% on the prior year.
Performance fees are variable in nature, and it is difficult to
forecast how much, if any, performance fee revenue will be earned
by the Group in future periods.
16
Annual Report 2019 | Operating & financial review
Operating &
financial
review
Summary of the Navigator Group FY19 result
EBITDA up 10%
Management fee revenue
Performance fee revenue
Revenue from reimbursement of fund operating expenses
Revenue from provision of office space and services
Other income
Total revenue
Employee expense
Professional and consulting expense
Reimbursable fund operating expenses
Occupancy expense
Information and technology expense
Distribution expense
Other operating expenses1
Total expenses1
Result from operating activities1
Net finance income, excluding interest
Share of loss of equity accounted investee
Earnings before interest, tax, depreciation, amortisation and
impairment losses (EBITDA)
Net interest income
Depreciation and amortisation
Impairment losses
Profit before income tax
Income tax expense2
Net profit / (loss) after income tax
Basic EPS (cents per share)
Consolidated US$’000
2019
105,392
1,135
6,319
1,905
116
2018
75,518
7,680
4,678
1,694
-
114,867
89,570
(48,573)
(35,477)
(6,800)
(6,319)
(3,959)
(3,631)
(3,401)
(4,561)
(3,567)
(4,678)
(3,067)
(1,743)
(3,413)
(4,055)
(77,244)
(56,000)
37,623
29
-
33,570
1,020
(378)
37,652
34,212
126
(1,474)
-
36,304
(9,461)
26,843
16.55
216
(979)
(1,873)
31,576
(44,632)
(13,056)
(8.05)
% change
40%
(85%)
35%
12%
100%
28%
(37%)
(91%)
(35%)
(29%)
(108%)
0%
(12%)
(38%)
12%
(97%)
100%
10%
(42%)
(51%)
100%
15%
79%
306%
306%
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 For 30 June 2018, $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 53 includes further information in relation to the income tax expense impact of this reduction.
The above presentation of the Group’s results is a non-IFRS measure and is intended to show 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 income statement on page 41.
17
Annual Report 2019 | Operating & financial review
Operating &
financial
review
Revenue from provision of office space and services
The Group provides office space and services to a number of
external parties at its New York and London offices. This revenue
is a direct recharge of occupancy and professional fees incurred
by the Group.
Operating expenses
Operating expenses increased by $21.2 million compared to the
prior year, reflecting the significant increase in the scale of our
business with the transition of the MAS client relationships.
Employee expense
There was a $13.1 million (37%) increase in employee expense for
the Group as compared to the prior period.
The key driver for the increase is the significant increase to Group
headcount for the financial year:
the addition of an average headcount of 50 staff for the year
for staff who commenced employment with the Group as part
of the transition of the MAS client relationships.
a further increase in average headcount of 8 employees for
the year to 94 staff (2018: 86).
The total bonus pool paid to staff is determined by reference to
EBITDA earned and performance fee revenue earned.
Professional & consulting fees
The Group utilises a number of expert consultants across its
business, in particular to provide specialist assistance and support
in technology, legal, platform operations and investment process.
Professional and consulting fees vary depending on the specific
projects and operating needs in each period.
Professional fees for the year are $6.8 million, a $3.2 million
increase compared to the prior year. Particular areas which
contributed to the increased expense include:
$0.9 million of consulting spend in relation to the integration of
MAS client relationships into Lighthouse operations which
transitioned from 1 July 2018;
$0.9 million of additional consulting spend in relation to risk
management systems and risk analysis. A total of $1.6
million was incurred for the financial year for these projects;
and
$1.5 million spend in relation to development of a new
proprietary trading platform.
We expect an equivalent level of spending in relation to the risk
management systems and proprietary trading platform to be
incurred in the 2020 financial year.
Occupancy expense
The Group took occupancy of new office premises in New York in
August 2017 and new office premises in Chicago in December
2018, and this has been a key driver of the $0.9 million increase
occupancy costs for the year.
Revenue
Management fee revenue
Management fee revenue was $105.4 million for the year, an
increase of 40% on the prior year.
The key driver of the increase in management fees was the
increase in average total AUM. This was due to a combination of
the $5.4 billion of MAS assets which transitioned on 1 July 2018
($3.1 billion as at 30 June 2019), as well as the deferred effects of
Lighthouse’s record 2018 financial year where they achieved $1.3
billion of net inflows into Lighthouse products. Both of these
factors combined to result in a 51% increase in average AUM for
the 2019 financial year as compared to the prior year.
As foreshadowed in last year’s Annual Report, we have seen a
decrease in the overall average management fee rate, which was
0.68% per annum for this year (2018: 0.73% per annum). A key
driver for this is the continually increasing proportion of total AUM
which represents Customised Solutions. In addition, the lower rate
also reflects the full year impact of the January 2018 restructure of
arrangements with a long-term distribution partner which
eliminated the distribution expense associated with this
arrangement with the transfer of relevant assets to lower fee
classes.
Performance fee revenue
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 $1.1 million, a decrease
of $6.5 million on the previous financial year. The reduction in
performance fees is consistent with the lower investment
performance achieved this year across the portfolios. In addition,
high watermarks for fees function so that a new performance fee is
only earned in a fund’s NAV per share exceeds its previous high
point. Given the extent of the negative performance in the
December 2018 quarter, most funds which may earn performance
fees have not reached the previous high watermark NAV per share
as at 30 June 2019.
Approximately 62% 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.
Revenue from reimbursement of fund operating expenses
The Group has applied AASB 15 Revenue from Contracts with
Customers from 1 July 2018. The major change arising from this
application is how the reimbursement for certain fund operating
expenses is accounted for.
The Group is entitled to reimbursement for fund expenses that it
has paid on behalf of the funds. While the funds generally pay
their own operating expenses directly, there are some expenses,
such as financial data services, software and technology
expenses, where it is more practical for the Group to incur and pay
the expense and then be reimbursed by the relevant fund(s).
The reimbursement is recognised as revenue, and there is a
corresponding off-setting expense. As the revenue and expense
directly off-set, there is no net impact on EBITDA or net profit after
tax.
Revenue from reimbursement of fund operating expenses and
reimbursable fund operating expenses incurred for the year were
both $6.3 million (2018: $4.7 million).
18
Annual Report 2019 | Operating & financial review
Operating &
financial
review
Information and technology expenses
There has been a $1.9 million or 108% increase in information and
technology expenses.
$1.4 million of the increase relates to additional technology
expenses incurred for the transition of MAS data, systems and
staff. Whilst most of these costs are a transition expense, a
portion will be on-going.
Managing our information technology needs, particularly in relation
to the escalation of cyber threats, is a growing cost of the
business. A portion of the remaining $0.5 million of the increase
relates to changes for upgrading of datacentre services and other
improvements to technology for cyber security and business
continuity arrangements.
Distribution expense
Distribution expense relates to third party distribution
arrangements, whereby ongoing payments are made to third
parties in relation to clients they have introduced and who continue
to be invested in Group portfolios. Distribution expense does not
include rebates on management fees paid to clients, as these are
off-set directly against management fee revenue.
The distribution expense for this financial year was $3.4 million
(2018: $3.4 million). While the amount of the expense was
unchanged from the prior year, it represents 3.2% of revenue, as
compared to 4.5% in the prior year. This reduction is largely due
to:
the reduction in Commingled fund AUM over the year; and
the full year impact of the restructure of arrangements with a
third-party distribution partner which occurred in January
2018. Under the restructure 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.
Income tax expense
The Group recognises an accounting tax expense in its income
statement at an effective tax rate of 26.1% (2018: 29.0%). The
effective tax rate reflects a combination of the United States
federal tax rate of 21%, individual United States state-based taxes,
as well as the effect of other permanent and temporary tax
adjustments.
The Group has significant tax losses available to off-set its tax
liabilities, and hence there is no tax payable in relation to this
accounting tax expense other than in relation to some relatively
nominal United States state-based taxes.
For 30 June 2018, $35.5 million of the income tax expense relates
to the restatement of the Group’s deferred tax assets due to the
reduction in the US Federal income tax rate from 35% to 21%.
Page 53 includes further information in relation to the income tax
expense impact of this reduction in the prior year.
19
Annual Report 2019 | Operating & financial review
Financial position remains solid
Assets
Cash
Receivables
Investments
Intangible assets
Recognised deferred tax assets
Liabilities
Net tangible assets per share
Operating &
financial
review
Consolidated US$’000
2019
2018
29,029
19,423
17,953
95,656
52,584
6,738
40.63
38,212
14,628
16,459
95,078
61,878
16,271
35.79
Sources and uses of cash
Investments
The Group primarily used cash generated from operating activities
during the year to 30 June 2019 to pay dividends to shareholders:
The Group holds two key types of investments: investment in
Lighthouse funds and investment in external entities.
+ $22.6 million generated from operating activities
- $27.5 million paid to shareholders as dividends
- $1.6 million net paid for investments in unquoted securities
of entities managed by Lighthouse
- $1.5 million paid for leasehold improvements and
acquisition of equipment
- $1.1 million paid for transaction costs associated
with the MAS transaction
During the year ended 30 June 2019 the Group changed the
bonus cycle for US employees from being determined on a
calendar year basis to being determined on a financial year basis.
To effect the change, employees received an additional bonus
payment in June 2019 in relation to their performance for the 6
months ended on that date. This contributed to the reduction in
cash generated in operating activities for the year, as it includes 18
months’ worth of bonus payments.
Receivables
Receivables relates mainly to management and performance fees
which payment has not yet been received as at 30 June 2019.
The increase in this balance compared to the prior year is mainly
due to the higher AUM managed by the Group as at 30 June 2019
compared to the prior year balance date.
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 $1.8 million to
$12.7 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 2019
is $5.3 million (30 June 2018: $5.6 million).
Intangible assets
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.
20
Annual Report 2019 | Operating & financial review
Operating &
financial
review
MAS Transaction
The Group acquired the rights to manage $5.4 billion of assets on
behalf of clients from MAS on 1 July 2018. As substantially all of
the fair value of the assets acquired in the transaction related to
the intangible client relationships, the transaction has been
accounted for as an asset acquisition.
Consideration payable for the transaction is contingent on
agreed earnout calculations over seven years.
-
-
The earnout calculation for the first 12 months ending 30
June 2019 has not been agreed with the vendor as at
the date of the date of this report. However, the Group
estimates that any earnout amount payable for this
period will be nominal or nil.
