Pacific Current Group Ltd Annual Report 2015

Plain-text annual report

Annual Report 2015 Annual Report 2015 Contents About us ifc Results at a Glance 1 2 Chairman’s Report 4 CEO’s Report 7 Review of Boutiques 13 Directors’ Report 35 Auditor’s Independence Declaration 36 Consolidated Income Statement 37 Consolidated Statement of Comprehensive Income 38 Consolidated Statement of Financial Position 39 Consolidated Statement of Changes in Equity 40 Consolidated Statement of Cash Flows 41 Notes to the Financial Statements 77 Director’s Declaration Independent Audit Report 78 80 ASX Additional Information 81 Corporate Information In accordance with ASX Listing Rule 4.10.3, Treasury Group’s Corporate Governance Statement can be found on its website at www.treasurygroup.com/Aboutus/CorporateGovernanceResponsibility. Results at a Glance A transitional year from an operational and strategic perspective. Geographic and income diversification now positions the Company in a unique position going forward. Key Financial Highlights during the year: Normalised net profit after tax (NPAT) Total funds under management Full year dividend (fully franked) $18.7m $49.0bn 52c Year End FUM ($bn) Aggregate Boutique Management Fees ($m) Reported NPAT ($m) Underlying NPAT ($m Final Dividend (cps) Full Year Dividend (cps) $ 49.0 168.3 138.7 18.7 28.0 52.0 % change 92.9 71.2 958.7 33.6 3.7 4.0 11 About us Treasury Group is a global multi-boutique asset manager, focused on boutique fund management companies across the world. We provide strategic capital and structure ﬂexible partnerships, to create exceptional alignment with our fund managers. Our philosophy Each partnership is created with ﬂexibility to create exceptional alignment with our boutique managers. We apply capital, strategic insight, and global distribution to support the growth and development of our partner boutiques. Our goal is to help boutique funds focus on their core business and what matters most – investing. What we offer our boutiques • Strategic and complementary capital – we seek to complement their business, not control • Flexible ownership structures – our goal is to create exceptional alignment with our partners, so every partnership is uniquely tailored to ﬁt the speciﬁc manager’s needs • Global distribution and marketing services to help grow underlying AUM at the boutique level – allowing portfolio managers to remain focused on investing • Access to our global network and strategic insight – there are many ways we help support the development of our boutiques, speciﬁcally by providing intelligent insight and connecting them with the right people Annual Report 2015 Chairman’s Report On behalf of the Board, I am delighted to report on a transformational year at Treasury Group. The business has undergone signiﬁcant change since my last report, having successfully completed the merger with Northern Lights in November 2014. The merged group is now a well-diversiﬁed international multi- boutique funds management business, with $49 billion in FUM through 19 funds management businesses. During the year, the Company also successfully conducted an equity capital raising through an institutional placement and shareholder purchase plan. The Company was extremely pleased with the strong support received from existing shareholders. This exercise resulted in the Company being strongly positioned to execute our long-term strategy of retaining balance sheet ﬂexibility and pursuing accretive future investment opportunities. The Company’s balance sheet position was also further strengthened following the announcement of the partial sell down of RARE Infrastructure to Legg Mason in July, post year-end. The $200 million sale price represented a spectacular return on $5 million of non-recourse debt. Treasury Group now has the cash resources to diversify aggressively. Treasury Group’s enduring success has been underpinned by its operational excellence and strong management team. In March, Chief Executive Ofﬁcer, Andrew McGill, gave notice of his intention to leave the Company and he ceased employment on 28 August 2015. Tim Carver, Executive Director of Northern Lights Capital Group will succeed Mr McGill, both having worked closely since the merger of the two groups, transitioning the business effectively. At board level we saw changes with the resignation of Reub Hayes having signiﬁcantly contributed to the Company over his last 8 years in this leadership position. The Board also welcomed two new non- executive directors Gilles Guérin and Jeff Vincent, and three executive directors Paul Greenwood, Joseph Ferragina and Tim Carver. Together, Treasury Group and Northern Lights have an extremely experienced Board and management team, and we are conﬁdent this team is well positioned to drive growth going forward. Against a backdrop of signiﬁcant change, the performance of the merged Company this year was mixed. In particular, WHV did not perform as well as expected. However, the Company has taken a huge step from being domestic centric ,where new opportunities are becoming increasingly challenging, to become a global business undertaking research on new fund managers in the North American and European markets. In addition, we have further strengthened our distribution team and have greater scale in these larger markets. This should result in greater opportunities for growth for a number of our investment managers. Financial Results Treasury Group’s underlying net proﬁt after tax increased to $18.7 million, up 33.6% on the prior year. Statutory net proﬁt after tax was $138.7 million, an increase of 958.7%. Funds Under Management Funds under management increased by 93% to $49.0 billion at year-end. This reﬂected the addition of the Northern Lights business to the overall group. Dividend The Board declared a fully franked ﬁnal dividend of 28 cents per share in August, taking the total dividends for the year to 52 cents per share. This equates to an increase of 4% on the total dividends for FY2014 and a 71% payout ratio for the year, well within the targeted range. The Board has conﬁdence in the outlook for the business and reafﬁrms the targeted payout ratio band of 60%–80%. Fund Manager Performance The ﬁnancial results were underpinned by the positive growth in funds under management and earnings from a number of our key boutiques including, RARE, Investors Mutual, Seizert and Aether. Going forward and once the partial sale of RARE is completed, the key drivers to earnings will be IML, Seizert and Aether, reﬂecting the diversiﬁcation that has been achieved through the merger with Northern Lights. Another element of diversiﬁcation will be the exposure to businesses that deviate from the traditional long-only style of investment management and towards a range of investment management styles. This strategy is reﬂected in a number of our boutiques, including Aether, which have a private equity style investment strategy, and Raven that focuses on the US private credit market. 2 3 IML RARE Trilogy ROC Partners Seizert Aether EAM Tamro WHV Others FUM at 30 June 2014 FUM at 30 June 2015 IML RARE Trilogy ROC Partners Others Social Responsibility The business, from the Board down, recognises its corporate social responsibility. As such, the Company continues to support a number of very capable and hard working organisations in their efforts to bring about worthwhile social change. For a number of years, we have supported Third Link Investment Managers via the provision of investment and support services on a pro-bono basis, with all fees received being donated to the not-for-proﬁt sector. We have also supported Social Ventures Australia, which invests in social change by increasing the impact and sustainability of a range of charities. It provides funding and strategic support to carefully selected non-proﬁt partners. Third Link and Social Ventures are wonderful organisations and I invite you to learn more about their work by visiting www.socialventures.com.au. Outlook The Board and management of Treasury Group have worked hard on behalf of shareholders over the course of the 2015 ﬁnancial year, to transform the Company to enable it to build the next platform for growth. The Company was evolutionary when it started the concept of backing and investing in boutique fund managers in 2001, but (from an Australian perspective) it had reached a point where the next step in its evolution was to develop a more global footprint. The Company now has greater diversiﬁcation, a stronger management team and robust global distribution from which to grow over the medium to long term. Finally, I would like to thank all our staff, boutique partners and clients for their continued support and I look forward to continuing to work closely with you as Treasury Group embarks on this next phase of growth. In particular, I would like to thank Reub Hayes for his service and contribution to the Board over many years. Reub provided wonderful insight with his 40 years of experience. I would also like to thank Andrew McGill for his four years of service as Managing Director and CEO. Over his tenure the business saw greater levels of efﬁciency and became more focused on investment activities, which culminated with the merger with Northern Lights. I extend well wishes for both in their future endeavours. Mike Fitzpatrick Chairman Annual Report 2015 CEO’s Report Strong earnings growth, consolidation of the merger of Treasury Group Ltd (“Treasury Group”) and Northern Lights Capital Group (“Northern Lights”), changes to the Board and leadership team, the partial sale of RARE Infrastructure and other events marked a year of fundamental change to the shape of Treasury Group’s/Northern Lights’ business. Business Performance 2015 was a year of fundamental change for our business. In November 2014, Treasury Group’s merger with Northern Lights was completed. The merger created an international portfolio of asset management businesses increasing portfolio diversiﬁcation and delivering strengthened investment and distribution capabilities. During the year, executives have adjusted to new reporting lines and, in some cases, changed scope of responsibility as two businesses have become one. Sales, Finance and Compliance teams have integrated and new reporting and management systems have been implemented. At an executive level, we have beneﬁtted from the outset from strong cultural compatibility and positive attitude across the executive team. Highlights for the year (and post year end) included: – Completion of the merger of Treasury Group and Northern Lights in November; – Consolidation of operational and management functions across 6 ofﬁces, 34 staff, 3 primary regulatory and tax jurisdictions and a portfolio of 19 boutiques; – $40 million capital raising completed in December/ January; and – Conditional partial sale of Treasury Group’s/ Northern Lights’ interest in RARE Infrastructure. These and other events have fundamentally changed the scope and shape of our business. We are now less dependent on a small number of Australian-based boutiques. We have international Sales, Investment and other executive capabilities. For the ﬁrst time, we have signiﬁcant amounts of capital available for investment. Undoubtedly we have faced signiﬁcant challenges during a period of such marked change. We are frustrated that, as yet, we’ve not been in a position to announce new investments to deploy capital allocated for this purpose. It has not been for a lack of effort by our executives. Our executives remain resolute in their focus on high quality opportunities and conﬁdent that one of more growth opportunities will be realised in the short term. Operational and Financial Performance Total funds under management increased signiﬁcantly during the year to ﬁnish at $49.0 billion. This was primarily due to the merger of Treasury Group and Northern Lights, but also reﬂected favourable market conditions for most of the year. In addition, increased FUM reﬂected strong investment performance at key Treasury Group/ Northern Lights boutiques. Net funds inﬂows were experienced at Investors Mutual, whilst net funds outﬂows were experienced at RARE Infrastructure and WHV. Our portfolio now includes an increased proportion of FUM from closed ended investment vehicles at Alternatives boutiques such as Aether and ROC Partners, which are naturally less exposed to short term changes in FUM. In FY2015, the average net margin earned by our boutique partners on FUM was 47 basis points. This was slightly lower than for the prior year due to the mathematical result from merging the Treasury Group and Northern Lights FUM ﬁgures. Our ﬁnancial accounts this year include a signiﬁcant amount of accounting “noise” due to the scale of fundamental changes to the business. Therefore, I encourage shareholders to focus on underlying net proﬁt after tax which was $18.7 million, an increase of 33% versus prior year. Statutory net proﬁt after tax was $138.7 million, signiﬁcantly higher than last year, primarily due to the impact of large abnormal gains which were booked at the time of the merger when the carrying value of our boutique portfolio was marked-to-market for accounting purposes. Whilst the merger with Northern Lights has been positive overall, we have been disappointed with WHV. Investment performance at WHV has been poor and it has lost signiﬁcant FUM. For accounting purposes, the Board took the decision to write off the value of our position in WHV and our statutory results for FY2015 includes an impairment charge. The correlation between Treasury Group’s earnings and the level of listed equities markets was evident again this year as illustrated in the chart below. Whilst this relationship can be expected to endure, the more internationally diversiﬁed nature of Treasury Group/Northern Light’s portfolio now will mean that international equities markets and exchange rates will be of increased inﬂuence in future. 4 5 Financial Performance Treasury Group Underlying Proﬁt S&P/ASX 300 Treasury Group ﬁnancial performance is correlated with the level of listed equities markets. The S&P/ASX 300 Index increased by 1.1% during 2015. Source: Treasury Group, Standard & Poor’s 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2014 2014 2015 Market Environment With Treasury Group’s/Northern Lights’ portfolio of boutiques and investment products weighted towards Equities in the US and Australia, the performance of the US and Australian economies are an important backdrop to our business. Generally speaking, the market backdrop was favourable for our portfolio of Equities funds management businesses – in the US, the Dow Jones Industrial Average increased 4.7% during the year while the NASDAQ composite increased by 12.5%. Having increased by over 10% through April, the S&P/ASX 200 Index ended the year only marginally higher, up 1.2% for the year, following signiﬁcant losses in May and June. Once again, there were marked differences between the performance of Australian market sectors - the S&P/ASX 200 Resources Index fell by 20% during the year while the S&P/ASX Industrial increased by 10%. Australian March quarter GDP statistics showed that the Australian economy grew by 2.3% year on year to that point in time. However, commentators noted that domestic consumption, an important economic driver, was soft. Also, falls in commodity prices in FY2014 and FY2015 has inevitably resulted in lower business investment in mining and resources projects. Given a somewhat uncertain economic background, it was not surprising that during the year the RBA twice lowered ofﬁcial interest rates and they ﬁnished the year at 2.0%, a record low. During the year, the US economy continued its recovery with GDP growth of 2.3% in the June quarter and unemployment rates and other economic indicators generally improving with the consequence that investors now expect future rises in ofﬁcial US interest rates. Annual Report 2015 CEO’s Report continued Volatility in ﬁnancial markets was high driven by events such as the highly reported issues in Greece. Through the ﬁnancial year, markets also reacted to the reality of the slowing Chinese economy and this was reﬂected in commodity prices, with iron ore collapsing approximately 50%. Commentators regard this as a dominant factor inﬂuencing the Australian dollar which declined approximately 18% during the year. Currencies were also inﬂuenced by changing interest rate relativities as central banks around the world engaged in actions designed to facilitate lower currencies and assist their respective domestic economies. For Treasury Group’s Australian shareholders, the timing of the merger with Northern Lights has to date been fortunate in relation to foreign exchange exposures as, in essence, the merger involved trading ownership of a portfolio of boutiques which was predominantly exposed to AUD revenues for a share of larger portfolio of boutiques with exposure to both USD and AUD revenues. Currency exposures are now an important consideration for the Treasury Group board. At present, Treasury Group’s/Northern Lights’ AUD earnings are protected from USD currency changes due to a natural hedge with our USD denominated external debt and operating expenses. When this debt is repaid the natural hedge within our business will be signiﬁcantly unwound and thereafter currency movements will, in the absence of any future hedging actions by the Treasury Group board, have greater impact on Treasury Group’s/ Northern Lights’ earnings. Funds management as an industry continues to provide an attractive investment opportunity for investors with mandated compulsory superannuation contributions rising and Australia remaining one of the fastest growing funds management sectors globally. Treasury Group/ Northern Lights remains well placed to beneﬁt from these strong industry fundamentals. Conclusion FY2015 saw earnings growth for a 4th consecutive year, signiﬁcantly greater portfolio diversiﬁcation, and improved internal capabilities at Treasury Group/Northern Lights including within our sales and investment teams. The completion of the Treasury Group/Northern Lights merger and the sale of RARE Infrastructure were signiﬁcant events for our business. We are well capitalised with signiﬁcant opportunities potentially available to us. By the time that this letter is published, my tenure as CEO and Managing Director at Treasury Group/Northern lights will have ended. Treasury Group’s/Northern Lights’ position today is very different from Treasury Group’s in 2011 when I was hired by the board of Treasury Group with the brief to reconsider the business model in light of a signiﬁcantly changed market environment to that which prevailed when the multi-boutique funds management model was ﬁrst conceived. The events of FY2015 are milestones of a fundamental repositioning of our business that has been accomplished by the executive team and Board in recent years and I am proud to have been a part of that. Looking forward as a shareholder of Treasury Group/ Northern Lights, I am very conﬁdent in the capability of the leadership team led by Tim Carver and with the support of Paul Greenwood, Joe Ferragina and the non-executive directors. I wish Tim and the team all the very best for the continued growth and success of our business. Finally, I would like to thank all Treasury Group/Northern Lights employees and also staff at our boutique partners for their professionalism and expertise again this year. Treasury Group’s/Northern Lights’ business is a people-based business model and outcomes for our shareholders are a direct result of the continued skill, expertise and diligence of our people. Andrew McGill Managing Director and Chief Executive Ofﬁcer Review of Boutiques 6 7 AlphaShares, LLC (“AlphaShares’) Walnut Creek, California, USA - based AlphaShares produces a series of China equity indices on which numerous exchange traded funds (“ETFs”) are based. Guggenheim Partners is the advisor for all of the ETFs that utilize AlphaShares’ indices. Asset ﬂows into these ETFs tend to reﬂect current market sentiment toward Chinese equities, and signiﬁcant swings in asset levels are common. Early in 2015, assets expanded dramatically as Chinese equities soared. After the correction late in the second quarter, asset levels reverted to early 2015 levels. As of 30 June 2015, assets in AlphaShares based ETFs were $590 million. While AlphaShares revenues are modest, it has a very low cost structure and high margins at current revenue levels. Aubrey Capital Management (“Aubrey”) Aubrey is a global equity growth manager based in Edinburgh, Scotland. Led by Andrew Dalrymple, the Aubrey team members are experienced global equity investors focused on concentrated portfolios of growth stocks. Aubrey is also the appointed sub manager of the GVI Global Growth and Income Funds. Aubrey’s funds under management (“FUM”) ﬁnished the year ending 30 June 2015 at $607 million. FUM beneﬁtted from the successful launch of the Aubrey Global Emerging Markets Fund in the UK. While markets over the ﬁnancial year have been volatile, Aubrey ended the year well ahead of the benchmark for its ﬂagship portfolio, the Global Conviction Fund. Aether Investment Partners (“Aether”) Aether was founded in 2008 and is located in Denver, Colorado, USA. The ﬁrm is a private equity fund of funds manager focused on real assets. Examples of the real asset sectors in which it operates include oil and natural gas, metals and mining, and agriculture and timber. The two founders, Troy Schell and Sean Goodrich, have built a ﬁrm widely recognised as an industry leader. Aurora’s stake in Aether was substantially increased at the time of the Northern Lights/Treasury Group merger. Aether believes that investment returns and alignment of interests between fund managers and investors are generally better with investments in smaller funds that are managed by teams that possess deep operational and/or technical experience. The ﬁrm has $1.17 billion of committed capital as of 30 June 2015. Aether has typically gone to market to raise additional capital every two years; its last funds being raised late 2013. The collapse in commodity prices has had an impact on the short- term performance of Aether’s funds; however, the contractual nature of the ﬁrm’s management fees largely insulates Aurora (and therefore Treasury Group) from performance volatility. Annual Report 2015 Review of Boutiques continued Celeste Funds Management (“Celeste”) Celeste is a long-only Australian equities manager based in Sydney with a focus on smaller listed companies. The Celeste team aims to provide above benchmark returns for investors who possess a conservative nature and a patient disposition. During the year, FUM fell from $597 million to $457 million as of 30 June 2015. While short- term performance has been behind benchmark, performance relative to the benchmark over the long term and since inception remains positive. Blackcrane Capital (“Blackcrane”) Blackcrane was founded in 2012 by Dan Kim and Aaron Bower and is located in Bellevue, Washington, USA. The ﬁrm manages concentrated international and global equity portfolios. Blackcrane’s mission is to provide investors with substantial excess returns through its relatively unconstrained portfolios. The ﬁrm’s investment process is focused on identifying companies undergoing signiﬁcant change, where the ﬁrm believes that the behavioural biases of other investors affords Blackcrane an opportunity to outperform its benchmark through its opportunistic approach. Northern Lights’ initial investment in Blackcrane occurred in April of 2014, when funds under management were less than $10 million. Northern Lights’ (and subsequently Aurora’s) distribution team has worked closely with the ﬁrm to grow FUM to $208 million as of 30 June 2015. Interest in Blackcrane’s strategies has grown dramatically, in part due to its distinctive investment approach and top percentile performance. EAM Investors, LLC (“EAM”) In April 2014, EAM Investors, LLC (“EAM Investors”), a US equity- focused investment manager, launched its international equity management subsidiary, EAM Global. EAM Global is jointly owned by EAM Investors and Aurora, and offers emerging markets small cap, international small cap, and international micro cap strategies to institutional investors. EAM Investors and EAM Global are based in Cardiff-by-the-Sea, California, USA, and operate under the shared leadership of Travis Prentice, Montie Weisenberger, and Josh Moss who together have managed small and micro cap portfolios for institutional clients for well over a decade. The combined FUM of EAM entities as of 30 June 2015 was $1.95 billon, of which $155 million represents FUM of EAM Global. Aurora’s interest in the group’s non- US equity products is based on its belief that the investment strategy should work well in less efﬁcient markets outside the US. So far, this investment thesis has been validated, as EAM Global continues to post above benchmark returns in all of its non-US equity offerings. Moreover, the Aurora distribution team has begun to generate signiﬁcant interest in EAM Global’s strategies, and Aurora believes the growth prospects to be strong. Freehold Investment Management (“FIM”) FIM is a boutique investment management company based in Melbourne, Australia with key capabilities in the real estate and infrastructure sectors. It manages a range of strategies across Australian and global real estate securities, listed infrastructure securities and direct real estate. FIM is focused on providing investment opportunities within core, value-add, opportunistic and development sectors of direct and unlisted real estate. FIM experienced strong growth in funds under management over the year, increasing from $110 million to $282 million. The manager continues to build on positive momentum in the retail market and now sits on a number of product platforms. Performance of the Absolute Return Fund continues to be strong, while the ﬂagship Freehold AREIT and Listed Infrastructure Fund is ahead of benchmark since inception and has now passed its three-year anniversary milestone. Goodhart Partners (“Goodhart”) Goodhart was founded in 2009 as a result of a management buyout of the multi-manager team at WestLB Asset Management. Initially focused on building unique multi-manager products employing specialist managers, London-based Goodhart now offers a suite of single-manager strategies, utilizing both in-house and select third-party managers. Goodhart acts as investment manager and global distributor to the Luxembourg-based Goodhart Partners Horizon Fund and the Goodhart Partners Longitude Fund, which Goodhart uses to launch UCITS and SIF vehicles for its in-house and partner company investment strategies. Today, Goodhart manages approximately $624 million in assets across three strategies: Japan small and all-cap equity, emerging markets equity, and absolute return. 