3 2 0 2 t r o p e R l a u n n A PACIFIC CURRENT GROUP LIMITED CONTENTS 2 3 4 7 9 36 37 38 39 40 41 42 43 96 97 FY2023 Key Highlights Chairman’s Report Managing Director, Chief Executive Officer and Chief Investment Officer’s Report Board of Directors Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Index to the Notes to the Financial Statements Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 102 ASX Additional Information 104 Corporate Information In accordance with ASX Listing Rule 4.10.3, Pacific Current Group Limited’s Corporate Governance Statement can be found on its website at http://paccurrent.com/shareholders/corporate-governance/ In this Annual Report, a reference to ‘Pacific Current Group’, ‘PAC’, ‘Group’, ‘the Group’, ‘ the Company’, ‘we’, ‘us’ and ‘our’ is to Pacific Current Group Limited ABN 39 006 708 792 and its subsidiaries unless it clearly means just Pacific Current Group Limited. In this Annual Report, a reference to funds under management (FUM) means the total market value of all the financial assets which one of our partner boutiques manages on behalf of its clients and themselves. LIMITED Annual Report 2023 11 ABOUT US Pacific Current Group Limited (ASX: PAC) is a global multi-boutique asset management firm dedicated to providing exceptional value to shareholders, investors, and partners. OUR PHILOSOPHY Each investment is structured to create exceptional alignment with our boutique managers. We apply flexible capital, strategic insight, and global distribution to support the growth and development of the boutiques in which we invest. Our goal is to help investment managers focus on their core business and what matters most: investing. WHAT WE OFFER OUR BOUTIQUES • Flexible capital solutions – we aim to create exceptional alignment with our boutique managers, so every investment is uniquely tailored to fit the boutique’s specific needs • Global distribution and marketing services – we can accelerate the growth of our boutiques by helping them secure new clients and funds to manage • Access to our global network and strategic insights – our global network of industry contacts and decades of experience allow us to assist boutiques in the management of their businesses and the development and implementation of their growth strategies FY2023 KEY HIGHLIGHTS FUM across the Group (up from $169b) $204b Comparable dividends (from 38 cps) 38cps “Fair Value” of Net Assets per Share (up from $11.15) $11.92 Underlying EBITDA steady (from $35.6m) $35.3m Invested US$30m in private capital manager, Cordillera Sale of interest in Proterra Asia for more than 40x the run-rate annual distributions to PAC Agreed to a US$50m debt facility to exploit future growth opportunities Unsolicited, non-binding, indicative proposal received to acquire 100% of the shares in PAC LIMITED 2 3 CHAIRMAN’S REPORT We have always been adamant that PAC is fundamentally undervalued in the market; fortunately, a combination of investments, sales, and multiple acquisition offers has provided support for that viewpoint. Dear fellow shareholders, The last financial year was one full of important highlights and achievements. At the portfolio level, we evaluated a large number of investment opportunities and made an investment in Cordillera Investment Partners, LP. We believe this investment will create significant value for Pacific Current Group Limited’s (“PAC”) shareholders. We have also supported the sale of Proterra Investment Partners Asia PTE. Ltd (“Proterra Asia”), a subsidiary of one of our boutiques, at a price we found compelling. The most noteworthy development occurred after 30 June 2023, when we received unsolicited interest to acquire PAC’s business – a development we believe provides support for our view of our business being fundamentally undervalued. At the portfolio level, we have seen solid progress across key boutiques. Of particular note have been the achievements at GQG Partners Inc. (“GQG Inc”), Banner Oak Capital Partners LP, and Proterra Investment Partners, LP (“Proterra”). These firms have helped fuel management fee revenue growth of 13% across the PAC portfolio. This revenue is relatively stable and forms the basis for even stronger revenue in FY2024. Disposals of our holdings may provide the strongest proof set on our view of the value of our holdings, as the proceeds received upon selling assets have generally been well above PAC’s estimates of fair value. We have seen it with Aperio Group, LLC, Investors Mutual Limited, Rare Infrastructure Ltd, and at the initial public offering of GQG Inc. This experience gives us confidence in the conservatism with which we value the portfolio. Admittedly, we have struggled to convince enough people of PAC’s inherent value as the trading share price has not, to date, approximated the fair value of our portfolio. That situation has now led to indications of interest in a potential acquisition of PAC and the start of a competitive process. As has always been the case, the goal in a competitive process would be to realise for shareholders the latent value we have always believed the company possessed. An Independent Board Committee (“IBC”) has been established to manage this process, given several Directors have or may have potential conflicts. PAC is a very enjoyable business of which to be a part. The people involved in the business are capable and work hard to find new and exciting investment opportunities. The businesses we invest in are delivering great outcomes for their clients and our shareholders. Most importantly, PAC has also shown that it is a highly effective allocator of capital. In closing, the achievements made during the year continue to confirm that the PAC team has considerable skills in identifying and acquiring holdings in exceptionally capable funds management teams and businesses. A team ably led by Paul Greenwood. We are very appreciative of the continued hard work of the PAC team. We are hopeful for a great outcome for shareholders. Either way, the outlook for FY2024 is positive and exciting. Regards Antony Robinson Chairman Annual Report 2023 MANAGING DIRECTOR, CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER’S REPORT Despite a challenging economic environment in FY2023, PAC continued to show the ability to produce net positive results and earned the attention of other larger firms as a potential acquisition has become a possibility. I am pleased to offer a few observations and reflections on FY2023 and what the future may hold for PAC. Market Environment The economic environment became more challenging in FY2023, as surging interest rates and inflation notably altered investor behavior. Institutional investors became more reticent to buy and sell assets, as they struggled to estimate how much further rates could rise and asset prices erode. This was particularly evident in private real estate and private equity, where transaction volume declined precipitously. such as pensions, endowments, Allocators and foundations behaved consistently with prior periods of economic uncertainty. Their capital commitments to new investments slowed as they sorted through the implications of entering a macro economic environment deprived of the low rates and tame inflation they had been living with for many years. The impact on PAC’s portfolio was modest, but in certain situations, we did notice delayed asset sales at some portfolio companies, extended fundraising cycles, and reduced speed of capital deployment. Such periods are always transitory, and we believe we are already seeing early signs of more hospitable times ahead. All things considered, PAC’s portfolio companies have weathered this uncertain time well and seem positioned to prosper as conditions stabilise and ultimately improve. Financial Results In FY2023, PAC’s boutique contributions (excluding mark- to-market adjustments) grew 2.4% in USD terms (10% in AUD). As expected, the primary driver was growth in management fee revenues, which increased 13% (22% in AUD). This growth was partially offset by a 22% (16% AUD) decline in performance fees. Corporate revenues fell from US$2.9 million to US$0.9 million, which, along with higher interest expense, contributed to an 11% (4% AUD) decrease in underlying net profit after tax. A final dividend of A$0.23 per share was declared, which will be 67.3% franked. The full-year dividend of A$0.38 per share was flat on a year-over-year basis. Despite solid management fee growth, there were several developments at PAC’s portfolio companies that restrained the growth in PAC’s boutique contributions. These included certain fundraising developments being pushed from the second half of FY2023 into first half of FY2024, and somewhat slower-than-expected deployment of new committed capital. Collectively, these items amounted to US$5 million to US$7 million of deferred revenue, most of which PAC should receive in the first half of FY2024. The reduction in corporate revenues primarily reflects lower commissions earned by PAC through its efforts to fundraise on behalf of our portfolio companies. These revenues are inherently volatile because they result from episodic allocations from institutional investors and thus will always be difficult to forecast. The decline was due to PAC having fewer products in active fundraising mode and PAC’s salesforce devoting significant time to securing external capital for PAC to manage. Portfolio Highlights PAC made a new US$30 million investment in Cordillera Investment Partners, LP (“Cordillera”) in April 2023. Cordillera epitomises many of the attributes we desire in our investments. It has a talented and motivated leadership team offering a distinctive private capital FUM at 30 June 2023 FUM at 30 June 2022 Aether Banner Oak Carlisle Cordillera GQG Proterra Victory Park Astarte EAM ROC Pennybacker 4 5 Aether Banner Oak Carlisle GQG Proterra Victory Park Astarte Blackcrane EAM ROC Pennybacker strategy (such as investing in boat marinas, whisky-barrel aging and music royalties), with low correlations to other markets and broad appeal to both institutional and high- net-worth investors. In June 2023, PAC announced the sale of its interest in Proterra Asia, a subsidiary of Proterra, which is responsible for managing Proterra’s private equity funds focused on food companies in Asia. PAC received more than US$8 million (pre-transaction costs) for its interests, which represents more than 40x the run-rate annual distributions PAC received from this segment of Proterra’s business. Finally, PAC and the Capital & Asset Management Group, LLP (“CAMG”) management team have been working diligently over the past four years to get the business to profitability but recently agreed it was time to wind the business down. After many near misses, CAMG was unable to secure the funds under management (“FUM”) it needed to sustain the business. While obviously this is not the desired outcome, it is a risk we take when backing very early-stage companies. Moreover, even with the benefit of hindsight, we feel like we backed the right team; they worked tirelessly and made great sacrifices in their efforts to build the business. Portfolio Value At PAC’s last Annual General Meeting, we committed to providing estimates of the fair value of our boutiques. We believe it is important to do so because the International Financial Reporting Standards (“IFRS”) that govern PAC’s statutory accounts do not fully allow PAC to reflect the true net asset value of the business. In short, there are some portfolio companies (e.g., Aether Investment Partners, LLC, Pennybacker Capital Management, LLC (“Pennybacker”), Roc Group, and Victory Park Capital Advisors, LLC (“VPC”)) that are recorded on PAC’s balance sheet at initial acquisition cost, with investment balances marked down if impairments are present, but cannot be written up if they appreciate in value. The net impact is that current statutory NAV does not accurately represent the actual NAV that may be realised if PAC were to sell its portfolio. Indeed, as at 30 June 2023 our reported NAV was A$9.88 per share, but when we adjust for our internal estimates of fair value, we arrive at a fair-value-adjusted NAV of approximately A$11.92 per share, with the primary sources of non-reportable value residing at Pennybacker, Roc Group and VPC. Potential Acquisition After the conclusion of our fiscal year, we found ourselves making some news. We received an unsolicited offer from Regal Partners Limited (ASX: RPL) to acquire PAC for A$10.77 per share (based on PAC’s portfolio company, GQG Inc, stock price at close of trading on 24 July 2023). The proposed consideration for PAC shareholders included 75% in cash and 25% in GQG Inc stock. On 27 July, GQG Inc, announced its intention to make an acquisition offer for PAC as well. In light of these developments, PAC hired UBS to help evaluate these offers and ensure we consider an appropriate breadth of potential partners. Additionally, given that some PAC board members are on GQG Inc’s board and another is on the board of River Capital Pty Ltd (a financing partner for the Regal bid), an IBC has been established. The IBC consists of the non-conflicted board members and will provide recommendations with regard to all acquisition proposals. In August 2023, PAC management has been busy holding discussions with numerous interested parties. The IBC anticipates using September 2023 to determine which, if any, offers it should recommend. If a preferred party is selected, it will have the opportunity to perform additional diligence, negotiate a Scheme Implementation Deed and other related documents, and enter into the several- month-long Scheme of Arrangement process. Annual Report 2023 MANAGING DIRECTOR, CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER’S REPORT Looking Ahead We expect FY2024 to be a watershed year for PAC. Our optimism stems from the following: – Some key boutiques, like Pennybacker and VPC, are entering periods where their contributions to PAC should grow meaningfully based on FUM already and/ or imminently secured. We expect this growth to be supplemented by improved results at a handful of other portfolio companies; – We intend to announce at least one significant new investment in the immediate future; – We are making progress toward securing external funds to manage, thus potentially providing PAC with a valuable source of new revenues; and – The market environment for high-quality asset management remains strong. Just as with the sale of Proterra Asia, PAC believes there is a strong possibility of additional liquidity in its portfolio, and if this occurs it is likely to be at valuations we find highly attractive. Final Thoughts Since the Treasury Group Limited merger with Northern Lights Capital Partners, LLC in 2014, PAC has made great strides in institutionalising our business, evolving the investment strategy, and allocating capital effectively. One area we have not succeeded in as much as we hoped is maintaining a share price that more accurately reflects what we believe to be the true value of PAC. The fact that the acquisition prices being discussed are notably higher than the pre-offer trading price suggests our intuition about PAC’s value may be right. Ultimately, our job is to deliver value to our shareholders. It now appears possible that delivering this value will be best achieved by selling PAC. As PAC potentially moves into uncharted territory, I want to say thank you for your insights, critiques, and encouragement. It has all contributed to making us a better company, for which we are deeply grateful. I am also exceptionally appreciative of the PAC board and employees, whose invaluable contributions to PAC have positioned PAC to deliver considerable value to its shareholders, regardless of our future ownership structure. Paul Greenwood Managing Director, Chief Executive Officer and Chief Investment Officer BOARD OF DIRECTORS 6 7 Antony Robinson Non-Executive Chairman1 Paul Greenwood Executive Managing Director Jeremiah Chafkin Non-executive Director Melda Donnelly Non-executive Director Gilles Guérin Lead Independent Director2 Peter Kennedy Non-executive Director Notes: 1 Mr. Robinson is not presently considered by the Board to be independent. Refer to the Company’s Corporate Governance Statement available on its website at Corporate Governance - Pacific Current Group (paccurrent.com). 2 Mr. Guerin was appointed by the Board as Lead Independent Director on 24 August 2023. See pages 9 to 10 for further information Annual Report 2023 CONTENTS Your Directors submit their Report for the year ended 30 June 2023. 9 36 37 38 39 40 41 42 43 96 97 Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Index to the Notes to the Financial Statements Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 102 ASX Additional Information 104 Corporate Information DIRECTORS’ REPORT 8 9 Your Directors submit their Report for the year ended 30 June 2023. Directors and Officers The Directors and officers of Pacific Current Group Limited (the “Company”) at the date of this report or at any time during the financial year ended 30 June 2023 were: Name Mr. Antony Robinson Mr. Paul Greenwood Mr. Jeremiah Chafkin Ms. Melda Donnelly Mr. Gilles Guérin Mr. Peter Kennedy Ms. Clare Craven Notes: Role Non-Executive Chairman¹ Executive Managing Director Non-Executive Director Non-Executive Director Lead Independent Director² Non-Executive Director Company Secretary 1 Mr. Robinson is not presently considered by the Board to be independent. Refer to the Company’s Corporate Governance Statement available on its website at Corporate Governance - Pacific Current Group (paccurrent.com). 2 Mr. Guerin was appointed by the Board as Lead Independent Director on 24 August 2023. Names, Qualifications, Experience and Special Responsibilities Mr. Antony Robinson, BCom, MBA, CPA (Non-Executive Chairman) Mr. Robinson joined the Board on 28 August 2015, in the capacity of Non-Executive Director. He became an Executive Director on 20 April 2016 before returning to a Non-Executive Director on 1 September 2018. On 1 October 2018, he was appointed Chairman. He 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. His previous executive roles include Managing Director of IOOF Ltd and OAMPS Limited. Mr. Robinson is the Managing Director of PSC Insurance Group Limited (since July 2015) and the Chairman of River Capital Pty Ltd. He was formerly a Director of Tasfoods Limited (May 2014 - March 2018), a Director of Bendigo and Adelaide Bank Limited (April 2016 - November 2021) and Non-Executive Chairman of Longtable Group Ltd (now Maggie Beer Holdings Limited) (from October 2015 - November 2019). Mr. Robinson is a member of the Audit and Risk Committee and the Remuneration, Nomination and Governance Committee. Mr. Paul Greenwood, BA, CFA (Executive Managing Director) Mr. Greenwood joined the Board on 10 December 2014 as an Executive Director. He co-founded Northern Lights Capital Group, LLC (“Northern Lights”) in 2006 which merged with Treasury Group Ltd in November 2014 to form Pacific Current Group Limited. Effective from 1 July 2018, Mr. Greenwood was appointed to the roles of Managing Director, Chief Executive Officer and Global Chief Investment Officer (“MD, CEO and CIO”) in the Company. 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 (“Russell”), 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. Mr. Greenwood is a Non-Executive Director of GQG Partners Inc (since October 2021) and serves as the Company’s representative on numerous committees and boards of portfolio companies that the Company has invested in. He is also a member of the Advisory Board of Simcoe Capital (doing business as Signia Capital Management). Mr. Jeremiah Chafkin, BScEcon, MBA Fin (Non-Executive Director) Mr. Chafkin joined the Board on 10 April 2019. He has over 30 years’ experience in financial services leadership in the asset management sector, primarily in North America. He is currently the Chief Investment Officer of Retirement Income Advisors, LLC (dba Preservation Capital Management). He was previously the Vice Chairman Investments of AssetMark Financial Holdings, Inc. (until April 2022). He was also previously CEO at AlphaSimplex Group, IXIS Asset Management US and spent nearly a decade at Charles Schwab in a range of leadership roles. He began his career at Bankers Trust Company where he spent almost 15 years in a variety of asset management roles working with institutional clients in the USA and abroad. Mr. Chafkin is a member of the Audit and Risk Committee and the Remuneration, Nomination and Governance Committee. Annual Report 2023 DIRECTORS’ REPORT continued Ms. Melda Donnelly, CA, OAM B.C. (Non-Executive Director) Ms. Donnelly joined the Board on 28 March 2012. She is the founder and former chairperson of the Centre for Investor Education, a specialist education and consultancy firm for executives in Australian superannuation funds, institutional investment bodies and the financial services markets. Her 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 a Non-Executive Director of GQG Partners Inc (since October 2021) and Chair of Coolabah Capital Investments Pty Limited. Ms. Donnelly has held a range of directorships of both Australian and international companies including Non-Executive Director of Ashmore Group plc, trustee director of UniSuper, Deputy Chair of the Victorian Funds Management Corporation, Chair of Plum Financial Services Nominees Pty Ltd and a member of the Investment Committee of HESTA Super Fund. Ms. Donnelly is the Chair of the Audit and Risk Committee and a member of the Remuneration, Nomination and Governance Committee. Mr. Gilles Guérin, BA MSc, (Lead Independent Director) Mr. Guérin joined the Board on 10 December 2014. He 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 Europe, the United States of America (the “USA”), Japan, the Middle East and Australia. He has operated distribution capabilities worldwide and developed new products and investment capabilities. 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. He is a Director of U-Access (Ireland) UCITS plc. Mr. Guerin was the CEO of BNP Paribas Capital Partners (retired September 2021), where he worked developing the alternative investment capabilities of the BNP Paribas Group. He also served as CEO and President of Natixis Global Associates, Executive of Natixis AM North America and held Executive and senior leadership roles at HDF Finance, AlphaSimplex, IXIS AM and Commerz Financial Products. He was previously a Non-Executive Director of Ginjer AM and Chair of INNOCAP. Mr. Guérin is a member of the Audit and Risk Committee and the Remuneration, Nomination and Governance Committee. Mr. Peter Kennedy, B.Ec. L.L.M. (Tax) (Non-Executive Director) Mr. Kennedy joined the Board on 4 June 2003. He is the founding partner of the 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 is a member of the Madgwicks’ Dispute Resolution practice and was formerly Madgwicks’ Managing Partner for over 16 years, where he played an integral role in the governance and management of the firm. Mr. Kennedy also sits on the boards of a number of companies in the manufacturing, property and retail industries and is Chair of Treasury Group Investment Services Pty Ltd, a wholly owned subsidiary of the Company. Mr. Kennedy is the Chair of the Remuneration, Nomination and Governance Committee and a member of the Audit and Risk Committee. Ms. Clare Craven, BLegS, FGIA, FCG, GAICD (Company Secretary) Ms. Craven has over 20 years’ legal, company secretarial and governance experience gained in various listed and private companies. She has a deep understanding of financial services, wealth management, corporate governance, risk management and compliance. She currently acts as Company Secretary for several of Company Matters Pty Limited’s clients. Ms. Craven previously held various senior leadership roles at Westpac Banking Corporation including Head of Westpac Secretariat, Head of Westpac Subsidiaries and Head of BT Secretariat. Ms. Craven’s previous roles included Company Secretarial Consultant to various public and private companies in the financial services, construction, insurance and health services sector, legal and corporate advisory roles at NRMA Ltd and NRMA Insurance Limited (including Company Secretary), and as an Associate Solicitor in private practice. Ms. Craven is admitted as a Solicitor of the Supreme Court of NSW, holds a Bachelor of Legal Studies and a Graduate Diploma in Applied Corporate Governance. 