There is inherent uncertainty in being able to reasonably
estimate the contingent consideration, however, based
on the earnout calculation for the first year and our
assessment of the likelihood of potential earnout
payments over the remaining six years, the Group has
not recognised any liability for future contingent
consideration as at 30 June 2019.
Intangible client relationships of $1.1 million were recognised
in the statement of financial position on 1 July 2018. The
written down value of these assets at 30 June 2019 was $0.9
million.
The client relationships will be amortised on a straight-line
basis over 7 years.
Deferred tax assets
The Group’s balance sheet includes a deferred tax asset of $52.6
million which is comprised of carried forward tax losses and
deductible temporary differences relating to the US tax
consolidated group.
$62.6 million of deferred tax assets relating to carried forward tax
losses and deductible temporary differences of the Australian
tax consolidated group remain unrecognised on the balance sheet
as the Australian corporate entity is not expected to utilise
these assets in the foreseeable future.
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 2019 comprise trade and
other payables, and provisions for employee benefits. The Group
does not have any loans or borrowings as at reporting date.
The Group’s provision for short-term incentives has decreased
$11.2 million since 30 June 2018 due to a change in the timing of
the bonus payment from a calendar year ending 31 December to a
financial year ending 30 June.
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 as at 30 June 2019.
21
Annual Report 2019 | Operating & financial review
Directors’ report
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 2019 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.
23
Annual Report 2019 | Directors’ Report
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.
24
Annual Report 2019 | Directors’ Report
Directors’
report
Board and Committee meetings
Corporate governance
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, operational, financial
and governance 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.
Board meetings
The number of meetings of the Company’s board of directors
during the year ended 30 June 2019, and the number of meetings
attended by each director were:
The Group recognises the value of good corporate
governance. The board believes that effective
governance processes and procedures add to the
performance of the 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
Held
Attended
Principal activities
Michael Shepherd
Fernando Esteban
Andy Bluhm
Randall Yanker
Sean McGould
9
9
9
9
9
9
9
8
8
9
Audit and Risk Committee meetings
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.
Operating and financial review
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 12 to 21.
The number of meetings the Audit and Risk Committee held during
the year ended 30 June 2019, and the number of meetings
attended by each Committee Member were:
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 30 August 2019.
The aggregate amount of the proposed dividend will be paid out of
the balance of the parent entity profits reserve as at 30 June 2019.
Declared and paid
during the year
ended 30 June 2019
Cents
per
share
Total
amount
US$’000
Date of payment
Final 2018 ordinary
Interim 2019 ordinary
9.0
8.0
14,710
31 August 2018
12,741
8 March 2019
Total amount
27,451
Together with the unfranked interim dividend of USD 8.0 cents per
share paid to shareholders on 8 March 2019, the total dividend to
be paid in relation to the financial year ended 30 June 2019 will be
USD 17.0 cents per share.
Michael Shepherd
Fernando Esteban
Andy Bluhm
Held
Attended
3
3
3
3
3
3
Remuneration and Nominations Committee meetings
The number of meetings the Remuneration and Nomination
Committee held during the year ended 30 June 2019, and the
number of meetings attended by each Committee Member were:
Michael Shepherd
Fernando Esteban
Randall Yanker
Held
Attended
3
3
3
3
3
3
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.
25
Annual Report 2019 | Directors’ Report
Directors’
report
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 12 to 21.
Events subsequent to end of financial year
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.
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
Michael
Shepherd
Fernando
Esteban
Andy
Bluhm
Ordinary
shares
125,000
Notes
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
13,101,982
13,101,982 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
19,436,083 shares are held
indirectly by SGM Holdings,
LLC
Sean
McGould
19,438,083
26
Annual Report 2019 | Directors’ Report
Remuneration report (audited)
Directors’
report
This Remuneration
Report for the
Company and its
controlled entities for
the year ended
30 June 2019 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 for the 2019 financial year
Non-executive director remuneration
Key management personnel remuneration disclosures
28
31
32
33
34
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 Group.
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 2019 was converted to
USD at an average exchange rate of AUD/USD 0.7131 (2018: AUD/USD 0.7734).
The Remuneration Report outlines the remuneration arrangements for the Group’s key management personnel. Key management personnel
are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the activities of the Group.
The key management personnel during the year ended 30 June 2019 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
Term
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
27
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Overview of remuneration policy and approach
The overall objectives of the Group’s remuneration policies are to:
embed a culture that promotes the Group’s core values
support the business strategy of the Group by attracting, retaining and rewarding quality staff
encourage appropriate performance and results to uphold client and shareholder interests
properly reflect each individual’s duties and responsibilities
When setting the Group’s approach to remuneration, the Board keeps three key factors front-of-mind:
Operations are based in the US
Navigator is an Australian company listed on the Australian Securities Exchange, however the Group’s operations are predominantly based in the
United States. To be effective in attracting and retaining high quality staff, remuneration arrangements must therefore be aligned to the
expectations of people who are employed in the United States alternative asset management industry.
These remuneration arrangements may diverge from arrangements which would be considered industry practice within Australia. The quantum
and proportion of variable remuneration to total remuneration packages is one such area.
Variable remuneration is a major component
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. This is
particularly true for our United States based senior management. The Board believes this provides a dynamic basis to be
able to adjust the Group’s total remuneration expense, and is also consistent with United States industry practice.
This approach to remuneration has been in place at Lighthouse since prior to its acquisition in January 2008. The Lighthouse
senior executives have each earned a $250,000 base salary since that time, and this has not been increased in over 11
years. In addition, select Lighthouse senior executives have had bonus entitlements specified in their employment contracts
since Lighthouse joined the Navigator Group, and these contractual arrangements remain in place (see page 35 for additional
details).
Simplicity
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 therefore
translates into both an increase in the available bonus pool for Lighthouse staff and a higher dividend
payment for shareholders.
This simplicity also extends to the Board exercising its discretion in setting the total amount of variable
compensation, as well as the CEO being able to exercise discretion in allocating bonuses to individuals
based on their performance and contribution. Whilst individual results are important, we also encourage
a culture which is able to reward effort, ethical behaviour and commitment outside of formulaic metrics.
The Board is satisfied that the current arrangements are consistent with alternative asset management
industry practice in the United States, and allow employees to focus on achieving results for clients,
which is ultimately in the long-term interests of shareholders.
During the financial year, the Remuneration and Nominations Committee engaged United States-based remuneration consultant, Focus
Consulting Group, Inc (‘Focus’) to review the existing remuneration arrangements against industry practice in the United States. Focus reported
to the full Board in May 2019, with the key takeaway that, on the whole, the existing approach and methodology for variable compensation is in
line with industry norms. The engagement conducted by Focus was a benchmarking exercise, and did not include any remuneration
recommendations in relation to any of the key management personnel of the Group.
28
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Remuneration structure
The remuneration of staff across the Group, including our senior executives, is comprised of two key components:
Fixed
Variable
Fixed
Fixed remuneration is comprised of:
base salary; and
employer contributions to superannuation and retirement plans
and health care benefits.
Fixed remuneration is generally determined by reference to
benchmark information where available, and having regard to
responsibilities, performance, qualifications and experience.
For senior Lighthouse employees, fixed remuneration is also
determined in accordance with the general principle that fixed
remuneration is the smaller component of their overall
compensation package. As such, these employees receive a base
salary of $250,000, and this has remained unchanged for over 11
years.
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.
Variable
Variable remuneration is comprised of participation in a cash bonus
pool.
While the Group does not currently have any equity compensation
arrangements in place, should these be enacted, variable
remuneration would also include participation in such arrangements
for select employees.
The existing variable remuneration arrangements are short-term in
nature, and are designed to motivate staff to create value for both:
our clients, thorough investment returns and a high level of
client service; and
the Company's shareholders
The performance of individual staff members, including senior
executives, is conducted at least annually, after which the award of
variable remuneration is considered.
The Board:
approves the overall size of the variable remuneration pool,
approves an award to the CEO,
confirms any contractual obligations regarding variable
remuneration have been complied with; and
delegates authority to the CEO to exercise his discretion to
make variable remuneration allocations to individual staff.
For the 2019 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
22%
Chief Financial Officer
Other executive key
management personnel
All other staff
19%
91%
78%
81%
9%
59%
41%
Further detail regarding the methodology for determining the 2019 financial year variable remuneration pool is contained on page 32.
29
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Long term incentive arrangements
The Group does not currently have any equity incentive schemes or
other long-term incentive arrangements in place.
At the November 2018 Annual General Meeting, shareholders
voted to approve the grant of up to 540,000 performance rights to
CEO, Sean McGould on the terms and conditions as set out in the
Notice of Meeting. At the request of Mr McGould, the formal grant
of those performance rights has been deferred, and as such as at
30 June 2019 there are no performance rights on issue.
The Board acknowledges that an equity incentive scheme is a
common component of corporate remuneration structures, and is
giving further consideration to the implementation of equity
incentive arrangements for senior employees.
Other benefits
Lighthouse employees are entitled to additional benefits that may
include educational assistance, adoption assistance and health
care benefits.
Lighthouse employees are also 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.
30
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Relationship between remuneration policy and company performance
In implementing 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:
EBITDA - earnings before interest, tax, depreciation, amortisation, and impairment losses from continuing operations.
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. 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 key management personnel compares to EBITDA and cash flows from operating activities
over the past 5 years:
EBITDA
Cash flows from operating activities
Dividends paid during the financial year
Closing share price (AUD dollars)
Change in share price (AUD dollars)
Key management personnel:
Bonus
Bonus as a % of EBITDA
Bonus as a % of dividends paid during the financial year
1 Underlying earnings before interest, tax, depreciation, amortisation from continuing operations.
US$’000
2019
2018
2017
2016
2015
37,652
22,5653
27,451
3.94
(1.40)
4,6714
12%
17%
34,212
32,921
24,390
5.34
2.94
29,848
30,088
21,023
2.40
0.11
29,4901
28,8392
30,125
17,222
2.29
0.22
28,193
15,965
2.07
1.02
3,967
3,293
3,858
3,185
12%
16%
11%
16%
13%
22%
11%
20%
2 Underlying earnings before interest, tax, depreciation and amortisation from continuing operations, adjusted for the loss on settlement and conversion of convertible notes.