8 9 Investors Mutual Limited (“IML”) Sydney based IML, led by the experienced team of Anton Tagliaferro and Hugh Giddy, employs a conservative investment style with a long-term focus that aims to deliver consistent returns for clients. It achieves this through the disciplined application of a fundamental and value-based approach to investing. During the year ending 30 June 2015, funds under management rose to $5.7 billion, an increase of 16.3% for the year. This was sustained by the continued institutional support, market growth and positive retail ﬂows experienced over the year. Performance continues to be solid across all of IML’s Funds, with the ﬂagship Australian Share Fund performing strongly against its benchmark and peers. IML was awarded the Morningstar Fund Manager of the Year Domestic Equities, (Large Cap) for 2015. IML was determined to be the winner after coming out on top of a combination of qualitative and quantitative factors as researched by Morningstar’s fund analysts. Additionally, IML was nominated as a ﬁnalist in two other categories in the 2015 Morningstar Awards: Fund Manager of the Year, Australia and Domestic Equities Small Cap Category, Australia. Annual Report 2015 Review of Boutiques continued Northern Lights Alternative Advisors (“NLAA”) NLAA is a London-based ﬁrm founded in 2009 by Tim Morgan and Dominic Trusted. The ﬁrm is a strategic partner of Aurora and provides capital formation services across the UK on behalf of a select group of private equity and hedge funds. Aurora’s investment in NLAA occurred in March of 2014. Since that time the ﬁrm has performed well and continues to attract an array of investment ﬁrms, all interested in accessing NLAA’s fundraising capabilities and strategic advice. The relationship with NLAA not only brings Aurora a reliable source of market intelligence, it also generates numerous leads on potential investment opportunities. Octis Asset Management (“Octis”) Led by Jerome Ferracci, Octis is an Asian multi-strategy hedge fund manager based in Singapore. Its investment team aims to capture growth from Asian markets whilst limiting volatility and drawdowns. Octis utilises a number of different strategies that includes equities, futures, options, commodities and foreign exchange securities. The performance of the ﬂagship Octis Asia Paciﬁc Fund had a strong 12 months with excess returns well ahead of the cash benchmark and the relevant hedge fund indices. Orion Asset Management (“Orion”) Sydney–based Orion is focused on the distribution and administration for New York City-based Trilogy Global Advisors (“Trilogy”) following the closure of its Australian equities business in the prior ﬁnancial year. The alliance between Orion and Trilogy has been productive, with Trilogy now managing over $5.3 billion in FUM from investors across Australia, New Zealand and South East Asia. It is noted that the aggregate FUM provides relatively low fees to Aurora. Nereus Holdings (“Nereus”) Nereus is a Mumbai-based investment ﬁrm established to invest in and sponsor renewable energy infrastructure projects in India. The ﬁrm was founded in 2010 by Jonathan Winer, formerly director of D. E. Shaw’s private equity practice in India. Nereus’ initial investment strategy was broad-based renewable infrastructure private equity, including minority growth equity investments in independent alternative power producers and acquisitions of late-stage development projects across biomass, wind, small hydro waste-heat recovery, and solar. As the dynamics of utility scale solar have changed since 2010, Nereus is now focused almost exclusively on solar power generation. Solar projects in India are economical today on an unlevered unsubsidised basis, and demand for electricity far outweighs supply. In August 2015, with the backing of Aurora, Nereus established Nereus Capital Investment Singapore Ltd. (“NCI”). Aurora has made a de minimus cash investment into NCI, which is being launched in partnership with Nereus and Hareon Solar Singapore Pty Ltd (“Hareon”), the Singapore afﬁliate of a leading manufacturer of solar PV panels in China. Hareon will provide the initial ﬁnancing for NCI’s sponsorship of utility-scale solar projects in India. Aurora will make a contingent commitment of no more than $25 million, which can be called no sooner than the sixth anniversary of the closing of NCI. For its commitment, Aurora will be issued an equity interest entitling it to 50% of the economics of NCI subsequent to the redemption of Hareon’s preferred shares. Aurora believes supporting Nereus in this endeavour will not only catalyse new institutional investments into the Nereus strategy, but will provide an attractive risk/return to Treasury Group shareholders. 10 11 ROC Partners (“ROC”) ROC, based in Sydney, is a specialised private equity investment and advice ﬁrm focused primarily on the Asia Paciﬁc markets. ROC was established following the management buy-out of Macquarie Group Limited’s private equity fund of funds business unit by its senior executives. The management team has now been operating as ROC for just over a year, but the team has been in continuous operation since 1996 when it began offering private equity solutions to Australian Superannuation Funds. The business has since grown to become one of the most experienced private equity investors in the Asia Paciﬁc region, representing some of the largest institutional investors in the Australian market. ROC has had a successful year establishing itself as an autonomous business, with Treasury Group assisting through the provision of capital and support services. Funds under management were maintained and ﬁnished the year at $5.3 billion. ROC has continued to build on its impressive long-term track record with its clients beneﬁtting from strong returns across both the fund structures as well as their separate accounts. ROC continues to explore a number of new initiatives for its existing and new clients which it plans to launch in the coming ﬁnancial year focusing on both Australian and Asian private equity solutions. Raven Capital Management (“Raven”) Founded in 2007 and based in New York City, Raven is an asset-backed lending company that specialises in the primary origination, underwriting, and management of direct asset based investments. The ﬁrm’s strategy is built upon three key tenets: asset based, current income, and active management. Raven believes that middle market dislocation in the United States, and a scarcity of alternative funding sources, creates an ideal environment for asset based investments, while having an actively managed portfolio allows them to generate attractive yields while protecting capital. As of 30 June 2015, Raven had committed capital across three funds of $457 million in FUM, with additional growth likely throughout 2015. RARE Infrastructure (“RARE”) RARE, founded in 2006 by Richard Elmslie and Nick Langley and based in Sydney, specialises in the investment and management of securities in global listed infrastructure including airports, toll roads, gas, electricity and water. RARE has product offerings in North America, Europe/UK as well as Australia. During the year, FUM grew from $9.1 billion to $9.9 billion as of 30 June 2015. RARE continues to attract strong support from Australian institutional and retail clients as well as offshore institutions including sovereign wealth and pension funds, with a number of new institutional mandates won from both Australian and offshore investors. RARE continued to build on its strong long-term track record with all three products (RARE Infrastructure Value, RARE Yield, and RARE Emerging Markets) delivering positive results well ahead of their respective benchmarks over the 12-months ending 30 June 2015. Treasury Group announced in July 2015 that Aurora entered into a conditional sale and purchase agreement to sell its interest in RARE to Legg Mason for total consideration of approximately $200 million, including upfront cash proceeds of $112 million, an earn-out of up to $42 million and a 10% retained equity interest in RARE that is subject to a put/call arrangement after 2 years. This exit event, when successful, validates the business model that Treasury Group has built over many years in partnering with asset managers to enhance value and create growth. While Aurora is a reluctant seller of boutiques, this transaction provides Treasury Group/ Aurora exceptional value for 75% of its holdings in RARE, as well as the opportunity to diversify its portfolio. Annual Report 2015 Review of Boutiques continued Seizert Capital Partners (“Seizert”) Seizert Capital was founded in 2000 and is located in Birmingham, Michigan, USA. The ﬁrm is led by Gerry Seizert and Ed Eberle. Seizert manages multiple US equity strategies across the capitalisation spectrum. All of its products have either a core or value style orientation. The investment process is intended to combine sophisticated quantitative idea generation with rigorous fundamental research and highly efﬁcient decision-making. Over the last year, four of the ﬁrm’s ﬁve largest products underperformed their respective benchmarks. Longer-term results are much more favourable, with all ﬁve of these products surpassing benchmark returns over the last three years. Over the 12-months ending 30 June 2015, Seizert lost two large clients for reasons believed to be unrelated to performance. FUM ﬁnished the 30 June year-end at $5.8 billion. TAMRO Capital Partners, LLC (“TAMRO”) TAMRO, led by Philip Tasho and Kathleen Neumann, is an investment manager founded in June 2000 and based in Alexandria, Virginia, USA. Northern Lights’ involvement with TAMRO began in 2007, when ﬁnancing a management buyout of TAMRO from its prior owner, ABN AMRO Asset Management. The ﬁrm manages three separate strategies, but its ﬂagship offering is its US Small Cap product. Its investment approach incorporates quantitative idea generation with fundamental research targeted on identifying inexpensive companies with improving prospects. TAMRO has a strong long-term record; however, underperformance in 2013 and 2014 after seven consecutive years of Small Cap outperformance has led to a decline in FUM to $1.56 billion as of 30 June 2015. WHV Investment Management (“WHV”) WHV is a San Francisco, California - based asset management ﬁrm that started in 1937, and has been managing institutional client portfolios since 1945. The ﬁrm’s ﬂagship product is its International Equity product. The product has a lengthy track record that is characterised by highly volatile performance. Beginning in late 2014 performance endured a signiﬁcant setback due to the strategy’s overweighting in energy and materials stocks. This underperformance has been accompanied by signiﬁcant client redemptions, and FUM have declined signiﬁcantly over the last year to $8.9 billion. Despite the FUM attrition in its core product, WHV has made solid progress diversifying its product set over the last 18 months. While FUM in these new products is still modest, performance has generally been strong, resulting in improving growth prospects for these new offerings. The economic relationship with WHV is not a typical one for Aurora, which does not have direct ownership in WHV, but rather participates only in the growth in dividends if and when declared by WHV. Given the contraction in the ﬁrm’s FUM, Aurora does not expect to receive dividends this ﬁnancial year. Directors’ Report Your Directors submit their report for the year ended 30 June 2015. 12 13 Directors The names and details of the Company’s Directors in ofﬁce during the ﬁnancial year and until the date of this report are listed below. Directors were in ofﬁce for this entire period unless otherwise stated. Names, qualiﬁcations, experience and special responsibilities M. Fitzpatrick, (Chairman) B. Eng, BA (Oxon) Honours Mr Fitzpatrick joined the Board on 5 October 2004. He has over 37 years’ experience in the ﬁnancial services sector. After a career in investment banking in Australia and the US, Mike founded Hastings Funds Management Ltd (‘Hastings’) one of the largest managers of infrastructure and alternative assets in Australia. Hastings was a pioneering infrastructure asset management company where Mr Fitzpatrick was managing director until he sold his interest to Westpac Banking Corporation. Mr Fitzpatrick is a non-executive director of Infrastructure Capital Group, a boutique manager of $1.4 billion of energy and infrastructure assets. He also holds a number of other non-executive directorships, including the Walter & Eliza Hall Institute of Medical Research, Latam Autos Limited and Carnegie Wave Energy Limited. Mr Fitzpatrick is the Chairman of the Australian Football League. Mr Fitzpatrick holds a B.Eng. (Hons) degree in electrical engineering from the University of Western Australia and a B.A. (Honours) from the University of Oxford, where he was a Rhodes Scholar. Mr Fitzpatrick is a member of the Board’s Audit & Risk Committee, Remuneration Committee and Nominations Committee (now the Governance Committee). A. McGill, (Managing Director and CEO, resigned on 28 August 2015) B. Com LLB Mr McGill joined the Board on 30 August 2013. He has more than 25 years’ ﬁnancial markets experience, including investment and management experience within the alternative asset sector of the funds management industry. He joined Treasury Group as Chief Executive Ofﬁcer in July 2011 and has overall responsibility for management of the business, including the Company’s investment and partnering activities. Prior to joining Treasury Group, Mr McGill was a founding partner of Crescent Capital, an independent mid-market private equity ﬁrm, where he led the successful development of that business from 2000 to 2010. Prior to establishing Crescent, he held senior roles within Macquarie Bank’s Corporate Finance and Direct Investment teams. Previous to that, he was a strategy consultant with LEK Partnership. Mr McGill is also the Chairman of PM Capital Global Opportunities Fund Limited and serves on the Council of Kambala Girls School. On 26 March 2015, Mr McGill notiﬁed the Board his intention to terminate his employment contract effective 28 August 2015. T. Carver, (Executive Director appointed 10 December 2014) BA Mr Carver is the co-founder of Northern Lights Capital Group. Serving as managing director for 8 years prior to Northern Lights’ merger with Treasury Group, Mr Carver led the transaction process for Northern Lights and provided overall ﬁrm leadership. Prior to Northern Lights, he co-founded Orca Bay Partners, a private equity ﬁrm that focused on investing in boutique asset managers. At Orca Bay, Mr Carver led the investments and served in the boards of Parametic Portfolio Associates and Envestnet Asset Management. Mr Carver began his career at Morgan Stanley in New York. On 26 March 2015, Mr Carver was elected to succeed Mr McGill as CEO. P. Kennedy, (Non-Executive Director) B.Ec. L.L.M. Mr Kennedy joined the Board on 4 June 2003. He is the founding partner of commercial law ﬁrm, Madgwicks Lawyers, and has more than 40 years’ experience in commercial law advising a broad range of clients across a variety of sectors. He leads the ﬁrm’s Dispute Resolution practice and plays an integral role in the governance and management of the ﬁrm, having been Madgwicks’ Managing Partner for 10 years. Mr Kennedy also sits on the boards of a number of companies in the manufacturing, property and retail industries. His formal qualiﬁcations include B.Ec, LL.B., LL.M (Tax), Monash University. He is the Chairman of the Audit & Risk Committee and a member of the Remuneration Committee. M. Donnelly, (Non-executive Director) B.C. Ms Donnelly joined the Board on 28 March 2012. Ms Donnelly, a chartered accountant, is the founder and former chairperson of the Centre for Investor Education, a specialist education and consultancy ﬁrm for executives in Australian and superannuation funds, institutional investment bodies and the ﬁnancial services markets. Ms Donnelly’s previous work experience includes CEO of the Queensland Investment Corporation, deputy managing director of ANZ Funds Management and managing director of ANZ Trustees. Ms Donnelly is also a director of JA Russell & Co Sdn Bhd and was formerly deputy chairperson of the Victorian Funds Management Corporation and non-executive director of Ashmore Group plc. In addition, Ms Donnelly is a member of the Advisory Committee of the Oxford University Centre for Ageing. Ms Donnelly is the Chairperson of the Nomination Committee (now the Governance Committee) and a member of the Audit & Risk Committee. Directors’ Report continued A. Robinson, (Non-Executive Director appointed 28 August 2015) BComm, MBA, CFA Mr Robinson has significant expertise and experience across a number of industries including banking, financial services, telecommunications, and transport. He is an experienced company director and chief executive officer. Mr Robinson is also a director of Bendigo and Adelaide Bank Limited and OnCard Limited and holds a number of directorships of private companies, including River Capital Ltd. Mr Robinson’s previous executive roles included managing director of IOOF Ltd and OAMPS Limited. R. Hayes, (Non-Executive Director, resigned 31 March 2015) SF Fin, FAICD Mr Hayes joined the Board on 22 February 2007. Mr Hayes has over 40 years’ experience in investment management and stockbroking research, and was a founder and CEO of Ausbil Dexia Limited, a specialist wholesale boutique asset management operation. Mr Hayes was also a joint founder of Barclays Bank’s investment operations in Australia in 1984, and was CEO of that business for 12 years until 1996. Prior to this, Mr Hayes held senior investment roles with AMP and Westpac. Mr Hayes is a Senior Fellow of the Financial Services Institute of Australia and a Fellow of the Australian Institute of Company Directors. J. Vincent, (Non-Executive Director appointed 10 December 2014) MBA, BSBA Mr Vincent is the CEO of the Laird Norton Company, diversified investment holding company, for the past 15 years. In this role, he has overseen U.S. investments in real estate, building materials distribution, financial services, private equity, and consumer services. His experience in the financial services area includes direct responsibility for the Pacific Northwest’s largest privately held wealth management firm and board positions on investment management firms. Prior to this position, he was a subsidiary president of a consumer durables company, Chamberlain Group, where he also previously served as the chief financial officer. Mr Vincent has held a variety of significant board positions including a position on the PeoBuild Board, the U.S.’ largest building distribution company, and has performed the duties of audit committee chair, compensation committee chair, and board chairman. Mr Vincent has demonstrated strong skills in M&A, corporate governance, executive compensation, operations and financial management. He has also lead organisations through significant periods of change. Mr Vincent also serves on the boards of Laird Norton Company, Laird Norton Properties, Laird Norton Wealth Management, and Fusion Education Group. Mr Vincent is the Chairman of the Remuneration Committee and a member of Audit & Risk Committee. G. Guérin, (Non-Executive Director appointed 10 December 2014) MSc, BA Mr Guérin is CEO of BNP Paribas Capital Partners, where he has worked for the past five years developing the alternative investment capabilities of the BNP Paribas Group. Mr. Guérin served as chief executive officer and president of Natixis Global Associates and executive of Natixis AM North America and held executive and senior leadership roles at HDF Finance, AlphaSimplex, IXIS AM and Commerz Financial Products. Mr Guérin has over 20 years’ experience in capital markets and investment management. This includes cross asset class experience spanning the equities fixed income and commodities markets, with a specific focus on alternative strategies and hedge funds. During his career, Mr Guérin has managed relationships with investors and distributors across the world, in particular in Europe, United States, Japan, the Middle East and Australia. Mr Guérin has operated distribution capabilities worldwide and developed new products and investment capabilities. He has served on the board of various investment companies, including Aurora Investment Management. Throughout his career, he liaised with regulators across various jurisdictions and worked with thought leaders of the investment industry including Dr Andrew Lo and Dan Fuss. Mr Guérin is also a director of Ginjer AM and of INNOCAP. Mr Guérin is a member of Remuneration Committee and Nominations Committee (now the Governance Committee). P. Greenwood, (Executive Director and Chief Investment Officer appointed 10 December 2014), CFA, BA Mr Greenwood co-founded Northern Lights Capital Group in 2006. Prior to Northern Lights, he created Greenwood Investment Consulting (GIC), a firm that worked directly with investment managers on investment process and organisational issues. Before GIC, Mr Greenwood served as Director of US Equity for Russell Investment Group, where he managed all of Russell’s US equity oriented portfolio management and research activities. He also served as a Russell spokesperson and authored many articles and research commentaries related to investment manager evaluation. J. Ferragina, (Finance Director and COO appointed 31 March 2015) BCom, M App Fin, CA, FFin, GAICD Mr Ferragina is a Chartered Accountant and has worked in funds management for 20 years. He has gained specialised experience in a range of funds management companies including Colonial First State Investment Managers and AMP Global Investors Ltd, which led him to a position as CFO and company secretary of Ronin Property Group, a separately listed company spun out of AMP. Prior to his appointment as CFO of Treasury Group Limited in October 2005, he was Head of Finance at DBRREEF (now Dexus). Annual Report 201514 15 Company Secretaries C. Driver, LLB(Hons), LLM, DipLP, GradDipACG, ACISA, appointed 7 July 2015 Ms Driver was appointed company secretary on 7 July 2015. Ms Driver is a chartered secretary and lawyer (admitted in Scotland). She has a Masters in Commercial Law and graduated with a Graduate Diploma in Applied Corporate Governance in January 2014. Ms