10 11 NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES The Company is a company limited by shares and is incorporated and domiciled in Australia. Its shares are listed for trading on the Australian Securities Exchange (“ASX”) with the ticker code PAC. The Company and its controlled entities (the “Group”) invest in asset managers, private advisory, placement and investment related firms on a global basis. The Group also provides, on an as agreed basis, distribution and management services to specific investee companies. The primary criteria the Company looks for in these potential investments are high quality people, a robust investment process, competitive performance and strong growth potential. The strategy of the Company is to build shareholder value through identifying, investing, and managing investments in investment management firms that exhibit moderate to high sustainable growth while delivering exceptional results to their clients. The Company is agnostic in respect to geography so long as an investment meets the Group’s investment criteria. The Group invests across the life cycle continuum, from start-up opportunities to established but growing businesses. The portfolio is targeted to have a mix of businesses from those with solid earnings to those with dramatic earnings acceleration, albeit from a smaller investment base. OPERATING AND FINANCIAL REVIEW REVIEW OF OPERATIONS Investment activities during the year Restructuring of investments On 31 August 2022, the Group through Aurora Investment Management Pty Ltd (as the Trustee of The Aurora Trust), Hareon Solar Singapore Private Limited (“Hareon”), Nereus Capital Investments (Singapore) Pte. Ltd (“NCI”) and Nereus Holdings Inc executed a Settlement and Release Deed (the “Deed”) whereby the parties have agreed to the full satisfaction of the obligations of the Group to Hareon in the amount of USD11,869,000 ($17,638,000). The Group paid Hareon USD7,000,000 ($10,403,000) on 16 September 2022 and the remaining balance of USD4,869,000 ($7,235,000) on 31 October 2022. With the full settlement of the liability to Hareon, the Group’s obligations to Hareon were terminated in its entirety pursuant to the Deed. The Group now classifies its investment in NCI as a joint venture and continues to look for opportunities to exit the investment in an orderly fashion by actively offering the underlying investments for sale. Acquisition of a new investment On 6 April 2023, the Group acquired an interest in Cordillera Investment Partners, LP (“Cordillera”) and special limited partnership interests in limited partnership vehicles managed by Cordillera for USD29,880,000 ($44,405,000). The Group is entitled to 16.38% gross revenues, funds, carried interest and proceeds received by Cordillera less certain costs and expenses and 24.90% liquidation proceeds in the event of sale. The investment has been accounted for as a financial asset at fair value through profit or loss. Cordillera is based in San Francisco, California, USA and has three strategies that focus on investing in niche, non-correlated private investments with the objective of diversifying and attractive risk-adjusted returns. It targets unique asset classes that are not yet heavily trafficked by other institutional investors. Sale of investments On 31 December 2022, with the effect from 1 July 2022, Blackcrane Capital, LLC (“Blackcrane”) purchased and redeemed the 25% equity ownership of the Group in Blackcrane with a potential value of up to USD250,000 ($372,000) to be paid as an earn-out. Blackcrane shall pay the Group in one or more installments in an amount equal to, for each financial year, 50% of all Blackcrane’s revenues in excess of USD1,500,000 ($2,229,000) until such time as the full amount of purchase price has been paid in full to the Group. At 30 June 2023, Blackcrane is in the process of winding down its operations therefore the Group did not recognise any value on the potential earn-out. On 14 June 2023, Proterra Investment Partners, LP (“Proterra”) and the Group agreed to sell Proterra’s line of business held by its subsidiary Proterra Investment Partners Asia PTE. Ltd. (“Proterra Asia”), to Challenger Funds Management Holdings Pty Limited, a subsidiary of Challenger Limited (ASX: CGF). On 17 June 2023, the Group received its share of the proceeds of USD8,320,000 ($12,364,000) less USD508,000 ($755,000) of transaction costs. The sale of Proterra Asia did not change the Group’s equity interest in Proterra. Other investment activities On 2 December 2022, the Group extended a Secured Credit Facility Promissory Note (“Credit Facility”) to Astarte Capital Partners, LLP (“Astarte”) of up to USD600,000 ($892,000). The Credit Facility has a term of five years and bears a 10% interest per annum. A full draw down was made by Astarte during the year. The transaction is classified as a financial asset at amortised cost. On 14 December 2022, the Group extended a Credit Facility to Capital & Asset Management Group (“CAMG”) of up to GBP200,000 ($358,000). The Credit Facility has a term of two years and bears a 10% interest per annum. A full draw down was made by CAMG during the year. At the date of the transaction, this was classified as a financial asset at amortised cost. On 21 December 2022, the Group partially settled its earn-out obligation to Pennybacker Capital Management, LLC (“Pennybacker”) of USD1,591,000 ($2,364,000) as a result of reaching certain revenue thresholds for Pennybacker’s income platforms. On 27 January 2023, the Group extended a short-term Credit Facility Promissory Note to IFP Group, LLC of USD250,000 ($372,000). The Credit Facility bears a 10% to 15% interest per annum. The transaction is classified as a financial asset at amortised cost. Annual Report 2023 DIRECTORS’ REPORT continued Financing activities during the year The fully franked final dividend declared on 26 August 2022 in respect of the 2022 financial year was paid on 11 October 2022 totalling to $11,764,000 of which $10,500,000 was paid in cash and $1,264,000 was through the Dividend Reinvestment Plan (“DRP”). The fully franked interim dividend declared on 24 February 2023 in respect of the 2023 financial year was paid on 13 April 2023 totalling to $7,701,000 of which $6,080,000 was paid in cash and $1,621,000 was through the DRP. Refer to Dividend section in this report for further details. On 24 October 2022, the Company secured a USD50,000,000 ($74,306,000) Senior Secured Debt Facility (“Debt Facility”) from Washington H. Soul Pattinson and Company Limited (“WHSP”). The Debt Facility has a term of five years from the first draw down (subject to extension option) and bears an interest per annum of the aggregate of a term secured overnight financing rate (subject to a floor of 1%) and 4.8% margin. In addition, the Group is required to maintain a loan to net assets ratio of less than 0.5 times. The Debt Facility is secured by the assets of the Group. On 26 October 2022, the initial amount of USD30,000,000 ($44,583,000), excluding the 2.5% discount on the proceeds of USD750,000 ($1,115,000), was drawn down. The remaining USD20,000,000 ($29,723,000) will be drawn down in two equal amounts as requested by the Company. The Debt Facility is classified as a financial liability at amortised cost. Funds under management (“FUM”) As at 30 June 2023, the FUM of the Group’s asset managers was $204,349,907,000 (2022: $169,288,461,000). Open-end Boutiques Closed-end Boutiques FUM as at 30 June 2022 USD’000 FUM as at 30 June 2023 USD’000 FUM as at 30 June 2022 USD’000 FUM as at 30 June 2023 USD’000 Total FUM as at 30 June 2022 USD’000 Total FUM as at 30 June 2023 USD’000 Tier 1 - Boutiques reporting in USD Aether Investment Partners, LLC Banner Oak Capital Partners, LP1 Carlisle Management Company, S.C.A. Cordillera Investment Partners, LP2 Proterra Investment Partners, LP1 Victory Park Capital Advisors, LLC3 Tier 2 - Boutiques reporting in USD Astarte Capital Partners, LLP4 Blackcrane Capital, LLC – – – – 1,588,770 1,545,245 1,588,770 1,545,245 6,237,400 7,388,800 6,237,400 7,388,800 1,124,708 987,619 1,032,198 1,002,931 2,156,906 1,990,550 GQG Partners Inc. 86,700,000 104,100,000 – 158,234 – – 1,253,512 – 1,411,746 – 86,700,000 104,100,000 – – – – 4,020,836 3,711,960 4,020,836 3,711,960 5,435,855 5,712,846 5,435,855 5,712,846 87,824,708 105,245,853 18,315,059 20,615,294 106,139,767 125,861,147 EAM Global Investors, LLC 1,415,067 1,477,911 – 14,552 – – 529,050 642,226 529,050 642,226 – – – – 14,552 – 1,415,067 1,477,911 Pennybacker Capital Management, LLC5 Total Boutiques reporting in USD – 273,567 2,370,644 2,690,504 2,370,644 2,964,071 1,429,619 1,751,478 2,899,694 3,332,730 4,329,313 5,084,208 89,254,327 106,997,331 21,214,753 23,948,024 110,469,080 130,945,355 12 13 Open-end Boutiques Closed-end Boutiques FUM as at 30 June 2022 $’000 FUM as at 30 June 2023 $’000 FUM as at 30 June 2022 $’000 FUM as at 30 June 2023 $’000 Total FUM as at 30 June 2022 $’000 Total FUM as at 30 June 2023 $’000 129,275,409 160,621,682 30,727,316 35,950,167 160,002,725 196,571,849 Total Boutiques reporting in USD (converted in Australian dollar) Tier 2 - Boutiques reporting in Australian dollar Roc Partners Capital Pty Ltd – – 9,285,736 7,778,058 9,285,736 7,778,058 Total 129,275,409 160,621,682 40,013,052 43,728,225 169,288,461 204,349,907 Boutique Tier 1 (excluding GQG Partners Inc.)9 Tier 2 Subtotal Total FUM as at 30 June 2022 $’000 Inflows from Boutique Acquisitions $’000 Net Flows6 $’000 Other7 $’000 Foreign Exchange Movement8 $’000 Total FUM as at 30 June 2023 $’000 28,156,437 2,004,743 15,556,287 – 813,439 (758,714) 636,711 370,735 1,055,952 32,667,282 242,034 15,410,342 43,712,724 2,004,743 54,725 1,007,446 1,297,986 48,077,624 GQG Partners Inc.9 125,575,737 – 11,647,688 14,655,559 4,393,299 156,272,283 Total Boutiques 169,288,461 2,004,743 11,702,413 15,663,005 5,691,285 204,349,907 Notes: 1 Banner Oak Capital Partners LP (“Banner Oak”) and Proterra represent regulatory FUM from one quarter in arrears. Although Pennybacker and Carlisle Management Company, S.C.A. (“Carlisle”) previously reported FUM one quarter in arrears as well, those two boutiques are now reporting current quarter FUM so the information above is through 30 June 2023. 2 The Group invested in Cordillera on 6 April 2023. 3 4 5 6 7 8 Victory Park Capital Advisors, LLC (“VPC”) has sponsored multiple Special Purpose Acquisition Companies (“SPACs”). SPACs do not represent funds under management and are not reported in the numbers above. Rather, these amounts may economically benefit VPC through enhanced performance fees generated from the vehicles/funds managed by VPC that provide risk capital to the SPACs. VPC FUM includes its regulatory capital for 30 June 2023, as well as other client FUM where VPC is paid a one-time, upfront fee. Represents aggregate FUM of funds managed by investment managers in which Astarte has an interest as well as the unallocated committed capital from funds managed by Astarte. Pennybacker recently launched a hybrid strategy where investors commit funds for a period of two years, then it becomes an Open-end fund. Above table is adjusted to classify it as Open-end despite the remaining committed period. For Closed-end funds, Net Flows includes additional capital commitments. Distributions to limited partners of Closed-end funds will be reflected as reduction in Net Asset Value, which is included in the ‘Other’ category. Other includes investment performance, market movement and distributions. The Australian dollar (“AUD”) has declined in value against the USA dollar (“USD”) during the year resulting to a favourable foreign exchange movement of USD denominated FUM when converted to AUD. The AUD/USD was 0.6661 as at 30 June 2023 compared to 0.6904 as at 30 June 2022. The Net Flows and Other items are calculated using the average rates. 9 GQG Partners Inc. (“GQG Inc)” being a listed entity is shown separately. GQG Inc continues to be a Tier-1 boutique in the Group portfolio. The relationship between the boutiques’ FUM and the economic benefits received by the Group can vary dramatically based on factors such as: – the fee structures of each boutique including whether revenue is generated off committed or invested capital; – the Group’s ownership interest in the boutique; and – the specific economic features of each relationship between the Group and the boutique. Annual Report 2023 DIRECTORS’ REPORT continued Accordingly, the Company cautions against simple extrapolation based on FUM trends. Tier 1 Boutique is a term used to describe an asset manager that the Group expects to produce at least an average of $4,000,000 of annual earnings for the Group over the next three years, while a Tier 2 Boutique is one that the Group expects will contribute less than this. Although there is no guarantee any Tier 1 Boutique will meet this threshold, this categorisation is intended to provide insight into which boutiques are expected to be the most economically impactful to the Group. Open-end is a term used by the Group to indicate FUM that are not committed for an agreed period and therefore can be redeemed by an investor on relatively short notice. Closed-end is a term used by the Group to denote FUM where the investor has committed capital for a fixed period and redemption of these funds can only eventuate after an agreed time and in some cases at the end of the life of the fund. Ownership Adjusted FUM by Pacific Current Group boutique manager in USD Private Market / Public Market Strategy Total FUM as at 30 June 2022 USD’000 Total FUM as at 30 June 2023 USD’000 Group Interest Ownership Adjusted FUM as at 30 June 2022 USD’000 Ownership Adjusted FUM as at 30 June 2023 USD’000 Tier 1 Aether Investment Partners, LLC Banner Oak Capital Partners, LP Carlisle Management Company, S.C.A. Cordillera Investment Partners, LP GQG Partners Inc. Proterra Investment Partners, LP Victory Park Capital Advisors, LLC Tier 2 Astarte Capital Partners, LLP Blackcrane Capital, LLC Private 1,588,770 1,545,245 100.00% 1,588,770 1,545,245 Private 6,237,400 7,388,800 35.00% 2,183,090 2,586,080 Private 2,156,906 1,990,550 40.00% 862,762 796,220 Private – 1,411,746 24.90% – 351,525 Public 86,700,000 104,100,000 4.03% 3,494,010 4,195,230 Private 4,020,836 3,711,960 16.00% 643,334 593,914 Private 5,435,855 5,712,846 24.90% 1,353,528 1,422,499 Private Private 529,050 642,226 44.46% 235,216 285,534 14,552 – 25.00% 3,638 – EAM Global Investors, LLC Public 1,415,067 1,477,911 18.75% 265,325 277,108 Pennybacker Capital Management, LLC Private 2,370,644 2,964,071 16.50% 391,156 489,072 Roc Partners Capital Pty Ltd Private 6,411,057 5,181,313 30.01% 1,923,958 1,554,912 Total 116,880,137 136,126,668 12,944,787 14,097,339 The Group interest used in the calculation of Ownership Adjusted FUM (“OAF”) reflects the proportion of proceeds that the Group, absent any distribution preferences, would receive in the event of the sale or liquidation of the business. The portfolio above does not include boutiques that do not manage FUM. People The Company employed 20 full time equivalent employees at 30 June 2023 (2022: 20) working in its Australian office located in Melbourne and USA offices located in Tacoma and Denver. This headcount excluded the employees of portfolio companies that are consolidated into the Group. 14 15 Financial Review Operating results for the year The Group’s net loss after tax (“Statutory Results”) and loss per share are prepared in accordance with Australian Accounting Standards. The Group also reports non-International Financial Reporting Standards (“non-IFRS”) financial measures such as “underlying net profit before tax”, “underlying net profit after tax”, “underlying earnings per share”, and “normalised cash flows” which are shown in the subsequent pages of this Report. Underlying net profit after tax (“NPAT”) attributable to members of the Company The Group generated a net loss before tax (“NLBT”) of $17,545,000 for the year ended 30 June 2023 (2022: $48,186,000 was NLBT); a decrease in loss of 63.59%. This result, however, has been significantly impacted by non-cash, non-recurring and/or infrequent items. Normalising this result for the impact of these non-cash and other normalising adjustments/items results in underlying NPAT to members of the Company of $26,053,000 (2022: $27,134,000), a decrease of 3.98%. Reported NLBT Non-cash items – Amortisation of identifiable intangible assets1 – Fair value adjustments of financial assets at fair value through profit or loss (“FVTPL”) – Fair value adjustments of financial liabilities at FVTPL – Impairment of investments and boutique receivables2 – Share-based payment expenses – Other Other normalising adjustments/items – Deal, establishment and litigation costs3 – Net foreign exchange loss – Hareon liability settlement expense Unaudited underlying NPBT Income tax expense4 Unaudited underlying NPAT Less: non-controlling interests Unaudited underlying NPAT attributable to the members of the Company Notes: 2023 $’000 2022 $’000 (17,545) (48,186) 8,977 17,904 (3,223) 14,022 2,055 130 39,865 3,788 657 4,927 9,372 31,692 (4,102) 27,590 (1,537) 26,053 7,218 66,327 414 4,182 1,206 – 79,347 2,117 1,124 983 4,224 35,385 (5,748) 29,637 (2,503) 27,134 1 The amortisation of identifiable intangible assets included the amortisation of intangible assets of the associates and joint venture amounting to $5,953,000 (2022: $4,457,000). The amortisation is recorded as an offset to the share in net profit of the associates. 2 3 The impairment relates to the impairment of investment in Aether Investment Partners, LLC (“Aether”) and CAMG, and loan receivable from CAMG (2022: Blackcrane and CAMG, and receivable from Blackcrane). These were costs incurred in relation to the derivative action against several of the Group’s current and former directors, together with deal costs on the acquisitions of investments. 4 The net income tax expense is the reported income tax expense adjusted for the tax effect of the normalisation adjustments. Annual Report 2023 DIRECTORS’ REPORT continued Non-IFRS Financial Measures Non-IFRS financial measures are measures that are not defined or specified under IFRS. The Directors believe that non-IFRS measures assist in providing meaningful information about the Group’s performance and periodic comparability. The non-IFRS measures should not be viewed as substitute for the Group’s Statutory Results. The underlying NPAT, normalised cash flow from operations and unaudited underlying earnings per share are forms of non-IFRS financial information per ASIC Regulatory Guide (RG) 230: Disclosing non-IFRS financial information. Non-IFRS financial measures are not subject to review or audit. The criteria for calculating the underlying NPAT attributable to members of the Company are based on the following: – Non-cash items relate to income and expenses that are accounting entries rather than movements in cash; and – Non-recurring items relate to income and expenses from events that are infrequent in nature including their related costs and foreign exchange impact. Loss per share Set out below is a summary of the loss per share. Reported net loss after tax (“NLAT”) attributable to the members of the Company ($’000) (15,791) (35,270) Unaudited underlying NPAT attributable to the members of the Company ($’000) 26,053 27,134 Weighted average number of ordinary shares on issue (Number) 51,334,916 51,004,607 2023 2022 Basic loss per share (cents) Diluted loss per share (cents) Unaudited underlying earnings per share (cents) (30.76) (30.76) 50.75 (69.15) (69.15) 53.20 The options outstanding at end of financial year is anti-dilutive and were not included in determining the weighted average number of ordinary shares for diluted loss per share. Dividends Dividends paid or declared by the Company to members since the end of the previous financial year: Declared and paid during the financial year: – Final for 2022 on ordinary shares – Interim for 2023 on ordinary shares Declared after the end of the financial year: – Final for 2023 on ordinary shares Cents per Share Total Amount $’000 Franked at 30% Date of Payment 23.00 15.00 11,764 7,701 19,465 100% 11 October 2022 100% 13 April 2023 23.00 11,862 67.3% 12 October 2023 Total dividends relating to financial year 2023 amounted to 38.00 cents per share which is comparable to 38.00 cents per share in the financial year 2022. On 26 August 2022, the Company declared a fully franked final dividend of 23.00 cents per share (30 August 2021: 26.00 cents per share) in respect of the 2022 financial year. The total amount of the dividend was $11,764,000. The final dividend for the 2022 financial year was eligible for the DRP. Shares issued under the DRP were priced at average daily Volume Weighted Average Price (“VWAP”) calculated over a 10-day period commencing on the third trading day following the record date, being 8 September 2022. On 11 October 2022, the Company issued 176,562 new fully paid ordinary shares at an issue price of $7.16 each to shareholders who reinvested their dividend entitlement in accordance with the DRP. Total dividends reinvested amounted to $1,264,000. On 24 February 2023, the Company declared a fully franked interim dividend of 15.00 cents per share (25 February 2022: 15.00 cents per share) in respect of the 2023 financial year. The total amount of the dividend was $7,701,000. The interim dividend for the 2023 financial year was eligible for the DRP. Shares issued under the DRP were priced at the average daily VWAP calculated over a 10-day period commencing on the third trading day following the record date, being 9 March 2023. 16 17 On 13 April 2023, the Company issued 236,267 new fully paid ordinary shares at an issue price of $6.86 each to shareholders who reinvested their dividend entitlement in accordance with the DRP. Total dividends reinvested amounted to $1,621,000. On 25 August 2023, the Directors of the Company declared a final 67.3% franked dividend of 23.00 cents per share (26 August 2022: 23.00 cents per share). The dividend has not been provided for in the 30 June 2023 consolidated financial statements. Cash flows Set out below is a summary of the cash flows for the year ended 30 June 2023. Cash provided by operating activities Cash (used in)/provided by investing activities Cash provided by/(used in) financing activities Net (decrease)/increase in cash and cash equivalents 2023 $’000 21,822 (55,115) 22,099 (11,194) 2022 $’000 23,468 1,465 (19,881) 5,052 Operating activities Cash flows from operations have decreased from a net inflow of $23,468,000 for the year ended 30 June 2022 to net inflow of $21,822,000 for the year ended 30 June 2023. This was mainly attributable to the increase in income tax paid of $15,032,000 for this year from of $8,803,000 in the prior year due to tax paid in the UK and increase in tax payments in the USA. In addition, payment of interest also increased from $47,000 in the prior period to $2,970,000 mainly from the interest on the Debt Facility. Investing activities Cash flows from investing activities have decreased from a net inflow of $1,465,000 for the year ended 30 June 2022 to net outflow of $55,115,000 for the year ended 30 June 2023. This was primarily attributable to the acquisition of equity interest in Cordillera ($44,405,000), repayment of Hareon liability ($17,638,000), and offset by the proceeds from sale of equity interest in Proterra Asia ($12,364,000). In the prior year, this was primarily attributable proceeds from the disposal of 1% equity interest in GQG Partners LLC ($58,089,000), offset by acquisition of equity interest in Banner Oak ($48,257,000) and additional contributions to associates ($6,973,000). Financing activities Cash flows from financing activities increased from a net outflow of $19,881,000 for the year ended 30 June 2022 to net inflow of $22,099,000 for the year ended 30 June 2023. This was mainly attributed to the proceeds from the Debt Facility of $44,583,000 and offset by the payment of dividends of $16,580,000 excluding dividends reinvested of $2,885,000 (30 June 2022: payment of dividends of $18,599,000 excluding dividends reinvested of $2,272,000). Annual Report 2023 DIRECTORS’ REPORT continued Normalised cash flow from operations The normalised cash flow from operations is presented to reconcile the unaudited underlying NPBT with the cash provided by operating activities. Unaudited underlying NPBT Cash items1 – Dividends and distributions received – Net interest (paid)/received Non-cash items2 – Dividends and distributions income – Share of profits of associates and joint venture3 – Net interest expense/(income) – Depreciation of plant and equipment and amortisation of right-of-use assets Increase/decrease in assets and liabilities4 Unaudited underlying pre-tax cash from operations Non-recurring/infrequent items5 – Deal, establishment and litigation costs – Net foreign exchange loss/(gain) Pre-tax cash from operations Income tax paid Cash provided by operating activities 2023 $’000 2022 $’000 31,692 35,385 46,014 (2,766) 43,248 (27,293) (14,015) 3,110 693 33,762 102 33,864 (22,418) (12,587) (79) 508 (37,505) (34,576) 1,470 38,905 (3,788) 1,737 (2,051) 36,854 (15,032) 21,822 73 34,746 (2,117) (358) (2,475) 32,271 (8,803) 23,468 The main drivers for the decrease in the cash provided by operating activities during the year is primarily the increase in income tax paid due to the taxable gain on the disposal of 1% interest in GQG LLC. Notes: 1 Cash items are added to reflect the actual receipts. 2 Share of profits of associates and joint venture exclude the related amortisation of associates and joint venture intangible assets of $5,953,000 (2022: $4,457,000). 3 Non-cash items are either deducted if income or added if expense to remove the non-cash components in the unaudited underlying NPBT. 4 Increase/decrease in assets and liabilities relate to the differences in the beginning and closing balances of operating assets and liabilities. 5 Non-recurring/infrequent items are included as deductions since these items were excluded in the determination of unaudited underlying NPBT. Financial position Set out below is a summary of the financial position at end of financial year. Cash and cash equivalents Other current assets Current liabilities Non-current assets Non-current liabilities Non-controlling interest Net assets attributable to the members of the Company Net assets per share at end of financial year Annual Report 2023 18 19 2023 $’000 23,201 20,854 2022 $’000 34,886 12,116 (9,204) (22,773) 34,851 24,229 562,255 557,715 (86,876) (55,218) 510,230 526,726 (708) (1,916) 509,522 524,810 $ 9.88 $ 10.26 Included in the cash balances are amounts held by operating subsidiaries. The remainder of the cash and cash equivalents at 30 June 2023 amounted to $16,096,000 (2022: $23,480,000) which was held by Central Administration that can be used to provide the Group with liquidity and flexibility to fund future acquisition of new businesses. The decrease in net assets is attributed mainly to the impairment of investments, reduction in the value of fair value investments, increase in financial liabilities as a result of the Debt Facility obtained during the year and offset by acquisition of interest in Cordillera. Set out below is a summary of the contribution to the net assets of the Group from the Boutique Investments: Aether and Aether General Partners Astarte and ASOP Profit Share LP (“ASOP PSP”) Banner Oak Carlisle Cordillera EAM Global Investors, LLC (“EAM Global”) GQG Inc IFP Pennybacker Proterra Roc Group VPC and Victory Park Capital GP Holdco, L.P. (“VPC-Holdco”) Other Book value of Boutique Investments 2023 $’000 41,254 8,224 50,247 65,067 44,855 9,331 2022 $’000 55,001 7,638 51,308 75,179 – 14,381 164,983 173,917 7,537 28,724 39,612 10,011 80,423 1,934 9,568 24,642 40,404 9,547 81,605 7,052 552,202 550,242 DIRECTORS’ REPORT continued MATERIAL BUSINESS RISKS Set out below are the material business risks faced by the Group that are likely to have an impact on the financial prospects of the Group and how the Group manages these risks. Global market risks With a diversified global portfolio, the Group is exposed to a variety of risks related to global capital markets. Specifically, social, political, geographical, and economic factors impact the performance of different capital markets in ways that are difficult to predict. Equity market decline represents a significant risk to the Group because several of its affiliates’ revenues are directly tied to the performance of public equities. Fund manager performance The aggregate FUM of many of the Group’s affiliates are highly sensitive to the relative performance (results compared to a market benchmark) of each investment manager as well as the changing demand for specific types of investment strategies. In addition to performance related risks, many boutique partners have high levels of key man risk, making them vulnerable to the sudden departure of critically important investment professionals. Because many investments are made in new or young firms, there is often the risk of firms failing to reach critical mass and become self-sustaining, which can lead them to seek additional capital infusions from the Company or other parties. 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. The Group is also exposed to changes in the regulatory conditions under which it and its boutique fund managers operate in Australia, the USA, the United Kingdom (the “UK”), Continental Europe, and India. Each member boutique has in-house risk and regulatory experts actively managing and monitoring each member boutique’s regulatory compliance activities. Regulatory risk is also mitigated by the use of industry experts when the need arises. Loss of key personnel The Group operates in an industry that requires talent, wide range of skills and expertise of its people and asset managers. Loss of these key people and asset managers would be detrimental to the continued success of the Group. 20 21 REMUNERATION REPORT (AUDITED) Table of Contents 1. About this Remuneration Report 2. Defined terms used in the Remuneration Report 3. Remuneration philosophy and structure 4. Relationship between the remuneration philosophy and Company performance 5. Key management personnel 6. Remuneration of Non-Executive Directors 7. Remuneration of Executive KMP 8. Nature and amount of each element of KMP Remuneration in FY2023 9. Share based remuneration 10. KMP shareholdings 11. Shares under option 12. Performance rights 13. Loans to Directors and executives 1. About this Remuneration Report The Remuneration Report has been prepared and audited against the disclosure requirements of the Corporations Act 2001 (the “Act”) and its regulations. The Remuneration Report forms part of the Directors’ Report and outlines the Company’s remuneration framework and remuneration outcomes for the year ended 30 June 2023 for the Company’s Key Management Personnel (“KMP”). 