3 Reflects the change in US employee bonus cycle from calendar years to financial years (see page 32).
4 Includes cash bonus amounts for the 12 months to 31 December 2018 and 6 months to 30 June 2019 for Sean McGould and Scott Perkins (see page 34 for additional detail).
Distribution of revenue between shareholders and employees:
The following charts shows how total revenue recognised in 2019 and 2018 has been distributed between shareholders (as dividends),
employee remuneration, other operating expenses and capital management:
2019
Capital
Management
9%
2018
Capital
Management
10%
Employee
remuneration
39%
Dividend
24%
$114.9m
Dividend
27%
$89.6m
Employee
remuneration
38%
Other operating
expenses
28%
Other operating
expenses
25%
31
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Variable compensation for the 2019 financial year
The Board has established a simple, direct methodology for balancing how we reward staff and deliver value to shareholders
through company financial performance. The two metrics which are used to create annual variable remuneration pools are:
Lighthouse general pool
Company performance metric
Basis of variable remuneration
Lighthouse EBITDA
(excluding performance fees, before bonuses
and adjusted for other specified items)
30% allocated to Lighthouse general
bonus pool
Lighthouse incentive fee pool
Performance fees
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 pools, 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.
During 2019, this discretion was exercised in two ways:
as part of the total remuneration arrangements for the new staff who transitioned with the MAS client relationships. As part of the transaction
negotiations, it was agreed that for the first 12 months Lighthouse would honour the previous remuneration arrangements provided to these
staff by Mesirow Financial Services, Inc.
to reward key staff who had undertaken additional responsibilities and workload as part of the integration of MAS clients and processes into
Lighthouse operations.
Change in timing of bonus cycle
Since its acquisition in 2008, the Lighthouse bonus cycle has been based on calendar years, and accordingly bonuses were generally paid in
December of each year.
With the significant increase in staff from MAS, it was determined that it would be appropriate to have the bonus cycle coincide with 12 months of
operations under the new combined business structure, and accordingly the annual bonus cycle is now based on financial years.
To effect the change, bonuses for Lighthouse staff have been determined and paid for the six months to 30 June 2019. On a go-forward basis,
Lighthouse bonuses will be paid in June of each year. This change does not impact the bonus expense recognised in the income statement.
Lighthouse general pool
Incentive fee pool
All Lighthouse staff are eligible to participate in the Lighthouse
general bonus pool, the amount of which is calculated as 30% of
Senior members of the Lighthouse investment team are
eligible to participate in a bonus pool determined as 50% of
Lighthouse’s EBITDA (before the bonus pools and excluding
performance fee revenue and adjusted for other specified items).
performance fee revenue earned by the Lighthouse business from
its Commingled Funds and Customised Solutions portfolios.
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.
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.
No individual bonus can be greater than 10% of the
Lighthouse general bonus pool without board approval.
Corporate bonus pool
A bonus for the CEO is determined and approved by the board
based on an assessment of his performance. 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. This is paid on a semi-annual basis,
and forms part of the Lighthouse general bonus pool.
A discretionary bonus pool of $50,000 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 2019 | Directors’ Report
32
Directors’
report
At the November 2018 Annual General Meeting, share-
holders voted to approve the grant of up to 540,000
performance rights to CEO, Sean McGould on the terms and
conditions as set out in the Notice of Meeting. At the request of
Mr McGould, the formal grant of those performance rights has
been deferred, and as such as at 30 June 2019 there are no
performance rights on issue.
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.
Fees paid to non-executive directors are USD, and for the 2019
financial year were as follows:
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 2019 was $331,850 (2018: $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.
Change in non-executive directors’ fees from 1 July 2019
Directors’ fees have remained unchanged since 2014. Following a
review of publicly available information on non-executive director
fees for ASX listed entities, the board (with the relevant director
abstaining) approved the following fees be applicable from 1 July
2019:
Chairman
Non-executive directors
USD 170,000 per annum
(plus superannuation)
USD 100,000 per annum
(plus superannuation)
Remuneration report (audited)
CEO remuneration arrangements
Mr McGould performs two key roles for the Group. He is both:
Chief Executive Officer of the Group; and
Co-Chief Investment Officer of Lighthouse.
The Board considers that Mr McGould’s remuneration needs to
encompass 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 Mr McGould a
discretionary bonus amount, taking into account the following
factors:
investment results achieved for clients;
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; and
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.
Mr McGould received a bonus of $850,000 in December 2018 to
reward his performance for the 2018 calendar year, and a bonus of
$225,000 for the six months to 30 June 2019. His achievements
during that 18 month period included:
the negotiation and close of the MAS transaction which has
significantly increased Group AUM and EBITDA;
net flows of $720 million to the Lighthouse legacy products for
the 2018 calendar year; and
investment performance which delivered $6.4 million of
performance fee revenue.
Overall, the Board considers that Mr McGould’s
efforts and performance continue to be outstanding in
the face of challenging global market conditions, he continually
demonstrates his commitment to creating value and wealth for our
clients and shareholders, and he leads by example in providing a
positive workplace environment for all of our staff. He is further
commended for delivering a record EBITDA of $37.7 million for the
2019 financial year.
33
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Key management personnel remuneration disclosures
Directors’ and executive officers’ remuneration
The following remuneration was paid to key management personnel:
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 McGould1
Executives
Kelly Perkins
Scott Perkins
Rob Swan
Amber Stoney
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
150,000
150,000
80,000
80,000
80,000
80,000
-
-
-
-
-
-
250,000
250,000
1,075,0002
850,000
250,000
250,000
250,000
250,000
250,000
250,000
204,109
208,488
1,225,000
1,175,000
1,475,0003
1,000,000
875,000
920,000
21,039
22,173
1,514,109
4,671,039
1,518,488
3,967,173
-
-
-
-
-
-
20,557
19,533
20,557
19,533
20,557
19,533
20,557
19,533
-
-
82,228
78,132
14,250
14,250
7,600
7,600
-
-
25,800
7,500
-
16,500
16,800
16,500
16,800
16,500
14,715
15,569
95,965
94,419
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,215
3,616
3,215
3,616
164,250
164,250
87,600
87,600
80,000
80,000
1,371,357
1,127,033
1,495,557
1,461,033
1,762,357
1,286,033
1,162,357
1,206,033
243,078
249,846
6,366,556
5,661,828
1 Other short-term fixed remuneration amounts relate to health care benefits paid on behalf of Lighthouse staff.
2 Due to the change in bonus cycle to coincide with financial years rather than calendar years (refer page 32 for details), the Cash bonus amount for Sean
McGould includes $850,000 paid for the 12 months to 31 December 2018 and $225,000 paid for the 6 months to 30 June 2019.
3 Due to the change in bonus cycle to coincide with financial years rather than calendar years (refer page 32 for details), the Cash bonus amount for Scott Perkins
includes $1,000,000 paid for the 12 months to 31 December 2018 and $475,000 paid for the 6 months to 30 June 2019.
34
Annual Report 2019 | Directors’ Report
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 McGould1
Kelly Perkins2
Scott Perkins3
Rob Swan2
Amber Stoney4
$1,075,000
$1,225,000
$1,475,000
$875,000
$21,039
78%
82%
84%
75%
9%
100% 1
100% 2
100% 3
100% 2
100% 4
0%
0%
0%
0%
0%
1 Due to the change in bonus cycle to coincide with financial years rather than calendar years (refer page 32 for details), the Cash bonus amount for Sean
McGould includes $850,000 paid for the 12 months to 31 December 2018 and $225,000 paid for the 6 months to 30 June 2019.
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 2019. These
arrangements have been in place since the acquisition of Lighthouse in 2008.
3 Due to the change in bonus cycle to coincide with financial years rather than calendar years (refer page 32 for details), the Cash bonus amount for Scott Perkins
includes $1,000,000 paid for the 12 months to 31 December 2018 and $475,000 paid for the 6 months to 30 June 2019.
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
2019. 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.
Refer to pages 33 and 34 for details regarding the appointment
and remuneration of non-executive directors.
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.
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.
Sean McGould and Scott Perkins are entitled to participate in
incentive plans, including equity-based plans.
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.
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 of 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.
35
Annual Report 2019 | Directors’ Report
Directors’
report
Remuneration report (audited)
Analysis of performance rights over equity instruments granted as remuneration
As at 30 June 2019 and 30 June 2018 there were no outstanding performance rights granted to any key management person of the Group.
At the November 2018 Annual General Meeting, shareholders voted to approve the grant of up to 540,000 performance rights to CEO, Sean
McGould on the terms and conditions as set out in the Notice of Meeting. At the request of Mr McGould, the formal grant of those performance
rights has been deferred, and as such as at 30 June 2019 there are no performance rights on issue.
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 2018
Purchases
Sales
Balance
30 June 2019
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
19,438,083
2,936,512
2,405,624
2,936,512
180,374
-
-
-
-
-
-
-
-
-
-
(13,000,000)
-
-
-
-
-
125,000
27,000
13,101,982
19,438,083
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.
13,101,982 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.
19,436,083 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.
36
Annual Report 2019 | Directors’ Report
Indemnification and insurance
Rounding of amounts
Directors’
report
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
Sydney, 8 August 2019
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.
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 21 of
the financial statements.
Indemnification
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 38
and forms part of the directors’ report for the financial year ended
30 June 2019.
Environmental regulation
The Group is not subject to any particular or significant
environmental regulation under any Australian Commonwealth,
State or Territory legislation.
37
Annual Report 2019 | Directors’ Report
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 2019, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Navigator Global Investments Limited and the entities it controlled during
the financial year.
Ernst & Young
Rebecca Burrows
Partner
8 August 2019
38
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Financial statements
Financial
statements
41
42
43
44
45
Income statement
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
46 Notes to the financial statements
Results for the year
1.
2.
3.
4.
5.
6.
7.
8.
Operating segments
Revenue
Expenses
Finance income and costs
Cash
Income tax
Dividends
Earnings per share
Operating assets and
liabilities
9.
10.
Trade and other receivables
Investments recognised at fair
value
11. Plant and equipment
Intangible assets
12.
Trade and other payables
13.
14. Employee benefits
Capital and risk
15. Capital management
16. Capital and reserves
17.