Driver is an Associate Member of the Governance Institute of Australia. Ms Driver previously worked at Gryphon Minerals Limited as Compliance Ofﬁcer and Company Secretary. R. Ramswarup, BA (Justice Administration), resigned 30 June 2015 Ms Ramswarup commenced with Treasury Group Ltd in March 2008. She has worked in company secretarial roles at Wattyl and AMP and has secretariat experience in local government and professional services. Ms Ramswarup has completed the Graduate Diploma in Applied Corporate Governance and is a member of the Governance Institute of Australia. J. Ferragina, appointed 31 July 2014 Please refer to Mr Ferragina’s proﬁle under the Directors section. Interests in the shares and options of the Company and related bodies corporate As at the date of this report, the interests of the Directors in the shares and options/performance rights of Treasury Group Ltd were: M. Fitzpatrick A. McGill T. Carver P. Kennedy M. Donnelly A. Ronbison R. Hayes J. Vincent G. Guérin P. Greenwood J. Ferragina Earnings Per Share Basic earnings per share Diluted earnings per share Dividends Final dividend declared: – on ordinary shares (fully franked) Dividends paid in the year: Interim for the year – on ordinary shares (fully franked) paid on 25 March 2015 Final for 2014 shown as declared in the 2014 report – on ordinary shares (fully franked) paid on 25 September 2014 Options/ Performance rights over Ordinary Shares – – – – – – – – – – – Cents 541.5 541.5 $ Ordinary Shares 2,701,285 530,541 – 214,929 20,000 – – – – – 141,400 Cents per share 28 7,738,682 24 6,624,995 27 6,398,324 Annual Report 2015 Directors’ Report continued Corporate Information Corporate Structure Treasury Group Ltd is a company limited by shares and is incorporated and domiciled in Australia. Treasury Group Ltd has prepared a consolidated ﬁnancial report incorporating the entities that it controlled and jointly controlled during the ﬁnancial year. During the year, Treasury Group entered into a merger transaction with Northern Lights to create an international multi-boutique business called Aurora Trust (Aurora). Both Treasury Group and Northern Lights sold their respective businesses including their assets (except del Rey and Celeste) and liabilities to Aurora in exchange for units in Aurora. Aurora Investment Management Pty Ltd, the Trustee of Aurora Trust is a 100% owned and controlled by Treasury Group, thus consolidated in the accounts of Treasury Group. Aurora, on the other hand, whilst 64% owned by Treasury Group, is treated as an associate. The key function of the Trust and the overall business is the investment in asset managers. The decision making process in relation to the investments requires approval by an Executive Committee consisting nine members, the majority of whom are drawn from the former Northern Lights executives. The Executive Committee sits under the Trust and its decisions and recommendations are submitted for board approval by the directors of Aurora board. The Group’s corporate structure as at the date of this report is as follows: AR Capital Management Pty Ltd (100%) Celeste Funds Management Ltd (39.17%) TREASURY GROUP LTD Aurora Investment Management Pty Ltd (Trustee) (100%) 64.03% Aurora Trust 8.78% BNP Paribas Northern Lights Partners LLC 27.19% Operating and Financial Review Review of Operations Nature of operations and principal activities On 25 November 2014, Treasury Group and Northern Lights completed the transaction to merge both companies into an international multi-boutique funds management group. A new Australian trust, Aurora Trust, was established to hold the interest in 20 boutiques and gave effect to the merger. Post completion, Treasury Group and Northern Lights sold their respective businesses including their assets (except del Rey and Celeste) and liabilities to Aurora Trust in exchange for units and debt in Aurora. At 30 June 2015, Treasury Group owns 64.03% of Aurora Trust and adopts the equity accounting method in relation to Treasury Group’s interest in the Aurora Trust. As permitted under AASB 3 “Business Combinations”, Aurora Trust has accounted for its acquisition of the businesses on a provisional basis. As a result, the investment in Aurora Trust as at 30 June 2015 and the share of proﬁts generated from Aurora Trust for the period from 25 November 2014 to 30 June 2015 may change on ﬁnalisation of the acquisition accounting within Aurora Trust. AASB 3 requires Aurora Trust to ﬁnalise the acquisition accounting within twelve months of the acquisition date. Employees The consolidated entity employed 17 full time equivalent employees as at 30 June 2015 (2014: 17). The consolidated entity includes Treasury Group Ltd (parent), Aurora Investment Management Pty Ltd as the Trustee of Aurora Trust and AR Capital Management Pty Ltd. While the Trustee employs the executives and staff, Aurora effectively bears the employee costs via recharge mechanism from the Trustee. Treasury Group owns 64.03% of Aurora Trust which has a 100% owned US subsidiary that employs 19 employees during the year. Funds management/business performance On 1 July 2014, the FUM of Treasury Group was $25.4bn. On 25 November 2014, the FUM was $49.6bn as a result of the merger between Treasury Group and Northern Lights. As at 30 June 2015, the FUM of the Group was $49.0bn. The slight decrease of the FUM was due to the net impact of outﬂows from RARE, Seizert and WHV, offset by inﬂows from IML, market performance and positive impact of the weak Australian dollar relative to the US dollar. 16 17 Operating Results for the Year The Group generated net proﬁts attributable to member of Treasury Group Ltd of $138,723,124 for the twelve months ended 30 June 2015. This includes the $130,834,193 net gain on sale of business to Aurora. This compares with a net proﬁt attributable to members of Treasury Group Ltd of $13,061,814 in prior year. The net proﬁt after tax of the group as reported in the current year compared to the 30 June 2014 comparative result is shown in the table below reconciling the underlying proﬁt as follows: Consolidated 2015 $ 2014 $ Net profit attributable to members of the parent 138,723,124 13,061,814 Add/(Deduct): – Gain on sale of business to Aurora (net of transaction costs and income tax expense)¹ – TRG share on impairment of WHV by Aurora – Impairment of goodwill – Write off of GVI DTA – Impairment of investment in subsidiary (AR Capital Management) – Legal fees Underlying profit2 (130,834,193) 10,761,277 – – – – – – 252,764 520,000 41,012 159,928 18,650,208 14,035,518 ¹ ² This is the result of Treasury Group’s sale of business to Aurora as concluded on 25 November 2014 which is determined as the difference between the carrying amount and fair value of such assets and liabilities transferred at the date of transfer. It includes share in the net loss of Aurora which includes non-cash interest expense on unitholders’ debt (fair value adjustment) and amortisation of intangibles. Treasury Group’s proportionate share in these non-cash items is $2.4m. The results for the twelve months to 30 June 2015 reﬂect the Treasury Group’s stand alone result from 1 July to 24 November 2014 and the share of Treasury Group from the operations of the merged group from 25 November 2014 to 30 June 2015. On 11 December 2014, Treasury Group undertook a placement to the value of $30.0m offered to institutional investors at $10.25 per share. As a result of the placement, 2,926,830 shares were issued on 18 December 2014. The proceeds from the placement were used to subscribe for additional units in Aurora. On 23 January 2015, Treasury Group Ltd issued 979,816 fully paid ordinary shares at $10.25 as a result of Share Purchase Plan (SPP). The proceeds from the placement were used to subscribe for additional units in Aurora. Earnings Per Share The earnings for the year reﬂect the Treasury Group’s stand alone result from 1 July to 24 November 2014 and the share of Treasury Group from the operations of the merged group from 25 November 2014 to 30 June 2015. Basic earnings per share (cents) Diluted earnings per share (cents) 2015 541.5 541.5 2014 56.6 55.0 Financial Position Treasury Group Ltd has a strong balance sheet and sound capital structure. Treasury Group has no debt, however the Company has a 64.03% interest in Aurora Trust which has external borrowings as well as debt instruments issued to unitholders (i.e. Northern Lights). Net assets increased by 268% which is attributable to the investment in Aurora Trust. The Investment in Aurora is determined by the cost to acquire the units and the share in net proﬁts of Aurora reduced by distributions received. Treasury Group Ltd has the capacity to pay dividends to its shareholders. During the year, Treasury Group Ltd paid 51 cents per share in dividends, an increase of 11% compared to the comparative period. A ﬁnal dividend of 28 cents per share was declared on 26 August 2015. Cash Flow from Operations Net cash ﬂow from operating activities decreased by $7.7m to $4.4m or by 64% over the year. This decrease is due to the change in operations of the wider Group where the Trust receives all dividends and distributions from the managers. Annual Report 2015 Directors’ Report continued Business Strategies and Prospects Treasury Group continues to expand and diversify its portfolio by partnering with outstanding asset management professionals worldwide through its investment in Aurora Trust. On 25 November 2014, Treasury Group and Northern Lights announced completion of the previously announced transaction to merge both companies into an international multi-boutique funds management group. All the required regulatory approvals and other conditions were satisﬁed and the merger became effective on 25 November 2014. The strategy of the combined group is an extension of Treasury Group’s existing strategies, leveraging the enhanced capabilities delivered by the merger and will include a number of elements: Continued expansion and diversiﬁcation of portfolio via value enhancing new investments The merger resulted in a strengthened management and investment team with executives well positioned to access deal ﬂow within international markets. In addition to partnering with early stage asset management business, the combined group have scale and ﬁnancial capacity to invest in established business. Over the past 5 years, Treasury Group and Northern Lights have completed a combined 14 investments. Leveraged distribution capabilities to increase asset base The merged businesses have sales executives across ofﬁces in Australia, US, and the UK focused on the sale of boutique investment products and services to institutional investors, superannuation and pension funds, family ofﬁces and other classes of investors. This is expected to provide opportunities for increased distribution of Treasury Group’s boutiques into the US market, as well as providing access for Northern Lights’ boutiques into the Australian market (subject to compliance with all regulatory requirements). Efﬁcient capital structure The merged group will seek to drive return on equity via efﬁcient investment structures and capital structures. Leverage northern lights strategic relationships BNP Paribas Asset Management, Inc. and Laird Norton Company Investment Co., LLC are cornerstone shareholders of Northern Lights. Both organisations will continue to hold equity in the merged group and are represented in Treasury Group’s Board. Material Business Risks The material business risks faced by Treasury Group Ltd that are likely to have an impact on the ﬁnancial prospects of the Company and how the Company manages these risks include: Global market risks The diversiﬁed global portfolio that was created as a result of merger between Treasury Group and Northern Lights means that Treasury Group is exposed to an immensely larger scale of market volatility and higher degree of adverse market conditions. Major international listed equity markets continue to display volatility on both upside and downside with publicised global macro risks such as higher European growth and deﬂation, slower growth in China, and monetary policies in the US and Japan. Treasury Group’s FUM reﬂects the investment performance of its boutique fund managers, in addition to such other factors as funds ﬂowing into and out of the underlying funds. Market volatility and adverse market conditions may lead to decline in FUM and performance of Treasury Group’s business which may adversely affect Treasury Group’s earnings and proﬁtability. While these risks are external and beyond the control of the Group, a number of our boutique partners delivered exceptional performance including Investors Mutual Ltd and RARE Infrastructure Ltd. Market risk is however at the core of the business. Foreign currency risks Treasury Group is exposed to AUD/USD exchange rate through its investment in Aurora that holds the US-denominated investments and debt and other foreign currency denominated investments via its subsidiary Northern Lights Midco LLC. The Company has adopted hedge accounting such that the impact of foreign currency translation is taken up through foreign currency translation reserve of Aurora. Treasury Group takes the share of the movement of Aurora’s foreign currency translation reserve in its equity. Regulatory environment The business of the Group operates in a highly regulated environment that is frequently subject to review and regular change of law, regulations and policies. Treasury Group is exposed to any changes in the regulatory conditions under which it and its boutique fund managers operate in Australia, US and the UK. The Group’s highly experienced in-house risk and regulatory experts are actively managing and monitoring the Group’s regulatory compliance activities. Regulatory risk is also mitigated by the use of industry experts when the need arises. Other measure includes the establishment of risk committee composed of executives to ensure that risk management among others, is monitored, managed and controlled. 18 19 Significant Changes in State Affairs On 25 November 2014, Treasury Group and Northern Lights completed the transaction to merge both companies into an international multi-boutique funds management group. A new Australian trust, Aurora Trust, was established to hold the interest in 20 boutiques and gave effect to the merger. Post completion, Treasury Group and Northern Lights sold their respective businesses including their assets (except del Rey and Celeste) and liabilities to Aurora Trust in exchange for units and debt in Aurora. At 30 June 2015, Treasury Group owns 64.03% of Aurora Trust and adopts the equity accounting method in relation to Treasury Group’s interest in the Aurora Trust. As permitted under AASB 3 “Business Combinations”, Aurora Trust has accounted for its acquisition of the businesses on a provisional basis. As a result, the investment in Aurora Trust as at 30 June 2015 and the share of profits generated from Aurora Trust for the period from 25 November 2014 to 30 June 2015 may change on finalisation of the acquisition accounting within Aurora Trust. AASB 3 requires Aurora Trust to finalise the acquisition accounting within twelve months of the acquisition date. On 10 December 2014, the Board appointed Mr Vincent and Mr Guérin as non-executive directors of Treasury Group. Mr Carver and Mr Greenwood were appointed as executive directors of Treasury Group. On 11 December 2014, Treasury Group undertook a placement to the value of $30.0m offered to institutional investors at $10.25 per share. As a result of the placement, 2,926,830 shares were issued on 18 December 2014. On 23 January 2015, Treasury Group Ltd issued 979, 816 fully paid ordinary shares at $10.25 as a result of Share Purchase Plan (SPP). The proceeds from the placement were used to subscribe for additional units in Aurora. On 26 March 2015, Mr McGill gave his notice to the Board to terminate his employment contract effective 28 August 2015. On 31 March 2015, Mr Hayes resigned as a member of the Board and Mr Ferragina was appointed as Finance Director and Chief Operating Officer of Treasury Group. Significant Events after the Balance Date On 29 July 2015, the shareholders of RARE Infrastructure Ltd (RARE) including Aurora Trust have entered into a binding agreement to sell the majority interest in RARE to Legg Mason. Under the proposed structure, the total transaction consideration is approximately $200m, with an upfront cash proceeds of $112m to be received on November 2015; a three-year earn-out of up to $42m and 10% retained equity interest in RARE subject to two- year differentiated option pricing: call option by Legg Mason at a fixed multiple of RARE revenues or put option by Aurora Trust at “fair market value”. On 26 August 2015, the Directors of Treasury Group Ltd declared a final dividend on ordinary shares in respect of the 2015 financial year. The total amount of the dividend is $7,738,682 which represents a fully franked dividend of 28 cents per share. The dividend has not been provided for in the 30 June 2015 financial statements. Performance Rights There were no performance rights issued to executives and employees during the year. The performance rights outstanding as at 30 June 2015 represent the 139,981 performance rights issued to certain employees in prior years. The performance rights on issue were valued based on the valuation made by RSM Bird Cameron using a hybrid monte-carlo/binomial option pricing model. The value of each right at issue was $1.64. The value of outstanding performance rights is $164,000 amortised over three years from the grant date. As part of the merger between Treasury Group and Northern Lights, a commitment was made to grant Mr Carver and Mr Greenwood with 500,000 performance rights each to be split into three tranches vesting over two, three and four years. Following his performance review in July 2014, Treasury Group made the commitment to grant Mr Ferragina 165,000 performance rights. On his promotion to Finance Director in April 2015, Treasury Group made a commitment to grant Mr Ferragina an additional 140,000 performance rights. As at the date of this report, these performance rights have not yet been granted. The Remuneration Committee anticipates that these awards will be issued in the coming year. Full details of these performance rights will be disclosed in a future Remuneration Report once granted. The amount of performance rights amortisation expense for the period was $91,886 (2014: $427,150). Indemnification and Insurance of Directors and Officers The Company has entered into an agreement for the purpose of indemnifying Directors and Officers of the Company in certain circumstances against losses and liabilities incurred by the Directors or officers on behalf of the Company. The following liabilities, except for a liability for legal costs, are excluded from the above indemnity: a. A liability owed to the Company or related body corporate; b. A liability for pecuniary penalty order under section 1317G or a compensation order under section 1317H of the Corporations Act 2001; c. A liability owed to someone other than the Company or a related body corporate and did not arise out of conduct in good faith; d. Any other liability against which the Company is precluded by law from indemnifying the Director. The insurance contract prohibits the disclosure of the insurance premium for insuring officers of the company against a liability which may be incurred in that person’s capacity as an officer of the Company. Annual Report 2015 Directors’ Report continued Remuneration Report Message from the Remuneration Committee Dear Shareholders: We are pleased to present our Remuneration Report for the ﬁnancial year ending 30 June 2015. We have streamlined the format of the attached report to assist shareholders in better understanding its contents. New sections of the report have been added to provide additional details regarding Treasury Group’s remuneration policy and structure. Also, during the past year, as referred to in the Directors’ Report, Treasury Group entered into a merger transaction with Northern Lights to create an international multi-boutique business called Aurora Trust (Aurora). Both Treasury Group and Northern Lights sold their respective businesses to Aurora (except del Rey and Celeste) in exchange for units and debt in Aurora. The operations of Aurora commenced on 25 November 2014, and the employment costs of the key management personnel (KMP) and all other staff are borne by Aurora, effective on that date. The remuneration of KMP presented in this report includes the remuneration paid by Treasury Group from July to November, and remuneration effectively paid by Aurora from 25 November 2014 to June 2015. Treasury Group’s total remuneration costs are effectively the costs it paid and its 64% share of the remuneration paid by Aurora. For accounting purposes, Treasury Group treats Aurora as an associate, and the principles of equity accounting are applied. The composition of KMP changed as a result of the merger transaction discussed above. The KMP are made up of the TRG Board of Directors, who are also the Board of Directors of Aurora Investment Management Pty Ltd., the Trustee of Aurora Trust and the key executive ofﬁcers of Aurora. Five KMP are based in Australia, and the other four are based outside of Australia. The new merged group generates approximately 38% of its revenues in Australia and 62% in North America. Aurora is domiciled in Australia, with operations in ﬁve countries and an ongoing expansion plan to other jurisdictions. Given the above changes in KMP, the Remuneration Committee conducted a review of the Company’s remuneration structure and individual employment packages of Executive KMP. Changes in remuneration were based on the Company’s new structure, increased responsibilities, job size and local market conditions. As a result, the Remuneration Committee decided to update the Company’s approach to remuneration for Executive KMP to ensure that the above factors were reﬂected in their remuneration packages. Financial year 2015 is viewed as the transition year for the new management team. As such, KMP total ﬁxed remuneration is larger than the previous year. Going forward, the size of the KMP and their corresponding ﬁxed remuneration will be smaller as a result of Mr. McGill’s departure, effective on 28 August 2015. There was no long term incentive (LTI) awarded to the Executive KMP during the ﬁnancial year. During the year, a commitment was made to grant performance rights to Executive KMP. Full details are in pages 25 and 26. On 12 July 2014, LTIs in the form of Performance Rights awarded to KMP in 12 July 2011 have vested at 96%. Accordingly, Treasury Group shares were allocated to Executive KMP. Finally, the short-term incentive (STI) is designed to reward Executive KMP for achievement of Treasury Group’s business objectives. The STI is determined by the Remuneration Committee and is primarily based on the achievement of the executives’ individual key performance indicators associated with ﬁnancial targets and other non-quantitative measures set by the Board. However, the STI program remains fully discretionary in the hands of the Remuneration Committee, and the Committee reserves the right to use its judgement when determining ﬁnal awards to KMP. In view of the above summary, we believe that the employment packages we offer are attractive, competitive and represent the core values of Treasury Group. We welcome feedback on our remuneration philosophy and practices, or any remuneration matter included in this report. Yours faithfully, J. Vincent Chairman, Remuneration Committee Treasury Group Ltd This letter does not form part of the audited remuneration report. 