2. Defined terms used in the Remuneration Report Term EPS Fixed Remuneration KMP LTI Option Security Share STI Meaning Earnings per share, which is used for the purpose of determining performance against agreed at risk remuneration performance targets. When measuring the growth in EPS to determine the vesting of the at-risk remuneration, EPS is defined as using the statutory net profit after tax attributable to members of the Company or the unaudited underlying net profit after tax attributable to members of the Company, divided by the weighted average number of shares on issue during the year. Generally, fixed remuneration comprises cash salary, superannuation contribution benefits (in Australia - superannuation guarantee contribution and in the USA - partial matching of employee 401k defined contribution), and the remainder as nominated benefits. Fixed remuneration is determined based on 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. Key Management Personnel. Those people who have the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Long Term Incentive. It is awarded in the form of share performance rights or options to senior executives and employees for the purpose of retention and to align the interests of employees with shareholders. Option. Means an option to acquire a Share Security. Means a Share or Option, an interest in a Share or Option, whether legal or equitable, or a right to acquire or which may convert to a Share or Option. Share. Means an ordinary share in the Company. Short Term Incentive. The purpose of the STI is to provide financial rewards to senior executives in recognition of performance aligned with business and personal objectives. The STI is a cash-based incentive paid on an annual basis and at the discretion of the Board with reference to agreed outcomes and goals and company performance. Refer to the respective key employment terms of each KMP set out in Section 7 of this Remuneration Report for the eligibility of STI’s by assessing their performance against a set of pre-determined key performance indicators. Annual Report 2023 DIRECTORS’ REPORT continued 3. Remuneration philosophy and structure Remuneration philosophy The performance of the Group depends significantly upon the quality of its Directors and senior executives. The Group therefore aims to provide market competitive remuneration and rewards to successfully attract, motivate and retain the highest quality individuals. The Group’s remuneration and benefits are structured to reward people for their individual and collective contribution to the Company and wider Group’s success, for demonstrating its values and for creating and enhancing value for the Group’s stakeholders. To this end, the Group embodies the following principles in its remuneration framework: Competitive: Provide competitive rewards to attract high calibre executives. Alignment: Link executive remuneration to Group performance and enhancing shareholder value year on year. At risk: A significant portion of executive remuneration is ‘at risk’ and is dependent upon meeting pre-determined and agreed performance benchmarks. Remuneration committee The Remuneration, Nomination and Governance Committee is a committee of the Board. The objective of this 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 Non-Executive Directors, Executive Director and other senior executives. The list of responsibilities of the Remuneration, Nomination and Governance Committee is set out in its charter, which is available on the Group’s website at http://paccurrent.com/shareholders/corporate-governance. Remuneration structure The Group rewards its Executive KMP with a level and mix of remuneration that is relevant to their position, responsibilities and performance during the year, which is aligned with the Company’s strategy, performance and returns to shareholders. Executive KMP total remuneration comprises both fixed remuneration and variable remuneration, which includes short-term and long-term incentive opportunities. On recommendation from the Remuneration, Nomination and Governance Committee, the Board establishes the proportion of fixed remuneration and variable remuneration, reviews Executive KMP total remuneration annually, and considers performance, relevant comparative remuneration in the market and advice on policies and practices. Setting a target remuneration mix for Executive KMP is complicated due to the Company operating in different jurisdictions, which have their own target remuneration mix models. Accordingly, the Group has adopted the target remuneration mix that is appropriate for each jurisdiction, including giving consideration of the fact that in Australia, variable remuneration is considered at risk until granted. This is because these amounts are only paid if the KMP is still in the employment of the Group at the date of payment. In the USA; however, variable remuneration is a contractual right subject to performance conditions being met, i.e. once the KMP met the performance conditions to qualify for the variable remuneration, the Group is obligated to pay the amounts regardless of whether the KMP is still in the employment of the Group at the date of payment. As a result, the risks associated with the different jurisdictions are different and the remuneration mix models differ to accommodate this situation. Elements of Executive KMP remuneration Fixed remuneration Fixed remuneration consists of base salary, superannuation contribution benefits (in Australia - superannuation guarantee contribution and in the USA – partial matching of employee 401k defined contribution), and the remainder as nominated benefits. The level of fixed remuneration is set to provide a base level of remuneration that is both appropriate to the position and is competitive in the market. Variable remuneration STI Plan Under the Group’s STI Plan, Executive KMP have the opportunity to earn an annual incentive award, which is paid in cash. The STI Plan links the achievement of the Company’s operational targets with the remuneration received by the Executive KMP charged with meeting those targets. The awarding of an STI cash award is fully at the discretion of the Board on recommendation from the Remuneration, Nomination and Governance Committee. 22 23 Feature Terms of the Plan How is the STI paid? Any STI award is paid after the assessment of annual performance for the financial year ended 30 June. For any bonus up to $200,000, 100% will be paid within three months of year-end and for any bonus above $200,000, 50% will be paid within three months of year-end and the remaining 50% deferred and paid at the start of the next financial year. In Australia, the deferred component requires the KMP to complete the service period. In the USA, the deferred component is a contractual obligation and the KMP is not required to complete the service period. This arrangement can be varied at the discretion of the Board. How much can each Executive KMP earn? For FY2023, Executive KMP have a target STI opportunity generally of up to 100% of base salary. Outcomes and goals How is performance measured? Each year, on recommendation from the Remuneration, Nomination and Governance Committee, the Board determines the total amount available for the payment of STIs (bonus pool), based on the underlying profit performance of the Group for the year. For FY2023, the total amount available for the payment of STIs to Executive KMP was $751,112 (2022: $701,508). The Board, on recommendation from the Remuneration, Nomination and Governance Committee, establishes outcomes and goals which it expects the Executive KMP to achieve, and against which performance is measured. The outcomes and goals are based on Group and business unit financial targets (such as statutory and underlying profit performance), growth and business development targets as well as operational management. The Board creates these goals and outcome expectations in a manner that is designed to increase returns to shareholders in the short and long-term. Refer to Section 7 of this Remuneration Report for details of these goals. The focus of the outcomes and goals is to drive decision making in a manner that increases returns to shareholders in the short and long-term. 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. The Board, on recommendation from the Remuneration, Nomination and Governance Committee, assesses the individual performance of each Executive KMP. The Board base their assessment of the Executive KMP’s performance against the outcomes and goals set out above and other goals and Group and business unit underlying profit performance. What happens if an Executive KMP leaves? If an Executive KMP resigns or is terminated for cause before the end of the financial year, no STI is awarded for that financial year except for the Accrued Bonus Obligation. What happens if there is a change of control? If the Executive KMP ceases employment during the financial year by reason of redundancy, ill health, death or other circumstances approved by the Board, the Executive KMP will be entitled to a pro-rata cash payment based on the Board’s assessment of the Executive KMP’s performance during the financial year up to the date of ceasing employment. In the event of a change of control, a pro-rata cash payment will be made, based on the Remuneration, Nomination and Governance Committee’s recommended assessment of performance during the financial year up to the date of the change of control and approval by the Board. Employee LTI Plan At the 2021 Annual General Meeting (“AGM”) held on 19 November 2021, shareholders re-approved the Employee Share Ownership Plan (the “Employee LTI Plan”) and the issue of securities under the Employee LTI Plan. The Company previously received shareholder approval of the Employee LTI Plan at its AGM held on 30 November 2018. Annual Report 2023 DIRECTORS’ REPORT continued A summary of the Employee LTI Plan is set out below: Feature Terms of the Employee LTI Plan Employee Share Ownership Plan What is the objective of the Employee LTI Plan? Under the terms of the Employee LTI Plan: a. employees (including a director of the Company or its subsidiaries, who holds a salaried employment or office in the Company or its subsidiaries, such as the Managing Director, Chief Executive Officer and Chief Investment Officer, and any person who has been made an offer to become such an employee) are eligible to participate; b. eligible participants may acquire Shares in the Company, Options over Shares and rights to, or interests in, such Shares (including directly or by a nominee, or as a beneficiary of a trust established by the Company for participants); and c. the Directors have broad discretion as to the terms on which eligible participants may acquire securities under the Plan, including as to the number and type of Securities that may be offered, the price payable for the Securities (which may be nil) and how payment for Securities may be made (e.g. by loans from the Company, whether interest-free or limited recourse or otherwise, or by salary sacrifice or sacrifice of cash bonuses). The objectives of the Employee LTI Plan are: a. to motivate and retain the Group’s personnel; b. to attract quality personnel to the Group; c. to create commonality of purpose between the Group’s personnel and the Group; and d. to add wealth for all shareholders of the Company through the motivation of the Group’s personnel; by allowing the Group’s personnel to share the rewards of the success of the Group through the acquisition of, or entitlements to, Securities (as defined in Section 2 of the Remuneration Report). The awarding of an LTI grant is fully discretionary and grants are determined by the Board, based on a recommendation from the Remuneration, Nomination and Governance Committee. How are offers made? The Company may from time to time invite any person to participate in this Employee LTI Plan who is, or has been made an offer to become, an Eligible Person, by offering to the person any Securities for acquisition on such terms as the Board may determine in accordance with this Employee LTI Plan. How are Securities acquired? Securities may be acquired under the Employee LTI Plan by or for the benefit of a person by way of issue of new Shares or Options, purchase of existing Shares or Options (whether on or off market), creation of rights to or interests in Shares or Options, transfer of Securities or otherwise, and on such terms, as the Board may determine. What consideration is paid for the Securities? Terms of Options Securities may be offered for acquisition and acquired by or for the benefit of a person under this Employee LTI Plan for no consideration or at such price or for such other consideration to be paid or otherwise provided at such times and on such terms as the Board may determine at or before the time of acquisition of the Securities. For example, the Board may allow any consideration to be provided by way of salary sacrifice or sacrifice of cash bonuses or other equivalent entitlements or in return for a reduction in salary or wages or as part of the person’s remuneration package. The Directors of the Company may also determine the terms of Options which may be acquired under the Employee LTI Plan such as the exercise price, any restrictions as to exercise (e.g. vesting conditions), any restrictions as to the disposal or encumbrance of any Options or underlying shares once acquired, and the expiry date of options. Other terms of Options are as follows: a. An option holder will be entitled to have the number of Options, the exercise of the Options and/ or the number of shares underlying the options varied in the event of a bonus issue, rights offer or reconstruction of the share capital of the Company, in accordance with the ASX Listing Rules. b. The Company is not required to issue any shares following an exercise of Options unless the Company can be satisfied that an offer of those shares for sale within 12 months after their issue will not need disclosure to investors under part 6D.2 of the Corporations Act 2001. c. Subject to the Corporations Act 2001 and the ASX Listing Rules, no options may be disposed of (e.g. by sale or transfer) until any vesting conditions have been satisfied, and no Options may be transferred except in circumstances (if any) permitted by the Company. 24 25 4. Relationship between the remuneration philosophy and Company performance The table below sets out summary information about the Company’s earnings and movements in shareholder wealth for the five years to 30 June 2023. The STI and/or LTI awards are paid based on individual and underlying Company performance. The Board, based on a recommendation from the Remuneration, Nomination and Governance Committee, has ultimate discretion in determining the amount of the bonus pool. 2023 2022 2021 2020 2019 Revenue and other income ($) 45,594,048 44,202,495 47,045,429 62,727,233 62,854,332 Statutory net profit/(loss) before tax ($) (17,545,221) (48,185,737) 23,464,856 (27,316,939) 53,968,253 Statutory net profit/(loss) after tax ($) (14,254,525) (32,766,534) 17,687,455 (16,289,332) 38,890,182 Underlying net profit after tax ($) 26,053,845 27,134,348 26,264,820 25,033,552 20,765,287 Share price at start of year ($) Share price at end of year ($) Interim dividend (cps)1 Final dividend (cps)1 Earnings/(loss) per share (cps) Diluted earnings/(loss) per share (cps) Underlying earnings per share (cps) 6.92 7.41 15.00 23.00 (30.76) (30.76) 50.75 5.81 6.92 15.00 23.00 (69.15) (69.15) 53.20 5.48 5.81 10.00 26.00 34.50 34.50 52.04 4.55 5.48 10.00 25.00 (35.88) (35.88) 51.30 6.56 4.55 10.00 15.00 78.95 78.14 43.59 KMP bonuses ($) 401,780² 1,845,417² 333,067² 298,479³ 391,556³ The Group’s FY2023 business performance is reflected in the outcome of the variable component of Executive KMP’s total remuneration. Details of the remuneration of Executive KMP in FY2023 is set out in Section 8 of this Remuneration Report. Notes: 1 Fully franked at 30% corporate income tax. 2 3 Awarded to Mr. Greenwood and Mr. Killick. This was determined by the Board on the recommendation of the Remuneration, Nomination and Governance Committee based on the Company’s performance and the individual’s performance against a set of pre-determined key performance indicators set out by the Board. Refer to Section 8 of this Remuneration Report for details of these amounts. Awarded to Mr. Greenwood. This was determined by the Board on the recommendation of the Remuneration, Nomination and Governance Committee based on the Company’s performance and Mr. Greenwood’s individual performance against a set of pre-determined key performance indicators set out by the Board. 5. Key management personnel The following were KMP of the Group at any time during the financial year and until the date of this Remuneration Report and unless otherwise indicated they were KMP for the entire financial year. Name Position Non-Executive Directors Mr. A. Robinson Mr. J. Chafkin Ms. M. Donnelly Mr. G. Guérin Mr. P. Kennedy Executive KMP Mr. P. Greenwood Mr. A. Killick Notes: Non-Executive Chairman¹ Non-Executive Director Non-Executive Director Lead Independent Director² Non-Executive Director MD, CEO and CIO Chief Financial Officer (“CFO”) 1 2 Mr. Robinson is not presently considered by the Board to be independent. Refer to the Company’s Corporate Governance Statement available on its website at Corporate Governance - Pacific Current Group (paccurrent.com). Mr. Guerin was appointed by the Board as Lead Independent Director on 24 August 2023. Annual Report 2023 DIRECTORS’ REPORT continued 6. Remuneration of Non-Executive Directors Objective The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Non-Executive Directors of the highest calibre at a cost 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 of shareholders. An amount not exceeding the amount approved by shareholders is apportioned amongst Directors, as agreed by the Directors, and the manner in which it is apportioned amongst Directors is reviewed annually. The last determination by shareholders of the aggregate remuneration of Non-Executive Directors as Directors of the Company and its subsidiaries was at the AGM held on 20 November 2020, when shareholders approved an increase in the aggregate remuneration pool of $100,000 from $650,000 to $750,000, with effect from 1 July 2021. The Directors may seek an increase in the Non-Executive Director fee pool at the 2023 AGM. Non-Executive Directors do not receive performance-based bonuses from the Company, nor do they receive fees that are contingent on performance, shares in return for their services, retirement benefits, other than statutory superannuation or termination benefits. The following is a schedule of Non-Executive Directors’ fees: Chairman Non-Executive Director (per Director) Audit and Risk Committee chairman Audit and Risk Committee member Remuneration Committee chairman Remuneration Committee member Governance Committee chairman Governance Committee member 2023 $ 2022 $ 200,000 130,000 200,000 130,000 2021 $ 175,000 110,000 2020 $ 175,000 110,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2019 $ 140,000 70,000 30,000 20,000 20,000 15,000 15,000 10,000 The fees above are inclusive of superannuation contributions, except for the Directors’ fees paid to Mr. Chafkin, Mr. Guérin and Mr. Kennedy. In addition, Mr. Kennedy receives a fee of $30,000 for acting as Chairman of a related entity, Treasury Group Investment Services Pty Ltd. Total fees paid to Non-Executive Directors in FY2023 were $750,000 (FY2022: $750,000). Refer to Section 8 of this Remuneration Report for details of remuneration paid to Non-Executive Directors. 7. Remuneration of Executive KMP Key terms of employment contract of Paul Greenwood Title MD, CEO and CIO Term of Contract A term of three years from 24 November 2014 and automatic renewal for successive one-year periods thereafter until notice is given by either party. A First Addendum was signed and effective from 1 July 2016 on his appointment as President, North America, and Global CIO. A Second Addendum was signed and effective from 1 July 2018 on his appointment as MD, CEO and CIO. Base Salary USD750,000 STI LTI Mr. Greenwood is eligible for Annual cash bonuses of up to USD400,000 each year subject to satisfying the key performance indicators for the relevant year. The following are the CEO’s KPIs for 2023: – Achievement of EPS growth targets; – Completion of targeted deal opportunities; and – Achievement of strategic plan milestones. As detailed in Section 3 of this Remuneration Report, Mr. Greenwood’s long-term incentive is provided through the grant of the Company share entitlements conditional on certain performance criteria being met. 26 27 Title MD, CEO and CIO Other employee benefit plans Termination upon death or permanent disability Termination by the Company for cause Termination by the Company without cause Mr. Greenwood is also entitled to participate in any and all other employee benefit plans which are made available to the senior executives of the Group from time to time. At present, Mr. Greenwood participates in the Group’s North American qualified retirement plan whereby matching contributions are paid towards Mr. Greenwood’s retirement benefits up to approximately USD13,000 each year. He also participates in the Group’s health plans whereby the Group pays for coverage for health-related services for Mr. Greenwood and his dependents at a current net annual cost of approximately USD19,500. If Mr. Greenwood suffers a permanent disability or dies during the term of the Contract, Mr. Greenwood (or his estate, as applicable) will be entitled to receive (i) any amount of base salary not paid and any accrued but untaken annual leave (“Accrued Obligations”), (ii) any vested but unpaid amounts owed to Mr. Greenwood under the Company’s retirement, non-qualified deferred compensation or incentive compensation plans (“Accrued Plan Obligations”), (iii) any other applicable bonus/ incentive payments as per the terms of the contract and grant or plan documents (“Accrued Bonus Obligations”), and (iv) 12 months-continuation coverage under the Company’s health plans under which Mr. Greenwood and his dependents participated immediately prior to Mr. Greenwood’s date of death or permanent disability. The Company may terminate Mr. Greenwood’s employment at any time for Cause by issuing a Cause Notice and allowing Mr. Greenwood at least 15 days to discuss the reasons for the Cause Notice and at least 30 days to cure the reasons for the Cause Notice. If after that period Mr. Greenwood has not cured the Cause Event, the Company may terminate his employment with immediate effect. In this circumstance, Mr. Greenwood will be entitled to receive (i) his Accrued Obligations, (ii) his Accrued Plan Benefits and (iii) his Accrued Bonus Obligations. The Company may terminate Mr. Greenwood’s employment without cause by giving six months’ prior written notice. In this circumstance, Mr. Greenwood will be entitled to (i) his Accrued Obligations, (ii) his Accrued Plan Benefits and (iii) his accrued bonus obligations (iv) a lump sum severance payment equal to his then current 12 months’ base salary, and (v) 12 months-continuation coverage under the Company’s health plans under which Mr. Greenwood and his dependents participated immediately prior to his date of termination. Resignation for Other than Good Reason Mr. Greenwood may voluntarily terminate his employment for any reason upon at least six months’ prior written notice. On the date of termination, Mr. Greenwood will be entitled to receive (i) his Accrued Obligations, (ii) his Accrued Plan Benefits and (iii) his Accrued Bonus Obligations. Resignation for Good Reason Non-compete Dispute resolution Mr. Greenwood may terminate his employment at any time for Good Reason by giving the Company written notice, which specifies the date of termination and the reason therefor. On the date of termination, Mr. Greenwood will be entitled to receive (i) his Accrued Obligations, (ii) his Accrued Plan Benefits and (iii) his accrued bonus obligations; (iv) a lump sum payment equal to the Severance Amount payable by the Company, and (v) for a period equal to the Severance Period, continuation coverage payable by the Company under the Company’s group health plans for which Mr. Greenwood and his dependents participated immediately prior to his date of termination. Upon termination of his employment, Mr. Greenwood will be subject to non-competition restrictions for 6 months (where termination is without cause or by Mr. Greenwood for good reason) or 12 months (where termination is for any other reason). The terms of the LTI are governed by the laws of the Commonwealth of Australia and the state of Victoria and all other provisions of the employment agreement are governed by the laws of the state of Washington, USA. Any controversy or claim is required to be resolved by arbitration in Seattle Washington USA. The Company is required to pay all costs and fees of the arbitration. Annual Report 2023 DIRECTORS’ REPORT continued Key terms of employment agreement of Mr. Ashley Killick Title CFO Term of Contract Ongoing, with effect from 31 October 2020 Base Salary $470,000 STI Mr. Killick is eligible to participate in the Company’s STI Plan for annual cash bonuses of up to one third of the base salary each year subject to satisfying the key performance indicators for the relevant year. The following are the CFO’s KPIs for 2023: – Achievement of EPS growth targets; – Effectively manage certain corporate costs; and – Improve financial reporting processes, content and timing. LTI Mr. Killick is eligible to participate in the Company’s LTI Plan. Termination of Employment Under the terms of the contract, the Company may terminate the contract by giving 12 weeks’ notice with no termination benefits. Under the terms of the contract, Mr. Killick may terminate the contract by giving 6 weeks’ notice. 8. Nature and amount of each element of KMP Remuneration in FY2023 Details of the nature and amount of each element of the remuneration of each Director of the Company and each of the KMP of the Company for the financial year are set out below: Short term Salary and fees $ Cash bonus $ Other $ Super/401k benefits $ Share based payments Options/ Perfor-mance rights $ Shares $ Performance related¹ % Total $ Non-Executive Directors A. Robinson J. Chafkin M. Donnelly G. Guérin P. Kennedy2 Executive KMP P. Greenwood3 A. Killick Total 2023 Non-Executive Directors A. Robinson J. Chafkin M. Donnelly G. Guérin P. Kennedy2 Executive KMP P. Greenwood3 A. Killick Total 2022 200,000 130,000 117,647 130,000 160,000 – – – – – – – – – – 1,114,585 449,708 2,301,940 297,223 104,557 401,780 29,011 – 29,011 200,000 130,000 118,182 130,000 160,000 – – – – – – – – – – 999,646 439,932 2,177,760 1,725,417 120,000 1,845,417 35,159 – 35,159 – – 12,353 – – 19,314 25,292 56,959 – – 11,818 – – 16,821 23,568 52,207 – – – – – – – – – – – – – – – – – – – – – 200,000 130,000 130,000 130,000 160,000 832,083 268,968 1,101,051 2,292,216 848,525 3,890,741 – – – – – 200,000 130,000 130,000 130,000 160,000 1,000,171 89,655 1,089,826 3,777,214 673,155 5,200,369 – – – – – 49 44 39 – – – – – 72 31 56 There were no non-monetary benefits paid to KMP during the current and prior year. Notes: 1 2 This is calculated based on the short-term cash bonus and share based payments as a percentage of total remuneration. Mr. Kennedy receives additional fee of $30,000 for acting as Chairman of Treasury Group Investment Services Pty Ltd. 28 29 3 Mr. Greenwood and his dependents are entitled to a health-related cover paid for by the Group. In consideration of Mr. Greenwood’s performance that has led to the growth and success of the Company’s investments, in particular GQG Partners, culminating in the successful listing of GQG Inc and the liquidity which has flowed to the Company the Board approved in FY2022 a special short term cash bonus. The relative proportions of the elements of remuneration of KMP that are linked to performance: Maximum potential of short-term incentive based on fixed remuneration Actual short-term incentive based on fixed remuneration linked to performance Maximum potential of long-term incentive based on fixed remuneration1 Actual long-term incentive based on fixed remuneration linked to performance1 2023 51% 33% 2022 51% 32% 2023 26% 22% 2022 164% 26% 2023 100% 100% 2022 100% 100% 2023 72% 57% 2022 95% 19% P. Greenwood2 A. Killick Notes: 1 2 Valuation based on fair value at grant date using a Black Scholes pricing model. In prior years, valuation was based on fair-value at grant date using Black Scholes pricing model. In consideration of Mr. Greenwood’s performance that has led to the growth and success of the Company’s investments, in particular GQG LP, culminating in the successful listing of GQG Inc and the liquidity which has flowed to the Company the Board approved in FY2022 a special short term cash bonus payment to Mr. Greenwood in the amount of $1,614,720 (USD1,151,418). This payment is to be made in two equal installments of $807,360 (USD575,709). 9. Share based remuneration As detailed above in this Remuneration Report, the Group operates an Employee LTI Plan for eligible employees and the MD & CEO LTI Plan for Mr. Greenwood. The number of options and performance rights granted under these Plans are detailed in the table below. 