Financial risk management
Group structure
Other disclosures
Basis of preparation
18. Group entities
19. Parent entity disclosures
20. Related parties
21. Auditors’ remuneration
22. Commitments
23. Contingent liabilities
24. Subsequent events
25. Corporate information
26. Statement of compliance
27. Basis of measurement
28.
Functional and presentation
currency
29. Other accounting policies
82
Directors’ declaration
83
Independent auditor’s report
40
Annual Report 2019 | Financial Statements
Income statement
For the year ended 30 June 2019
Management fee revenue
Performance fee revenue
Revenue from reimbursement of fund operating expenses
Revenue from provision of office space and services
Other income
Total revenue
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 period
Attributable to equity holders 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
2
2
2
2
3(a)
4(a)
4(a)
3(b)
6
8
8
Financial
statements
Consolidated US$’000
2019
105,392
1,135
6,319
1,905
116
114,867
(78,718)
36,149
347
(192)
-
-
36,304
(9,461)
26,843
2018
(Restated)
75,518
7,680
4,678
1,694
-
89,570
(56,979)
32,591
1,306
(70)
(378)
(1,873)
31,576
(44,632)
(13,056)
26,843
(13,056)
Consolidated US cents
2019
16.55
16.55
2018
(8.05)
(8.05)
41
Annual Report 2019 | Financial Statements
Financial
statements
Statement of comprehensive income
For the year ended 30 June 2019
Consolidated US$’000
Note
2019
2018
Profit / (loss) attributable to equity holders of the parent
26,843
(13,056)
Other comprehensive income
Other comprehensive income not to be reclassified to profit or loss in
subsequent periods:
Change in fair value of financial assets at fair value through other
comprehensive income
Income tax on financial assets at fair value through other comprehensive
income
Other comprehensive income for the year
Total comprehensive income / (loss) for the year, net of tax
4(b)
4(b)
(350)
94
(256)
26,587
633
153
786
(12,270)
Attributable to equity holders of the parent
26,587
(12,270)
The accompanying notes form part of these consolidated financial statements
42
Annual Report 2019 | Financial Statements
Statement of financial position
As at 30 June 2019
Assets
Cash
Trade and other receivables
Current tax assets
Total current assets
Investments recognised at fair value
Plant and equipment
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Current tax liabilities
Total current liabilities
Trade and other payables
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
The accompanying notes form part of these consolidated financial statements
Note
5(a)
9
6(b)
10
11
6(c)
12
13
14
6(b)
13
14
16
16(b)
Financial
statements
Consolidated US$’000
2019
2018
29,029
19,423
-
48,452
17,953
4,791
52,584
95,656
1,422
172,406
220,858
3,343
600
6
3,949
2,687
102
2,789
6,738
214,120
257,355
33,119
(76,354)
214,120
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
43
Annual Report 2019 | Financial Statements
Financial
statements
Statement of changes in equity
For the year ended 30 June 2019
Consolidated US$’000
Amounts attributable to equity holders of the parent
Share
Based
Payments
Reserve
Fair Value
Reserve
(financial
assets at
FVOCI)
Parent
Entity
Profits
Reserve
Accum-
ulated
Losses
Translation
Reserve
Total Equity
Note
Share
Capital
Balance at 1 July 2017
Net loss for the year
Transfer to parent entity profits
reserve1
19
Other comprehensive income
Net change in fair value of
financial assets at fair value
through other comprehensive
income
Income tax on other
comprehensive income
Total other comprehensive
income, net of tax
Total comprehensive income
for the year, net of tax
4(b)
4(b)
Dividends to equity holders
7
Balance at 30 June and 1 July
2018
Net profit for the year
Transfer to parent entity profits
reserve1
19
Other comprehensive income
Net change in fair value of
financial assets at fair value
through other comprehensive
income
Income tax on other
comprehensive income
Total other comprehensive
income, net of tax
Total comprehensive income
for the year, net of tax
4(b)
4(b)
Dividends to equity holders
7
257,355
13,326
1,495
850
13,279
(34,661)
251,644
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
633
153
786
786
-
-
-
-
-
-
-
-
-
-
(13,056)
(13,056)
26,022
(26,022)
-
-
-
-
-
-
-
-
-
-
633
153
786
26,022
(39,078)
(12,270)
(24,390)
-
(24,390)
257,355
13,326
2,281
850
14,911
(73,739)
214,984
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(350)
94
(256)
(256)
-
-
-
-
-
-
-
-
-
26,843
26,843
29,458
(29,458)
-
-
-
-
-
-
-
(350)
94
(256)
29,458
(2,615)
26,587
(27,451)
-
(27,451)
Balance at 30 June 2019
257,355
13,326
2,025
850
16,918
(76,354)
214,120
1 Relates to the net profit of the parent entity (Navigator Global Investments Limited).
The accompanying notes form part of these consolidated financial statements
44
Annual Report 2019 | Financial Statements
Financial
statements
Consolidated US$’000
Note
2019
110,002
(87,492)
22,510
119
(64)
2018
(Restated)
85,965
(53,208)
32,757
216
(52)
5(b)
22,565
32,921
(1,506)
277
(1,900)
(1,088)
-
(50)
(1,924)
4
(416)
-
38
349
(4,267)
(1,949)
-
(27,451)
(27,451)
(9,153)
38,212
(30)
29,029
(1,666)
(24,390)
(26,056)
4,916
33,153
143
38,212
Statement of cash flows
For the year ended 30 June 2019
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
Net cash from operating activities
Cash flows from investing activities
Acquisition of plant and equipment
Proceeds from disposal of investments
Acquisition of investments
Transaction costs associated with MAS transaction
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 (decrease) / 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
45
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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 2019, 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 is responsible for day-to-day operations and the
implementation of business strategy. Internal management reports
are provided to the CEO on a monthly basis to monitor the
operating results of its business 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 management fee rate.
Lighthouse US$’000
Corporate US$’000
Consolidated US$’000
2019
2018
(Restated)
2019
2018
2019
2018
(Restated)
Operating revenue
Other revenue
Total revenue from contracts with
customers
Operating expenses (excluding depreciation
and amortisation)
106,386
82,933
8,340
6,372
114,726
89,305
(76,353)
(55,230)
Result from operating activities
38,373
34,075
Net finance income / (costs) (excluding
interest)
Share of loss of equity accounted investee
Earnings before interest, tax, depreciation,
amortisation and impairment losses
Interest revenue
Depreciation and amortisation
Impairment loss
Reportable segment profit / (loss) before
income tax
141
-
141
(891)
(750)
(24)
265
106,527
83,198
-
8,340
6,372
265
114,867
89,570
(770)
(505)
141
(77,244)
(56,000)
37,623
33,570
29
-
1,020
(378)
53
-
879
(378)
-
-
38,426
34,576
(774)
(364)
37,652
34,212
83
(1,470)
204
(974)
-
(1,873)
43
(4)
-
12
(5)
-
126
(1,474)
216
(979)
-
(1,873)
37,039
31,933
(735)
(357)
36,304
31,576
Income tax expense
(9,461)
(44,632)
-
-
(9,461)
(44,632)
Reportable segment profit / (loss) after
income tax
Segment assets
Segment liabilities
Net assets
27,578
(12,699)
(735)
(357)
26,843
(13,056)
202,416
214,817
18,442
16,438
220,858
231,255
(6,461)
(15,980)
(277)
(291)
(6,738)
(16,271)
195,955
198,837
18,165
16,147
214,120
214,984
46
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Revenue
Management fees from commingled funds
Management fees from customised solutions clients
Performance fees
Operating revenue
Revenue from reimbursement of fund operating expenses
Revenue from provision of office space and services
Other income
Other revenue
Total revenue from contracts with customers
Management fees
Management fees are received from customers for providing:
investment management / advice and related services to
commingled funds; and
investment management / advice and / or managed account
services to customised solutions clients.
Management fee revenue is based on a percentage of the
customer’s portfolio value and is calculated in accordance with the
applicable document or agreement which creates the contractual
relationship with the customer. The management fee is a single
fee which covers all of the individual components which make up
the management service. Management fee revenue is variable in
nature as it is based on a percentage of the customer’s portfolio
value.
The Group’s obligation to provide management services to
customers is satisfied as and when the customer receives and
consumes the services on a continuous basis. The Group
recognises revenue for the services performed at the end of each
month.
Consolidated US$’000
2019
62,435
42,957
1,135
106,527
6,319
1,905
116
8,340
114,867
2018
51,451
24,067
7,680
83,198
4,678
1,694
-
6,372
89,570
Performance fees
Performance fees may be received from some commingled fund
share classes and some customised solutions clients.
The amount of the performance fee is calculated in accordance
with the terms of the applicable contract with the customer. The
entitlement to performance fees for any given performance period
is dependent on the customer’s portfolio achieving a positive
performance, and in some cases in outperforming an agreed
hurdle. Performance fees are generally also subject to a high
watermark arrangement which ensures that fees are not earned
more than once on the same performance.
The Group satisfies its obligations to provide services in exchange
for the performance fee revenue on a continuous basis, however
the right to receive the revenue is constrained by achieving the
required performance hurdles and/or high watermark. As such,
performance fee revenue is only recognised to the extent that it is
probable that a significant reversal of the revenue will not occur.
Due to the uncertainty associated with the estimate of performance
fees prior to the end of the performance period, this revenue is not
recognised in the income statement until the entitlement to receive
the fee becomes certain, which is 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.
Performance periods for performance fee arrangements range
from between 1 month to 1 year.
47
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Major revenue source
15% (2018: 22%) of the Group’s operating revenue relates to
management fees and performance fees earned on the Lighthouse
Diversified commingled funds.
14% (2018: 26%) of the Group’s operating revenue relates to
management fees and performance fees earned on the Lighthouse
Global Long/Short commingled funds.
The Group’s largest individual client represents 8% of operating
revenue (2018: 9%).
The Group’s three largest individual clients combined represent
16% of operating revenue (2018: 19%).
Revenue (continued)
Revenue from reimbursement of fund operating
expenses
The Group is entitled to reimbursement for fund expenses that it
has paid on behalf of the funds. While the funds generally pay
their own operating expenses directly, there are some expenses,
such as financial data services, software and technology
expenses, where it is more practical for the Group to incur and pay
the expense and then be reimbursed by the funds.
The Group enters into contracts for the relevant good or service
directly with the third parties service providers, and hence the
Group controls the good or service until it subsequently directs the
good or service to be transferred to the fund.