20 21 Remuneration Report (Audited) About this report This remuneration report, which forms part of the directors’ report, outlines the remuneration arrangements of Treasury Group Ltd’s Key Management Personnel (KMP) for the ﬁnancial year ended 30 June 2015, in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by paragraphs Aus 29.4 to Aus 29.7.2 of AASB 124 Related Party Disclosures, which have been transferred to the Remuneration Report in accordance with Corporations Regulation 2M.6.04. Contents 1. Deﬁned terms used in this report 2. Key management personnel 3. Remuneration philosophy 4. Remuneration outcomes for 2015 5. Relationship between the remuneration philosophy and company performance 6. Remuneration of key management personnel 7. Key terms of employment contracts of KMP 8. Remuneration of non-executive directors Deﬁned terms used in this report EPS Fixed Remuneration Earnings per share for the purpose of determining performance against LTI performance targets. When measuring the growth in EPS to determine the vesting of the long-term incentive awards, we define EPS as net profit after tax divided by the weighted average number of issued shares during the year. Generally comprises cash salary, superannuation contribution and the remainder as nominated benefits. Fixed remuneration is determined on the basis of the role of the individual employee, including responsibility and job complexity, performance and local market conditions. It is reviewed annually based on individual performance and market data. KMP KPI LTI STI TSR Key Management Personnel. Those people who have the authority and responsibility for planning, directing and controlling the activities of Treasury Group Ltd and the Group, directly or indirectly. KMP disclosed in this report are Non-Executive Directors, Managing Director, Executive Directors, Chief Executive Officer (CEO), Chief Investment Officer (CIO) and Chief Operating Officer (COO). Key performance indicators. These are based on operational targets, growth and business development targets as well as operational management. Long Term Incentive. It is awarded in the form of Performance Rights to executives and employees for the purpose of retention and to align the interests of employees with shareholders. Short-term Incentive. The purpose of the STI is to provide financial rewards to Executives in recognition of performance aligned with business and personal objectives. The STI is a cash based incentive paid on an annual basis and is paid at the discretion of the board. Total Shareholder Return is defined as share price growth plus dividends paid over the measurement period. Key Management Personnel Below is Treasury Group’s KMP during or since the end of the ﬁnancial year were: Non-executive Directors M. Fitzpatrick P. Kennedy R. Hayes M. Donnelly J. Vincent G. Guérin Executive directors and KMP A. McGill T. Carver P. Greenwood J. Ferragina Chairman, Non-executive Director Non-executive Director Non-executive Director, resigned 31 March 2015 Non-executive Director Non-executive Director, appointed 10 December 2014 Non-executive Director, appointed 10 December 2014 Managing Director & CEO Executive Director appointed 10 December 2014 Executive Director and CIO, appointed 10 December 2014 Finance Director, COO, appointed 31 March 2015 & Company Secretary Except as noted, the named persons held their current position for the whole of the ﬁnancial year and since the end of the ﬁnancial year. Annual Report 2015 Directors’ Report continued Remuneration Philosophy The performance of the Company depends upon the quality of its Directors and Executives. Treasury Group aims to provide market competitive pay and rewards to successfully attract, motivate and retain the highest quality individuals. Our remuneration and beneﬁts are structured to reward people for their individual and collective contribution to our success for demonstrating our values, and for creating and enhancing value for all Treasury Group stakeholders. To this end, the Company embodies the following principles in its remuneration framework: – Provide competitive rewards to attract high calibre executives; – Link executive rewards to shareholder value; and – Signiﬁcant portion of Executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks. Remuneration Committee The Remuneration Committee is a Committee of the Board established by the Board. The objective of the Committee is to assist the Board in the establishment of remuneration and incentive policies and practices for, and in discharging the Board’s responsibilities relative to the remuneration setting and review of, the Company’s Chief Executive Ofﬁcer and other senior executives and directors. The list of responsibilities of the Committee is laid out in its charter available on the Treasury Group website. Remuneration Structure In accordance with best practice corporate governance, the remuneration structure of Non-executive director, executive directors and ofﬁcers is separate and distinct. Executive Remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to: – Reward executives for company, business unit and individual performance targets set by reference to appropriate benchmarks; – Align the interests of executives with those of shareholders; – Link reward with the strategic goals and performance of the Company; and – Ensure total remuneration is competitive by market standards. Structure Remuneration consists of the following key elements: – Fixed Remuneration – Variable Remuneration – Short Term Incentive (STI); and Long Term Incentive (LTI) – The proportion of ﬁxed remuneration and variable remuneration is established by the Remuneration Committee. Fixed Remuneration Objective The level of ﬁxed remuneration is set so as to provide a base level of remuneration that is both appropriate to the position and is competitive in the market. The Remuneration Committee reviews ﬁxed remuneration annually, and considers performance, relevant comparative remuneration in the market and advice on policies and practices. Structure Generally comprises cash salary, superannuation contribution/401K beneﬁts and the remainder as nominated beneﬁts. Variable Remuneration – Short Term Incentive (STI) Objective The objective of the STI plan is to link the achievement of the Company’s operational targets with the remuneration received by the Executives charged with meeting those targets. The STI is fully discretionary in the hands of the Remuneration Committee. The Remuneration Committee receives a recommendation from the CEO on executive performance. The CEO bases his report on a number of tailored Key Performance Indicators (KPI) for each Executive and Ofﬁcers. The total potential STI available is set at a level so as to provide sufﬁcient incentive to the Executive to achieve the operational targets such that the cost to the Company is reasonable. 22 23 Structure The Board sets annual KPIs for the CEO against which performance is measured. The KPIs are based on ﬁnancial targets, growth and business development targets as well as operational management. The focus of the KPIs is to drive decision making in a manner that increases returns to shareholders in the short and longer term. The ﬁnancial targets and heavily weighted in the STI calculation. The board also considers the general value add to the business and the company’s stakeholders through areas such as investor relations, deal origination and strategy. Following were the CEO’s KPIs for 2015: – Achievement of EPS growth targets – Completion of targeted deal opportunities (TRG/NL merger) – Achievement of strategic plan milestones – Qualitative assessment of management of staff – Qualitative assessment of effectiveness of communications with market – Discretionary element While the CEO may have achieved his KPIs for the FY 2015, his STI is fully discretionary in the hands of the Remuneration Committee and the Committee had exercised this discretion to award zero. Variable Remuneration – Long Term Incentive (LTI) Objective The objective of the LTI plan is to reward Executives and Ofﬁcers in a manner that aligns this element of remuneration with the creation of shareholder wealth. The awarding of the LTIs is fully discretionary in the hands of the Remuneration Committee and granted under the same governance process as detailed for STI’s above. Structure LTI grants are delivered in the form of performance rights/options or shares and are subject to service conditions and performance target measures over a three-year period. Performance rights Following the merger of Treasury Group and Northern Lights, a long term incentive plan is under review by the Remuneration Committee for the Executive Directors. It is expected that an LTI scheme will consist of TRG performance rights. The vesting structure and competitor group against which performance is measured will reﬂect the post transaction structure of the group. The new competitor group will include both Australian and overseas listed companies. On 7 July 2014, the performance rights that were granted to Executives and Ofﬁcers on 7 July 2011 vested. The performance rights have been split into two equal tranches and each tranche is subject to different total shareholder return (TSR) performance hurdles. TSR measures the return to a shareholder over the Performance period in terms of changes in the market value of the shares plus the value of any dividends paid on the shares. Each TSR hurdle compares the TSR performance of Treasury Group with the TSR performance of each of the entities in a comparator group described below: Tranche 1 – S & P ASX 300 comparator Group 50% of the performance rights are subject to the TSR hurdle that compares the TSR performance of Treasury Group at the end of the performance period with the growth in TSR over the same period of the S&P ASX 300 companies. Tranche 2 – selected comparator group 50% of the performance rights will be subject to a TSR hurdle that compares the TSR performance of Treasury Group at the end of the performance period with the growth in TSR over the same period of a selected comparator group of companies. Each company in the comparator group is weighted equally. The comparator group comprises: – BT Investment Management Ltd – Perpetual Limited – K2 Asset Management Holdings Limited – Hunter Hall International Limited – Platinum Asset Management Limited – Magellan Financial Group – IOOF Holdings Limited The percentage of performance rights which vest (if any) will be determined by the Board in reference to the percentile ranking achieved by the company over the performance period compared to the comparator group applying under the relevant TSR hurdle for the tranche: Annual Report 2015 Directors’ Report continued TSR growth – percentile ranking 75th percentile or above Between 50th and 75th percentile 50th percentile Below 50th percentile Performance rights that vest (%) 100% Progressive pro rata vesting from 50% at 2% for every one percentile increase above the 50th percentile 50% Nil Upon vesting of the performance rights a share is allocated for each performance right. The shares will rank equally and have the same voting rights and dividend eligibility as other ordinary shares in the company. Lapse of Performance Rights Performance rights lapse to the extent that performance conditions are not satisﬁed. These include: – Cessation of employment before the end of the vesting period – Contravention of dealing restrictions – Acting dishonestly or fraudulently Change of Control Generally in the event of a change of control whether through takeover, scheme of arrangement or any other transaction that the Board determines is likely to result in a change of control, the performance rights may vest at the Board’s discretion. Remuneration outcomes for 2015 In consideration for the increased responsibilities as a result of the merger between Treasury Group and Northern Lights, the Remuneration Committee had reviewed the ﬁxed remuneration of executives and ofﬁcers. Below provides a summary of actual remuneration received by the Managing Director and Executive KMP during the year 2015: – Short-term incentives relating to FY 2015 were awarded to Mr Greenwood and Mr Ferragina – The deferred component of short-term incentives for the performance of Mr McGill and Mr Ferragina in FY 2014 was paid in June 2015 – Fixed remuneration of Mr Ferragina had increased following his promotion to Finance Director effective 1 April 2015 – New compensation packages were drawn for Mr Carver and Mr Greenwood effective 25 November 2014 – Fixed remuneration of Mr McGill had increased effective 1 July 2014 – The LTIs in the form of performance rights awarded to Mr McGill and Mr Ferragina in FY 2011 vested in July 2014 at 96%. Treasury Group shares were allocated accordingly. LTI plan for 2015 There were no LTIs awarded to executive KMP during the ﬁnancial year. The Remuneration Committee anticipates that new awards will be issued in the coming year. Relationship Between The Remuneration Philosophy and Company Performance The table below sets out summary information about the Group’s earnings and movements in shareholder wealth for the ﬁve years to 30 June 2015. Bonuses are paid based on individual and Company performance. The Remuneration Committee has ultimate discretion in determining the amount of bonus pool: Revenue Net profit before tax¹ Net profit after tax Share price at start of year ($) Share price at end of year ($) Interim dividend (cps)² Final dividend (cps)² EPS Diluted EPS KMP bonuses ($) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $ 6,714,712 2,323,656 4,303,143 3,944,594 4,492,981 199,881,011 138,723,124 9.57 9.50 24 28 541.5 541.5 576,185³ 15,187,652 13,061,814 7.07 9.57 23 27 56.6 55.0 629,500 10,803,395 10,390,514 4.09 7.07 17 23 45.0 45.3 539,200 6,415,796 6,751,757 3.96 4.09 14 20 29.3 29.3 502,166 9,889,480 10,005,104 5.06 3.96 14 20 43.4 43.4 992,443 ¹ This is driven by the gain on the sale of business to Aurora. ² Franked to 100% at 30% corporate income tax. ³ Awarded to Mr Greenwood and Mr Ferragina. These awards were recommended by the CEO-elect and approved by the Remuneration Committee based on their individual performances. 24 25 Remuneration of Key Management Personnel Details of the nature and amount of each element of the remuneration of each Director of the Group and each of the key management personnel of the Company and the consolidated entity for the ﬁnancial year are as follows: Short term Salary & fees $ Cash Bonus $ Post employment Super- annuation/ 401K $ Share based payments Options/ Performance rights $ Shares $ Other Total Performance related Others $ $ Non-executive Directors M. Fitzpatrick – Chairman 2015 2014 114,417 114,679 P. Kennedy – Non-executive Director 2015 2014 120,000 120,000 – – – – 10,870 10,608 – – R. Hayes – Non-executive director, resigned 31 March 2015 2015 2014 53,154 68,807 M. Donnelly – Non-executive Director 2015 2014 97,626 68,632 – – – – 9,922 6,365 9,274 6,348 J. Vincent – Non-executive director, appointed 10 December 2014¹ 2015 2014 – – – – – – G. Guérin – Non-executive director, appointed 10 December 2014¹ 2015 2014 – – – – – – Executive Directors and Officers A. McGill – Managing Director & Chief Executive Officer 2015 2014 631,217 425,575 – 373,500 18,783 17,775 – – – – – – – – – – – – – – – – – – – – – – – – – – 8,986 273,333 T. Carver – Executive director, appointed 10 December 2014² & CEO-elect 2015 2014 479,660 – – – 9,884 – – – – – P. Greenwood, Executive director, appointed 10 December 2014² & Chief Investment Officer 2015 2014 480,898 253,685 10,174 – – – – – – – – – – – – – – – – – – – – – – – – – 125,287 125,287 120,000 120,000 63,076 75,175 106,900 74,980 – – – – 658,986 1,090,183 489,544 – 744,757 – – – – – – – – – – – – – – 34% – – 34% – – J. Ferragina – Finance Director & Chief Operating Officer, appointed 31 March 2015 (previously Chief Financial Officer) 2015 2014 379,773 302,225 322,500 256,000 18,783 17,775 Total remuneration: Key Management Personnel 2015 2014 2,356,745 1,099,918 576,185 629,500 87,690 58,871 – – – – 2,516 76,533 11,502 349,866 – – – – 723,572 652,533 3,032,122 2,138,155 45% 39% – 29% These are reported in Australian Dollars. Total compensation paid to KMP is the sum paid by Treasury Group from July to November 2014 and the 64.03% share on remuneration effectively paid by Aurora via the recharge mechanism with Aurora Investment Management Pty Ltd from 25 November 2014 to June 2015. No key management personnel appointed during the period received a payment as part of his consideration for agreeing to hold the position. ¹ They will receive compensation effective 1 July 2015. ² Their compensation is USD, converted to AUD based on average FX Rate. Annual Report 2015 Directors’ Report continued The relative proportions of those elements of remuneration of key management personnel that are linked to performance: Executives A. McGill T. Carver P. Greenwood J. Ferragina Maximum potential of short-term incentive based on fixed remuneration 2014 2015 Actual short-term incentive based on fixed remuneration linked to performance¹ 2014 2015 100% 100% 100% 100% 100% – – 80% –² –² 50% 100% 83% – – 80% ¹ Each year, KMP bonuses are paid in two instalments being 50% on August and 50% on June the following year. For the current year, only the 50% payable on August is provided for as at 30 June 2015. For the comparative period, 50% was provided in June 2014 and the remaining 50% was paid in June 2015. ² In its discretion, the Remuneration Committee decided to not award Mr McGill any STI in 2015. In his 2015 STI recommendations to the Committee, Mr Carver volunteered to not receive a STI in 2015, and the Remuneration Committee approved his STI recommendations. Key Terms of Employment Contracts of KMP Key Terms of Employment Contract of Managing Director and Chief Executive Ofﬁcer Contract Details Andrew McGill, Managing Director & CEO Term of Contract Ongoing until notice is given by either party Fixed Remuneration AUD$650,000 STI LTI Mr McGill is eligible for a STI based on a number of clearly defined KPIs. The STI is for up to 100% of base salary and paid in two equal instalments over a two year period. Mr McGill may have achieved his KPIs for FY 2015, however his STI is fully discretionary in the hands of the Remuneration Committee and the Committee had exercised this discretion to award zero for his performance in FY2015. Mr McGill’s deferred component of short-term incentives for his performance in FY 2014 was paid in June 2015. On 12 July 2014, 96% of the 500,000 performance rights that have been awarded to Mr McGill on 12 July 2011 vested. Accordingly, Mr. McGill was allocated 480,000 Treasury Group shares on the same date. There were no LTIs awarded to Mr McGill for the FY 2015. Termination of Employment Under the terms of the contract, Mr McGill or Treasury Group may terminate the contract giving six months written notice with no termination benefits. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr McGill is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. Where employment is terminated with notice, no further payments will be paid by the Company except unpaid salary accrued to the date of termination and accrued annual leave. Where employment is terminated with notice, deferred short-term incentives will also be paid. However, the Board retains the discretion to determine that some or all unvested performance rights vest or lapse with effect from or after the cessation date. On 26 March 2015, Mr McGill notified the Board his intention to terminate his employment contract effective 28 August 2015. 26 27 Key Terms of Employment Contract of Executive Director Contract Details Tim Carver, Executive Director Term of Contract Ongoing until notice is given by either party Fixed Remuneration USD$600,000 STI LTI Termination of Employment Mr Carver is eligible for a STI based on a number of clearly defined KPIs. The STI is for up to 100% of base salary and paid in two equal instalments over a two year period. In his 2015 STI recommendations to the Remuneration Committee, Mr Carver volunteered to not receive a STI in 2015, and the Committee approved his STI recommendations. There were no LTIs awarded to Mr Carver for the FY 2015. As part of the merger between Treasury Group and Northern Lights, a commitment was made to grant Mr Carver with 500,000 performance rights to be split into three tranches vesting over two, three and four years. As at the date of this report, these performance rights have not yet been granted. Full details of these performance rights will be disclosed in a future Remuneration Report once granted. Termination for Cause/Resignation for other than Good Reason Under the terms of the contract, the Company may terminate Mr Carver’s employment for “Cause” (which includes serious misconduct) without notice and Mr Carver may resign his employment for “Good Reason” or otherwise by giving six (6) months’ prior written notice. In either of these situations, Mr Carver will be entitled to receive that portion of remuneration which is fixed (and only up to the date of termination); accrued but untaken annual leave, vested but unpaid amounts owed to Mr Carver under the Company’s retirement, non-qualified deferred compensation or incentive compensation plans; and any other applicable bonus/incentive payments as per the terms of the contract and grant or plan documents. Termination upon death or permanent disability If Mr Carver suffers a permanent disability or dies during the term of his contract, Mr Carver (or his estate, as applicable) will be entitled to receive the same benefits as payable in a “Termination for Cause/Resignation for other than Good Reason scenario, plus twelve (12) months’ continuation coverage under the Company’s group health plans under which Mr Carver and his dependents participated immediately prior to Mr Carver’s date of termination. Termination without Cause/Resignation for Good Reason Under the terms of the contract, the Company may terminate Mr Carver’s employment without Cause by giving six (6) months’ prior written notice, and Mr Carver may resign his employment for Good Reason without notice. In either of these situations, Mr Carver will be entitled to the same benefits as payable in a “Termination upon death or permanent disability scenario, plus a lump sum severance payment equal to twelve (12) months’ base salary. Directors’ Report continued Key Terms of Employment Contract of Executive Director and Chief Investment Officer Contract Details Paul Greenwood, Executive Director and Chief Investment Officer Term of Contract Ongoing until notice is given by either party Fixed Remuneration USD$600,000 STI LTI Termination of Employment Mr Greenwood is eligible for a STI based on a number of clearly defined KPIS. The STI is for up to 100% of base salary and paid in two equal instalments over a two year period. Mr Greenwood was awarded 50% STI for his performance for FY 2015 as recommended by the CEO-elect to the Remuneration Committee. There were no LTIs awarded to Mr Greenwood for the FY 2015. As part of the merger between Treasury Group and Northern Lights, a commitment was made to grant Mr Greenwood with 500,000 performance rights to be split into three tranches vesting over two, three and four years. As at the date of this report, these performance rights have not yet been granted. Full details of these performance rights will be disclosed in a future Remuneration Report once granted. Termination for Cause/Resignation for other than Good Reason Under the terms of the contract, the Company may terminate Mr Greenwood’s employment for “Cause” (which includes serious misconduct) without notice and Mr Greenwood may resign his employment for “Good Reason” or otherwise by giving six (6) months’ prior written notice. In either of these situations, Mr Greenwood will be entitled to receive that portion of remuneration which is fixed (and only up to the date of termination); accrued but untaken annual leave, vested but unpaid amounts owed to Mr Greenwood under the Company’s retirement, non-qualified deferred compensation or incentive compensation plans; and any other applicable bonus/incentive payments as per the terms of the contract and grant or plan documents. Termination upon death or permanent disability If Mr Greenwood suffers a permanent disability or dies during the term of their respective contracts, Mr Greenwood (or his estate, as applicable) will be entitled to receive the same benefits as payable in a “Termination for Cause/Resignation for other than Good Reason scenario, plus twelve (12) months’ continuation coverage under the Company’s group health plans under which Mr Greenwood and his dependents participated immediately prior to Mr Greenwood’s date of termination. Termination without Cause/Resignation for Good Reason Under the terms of the contract, the Company may terminate Mr Greenwood’s employment without Cause by giving six (6) months’ prior written notice, and Mr Greenwood may resign his employment for Good Reason without notice. In either of these situations, Mr Greeenwood will be entitled to the same benefits as payable in a “Termination upon death or permanent disability scenario, plus a lump sum severance payment equal to twelve (12) months’ base salary. Annual Report 201528 29 Key Terms of Employment Contract of Finance Director and Chief Operating Officer Contract Details Joseph Ferragina, Finance Director and COO Term of Contract Ongoing until notice is given by either party Fixed Remuneration AUD$450,000 STI Mr Ferragina is eligible for a STI based on a number of clearly defined KPIs. The STI is for up to 100% of base salary and paid in two equal instalments over a two year period. Mr Ferragina was awarded 100% STI for his performance for FY 2015 as recommended by the CEO-elect to the Remuneration Committee. Mr Ferragina’s deferred component of short-term incentives for his performance in FY 2014 was paid in June 2015 LTI There were no LTIs awarded to Mr Ferragina for the FY 2015. Following his performance review in July 2014, Treasury Group made a commitment to grant Mr Ferragina 165,000 performance rights. On his promotion to Finance Director in April 2015, Treasury Group made a commitment to grant Mr Ferragina an additional 140,000 performance rights. On 12 July 2014, 96% of the 140,000 performance rights that have been awarded to Mr Ferragina on 12 July 2011 vested. Accordingly, Mr. Ferragina was allocated 134,400 Treasury Group shares on the same date. Termination of Employment Under the terms of the contract, Mr Ferragina or Treasury Group may terminate the contract giving three months written notice with no termination benefits. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr Ferragina is only entitled to that portion of remuneration which is fixed, and only up to the date of termination. On termination with cause, any unvested performance rights will immediately be forfeited. Where employment is terminated with notice, no further payments will be paid by the Company except unpaid salary accrued to the date of termination and accrued annual leave. Where employment is terminated with notice, deferred short-term incentives will also be paid. However, the Board retains the discretion to determine that some or all unvested performance rights vest or lapse with effect from or after the cessation date. Annual Report 2015 Directors’ Report continued Remuneration of Non-executive Directors Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest caliber, whilst incurring a cost which is acceptable to shareholders. Structure In accordance with the ASX Listing Rules the aggregate remuneration of Non-Executive Directors is determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The latest determination was at the General Meeting held on 15 November 2006 when shareholders approved an aggregate remuneration of $650,000 per year for services of Directors as directors of the Company and its subsidiaries. The amount of aggregate remuneration requires shareholder approval and the manner in which it is apportioned amongst Directors is reviewed annually. Non-executive directors do not receive performance-based bonuses from Treasury Group Ltd. Following is the schedule of non-executive directors fees: Chairman Non- Executive Director Audit Committee Chair Audit Committee Member Remuneration Committee Member (includes Chair, no fee difference between member and chair) Nominations Committee (now Governance Committee) Member (includes Chair, no fee difference between member and chair) * Effective 12 November 2014. FY 2015 $ FY 2014 $ 100,000 100,000 60,000 20,000 15,000 60,000 20,000 15,000 10,000 10,000 3,000* Nil The fees above are inclusive of superannuation contributions. Total fees paid to Non-Executive Directors in FY 15 were $415,263. Refer to page 25 for details. 30 31 Bonuses and Share-Based Payments Granted As A Compensation for The Current Financial Year Cash Bonuses No other cash bonuses were granted to KMP during 2015. Employee Share Option Plan A Long Term Incentive Plan has been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests. Each employee performance right converts into one ordinary share of Treasury Group Ltd on vesting date. No amounts are paid or payable by the recipient of the performance rights on vesting date. The performance rights carry neither rights to dividends nor voting rights. The number of performance rights granted is calculated in accordance with the performance-based formula approved by the Remuneration Committee. The performance rights vest after three years from grant date. Details of share-based payments/performance rights granted as compensation to key management personnel during the current ﬁnancial year: During the financial year Option series Numbers granted Numbers vested % of grant vested % of grant forfeited % of compensation for the year consisting of performance rights Executive KMP A. McGill T. Carver P. Greenwood J. Ferragina 2011 – – 2011 – – – – 480,000 96% – – – – 134,400 96% 4% – – 4% – – – – Annual Report 2015 Directors’ Report continued Key Management Personnel Equity Holdings Fully paid ordinary shares of Treasury Group Ltd 30 June 2015 Non-executive Directors M. Fitzpatrick P. Kennedy M. Donnelly J. Vincent² G. Guérin² Executive KMP A. McGill T. Carver³ P. Greenwood³ J. Ferragina 30 June 2014 Non-executive Directors M. Fitzpatrick P. Kennedy R. Hayes M. Donnelly Executive KMP A. McGill J. Ferragina Balance 1 July 2014 Granted as remuneration Received on vesting of performance rights/options1 Net change other Balance held nominally 2,701,285 213,487 20,000 – – 50,000 – – 7,000 – – – – – – – – – – – – – – – 2,701,285 1,442 214,929 – – – 20,000 – – 480,000 541 530,541 – – 134,400 – – – – – 141,400 Balance 1 July 2013 Granted as remuneration Received on vesting of performance rights/options Net change other Balance held nominally 2,701,285 213,487 – – 50,000 22,404 – – – – – – – – – – – – – – – 2,701,285 213,487 – 20,000 20,000 – (15,404) 50,000 7,000 ¹ ² ³ The performance rights granted on 11 July 2011 vested on 11 July 2014. As a result, Mr McGill and Mr Ferragina received Treasury Group shares with a market value of $4,752,000 and $1,330,560, respectively. The market value of the shares on 11 July 2014 was $9.90 per share. Both Mr Vincent and Mr Guérin represent stakeholders who are Class B & C unitholders in Aurora. These Class B and C units are exchangeable to fully paid ordinary shares in Treasury Group. In the event that exchange notices are delivered to convert such Class B or C unitholdings as at the date of this report, the stakeholders whom Mr Vincent and Mr Giles represent will receive fully paid ordinary shares in Treasury Group Ltd of 2,298,266 and 2,699,691 respectively. Refer to page 70 for the conversion multiple. Class B and B-1 unitholders in Aurora. Class B or B-1 units are exchangeable to fully paid ordinary shares in Treasury Group. In the event that exchange notices are delivered to convert such Class B or B-1 unitholdings as at the date of this report, Mr Carver and Mr Greenwood will receive fully paid ordinary shares in Treasury Group Ltd of 465,900 and 820,959 respectively. Refer to page 70 for the conversion multiple. 32 33 Performance rights of Treasury Group Ltd Balance at 1 July Granted as compensation Received on vesting of performance rights/options Net change other Balance At 30 June Balance Vested at 30 June Vested but not exercisable Vested and exercisable Performance rights vested 30 June 2015 No. No. No. No. No. No. No. No. No. Executive KMP A. McGill T. Carver P. Greenwood 500,000 – – J. Ferragina 140,000 – – – – – – – – – – – – – – – – – – – – – – – – 480,000 480,000 – – – – 134,400 134,400 Balance at 1 July Granted as compensation Received on vesting of performance rights/options Net change other Balance At 30 June Balance Vested at 30 June Vested but not exercisable Vested and exercisable Performance rights vested 30 June 2014 No. No. No. No. No. No. No. No. No. Executive KMP A. McGill 500,000 J. Ferragina 140,000 – – – – – – 500,000 140,000 – – – – – – – – Directors’ Meetings The number of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of meetings attended by each Director were as follows: Directors Meetings Audit & Risk Committee Meetings Remuneration Committee Meetings Meetings eligible to attend Meetings Attended Meetings eligible to attend Meetings Attended Meetings eligible to attend Meetings Attended Nomination Committee (now Governance Committee) Meetings Meetings eligible to attend Meetings Attended 11 11 6 11 11 9 6 6 6 2 11 11 6 11 11 9 6 6 6 2 4 0 0 4 4 3 2 0 0 0 4 0 0 4 4 2 2 0 0 0 5 0 0 5 0 4 1 2 0 0 5 0 0 4 0 4 1 2 0 0 2 0 0 0 2 0 2 2 1 0 2 0 0 0 2 0 2 2 1 0 M. Fitzpatrick A. McGill T. Carver* P. Kennedy M. Donnelly R. Hayes* J. Vincent* G. Guérin* P. Greenwood* J. Ferragina* * They were not Directors for the full year. Annual Report 2015 Directors’ Report continued Committee Membership As at the date of this report, the Company had an Audit & Risk Committee, a Remuneration Committee and a Nomination Committee (now Governance Committee) of the Board of Directors. Members acting on the Committees of the Board during the year were: Audit & Risk Remuneration Nomination (now Governance Committee) P. Kennedy (Chairman) J. Vincent (Chairman) M. Donnelly (Chairperson) M. Fitzpatrick M. Donnelly J. Vincent M. Fitzpatrick P. Kennedy G. Guérin M. Fitzpatrick G. Guérin Tax Consolidation On 24 July 2014, Aurora Trust and Aurora Investment Management Pty Ltd as the Trustee of Aurora Trust, joined the tax consolidated group. On 25 November 2014, Aurora Trust, Treasury Group Investment Services and Global Value Investors exited from the tax consolidated group. As at the date of this report, Treasury Group, the Trustee and AR Capital Management Pty Ltd are the members of the tax consolidated entity. Environmental Regulation and Performance The Group’s operations are not presently subject to signiﬁcant environmental regulation under the law of the Commonwealth and State. Non-Audit Services The Directors are satisﬁed that the provision of non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Auditor Independence The Directors received an independence declaration from the auditors of Treasury Group Ltd. A copy of the declaration is set out on the next page. Signed in accordance with a resolution of the Directors. M. Fitzpatrick Chairman 31 August 2015 Auditor’s Independence Declaration To the Directors of Treasury Group Ltd 34 35 Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Deloitte Touche Tohmatsu Grosvenor Place Sydney NSW 2000 ABN 74 490 121 060 225 George Street PO Box N250 Grosvenor Place Sydney NSW 2000 Sydney NSW 1220 Australia Grosvenor Place PO Box N250 Grosvenor Place 225 George Street Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Sydney NSW 2000 Fax: +61 2 9322 7001 PO Box N250 Grosvenor Place Tel: +61 2 9322 7000 www.deloitte.com.au Sydney NSW 1220 Australia Fax: +61 2 9322 7001 www.deloitte.com.au Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au The Board of Directors Treasury Group Ltd The Board of Directors Level 14, 39 Martin Place Treasury Group Ltd Sydney NSW 2000 The Board of Directors Level 14, 39 Martin Place Treasury Group Ltd Sydney NSW 2000 Level 14, 39 Martin Place 31 August 2015 Sydney NSW 2000 31 August 2015 Dear Board Members 31 August 2015 Dear Board Members Dear Board Members Treasury Group Ltd Treasury Group Ltd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following Treasury Group Ltd declaration of independence to the directors of Treasury Group Ltd. In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Treasury Group Ltd. As lead audit partner for the audit of the financial statements of Treasury Group Ltd for the financial year In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been no contraventions declaration of independence to the directors of Treasury Group Ltd. As lead audit partner for the audit of the financial statements of Treasury Group Ltd for the financial year of: ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been no contraventions As lead audit partner for the audit of the financial statements of Treasury Group Ltd for the financial year of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. (ii) any applicable code of professional conduct in relation to the audit. (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Yours sincerely, Yours sincerely, (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely, DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Declan O’Callaghan Partner Declan O’Callaghan Chartered Accountants Partner Declan O’Callaghan Chartered Accountants Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Annual Report 2015 Consolidated Income Statement for the year ended 30 June 2015 Continuing Operations Revenues Net gain on investments Salaries and employee benefits expenses Other expenses Consolidated 2015 $ 2014 $ 6,714,712 2,323,656 195,410,403 845,156 (5,266,779) (4,466,383) (1,991,791) (3,286,577) Notes 5(a) 5(b) 5(c) 5(c) Share of net profits of equity accounted investments 5(d) 5,014,466 19,771,800 Profit before income tax Income tax (expense) Profit for the year Attributable to: Non-controlling interest Members of the parent 199,881,011 15,187,652 6(c) (61,157,887) (2,109,758) 138,723,124 13,077,894 – 16,080 18(e) 138,723,124 13,061,814 Earnings per share (cents per share) – basic for proﬁt for the year attributable to ordinary equity holders of the parent – diluted for proﬁt for the year attributable to ordinary equity holders of the parent Franked dividends paid per share (cents per share) for the financial year 8 8 7(b) 541.5 541.5 51 56.6 56.6 46 The above consolidated income statement should be read in conjunction with the accompanying notes. Consolidated Statement of Comprehensive Income for the year ended 30 June 2015 36 37 Profit for the year Other Comprehensive Income Items that may be reclassified to profit and loss Net unrealised (losses) on available-for-sale investments taken to equity Income tax relating to items reclassified Reversal of net unrealised losses on available-for-sale sold during the year Share of associate’s foreign currency translation reserve (after tax) Share of associate’s gain on available-for-sale investments (after tax) Other comprehensive (loss) for the year Total comprehensive income for the year Attributable to: Non-controlling interest Members of the parent Consolidated 2015 $ 2014 $ 138,723,124 13,077,894 – – (213,894) 64,169 (213,684) (4,458,846) – – 147,103 (13,250) (4,525,427) (162,975) 134,197,697 12,914,919 – 16,080 134,197,697 12,898,839 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Annual Report 2015 Consolidated Statement of Financial Position as at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Trade and other receivables Investments accounted for using the equity method Deferred tax Available-for-sale investments Loans and other receivables Plant and equipment Intangibles Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Deferred tax Total non-current liabilities Total liabilities Net assets Equity Equity attributable to equity holders of the parent Contributed equity Reserves Retained profits Total equity The above statement of ﬁnancial position should be read in conjunction with the accompanying notes. Notes 9(a) 10 Consolidated 2015 $ 2014 $ 1,056,243 12,860,219 8,829,670 11,117,179 – 1,093,163 9,885,913 25,070,561 10 – 833,073 11(b) 275,341,759 29,242,193 6(d) 12 13 14 15 16 17 – – – – – 781,881 11,005,105 4,797,624 61,447 12,540 275,341,759 46,733,863 285,227,672 71,804,424 2,002,211 7,671,969 328,765 221,903 2,330,976 7,893,872 17 207,445 135,882 6(d) 58,769,498 – 58,976,943 135,882 61,307,919 8,029,754 223,919,753 63,774,670 18(a) 18(f) 18(e) 69,500,943 29,594,265 (1,373,280) 4,088,120 155,792,090 30,092,285 223,919,753 63,774,670 Consolidated Statement of Changes in Equity for the year ended 30 June 2015 38 39 Ordinary shares $ Note Consolidated Net unrealised gains reserve $ Foreign Currency Translation Reserve $ Share options reserve $ Retained earnings $ Total $ 29,594,265 3,874,436 213,684 – 30,092,285 63,774,670 – – (66,581) (4,458,846) 138,723,124 134,197,697 1,027,859 (1,027,859) 38,878,819 – 7(b) – – 91,886 – – – – – – – – – – – – – 38,878,819 91,886 (13,023,319) (13,023,319) As at 1 July 2014 Total comprehensive income for the year Issuance of shares due to vesting of performance rights Issuance of shares Share-based payments Dividends paid At 30 June 2015 69,500,943 2,938,463 147,103 (4,458,846) 155,792,090 223,919,753 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Consolidated Ordinary shares $ Note Share options reserve $ Net unrealised gains reserve $ Retained earnings $ Non- controlling interest $ Total $ 29,594,265 3,447,286 376,659 27,643,019 16,196 61,077,425 – (162,975) 13,061,814 16,080 12,914,919 – – – – 7(b) 427,150 – – – – – – – (10,612,548) – 427,150 (32,276) (32,276) – – (10,612,548) 63,774,670 29,594,265 3,874,436 213,684 30,092,285 As at 1 July 2013 Total comprehensive income for the year Share-based payments Share bought back for non-controlling interest Dividends paid At 30 June 2014 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Annual Report 2015 Consolidated Statement of Cash Flows for the year ended 30 June 2015 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends and distributions received Interest received Notes Consolidated 2015 $ 2014 $ 19,269,533 20,675,949 (24,544,608) (27,016,738) 7,872,346 17,885,459 1,821,573 615,407 Net cash flows from operating activities 9(b) 4,418,844 12,160,077 Cash flows from investing activities Proceeds from disposal of available-for-sale investments Purchase of available-for-sale investments Repayment of loans by associates Advances to associates Advances to other related party Proceeds from disposal of investment accounted for under equity method 6,900,946 3,281,492 – (2,300,000) 2,270,505 1,889,028 (4,631,511) (2,450,000) – – (600,000) 235,960 Purchase of investment accounted for under the equity method (44,828,548) (811,420) Purchase of plant and equipment Purchase of intangible assets Cash held by deconsolidated entities Net cash flows (used in) investing activities Cash flows from financing activities Issue of shares, net of transaction costs Equity dividends paid on ordinary shares Shares bought back for non-controlling interest Net cash flows from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year – – (1,789,712) (15,224) (1,817) – (42,078,320) (771,981) 38,878,819 – (13,023,319) (10,612,548) – (32,276) 25,855,500 (10,644,824) (11,803,976) 743,272 12,860,219 12,116,947 9(a) 1,056,243 12,860,219 The above statement of cash ﬂows should be read in conjunction with the accompanying notes. The non-cash investing items in relation to acquisition of units in Aurora is $248,862,193. Notes to the Financial Statements for the year ended 30 June 2015 40 41 1. Corporate Information The ﬁnancial report of Treasury Group Ltd (the ‘Company’ or the ‘Group’) for the year ended 30 June 2015 was authorised for issue in accordance with a resolution of the Directors on 31 August 2015. Treasury Group Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX). The nature of operations and principal activities of the Group are disclosed in the Directors’ Report. 2. Summary of Signiﬁcant Accounting Policies a. Basis of Preparation The ﬁnancial report is a general-purpose ﬁnancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The ﬁnancial report has also been prepared on a historical cost basis, except for ﬁnancial assets held at fair value through proﬁt and loss, and available-for-sale investments, which have been measured at fair value. The ﬁnancial report is presented in Australian dollars. Treasury Group Ltd is a for-proﬁt entity. b. Compliance with IFRS The ﬁnancial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Application to AASBs and the new Interpretation that are mandatorily effective for the current year In the current year, the Group has applied a number of amendments to AASBs and a new Interpretation issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective for an accounting period that begins on or after 1 July 2014, and therefore relevant for the current year end. Standards affecting presentation and disclosure Standard/Interpretation Summary AASB 2013-3‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non- Financial Assets’ AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part A: Annual Improvements 2010–2012 and 2011–2013 Cycles) The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 ‘Fair Value Measurements’. The application of these amendments does not have any material impact on the disclosures in the Group’s consolidated financial statements. The Annual Improvements 2010-2012 has made number of amendments to various AASBs, which are summarised below. – The amendments to AASB 2(i) change the deﬁnitions of ‘vesting condition’ and ‘market condition’; and (ii) add deﬁnitions for ‘performance condition’ and ‘service condition’ which were previously included within the deﬁnition of ‘vesting condition’. The amendments to AASB 2 are effective for share-based payment transactions for which the grant date is on or after 1 July 2014. – The amendments to AASB 3 clarify that contingent consideration that is classiﬁed as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a ﬁnancial instrument within the scope of AASB 9 or AASB 139 or a non-ﬁnancial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognised in proﬁt and loss. The amendments to AASB 3 are effective for business combinations for which the acquisition date is on or after 1 July 2014. Notes to the Financial Statements continued 2. Summary of Significant Accounting Policies (Cont.) Standard/Interpretation Summary – The amendments to AASB 8 (i) require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have ‘similar economic characteristics’; and (ii) clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. – The amendments to the basis for conclusions of AASB 13 clarify that the issue of AASB 13 and consequential amendments to AASB 139 and AASB 9 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial. – The amendments to AASB 116 and AASB 138 remove perceived inconsistencies in the accounting for accumulated depreciation/amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses. – The amendments to AASB 124 clarify that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required The Annual Improvements 2011-2013 has made number of amendments to various AASBs, which are summarised below: – The amendments to AASB 3 clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself. – The amendments to AASB 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, AASB 139 or AASB 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within AASB 132. – The amendments to AASB 140 clarify that AASB 140 and AASB 3 are not mutually exclusive and application of both standards may be required. Consequently, an entity acquiring investment property must determine whether: – the property meets the definition of investment property in terms of AASB 140; and the transaction meets the definition of a business combination under AASB 3. The application of these amendments does not have any material impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements. Annual Report 201542 43 Standards and Interpretations affecting the reported results or ﬁnancial position There are no new and revised Standards and Interpretations adopted in these ﬁnancial statements that affected the reporting results or ﬁnancial position. Standards and Interpretations in issue not yet adopted At the date of authorisation of the ﬁnancial statements, the Standards and Interpretations listed below were in issue but not yet effective. Their adoption has not had any signiﬁcant impact on the amounts reported in these ﬁnancial statements but may affect the accounting for future transactions or arrangements. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, and the relevant amending standard 1 January 2018 30 June 2019 AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’ 1 January 2017 30 June 2018 At the date of authorisation of the ﬁnancial statements, there have been no IASB or IFRIC Interpretations that are issued but not effective. c. Revenue Recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic beneﬁts will ﬂow to the Group and the revenue can be reliably measured. The following speciﬁc recognition criteria must also be met before revenue is recognised: Service fees Fees charged for providing administrative services to related companies are recognised as revenue as services are provided. Management fees Management fees on asset management activities are accrued as services are provided. Interest income Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a ﬁnancial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁnancial asset to the net carrying amount of the ﬁnancial asset. Dividends and distributions Revenue is recognised when the Group’s right to receive the payment is established. d. Recognition of Gain or Loss on Sale of Investments Gain or loss is recognised in the Income Statement, which is determined as the difference between the carrying amount and fair value of the assets and liabilities being transferred or deemed sold. e. Basis of Consolidation The consolidated ﬁnancial statements comprise Treasury Group Ltd and its subsidiaries as at 30 June each year (the Group). Control is achieved when the Company: – has power over the investee – is exposed, or has rights, to variable returns from its involvement with the investee, and – has the ability to use its power over the investee to affect the amount of the investor’s returns Subsidiaries are all those entities over which the Group has the power to govern the ﬁnancial and operating policies so as to obtain beneﬁts from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The ﬁnancial statements of the subsidiaries are prepared for the same reporting period as the parent company. In preparing the consolidated ﬁnancial statements, all intercompany balances and transactions, income and expenses and proﬁt and losses resulting from intra-group transactions have been eliminated in full. Interests in associates are equity accounted and are not part of the consolidated Group (see notes (i) and (j) below). Annual Report 2015 Notes to the Financial Statements continued 2. Summary of Signiﬁcant Accounting Policies (Cont.) f. Cash and Cash Equivalents Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less, that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of change in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as deﬁned above. g. Trade and Other Receivables Trade receivables, which are generally on 30 day terms, are recognised at fair value and subsequently valued at amortised cost using the effective interest method, less any allowance for uncollectible amounts. Cash ﬂows relating to short term receivables are not discounted as any discount would be immaterial. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identiﬁed. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt. Financial difﬁculties of the debtor or default payments are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash ﬂows, discounted at the original effective interest rate. The Group did not have any impaired trade receivables (2014: Nil). h. Impairment of Available-for-Sale Financial Assets The Group assesses at each balance date whether a ﬁnancial asset or group of ﬁnancial assets is impaired. If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in the Income Statement, is transferred from equity to the Income Statement. Reversals of impairment losses for equity instruments classiﬁed as available-for-sale are not recognised in proﬁt. The Group would consider that there was objective evidence of impairment if there was a signiﬁcant or prolonged decline in market value to below cost. i. Investments in Associates The Group’s investment in Aurora Trust is accounted for using the equity method of accounting in the consolidated ﬁnancial statements. The associates are entities in which the Group has signiﬁcant inﬂuence and which are neither a subsidiary nor a joint venture. Under the Accounting Standards, signiﬁcant inﬂuence is the power to participate in the ﬁnancial and operating policy decisions of the investee, but is not control or joint control of those policies. The Group generally deems they have signiﬁcant inﬂuence if they have the power to participate in the ﬁnancial and operating policy decisions of the investee but is not control or joint control over those policies. Under the equity method, the investments in the associates are carried in the Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Goodwill acquired in a business combination represents payment made by the acquirer in anticipation of future economic beneﬁts from assets that are not capable of being individually identiﬁed and separately recognised. It is initially measured as cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identiﬁable assets, liabilities and contingent liabilities. Goodwill relating to the associates is included in the carrying amount of the investments and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associates. The Group’s share of its associates’ post-acquisition proﬁts or losses is recognised in the Income Statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates in the consolidated ﬁnancial statements reduce the carrying amount of the investment. The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its associate, proﬁts and losses resulting from the transactions with the associate are recognised in the Group’s consolidated ﬁnancial statements only to the extent of interests in the associate that are not related to the Group. j. Investments in Joint Ventures Investments in which the Group has joint control are accounted for under the equity method in the consolidated ﬁnancial statements similar to investments in associates as described in Note 2(i). 44 45 k. Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) expected to beneﬁt from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than its carrying amount, the impairment loss is allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in proﬁt or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the amount of goodwill attributable is included in the determination of the proﬁt or loss on disposal. The Group’s policy for goodwill arising on the acquisition of an associate is described at Note (i). l. Plant and Equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Major depreciation methods and periods are: 2015 & 2014 Furniture & fittings: 5 – 10 years diminishing value Office equipment: 3 – 10 years diminishing value Leasehold improvements: 1 – 6 years straight line The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each ﬁnancial year end. Disposal An item of plant and equipment is derecognised upon disposal or when no further future economic beneﬁts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in proﬁt or loss in the year the asset is derecognised. m. Intangibles Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in proﬁt or loss in the year in which the expenditure is incurred. Intangible assets with ﬁnite lives are amortised over the useful life and tested for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a ﬁnite useful life is reviewed at least at each ﬁnancial year end. n. Financial Assets Financial assets are classiﬁed into the following categories: ﬁnancial assets ‘at fair value through proﬁt or loss’ (FVTPL), ‘held-to-maturity investments, available-for- sale (AFS) ﬁnancial assets and ‘loans and receivables’. The classiﬁcation depends on the nature and purpose of the ﬁnancial assets and is determined at the time of initial recognition. All regular way purchases or sales of ﬁnancial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of ﬁnancial assets that required delivery of assets within the time frame established by regulation or convention in the marketplace. When ﬁnancial assets are recognised initially they are measured at fair value, plus, in the case of assets not at fair value through proﬁt or loss, directly attributable transaction costs. All regular way purchases of sales of ﬁnancial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of ﬁnancial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash ﬂows from the ﬁnancial assets have expired or been transferred. i. Financial assets at fair value through proﬁt or loss Financial assets classiﬁed as held for trading are included in the category ‘ﬁnancial assets at fair value through proﬁt and loss’. Financial assets are classiﬁed as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a proﬁt. The fair value of ﬁnancial assets at fair value through proﬁt or loss is determined by reference to quoted market bid prices at the close of business on that balance date. ii. Loans and receivables Loans and receivables are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains or losses are recognised in proﬁt or loss when the loan and receivables are derecognised or impaired, as well as through the amortisation process. For loans and receivables carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂows, discounted at the original effective interest rate. Annual Report 2015 Notes to the Financial Statements continued 2. Summary of Signiﬁcant Accounting Policies (Cont.) iii. Available-for-sale investments Available-for-sale investments are those non-derivative ﬁnancial assets that are designated as available-for-sale or are not classiﬁed as any of the three other categories. After initial recognition, available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in proﬁt or loss. The fair value of investments that are actively traded in organised ﬁnancial markets is determined by reference to quoted market bid prices at the close of business on that balance date. o. Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the proﬁt or loss is the tax payable on taxable income measured at the amounts expected to be paid to or recovered from the relevant taxation authority. Deferred income tax expense reﬂects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited outside proﬁt or loss when the tax relates to items that are recognised outside proﬁt or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable proﬁt or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reﬂects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable proﬁt will be available against which the beneﬁts of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which signiﬁcant amounts of deferred tax assets or liabilities are expected to be recovered or settled. The group has applied the Stand-Alone Taxpayer approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidation group. The tax funding agreement provides each member of the tax consolidated group to pay a tax equivalent amount to or from the parent in accordance with their current tax liability or current tax asset. Such amounts are reﬂected in amounts receivable from or payable to the parent company in their accounts and are settled as soon as practicable after lodgment of the consolidated return and payment of the tax liability. The deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112. Tax Consolidation On 24 July 2014, Aurora Trust and Aurora Investment Management Pty Ltd as the Trustee of Aurora Trust, joined the tax consolidated group. On 25 November 2014, Aurora Trust, Treasury Group Investment Services and Global Value Investors exited from the tax consolidated group. As at the date of this report, Treasury Group, the Trustee and AR Capital Management Pty Ltd are the members of the tax consolidated entity. Members of the tax consolidated group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned entities on a pro-rata basis. Under a tax funding agreement, each member of the tax consolidated group is responsible for funding their share of any tax liability. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. 46 47 p. Other Taxes Revenues, expenses and assets are recognised net of the amount of GST except: – when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and – receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash ﬂows are included in the Statement of Cash Flows on a gross basis and the GST component of cash ﬂows arising from investing and ﬁnancing activities, which is recoverable from, or payable to, the taxation authority are classiﬁed as operating cash ﬂows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. q. Impairment of Non-ﬁnancial Assets Other Than Goodwill Amortising intangible assets and property, plant and equipment are tested for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁable cash inﬂows that are largely independent of the cash inﬂows from other assets or groups of assets (cash-generating units). Non-ﬁnancial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. r. Trade and Other Payables Trade payables and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the ﬁnancial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of the goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. s. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash ﬂows estimated to settle the present obligation, its carrying amount is the present value of those cash ﬂows. When some or all of the economic beneﬁts required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. t. Employee Leave Beneﬁts i. Short term and long term employee beneﬁts A liability is recognised for beneﬁts accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measure reliably. Liabilities recognised in respect of short-term employee beneﬁts, are measured at their nominal values using the remuneration date expected to apply at the time of settlement. Liabilities recognised in respect of long term employee beneﬁts are measured as the present value of the estimated future cash outﬂows to be made by the Group in respect of services provided by employees up to reporting date. u. Contributed Equity Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. v. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulﬁlment of the arrangement is dependent on the use of a speciﬁc asset or assets and the arrangement conveys a right to use the asset. Annual Report 2015 Notes to the Financial Statements continued In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Treasury Group Ltd (market conditions), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulﬁlled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-based transactions at each reporting date until vesting date reﬂects (i) the extent to which the vesting period has expired and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The Income Statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No cumulative expense is recognised for awards that do not ultimately vest due to the non-fulﬁlment of a non- market condition. If the terms of an equity-settled award are modiﬁed, as a minimum an expense is recognised as if the terms had not been modiﬁed. In addition an expense is recognised for any modiﬁcation that increases the total fair value of the share-based payment arrangement, or is otherwise beneﬁcial to the employee, as measured at the date of modiﬁcation. If an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modiﬁcation of the original award as described in the previous paragraph. The dilutive effect, if any, of outstanding options and performance rights are reﬂected as additional share dilution in the computation of earnings per share. 2. Summary of Signiﬁcant Accounting Policies (Cont.) Operating leases Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. w. Earnings Per Share Basic earnings per share is calculated as net proﬁt attributable to members of the parent, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net proﬁt attributable to members of the parent, adjusted for: – costs of servicing equity (other than dividends), if any; – the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; – other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; and – divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element, if any. x. Share-based Payments Equity-settled transactions: The Group provides beneﬁts to employees (including Senior Executives and Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). During the year, there were two plans in place to provide these beneﬁts: i. ii. The Treasury Group LTI Plan had been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests. The Employee Share Plan, which provides the opportunity to the employees (including Directors) of the Group to purchase shares in the parent company at a discount. On 22 July 2015, the plan was terminated in accordance with the Trust Deed. The cost of the equity-settled Treasury Group LTI Plan is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a binomial model. 48 49 y. Foreign Currency Translation i. Functional and presentation currency Both the functional and presentation currency of Treasury Group Ltd and its subsidiaries are Australian dollars ($). ii. Transactions & balances Transactions in foreign currencies are initially recorded in the functional currency by applying an average spot exchange rate for the period. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. Non-monetary items are measured in terms of historical cost in a foreign currency and are translated using the exchange rate at the date the fair value was determined. z. Comparatives Where necessary, comparative information has been immaterially reclassiﬁed and repositioned for consistency with current year disclosures. 3. Financial Risk Management Objectives and Policies Due to the change of business structure and operation, Treasury Group’s investments are mainly the units held in Aurora Trust. The following risk management objectives and policies apply in the comparative period. Details of signiﬁcant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of ﬁnancial asset, ﬁnancial liability and equity instrument is disclosed in Note 2 to the ﬁnancial statements. Risk Exposures and Responses Interest rate risk The Group’s direct exposure to market interest rates relates primarily to the Group’s cash and short term investments. At balance date, the Group had the following mix of ﬁnancial assets exposed to Australian variable interest rate risk: Financial Assets Cash at bank and on hand Consolidated 2015 $ 2014 $ 1,056,243 12,860,219 1,056,243 12,860,219 The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance date. If interest rates had moved during the year as illustrated in the table below (using an average cash balance), with all other variables held constant, post tax proﬁt and reserves would have been affected as follows: Consolidated +0.75% [2014:0.75%]/(75 basis points), [2014:75 basis points] -0.75% [2014:0.75%]/(75 basis points), [2014:75 basis points] Post Tax Profit Higher/(Lower) 2015 $ 2014 $ 51,960 69,762 (51,960) (69,762) The movements in proﬁt are due to higher/lower interest income from cash and short term deposit balances. Credit risk Credit risk arises from the ﬁnancial assets of the Company, which comprise cash and cash equivalents and trade and other receivables. The Company’s exposure to credit risk arises from potential default of the counterparty, with the maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. Annual Report 2015 Notes to the Financial Statements continued 3. Financial Risk Management Objectives and Policies (Cont.) Liquidity risk Treasury Group has sufﬁcient current assets to meet its current obligations. As such, management is of the opinion that it does not face signiﬁcant liquidity risk. However, it has a 64.03% interest in Aurora which has external borrowings as well as debt instruments issued to unitholders (i.e., Northern Lights). Aurora Trust may have liquidity risk however, management prepares cash ﬂow forecasts of Aurora on a monthly basis to ensure that it has sufﬁcient liquid assets to meet its liabilities and existing cash are allocated to intended purposes. Price risk Equity security price risk arises from investments in unlisted managed trusts, which mainly invest their funds in equities listed on the ASX, except Aubrey Conviction Fund which invest their fund on various global stock markets. Members of the Group made the investments for the purpose of seeding new products. Equity securities price risk also arises from investments in equity markets made by any funds that are consolidated. During the comparative period, a simple analysis has been conducted to provide some perspective when considering the determination of a reasonably possible change. As at year end, the Group had the following exposure to equity security price risks: Available-for-sale investments – Units in managed investment trusts – Unlisted shares in other corporations Consolidated 2015 $ 2014 $ – – – 8,174,164 900 8,175,064 If the price for the Group’s investments had moved, as illustrated in the table below, with all other variables held constant, post tax proﬁt and reserves would have been affected in the comparative year as follows: Consolidated MSCI World index +10% MSCI World index -10% Reserves Higher/(Lower) 2015 $ 2014 $ – – 572,254 (572,254) For the investments that are classiﬁed as available-for-sale, movements in market value are captured in an Unrealised Gains Reserve and do not impact reported proﬁt unless they are deemed to be impaired at reporting date. As at 30 June 2015, the Group has no investments at fair value through proﬁt or loss. The Group does not have any signiﬁcant transactional currency exposures. 50 51 Foreign Currency Risk 2015 Balance Sheet Treasury Group’s exposure to foreign currency is through its Investment in Aurora. Aurora is an international multi-boutique business with an operation in ﬁve countries and the impact of foreign currency translations are taken up in the equity reserves of Aurora. Treasury Group takes up its proportionate share of Aurora’s foreign currency translation reserve through Treasury Group’s equity reserves. 2014 Balance Sheet The Board individually approved Treasury Group’s prior year investments in foreign currency. The Group has not hedged its foreign currency exposure. A simple analysis has been conducted to provide some perspective when considering the determination of a reasonably possible change. The Group had the following exposure to foreign currency in the comparative year: Available-for-sale investments – British Pound Consolidated 2015 $ 2014 $ – – 1,393,261 1,393,261 For the investments that are classiﬁed as available-for-sale, movements in market value are captured in an Unrealised Gains Reserve and do not impact reported proﬁt unless they are deemed to be impaired at reporting date. For the comparative year, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax proﬁt and equity would have been affected as follows: Consolidated AUD/GBP +10% AUD/GBP -10% Equity Higher/(Lower) 2015 $ 2014 $ – – 97,528 (97,528) 2014 Proﬁt and Loss Treasury Group has an indirect exposure to foreign exchange movements that arise from the translation of proﬁts predominantly in USD. Proﬁts are translated at an average exchange rate. A falling Australian dollar relative to the US Dollar results in a higher net proﬁt in Aurora and correspondingly in Treasury Group. The day to day expenses in Australia and US operations are funded within the local operations Notes to the Financial Statements continued 3. Financial Risk Management Objectives and Policies (Cont.) Fair value measurements recognised in the Statement of Financial Position Some of the Group’s available-for-sale assets are measured at fair value at the end of each reporting period. The following table gives an information about how the fair values of these available-for-sale assets of the Group is determined (in particular, the valuation techniques and inputs used) in the comparative period: Fair values at 2015 2014 Fair value Hierarchy Valuation techniques and key inputs Significant unobservable inputs – 8,175,064 Level 2 Not required The fair value of the unlisted available-for- sale investments is based on the current unit price of the investments that is determined by the value of the underlying investments of the unit trust. – 1,436,780 Level 3 Cost Financial assets/financial liabilities 1. Investments in unlisted unit trusts 2. Investment in Freehold Investment Management - Options Relationship of unobservable input Not required Not required The higher the discount rate, the lower the fair value. The higher the growth rate, the higher the fair value. Unlisted equity instrument where value cannot be reliably measured. Start up investment and impairment assessment undertaken by management against initial acquisition milestones. Milestones include future FUM inflows, stability of management team, business costs and discount rates. 18% discount rate. Long term revenue growth rates, taking into account management’s experience and knowledge of market conditions of the specific industries. 