2023 P. Greenwood1 A. Killick2 Other employees3 2022 P. Greenwood1,4 A. Killick2 Other employees3,5 Notes: Numbers granted Numbers vested % of grant vested % of grant forfeited – – – – – – 1,740,000 285,000 835,500 14,336 – 4,300 0% 0% 0% 1% 0% 1% 0% 0% 0% 99% 0% 99% % of compensation consisting of Share based remuneration 36% 32% 0% 26% 13% 0% 1 2 3 4 5 On 19 November 2021, Mr. Greenwood was issued with options as approved by shareholders at the AGM held on 19 November 2021. On 24 February 2022, Mr. Killick was issued with 210,000 options and 75,000 performance rights. On 24 February 2022, other employees were issued with 480,000 options and 355,500 performance rights. Based on a report provided by an external actuarial services expert, the Board determined that 14,336 of the 1,250,000 performance rights vested as at 30 June 2022. Based on a report provided by an external actuarial services expert, the Board determined that 4,300 of the 375,000 performance rights vested as at 30 June 2022. Annual Report 2023 DIRECTORS’ REPORT continued 10. KMP shareholdings Details of KMP equity holdings for the financial year and at the date of the Directors’ Report are set out below 2023 Non-Executive Directors A. Robinson J. Chafkin M. Donnelly G. Guérin P. Kennedy Executive KMP P. Greenwood1 A. Killick 2022 Non-Executive Directors A. Robinson J. Chafkin M. Donnelly G. Guérin P. Kennedy Executive KMP P. Greenwood A. Killick Opening balance Granted as remuneration Received on vesting of performance rights Net change other Balance held nominally 70,795 100,816 20,000 – 272,628 654,781 11,059 55,795 64,816 20,000 – 272,628 654,781 10,446 – – – – – – – – – – – – – – – – – – – 8,602 – – – – – – – – – – – – – – 605 15,000 36,000 – – – – 613 70,795 100,816 20,000 – 272,628 663,383 11,664 70,795 100,816 20,000 – 272,628 654,781 11,059 Directors are not required under the constitution or any other Board policy to hold any shares in the Company. Notes: 1 Of the 14,336 performance rights which vested on 30 June 2022, 8,602 ordinary shares were issued on 13 October 2022 and the cash equivalent to 5,734 performance rights was paid to the USA tax authorities (on Mr. Greenwood’s behalf) in accordance with the terms of the Performance Rights Plan. 11. Shares under option Total number of options outstanding as at 30 June 2023 were 2,430,000 (2022: 2,430,000) with a value of $3,802,582 (2022: $3,802,582). Details of options on issue are as follows: 2023 P. Greenwood A. Killick Other employees Total 2022 P. Greenwood A. Killick Other employees Total Opening balance Granted as compensation Received on vesting Net change other Number Number Number Number 1,740,000 210,000 480,000 2,430,000 – – – – – – – – 1,740,000 210,000 480,000 2,430,000 – – – – – – – – – – – – – – – – Closing balance Number 1,740,000 210,000 480,000 2,430,000 1,740,000 210,000 480,000 2,430,000 30 31 Where the vesting conditions applicable to any options (as varied) have been satisfied or waived, the Company may, with the agreement of the holder of the options, elect to cancel any of those options on terms that the market value of the options as determined by the Board is payable to the holder in consideration for their cancellation and: – the Option Cancellation Consideration is paid in money to the holder; – the Option Cancellation Consideration is applied to acquire for the holder a number of shares the market value of which as determined by the Board is equivalent to the Option Cancellation Consideration, and the Company issues or otherwise procures the provision of those shares to the holder; or – a combination of the above The amount of options amortisation expense for FY2023 was $1,213,161 (2022: $647,078). Grant and vesting dates and the valuation of options outstanding as at the date of this Remuneration Report are as follows: 2022 Issued to Number issued Grant Date Share price on Grant Date Exercise Price Vesting Date Exercise/ Expiry Date Valuation4 P. Greenwood 580,000 19 November 20211 1,160,000 19 November 20211 A. Killick 70,000 24 February 20222 140,000 24 February 20222 Other employees 160,000 24 February 20223 320,000 24 February 20223 2,430,000 Total Notes: $7.31 $7.31 $7.40 $7.40 $7.40 $7.40 $7.28 1 July 2024 1 July 2026 $7.28 1 July 2025 1 July 2026 $7.28 1 July 2024 1 July 2026 $7.28 1 July 2025 1 July 2026 $7.28 1 July 2024 1 July 2026 $7.28 1 July 2025 1 July 2026 $1.49 $1.57 $1.57 $1.64 $1.57 $1.64 1 2 3 The options issued to Mr. Greenwood on 19 November 2021, was approved by shareholders at the AGM held on 19 November 2021. The options will vest in two tranches, one third being 580,000 (Tranche 1) will vest on 1 July 2024 and the two thirds being 1,160,000 (Tranche 2) will vest on 1 July 2025. Both tranches require Mr. Greenwood’s continued employment. The average value of each option was $1.54. The total value at grant date of these options was $2,687,113 for an equivalent number of shares of 1,740,000. The options on issue were valued on 19 November 2021 by an independent adviser using a Black Scholes pricing model. On 24 February 2022, Mr. Killick was issued 210,000 options. The options will vest in two tranches, one third being 70,000 (Tranche 1) will vest on 1 July 2024 and the two thirds being 140,000 (Tranche 2) will vest on 1 July 2025. Both tranches require Mr. Killick’s continued employment. The average value of each option was $1.62. The total value at grant date of these options was $339,500 for an equivalent number of shares of 210,000. The options on issue were valued on 11 July 2022 by an independent adviser using a Black Scholes pricing model. On 24 February 2022, other employees were issued 480,000 options. The options will vest in two tranches, one third being 160,000 (Tranche 1) will vest on 1 July 2024 and the two thirds being 320,000 (Tranche 2) will vest on 1 July 2025. Both tranches require the continued employment of the other employees. The average value of each option was $1.62. The total value at grant date of these options was $776,000 for an equivalent number of shares of 480,000. The options on issue were valued on 11 July 2022 by an independent adviser using a Black Scholes pricing model. 4 The valuation of options issued are based on average valuations of each tranche issued and the following inputs: Date of issue of options P. Greenwood - 19 November 2021 A. Killick - 24 February 2022 Other employees - 24 February 2022 Volatility of the underlying share price Expected dividend yield per annum Risk free rates per annum 40% 40% 40% 5.10% 4.9% 4.9% 0.95% and 1.40% 1.60% and 1.70% 1.60% and 1.70% Annual Report 2023 DIRECTORS’ REPORT continued 12. Performance rights Total performance rights outstanding as at 30 June 2023 were 412,500 (2022: 412,500) with a value of $2,605,624 (2022: $2,605,624). Details of performance rights on issue are as follows: 2023 P. Greenwood A. Killick Other employees Total 2022 P. Greenwood¹ A. Killick Other employees² Total Opening balance Granted as compensation Received on vesting Net change other Number Number Number Number Closing balance Number – 75,000 337,500 412,500 – – – – – – – – – 75,000 337,500 412,500 1,250,000 – – – – – (14,336) (1,235,664) – – 75,000 – – 75,000 450,000 355,500 (4,300) (463,700) 337,500 1,700,000 430,500 (18,636) (1,699,364) 412,500 1 2 Based on a report provided by an external actuarial services expert, the Board determined that 14,336 of the 1,250,000 performance rights vested as at 30 June 2022. The remaining 1,235,664 performance rights were forfeited. Based on a report provided by an external actuarial services expert, the Board determined that 4,300 of the 450,000 performance rights vested as at 30 June 2022. The remaining 445,700 performance rights were forfeited plus the 18,000 performance rights of a resigned employee were cancelled. 2023 P. Greenwood A. Killick Other employees Total 2022 P. Greenwood A. Killick Other employees Total Balance Vested Number Vested but not exercisable Number Vested and exercisable Number Rights vested Number – – – – 14,336 – 4,300 18,636 – – – – – – – – – – – – – – – – 14,336 14,336 – 4,300 18,636 – 4,300 18,636 Any securities to be allocated on vesting of the performance rights under the MD & CEO LTI Plan and Employee LTI Plan may be purchased on market, and therefore shareholder approval is not required or at the Board’s discretion, shareholder approval may be sought. The amount of performance rights amortisation expense for FY2023 was $841,414 (2022: $559,667). 32 33 Grant and vesting dates and the valuation of performance rights outstanding as at the date of this Remuneration Report are as follows: 2022 Issued to A. Killick Other employees Number issued Grant Date Share price on Grant Date Vesting Date Valuation1 25,000 24 February 2022 25,000 24 February 2022 25,000 24 February 2022 118,500 24 February 2022 118,500 24 February 2022 118,500 24 February 2022 $7.40 $7.40 $7.40 $7.40 $7.40 $7.40 30 June 2024 30 June 2025 30 June 2026 30 June 2024 30 June 2025 30 June 2026 $6.62 $6.31 $6.02 $6.62 $6.31 $6.02 Total 430,500 Refer to Section 3 of this Remuneration Report for applicable performance criteria and further details. The performance rights are subject to the following vesting conditions: a. continuous employment; and, b. adjusted net assets per share threshold. Notes: 1 The valuation of performance rights issued are based on average valuations of each tranche issued and the following inputs: Date of issue of performance rights Volatility of the underlying share price Expected dividend yield per annum Risk free rates per annum A. Killick - 24 February 2022 Other employees - 24 February 2022 40% 40% 4.90% 4.90% 1.30%, 1.70% and 1.80% 1.30%, 1.70% and 1.80% 13. Loans to Directors and executives No loans were made to Directors and executives of the Company including their close family and entities related to them during FY2023. Directors’ Meetings This table shows membership of standing Committees of the Board that operated during the year ended 30 June 2023. All Directors may attend standing Board Committee meetings even if they are not a member of the relevant Committee. From time to time the Board may form other committees or request Directors to undertake specific extra duties. The number of meetings of Directors (including meetings of standing committees of Directors) held during the year and the number of meetings attended by each Director were as follows: Total number of meetings held A. Robinson P. Greenwood J. Chafkin M. Donnelly G. Guérin P. Kennedy – End of Remuneration Report – Directors’ Meetings Audit and Risk Committee Remuneration, Nomination and Governance Committee Meetings of Committees 15 4 4 Meetings eligible to attend Meetings attended Meetings eligible to attend Meetings attended Meetings eligible to attend Meetings attended 15 15 15 15 15 15 15 14 14 14 15 15 4 – 4 4 4 4 4 4 4 4 4 4 4 – 4 4 4 4 4 4 3 4 4 4 Annual Report 2023 DIRECTORS’ REPORT continued Committee membership As at the date of this report, the Company had an Audit and Risk Committee and a Remuneration, Nomination and Governance Committee of the Board of Directors. Members acting on the committees of the Board during the year were: Audit and Risk Committee M. Donnelly (Chairperson) J. Chafkin G. Guérin P. Kennedy A. Robinson Remuneration, Nomination and Governance Committee P. Kennedy (Chairman) J. Chafkin G. Guérin M. Donnelly A. Robinson Indemnification and Insurance of Directors, Officers and Auditors 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 liability owed to the Company or related body corporate or another group entity (except, in the case of another group entity, where the indemnified party acted in the best interests of the Company and did not receive a financial benefit); – A liability for pecuniary penalty order under section 1317G or a compensation order under sections 961M, 1317H, 1317HA, 1317HB, 1317HC or 1317HE of the Corporations Act 2001; – A liability that did not arise out of conduct in good faith; and, – 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. During or since the end of the financial year the Company has not indemnified or made a relevant agreement to indemnify an auditor of the Company or of any related body corporate against a liability incurred as such an auditor. In addition, the Company has not paid, or agreed to pay, a premium in respect of a contract insuring against a liability incurred by an auditor. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors support the principles of corporate governance. The Company’s Corporate Governance Statement is available on the Company’s website at www.paccurrent.com/shareholders/corporate-governance. Environmental Regulation and Performance The Company’s operations are not presently subject to significant environmental regulation under the law of the Commonwealth and State. Auditor Independence The Directors received an independence declaration from the auditors of the Group. A copy of the declaration is set out on page 36. Non-audit Services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 26 to the consolidated financial statements. The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 26 to the consolidated financial statements do not compromise the external auditor’s independence, based on advice received from the Audit & Risk Committee, for the following reasons: – All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and – None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks and rewards. 34 35 Other Matters On 17 September 2019, the Company received an originating application in the Federal Court of Australia in Melbourne by Michael Brendan Patrick de Tocqueville and ASI Mutual Pty Limited (collectively “ASI”) seeking leave of the court to commence a derivative action on behalf of the Company against individuals serving as Directors at the time of the 2014 merger between the Company and the Northern Lights Capital Group, LLC (including two current Directors) for matters arising out of the merger. On 20 February 2020, the Federal Court of Australia granted ASI leave to bring the proceedings. Omni Bridgeway (Fund 5) Australian Invt. Pty Ltd (“Litigation Funder”) has given an undertaking to cover the Company’s costs and any liabilities or adverse cost orders made against the Company in favour of the defendants. As a result, the claims are not expected to have a material adverse financial effect on the Company. If the proceedings are successful or are settled on terms that the defendants pay an agreed amount, the Company will be entitled to the net proceeds after deducting specified legal costs and the Litigation Funder’s share. The proceedings are currently part heard. It is anticipated that closing submissions will be made by the parties in October 2023 with judgment to follow. Rounding of Amounts The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ report. Amounts in this report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. Likely Developments The Group will continue to operate in accordance with its investment objectives and strategy as defined in the Nature of Operations and Principal Activities. Significant Events Subsequent to Reporting Date On 26 July 2023, the Company received an unsolicited, non-binding, indicative proposal from Regal Partners Limited (ASX: RPL) (“Regal”) in co-operation with River Capital Pty Ltd, both major shareholders of the Company, to acquire 100% of the shares in the Company by way of a scheme of arrangement. Under Regal’s proposal, the Company’s shareholders will receive an implied total value of $11.12 per share, with the consideration comprising $7.50 in cash per Company share plus $3.62 being 2.2 x GQG Inc shares based on the closing price of GQG Inc shares on 25 July 2023 of $1.655. Regal’s proposal also states that the Company shareholders may elect to substitute either or both elements of the consideration for Regal shares. A due diligence process is currently underway including the evaluation of Regal’s proposal by the Independent Board Committee of the Company. On 27 July 2023, the Company was notified by GQG Inc that the latter intends to submit a non-binding indicative proposal to acquire 100% of the shares in the Company. On 25 August 2023, the Directors of the Company declared a final dividend on ordinary shares in respect of the 2023 financial year. The total amount of the dividend is $11,862,000 which represents a 67.3% franked dividend of 23.00 cents per share. The dividend has not been provided for in the 30 June 2023 consolidated financial statements. Other than the matters detailed above, there has been no matter or circumstance, which has arisen since 30 June 2023 that has significantly affected or may significantly affect either the operations or the state of affairs of the Group. Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors A. Robinson Chairman 25 August 2023 Annual Report 2023 AUDITOR’S INDEPENDENCE DECLARATION Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Audit or’s independence declarat ion t o t he Direct ors of Pacific Current Group Limit ed As lead auditor for the audit of the financial report of Pacific Current Group Limited for the financial year ended 30 June 2023, I declare to the best of my knowledge and belief, there have been: a) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; b) No contraventions of any applicable code of professional conduct in relation to the audit ; and c) No non-audit services provided that contravene any applicable code of professional conduct in relation to the audit . Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au This declaration is in respect of Pacific Current Group Limited and the entities it controlled during the financial year. Ernst & Young Rita Da Silva Partner 25 August 2023 Audit or’s independence declarat ion t o t he Direct ors of Pacific Current Group Limit ed As lead auditor for the audit of the financial report of Pacific Current Group Limited for the financial year ended 30 June 2022, I declare to the best of my knowledge and belief, there have been: a) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; b) No contraventions of any applicable code of professional conduct in relation to the audit ; and c) No non-audit services provided that contravene any applicable code of professional conduct in relation to the audit. This declaration is in respect of Pacific Current Group Limited and the entities it controlled during the financial year. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 37 Ernst & Young Rita Da Silva Partner 26 August 2022 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 38 CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the year ended 30 June 2023 Revenue Other income and net gains/(losses) on investments and financial instruments Distributions and dividend income Sundry income Net change in fair values of financial assets and liabilities Expenses Salaries and employee benefits Impairment expense Administration and general expenses Depreciation and amortisation expense Interest expense Share of net profits of associates and joint venture accounted for using the equity method Loss before income tax expense Income tax benefit Loss for the year Attributable to: The members of the Company Non-controlling interests Loss per share attributable to the members of the Company (cents per share): – Basic – Diluted Franked dividends paid per share (cents per share) for the year The accompanying notes form part of these consolidated financial statements. 36 37 Note 2023 $’000 2022 $’000 1 2 2 2 3 3 3 3 3 22 4 6 6 17 18,097 21,646 27,293 204 (14,681) 12,816 (15,832) (14,022) (19,635) (3,717) (3,314) 22,418 138 (66,741) (44,185) (14,381) (4,182) (11,885) (3,269) (60) (56,520) (33,777) 8,062 8,130 (17,545) (48,186) 3,291 15,419 (14,254) (32,767) (15,791) (35,270) 1,537 2,503 (14,254) (32,767) (30.76) (30.76) 38.00 (69.15) (69.15) 41.00 Annual Report 2023 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2023 Loss for the year Other comprehensive income: Items that will not be reclassified subsequently to profit or loss Change in fair value of financial assets, net of income tax Foreign currency movement of investment revaluation reserve Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Share in foreign currency reserve of an associate, net of income tax Other comprehensive income for the year Total comprehensive income Attributable to: The members of the Company Non-controlling interests The accompanying notes form part of these consolidated financial statements. Note 2023 $’000 2022 $’000 (14,254) (32,767) 16a(i) 16a(i) (4,071) 138,507 (1) 2,978 (4,072) 141,485 16a(ii) 16a(ii) 19,242 33,476 (15) 51 19,227 15,155 901 33,527 175,012 142,245 (711) 139,825 1,612 2,420 901 142,245 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2023 Current assets Cash and cash equivalents Trade and other receivables Other financial assets Current tax assets Other assets Total current assets Non-current assets Trade and other receivables Other financial assets Plant and equipment Right-of-use assets Intangible assets Investments in associates and joint venture Other assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Financial liabilities Lease liabilities Current tax liabilities Total current liabilities Non-current liabilities Provisions Financial liabilities Lease liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity attributable to the members of the Company Non-controlling interests Total equity The accompanying notes form part of these consolidated financial statements. 38 39 Note 2023 $’000 2022 $’000 8 9 10 4 9 10 11a(i) 21 22 12 13 14 11a(ii) 4 13 14 11a(ii) 4 15 16 23,201 34,886 7,295 808 11,521 1,230 44,055 9,017 1,190 753 1,156 47,002 646 1,796 324,893 304,785 3,396 2,140 781 834 41,388 54,315 189,715 195,117 77 562,255 606,310 87 557,715 604,717 7,756 409 — 359 680 8,800 12,822 133 281 737 9,204 22,773 38 48,655 2,467 35,716 86,876 96,080 34 11,064 771 43,349 55,218 77,991 510,230 526,726 189,897 186,927 90,413 229,212 509,522 708 73,415 264,468 524,810 1,916 510,230 526,726 Annual Report 2023 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2023 Balance as at 1 July 2022 (Loss)/profit for the year Other comprehensive income: (i) Net movement in investment revaluation reserve net of income tax (Note 16) (ii) Net movement in foreign currency translation reserve (Note 16) (iii) Share in foreign currency reserve of an associate, net of income tax (Note 16) Total comprehensive income for the year Transactions with members in their capacity as members: (i) Issuance of shares, net of share issue costs and income tax (Note 15) (ii) Dividends paid (Note 17) (iii) Share-based payments (Note 16a(iii)) (iv) Settlement of vested performance rights (Note 16a(iii)) Total transactions with members in their capacity as members Balance as at 30 June 2023 Balance as at 1 July 2021 (Loss)/profit for the year Other comprehensive income: (i) Net movement in investment revaluation reserve net of income tax (Note 16) (ii) Net movement in foreign currency translation reserve (Note 16) (iii) Share in foreign currency reserve of an associate, net of income tax (Note 16) Total comprehensive income for the year Transfers between reserves Transactions with members in their capacity as members: (i) Issuance of shares, net of share issue costs and income tax (Note 15) (ii) Dividends paid (Note 17) (iii) Share-based payments (Note 16a(iii)) Total transactions with members in their capacity as members Balance as at 30 June 2022 Share capital $’000 Reserves $’000 Retained earnings $’000 186,927 73,415 264,468 — (15,791) Non- controlling interests $’000 1,916 1,537 — — — — — (4,072) 19,167 (15) — — — — 75 — 15,080 (15,791) 1,612 Total equity $’000 526,726 (14,254) (4,072) 19,242 (15) 901 2,970 — — — — — 2,055 (137) — — 2,970 (19,465) (2,820) (22,285) — — — — 2,055 (137) 2,970 189,897 1,918 90,413 (19,465) (2,820) (17,397) 229,212 708 510,230 Share capital $’000 Reserves $’000 Retained earnings $’000 Non- controlling interests $’000 Total equity $’000 184,655 120,847 96,876 432 402,810 — — — — — — — (35,270) 2,503 (32,767) 141,485 33,559 51 — — — — 141,485 (83) 33,476 — 51 175,095 (35,270) 2,420 142,245 (223,733) 223,733 — — 2,272 — — — — 1,206 — (20,871) — — (936) — 2,272 (21,807) 1,206 2,272 186,927 1,206 73,415 (20,871) 264,468 (936) 1,916 (18,329) 526,726 The accompanying notes form part of these consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2023 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Dividends and distributions received Interest received Interest paid Income tax paid Net cash provided by operating activities 7 Cash flow from investing activities Collections of receivable from EAM Global Collections of sublease receivable Collections of receivable from Raven Capital Management, LLC (“Raven”) Collections of loans from an associate Loans provided to associates Proceeds from partial disposal of investment in Proterra Proceeds from disposal of GQG LLC net of transaction costs Payments for the purchase of interest in Cordillera (2022: other) Repayment of earn-out obligations Repayment of Hareon liability Payments for the purchase of associates (2022: Banner Oak) Additional contributions to associates Payment for the purchase of plant and equipment Proceeds from disposal of plant and equipment Net cash (used in)/provided by investing activities Cash flow from financing activities Proceeds from the Debt Facility Transaction costs paid and discount from the Debt Facility Repayments of principal portion of lease liabilities Dividends paid Dividends paid to non-controlling interest in a subsidiary Payments to settle share based payments Net cash provided by/(used in) financing activities Net (decrease)/increase in cash and cash equivalents held Cash at beginning of the financial year Foreign exchange difference in cash Cash at end of financial year Non-cash investing and financing activities Investing activities Financing activities The accompanying notes form part of these consolidated financial statements. 8 7 7 40 41 Note 2023 $’000 2022 $’000 21,110 (27,504) 46,014 204 (2,970) (15,032) 21,822 557 — 653 67 (1,608) 12,364 18,340 (19,933) 33,762 149 (47) (8,803) 23,468 517 122 1,332 620 (345) — — 58,089 (44,405) (2,459) (17,638) — (28) (2,641) 23 (69) (3,020) (276) (48,257) (6,973) (275) — (55,115) 1,465 44,583 (2,714) (318) (16,580) (2,820) (52) — — (346) (18,599) (936) — 22,099 (19,881) (11,194) 34,886 (491) 23,201 5,052 28,298 1,536 34,886 1,937 4,822 632 2,905 Annual Report 2023 INDEX TO THE NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 43 A. BASIS OF PREPARATION 44 44 46 47 48 52 57 58 59 59 59 61 65 66 67 68 68 69 70 71 72 77 79 79 80 83 91 92 93 93 95 95 95 B. GROUP RESULTS FOR THE FINANCIAL YEAR 1. Revenue 2. Other income and net gains/(losses) on investments and financial instruments 3. Expenses 4. Income tax 5. Segment information 6. Loss per share 7. Notes to consolidated statement of cash flows C. OPERATING ASSETS AND LIABILITIES 8. Cash and cash equivalents 9. Trade and other receivables 10. Other financial assets 11. Right-of-use assets and related lease liabilities 12. Trade and other payables 13. Provisions D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT 14. Financial liabilities 15. Share capital 16. Reserves 17. Dividends paid and proposed 18. Financial risk management 19. Capital commitments, operating lease commitments and contingencies E. GROUP STRUCTURE 20. Interests in subsidiaries 21. Intangible assets 22. Investment in associates and joint ventures 23. Parent entity disclosures 24. Related party transactions F. OTHER INFORMATION 25. Share-based payments 26. Auditors’ remuneration 27. Significant events subsequent to reporting date 28. Adoption of new and revised Standards 42 43 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 A. BASIS OF PREPARATION This general-purpose financial report for the Company and the consolidated entities (“Group”) for the year ended 30 June 2023, was authorised for issue in accordance with a resolution of the Directors on 25 August 2023 and the Directors have the power to amend and reissue this financial report. It has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. All amounts are presented in Australian dollars, unless otherwise stated. The Company is a company limited by shares incorporated and domiciled in Australia. Its shares are listed for trading on the ASX with a ticker code PAC. It is a for-profit entity for financial reporting purposes under the Australian Accounting Standards. The nature of operations, principal activities, and operating and financial review of the Company are disclosed in the Directors’ report. a. Historical cost convention The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at fair value at the end of each reporting period, as explained in the relevant accounting policies. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share based payment transactions that are within the scope of AASB 2 ‘Share Based Payments’ (“AASB 2”), leasing transactions that are within the scope of AASB 16 ‘Leases’ (“AASB 16”) and measurements that have some similarities to fair value but are not fair value, such as value in use in AASB 136 ‘Impairment of Assets’ (“AASB 136”) (Refer to Notes 21 and 22). b. Significant accounting policies The accounting policies adopted in the preparation of this financial report are contained within the notes to which they relate. The accounting policies have been consistently applied to all the years presented, unless otherwise stated. c. Going concern This general-purpose financial report has been prepared on a going concern basis, which assumes that the Group will be able to meet its debts as and when they become due and payable. The Group prepared cash flow forecast analysis using various scenarios including a base-case and a worse-case scenario. Under these scenarios, the Group can continue as a going concern. d. Comparatives The accounting policies adopted by the Group in the preparation and presentation of the financial statements have been consistently applied. Where necessary, comparative information has been reclassified, repositioned, and restated for consistency with current year disclosures. e. Critical accounting estimates, judgments, and assumptions The preparation of the consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts in the consolidated financial statements. Management continually evaluates its estimates and judgments in relation to assets, liabilities, contingent liabilities, revenue, and expenses. Management bases its estimates and judgments on historical information and other factors, including expectations of future events that may have an impact on the Group. All estimates, judgments, 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 estimates, judgments, and assumptions. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 A. BASIS OF PREPARATION (continued) Significant estimates, judgments and assumptions made by management in the preparation of these consolidated financial statements are outlined below: – Revenue recognition of performance fees – refer to Note 1c; – Income tax, tax basis for USA investments and recovery of deferred tax assets – refer to Note 4c; – Impairment of trade and other receivables – refer to Note 9c; – Valuation of financial assets at fair value and impairment of financial assets at amortised cost – refer to Note 10c and Note 18f; – Valuation of financial liabilities at fair value – refer to Note 14c and Note 18f; – Impairment of goodwill and other identifiable intangible assets – refer to Note 21c; – Impairment of investments in associates and a joint venture – refer to Note 22d; and – Share-based payment transactions – refer to Note 25c. f. Rounding of amounts The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the consolidated financial statements. Amounts in the consolidated financial statements have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. B. GROUP RESULTS FOR THE FINANCIAL YEAR This section provides information regarding the results and performance of the Group during the year, including further details on revenue, other income, and net gains/(losses) on investments and financial instruments, expenses, income tax, segment information, earnings per share and reconciliation of cashflows. 1. Revenue a. Analysis of balances The Group derives its revenue from the transfer of services over time and at a point in time as below: Timing of revenue recognition Over time – Fund management fees – Performance fees – Commission revenue – Retainer revenue – Sundry revenue At a point in time – Commission revenue – Sundry revenue Total revenue b. Accounting policies 2023 $’000 2022 $’000 12,599 4,322 — 520 74 12,181 5,603 118 708 37 17,515 18,647 582 — 582 2,962 37 2,999 18,097 21,646 (i) Fund management fees The revenue is recognised over time in the accounting period in which the asset management services are rendered, and the performance obligation is met. The transaction price for fund management fees for each performance obligation is the defined contractual rate of the average assets under management or committed capital for the relevant accounting period. 44 45 The relevant Investment Management Agreement contains a series of performance obligations relating to the provision of asset management services to the underlying funds and mandates. A performance obligation within the series is identified as the performance of asset management and associated record management for monthly reporting. This performance obligation is repeated monthly for the term of the contract and as such the contract meets the definition of a series of obligations. The performance obligation is satisfied over the month when services have been provided to the client. (ii) Performance fees Performance fees arise when the performance of the asset under management exceeds a threshold. As the services provided under the Investment Management Agreement constitute a series of performance obligations performed on a monthly basis, subject to performance of the asset under management, the Group may meet those obligations throughout the term of the contract. However, as the performance fee is contingent on the performance of the funds under management for the full period of the contract, the revenue cannot be recognised, as it is not highly probable that this revenue will not be reversed. The performance fee is calculated in accordance with the calculation methodology of the underlying funds as defined in the relevant agreements. (iii) Commission revenue Commission revenue arises when the Group provides sales services to its clients. Commissions are recognised as follows: Variable commission (recognised over time) The Group is generally entitled to a trail commission over a multi-year period in accordance with the Sales and Marketing Services Agreement when the client has invested in the funds or mandates of the asset managers and performance obligations have been met. The transaction price is the gross revenue generated from the mandate multiplied by the contractual rates. The relevant Sales and Marketing Services Agreement contains a series of performance obligations relating to sales and marketing support services. A performance obligation within the series is identified as the performance of sales and marketing support. This performance obligation is repeated monthly for the term of the contract and as such the contract meets the definition of a series of obligations. The performance obligation is satisfied over the month when services have been provided to the client. As the commission revenue correlates to the gross revenues of the mandates, the revenue cannot be recognised on a straight-line basis. The revenue is only recognised in the period where the gross management fees generated from the mandates, and it is not highly probable that this revenue will not be significantly reversed. If the mandate with the asset manager is lost before the end of the trail commission period, the commission revenue will cease from the time the mandate is lost. Fixed commission (recognised at a point in time) The Group is entitled to a commission in accordance with the Sales and Marketing Services Agreement when the client has committed a capital to the asset manager’s closed end vehicles where the client cannot redeem. Once the client invested its committed capital to a closed end vehicle, it is deemed that the performance obligation has been met. The transaction price is the committed capital multiplied by the contractual rates. As the commission revenue correlates to the committed capital, the revenue is recognised upon closing of the transaction, and it is not highly probable that this revenue will not be significantly reversed. c. Key estimates, judgments, and assumptions Revenue recognition of performance fees Performance fees are only recognised every end of the financial year of the controlled entity when the performance fees are realised, and it is highly probable that no significant reversal will occur. The performance fee is variable and contingent upon performance of the funds under management for the full period. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 2. Other income and net gains/(losses) on investments and financial instruments a. Analysis of balances Distributions and dividend income: – Financial assets at FVTPL – Financial assets at fair value through other comprehensive income (“FVTOCI”) Sundry income: Interest income: – Other persons/corporations – Related party Total other income Changes in fair values of financial assets and liabilities: Financial assets through profit or loss: – Investment in Carlisle – Investment in GQG Inc – Investment in Proterra – Receivable from Raven – Other Financial liabilities through profit or loss: – Earn-out obligations and deferred considerations Total changes in fair values of financial assets and liabilities through profit or loss 2023 $’000 2022 $’000 25,535 1,758 27,293 15,183 7,235 22,418 129 75 204 123 15 138 (12,722) (15,119) 10,123 13 (199) 10,761 (81,274) 3,938 93 155 (17,904) (66,327) 3,223 (414) (14,681) (66,741) b. Accounting policies (i) Distributions and dividend income Distribution and dividend income from investments are recognised when the Group’s right to receive payment has been established and the amount can be reliably measured. 3. Expenses Analysis of balances Salaries and employee benefits: – Salaries and employee benefits – Share-based payment expense Total salaries and employee benefits Impairment expenses: – Impairment in goodwill in subsidiaries (refer to Note 21): – Aether – Impairment of investment in associates (refer to Note 22): – Blackcrane – CAMG – Impairment of financial assets at amortised cost: – Expected credit losses of loans receivable and trade and other receivables (refer to Notes 9 and 10) Total impairment expenses Administration and general expenses – Accounting and audit fees – Commission and marketing expenses – Computer and software maintenance expenses – Deal, establishment and litigation costs – Directors’ fees – Hareon liability settlement expense (refer to Note 13) – Insurance expense – Lease expenses – Net foreign exchange loss – Professional and consulting fees – Share registry and regulatory fees – Taxes and license fees – Travel and accommodation costs – Other general expenses Total administration and general expenses Depreciation and amortisation expense: – Depreciation of plant and equipment – Amortisation of management rights (refer to Note 21) – Amortisation of right-of-use assets (refer to Note 11a(i)) Total depreciation and amortisation expense Interest expense: – Lease liabilities (refer to Note 11a(ii)) – Debt facility Total interest expenses Total expenses 46 47 2023 $’000 2022 $’000 13,777 2,055 15,832 13,175 1,206 14,381 11,731 — (9) 1,934 1,925 366 14,022 2,030 705 626 3,788 749 4,927 856 118 1,087 1,825 167 799 815 1,143 19,635 367 3,024 326 3,717 125 3,189 3,314 1,693 2,103 3,796 386 4,182 1,486 380 495 2,117 752 983 757 148 646 2,063 188 686 484 700 11,885 263 2,761 245 3,269 60 — 60 56,520 33,777 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 4. Income tax a. Analysis of balances Income tax benefit Components of income tax benefit: – Current tax – Deferred tax – (Over)/under provision in prior years Total income tax benefit recognised in profit or loss Reconciliation of income tax benefit recognised in profit or loss to prima facie income tax: Loss before income tax Prima facie income tax benefit at 30% (2022: 30%) Add/(deduct) the tax effect of: – Hareon settlement – Franking credits received – Non-assessable income – USA state income tax benefit – Tax losses not carried forward – Share-based payments – Impact of difference in tax rates in other countries – Non-deductible foreign expenses – Other – (Over)/under provision in prior years 2023 $’000 2022 $’000 3,715 (6,405) (601) (3,291) 18,320 (34,517) 778 (15,419) (17,545) (5,264) (48,186) (14,456) (3,928) (420) (285) (140) 6,006 616 573 123 29 (601) – (257) (464) (3,112) 411 362 283 744 292 778 Income tax benefit attributable to profit or loss (3,291) (15,419) Net deferred income tax liabilities recognised in income tax benefit: – Investments – (Reversal of tax losses)/tax losses carried forward – Deductible capital expenditures – Dividend receivable – Impact of leases – Earn-out liability – Accruals and provisions – Others Deferred income tax related to items charged or credited directly to equity: – Movement of the Group’s investment revaluation reserve – Movement of the Group’s foreign currency revaluation reserve of an associate (4,414) (2,065) (480) (349) (10) 677 223 13 (35,382) 362 (290) 356 (13) 912 (469) 7 (6,405) (34,517) (1,589) 46,976 (7) 22 (1,596) 46,998 48 49 2023 $’000 25,102 7,436 2022 $’000 5,131 1,324 Tax losses not recognised – Unused tax losses for which no deferred tax asset has been recognised – Potential tax benefit at relevant tax rate The unused tax losses pertained to the parent entity in Australia (consisted of $5,179,000 incurred revenue and capital losses and $18,020,000 capital losses not yet incurred) and the UK (consisted of $908,000 incurred capital losses and $995,000 not yet incurred) [2022: parent entity in Australia (consisted of $3,178,000 incurred revenue and capital losses) and the UK (consisted of $932,000 incurred capital losses and $1,021,000 capital losses not yet incurred)]. Current tax assets Income tax receivable1 Current tax liabilities Provision for income tax2 Notes: 1 This is the estimated income receivable in the USA (2022: Australia). 2 This is the estimated income tax liability in the UK (2022: $174,000 in the USA and $563,000 in the UK). Non-current liabilities – net deferred tax liabilities Components of net deferred tax liabilities: Liabilities: – Investments – Dividend receivable Assets: – Reversal of carried forward tax losses – Adjustment on financial liabilities at FVTPL – Deductible capital expenditures – Accruals and provisions – Impact of leases – Others Net deferred tax liabilities 2023 $’000 2022 $’000 11,521 680 753 737 2023 $’000 2022 $’000 41,754 35 41,789 (2,065) (1,733) (1,764) (514) (24) 27 (6,073) 35,716 47,220 383 47,603 – (2,351) (1,258) (633) (16) 4 (4,254) 43,349 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 4. Income tax (continued) b. Accounting policies The income tax (benefit)/expense for the year comprises current income tax (benefit)/expense and deferred tax (benefit)/expense. 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 (benefit)/expense 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. 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. c. Key estimates, judgments, and assumptions (i) Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are a number of transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination may differ from the taxation authorities’ view. The Group recognises the impact of the anticipated tax liabilities based on the Group’s current understanding of the tax laws. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. (ii) Tax basis for USA investments The Group determines its tax obligation in the event of liquidation and/or disposal of its USA investments. This is calculated by determining the tax basis and tax basis adjustments as permitted under the USA Internal Revenue Code. The tax basis adjustments involved an estimation of the additional tax basis specific to the USA investments. The tax calculated at the Group level is also dependent on the notification of allocated taxable income by the USA investments that are deemed as partnerships in the USA. The amount of taxable income allocated from such partnerships to the Group may be subject to judgement and hence be amended in future periods. (iii) Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences. (iv) Tax losses not recognised A deferred tax asset in relation to tax losses is regarded as recoverable and therefore recognised only when, on the basis of available evidence, it can be regarded as probable that there will be suitable taxable profits against which to recover the losses and from which the future reversal of underlying timing differences can be deducted. Deferred tax assets in relation to tax losses in Australia have not been recognised on the basis that there remains uncertainty regarding the timing and quantum of the generation of taxable profits. 50 51 d. Tax consolidation and status in other jurisdictions (i) Tax status of the Company in Australia The Company and its wholly-owned Australian subsidiaries formed a tax consolidated group for income tax purposes. The Company is the head entity of the tax consolidated group. Members of the tax consolidated group have entered 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. (ii) Tax status of the Company in the USA The Group’s investments in the USA are generally pass-through vehicles for tax purposes. The tax on earnings will be paid for by the Company as the ultimate entity liable for the tax obligations in the USA. e. Uncertainty over income tax treatments The Group operates in multiple geographic regions and is therefore subject to various taxation jurisdictions. Furthermore, the nature of the Group’s business model and its bespoke approach to tailoring investment structures can often lead to complex and unique tax treatments. The Group continually assesses these tax treatments and as part of this process it obtains advice from its tax advisors to ensure that it is properly complying with the specific jurisdiction’s regulations. These assessments often involve judgement and maybe based on a specific set of assumptions. For example, the Group provides for deferred tax liability on the unrealised appreciation in the value of its Boutique Investments relating to uncertain tax positions when such liabilities [are probable and] can be reasonably estimated. Generally, for this tax to become due and payable, the appreciation in value would need to be realised. The nature by which this realisation occurs can often impact on the specific tax outcome. In determining a deferred tax liability, at a specific point in time, the most likely circumstances surrounding the realisation need to be assumed. These circumstances, combined with changes to enforcing tax regulations as of realisation date, may change through time or not occur as previously assumed therefore adding uncertainty to the taxable outcome. The Group assesses whether a tax position is probable to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In determining this, the Group assesses whether there is a greater than 50% likelihood of the tax authority accepting this tax position. If this is less than 50%, the Group records as a tax liability its best estimate of the amount that would be realised upon ultimate settlement of the tax position. The Group has analysed the positions held during the period ended 30 June 2023 In its major jurisdictions to determine whether or not there are uncertain tax positions that require financial statement recognition. Based on this review, the Group has determined deferred tax liabilities of $41,789,000 has been recorded in the accompanying consolidated financial statements. The tax calculated at the Group level is dependent on the notification of allocated taxable income by investments in the USA deemed as pass-through vehicles for tax purposes. The amount of taxable income allocated from such partnerships to the Group may be subject to judgement and hence be amended in future periods. Other than the above, the Group’s income taxes provision does not currently include any tax treatments for which there is uncertainty over whether the relevant taxation authority will accept the tax treatment under current taxation laws. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 5. Segment information a. Reportable segments Information reported to the Company’s Board of Directors (the “Board”) as chief operating decision maker (“CODM”) for the purposes of resource allocation and assessment of performance is focused on the profit/(loss) for the year earned by each segment. The Group’s segment reporting is categorised on the following criteria: – Tier 1 boutiques – investments where the Group expects at least $4,000,000 of annual earnings; and – Tier 2 boutiques – investments where the Group expects less than $4,000,000 of annual earnings. For subsequent segment reporting purposes, transfer from/to Tier 1 boutiques to/from Tier 2 boutiques will be based on either of the following: – their annual earnings contribution for either of two consecutive immediately prior reporting periods. For example, an investment with an earnings contribution of $4,000,000 in the first reporting period and $3,000,000 in the second reporting period will still be classified as a Tier 1 boutique since one of its two reporting periods has an earnings contribution of $4,000,000; or – assessment of the Board that the category of a particular investment be amended because of a substantial loss of funds under management (“FUM”) and significant decline in the contribution to the Group. The Group’s categorisation of its reportable segments under AASB 8: ‘Operating Segments’ are as follows: Aether Investment Partners, LLC Aether General Partners Banner Oak Capital Partners, LP Carlisle Management Company S.C.A. Cordillera Investment Partners, LP¹ GQG Partners, Inc2 Proterra Investment Partners, LP Victory Park Capital Advisors, LLC Victory Park Capital GP Holdco, L.P. Astarte Capital Partners, LLP ASOP Profit Share LP Blackcrane Capital, LLC2 Capital & Asset Management Group, LLP EAM Global Investors, LLC IFP Group, LLC Nereus Capital Investments (Singapore) Pte Ltd (“NCI”) Nereus Holdings, L.P. Northern Lights Alternative Advisors, LLP (“NLAA”) Pennybacker Capital Management, LLC Roc Group Strategic Capital Investments, LLP Notes: 2023 Segment Category 2022 Segment Category Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2 – Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 1 Tier 1 Tier 1 Tier 1 – Tier 1 Tier 1 Tier 1 Tier 1 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 1 Cordillera was acquired on 6 April 2023 (refer to Note 10 footnote 7 for details). 2 Blackcrane ceased to be an associate effective 1 July 2022 after Blackcrane purchase and redeemed the 25% equity ownership of the Group (refer to Note 22a(iii) for details). 52 53 b. Analysis of balances (i) Segment revenues and results The following is an analysis of the Group’s revenues and results by reportable segments. The results reflect the elimination of intragroup transactions including those between the Group and its boutiques. Tier 1 boutiques Tier 2 boutiques Central administration Total per consolidated statement of profit or loss The following details of segment revenue: 2023 Over time – Fund management fees – Performance fees – Commission revenue – Retainer revenue – Sundry revenue At a point in time – Commission revenue 2022 Over time – Fund management fees – Performance fees – Commission revenue – Retainer revenue – Sundry revenue At a point in time – Commission revenue – Sundry revenue Segment revenue Share of net profits of associates and joint venture 2023 $’000 13,039 5,052 18,091 6 2022 $’000 15,090 6,556 21,646 – 2023 $’000 8,057 5 8,062 – 2022 $’000 6,915 1,215 8,130 Segment profit/(loss) for the year 2023 $’000 2022 $’000 6,596 1,016 7,612 (33,741) 3,246 (30,495) (2,272) – (21,866) 18,097 21,646 8,062 8,130 (14,254) (32,767) Tier 1 boutiques $’000 Tier 2 boutiques $’000 Central administra- tion $’000 Total $’000 12,420 – – – 37 179 4,322 – 520 31 12,457 5,052 582 13,039 – 5,052 12,093 – (2) – 37 88 5,603 120 708 – 12,128 6,519 2,962 – 2,962 15,090 – 37 37 6,556 – – – – 6 6 – 6 – – – – – – – – – – 12,599 4,322 – 520 74 17,515 582 18,097 12,181 5,603 118 708 37 18,647 2,962 37 2,999 21,646 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 5. Segment information (continued) The following details segment profit after tax for central administration: Revenue Sundry income Changes in fair values of financial assets and liabilities 2023 $’000 2022 $’000 6 64 13 83 (10,540) (10,884) (524) (3,292) (25,240) 3,291 (21,866) – 14 93 107 (9,198) (8,211) (349) (40) (17,798) 15,419 (2,272) Salaries and employee benefits Administration and general expenses Depreciation and amortisation expense Interest expense Income tax benefit (ii) Segment assets and liabilities Tier 1 boutiques Tier 2 boutiques Central administration1 Total per consolidated statement of financial position Notes: Segment assets Segment liabilities Segment net assets 2023 $’000 2022 $’000 451,371 489,688 75,966 87,746 527,337 577,434 78,972 27,283 2023 $’000 43,553 8,479 52,032 44,047 2022 $’000 2023 $’000 2022 $’000 48,260 407,818 441,428 27,495 75,755 2,236 67,487 60,251 475,305 501,679 34,925 25,047 606,309 604,717 96,079 77,991 510,230 526,726 1 The total assets and liabilities under central administration consisted of the following: Segment assets 2023 $’000 2022 $’000 Cash and cash equivalents 16,095 23,480 Trade and other payables Trade and other receivables Income tax receivable Other financial assets Plant and equipment Right-of-use assets Other assets Total 1 11,521 44,924 3,320 1,966 1,145 (5) Provisions 753 689 699 636 1,031 Lease liabilities Financial liabilities Provision for income tax Net deferred tax (assets) Segment liabilities 2023 $’000 3,543 447 2,627 42,789 680 2022 $’000 4,050 499 823 – 737 (6,039) (3,873) 78,972 27,283 Total 44,047 2,236 54 55 2022 $’000 – 4,182 – 4,182 2,920 – 349 3,269 Total $’000 1,530 14,387 5,692 37 21,646 1,943 6,363 (176) 8,130 (iii) Other segment information Impairment expense of segments – Tier 1 boutiques – Tier 2 boutiques – Central administration Total Depreciation and amortisation of segments – Tier 1 boutiques – Tier 2 boutiques – Central administration Total (iv) Geographical information Revenues and results: 2023 $’000 11,731 2,292 – 14,023 3,193 – 524 3,717 30 June 2023 30 June 2022 Tier 1 boutiques $’000 Tier 2 boutiques $’000 Central admin- istration $’000 Total $’000 Tier 1 boutiques $’000 Tier 2 boutiques $’000 Central admin- istration $’000 Revenues – Australia – USA – UK – Luxembourg Share of net profits/ (losses) of associates and joint venture – Australia – USA – UK Profit/(loss) after tax – Australia – USA – UK – Luxembourg – India – 13,002 – 37 – 551 4,501 – 13,039 5,052 – 8,057 – 8,057 – 12,580 – (5,984) 1,787 (2,129) 347 5 1,787 3,275 1,676 – – (5,722) – 6 – – 6 – – – – – 13,559 4,501 37 1,530 13,523 – 37 – 864 5,692 – 18,097 15,090 6,556 1,787 5,928 347 8,062 – 1,943 6,915 – (552) (176) 6,915 1,215 – – – – – – – – – (10,991) (9,204) 1,530 1,943 (6,805) (3,332) 6,185 (53,397) 20 4,688 (48,689) (9,670) (1,205) – – 471 (5,984) (5,722) 18,126 – – 3,217 (155) 3,062 18,126 (1,934) – – – (1,934) 3,246 6,596 1,016 (21,866) (14,254) (33,741) (2,272) (32,767) Other than the USA and UK, no other country represents more than 10% of revenue for the Group (2022: USA and UK). Other than Goodhart Partners Longitude Fund SICAV-SIF - Strategic Capital Fund, Aether Real Assets IV, L.P. and Aether Real Assets V, L.P. (2022: Goodhart Partners Longitude Fund SICAV-SIF - Strategic Capital Fund, Aether Real Assets IV, L.P., Aether Real Assets V, L.P. and VPC), no individual funds and clients represent more than 10% revenue for the Group. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 5. Segment information (continued) Non-current assets excluding financial assets: 30 June 2023 30 June 2022 Tier 1 boutiques $’000 Tier 2 boutiques $’000 Central admin- istration $’000 Total $’000 Tier 1 boutiques $’000 Tier 2 boutiques $’000 Central admin- istration $’000 Total $’000 – 132,210 – 132,210 10,011 38,514 8,980 57,505 – – – – 10,011 – 170,724 134,579 8,980 – 189,715 134,579 9,547 40,635 10,356 60,538 – 76 76 175 41,388 – – – – – 112 3,208 3,320 112 3,284 3,396 – 82 82 1,965 2,140 175 – 41,388 54,315 – – – – – – – – – 9 690 699 9,547 175,214 10,356 195,117 9 772 781 659 834 – 54,315 – 173,849 – 173,849 10,011 38,514 8,980 57,505 112 5,173 – 10,123 217,536 8,980 – 189,151 – 5,285 236,639 189,151 9,547 40,635 10,356 60,538 9 1,349 – 1,358 9,556 231,135 10,356 251,047 Investment in associates and joint venture – Australia – USA – UK Plant and equipment – Australia – USA Right-of-use assets – USA Intangible assets – USA Total non-current assets excluding financial assets – Australia – USA – UK b. Accounting policies The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment profit represents the profit after tax earned by each segment without allocation of central administration costs. This is the measure reported to the CODM for purposes of resource allocation and assessment of segment performance. 56 57 6. Loss per share The following reflects the income and share data used in the calculations of basic and diluted loss per share: Basic loss per share: Net loss attributable to the members of the Company ($’000) Weighted average number of ordinary shares for basic loss per share Basic loss per share (cents) Diluted loss per share: Net loss attributable to the members of the Company ($’000) Weighted average number of ordinary shares for diluted loss per share Diluted loss per share (cents) Reconciliation of loss used in calculating loss per share: Net loss attributable to the members of the Company used in the calculation of basic loss per share ($’000) Net loss attributable to the members of the Company used in the calculation of diluted loss per share ($’000) 2023 2022 (15,791) (35,270) 51,334,916 51,004,607 (30.76) (69.15) (15,791) (35,270) 51,334,916 51,004,607 (30.76) (69.15) (15,791) (35,270) (15,791) (35,270) Reconciliation of weighted average number of ordinary shares in calculating loss per share: Weighted average number of ordinary shares for basic and diluted loss per share Weighted average number of ordinary shares for diluted loss per share 51,334,916 51,004,607 51,334,916 51,004,607 The options outstanding at 30 June 2023 are anti-dilutive and were not included in determining the weighted average number of ordinary shares for diluted loss per share. a. Accounting policies Basic earnings per share is calculated as net profit attributable to members of the Company, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit or loss attributable to members of the parent, including, if any: – the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses/income; – 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 if any. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 B. GROUP RESULTS FOR THE FINANCIAL YEAR (continued) 7. Notes to consolidated statement of cash flows a. Analysis of balances (i) Reconciliation of loss to net cash inflow from operating activities Loss from ordinary activities after income tax Adjustments and non-cash items: – Changes in fair values of financial assets and liabilities – Dividends received/receivable from associates and joint venture – Impairment of assets – Hareon liability settlement expense – Depreciation and amortisation expense – Net foreign exchange losses – Share-based payments – Share of net profit from associates and joint venture – Other Changes in operating assets and liabilities: - Decrease/(increase) in trade and other receivables – Increase in other assets - (Decrease)/increase in trade and other payables - (Decrease)/increase in current taxes – Decrease in deferred taxes – Decrease in provisions 2023 $’000 2022 $’000 (14,254) (32,767) 14,681 18,544 14,014 4,927 3,717 2,394 2,055 (8,062) 496 3,184 (41) (1,447) (10,766) (7,557) (63) 66,741 10,194 3,796 983 3,269 765 1,206 (8,130) 26 (1,773) (115) 3,533 10,381 (34,603) (38) Cash flows provided by operating activities 21,822 23,468 (ii) Non–cash investing and financing activities Investing activities: – Recognition of right–of–use assets – Recognition of leasehold improvements Financing activities: – Dividends reinvested – Recognition of lease liabilities 1,497 440 1,937 2,885 1,937 4,822 505 127 632 2,272 633 2,905 58 59 C. OPERATING ASSETS AND LIABILITIES This section provides information regarding the operating assets and liabilities of the Group as at end of the year, including further details on cash and cash equivalents, trade and other receivables, other financial assets, right-of-use assets and related lease liabilities, trade and other payables and provisions. 8. Cash and cash equivalents a. Analysis of balances Cash at bank 2023 $’000 2022 $’000 23,201 34,886 b. Accounting policies Cash and cash equivalents consist of 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 consolidated statement of cash flows, cash consist of cash. For short-term deposits with an original maturity of more than three months but less than one year, these are classified separately as short-term deposits. 9. Trade and other receivables a. Analysis of balances Current Trade receivables Dividend receivable Sundry receivables Loss allowance for expected credit losses Non-current Trade receivables 2023 $’000 2022 $’000 2,043 5,214 44 7,301 (6) 7,295 3,947 5,391 90 9,428 (411) 9,017 646 1,796 (i) Impairment The loss allowance for trade receivables, contract assets, dividend and sundry receivables as at 30 June 2023 was determined as follows: Current Past due 31 - 60 days Past due 61 - 90 days Past due over 90 days Past due with full loss allowance Total 2023 Expected loss rate Gross carrying amount ($) Loss allowance ($) Dividend and sundry receivables ($) Total loss allowance ($) 2022 Expected loss rate Gross carrying amount ($) Loss allowance ($) Dividend and sundry receivables ($) Total loss allowance ($) 0.050% 2,689,000 1,000 0.050% – – 2.564% – – 5.263% – – 100% – – 0.050% 5,337,000 3,000 0.050% – – 2.564% – – 5.263% – – 100% 406,000 406,000 2,689,000 1,000 5,000 6,000 5,743,000 409,000 2,000 411,000 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 C. OPERATING ASSETS AND LIABILITIES (continued) 9. Trade and other receivables (continued) Movement of the loss allowance for expected credit losses: Opening balance Additions Write-off Effect of foreign currency differences Closing balance 2023 $’000 411 8 (424) 11 6 2022 $’000 5 386 – 20 411 b. Accounting policies Trade and other receivables, which are generally on 30 days to 90 days terms, are recognised at fair value and subsequently valued at amortised cost, less any allowance for uncollectible amounts. Cash flows relating to short term receivables are not discounted as any discount would be immaterial. To measure the expected credit losses, trade receivables and contract assets and dividend receivable and sundry receivables have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled asset management and distribution services and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. In determining the expected loss rates, the Group reviewed the collection history, anticipated collection trend for the year and the credit worthiness of its counterparties. The Group’s counterparties are institutional clients with high credit ratings with no known history of default. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there are no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 90 days past due. c. Key estimates, judgments, and assumptions Impairment of trade and other receivables The Group applied the AASB 9 ‘Financial Instruments’ (“AASB 9”) simplified approach to measuring expected credit losses which uses an expected loss allowance for all trade and other receivables. The loss allowance was determined on the days past due and the credit risk characteristics of the balances. The Group undertook a review of its trade, dividends and sundry receivables and the expected credit losses for each. The expected loss rates are then based on the payment profiles over a period of 36 months before 30 June 2023 and the corresponding historical credit losses experienced within this period. The historical loss rates are then adjusted to reflect current and forward-looking information on various factors affecting the ability of the counterparties to settle the receivables including the review of their financial statements. 60 61 Type of Instrument 2023 $’000 2022 $’000 Debt Debt Debt Debt Debt Debt 433 375 808 – 808 936 – – 936 (7) 929 567 – 567 623 1,190 – 407 65 472 (6) 466 Equity Debt and Equity Equity Equity Debt 164,983 65,067 44,855 39,612 116 314,633 173,917 75,179 – 40,404 306 289,806 Equity 9,331 14,513 324,893 304,785 10. Other financial assets a. Analysis of the balances Current Financial assets at amortised cost: – Receivable from EAM Global1 – Loans receivable from IFP2 Financial assets at FVTPL: – Receivable from Raven3 Non-current Financial assets at amortised cost: – Loans receivable from Astarte4 – Receivable from EAM Global1 – Loans receivable from IFP Loss allowance for expected credit losses Financial assets at FVTPL: – Investment in GQG Inc5 – Investment in Carlisle6 – Investment in Cordillera7 – Investment in Proterra8 – Other Financial assets at FVTOCI: – Investment in EAM Global9 Notes: 1 2 3 4 The receivable from EAM Global is the USD2,250,000 loan provided by the Group on 21 February 2018. The loan has a term of six-years with interest of 10% per annum to assist EAM Global in financing the repurchase of its equity from an outside shareholder. Repayments are received on a quarterly basis and the loan is expected to be fully settled by EAM Global in June 2024. On 27 January 2023, the Group extended a Short-Term Credit Facility Promissory Note to IFP amounted to $372,000 (USD250,000). This facility bears 10% to 15% interest per annum and is expected to be fully settled on 31 August 2023. The receivable from Raven was the earn-out component of the consideration on the sale of the investment on 14 October 2016. The Group is paid 33.33% of the management fees earned by Raven on new FUM. Payments are calculated quarterly until the USD3,500,000 earn-out cap is met. The receivable was fully collected on 11 August 2022. On 2 December 2022, the Group extended a Secured Credit Facility Promissory Note to Astarte of up to $892,000 (USD600,000). This facility has a term of five years and bears a 10% interest per annum. A full draw down was made by Astarte during the year. 5 Pertains to the 4% equity interest in GQG Inc. GQG Inc is a global boutique asset management firm focused on active equity portfolios. GQG Inc was incorporated in Delaware USA as a corporation. On 13 September 2021, it was registered as a foreign company in Australia under the applicable provisions of the Corporation Act 2001. On 29 October 2021, GQG was listed in the ASX. 6 The investment in Carlisle comprises 12,500 Preferred Shares of Carlisle and 5,000,000 units of Contingent Convertible Bonds issued by Carlisle. The Group is entitled to 16% of the revenues and 40% of the liquidation proceeds in the event of a sale. Carlisle, founded in 2009, is a fully regulated alternative investment fund manager which manages alternative investment funds exclusively investing in life settlements in the USA. Carlisle is organised under the laws of Luxembourg as a partnership limited by shares. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 C. OPERATING ASSETS AND LIABILITIES (continued) 10. Other financial assets (continued) 7 On 6 April 2023, the Group acquired an interest in Cordillera and special limited partnership interests in limited partnership vehicles managed by Cordillera for $44,405,000 (USD29,880,000). The Group is entitled to 16.38% gross revenues, funds, carried interest and proceeds received by Cordillera less certain costs and expenses and 24.90% liquidation proceeds in the event of sale. Cordillera is based in San Francisco, California, USA and has three strategies that focus on investing in niche, non-correlated private investments with the objective of delivering diversifying and attractive risk-adjusted returns. It targets unique asset classes that are not yet heavily trafficked by other institutional investors. 8 This pertains to the 16% equity interest in Proterra acquired on 21 September 2019. The Group is entitled to 8% of the gross management revenues and 16% of the liquidation proceeds in the event of a sale. On 14 June 2023, Proterra Investment Partners, LP (“Proterra”) and the Group agreed to sell Proterra’s line of business held by its subsidiary Proterra Investment Partners Asia PTE. Ltd to Challenger Funds Management Holdings Pty Limited, a subsidiary of Challenger Limited (ASX: CGF) On 17 June 2023 the Group received its share of the proceeds of $12,364,000 (USD8,320,000) less transaction costs. The sale of Proterra Asia did not change the Group’s equity interest in Proterra. Proterra is an alternative investment manager based in Minneapolis, Minnesota, USA offering private equity investment strategies focused on global natural resources. 9 This pertains to the Group’s 18.75% equity interest in EAM Global. EAM Global was founded in March 2014, organised as a Delaware Limited Liability Company and is registered with the USA Securities and Exchange Commission. EAM Global manages emerging markets small cap, international small cap and international micro-cap public equities strategies. (i) Impairment of other financial assets at amortised cost Movement of the loss allowance for expected credit losses: Opening balance Additions Write-off Foreign currency movement Closing balance (ii) Movement of financial assets at amortised cost 2023 $’000 6 358 (358) 1 7 2023 Current Non-current 2022 Current Non-current Opening balance $’000 Additions and interest accrued $’000 Collections $’000 Impairment $’000 Effect of foreign currency differences $’000 Reclassi- fications $’000 567 472 1,039 1,045 810 1,855 434 1,236 1,670 457 – 457 (701) – (701) (1,384) – (1,384) – (358) (358) – – – 485 (485) – 388 (388) – 23 71 94 61 50 111 2022 $’000 6 – – – 6 Closing balance $’000 808 936 1,744 567 472 1,039 62 63 (iii) Movement of financial assets at FVTPL Opening balance $’000 623 289,806 Additions $’000 – 44,405 290,429 44,405 1,198 92,086 93,284 – 69 69 Recognition of restructured investment $’000 – – – – 246,8311 246,831 Collections/ disposals $’000 Change in fair value $’000 Reclassi- fications $’000 Effect of foreign currency differences $’000 Closing balance $’000 (653) (12,364) 13 (17,917) (13,017) (17,904) – – – 17 10,703 – 314,633 10,720 314,633 (1,332) 2,811 1,479 93 594 70 623 (66,420) (2,577)2 17,006 289,806 (66,327) (1,983) 17,076 290,429 2023 Current Non-current 2022 Current Non-current Notes: 1 This pertains to the recognition of the investment in GQG Inc as a result of the restructure of GQG LP. 2 This amount included the transfer of $1,983,000 investment in IFP - preferential distribution to investment in associate as a result of the restructure of IFP. (iv) Movement of financial assets at FVTOCI 2023 Non-current 2022 Opening balance $’000 14,513 Non-current 128,884 Additions $’000 Restructure $’000 Derecog- nition of restructured investment $’000 Change in fair value $’000 Effect of foreign currency differences $’000 Closing balance $’000 – – – – (5,654) 472 9,331 (58,089) (246,831) 185,546 5,003 14,513 b. Accounting policies Financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. (i) Classification The Group classifies its financial assets in the following measurement categories: – those to be measured at amortised cost; and, – those to be measured subsequently at fair value, either through profit or loss or through other comprehensive income. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. For financial assets measured at fair value, gains and losses will either be recorded in profit or loss or in other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group had made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. The Group reclassifies debt instruments when and only when its business model for managing those assets changes. (ii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. (ii.a) Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the Group classifies its debt instruments: Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 C. OPERATING ASSETS AND LIABILITIES (continued) 10. Other financial assets (continued) (ii.a.1) At amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss. (ii.a.2) FVTPL Assets that do not meet the criteria for amortised cost or FVTOCI are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss is recognised in profit or loss and presented net within other gains/ (losses) in the period in which it arises. (ii.b) Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as dividend income when the Group’s right to receive payments is established. Changes in the fair value of FVTPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. (iii) Derecognition of financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. For equity instruments at fair value through other comprehensive income, the cumulative change in fair value is transferred from investment revaluation reserve to retained earnings. On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it is recognised in profit or loss. c. Key estimates, judgments, and assumptions (i) Valuation of financial assets at fair value The Group exercises significant judgement in areas that are highly subjective. The valuation of financial assets and the assessment of carrying values require that a detailed assessment be undertaken which reflects assumptions on markets, manager performance and expected growth to project future cash flows that are discounted at a rate that imputes relative risk and cost of capital considerations. Refer to Note 18f for the fair value disclosures. (ii) Impairment of financial assets at amortised cost The loss allowances for financial assets at amortised cost are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation based on the Group’s past history, existing market conditions and forward-looking estimates at the end of each reporting period. The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. 64 65 2023 $’000 2,140 2022 $’000 834 11. Right-of-use assets and related lease liabilities a. Analysis of balances (i) Right-of-use assets Office leases, net of accumulated amortisation Movement of right-of-use assets Cost Opening balance Additions Write-off Effect of foreign currency differences Closing balance Accumulated amortisation Opening balance Amortisation Write-off Effect of foreign currency differences Closing balance (ii) Lease liabilities Current Non-current Movement of lease liabilities 2023 Current Non-current 2022 Current Non-current Office Leases $’000 1,521 1,588 – 72 3,181 (687) (326) – (28) (1,041) 2,140 2023 Equipment Leases $’000 – – – – – – – – – – – Total $’000 1,521 1,588 – 72 3,181 (687) (326) – (28) (1,041) 2,140 Office Leases $’000 912 505 – 104 1,521 (401) (240) – (46) (687) 834 2022 Equipment Leases $’000 21 – (22) 1 – (16) (5) 22 (1) – – 2023 $’000 359 2,467 2,826 Opening balance $’000 Additions $’000 Imputed interest $’000 Repay- ments $’000 Reclassi- fication $’000 281 771 1,052 302 378 680 95 1,941 2,036 14 618 632 125 – 125 60 – 60 (443) – (443) (393) – (393) 290 (290) – 274 (274) – Effect of foreign currency differences $’000 11 45 56 24 49 73 Total $’000 933 505 (22) 105 1,521 (417) (245) 22 (47) (687) 834 2022 $’000 281 771 1,052 Closing balance $’000 359 2,467 2,826 281 771 1,052 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 C. OPERATING ASSETS AND LIABILITIES (continued) 11. Right-of-use assets and related lease liabilities (continued) b. Accounting policies (i) Right-of-use-assets and the related lease liabilities The Group’s leasing activities and how these are accounted for Leases are recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Subsequent to initial recognition, the right-of-use assets are measured at cost (adjusted for any remeasurement of the associated lease liability) less accumulated amortisation. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. (ii) Short-term leases and leases of low-value assets Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less without a purchase option. (iii) Variable lease payments For leases where the future increases are variable based on an index or rate, these are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. During the current financial year, the Group does not have variable lease payments. 12. Trade and other payables a. Analysis of balances Current Trade payables Accrued expenses Other payables 2023 $’000 916 4,861 1,979 7,756 2022 $’000 61 5,091 3,648 8,800 b. Accounting policies Trade and other payables are carried at amortised cost and given 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. 66 67 2023 $’000 2022 $’000 – 409 409 12,356 466 12,822 38 34 13. Provisions a. Analysis of balances Current Provision for estimated liability to Hareon1 Provision for annual leave Non-current Provision for long service leave Notes: 1 Pertained to the value of the Hareon put option pursuant to the Aurora Share Subscription and Assignment Deed (“Aurora Subscription Deed”), dated 28 July 2015, between Aurora Investment Management Pty Ltd (as the Trustee of The Aurora Trust), the Aurora Trust, Hareon, NCI and Nereus Holdings Inc. The Group agreed to make a contingent additional contribution to NCI of up to five over seven (5/7) of Hareon’s capital contribution less any amounts funded under the Guarantee. The Additional Contribution to NCI in the amount of USD13,500,000 is reduced by the amount of Guarantee paid of USD1,605,000. The put option price is equivalent to a return of Hareon’s invested capital plus a specified return on the invested capital. On 31 August 2022, the Group through Aurora Investment Management Pty Ltd (as the Trustee of Aurora Trust), Hareon, NCI and Nereus Holdings Inc Group executed the Deed whereby the parties have agreed to the full satisfaction of the obligations of the Group to Hareon in the amount of $17,638,000 (USD11,869,000). The Group paid Hareon $10,403,000 (USD7,000,000) on 16 September 2022 and the remaining balance of $7,235,000 (USD4,869,000) on 31 October 2022. With the full settlement of the liability to Hareon, the Group’s obligations to Hareon were terminated in its entirety pursuant to the Deed. The Group now classifies its investment in NCI as a joint venture and continues to look for opportunities to exit the investment in an orderly fashion by actively offering the underlying investments for sale. At 30 June 2023, the carrying value of the Group’s investment in NCI is $nil. Movement of provision for estimated liability to Hareon for the year Opening balance Expense for the year Repayments Effect of foreign currency differences Closing balance b. Accounting policies 2023 $’000 12,356 4,927 (17,638) 355 – 2022 $’000 10,698 983 (276) 951 12,356 (i) Provisions Provisions are recognised when the Group has a present obligation (contractual, 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, considering the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, the 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. (ii) Provision for annual leave and long service leave A liability is recognised for benefits accruing to employees in respect of annual leave and long service leave in the period the related service is rendered, when it is probable that settlement will be required, and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using the remuneration rate 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. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT This section provides information regarding the capital, financing, and financial risk management of the Group during the year, including further details on financial liabilities, share capital, reserves, dividends paid and proposed, financial risk management and capital commitments, short-term operating lease commitments and contingencies. 14. Financial liabilities a. Analysis of balances Current Financial liabilities at FVTPL: 2023 $’000 2022 $’000 – Deferred payment - former owners of EAM Global – 133 Non-current Financial liabilities at amortised cost: – Senior Secured Debt Facility¹ Financial liabilities at FVTPL: – Earn-out liability - Aether² – Earn-out liability - Pennybacker³ Notes: 42,789 – 3,614 2,252 5,866 48,655 4,639 6,425 11,064 11,064 1 On 24 October 2022, the Company secured a $74,306,000 (USD50,000,000) Debt Facility from WHSP. The Debt Facility has a term of five years from the first draw down (subject to extension option) and bears an interest per annum of the aggregate of a term secured overnight financing rate (subject to a floor of 1%) and 4.8% margin. In addition, the Group is required to maintain a loan to net assets ratio of less than 0.5 times. The Debt Facility is secured by the assets of the Group. On 26 October 2022, the initial amount of $44,583,000 (USD30,000,000), excluding the 2.5% discount on the proceeds of $1,115,000 (USD750,000) was drawn down. The remaining $29,723,000 (USD20,000,000) can be drawn down in two equal amounts as requested by the Company. The transaction costs incurred on the Debt Facility amounted to $1,599,000. 2 3 The earn-out liability represents the amount owed by the Group to the former owners of Aether, for marketing and offering interests in the ARA Fund V. This is due at the earlier of the final close of ARA Fund VII or three years after the close of ARA Fund VI. ARA Fund VI or ARA Fund VII are yet to be launched. The earn-out liability represents the potential obligation to Pennybacker with a maximum additional consideration for $11,146,000 (USD7,500,000), which would be paid between the closing of the acquisition date and 31 December 2024 if certain revenue thresholds for Pennybacker’s emerging growth and income platforms are met. On 21 December 2022, the Group partially settled its earn-out obligation to Pennybacker of $2,364,000 (USD1,591,000) as a result of reaching certain revenue thresholds for Pennybacker’s income platforms. (i) Movement of financial liabilities at FVTPL Additions $’000 Revaluation $’000 Repayments $’000 (41) (2,459) (3,182) (3,223) – (2,459) Reclassi- fications $’000 2,364 (2,364) – 2023 Current Non-current 2022 Current Non-current Opening balance $’000 133 11,064 11,197 258 9,857 10,115 – – – – – – (59) 472 413 (208) – (208) 126 (126) – Effect of foreign currency differences $’000 3 348 351 16 861 877 Closing balance $’000 – 5,866 5,866 133 11,064 11,197 68 69 b. Accounting policies The Group’s financial liabilities are classified in accordance with the substance of the contractual arrangement. (i) Financial liabilities at amortised cost These financial liabilities are initially measured at fair value, net of transaction costs, and subsequently measured at amortised cost. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. (ii) Financial liabilities at FVTPL The Group designates its financial liabilities as at fair value through profit or loss upon initial recognition if: – such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or – the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed, and its performance is evaluated on a fair value basis, in accordance with the Group’s documented management or investment strategy, and information about the grouping is provided internally on that basis; or – it forms part of a contract containing one or more embedded derivatives, and the standard permits the entire combined contract to be designated as at fair value through profit or loss. (iii) Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled, or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the statement of profit or loss under net gains/(losses) on financial liabilities. c. Key estimates, judgements, and assumptions (i) Valuation of financial liabilities at fair value The Group exercises significant judgement in areas that are highly subjective (refer to Note 18f). The valuation of liabilities and the assessment of carrying values require that a detailed assessment be undertaken which reflects assumptions on markets, manager performance and expected growth to project future cash outflows that are discounted at a rate that imputes relative risk and cost of capital considerations. 15. Share capital a. Analysis of balances Issued and fully paid ordinary shares Movements in ordinary shares on issue Opening balance Shares issued: 2023 $’000 2022 $’000 189,897 186,927 2023 2022 No. of shares $’000 No. of shares $’000 51,149,723 186,927 50,828,844 184,655 – 13 April 2023 under the DRP 236,267 1,621 – 13 October 2022 issuance to settle the vested 11,182 176,562 – – 85 1,264 – – – – – – – – 112,171 208,708 786 1,486 51,573,734 189,897 51,149,723 186,927 performance rights – 11 October 2022 under the DRP – 14 April 2022 under the DRP – 7 October 2021 under the DRP Closing balance Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT (continued) 15. Share capital (continued) The Company offers shareholders the opportunity to increase their holdings by participation in the DRP. The Company’s DRP offers shareholders the option to reinvest all or part of their dividend in new ordinary shares. The new shares rank equally with existing shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends. b. Accounting policies 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. c. Capital management The Company’s capital management policies focus on ordinary share capital. When managing capital, the Board’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. During the year ended 30 June 2023, the Company paid dividends of $19,465,000 including dividends reinvested of $2,885,000 (2022: dividends of $20,871,000 including dividends reinvested of $2,272,000). The Board anticipates that the payout ratio is 60% to 80% of the underlying net profit after tax of the Group. The Board continues to monitor the appropriate dividend payout ratio over the medium term. The Board is constantly reviewing the capital structure to take advantage of favourable cost of capital or high returns on assets. As the market is constantly changing, the Board may change the amount of dividends to be paid to shareholders or conduct share buybacks. 