As the Group controls the good or service before it is transferred,
the Group is not acting in a capacity as agent for the fund. The
Group is required to recognise both:
the expense incurred under the contract with the third-party
service providers (see note 3a) to receive the good or service;
and
the revenue to which it expects to be entitled from the fund in
exchange for transferring the good or service.
The revenue and expense in relation to these reimbursed costs
directly off-set as the Group does not add a margin to the original
cost of the good or service transferred to the fund.
Revenue from the provision of office space and
services
The Group has a number of agreements with external parties to
license office space at its New York and London offices. As part of
these agreements, licensees are charged license fees and service
charges on a monthly basis.
The Group has two obligations in relation to these agreements:
to provide office space to licensees, including services in
connection with licensees’ use and occupancy of the office
space; and
to provide other on-going business services.
The Group’s obligation to provide office space services and its
obligation to provide business services to licensees are satisfied
as and when the customer receives and consumes the services on
a continuous basis. The Group recognises revenue as the amount
to which it has a right to invoice for the period.
The Group is entitled to:
a license fee and an occupancy-related service charge as per
the terms of the applicable contract with each licensee as it
satisfies its obligations to provide office space and related
services; and
a service charge as per the terms of the applicable contract
with each licensee as it satisfies its obligations to provide
business services.
48
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Expenses
a) Other operating expenses
Employee expense
Professional and consulting expenses
Information and technology expense
Reimbursable fund operating expenses
Occupancy expense
Distribution expense
Travel expense
Depreciation
Amortisation of intangible assets
Other expenses
Total expenses
Consolidated US$’000
2019
2018
(Restated)
(48,573)
(35,477)
(6,800)
(3,631)
(6,319)
(3,959)
(3,401)
(1,719)
(975)
(499)
(2,842)
(78,718)
(3,567)
(1,743)
(4,678)
(3,067)
(3,413)
(1,475)
(634)
(345)
(2,580)
(56,979)
Employee expense
Reimbursable fund operating expenses
The largest operating expense is employee expense. Employee
expense 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.
The Group is entitled to reimbursement for fund expenses that it
has paid on behalf of the funds. While the funds generally pay
their own operating expenses directly, there are some expenses,
such as financial data services, software and technology
expenses, where it is more practical for the Group to incur and pay
the expense and then be reimbursed by the funds.
Employee expense for the year ended 30 June 2019 includes
contributions to defined contribution superannuation and pension
plans of $1,527 thousand (2018: $875 thousand).
A corresponding amount of revenue from reimbursement of fund
operating expenses has also been recognised for the year (see
note 2).
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions to a separate entity
and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in profit or
loss in the periods during which services are rendered by
employees.
Distribution expense
Distribution expenses are paid to external intermediaries for
marketing and investor servicing, largely in relation to commingled
funds. Distribution expenses are variable in line with AUM and the
associated management fee revenue. This expense is recognised
on an accrual basis.
49
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Expenses (continued)
b)
Impairment losses
Impairment of investment in equity accounted investee
Impairment of unsecured loan to equity accounted investee
Total impairment loss
Consolidated US$’000
2019
-
-
-
2018
(122)
(1,751)
(1,873)
The Group had a 40% interest in a US based limited partnership
which it transferred to the remaining partner in September 2018.
The Group recognised impairment losses in the prior year of
$1,873 thousand in relation to the value of its equity interest in the
partnership and an unsecured loan advanced to the partnership.
Finance income and costs
a) Recognised directly in profit or loss
Finance income
Interest income on bank deposits
Net foreign exchange gain
Net change in fair value of financial assets at fair value through profit or loss
Distribution income from financial assets at fair value through other comprehensive income
Total finance income
Finance costs
Bank charges
Net foreign exchange loss
Total finance costs
Net finance costs recognised in profit or loss
Interest income is recognised in profit or loss as it accrues.
Distribution income is recognised on the date that the Group’s right
to receive payment is established.
Foreign currency gains and losses are reported on a net basis as
either finance income or finance costs depending on whether
foreign currency movements result in a net gain or net loss
position for the reporting period.
Consolidated US$’000
2019
2018
126
-
221
-
347
(126)
(66)
(192)
155
216
92
960
38
1,306
(70)
-
(70)
1,236
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.
50
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Finance income and costs (continued)
b) Recognised directly in other comprehensive income
Change in fair value of financial assets at fair value through other comprehensive income
Income tax expense recognised directly in equity
Finance income attributable to equity holders recognised directly in equity
Recognised in:
Fair value reserve
Consolidated US$’000
2019
(350)
94
(256)
(256)
2018
633
153
786
786
Financial assets at fair value through other comprehensive are
carried in the statement of financial position at fair value, with
changes in fair value reported in other comprehensive income and
presented in the fair value reserve in equity (refer note 10).
Upon sale or derecognition of these investments, any gain or loss
will be transferred to retained earnings.
Cash
a) Cash
Cash at bank
Term deposits less than 90 days
Consolidated US$’000
2019
12,429
16,600
29,029
2018
38,212
-
38,212
At balance date, AUD deposits earn interest of 1.05% (2018:
1.30%); USD deposits earn interest between 0% and 2.15% (2018:
between 0% and 1.499%).
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 17.
51
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Cash (continued)
b) Reconciliation of cash flows from operating activities
Cash flows from operating activities
Profit / (loss) for the period
Adjustments for:
Depreciation expense
Amortisation of intangible assets
Impairment losses
Share of loss of equity accounted investee
Distributions from financial asset at fair value through other comprehensive income
Net foreign exchange (gain) / loss
Fair value gain 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
Decrease in receivables
(Increase) / decrease in other current assets
Increase / (decrease) in payables
Increase in deferred rent expense
(Decrease) / increase in employee benefits
Net cash from operating activities
Note
3(a)
3(a)
3(b)
4(a)
4(a)
4(a)
Consolidated US$’000
2019
26,843
2018
(13,056)
975
499
-
-
-
66
(221)
9,397
37,559
(4,872)
24
1,027
9
(11,182)
22,565
634
345
1,873
378
(38)
(92)
(960)
44,580
33,664
(3,605)
(198)
(282)
331
3,011
32,921
52
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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 was administratively effective at the beginning of
the financial year ended 30 June 2018, resulting in the use of a
a) Reconciliation of effective tax rate
blended rate for the prior year. 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%.
In addition, the Group recognised an income tax expense of
$35,480 thousand for the year ended 30 June 2018 related to the
adjustment in the carrying value of existing deferred tax assets to
reflect the new corporate tax rate.
The effective tax rate for the year ended 30 June 2019 is 26.1%,
reflecting the full annual impact of the drop in the US federal
statutory corporate rate to 21% and US state corporate taxes.
Profit before income tax
Income tax using the Company’s domestic tax rate of 30% (2018: 30%)
Effect of tax rates in foreign jurisdictions
Non-deductible / non-assessable amounts included in accounting profit
Amounts not included in accounting profit
Current year tax losses for which no deferred tax asset is initially recognised
Changes in estimates related to prior years
Effect of change in US tax rate on deferred tax assets
Total income tax expense reported in profit or loss
b) Current tax assets and liabilities
Current tax assets
Current tax liabilities
Current tax assets and liabilities represent the amount of income
taxes receivable or payable to the relevant tax authority, using
rates current at reporting date.
Consolidated US$’000
2019
36,304
(10,891)
2,064
(247)
(146)
141
(382)
-
(9,461)
Consolidated US$’000
2019
-
(6)
2018
31,576
(9,473)
(470)
133
89
(344)
913
(35,480)
(44,632)
2018
2
-
53
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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
Financial assets at fair value through other comprehensive income
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
2019
30,647
20,635
20
(269)
(658)
2,209
52,584
2018
27,582
30,400
2,597
217
(754)
1,836
61,878
As at 30 June 2019 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.
54
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Income tax (continued)
c) Deferred tax assets (continued)
Deferred tax assets – Australian Group
Deferred tax assets have not been recognised in respect of the following items:
Deductible temporary differences
Tax losses
Consolidated US$’000
2019
59,262
3,370
62,632
2018
62,456
3,704
66,160
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 2019, 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.
$59,262 thousand (30 June 2018: $62,456 thousand) of the
deductible temporary differences not recognised relate to an
impairment write-down taken during the year ended 30 June 2009
on the carrying value of the Lighthouse Group. The movement in
this balance relates to foreign currency movements only. The
realisation of this tax asset is subject to the application of relevant
tax legislation and the structure of any future business transactions
in relation to the Lighthouse Group, if and when any such
transaction was to occur.
Tax losses relating to the Australian Group and deductible
temporary differences do not expire under current tax legislation.
55
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Dividends
a) Dividends paid
The following dividends were paid by the Company:
Interim ordinary dividend for the year ended 30 June 2019 of USD 8.0 cents
Final ordinary dividend for the year ended 30 June 2018 of USD 9.0 cents
Interim ordinary dividend for the year ended 30 June 2018 of USD 7.0 cents
Final ordinary dividend for the year ended 30 June 2017 of USD 8.0 cents
Consolidated US$’000
2019
12,741
14,710
-
-
27,451
2018
-
-
11,348
13,042
24,390
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 30 August 2019.
The dividends were not determined or provided for as at 30 June
2019, and there are no income tax consequences.
b) Dividend franking account
The aggregate amount of the proposed dividend will be paid out of
the balance of the parent entity profits reserve as at 30 June 2019.
Amount of franking credits available to shareholders of Navigator Global Investments Limited
for subsequent financial years
Dividends paid and declared during the 2019 financial year have
been unfranked. The movement in the franking account balance
relates to foreign currency movements only.
Consolidated US$’000
2019
722
2018
761
56
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Earnings per share
Basic earnings per share
Diluted earnings per share
Reconciliation of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit / (loss) attributable to ordinary equity holders of the Company used in
calculating basic and diluted earnings per share
Consolidated US$’000
2019
16.55
16.55
2018
(8.05)
(8.05)
Consolidated US$’000
2019
26,843
2018
(13,056)
Weighted average number of shares used in calculating basic and diluted earnings per share
Issued ordinary shares at 1 July
16
Weighted average number of ordinary shares used in calculating basic,
diluted and underlying earnings per share
The Company did not have any potential ordinary shares
outstanding at balance date. The weighted average number of
shares used in calculating basic and diluted earnings per share are
therefore the same.