3. Investments in Aubrey Capital Management -convertible preference shares – 1,393,261 Level 3 Discounted cash flow. Future cash flows are determined based on current Funds Under Management of the business using various growth rates discounted at 18%. The fair values of the available-for-sale assets included in the level 2 and 3 categories have been determined in accordance with generally accepted pricing models based a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties. Annual Report 2015 52 53 Fair value measurements recognised in the Statement of Financial Position The available-for-sale investments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 on the degree to which the fair value is observable. – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. – Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as market prices) or indirectly (i.e. derived from prices). – Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). There were no transfers between any levels. Signiﬁcant assumptions in determining fair value of ﬁnancial assets and liabilities in the comparative period: The fair value of the options in the comparative period is estimated using a discounted cash ﬂow model, which includes some assumptions that are not supportable by observable market prices or rates. In determining the fair value, a revenue growth derived from FUM growth factors ranging from 3-10% has been used with appropriate probabilities assigned to each. In addition, expense growth of 3-10% has been used and a discount factor of 20% has been applied. If these revenue and expense inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the carrying amount of the options would decrease/increase by $121,765. The fair value of the convertible preference shares in the comparative period is estimated using a discounted cash ﬂow model, which includes some assumptions that are not supportable by observable market prices or rates. In determining the fair value, a revenue growth derived from FUM growth factors ranging from 0-50% has been used with appropriate probabilities assigned to each. In addition expense growth of 5% has been used and a discount factor of 18% has been applied. If these revenue and expense inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the carrying amount of the shares would decrease/increase by $139,326. Reconciliation of Level 3 fair value measurements of ﬁnancial assets Opening balance Sale of Aubrey and FIM to Aurora Trust Total Opening balance Revaluation of Aubrey and acquisition of FIM Total 30 June 2015 Available for sale Level 3 2,830,041 (2,830,041) – 30 June 2014 Available for sale Level 3 1,323,955 1,506,086 2,830,041 Annual Report 2015 Notes to the Financial Statements continued Classiﬁcation of and valuation of investments The Group classiﬁed investments in Aurora as investment accounted under equity method. The investment in Aurora is determined by the cost to acquire the units and the share in net proﬁts of Aurora reduced by distributions received. Impairment of non-ﬁnancial assets The Group assesses impairment of all assets at each reporting date by evaluating conditions speciﬁc to the Group and to the particular asset that may lead to impairment. These include performance, technological, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. This involves value in use calculations, which incorporate a number of key estimates and assumptions. ii. Signiﬁcant Accounting Estimates and Assumptions Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using hybrid monte- carlo/binomial option pricing model with the assumptions detailed in Note 21. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. Long service leave provision The liability for long service leave is recognised and measured at the present value of the estimated future cash ﬂows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inﬂation have been taken into account. 4. Signiﬁcant Accounting Judgments, Estimates and Assumptions The preparation of the ﬁnancial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the ﬁnancial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions. Signiﬁcant judgments, estimates and assumptions made by management in the preparation of these ﬁnancial statements are outlined below: i. Signiﬁcant Accounting Judgments Taxation Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the Statement of Financial Position. Assumptions about the generation of future taxable proﬁts depend on management’s estimates of future cash ﬂows. These depend on estimates of future income, operating costs, dividends and other capital management transactions. Judgments are also required about the application of income tax legislation. These judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the Statement of Financial Position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement. Deferred tax assets Deferred tax assets are recognised for deductible temporary differences to the extent that management considers that it is probable that future taxable proﬁts will be available to utilise those temporary differences. 54 55 Notes Consolidated 2015 $ 2014 $ 9,636 423,461 4,285,442 1,229,355 4,295,078 1,652,816 – – 147,947 147,947 1,011,220 244,114 323,329 199,564 1,255,334 522,893 1,164,300 1,164,300 – – 6,714,712 2,323,656 195,104,042 – 306,361 886,168 – (41,012) 195,410,403 845,156 5. Revenue and Expenses a. Revenues from continuing operations Fee income Fund management fees Service fees Total fee income Dividends and distributions Unit trust distributions Total dividends and distributions Interest Related parties – Associates Other persons/corporations Total interest Other Income Cost recovery from Aurora Total other income Total revenues b. Gains on investments Net gain on sale of investments to Aurora Trust¹ Net gain on disposal of available-for-sale investments Impairment of investment in subsidiary (AR Capital Management) Total gains on investments ¹ This is the gain on sale of investment is the result of the sale of Treasury Group’s business to Aurora on 25 November 2014 which is determined as the difference between the carrying amount and fair value of such assets and liabilities transferred at the time of transfer, net of transaction costs related to the merger. The fair value of Treasury Group’s assets on 25 November 2014 was $247,697,894. The amount of income tax expense on the net gain is $64,269,849. Annual Report 2015 Notes to the Financial Statements continued 5. Revenue and Expenses (Cont.) c. Expenses Salaries and employee benefits Salaries and employee benefits Share-based payment expense arising from equity-settled share-based payment transactions Depreciation and amortisation Furniture & fittings Office equipment Leasehold improvements Software Total depreciation and amortisation of non-current assets Other expenses Accounting & audit fees Operating lease rental – minimum lease payments Marketing & communication expenses Travel & accommodation costs Payroll tax Legal & compliance fees Consulting fee & IT charges Insurance charges Directors’ fees (non-executives) Share registry & ASX fees Subscriptions and training expenses Impairment of goodwill Other expenses Total other expenses d. Share of net profits of equity accounted investments Share in net loss of Aurora (from 25 November 2014 to 30 June 2015) Share in net profits from associates (from 1 July to 24 November 2014) Total share in net profits of equity accounted investments Notes Consolidated 2015 $ 2014 $ 14(a) 14(a) 14(a) 15(a) 5,174,893 4,039,233 91,886 427,150 5,266,779 4,466,383 597 18,221 1,679 2,878 23,375 62,561 375,086 49,411 99,059 148,648 129,130 486,351 56,610 375,491 89,924 55,515 – 40,630 1,747 20,916 1,384 7,717 31,764 259,657 375,529 138,845 242,191 122,514 165,742 791,152 151,283 375,439 116,567 142,812 252,764 120,318 1,968,416 3,254,813 1,991,791 3,286,577 (4,197,027) – 9,211,493 19,771,800 5,014,466 19,771,800 56 57 Consolidated 2015 $ 2014 $ – – (304,424) (375,936) 6. Income Tax a. Income tax benefit The major components of income tax benefit are: Income Statement Current income tax Adjustments in respect of current income tax charge of previous years Deferred income tax Relating to origination and reversal of temporary differences 61,680,096 (106,134) Relating to utilisation of tax losses Write off deferred tax asset in subsidiary (Global Value Investors) Benefit from previously unrecognised difference/tax loss – – – Adjustments in respect of deferred income tax charge of previous years (217,784) (1,169,352) (520,000) 61,664 – Income tax expense reported in the Income Statement 61,157,887 (2,109,758) b. Amounts charged directly to other comprehensive income Deferred income tax related to income charged or credited directly to other comprehensive income Unrealised loss on available-for-sale investments Share of associate’s foreign currency translation reserve* Income tax benefit reported in other comprehensive income – 173,668 1,910,934 – 1,910,934 173,668 * To take up origination of deferred tax through equity on $6,369,781 being Treasury Group’s share of associate’s foreign currency translation reserve. c. Reconciliation between aggregate tax benefit recognised in the income statement and tax expense calculated per the statutory income tax rate A reconciliation between tax benefit and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting (profit) before income tax: At the Group’s statutory income tax rate of 30% (2014: 30%) Share-based payments Reversal of share in net profit of associates Trust distributions received Imputation credit received Dividend difference Expenditure not allowable for income tax purposes Adjustments in respect of current income tax charge of previous years Others Aggregate income tax (expense) (199,881,011) (15,187,652) (59,964,303) (4,556,295) (27,566) (128,145) 1,504,340 5,931,540 (2,256,250) – (7,302,570) (6,151,605) 6,245,115 3,017,876 (650) (7,913) 522,209 (375,936) 121,788 160,720 (61,157,887) (2,109,758) Annual Report 2015 Notes to the Financial Statements continued 6. Income Tax (Cont.) d. Recognised deferred tax assets and liabilities Deferred income tax at 30 June relates to the following: Consolidated Deferred tax assets Tax losses Tax losses of acquired subsidiaries Revaluation of available-for-sale investments at fair value charged to equity Impairment of investment in ARCM Impairment of investment accounted for under the equity method Accruals and provisions Deductible capital expenditures Deferred tax liabilities Investment in Aurora Revaluation of convertible notes to fair value Revaluation of available-for-sale investments at fair value charged to equity Receivables Deferred tax Statement of Financial Position 2015 $ 2014 $ Income Statement 2015 $ 2014 $ 4,505,517 634,390 4,175,552 (1,127,091) – – 217,017 – 426,192 960,307 – 105,752 217,017 – 375,751 87,919 – – – – 50,441 872,390 6,109,033 1,420,829 (64,868,741) – (66,779,674) – – (9,790) (551,230) (76,730) (10,988) – – 1,195 (64,878,531) (638,948) (562,261) 3,793 108,657 (240,000) (29,696) 45,265 – – 11,990 (6,143) (58,769,498) 781,881 (61,680,096) (1,795,486) e. Tax consolidation On 24 July 2014, Aurora Trust and Aurora Investment Management Pty Ltd as the Trustee of Aurora Trust, joined the tax consolidated group. On 25 November 2014, Aurora Trust, Treasury Group Investment Services and Global Value Investors exited from the tax consolidated group. As at the date of this report, Treasury Group, Trustee and AR Capital Management Pty Ltd are the members of the tax consolidated entity. Treasury Group Ltd is the head entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned entities on a pro-rata basis. Under a tax funding agreement, each member of the tax consolidated group is responsible for funding their share of any tax liability. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group allocate current taxes to members of the tax consolidated group in accordance with their accounting proﬁt for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations are made at the end of each half year. The allocation of taxes is recognised as an increase/decrease in the subsidiaries’ inter-company accounts with the tax consolidated group head company, Treasury Group Ltd. The Group has applied the group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. 7. Dividends Paid and Proposed 58 59 Treasury Group Ltd 2015 $ 2014 $ a. Dividends proposed and not recognised as a liability* Final fully franked dividend of 28 cents per share (2014: 27 cents per share) 7,738,682 6,398,324 b. Dividends paid during the year Current year interim Fully franked dividend (24 cents per share) (2014: 23 cents per share) 6,625,283 5,306,274 Previous year final Fully franked dividend (27 cents per share) (2014: 23 cents per share) 6,398,036 5,306,274 Total paid during the year (51 cents per share) (2014:46 cents per share) 13,023,319 10,612,548 * Calculation based on the ordinary shares on issue as at 26 August 2015 c. Franking credit balance The amount of franking credits available for the subsequent financial year are: – franking account balance as at the end of the financial year at 30% (2014: 30%) 5,195,799 9,597,667 – franking credits that will arise from the receipt of distributions recognised as receivables at the reporting date The amounts of franking credits available for future reporting periods: – impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the year Franking credits carried forward after payment of final dividend The tax rate at which paid dividends have been franked is 30% (2014: 30%). Dividends proposed will be franked at the rate of 30% (2014: 30%). 5,056,214 607,114 10,252,013 10,204,781 (3,316,578) (2,742,139) 6,935,435 7,462,642 Annual Report 2015 Notes to the Financial Statements continued 8. Earnings Per Share Consolidated 2015 $ 2014 $ The following reflects the income and share data used in the calculations of basic and diluted earnings per share: Net profit attributable to ordinary equity holders of Treasury Group 138,723,124 13,061,814 Weighted average number of shares Weighted average number of ordinary shares used in calculating basic earnings per share: 25,617,169 23,070,755 Effect of dilutive securities: Dilutive effect of potential ordinary shares – share options and performance rights – – Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 25,617,169 23,070,755 Earnings per share (cents per share): Basic for profit for the year attributable to ordinary equity holders of the parent Diluted for profit for the year attributable to ordinary equity holders of the parent 541.5 541.5 56.6 56.6 Performance rights do not have a diluted effect on the Earnings per Share calculation as the vesting conditions of these rights have not been met as at 30 June 2015. On 6 August 2014, Treasury Group issued 626,743 ordinary shares on exercise of 626,743 performance rights issued under the Treasury Group Long Term Incentive Plan for its executives. As a result of this share issue, $1,027,859 was transferred from the equity-settled share option reserve to issued capital. On 18 December 2014, Treasury Group Ltd issued 2,926,830 fully paid ordinary shares at $10.25 as a result of institutional placement. Cost of share issue was $1,164,300. The proceeds from the placement were used to subscribe for additional units in Aurora. On 23 January 2015, Treasury Group Ltd issued 979,816 fully paid ordinary shares at $10.25 as a result of Share Purchase Plan (SPP). The proceeds from the placement were used to subscribe for additional units in Aurora Trust. 60 61 Consolidated 2015 $ 2014 $ 1,056,243 12,860,219 1,056,243 12,860,219 138,723,124 13,077,894 (5,014,466) (19,771,800) 11,544,906 19,805,351 – 41,012 (195,104,042) – (306,361) (886,168) 23,375 31,764 – 252,764 (1,164,300) (147,946) (158,692) 91,996 – (2,490,487) (28,874) 427,150 5,900 85,416 2,287,509 (3,538,493) 1,926,236 (1,027,046) 781,881 1,978,233 (5,669,758) 1,809,987 106,862 71,563 58,769,498 8,701 36,232 – 4,418,844 12,160,077 9. Cash and Cash Equivalents a. Reconciliation of cash and cash equivalents Cash balance comprises: – cash at bank and on hand Closing cash balance b. Reconciliation Profit for the year Adjustments for Share of associates’ net profits Dividend and distribution received from associates Impairment of investment in subsidiary (Gain) on sale of investments to Aurora Trust (Gain) on sale of available-for-sale investments Depreciation and amortisation of non-current assets Impairment of goodwill Non-cash distributions, dividends and other income Non-cash interest Share-based payments Foreign exchange loss Others Changes in assets and liabilities Decrease/(increase) in trade and other receivables Decrease/(increase)/decrease in other assets Decrease in deferred tax assets (Decrease)/increase in trade and other payables Increase in current provisions Increase in non-current provisions Increase in deferred tax liability Net cash flow from operating activities At reporting date, Treasury Group Ltd did not have any ﬁnancing facilities available. Annual Report 2015 Notes to the Financial Statements continued 10. Trade and Other Receivables Current Trade receivables Sundry receivables Other receivables Related party receivables – Associates — Dividend — Distribution — Other Consolidated 2015 $ 2014 $ 1,035,681 6,500,907 64,828 – – 3,988 161,265 1,416,600 7,729,161 2,640,000 – 394,419 8,829,670 11,117,179 a. Allowance for impairment loss Trade receivables are non-interest bearing and generally on 30 day terms. An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. No allowance for impairment losses has been made. 2015 2014 * Past due not impaired (‘PDNI’) Total $ 0-30 days $ 31-60 days PDNI* $ 61-90 days PDNI* $ +91 days PDNI* $ 8,829,670 8,201,184 – 216,028 412,458 11,117,179 10,550,171 40,252 17,100 509,656 Receivables past due but not impaired is $628,486 (2014: $567,008). All overdue amounts as at 30 June 2014 have been received in full. Management is satisﬁed that payment will be received in full. b. Related party receivables For terms and conditions of related party receivables refer to Note 25. c. Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. Trade receivables in the comparative year represent the Group’s outstanding invoices for management fees. As the fees are receivable from large investment and superannuation funds, management regards the credit risk as very low. Non-current Security deposits Consolidated 2015 $ 2014 $ – – 833,073 833,073 The amount receivable is in Australian Dollars, non-interest bearing and is not considered past due or impaired. 62 63 11. Investments Accounted for Using the Equity Method Investments in Aurora Investments in associates¹ Note Consolidated 2015 $ 11(b) 275,341,759 2014 $ – – 29,242,193 275,341,759 29,242,193 On 25 November 2014, Treasury Group and Northern Lights completed the transaction to merge both companies into an international multi-boutique funds management group. A new Australian trust, Aurora Trust, was established to hold the interest in 20 boutiques and gave effect to the merger. Post completion, Treasury Group and Northern Lights sold their respective businesses including their assets (except del Rey and Celeste) and liabilities to Aurora Trust in exchange for units and debt in Aurora. At 30 June 2015, Treasury Group owns 64.03% of Aurora Trust and adopts the equity accounting method in relation to Treasury Group’s interest in the Aurora Trust. As permitted under AASB 3 “Business Combinations”, Aurora Trust has accounted for its acquisition of the businesses on a provisional basis. As a result, the investment in Aurora Trust as at 30 June 2015 and the share of proﬁts generated from Aurora Trust for the period from 25 November 2014 to 30 June 2015 may change on ﬁnalisation of the acquisition accounting within Aurora Trust. AASB 3 requires Aurora Trust to ﬁnalise the acquisition accounting within twelve months of the acquisition date. Investment in Aurora is comprised of the following: Cash Investment Non-cash investment Share in net loss for the period Distribution received/receivable Share in unrealised foreign currency translation reserve Share in net unrealised gain reserve Total 44,628,432 248,862,193 (4,197,027) (7,729,161) (6,369,781) 147,103 275,341,759 – – – – – – – Annual Report 2015 Notes to the Financial Statements continued 11. Investments Accounted for Using the Equity Method (Cont.) a. Interests in associates Name Aurora Trust - units Investors Mutual Ltd – ordinary shares Orion Asset Management (Aust) Pty Ltd - ordinary shares RARE IP Trust – units RARE Infrastructure Ltd – ordinary shares IML Investment Partners Ltd – ordinary shares Celeste Funds Management Ltd – ordinary shares¹ Octis Asset Management Pte Ltd – ordinary shares ROC Partners Ownership interest held by consolidated entity Balance date 2015 % 30 June 64.03 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June – – – – – 39.17 – – 2014 % – 47.22 49.99 40.00 40.00 40.00 39.17 20.00 15.03 i. Principal activity a. Aurora is a global investment management trust. It holds interest on 20 boutiques ranging from traditional equities to alternatives and private equity. b. Investors Mutual Ltd provides a funds management capability to both institutional and retail investors. c. Orion Asset Management (Aust) Pty Ltd is the parent company of Orion Asset Management Ltd, a wholesale fund management company in Australia. d. RARE IP Trust and RARE Group [RARE Infrastructure Ltd, RARE North America, RARE Infrastructure Sovereign Enterprise, RARE Infrastructure (Europe) Ltd, RARE Infrastructure (UK) Ltd, RARE Infrastructure (USA) Inc.] are funds management businesses specialising in listed global infrastructure assets. e. IML Investment Partners Ltd provides investment sub advisory services to Investors Mutual Ltd. f. Celeste Funds Management Limited is an Australian equity manager with a smaller companies focus. g. Octis Asset Management Pte Ltd is an Asian multi strategy equity manager based in Singapore. h. ROC Partners is an Australian and Asian private equity investment and advice business. These entities, except Octis Asset Management Pte Ltd, are incorporated and domiciled in Australia. ¹ While Treasury Group remains the legal owner of shares in Celeste, the investment value is zero as the economic rights in Celeste were transferred to Aurora. 64 65 Consolidated 2015 $ 2014 $ 29,242,193 30,633,054 293,690,741 811,420 (34,838,057) (2,155,480) 5,014,466 19,771,800 (10,209,213) (10,445,762) (1,335,693) (9,359,589) (6,369,781) – 147,103 (13,250) 275,341,759 29,242,193 45,223,301 32,524,868 346,691,615 1,596,128 (19,981,005) (16,440,196) (95,890,107) (1,638,890) 276,043,804 16,041,910 18,885,234 43,405,089 8,962,249 24,842,644 (3,947,783) (5,070,844) 5,014,466 19,771,800 b. Carrying amount of investments accounted for using the equity method Balance at the beginning of the year – acquisition of associate – disposal of an associates – share of associates’ net profits for the year – – dividends received from associates – share on exchange differences on translating foreign operations of an associate – share of after-tax unrealised gains reserve of associate trust distribution received/receivable from an associate Balance at the end of the year c. Share of associates’ balance sheet Current assets Non-current assets Current liabilities Non-current liabilities Net assets d. Share of associates’ revenues Revenues e. Share of associates’ net income Profit before income tax Income tax expense Profit after income tax f. Details of each of the Group’s material associates at the end of the reporting period are as follows: Name of Associate Principal Activity Aurora Trust IML Funds management Funds Management IML Investment Partners Ltd Funds Management RARE Infrastructure Ltd Funds Management RARE IP Trust Funds Management Place of incorporation and operation Australia Australia Australia Australia Australia Proportion of ownership interest and voting power held by the Group 2015 64.03% – – – – 2014 – 47.22% 40% 40% 40% All of the above associates are accounted for using the equity method in the consolidated ﬁnancial statements. Annual Report 2015 Notes to the Financial Statements continued 11. Investments Accounted for Using the Equity Method (Cont.) Summarised ﬁnancial information in respect of each of the Group’s material associates is set out below. The summarised ﬁnancial information below represents amount shows in associate’s ﬁnancial statements in accordance with the Accounting Standards. 