16. Reserves a. Analysis of balances Investment revaluation reserve Foreign currency translation reserve Equity-settled employee benefits reserve (i) Investment revaluation reserve This reserve records the Group’s net gain on its financial assets at FVTOCI. Movements in reserve: Opening balance Movement in the other comprehensive income: – Change in fair value of financial assets at FVTOCI, net of income tax – Effect of foreign currency differences Transfers between reserve: – Transfer of the cumulative change in fair value, net of income tax, on derecognised financial assets at FVTOCI Closing balance 2023 $’000 2022 $’000 (2,970) 1,102 83,557 64,405 9,826 7,908 90,413 73,415 1,102 83,350 (4,071) 138,507 (1) 2,978 (4,072) 141,485 – (223,733) (2,970) 1,102 (ii) Foreign currency translation reserve The reserve records the Group’s foreign currency translation reserve on foreign operations. Movements in reserve: Opening balance Movement in the other comprehensive income: – Exchange differences on translating foreign operations of the Group – Share in foreign currency reserve of an associate, net of income tax – Share of non-controlling interests Closing balance 70 71 2023 $’000 2022 $’000 64,405 30,795 19,242 33,476 (15) (75) 51 83 83,557 64,405 (iii) Equity-settled employee benefits 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 25 for further details of these plans. Movements in reserve: Opening balance Share-based payments (refer to Note 25(ii)) Value of shares to settle performance rights vested (refer to Note 25(iii)) Closing balance 17. Dividends paid and proposed a. Analysis of balances Previous year final: 7,908 2,055 (137) 9,826 6,702 1,206 – 7,908 2023 $’000 2022 $’000 Fully franked dividend (23 cents per share) (2022: 26 cents per share) 11,764 13,215 Current year interim: Fully franked dividend (15 cents per share) (2022: 15 cents per share) 7,701 19,465 7,656 20,871 Declared after the reporting period and not recognised: 67.3% franked dividend (23 cents per share) (2022: Fully franked dividend of 23 cents per share)¹ 11,862 11,764 b. Franking credit balance The balance at the end of the financial year at 30% (2022: 30%)² 3,422 11,933 Franking credits that will arise from the receipt of dividends recognised as receivables by the parent entity at the reporting date The 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 the members of the Company The amounts of franking credits available for future reporting periods – 300 (3,421) 1 (5,042) 7,191 The tax rate at which paid dividends have been franked and dividends proposed will be franked is 30% (2022: 30%). Notes: 1 Calculation was based on the ordinary shares on issue as at 31 July 2023 (2022: 31 July 2022). 2 The decrease in franking credits arose from the payment of dividends to the members of the Company. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT (continued) 18. Financial risk management The Group is exposed to a variety of financial risks comprising interest rate risk, credit risk, liquidity risk, foreign currency risk and price risk. The Board have overall responsibility for identifying and managing operational and financial risks. 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 are disclosed in the relevant notes. The Group holds the following financial instruments: At amortised cost At FVTPL At FVTOCI Total 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Financial assets Cash and cash equivalents Trade and other receivables – current – non-current Other financial assets – current – non-current Other assets – non-current Financial liabilities Trade and other payables Other financial liabilities – current – non-current Lease liabilities – current – non-current 23,201 34,886 7,295 646 9,017 1,796 808 929 567 – – – – – – – 623 – – – – – 23,201 34,886 – – – 7,295 646 9,017 1,796 808 1,190 466 314,633 289,806 9,331 14,513 324,893 304,785 66 76 – – – – 66 76 32,945 46,808 314,633 290,429 9,331 14,513 356,909 351,750 7,756 8,800 – 42,789 359 2,467 – – 281 771 – – – 133 5,866 11,064 – – – – 53,371 9,852 5,866 11,197 – – – – – – – 7,756 8,800 – – – – – – 133 48,655 11,064 359 2,467 281 771 59,237 21,049 a. Interest rate risk At the reporting date, the Group had the following direct exposure to global variable interest rate risk: Interest bearing financial assets: – Cash and cash equivalents Interest bearing financial liabilities: – Senior Secured Debt Facility 72 73 2023 $’000 2022 $’000 23,201 34,886 42,789 – Sensitivity analysis The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. If interest rates had moved during the year as illustrated in the table below (using an average balance), with all other variables held constant, post tax profit/(loss) would have been affected as follows: Net impact on profit after tax +1% [2022: 1%]/ 100 basis points, [2022: 100 basis points] -1% [2022: 1%]/ (100 basis points), [2022: 100 basis points] 2023 $’000 (102) 252 2022 $’000 134 – b. Credit risk Credit risk arises from the financial assets of the Group which comprise, trade and other receivables, and other debt instruments. The Group’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 reporting date is addressed in each applicable note. The Group does not hold any credit derivatives to offset its credit exposure. The Group transacts only with related parties and recognised creditworthy third parties. As such collateral is not generally requested nor is it the Group’s policy to securitise its trade and other receivables and other debt instruments. Receivable balances and loans made to related entities are monitored on an ongoing basis and remain within approved levels, with the result that the Group’s exposure to bad debts is not significant. Refer to Note 9a(i) and Note 10a(i). The Company provides financing to the members of the Group in certain circumstances where these entities are deemed credit worthy. The maximum exposure to credit risk is the carrying value of the loans. c. Liquidity risk The Group manages liquidity risk by maintaining adequate reserves and cash in bank balance by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial liabilities. The following tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both principal and interest cash flows. To the extent that interest rates are floating, the undiscounted amount is derived from interest rate curves at the end of the reporting period. 2023 Trade and other payables Earn-out liability (Aether) Earn-out liability (Pennybacker) Lease liabilities Debt facility Weighted average effective interest rate 0% 9.95% 13.20% 8.29% 11.41% 1 to 3 months $’000 3 months to 1 year $’000 6,588 1,168 – – 107 1,140 7,835 – – 280 3,394 4,842 1 to 2 years $’000 – – 2,728 284 4,522 7,534 2 to 5 years $’000 – 5,040 – 2,014 Total $’000 7,756 5,040 2,728 2,685 55,528 64,584 62,582 82,793 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT (continued) 18. Financial risk management (continued) 2022 Trade and other payables Earn-out liability (Aether) Earn-out liability (Pennybacker) Deferred payment (EAM Global) Lease liabilities Weighted average effective interest rate 1 to 3 months $’000 3 months to 1 year $’000 0% 7,355 1,445 12.71% 13.68% 18.34% 6.29% – – – 89 – 954 150 271 7,444 2,820 1 to 2 years $’000 – 4,863 – – 243 5,106 2 to 5 years $’000 – – 7,767 – 273 Total $’000 8,800 4,863 8,721 150 876 8,040 23,410 d. Foreign currency risk The Group adopted an accounting treatment to hedge its dollar net assets for its Investment in Northern Lights Midco, LLC (“Midco”) for foreign exchange exposure arising between the Australian dollar and USA dollar. At 30 June 2023, the Group’s foreign exchange exposure from its USD denominated Debt Facility is considered minimal therefore hedging of its dollar net assets investment in Midco was not utilised. (i) Consolidated statement of profit or loss Profits and losses are translated at an average exchange rate. A falling Australian dollar relative to the USA dollar, UK pound (“GBP”) and Euro (“EUR”) results in a higher net profit in the Group. The regular expenses of the operations in Australia, the USA and the UK are predominantly funded with cash flows from those local operations. (ii) Consolidated statement of financial position The Group is an international multi boutique business with operations primarily within Australia, the USA, and the UK. In addition, the Group has an investment based in Luxembourg where the transactions are denominated in Euro. The impact of the Euro denominated transactions being the distributions and the related receivable from Carlisle is taken up through profit or loss. The impact of foreign currency translation of the foreign operations is taken up in the equity reserves of the Group. At year end, the carrying amounts of the Group’s financial assets and liabilities that are different from the functional currency of the Company and transactions that are denominated in foreign currency are as follows: Financial assets Cash and cash equivalents Trade and other receivables Other financial assets Other assets Financial liabilities Trade and other payables Other financial liabilities Lease liabilities USD $’000 2023 GBP $’000 EUR $’000 USD $’000 16,182 5,652 324,765 64 2,316 451 936 – – 1,734 – – 24,051 5,890 305,975 41 2022 GBP $’000 7,904 1,848 – 24 EUR $’000 – 1,814 – – 346,663 3,703 1,734 335,957 9,776 1,814 2,745 48,655 2,826 54,226 3,547 – – 3,547 – – – – 3,403 11,197 1,052 15,652 4,200 – – 4,200 – – – – 74 75 (iii) Sensitivity analysis The following sensitivity analysis is based on the foreign currency risk exposures in existence at the reporting date. 2023 2022 Increase $’000 Decrease $’000 Increase $’000 Decrease $’000 USD - change in rate by 1% - impact on profit after tax EUR - change in rate by 1% - impact on profit after tax 27 14 (27) (14) (112) 14 112 (14) Apart for the above sensitivities, the Group has no other material exposure in USD and GBP foreign currencies. The Group exposure in USD and GBP foreign currencies is mitigated because the balances of the Group in USD and GBP are from the Group’s foreign operations. The impact of the foreign currencies is recognised as part of the foreign currency translation reserve, offsetting the exchange differences. (iv) Accounting policies Hedges of a net investment in a foreign operation that qualify for hedge accounting The effective portion of the changes in the foreign currency risk component that is designated and qualifies as a hedge of a net investment in a foreign operation is recognised as part of foreign currency translation reserve within equity. The gain or loss relating to any ineffective portion is recognised immediately in profit or loss, within other expenses. The accumulated gains and losses on the hedging instrument relating to the effective portion of the foreign currency risk component is reclassified from foreign currency translation reserve to profit or loss on the disposal or partial disposal of the foreign operation. e. Price risk The Group is exposed to securities price risk. This arises from the Group’s investments in financial instruments held at fair value. Sensitivity analysis As at year end, if the key inputs discussed in Note 18f(i) have moved, post tax profit and reserves would have been affected as follows: 2023 2022 Increase $’000 Decrease $’000 Increase $’000 Decrease $’000 Financial assets at FVTPL – 1% variable inputs - impact on profit after tax 10,593 (8,963) 7,108 (6,206) Financial assets at FVTOCI – 1% variable inputs - impact on equity 372 (326) 475 (417) Financial liabilities at FVTPL – 1% variable inputs - impact on profit after tax 110 (114) 116 (120) f. Fair value estimation (i) Fair value hierarchy Some of the Group’s financial assets and financial liabilities are measured on a recurring basis at fair value at the end of each reporting period. The Group classifies fair value measurements using the fair value hierarchy categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; – Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and – Level 3 inputs are unobservable inputs for the asset or liability. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT (continued) 18. Financial risk management (continued) The following table represents the Group’s assets and liabilities measured and recognised at fair value as at 30 June 2023 and 2022. 2023 Financial assets Financial liabilities 2022 Financial assets Financial liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 164,983 – 41 – 158,940 323,964 5,866 5,866 173,917 234 130,791 304,942 – – 11,197 11,197 The following table gives information about how the fair values of those financial assets / liabilities categorised as Level 3 items are determined (in particular, the valuation techniques and inputs used): Financial instruments 2023 $’000 2022 $’000 Valuation techniques and unobservable inputs Range of inputs Sensitivity analysis Financial assets at FVTPL Investments 149,609 115,655 Discounted Cash Flow – Revenue growth derived from FUM growth – Discount rate -4.09% to 32.97% (2022: 5.83% to 42.88%) 10.95% to 14.29% (2022: 12.21% to 15.82%) – Terminal growth rate 3% (2022: 3%) – 623 Discounted Cash Flow – Projected revenue from the new FUM of the business – Discount rate (2022: 33.33%) (2022: 5.91%) Receivable from Raven (fully collected on 11 August 2022) Financial assets at FVTOCI Investments 9,331 14,513 Discounted Cash Flow – Revenue growth derived from FUM growth – Discount rate 6.04% to 12.18% (2022: 7.56% to 12.17%) 18.10% (2022: 18.34%) – Terminal growth rate 3% (2022: 3%) Total 158,940 130,791 1% (2022: 1%) lower or higher terminal growth rate while all the other variables were held constant, the fair value would decrease by $9,120,000 and increase by $11,047,000 (2022: decrease by $5,508,000 and increase by $6,525,000). (2022: 1%) lower or higher discount rate while all the other variables were held constant, the fair value would (2022: increase by $2,000 and decrease by $2,000). 1% (2022: 1%) lower or higher terminal growth rate while all the other variables were held constant, the fair value would decrease by $429,000 and increase by $490,000 (2022: decrease by $549,000 and increase by $625,000). 76 77 Financial instruments 2023 $’000 2022 $’000 Valuation techniques and unobservable inputs Range of inputs Sensitivity analysis Financial liabilities at FVTPL Earn out liabilities and deferred payments 5,866 11,197 Discounted Cash Flow – Projected revenue – Earn-out factor to earn-out multiplier – Discount rate 1% (2022: 1%) lower or higher discount rate while all the other variables were held constant, the fair value would increase by $150,000 and decrease by $145,000 (2022: increase by $157,000 and decrease by $153,000). $4,795,000 (2022: $12,850,000) 50% (2022: 50%) 9.95% to 13.20% (2022: 9.88% to 18.34%) Total 5,866 11,197 (ii) Transfers between levels and changes in valuation techniques There were no transfers between the levels of fair value hierarchy during the financial year. There were also no changes made to any of the valuation techniques applied as at 30 June 2023. (iii) Fair value of financial assets and financial liabilities that are not measured at fair value (but fair value disclosures are required) Except as detailed in the table below, the carrying amounts of financial assets (cash and cash equivalents, trade and other receivables and security deposits) and financial liabilities (trade and other payables) recognised in the consolidated financial statements approximate their fair values. Financial assets at amortised cost – Receivable from EAM Global – Loans receivable from IFP – Loans receivable from Astarte Financial liabilities at amortised cost – Debt facility 2023 Carrying amount $’000 2022 Fair value $’000 Carrying amount $’000 433 375 936 433 375 1,006 974 65 – Fair value $’000 989 74 – 42,789 43,466 – – 19. Capital commitments, operating lease commitments and contingencies a. Capital commitments The Group has outstanding capital commitments as follows: – Aether GPs (USD272,000) (2022: USD264,000) – Additional Contribution to NCI (USDnil) (2022: USD11,895,000)¹ Total capital commitments Notes: 2023 $’000 2022 $’000 404 – 404 382 17,229 17,611 1 With the full settlement of the liability to Hareon as disclosed in Note 13, the Group’s capital commitments were terminated in its entirety pursuant to the Deed. At 30 June 2022, under the Aurora Subscription Deed and Shareholder’s Deed referred in Note 13, the Group agreed to make an Additional Contribution to NCI in the amount of USD13,500,000; reduced by the amount of Guarantee paid of USD1,605,000. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 D. CAPITAL, FINANCING AND FINANCIAL RISK MANAGEMENT (continued) 19. Capital commitments, operating lease commitments and contingencies (continued) b. Earn-out payments for future funds of Aether This represents the potential commitment by the Group to the two founders of Aether, for marketing and offering interests for the set-up and successful launching of future Aether funds (ARA Fund VI and interim funds related to ARA Fund V and ARA Fund VI). c. Contingent liabilities The Group has outstanding contingent liabilities as follows: – Guarantee to NCI (USDnil) (2022: USD5,000,000)¹ Notes: 2023 $’000 – 2022 $’000 7,242 1 With the full settlement of the liability to Hareon as disclosed in Note 13, the Group’s contingent liabilities were terminated in its entirety pursuant to the Deed. Prior to the full settlement of the liability to Hareon on 31 October 2022, the Group agreed to provide a guarantee (“Guarantee”) to NCI of up to USD5,000,000 a year for each of the six years following the date of commission of the first solar project sponsored by NCI. This Guarantee was to cover any shortfall payments, which were basically the amounts that were drawn upon by NCI if and when certain prescribed thresholds in respect to annual revenues of NCI were not met. d. Lease commitments Commitments for minimum lease payments: – not later than one year – later than one year and not later than five years – later than five years Total lease commitments 2023 $’000 2022 $’000 11 19 – 30 10 29 – 39 The lease commitments relate to leases that are short-term and low value which were not capitalised. e. Contingent assets On 17 September 2019, the Company received an originating application in the Federal Court of Australia in Melbourne by Michael Brendan Patrick de Tocqueville and ASI Mutual Pty Limited (collectively “ASI”) seeking leave of the court to commence a derivative action on behalf of the Company against individuals serving as Directors at the time of the 2014 merger between the Company and the Northern Lights Capital Group, LLC (including two current Directors) for matters arising out of the merger. On 20 February 2020, the Federal Court of Australia granted ASI leave to bring the proceedings. Omni Bridgeway (Fund 5) Australian Invt. Pty Ltd (“Litigation Funder”) has given an undertaking to cover the Company’s costs and any liabilities or adverse cost orders made against the Company in favour of the defendants. As a result, the claims are not expected to have a material adverse financial effect on the Company. If the proceedings are successful or are settled on terms that the defendants pay an agreed amount, the Company will be entitled to the net proceeds after deducting specified legal costs and the Litigation Funder’s share. The proceedings are currently part heard. It is anticipated that closing submissions will be made by the parties in October 2023 with judgment to follow. 78 79 E. GROUP STRUCTURE This section provides information regarding the group structure of the Group, including further details on interests in subsidiaries, intangible assets, investment in associates and joint venture, parent entity disclosure and related party transactions. 20. Interests in subsidiaries The following are the Company’s subsidiaries: Name of subsidiaries Aurora Investment Management Pty Ltd The Aurora Trust Treasury Group Investment Services Pty Ltd Treasury ROC Pty Ltd1 Northern Lights MidCo, LLC Carlisle Acquisition Vehicle, LLC (“CAV”)2 Northern Lights Capital Group, LLC NLCG Distributors, LLC Northern Lights Capital Partners (UK) Ltd (“NLCPUK”) Strategic Capital Investments, LLP Northern Lights MidCo II, LLC Aether Investment Partners, LLC Notes: Country of incorporation Australia Australia Australia Australia USA USA USA USA UK UK USA USA Ownership interest held by the Company % 100 100 100 100 100 100 100 100 100 60 100 100 % 100 100 100 100 100 100 100 100 100 60 100 100 1 This subsidiary is a holding company and non-operating. 2 CAV is a limited liability company that holds the Group’s investment in Carlisle. Midco owns 1% and NLCPUK owns 99% of CAV. a. Accounting policies (i) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. 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 to affect its returns. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders, potential voting rights held by the Company, other vote holders or other parties, rights arising from other contractual arrangements, and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income/(loss) are attributed to the members of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the members of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. The financial statements of the Australian, US and UK subsidiaries are prepared for the same reporting period as the Company (30 June). All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are eliminated in full upon consolidation. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 20. Interests in subsidiaries (continued) (ii) Foreign currency translations and balances Functional and presentation currency The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of the Group are expressed in Australian dollars, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. Transactions and balances In preparing the consolidated financial statements, transactions in currencies other than the Group’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for: – exchange differences on transactions entered into in order to hedge certain foreign currency risks; and – exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. Translation of foreign operations For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollar using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate). Goodwill and fair value adjustments to identifiable assets acquired and liabilities assumed through acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income. For the purposes of presenting the transactions disclosed in the condensed notes to the financial statements, these transactions are translated into Australian dollar using the exchange rates prevailing at the date of transaction. For other amounts disclosed at the end of the reporting period, these amounts are translated into Australian dollar using the exchange rates prevailing at the end of the reporting period. 21. Intangible assets a. Analysis of balances Goodwill, net of impairment Other identifiable intangible assets, at carrying amount – Brand and trademark – Management rights Total intangible assets 2023 $’000 2022 $’000 26,722 37,217 8,106 6,560 14,666 41,388 7,821 9,277 17,098 54,315 80 81 Goodwill $’000 Brand and trademark $’000 Management rights $’000 Total $’000 37,217 7,821 – (11,731) 1,236 26,722 34,282 — 2,935 37,217 – – 285 8,106 7,205 — 616 7,821 9,277 (3,024) – 307 6,560 11,218 (2,761) 820 9,277 54,315 (3,024) (11,731) 1,828 41,388 52,705 (2,761) 4,371 54,315 26,722 8,106 6,560 41,388 37,217 7,821 9,277 54,315 Movement of intangible assets 2023 Opening balance Amortisation Impairment Effect of foreign currency differences Closing balance 2022 Opening balance Amortisation Effect of foreign currency differences Closing balance Cash generating units Goodwill and other identifiable intangible assets: 2023 – Aether 2022 – Aether b. Accounting policies (i) 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. (ii) Brand and trademark and management rights Brand and trademark and management rights acquired as part of a business combination are recognised separately from goodwill. These are initially recognised at their fair value at the acquisition date (which is regarded as their cost). – Brand and trademark – Subsequent to initial recognition, brand and trademark which have indefinite lives are reported at cost less accumulated impairment losses. – Management rights – Subsequent to initial recognition, management rights are reported at cost less accumulated amortisation and accumulated impairment losses. Management rights are amortised as follows: – Acquired in 2014 – based on a straight-line basis over its estimated useful life of 12 years; and – Acquired in 2019 – based on 50% of the revenue from ARA Fund V over 12 years. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 21. Intangible assets (continued) (iii) Impairment of goodwill, brand and trademark and management rights For the purposes of impairment testing, goodwill, brand and trademark, and management rights are allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill, brand and trademark and management rights have been specifically identified to the cash-generating unit is tested for impairment annually, or more frequently when there is an 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 to the unit, then to brand and trademark and management rights and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. A further impairment test is performed to the brand and trademark and management rights to determine individually if there is an indication that these other identifiable intangible assets may be impaired. Any impairment loss for the cash generating units (goodwill, brand and trademark and management rights) are recognised directly in profit or loss. Any impairment loss recognised for goodwill are not reversed in subsequent periods. For brand and trademark and management rights, any impairment loss recognised are reversed in subsequent periods if a business recovers or exceeds previous levels of financial performance. c. Key estimates, judgments, and assumptions Impairment of goodwill and other identifiable intangible assets At the end of each reporting period, management assesses the level of goodwill and other identifiable intangible assets of each of the underlying assets of the Group. Should assets underperform or not meet expected growth targets from prior expectations, a resulting impairment of the goodwill and other identifiable intangible assets is recognised if that deterioration in performance is deemed not to be derived from short term factors such as market volatility. Factors that are considered in assessing possible impairment in addition to financial performance include changes to key investment staff, significant investment underperformance and litigation. Impairments of goodwill in relation to subsidiaries cannot be reversed if a business recovers or exceeds previous levels of financial performance. Aether The recoverable amount of Aether, a cash-generating unit, is determined based on its fair value calculation which uses cash flow projections. These cash flow projections include expected revenues from existing funds, which are largely certain, as well as anticipated new fund raising. A five-year discrete period was applied as it is believed that it is sufficient time for the business to be in a steady state in terms of launching new funds based on the existing plan for the business. During the year, the goodwill and other identifiable intangible assets were assessed and tested for impairment. At 30 June 2023, impairment of the goodwill of $11,731,000 (2022: no impairment) was recognised due Aether’s new fund raising activity being slower than previously anticipated. A weighted average discount rate of 9.95% to 16.65% (2022: 12.71% to 14.01%) in the cash flow projections during the discrete period, tax rate of 21% (2022: 21%) and the terminal growth rate of 3% (2022: 3%) were applied. Sensitivity analysis An analysis was conducted to determine the sensitivity of the impairment test to reasonable changes in the key assumptions used to determine the recoverable amount of the CGU. The sensitivities tested include a 5% reduction in the annual cash flow of the CGU, a 1% decrease in the terminal growth rate used to extrapolate cash flows beyond the end of the discrete cash flows and a 1% increase in the discount rate applied to cash flow projections. The impact on the impairment as result of these sensitivities is shown below: Sensitivity Impact on impairment assessment A 5% decrease in cash flows Further impairment of goodwill A 1% decrease in terminal growth rate Further impairment of goodwill A 1% increase in discount rate Further impairment of goodwill Impairment $’000 1,948 2,477 2,917 AASB 136 requires that where a reasonably possible change in a key assumption would cause the carrying amount of the CGU to exceed its recoverable amount, the value at which an impairment first arises shall be disclosed. 