’000 shares
2019
162,148
162,148
2018
162,148
162,148
57
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Operating assets and liabilities
This section of the notes to the financial statements provides information on the operating assets and liabilities of the Navigator Global
Investments Limited Group, including explanations of the Group’s key assets used to generate operating results and the corresponding
liabilities. Information on other assets and liabilities can be found in the following sections:
Section 1 – Cash; Deferred tax assets
Section 3 – Capital and reserves
Where an accounting policy or key estimate is specific to a single note, the policy or estimate is described in the note to which it relates.
Trade and other receivables
Trade receivables from contracts with customers
Other receivables and prepayments
Consolidated US$’000
2019
18,733
690
19,423
2018
13,800
828
14,628
Trade receivables from contracts with customers
Other receivables and prepayments
Trade receivables due from contracts with customers comprise
management service fees, performance fees, recoverable costs,
licence fees, outgoings and other operating expenses on-charged
under agreements with external parties to licence office space.
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 amount to which the Group has the right to
invoice for the period for the services or recoverable costs
provided.
Due to the short-term nature of the Group’s trade receivables and
the historically low default rate on payment by customers, there is
no credit allowance against trade receivables as at 30 June 2019
or 30 June 2018. In determining this credit allowance, the Group
has considered forward looking factors specific to the receivables
and the economic environment.
Other receivables and prepayments relate to items such as
prepaid expenses (principally in relation to insurance policies),
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 17.
58
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Consolidated US$’000
2019
5,288
12,665
17,953
2018
5,638
10,821
16,459
Investments recognised at fair value
Financial assets at fair value through other comprehensive income
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income
comprise non-controlling equity holdings in unquoted securities of
US based companies over which the Group does not have
significant influence.
The Group has elected to account for these investments at fair
value with changes to fair value recognised through other
comprehensive income in the fair value reserve. Upon sale or
derecognition of these investments, any gain or loss will be
transferred to retained earnings.
Note 17 provides details on the methods used to determine fair
value for measurement and disclosure purposes.
Financial assets at fair value through profit or loss
These assets have been classified as fair value through profit or
loss upon initial recognition with changes in fair value recognised
in profit or loss. Note 17 provides details on the methods used to
determine fair value for measurement and disclosure purposes.
59
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Plant and equipment
Cost
Balance at 1 July 2017
Additions
Disposals
Balance at 30 June and 1 July 2018
Additions
Disposals
Balance at 30 June 2019
Depreciation
Balance at 1 July 2017
Depreciation for the year
Disposals
Balance at 30 June and 1 July 2018
Depreciation for the year
Disposals
Balance at 30 June 2019
Carrying amounts
At 1 July 2017
At 30 June and 1 July 2018
As at 30 June 2019
Consolidated US$’000
Furniture &
equipment
Computer
equipment &
software
Leasehold
improvements
Total
1,261
586
-
1,847
695
-
2,542
(958)
(110)
-
(1,068)
(150)
-
(1,218)
303
779
1,324
2,550
914
(5)
3,459
848
(41)
4,266
(2,215)
(367)
-
(2,582)
(568)
4
(3,146)
335
877
1,121
1,194
668
(282)
1,580
1,572
-
3,152
(674)
(157)
283
(548)
(257)
-
(805)
520
1,032
2,347
5,005
2,168
(287)
6,886
3,115
(41)
9,960
(3,847)
(634)
283
(4,198)
(975)
4
(5,169)
1,158
2,688
4,791
Recognition and measurement
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
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:
2-3 years
Furniture and equipment:
5-20 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.
60
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Balance at 30 June 2019
(405,718)
(1,093)
Intangible assets
Cost
Balance at 1 July 2017
Balance at 30 June and 1 July 2018
Additions
Balance at 30 June 2019
Amortisation and impairment losses
Balance at 1 July 2017
Amortisation for the year
Balance at 30 June and 1 July 2018
Amortisation for the year
Carrying amounts
At 1 July 2017
At 30 June and 1 July 2018
At 30 June 2019
Intangible assets
Goodwill
Consolidated US$’000
Goodwill
Trademarks
Software
Client
relationships
Total
499,519
499,519
-
499,519
(405,718)
-
(405,718)
-
1,900
1,900
-
1,900
(903)
(95)
(998)
(95)
93,801
93,801
93,801
997
902
807
2,050
2,050
-
2,050
(1,425)
(250)
(1,675)
(250)
(1,925)
625
375
125
-
-
1,077
1,077
-
-
-
(154)
(154)
-
-
923
503,469
503,469
1,077
504,546
(408,046)
(345)
(408,391)
(499)
(408,890)
95,423
95,078
95,656
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 29.
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.
Client relationships
The Group’s United States subsidiary, Lighthouse Investment
Partners, LLC (Lighthouse) acquired the rights to manage $5.4
billion of assets on behalf of clients from Mesirow Advanced
Strategies (MAS) on 1 July 2018. The transaction was completed
in accordance with a formal agreement with MAS whereby
Lighthouse acquired the contractual rights to act as investment
manager of these assets, along with some 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.
61
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
12. Intangible assets (continued)
Client relationships (continued)
Purchase consideration
The key terms of the purchase consideration are:
The purchase consideration is a contingent consideration
arrangement. The contingent consideration that may be paid
in the future will be determined under earnout payment terms
over seven years, calculated as an agreed percentage of
EBITDA generated by the transitioned assets above a floor
amount:
- The earnout calculation for the first 12 months ending 30
June 2019 has not been agreed with the vendor as at
the date of this report. However, the Group estimates
that any earnout amount payable for this period will be
nominal or nil.
- There is inherent uncertainty in being able to reasonably
estimate the contingent consideration. Based on the
earnout calculation for the first year and our assessment
that it is unlikely there will be future earnout payments
over the remaining six years of the earnout period, the
Group has not recognised any liability for future
contingent consideration as at 30 June 2019.
Under the agreement, there was no upfront consideration at
acquisition date, other than $343 thousand paid for
transferred prepaid operating expenses. The Group also
incurred $1,088 thousand of transaction costs.
The transaction did not require an issue of equity by the
Group or for the Group to obtain debt funding.
Accounting treatment
The Group engaged Grant Thornton, LLP (US) to determine the
fair value of assets acquired in the transaction. Based on these
valuations, the Group has assessed that substantially all of the fair
value of the assets acquired in the transaction relate to the
intangible client relationships. The Group has early adopted
recent changes to AASB 3 Business combinations. Under these
amendments to the standard, as the fair value of all the acquired
assets and liabilities is concentrated in a group of similar assets,
namely the intangible client relationships, the Group has
determined that the transaction should be accounted for as an
asset acquisition rather than a business combination.
The total purchase price for the transaction is $1,431
thousand.
Prepaid operating expenses assumed under the transaction
are recognised at their fair value of $343 thousand, whilst the
remaining assets are recognised at their relative fair value as
a proportion of the remaining purchase price.
62
As the transaction is accounted for as an asset acquisition, no
goodwill or bargain from a purchase has been recognised.
Intangible client relationships of $1,077 thousand were recognised
in the statement of financial position on 1 July 2018. The client
relationships will be amortised on a straight-line basis over 7
years.
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
Client relationships
Capitalised software development costs
20 years
7 years
5 years
Amortisation methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
Impairment testing of intangible assets
The carrying amounts of the Group’s intangible assets which have
an indefinite life are reviewed at least annually, or when an
impairment indicator exists.
The carrying amount of the Group’s other intangible assets are
reviewed 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.
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
12.
Intangible assets (continued)
Impairment testing as at 30 June
Cash generating units
For the purpose of impairment testing, intangible assets are
allocated to either the Lighthouse cash generating unit (Lighthouse
CGU) or the MAS cash generating unit (MAS CGU).
Key assumptions used in the calculation are discount rates,
terminal value growth rates, and the EBITDA growth rate:
Lighthouse CGU
Goodwill
Trademarks
Software
Consolidated US$’000
Carrying Amount
2019
93,801
807
125
2018
93,801
902
375
94,733
95,078
The carrying value of the CGU tested at 30 June 2019 includes
$4,775 thousand of directly attributable plant and equipment
(2018: $2,675 thousand).
Impairment testing carried out on the Lighthouse CGU as at 30
June 2018 and 30 June 2019 did not result in the recognition of
any impairment losses.
The recoverable amount of the CGU was determined based on a
value-in-use calculation.
The calculation utilises five years of cash flow projections. The first
three years of these projections are based on financial forecasts
approved by the board of directors, which are then extrapolated
over an additional two years.
Revenue for the additional two years is extrapolated using an
industry long term growth rate. Investment management costs and
operating expenses are extrapolated based on ratios consistent
with the third year of the approved financial forecasts
Key assumption
Discount rate
Terminal value growth rate
Forecast EBITDA growth rate
(average next 5 years)
2019
15.6%
3.7%
7%
2018
15.6%
3.7%
6%
The discount rate is a post-tax measure calculated based on US
risk factors as well as other risk factors specific to the industry and
operational nature of the business, including an assumed debt
leveraging of 10% (2018: 10%) at a market interest rate of 4.72%
(2018: 4.72%).
The terminal growth rate is based on the forecast long-term growth
rate for Open-End Investment Funds in the United States.
A reasonably possible change in these assumptions would not
result in an implied impairment of this CGU.
MAS CGU
Client relationships
Consolidated US$’000
Carrying Amount
2019
2018
923
923
-
-
There were no material indicators of impairment of the MAS CGU
as at 30 June 2019.
63
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Trade and other payables
Current
Trade creditors
Deferred rent liability
Other creditors and accruals
Non-current
Deferred rent liability
Other long-term liabilities
Consolidated US$’000
2019
2018
160
108
3,075
3,343
2,637
50
2,687
75
122
3,129
3,326
1,052
-
1,052
Trade creditors are non-interest bearing and normally settle on
30 to 90 day terms.
Deferred rent relates to operating leases for office space.
Payments made under operating leases are charged to profit or
loss on a straight-line basis over the period of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease. Current deferred rent
represents the amount to be recognised within 12 months of
reporting date. Non-current deferred rent represents the amount to
be recognised more than 12 months from reporting date.
Other creditors and accruals relate to items such as accrued
distribution costs, accrued operating expenses, and product costs
and expenses.
The carrying amount of these liabilities is a reasonable
approximation of fair value. The Group’s exposure to currency and
liquidity risk related to trade and other payables is disclosed in
note 17.