2015 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Goodwill Other identifiable intangibles Carrying Amount of the Group’s interest 2014 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Goodwill Carrying Amount of the Group’s interest Aurora Trust 70,628,301 541,451,843 (31,205,692) (149,758,094) 431,116,357 216,938,565 26,488,040 275,341,759 Investors Mutual Group RARE Group – – – – – – – – – – – – – – – – Aurora Trust Investors Mutual Group RARE Group – – – – – – – 31,284,143 32,963,030 348,863 1,124,406 9,858,359 20,785,135 – 1,741,649 21,774,648 11,560,651 4,851,599 2,602,810 14,823,379 7,141,408 Summarised ﬁnancial information in respect of each of the Group’s material associates is set out below. The summarised ﬁnancial information below represents amount shows in associate’s ﬁnancial statements in accordance with the Accounting Standards. Year ended 30 June 2015 Revenue Loss for the period Other comprehensive losses for the year Total comprehensive losses for the year Distributions received/receivable during the year Year ended 30 June 2014 Revenue Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividends/distributions received during the year Aurora Trust 29,494,352 (6,228,218) (9,718,379) (15,946,597) 7,729,161 Investors Mutual Group RARE Group – – – – – – – – – – Aurora Trust Investors Mutual Group RARE Group – – – – – 34,747,017 55,184,330 13,077,054 31,847,660 (28,060) – 13,048,994 31,847,660 5,958,461 8,777,359 g. Following is an aggregate of other associates which are not deemed material Current assets Non-current assets Current liabilities Non-current liabilities Net assets Revenue Profit for the year Dividends received during the year 12. Available-for-Sale Investments Non-current – Investment in Octis Asia Pacific Fund Limited* – Investment in Octis Opportunities Fund* – Investment in Aubrey Conviction Fund* – Aubrey Capital Management** – Investment in Freehold Investment Management*** – Unlisted shares in other corporations 66 67 30/06/2015 30/06/2014 – – – – – 16,632,990 4,944,506 10,405,476 5,964,806 5,207,214 Year ended 30/06/2015 Year ended 30/06/2014 – – – 15,632,144 3,962,866 3,149,639 Consolidated 2015 $ 2014 $ – – – – – – – 3,035,532 3,030,546 2,108,086 1,393,261 1,436,780 900 11,005,105 All of these assets were sold during the year. * These investments represent seed capital to assist in the growth and marketing of these products. Units in funds are readily saleable with no ﬁxed terms. The fair value of the unlisted available for sale investments is based on the current unit price of the investments which is determined by the Value of the underlying investments of the unit trust. ** While classiﬁed as an available-for-sale to satisfy the deﬁnition under the accounting standards, the Board views this as a long term holding investment. The acquisition price of these securities was $1,314,073. The change in fair value reﬂects movements in fair value between reporting periods, including foreign exchange rates. *** While classiﬁed as an available-for-sale to satisfy the deﬁnition under the accounting standards, the Board views this as a long term investment. The valuation of this investment was based on the net present value of the discounted cash ﬂows of FIM. 13. Loans and Other Receivables Loans receivables due from: Associates Advances to other related party All amounts are receivable in Australian Dollars and are not considered past due or impaired. Consolidated 2015 $ 2014 $ – – – 4,197,624 600,000 4,797,624 Annual Report 2015 Notes to the Financial Statements continued 13. Loans and Other Receivables (Cont.) a. Loans For the comparative period, the balance of the loan receivable from associates as at 30 June 2014 represents the subordinated loan to RARE and loan to ROC Partners. The loan to RARE is subordinated to all other creditors as a condition of their Australian Financial Services Licence as agreed with the Australian Securities and Investments Commission (ASIC). Interest rates on the loans vary from 7.5% to 8%. 14. Plant and Equipment Furniture & fittings At cost Accumulated depreciation Office equipment At cost Accumulated depreciation Leasehold improvements At cost Accumulated depreciation Total a. Reconciliations Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current financial year. Furniture & fittings Opening balance Depreciation expense Disposal Closing balance Office equipment Opening balance Additions Depreciation expense Disposal Closing balance Leasehold improvements Opening balance Additions Depreciation expense Disposal Closing balance Notes 14(a) 14(a) 14(a) Consolidated 2015 $ 2014 $ – – – – – – – – – – 6,890 (597) (6,293) – 46,354 – (18,221) (28,133) – 8,203 – (1,679) (6,524) – 12,082 (5,192) 6,890 434,827 (388,473) 46,354 12,089 (3,886) 8,203 61,447 8,637 (1,747) – 6,890 52,046 15,224 (20,916) – 46,354 9,587 – (1,384) – 8,203 15. Intangibles Software At cost Accumulated amortisation a. Reconciliations Reconciliations of the carrying amounts of intangibles at the beginning and end of the current financial year. Software Opening balance Additions Amortisation expense Disposal Closing balance 16. Trade and Other Payables Trade payables Other payables Related party payables: – associates 68 69 Note 15(a) Consolidated 2015 $ 2014 $ – – – 114,944 (102,404) 12,540 12,540 18,440 – (2,878) (9,662) – – 1,642,020 1,817 (7,717) – 12,540 643,184 937,255 360,192 6,091,530 2,002,212 7,671,969 a. Fair value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. b. Related party payables For terms and conditions relating to related party payables please refer to Note 25. c. Interest rate and liquidity risk Trade and other payables are non-interest bearing. Liquidity risk exposure is not regarded as signiﬁcant. Trade, other and related party payables are all due within less than 90 days. 17. Employee Provisions Current Provision for annual leave, beginning balance Provisions during the year Annual leave taken Provision for annual leave, closing balance Non-Current Provision for long service leave, beginning balance Provisions during the year Provision for long service leave, closing balance Note Consolidated 2015 $ 2014 $ 221,903 166,847 213,202 113,407 (59,985) (104,706) 328,765 221,903 135,882 71,563 99,650 36,232 207,445 135,882 Annual Report 2015 Notes to the Financial Statements continued 18. Contributed Equity and Reserves a. Ordinary shares Issued and fully paid 2015 $ 2014 $ 69,500,943 29,594,265 Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of its issued shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends. b. Movements in ordinary shares on issue Beginning balance Issued on 6 August 2014 Issued on 18 December 2014 Issued on 23 January 2015 Balance at end of the year Treasury Group Ltd 2015 Number of shares 2014 Number of shares $ $ 23,070,755 29,594,265 23,070,755 29,594,265 626,743 1,027,859 2,926,830 28,835,705 979,816 10,043,114 – – – – – – 27,604,144 69,500,943 23,070,755 29,594,265 On 6 August 2014, Treasury Group issued 626,743 ordinary shares on exercise of 626,743 performance rights issued under the Treasury Group Performance Rights Plan for its executives. As a result of this share issue, $1,027,859 was transferred from the equity-settled share options reserve to issued capital. On 18 December 2014, Treasury Group Ltd issued 2,926,830 fully paid ordinary shares at $10.25 as a result of institutional placement. The proceeds from the placement were used to subscribe for additional units in Aurora. On 23 January 2015, Treasury Group Ltd issued 979, 816 fully paid ordinary shares at $10.25 as a result of Share Purchase Plan (SPP). The proceeds from the placement were used to subscribe for additional units in Aurora. c. Capital management The Company’s capital management policies focus on ordinary share capital. When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and beneﬁts to other stakeholders. Management is constantly reviewing the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders or conduct share buybacks. During the year ended 30 June 2015, management paid dividends of $13,023,319 (2014: $10,612,548). Directors anticipate that the payout ratio of the underlying proﬁt is 60-80%. Going forward post-merger, payout ratio is 80%-100% of Aurora’s distribution to Treasury Group. As part of the completion of the transaction, Aurora issued Class B & C units which are exchangeable (at the holders’ election) to Treasury Group shares at the following ﬁxed ratios: (i) Any time from 13 April 2015 – 1 Treasury Group share for every 1 Class C unit (ii) Any time from 24 November 2014 – 2 Treasury Group shares for every 3 Class B units or B-1 units (iii) Any time from 24 November 2017 – 5 Treasury Group shares for every 6 Class B units or B-1 units (iv) In the event of takeover – 1 Treasury Group share for each Class B & C units (v) In the event of Qualiﬁed Public Offering (QPO) does not occur during QPO period, for an exchange occurring on and from the expiration of the QPO period – 1 Treasury Group share for each Class B & C units 70 71 d. Long term incentives - performance rights There were no performance rights issued to ofﬁcers and employees during the year. The performance rights outstanding as at 30 June 2015 represent the 139,981 performance rights issued to certain employees in prior years. The performance rights on issue were valued based on the valuation made by RSM Bird Cameron using a hybrid monte-carlo/binomial option pricing model. The value of each right at issue was $1.64. The value of outstanding performance rights is $164,000 amortised over three years from the grant date. The amount of performance rights amortisation expense for the period was $91,886 (2014:$427,150). Total value of outstanding performance rights is $60,402. This includes unamortised performance rights that were valued at $1.64. There were no performance rights that lapsed during the year. On 1 July 2015, performance rights issued to certain employees on 1 July 2012 have vested at 96% for the 8,731 performance rights issued and 82% for the 31,250 performance rights issued. Accordingly, a total of 34,007 Treasury Group shares were issued to these employees. e. Retained profits Balance at the beginning of the year Profit for the year Dividends Balance at end of year f. Reserves Net unrealised gains reserve Balance at the beginning of the year Net unrealised (losses) on available for sale investments taken to equity Reversal of net unrealised losses on available-for-sale sold during the year Income tax relating to items not reclassified Share of after-tax gain on available for sale investments of associates Balance at end of year Share options reserve Balance at end of year Foreign currency translation reserve Share of associate’s foreign currency translation reserve (after tax) Total Reserves Consolidated 2015 $ 2014 $ 30,092,285 27,643,019 138,723,124 13,061,814 (13,023,319) (10,612,548) 155,792,090 30,092,285 Consolidated 2015 $ 2014 $ 213,684 376,659 – (213,894) (213,684) – – 147,103 147,103 64,169 (13,250) 213,684 2,938,463 3,874,436 (4,458,846) – (1,373,280) 4,088,120 Net unrealised gains reserve The reserve records share of after-tax gain on available-for-sale investments of associates. Share options reserve This reserve is used to record the value of equity beneﬁts provided to employees and directors as part of their remuneration. Refer to Note 21 for further details of these plans. Foreign currency translation reserve The reserve records the Company’s share of foreign exchange differences arising on translation of the foreign operations of the associate. Annual Report 2015 Notes to the Financial Statements continued 19. Segment Information Information reported to the Group’s Board of Directors for the purposes of resource allocation and assessment of performance is speciﬁcally focused on the proﬁt after tax earned by each business within the Group. Therefore the Group’s reportable segments under AASB 8 are included in the table below. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the Group’s accounting policies. The following is an analysis of the Group’s results by reportable operating segment: Segment profit after tax for the year – Australian unlisted trust¹ – Outsourcing and responsible entity services – Australian equities – Alternative investments – Central administration costs Total per Income Statement Effective 25 November 2015, Treasury Group reports its segment as Australian unlisted trust. Segment net assets for the year – Australian unlisted trust – Australian equities – Outsourcing and responsible entity services – Alternative investments – Central administration Total per Statement of Financial Position Consolidated 2015 $ 2014 $ (4,197,027) – 341,030 338,150 3,014,911 7,478,915 6,176,823 11,841,348 5,335,737 19,658,413 133,387,387 (6,580,519) 138,723,124 13,077,894 Consolidated 2015 $ 2014 $ 216,698,239 – – – – 21,233,035 5,625,758 23,362,365 50,221,158 7,221,514 13,553,512 223,919,753 63,774,670 As at 30 June 2015, the Australian unlisted trust above includes the equity accounted investment in Aurora. 72 73 20. Commitments and Contingencies Operating lease commitments The Group has entered into commercial property leases to meet its ofﬁce accommodation requirements. These non- cancellable leases have remaining term of three years as at 30 June 2015. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: Future minimum rentals: Minimum lease payments – not later than one year – later than one year and not later than ﬁve years Aggregate lease expenditure contracted for at reporting date Amounts not provided for: – rental commitments Total not provided for Aggregate lease expenditure contracted for at reporting date 21. Employee Beneﬁts and Superannuation Commitments Consolidated 2015 $ 2014 $ 342,564 234,386 329,389 576,950 576,950 906,339 576,950 906,339 576,950 906,339 576,950 906,339 The Treasury Group LTI Plan The Treasury Group LTI Plan has been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests. There were no performance rights issued to ofﬁcers and employees during the year. The performance rights outstanding as at 30 June 2015 represent the 139,981 performance rights issued to certain employees in prior years. The performance rights on issue were valued based on the valuation made by RSM Bird Cameron using a hybrid monte-carlo/binomial option pricing model. The value of each right at issue was $1.64. The value of outstanding performance rights is $164,000 amortised over three years from the grant date. The amount of performance rights amortisation expense for the period was $91,886 (2014: $427,150). There were no performance rights that lapsed during the year. On 1 July 2015, performance rights issued to certain employees on 1 July 2012 have vested at 96% for the 8,731 performance rights issued and 82% for the 31,250 performance rights issued. Accordingly, a total of 34,007 Treasury Group shares were issued to these employees. Employee Share Plan The Employee Share Plan has been established whereby Treasury Group Ltd, at the discretion of the Board of Directors, provides the opportunity to employees and Directors to purchase shares in Treasury Group Ltd at market value less a discount of 5% to 20%. These shares are purchased via a salary sacriﬁce arrangement. The shares are held in trust at the employees’ request for a period between 2 and 10 years. Employees have to be employed by the consolidated group while taking part in the plan. There are 17 employees eligible to participate in the plan. Shares acquired under the Employee Share Plan vest immediately. There were no shares purchased during the year (2014: nil). The balance as at 30 June 2015 was nil (2014: 3,099). During the year, 3,099 shares were sold (2014: 43,652). On 22 July 2015, the plan was terminated in accordance with the Trust Deed. Annual Report 2015 Notes to the Financial Statements continued b. Compensation for Key Management Personnel Consolidated 2015 $ 2014 $ Short-term Post employment Share-based payments 2,932,930 1,729,418 87,690 11,502 58,871 349,866 Total remuneration 3,032,122 2,138,155 Each year, KMP bonuses are paid in two instalments being 50% on August and 50% on June the following year. For the current year, only the 50% payable on August is provided for as at 30 June 2015. For the comparative period, 50% was provided in June 2014 and the remaining 50% was paid in June 2015. c. Transactions with director-related entity Details of the transactions with Director-related entities are set out in Note 25. All transactions were conducted on commercial terms. d. Loans to key management employees No loans have been advanced to key management employees at any stage during the ﬁnancial year ended 30 June 2015 (2014: $Nil). 22. Subsequent Events On 29 July 2015, the shareholders of RARE Infrastructure Ltd (RARE) including Treasury Group and Northern Lights have entered into a binding agreement to sell the majority interest in RARE to Legg Mason. Under the proposed structure, the total transaction consideration is approximately $200m, with an upfront cash proceeds of $112m to be received in November 2015; a three-year earn-out of up to $42m and 10% retained equity interest in RARE subject to two- year differentiated option pricing: call option by Legg Mason at a ﬁxed multiple of RARE revenues and put option by Aurora Trust at “fair market value”. On 26 August 2015, the Directors of Treasury Group Ltd declared a ﬁnal dividend on ordinary shares in respect of the 2015 ﬁnancial year. The total amount of the dividend is $7,738,682 which represents a fully franked dividend of 28 cents per share. The dividend has not been provided for in the 30 June 2015 ﬁnancial statements. 23. Key Management Personnel Disclosures a. Details of Key Management Personnel (i) Non-executive Directors M. Fitzpatrick Chairman (Non-executive) P. Kennedy Director (Non-executive) R. Hayes Director (Non-executive), resigned 31 March 2015 M. Donnelly Director (Non-executive) J. Vincent G. Guérin Director (Non-executive), appointed 10 December 2014 Director (Non-executive), appointed 10 December 2014 (ii) Executives & KMP A. McGill Managing Director & CEO T. Carver P. Greenwood J. Ferragina Executive Director, appointed 10 December 2014 Executive Director and CIO, appointed 10 December 2014 Finance Director and COO, appointed 31 March 2015 24. Auditor’s Remuneration Auditor of Parent entity (Deloitte Touche Tohmatsu) Amounts received or due and receivable by Deloitte Touche Tohmatsu: – an audit or review of the ﬁnancial report of the entity and any other entity in the consolidated group – other services to the entity and any other entity in the consolidated group Total 74 75 Consolidated 2015 $ 2014 $ 336,000 1,407,000 224,466 641,767 1,743,000 866,233 25. Related Party Disclosures The consolidated ﬁnancial statements include the ﬁnancial statements of Treasury Group Ltd and the controlled entities in the following list: Companies Aurora Investment Management Pty Ltd AR Capital Management Pty Ltd Treasury Group Investment Services Ltd* Global Value Investors Ltd* Treasury Group Nominees Pty Ltd* Treasury Evergreen Pty Ltd* Treasury Capital Management Pty Ltd* These are all incorporated in Australia. * Sold to Aurora Trust on 25 November 2014. Transactions with related parties Percentage of equity interest held by the consolidated entity 2015 2014 100 100 – – – – – – 100 100 100 100 100 100 Service fees During the year, Treasury Group Ltd and its wholly-owned entity, Aurora Investment Management Pty Ltd, the Trustee of Aurora Trust provided management and administrative services to Aurora and its wholly owned entities. Dealings were on commercial terms and conditions. Details of service fees and receivables at reporting date are disclosed in Note 5 and Note 10 to the ﬁnancial report respectively. Dividend and distribution Dividends and distributions received and receivable at reporting date are disclosed in Note 10 of the ﬁnancial report. Annual Report 2015 Notes to the Financial Statements continued 26. Parent Entity Disclosure The accounting policies of the parent are the consistent with the consolidated entity. i. Financial Performance Profit for the year Other comprehensive income for the year (net of tax) Total comprehensive income ii. Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Reserves Share options Net unrealised gains/(losses) reserve Total equity 2015 $ 2014 $ 148,065,100 14,203,006 – (293,944) 148,165,100 13,909,062 8,480,186 13,316,626 294,099,006 37,736,719 302,579,192 51,053,345 886,438 1,224,158 64,179,505 135,882 65,065,943 1,360,040 69,500,943 29,594,265 165,134,066 16,283,472 2,878,240 3,874,436 – (58,868) 237,513,249 49,693,305 Director’s Declaration 76 77 In accordance with a resolution of the Directors of Treasury Group Ltd, I state that: 1. In the opinion of the Directors: a. the financial statements and notes are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; ii. complying with Accounting Standards and Corporations Regulations 2001; and iii. complying with International Financial Reporting Standards, as stated in Note 2 to the financial statements 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. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2015. On behalf of the Board M. Fitzpatrick Chairman 31 August 2015 Annual Report 2015 Independent Audit Report Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Treasury Group Ltd Report on the Financial Report We have audited the accompanying financial report of Treasury Group Ltd, which comprises the statement of financial position as at 30 June 2015, the income statement, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 36 to 76. Directors’ Responsibility 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 Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view, 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 company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 78 79 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Treasury Group Ltd would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Treasury Group Ltd is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of their performance for the period 1 July 2014 to 30 June 2015; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in pages (cid:21)(cid:20) to (cid:22)(cid:22) of the directors’ report for the year ended 30 June 2015. 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. Opinion In our opinion the Remuneration Report of Treasury Group Ltd for the year ended 30 June 2015, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Declan O’Callaghan Partner Chartered Accountants Sydney, 31 August 2015 Annual Report 2015 ASX Additional Information Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. a. Distribution of equity securities (as at 5 August 2015) The number of shareholders by size of holding, in each class of share are: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over The number of shareholders holding less than a marketable parcel of shares are: b. Twenty largest shareholders (as at 5 August 2015) The names of the twenty largest holders of quoted shares are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BNP Paribas Noms Pty Ltd RBC Investor Services Australia Nominees Pty Limited (Perpetual) Squitchy Lane Holdings Pty Ltd HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Ltd Mr Timothy Gerard Ryan Kattag Holdings Pty Ltd Mini-Me Ventures Pty Ltd Netwealth Investments Limited UBS Wealth Management Australia Nominees Pty Ltd Mr Michael Brendan Patrick De Tocqueville Banson Nominees Pty Ltd HFM Investments Pty Ltd Top Pocket Pty Ltd 29th Marsupial Pty Ltd Mardom Pty Ltd Mrs Margaret Rose Wood Mr David Calogero Loggia Ordinary shares Number of holders Number of shares 1,522 1,594 279 156 21 186 763,883 3,821,715 1,942,876 3,533,960 17,576,717 3,036 Listed ordinary shares Number of shares Percentage of ordinary shares 3,558,115 3,503,302 2,401,500 1,036,534 1,020,691 960,524 912,508 599,573 526,000 480,000 435,595 431,427 400,000 370,854 250,000 250,000 172,591 141,400 139,541 138,543 12.87 12.68 8.69 3.75 3.69 3.48 3.30 2.17 1.90 1.74 1.58 1.56 1.45 1.34 0.90 0.90 0.62 0.51 0.50 0.50 17,728,698 64.15 c. Substantial shareholders The names of substantial shareholders who have notiﬁed the Company in accordance with section 671B of the Corporations Act 2001 are: BNP Paribas Noms Pty Ltd Michael Fitzpatrick d. Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Number of Shares 3,558,115 2,701,285 Corporate Information 80 81 ABN 39 006 708 792 Directors M. Fitzpatrick (Chairman) A. McGill (Managing Director and Chief Executive Officer, (CEO), resigned 28 August 2015) T. Carver (Executive Director, appointed 10 December 2014) P. Kennedy M. Donnelly A. Robinson (Non-Executive Director appointed 28 August 2015) J. Vincent (Non-Executive Director appointed 10 December 2014) G. Guérin (Non-Executive Director appointed 10 December 2014) R. Hayes (resigned 31 March 2015) P. Greenwood (Executive Director appointed 10 December 2014) J. Ferragina (Finance Director and Chief Operating Officer (COO) appointed 31 March 2015) Company Secretaries C. Driver (appointed 7 July 2015) R. Ramswarup (resigned 30 June 2015) J. Ferragina (appointed 31 July 2014) Registered Office Level 14 39 Martin Place Sydney, NSW, 2000 (02) 8243 - 0400 Phone Facsimile (02) 8243 - 0410 Bankers Westpac Banking Corporation Share Register Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford, Victoria, 3067 Phone (03) 9415 - 5000 Auditors Deloitte Touche Tohmatsu Internet Address www.treasurygroup.com www.treasurygroup.com

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