64
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Employee benefits
Current
Short-term incentives
Liability for annual leave
Non-current
Liability for long service leave
Consolidated US$’000
2019
2018
470
130
600
102
11,680
105
11,785
108
Short-term benefits
Long-term benefits
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.
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.
During the year ended 30 June 2019, the Group changed the
bonus cycle for US employees from being determined on a
calendar year basis to being determined on a financial year basis.
To effect the change, employees received an additional bonus
payment in June 2019 in relation to their performance for the 6
months ended on that date. This change is reflected in the
reduction to the current liability for short-term incentives.
65
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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:
Line of Credit
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 2019 and 30 June 2018, the Company’s capital
comprises ordinary shares on issue.
The Group has in place a $15 million Line of Credit with an expiry
date of 27 July 2020. The facility is secured by a charge over
certain of the Group’s assets. This Line of Credit has not been
drawn during the year ended 30 June 2019 and remains undrawn
at the date of this report.
Regulatory Capital Requirements
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
162,148
162,148
Shares ‘000
2019
2018
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.
66
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
16. 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
2019
16,918
850
2,025
13,326
33,119
2018
14,911
850
2,281
13,326
31,368
The fair value reserve comprises of the increase in the fair value of
financial assets at fair value through other comprehensive income
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 2018 and 2019, the Group held the following non-derivative financial assets and liabilities:
Classification
Description
Financial assets at amortised
cost
Other financial liabilities at
amortised cost
Financial assets at fair value
through profit or loss
Financial assets at fair value
through other comprehensive
income
The carrying amount of these assets is a reasonable approximation of fair value
Cash
Trade and other receivables
The carrying amount of these assets is a reasonable approximation of fair value
Trade and other payables
Investments in unquoted securities of Group managed entities
Non-controlling equity holdings in US based 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
13
10
10
67
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
17. 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 control, or substantially all the risks and
rewards of ownership are transferred.
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position if there is a currently
enforceable legal right to offset the recognised amounts and there
is an intention to 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 obligations
under the liability is 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 2018
Financial assets at fair value through other
comprehensive income
Investment in unquoted securities of
externally managed entities
Financial assets at fair value through profit
or loss
Investments in unquoted securities of Group
managed entities
Financial assets at fair value through other
comprehensive income
Investment in unquoted securities of
externally managed entities
Financial assets at fair value through profit
or loss
Investments in unquoted securities of Group
managed entities
10
10
10
10
-
-
-
-
-
-
5,638
5,638
10,821
-
10,821
30 June 2019
-
-
12,665
5,288
5,288
-
-
-
12,665
There were no transfers between levels during the financial years ended 30 June 2019 or 30 June 2018.
68
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
17. 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 Group managed entities
The Group holds investments in Group managed entities. 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 2019 and 30 June 2018 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.
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.
Movement in Level 3 assets
Boutique asset manager
The fair value of this investment has been determined with
reference to publicly available current industry valuation data.
The carrying amount has been based on an enterprise value
calculated as 3.3% of AUM, with a 20% liquidity/marketability
discount to take into account the unlisted nature of this investment.
A 10% increase (decrease) in the AUM multiple would result in an
increase (decrease) in fair value of $380 thousand.
A 5% change in the liquidity/marketability discount would result in
an increase/(decrease) in fair value of $237 thousand.
Text analytics platform provider
The fair value of this investment is based on the transaction price
per share of additional capital issued by the entity as part of a
Series B capital raising which was completed in March 2019.
A 10% increase (decrease) in the transaction price would result in
an increase (decrease) in fair value of $148 thousand.
Operator of an online marketplace for alternative investments
Due to significant uncertainty as to the on-going viability of this
investment, the board has impaired the carrying value of this
investment to nil.
The following table presents the change in Level 3 assets for the financial years ended 30 June 2019 and 30 June 2018:
Opening balance 30 June 2017
Increase in fair value through other comprehensive income
Closing balance 30 June 2018
Decrease in fair value through other comprehensive income
Closing balance 30 June 2019
There were no transfers in or out of Level 3 during the financial year ended 30 June 2019.
Note
Investment in
unquoted securities
5,005
633
5,638
(350)
5,288
10
10
69
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
17. Financial risk management (continued)
Financial Risk Management
Interest rate risk
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 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, 79% of the Group's trade and other receivables
related to amounts receivable from products managed by the
Group (2018: 87%).
As at reporting date, the Group did not have any receivables which
were past due. Due to the short-term nature of the Group’s trade
receivables, the fact that the majority relate to Group managed
products, and the historically low default rates, the application of
the expected credit loss model has not resulted in the recording of
a material credit allowance as at 30 June 2019 or 30 June 2018.
In determining this credit allowance, the Group has considered
forward looking factors specific to the receivables and the
economic environment.
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.
As at 30 June 2019, the Group’s exposure to interest rate risk
relates primarily to the Group’s cash and term deposits which
mature in less than 90 days.
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.
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
2019
0.7156
0.7013
2018
0.7753
0.7391
At reporting date, the Group’s direct exposure to currency risk
relates to:
AUD denominated 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 which
include cash, current receivables, current trade and other
payables and employee benefits.
AUD denominated balances recognised by the Lighthouse
Group which has a functional currency of USD. These
balances comprise of trade receivables due from a third party
for 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
2019
2018
61
(61)
51
(51)
70
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
17. 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.
Investments
The Group’s investments comprise:
financial assets at fair value through profit or loss, which are
comprised of investments in the unquoted securities of
investment funds
financial assets at fair value through other comprehensive
income which are comprised of investments in the unquoted
securities of US based 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$’000
2019
2018
468
(468)
195
(195)
384
(384)
200
(200)
Management fees
The Group earns management fees as a percentage of the assets
it manages on behalf of its funds and clients. Management fees
will be impacted by changes in the value of these assets from
movements in the individual prices of the underlying securities held
as well as the fluctuations in exchange rates for assets which are
not denominated in USD.
The following table summarises the sensitivity of management
fees to a change in AUM due to movements in market prices:
Consolidated US$’000
2019
2018
Profit or loss (decrease) /
increase
Fair value + 5%, net of tax
3,896
2,550
Fair value - 5%, net of tax
(3,896)
(2,550)
The impact of any change to management 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.
71
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
17. 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. The
Group also has access to a $15 million line of credit (refer Note
15). This approach excludes the potential impact of extreme
circumstances which cannot be predicted.
The following are the contractual maturities of non-derivative financial liabilities as at balance date:
Consolidated US$’000
30 June 2019
Trade and other payables -
current
Trade and other payables –
non-current
30 June 2018
Trade and other payables –
current
Note
Carrying
value
Cont-
ractual
cash flows
6 months
or less
6-12
months
1-2 years
2-5 years
More than
5 years
13
13
3,235
(3,235)
(3,235)
50
(50)
-
3,285
(3,285)
(3,235)
13
3,204
(3,204)
(3,204)
-
-
-
-
-
-
-
-
-
(50)
(50)
-
-
-
-
-
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.
72
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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 and key
parent entity disclosures.
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
2019
2018
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
LDO 906 Limited
MSW Director Services Limited1
United States
United States
United States
United States
United States
United States
United States
Hong Kong
Ireland
Cayman Islands
Cayman Islands
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
1 This entity was acquired as part of the transfer of client relationships in the MAS transaction on 1 July 2018.
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 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 loses
control of the subsidiary. The assets, liabilities, income and
expenses of a subsidiary are included in the consolidated 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.
73
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Parent entity disclosures
As at, and throughout the financial year ended 30 June 2019, 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$’000
2019
2018
29,458
29,458
18,812
285,825
(175)
(277)
26,022
26,022
16,821
283,833
(183)
(292)
285,548
283,541
257,355
257,355
2,397
16,918
5,070
3,808
2,397
14,911
5,070
3,808
285,548
283,541
74
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Other disclosures
This section includes information that the Directors do not consider to be significant in understanding the financial performance and position of
the Group, but must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the Corporations Regulations.
Related parties
Key management personnel remuneration
The key management personnel remuneration included in ‘employee expense’ (see note 3) is as follows:
Consolidated US$
2019
6,267,376
3,215
95,965
2018
5,563,793
3,616
94,419
6,366,556
5,661,828
For the years ended 30 June 2019 and 30 June 2018, the Group
has not recorded a credit allowance 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 17.
Equity accounted investee
The Group held a 40% interest in a US based limited partnership
(Casement Capital Management LP) which it transferred to the
remaining partner in September 2018. As at 30 June 2018, the
directors had assessed the carrying amount of the investment at
$Nil.
Other
There have been no guarantees provided or received for any
related party receivables.
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
Revenue from group managed products
During the financial year Group entities recognised management
fees, performance fees and fund reimbursement revenue received
or receivable of $103,048,954 (2018 restated: $87,875,803) from
investment products for which group entities act as general
partner, investment manager or platform service provider.
Amounts receivable from these products at 30 June 2019 were
$15,426,885 (2018: $12,660,017).
Investment in products
As at 30 June 2019, Group entities hold $12,665,544 of
investments in products for which they act as investment manager
or platform service provider (2018: $10,821,366). Refer note 10 for
additional detail.
During the financial year, the Group recognised distributions from
its investments in these products of $nil (2018: $nil).
75
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Auditors’ remuneration
Audit and review services
EY: Audit and review of financial reports
Audit firms other than EY: Audit and review of financial reports
Services other than statutory audit
Audit firms other than EY: Taxation and other advisory services
Commitments
Operating lease commitments
Consolidated US$
2019
2018
309,056
24,216
333,272
35,243
35,243
245,864
66,139
312,003
19,903
19,903
Group as lessee
Group as lessor
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:
The Group has entered into an operating sub-lease for one of its
office premises. The lease has a remaining life of 4 years.
Future minimum lease payments receivable under this sub-lease
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$’000
2019
2018
201
495
-
696
-
-
-
-
Within one year
After one year but not more than
five years
More than five years
Consolidated US$’000
2019
2,635
9,478
8,658
2018
2,155
7,712
8,067
20,771
17,934
Capital Commitments
In July 2019, the Group entered into commitments to purchase
computer equipment totaling $1,925 thousand. The equipment will
be utilised in the development of the Group’s proprietary trading
platform.
76
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Contingent liabilities
Investment fund related obligations
Sale of Australian business
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 2019.
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.
Subsequent events
Events occurring after reporting period
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.
77
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
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 for the current or later years. We explain how these changes are expected to impact the financial
position and performance of the Group.
Corporate information
Basis of measurement
The financial report of Navigator Global Investments Limited (the
‘Company’) for the year ended 30 June 2019 was approved by the
board of directors on the 8th day of August 2019.
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:
The consolidated financial statements of the Company as at and
for the year ended 30 June 2019 comprise the Company and its
subsidiaries (the ‘Group’) (see note 18).
Items
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.
Financial instruments at fair value
through profit or loss
Financial instruments at fair value
through other comprehensive income
Measurement
basis
Fair value
Fair value
The methods used to measure fair value are discussed further in
note 17.
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 29 as well as within the
individual notes to the financial statements.
78
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Functional and presentation
currency
Changes in accounting policies
New and amended standards
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.
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 12 - impairment test: key assumptions underlying
recoverable amounts of intangible assets;
notes 10 and 17 - fair value measurement of investments;
and
note 12 - purchase consideration for client relationships
acquired.
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 17 - investments in financial assets at fair value
through profit or loss;
notes 10 and 17 - investment in financial assets at fair value
through other comprehensive income; and
note 12 - relative fair value of assets acquired through the
MAS transaction.
79
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 9 Financial instruments
AASB 9 brings together three aspects of accounting for financial
instruments: classification and measurement, impairment and
hedge accounting. The Group has applied AASB 9 retrospectively,
with an initial application date of 1 July 2018 and adjusting the
comparative information for the period beginning 1 July 2017. The
adoption of AASB 9 did not have a material impact on the
disclosures or the amounts recognised in the Group's financial
statements.
a) Classification and measurement
The Group continues to measure all financial assets currently held
at fair value.
Trade receivables (which are held to collect contractual cash flows
and give rise to cash flows representing solely payments of
principal and interest) continue to be classified as amortised cost.
The Group 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.
The investments in unquoted securities of externally managed
entities were previously held as available for sale, and accordingly
fair value gains and losses for these assets were recorded in other
comprehensive income (OCI). The Board has made an election to
continue to present fair value changes in OCI for these
investments. As such, the application of AASB 9 has not resulted
in a material impact on the amounts recognised in the Group’s
financial statements. However, under this election, the fair value
reserve associated with these investments is now prohibited from
being recycled to the profit and loss on disposal, but can be
transferred within equity.
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 has elected to apply
the simplified approach and assess lifetime expected losses on all
trade receivables.
For all other financial instruments in-scope of the impairment
requirements of AASB 9, the Group assesses expected credit
losses on a forward-looking basis and the impairment methodology
applied will depend on whether there has been a significant
increase in credit risk.
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
Under the principal versus agency considerations in AASB 15, the
Group now recognises the fund expense reimbursements it incurs
on a gross basis. Reimbursements received from funds are
classified as ‘Revenue from reimbursement of fund operating
expenses’, and payments made on behalf of funds are classified
as ‘Reimbursable fund operating expenses’. The prior period
income statement and cashflow have restated to reflect this
change.
The impact of this change for the year to 30 June 2019 is an
increase to both revenue and expense of $6,319 thousand (30
June 2018: $4,678 thousand). This change does not have a net
impact on the Group’s income statement or statement of financial
position.
c) Agreements for the provision of office space and services
The Group has a number of agreements with external parties to
license desk / office space at their New York and London offices.
As part of these agreements, licensees are charged license fees
and service charges on a monthly basis.
The Agreements represent contracts with a customer under AASB
15. The revenue from these agreements is now described as
‘Revenue from provision of office space and services’ (previously
termed of ‘Rent, outgoings and other operating expenses on-
charged to sublease tenants’). The amounts are unchanged.
AASB 3 Business Combinations
AASB 2018-6 Amendments to Australian Accounting Standards –
Definition of a Business amended AASB 3 to include an election to
use a concentration test. This is a simplified assessment that
results in an asset acquisition if substantially all of the fair value of
the gross assets is concentrated in a single identifiable asset or a
group of similar identifiable assets. This election is made on a
transaction by transaction basis.
The amendments to AASB 3 are effective for annual reporting
periods beginning on or after 1 January 2020 and apply
prospectively. The Group has early applied the amendments from
1 July 2018 as permitted by the standard. See Note 12 for further
details.
29. Other accounting policies
(continued)
Due to the short-term nature of the Group’s trade receivables, the
fact that the majority relate to Group managed products, and the
historically low default rates, the application of the expected credit
loss model has not resulted in the recording of a material credit
allowance.
c) Hedge accounting
The Group does not currently have any existing hedge
relationships. As such, there was no impact.
AASB 15 Revenue from contracts with customers
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 has
been applied by the Group for the reporting period commencing 1
July 2018 using the full retrospective method (no practical
expedients have been applied). The nature and effect of the
changes as a result of adoption of the new accounting standard
are described below.
a) Revenue from the provision of services
The consideration received by the Group for the provision of
services is in the form of management fees, and in the case of
some customers, performance fees. Historically, management fees
have been recognised in the income statement as services have
been provided. Performance fees have been recognised only
when the entitlement to receive the fee has become certain, which
is at the end of the relevant performance period.
The adoption of AASB 15 has not resulted in a change in timing or
amount of revenue recognised in relation to either management
fees or performance 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) Reimbursement of fund operating expenses
The Group is entitled to reimbursement for fund expenses that it
has paid on behalf of the funds. While the funds generally pay
their own operating expenses directly, there are some expenses,
such as financial data services and software and technology
expenses, where it is more practical for the Group to incur and pay
the expense and then be reimbursed by the fund. These
reimbursements have historically been recognised on a net basis
in the income statement.
80
Annual Report 2019 | Financial Statements
Financial
statements
Notes to the financial statements
For the year ended 30 June 2019
29. Other accounting policies
(continued)
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 2019.
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 becomes
mandatory for the Group from 1 July 2019.
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 Group has assessed its existing contracts for use of office
premises and ongoing use of assets and equipment. All of the
contracts meet the lease criteria in AASB 16 and are identified as
containing a lease. After applying practical expedients (short-term
and low value exemptions), four leases for office premises remain
which require a change in accounting under the new requirements.
The Group has selected a modified retrospective transition
approach with the Right-of-use asset measured as if AASB 16 had
always been applied, but using the transition discount rate rather
than the discount rate at inception.
Upon adoption of the standard on 1 July 2019, the Group expects
to recognised the following changes in the statement of financial
position in relation to these leases:
Statement of financial position impact US$’000
Recognise a lease liability
Recognise a Right-of-use asset
Recognise a finance lease receivable
(18,012)
14,102
385
Derecognise existing lease incentives/allowances
2,745
Recognise the tax effect of the balance sheet
movements to deferred tax assets
Recognise the cumulative effect of initially
applying the standard as an adjustment to retained
earnings
191
589
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 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
AASB Interpretation 23 Uncertainty over Income Tax
Treatment
AASB 17 Insurance Contracts
AASB 2014-10 Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture (Amendments to
IFRS 10 and IAS 28)
81
Annual Report 2019 | Financial Statements
Directors’
declaration
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 40 to 81, and the Remuneration report on pages 27 to 36 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 2019 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 2019.
3. The directors draw attention to note 26 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
Sydney, 8 August 2019
82
Annual Report 2019 | Directors’ Declaration
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
2019, 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 2019
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.
83
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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 24% 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 asset 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 the assumptions and estimates
used were consistent with the criteria used
for testing the recoverability of the
Lighthouse cash generating unit;
• 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.
84
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Recoverability of the Lighthouse cash generating unit
Refer to Note 12 of the financial report
Why significant
How our audit addressed the key audit matter
The recoverability of the Lighthouse cash
generating unit (“CGU”) was a key audit
matter due to the value of goodwill
allocated to the CGU relative to total assets
and the degree of judgement involved in
determining the value in use of the GGU.
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
CGU’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 value in
use;
Ensured the assumptions and estimates
were consistent with the criteria used for
testing recoverability of deferred tax assets;
• Assessed the historical accuracy of the
Group’s previous future cash flow forecasts
by comparing forecasts 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;
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.
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 2019 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.
85
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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.
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.
86
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
•
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.
87
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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
2019.
In our opinion, the Remuneration Report of Navigator Global Investments Limited for the year ended 30
June 2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Rebecca Burrows
Partner
Brisbane
8 August 2019
88
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Shareholder information
Shareholder information
As at 5 August 2019
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 Navigator Global Investments Limited:
Category
Sean McGould, his controlled entities and associates
Delaware Street Capital Master Fund, LP
IOOF Holdings Limited
Number of ordinary
shares
19,438,083
13,101,982
11,147,302
%
11.99%
8.08%
6.88%
Twenty largest shareholders
Name
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
CS Third Nominees Pty Limited
Warbont Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
Mr Shay Shimon Hazan-Shaked
Winchester Global Trust Company Limited
Australian Executor Trustees Limited
Bond Street Custodians Limited
Mr Ethan J Baron
CS Fourth Nominees Pty Limited
Mr Mark Sheffield Hancock & Brig Ian Denis Westwood
eCapital Nominees Pty Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
Mr Shay Shimon Hazan-Shaked
Number of ordinary
shares held
Percentage of
capital held
50,069,500
36,351,320
23,595,611
8,908,247
5,158,756
4,677,984
1,460,920
1,184,876
1,084,360
1,029,176
900,000
742,719
730,396
650,000
593,862
526,489
484,835
458,018
426,291
400,000
30.88%
22.42%
14.55%
5.49%
3.18%
2.89%
0.90%
0.73%
0.67%
0.63%
0.56%
0.46%
0.45%
0.40%
0.37%
0.32%
0.30%
0.28%
0.26%
0.25%
90
Annual Report 2019 | Shareholder Information
Shareholder information
As at 5 August 2019
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
607
1,088
431
401
43
44
23.22%
41.62%
16.49%
15.34%
1.64%
1.68%
2,614
100.00%
293,686
3,034,125
3,275,057
8,584,601
3,138,052
143,822,376
162,147,897
0.18%
1.87%
2.02%
5.29%
1.94%
88.70%
100.00%
The number of shareholders holding less than a marketable parcel of ordinary shares is 135.
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.
91
Annual Report 2019 | Shareholder Information