22. Investment in associates and joint ventures a. Analysis of balances Investment in associates Opening balance Acquisition of associates Additional contribution to associates Subsequent reclassification from FVTPL to investment in associate (Note 22a(iv)) Share of net profits of associates Dividends and distributions received/receivable Impairment (Note 3) Share in foreign currency reserve of an associate Effect of foreign currency differences Closing balance Investment in joint ventures Opening balance Share of net profits of a joint venture Dividends and distributions received/receivable Effect of foreign currency differences Closing balance Total 82 83 2023 $’000 2022 $’000 164,050 102,803 — 28 — 7,827 (17,098) (1,925) (22) 5,879 48,257 6,973 1,983 7,968 (9,374) (3,796) 72 9,164 158,739 164,050 31,067 235 (1,446) 1,120 30,976 29,255 162 (820) 2,470 31,067 189,715 195,117 Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 22. Investment in associates and joint ventures (continued) (i) Details of associates and joint venture Associates Aether General Partners1 ASOP Profit Share LP2 Astarte Capital Partners, LLP2 Banner Oak Capital Partners, LP3 Blackcrane Capital, LLC4 Capital & Asset Management Group, LLP5 IFP Group, LLC6 Northern Lights Alternative Advisors LLP7 Roc Group8 Victory Park Capital Advisors, LLC9 Victory Park Capital GP Holdco, L.P.10 Joint ventures Copper Funding, LLC11 Nereus Capital Investments (Singapore) Pte. Ltd12 Associate of the joint venture Copper Funding, LLC Principal activity Funds Management Investment Entity Funds Management Funds Management Funds Management Funds Management Investment Adviser Placement Agent Funds Management Funds Management Funds Management Investment Entity Investment Entity Ownership interest 2023 % 2022 % Place of incorporation and operation 25.00 39.06 44.46 35.00 - 40.00 24.90 23.00 30.01 24.90 24.90 50.00 74.19 25.00 USA 39.03 Cayman Islands 44.46 35.00 25.00 40.00 24.90 23.00 30.01 24.90 24.90 50.00 UK USA USA USA/UK USA UK Australia USA USA USA 8.72 Singapore Pennybacker Capital Management, LLC13 Funds Management 16.50 16.50 USA Notes: 1 2 3 Aether Real Assets GP I, LLC, Aether Real Assets GP II, LLC, Aether Real Assets GP III, LLC and Aether Real Assets III Surplus GP, LLC (collectively the “Aether General Partners”) are the General Partners of Aether Real Assets I, L.P., Aether Real Assets II, L.P., Aether Real Assets III, L.P. and Aether Real Assets III Surplus, L.P. (collectively the “Funds”). The General Partners are responsible for the operation of the Funds and the conduct and management of its business. Astarte is based in London, England, is an investment manager focused on private markets real asset strategies. Astarte’s business model is distinctive in that it provides anchor/seed capital, working capital, and fundraising support to operating experts and emerging investment managers to support their growth. ASOP-PSP was set-up to receive the portion of the revenues and income of ASOP Fund vehicles. Banner Oak is an alternative investment manager offering a private real estate strategy focused on the creation of growth of fully integrated private real estate operating companies. It is based in Dallas, Texas, USA. 4 Blackcrane is a boutique asset management firm focusing on global and international equities. 5 CAMG is a private infrastructure investment firm based in London and Washington DC, USA. 6 IFP is a multi-custodial registered investment adviser focused on delivering personalised, concierge-level service to advisors in the USA specialising in wealth management and retirement plan consulting. 7 NLAA is a strategic partner and placement agent based in London, England that focused on private equity and hedge funds. 8 Roc Group is a specialised investment firm offering both pooled and customised Asia Pacific private equity solutions. Roc Group includes Roc Partners Pty Ltd and Roc Partners (Cayman) Limited. The Group holds stapled securities in Roc Group. 9 VPC is a focused on private debt strategies-direct lending to financial service companies (Specialty Finance) with some investments in private equity. 10 VPC-Holdco holds direct and indirect interest in VPC funds and their general partner entities. 11 CFL is a limited liability company established as a joint venture of the Group with Kudu Investments Management, LLC (“Kudu”) to hold the investment in Pennybacker. 12 During the year, as a result of the settlement agreement, the Group’s effective interest in NCI increased from 8.72% to 74.19%. The Group reassessed its investment in NCI and determined that the investment is a joint venture since the Group jointly controls NCI. Although the Group has 74.19% effective interest in NCI, the Group has one out of three board representation and all decision making and approval rights either requiring unanimous written consent of the directors or written consent of at least two directors. 13 Pennybacker is an alternative investment manager based in Austin, Texas, USA offering private equity investment strategies focused on both commercial, retail, office, and industrial assets, as well as affordable multifamily residential real estate in certain markets in the USA. CFL owns 33% equity interest in Pennybacker, therefore the Group has an effective 16.50% ownership by virtue of its 50% equity interest in its joint venture investment in CFL. 84 85 (ii) Acquisitions of associates On 31 December 2021, the Group acquired a 35% equity interest in Banner Oak for $48,257,000 (USD35,000,000). The acquisition included goodwill and other identifiable intangible assets of $47,885,000 (USD34,730,000). (iii) Disposal of associates On 31 December 2022, with the effect from 1 July 2022, Blackcrane purchased and redeemed the 25% equity ownership of the Group in Blackcrane with a potential value of up to $372,000 (USD250,000) to be paid as an earn-out. Blackcrane shall pay the Group in one or more installments in an amount equal to, for each financial year, 50% of all Blackcrane’s revenues in excess of $2,229,000 (USD1,500,000) until such time as the full amount of purchase price has been paid in full to the Group. At 30 June 2023, Blackcrane is in the process of winding down its operations therefore the Group did not recognise any value on the potential earn-out. (iv) Restructuring of associates On 27 December 2021, the Group restructured its investment in IFP with an additional contribution of $5,515,000 (USD4,000,000) in exchange for an additional 20% of the economics or share in profit/losses of IFP and a preference in distribution. The restructure did not change the accounting treatment of the Group’s investment in IFP. (v) Wind-up of an associate On 16 May 2023, the directors of CAMG resolved to take the necessary steps for the dissolution of CAMG. The decision to wind-up CAMG was the result of no visible short or medium term prospect of securing funds or generating income. As a result, the Group impaired its investment in CAMG. In addition, the Credit Facility of $358,000 (GBP200,000) with a term of two years and bears 10% interest per annum extended to CAMG on 14 December 2022, including the related accrued interest were also impaired (refer to Note 9 and Note 10 for the details). b. Summarised financial information for associates and joint ventures 2023 Comprehensive income Revenue and other income for the year Profit after tax for the year Other comprehensive income for the year Banner Oak $’000 23,501 12,559 – Pennybacker $’000 VPC $’000 VPC-Holdco $’000 Aggregate of immaterial associates and joint venture $’000 Total $’000 50,632 39,834 23,367 169,593 306,927 9,883 (5,873) 22,780 1,394 40,743 – – – 62 62 Total comprehensive income for the year 12,559 9,883 (5,873) 22,780 1,456 40,805 Dividends/distributions received during the year The above profit after tax includes the following: 8,686 1,446 671 5,811 1,930 18,544 – Depreciation and amortisation 347 1,042 1,806 – Interest income – Interest expense – Income tax expense Financial position Current assets Non–current assets Current liabilities Non–current liabilities Net assets/(liabilities) Notes: – 39 – – 83 – 3,665 13,289 1,746 661 (922) (233) (74) 1,817 – 50,519 22,939 – – – – – –1 4,207 7,402 (20) 493 3,427 (94) 2,432 3,427 41,653 109,126 37,327 62,673 (9,263) (50,700) (1,941) (31,362) (94,188) (785) (27,533) – (13,793) (42,344) 3,171 4,987 (4,775) (1,941) 33,825 35,267 1 The non-current assets balance of VPC-Holdco included the carried interest amounting to $36,615,000, of which the Group has $9,117,000 share, was not recognised in accordance with AASB 15: ‘Revenue’ (“AASB 15”). Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 22. Investment in associates and joint ventures (continued) Banner Oak $’000 Pennybacker $’000 VPC $’000 VPC-Holdco $’000 Aggregate of immaterial associates and joint venture $’000 Total $’000 2023 Reconciliation of the summarised financial position to the carrying amount recognised by the Group: – Net assets/(liabilities) before determination of fair values 3,171 4,987 (4,775) (1,941) 33,825 35,267 – Ownership interest in % 35.00% 16.50%1 24.90% 24.90% 51.87%2 – Proportion of the Group’s ownership interest – (Increase)/decrease in net assets/liabilities – Acquired goodwill and other identifiable 1,110 (705) 823 (762) (1,189) (2,306) (483) (101) 17,545 4,999 17,806 1,125 intangibles 48,532 30,144 56,299 22,199 3,356 160,530 – Impairment during the year – Undistributed profits – Foreign exchange movement – 1,309 – – 771 – – 6,004 – – – – (2,053) (2,053) 4,173 12,257 50 50 Closing balance 50,246 30,976 58,808 21,615 28,070 189,715 The above assets and liabilities include the following: – Cash and cash equivalents 3,105 1,428 3,744 – Current financial liabilities (excluding trade and other payables and provisions) (250) (455) (1,134) – Non–current financial liabilities (excluding trade and other payables and provisions) (233) (785) (27,533) – – – 15,214 23,491 (4,066) (5,905) (10,888) (39,439) Notes: 1 The effective ownership interest of the Group of 16.50% was used calculating the proportion of the Group’s ownership at Pennybacker through the joint venture in CFL. 2 The rate relates to multiple different % across multiple entities. 86 87 2022 Comprehensive income Banner Oak1 $’000 Pennybacker $’000 VPC $’000 VPC-Holdco $’000 Aggregate of immaterial associates and joint venture $’000 Total $’000 Revenue and other income for the year 10,886 32,326 Profit after tax for the year 5,524 8,188 Other comprehensive income for the year – – 61,510 16,670 – 8,187 7,661 – 165,291 278,200 3,601 41,644 240 240 Total comprehensive income for the year 5,524 8,188 16,670 7,661 3,841 41,884 Dividends/distributions received during the year The above profit after tax includes the following: – Depreciation and amortisation – Interest income – Interest expense – Income tax expense Financial position Current assets Non-current assets Current liabilities Non-current liabilities Net assets/(liabilities) Notes: 1,903 820 2,696 2,133 2,642 10,194 196 – 31 – 608 – 90 – 1,690 89 1,089 – 4,421 1,033 24,279 – 73,626 31,235 – – – – – –2 4,549 – 956 2,973 7,043 89 2,166 2,973 37,451 139,777 30,975 63,243 (1,031) (4,170) (85,324) (1,440) (35,402) (127,367) (466) – (9,264) – (14,627) (24,357) 3,957 20,109 10,273 (1,440) 18,397 51,296 1 2 Banner Oak was acquired on 31 December 2021; therefore the comprehensive income information only covers the period from acquisition to 30 June 2022. The non-current assets balance of VPC-Holdco included the carried interest amounting to $70,513,000, of which the Group has $17,558,000 share, was not recognised in accordance with AASB 15. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 22. Investment in associates and joint ventures (continued) Banner Oak $’000 Pennybacker $’000 VPC $’000 VPC-Holdco $’000 Aggregate of immaterial associates and joint venture $’000 Total $’000 2022 Reconciliation of the summarised financial position to the carrying amount recognised by the Group: – Net assets/(liabilities) before determination of fair values 3,957 20,109 10,273 (1,440) 18,397 51,296 – Ownership interest in % 35% 16.50%1 24.90% 24.90% – Proportion of the Group’s ownership interest 1,385 – (Increase)/decrease in net assets/liabilities (994) 3,318 (3,259) 2,558 (5,930) (359) (70) 29%2 5,267 17,932 12,169 7,679 – Acquired goodwill and other identifiable intangibles 49,144 30,323 56,132 21,418 8,368 165,385 – Impairment during the year – Undistributed profits – Foreign exchange movement – 1,773 – – 685 – – 7,855 – – – – (3,795) 3,294 72 (3,795) 13,607 72 Closing balance 51,308 31,067 60,615 20,989 31,138 195,117 The above assets and liabilities include the following: – Cash and cash equivalents 3,703 2,993 31,486 – Current financial liabilities (excluding trade and other payables and provisions) – Non–current financial liabilities (excluding trade and other payables and provisions) Notes: (296) (466) – – (11,856) (9,264) – – – 16,402 54,584 (4,603) (16,755) (13,422) (23,152) 1 The effective ownership interest of the Group of 16.50% was used calculating the proportion of the Group’s ownership at Pennybacker through the joint venture in CFL. 2 The rate relates to multiple different % across multiple entities. 88 89 c. Accounting policies (i) Associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not control or joint control over those policies. A joint venture is an entity over which the Group has joint control over its net assets. Joint control is the power to control in the financial and operating policy decisions of the investee. The financial statements of the associate that is domiciled in Australia and certain associates in the USA are prepared for the same reporting period as the Group (i.e., 30 June). For the other associates and joint venture, their reporting period vary between 31 March, 31 May, and 31 December. For equity accounting purposes, the Group takes up the proportionate share of the net profits/(losses) of these associates and joint venture based on their pro-rata financial statements as at 30 June, so as to align the proportionate share of their net profits/losses with the Group. The results of associates and joint ventures are incorporated in the consolidated financial statements using the equity method of accounting from the date on which the investee becomes an associate or a joint venture. Under the equity method, an investment in an associate or joint venture is initially recognised in the statement of financial position at cost and deferred consideration and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income or loss of the associate or joint venture. When the Group’s share of losses of an associate or joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. On acquisition of the investment in an associate or joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Distributions or dividends received from the associates or joint venture are reduced from the carrying value. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. (ii) Impairment The requirements of AASB 136 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill and other identifiable intangible assets) is tested for impairment in accordance with AASB 136 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 (as a reduction) of the carrying amount of the investment. (iii) Disposal The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or joint venture, or when the investment is classified as held for sale. When the Group retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with AASB 9. The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 22. Investment in associates and joint ventures (continued) d. Key estimates, judgments, and assumptions Impairment of investments in associates and joint venture At the end of each reporting period, management is required to assess the carrying values of each of the underlying investments in associates and joint venture of the Group. Should assets underperform or not meet expected growth targets from prior expectations, a resulting impairment of the investments is recognised if that deterioration in performance is deemed not to be derived from short term factors such as market volatility. Factors that are considered in assessing possible impairment in addition to financial performance include changes to key investment staff, significant investment underperformance and litigation. A significant or prolonged decline in the fair value of an associate or joint venture below its cost is also an objective evidence of impairment. During the year, the investments in associates and joint venture were tested for impairment. CAMG was impaired for $1,934,000 (2022: $3,796,000 for Blackcrane and CAMG). CAMG was fully impaired at 30 June 2023 (refer to Note 22a(v) for details). Sensitivity analysis An analysis was conducted to determine the sensitivity of the impairment test to reasonable changes in the key assumptions used to determine the recoverable amount of the Group’s investment in associates and joint ventures. The sensitivities tested include a 5% reduction in the annual cash flow of the associates, a 1% decrease in the terminal growth rate used to extrapolate cash flows beyond financial year 2023 and a 1% increase in the discount rate applied to cash flow projections. The impact on the impairment as result of these sensitivities is shown below: Sensitivity Impact on impairment assessment A 5% decrease in cash flows A 1% decrease in terminal growth rate A 1% increase in discount rate No impairment No impairment No impairment Impairment $’000 nil nil nil AASB 136 requires that where a reasonably possible change in a key assumption would cause the carrying amount of the investment in associates to exceed its recoverable amount, the value at which an impairment first arises shall be disclosed. 23. Parent entity disclosures Summarised presentation of the parent entity, Pacific Current Group Limited, financial statements: Summarised statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Share capital Accumulated losses Reserves Total equity Summarised statement of profit or loss and other comprehensive income Loss for the year Other comprehensive income for the year Total comprehensive loss for the year 90 91 2023 $’000 2022 $’000 5,416 3,609 227,968 225,791 233,384 229,400 64,816 44,677 109,493 79,402 1,284 80,686 123,891 148,714 189,897 186,927 (75,832) (46,122) 9,826 7,909 123,891 148,714 (10,245) (5,444) – – (10,245) (5,444) The accounting policies of the Company being the ultimate parent entity are consistent with the Group except for the investment in subsidiaries. Investments in subsidiaries are accounted for at costs in the financial statements of the Company. The Company effectively provides commitments and guarantees to the Group as disclosed in Note 19. Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 E. GROUP STRUCTURE (continued) 24. Related party transactions Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its related parties are disclosed below. Compensation paid to key management personnel (“KMP”) of the Company Short-term employee benefits Post-employment benefits Share based payments 2023 $ 2022 $ 2,732,731 4,058,336 56,959 52,207 1,101,051 1,089,826 3,890,741 5,200,369 Detailed remuneration disclosures are provided in the Remuneration Report. Apart from the above, the Group had no other transactions with Directors, their related parties, or loans to KMP. Transactions with associates and affiliated entities Revenue and other income transactions – Management fees - Aether funds under management – Commission income - (2022: Blackcrane, and VPC) – Retainer fees - Roc Group (2022: Blackcrane and Roc Group) – Interest income - Astarte, CAMG and IFP (2022: IFP) 2023 $ 2022 $ 12,420,169 12,092,648 – 3,081,984 520,457 707,844 74,649 15,190 – Dividends and distributions income - GQG Inc (2022: GQG Inc and GQG LP ) 13,578,014 9,646,442 – Other income - (2022: Blackcrane) Investments in associates and joint venture transactions – 36,873 – Additional contributions - Aether GPs (2022: Aether GPs, IFP and CAMG ) 28,265 6,972,680 – Dividends and distributions - Aether GPs, BannerOak, CFL, NLAA, Roc Group, VPC, and VPC- Holdco (2022: Aether GPs, BannerOak, CFL, NLAA, Roc Group, VPC, and VPC-Holdco) 18,544,027 10,194,442 – Loans to associates - Astarte, CAMG and IFP (2022: IFP) – Collections of loans to associates - IFP (2022: IFP) – Conversion of investment at FVTPL to associate - (2022: IFP) Affiliated entities – Proceeds from the restructure of investment - (2022: GQG LLC) Balances at the end of the reporting period – Trade receivables - Aether funds under management, Roc Group and VPC (2022: Aether funds under management, Blackcrane, Roc Group and VPC) – Dividend receivable - NLAA and Roc Group (2022: NLAA and Roc Group) – Interest receivable - IFP (2022: IFP) – Loans receivable - Astarte and IFP (2022: IFP) The above transactions with related parties were on normal terms and conditions. 1,607,584 344,692 66,875 620,446 – – 1,983,438 60,247,178 1,937,660 3,843,106 484,088 1,790,510 24,390 1,311,485 10,771 65,178 92 93 F. OTHER INFORMATION This section provides other information of the Group, including further details of share-based payments, auditor’s remuneration, significant events subsequent to reporting date and adoption of new and revised Standards. 25. Share-based payments a. The Group Long-Term Incentive (“LTI”) Plan (i) Options and performance rights Options Performance Rights 19 November 2021 24 February 2022 21 June 2018 25 June 2019 1 August 2019 24 February 2022 1 July 2024 1 July 2024 30 June 2021 30 June 2021 30 June 2021 30 June 2024 1 July 2025 1 July 2025 30 June 2022 30 June 2022 30 June 2022 30 June 2025 n/a n/a n/a n/a n/a 30 June 2026 $1.49 $1.57 n/a $1.57 $1.64 n/a $0.55 $0.67 n/a $0.14 $0.23 n/a $1.28 $1.31 n/a $6.62 $6.31 $6.02 1,740,000 690,000 2,500,000 750,000 200,000 430,500 $7.28 $7.28 $nil $nil $nil $nil – – – – – – – – – – – – – – – 14,336 – – 4,300 – – – – 1,250,000 1,235,664 – – 375,000 370,700 – – 75,000 75,000 – 50,000 Continued employment, share price hurdle and total shareholder return hurdle Continued employment, share price hurdle and total shareholder return hurdle Continued employment, share price hurdle and total shareholder return hurdle – – – – – – 18,000 Continued employment, and net asset value hurdle Performance hurdles Continued employment Continued employment The fair values of the options and performance rights were independently determined by valuation specialists Leadenhall Valuation Services Pty Ltd using Black Scholes pricing model. AON Solutions Australia Limited was commissioned to provide a report on the vesting of the performance rights. Date Granted Vesting dates: Tranche 1 Tranche 2 Tranche 3 Fair value per option/performance rights: Tranche 1 Tranche 2 Tranche 3 No of options/ performance rights issued Exercise price per share Number of options/ performance rights vested: Tranche 1 Tranche 2 Tranche 3 Number of options/ performance rights forfeited: Tranche 1 Tranche 2 Tranche 3 Cancelled Annual Report 2023 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 F. OTHER INFORMATION (continued) 25. Share-based payments (continued) (ii) Options and performance rights recognised in the profit or loss The amount of option expense for the year was $1,213,000 (2022: $646,000) and the performance rights amortisation expense for the year was $842,000 (2022: $560,000). (iii) Payments to settle share-based payments Settlement of vested performance rights amounted to $137,000 (2022: $nil). b. Accounting policies The Company provides benefits to employees (including senior executives and Directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). The Company’s LTI plan is in place whereby the Company, at the discretion of the Board of Directors, awards performance rights to Directors, executives, and certain members of staff of the Company. Each performance right at the time of grant represents one company share upon vesting. The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the vesting period based on the Group’s estimate of equity instruments that will eventually vest. 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 Company’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 consolidated statement of profit or loss 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 because of the non-fulfilment of a non-market condition. c. Key estimates, judgments, and assumptions Share-based payment transactions The Company 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 Black Scholes/ Monte-Carlo simulation model with the following assumptions used in arriving at the valuations: Options – 19 November 2021 – 24 February 2022 Performance rights – 21 June 2018 – 25 June 2019 – 1 August 2019 – 24 February 2022 Volatility of the underlying share price Expected dividend yield per annum Risk free rates per annum 40% 40% 30% 30% 30% 40% 5.10% 4.90% 3.84% 4.48% 3.60% 4.90% 0.95% and 1.40% 1.60% and 1.70% 2.07% and 2.15% 0.89% and 0.90% 0.87% and 0.83% 1.30%, 1.70% and 1.80% 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. 26. Auditors’ remuneration Ernst & Young and related network firms: Audit or review of financial reports – Group – Subsidiaries Statutory assurance services required by legislation provided by the auditor Other auditors and their related network firms – Subsidiaries Statutory assurance services required by legislation provided by the auditor Total auditors’ remuneration 94 95 2023 $ 2022 $ 760,000 760,000 45,772 30,000 48,533 30,000 835,772 838,533 264,862 99,755 364,617 141,713 54,186 195,899 1,200,389 1,034,432 27. Significant events subsequent to reporting date On 26 July 2023, the Company received an unsolicited, non-binding, indicative proposal from Regal Partners Limited (ASX: RPL) (“Regal”) in co-operation with River Capital Pty Ltd, both major shareholders of the Company, to acquire 100% of the shares in the Company by way of a scheme of arrangement. Under Regal’s proposal, the Company’s shareholders will receive an implied total value of $11.12 per share, with the consideration comprising $7.50 in cash per Company share plus $3.62 being 2.2 x GQG Inc shares based on the closing price of GQG Inc shares on 25 July 2023 of $1.655. Regal’s proposal also states that the Company shareholders may elect to substitute either or both elements of the consideration for Regal shares. A due diligence process is currently underway including the evaluation of Regal’s proposal by the Independent Board Committee of the Company. On 27 July 2023, the Company was notified by GQG Inc that the latter intends to submit a non-binding indicative proposal to acquire 100% of the shares in the Company. On 25 August 2023, the Directors of the Company declared a final dividend on ordinary shares in respect of the 2023 financial year. The total amount of the dividend is $11,862,000 which represents a 67.3% franked dividend of 23.00 cents per share. The dividend has not been provided for in the 30 June 2023 consolidated financial statements. Other than the matters detailed above, there has been no matter or circumstance, which has arisen since 30 June 2023 that has significantly affected or may significantly affect either the operations or the state of affairs of the Group. 28. Adoption of new and revised Standards a. New and amended AASB standards that are effective from 1 July 2022 All new and revised accounting standards relevant to the Group that are mandatorily effective for the current year have been adopted by the Group. Adoption of these other new and revised accounting standards did not result in a material financial impact to the consolidated financial statements of the Group. b. Standards and interpretations in issue not yet adopted The AASB has issued several new and amended accounting standards and Interpretations that have mandatory application dates for future reporting periods have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. Annual Report 2023 DIRECTORS’ DECLARATION The Directors declare that: 1. in the Directors’ opinion, 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. in the Directors’ opinion, the attached consolidated financial statements are in compliance with International Financial Reporting Standards, as stated in Section A in the notes to the financial statements; 3. in the Directors’ opinion, the attached consolidated financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; and 4. the Directors have been given the declarations required by s.295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors A. Robinson Chairman 25 August 2023 INDEPENDENT AUDITOR’S REPORT For the year ended 30 June 2023 96 97 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent audit or’s report t o t he members of Pacific Current Group Limit ed Report on t he audit of t he financial report Opinion We have audited the financial report of Pacific Current Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2023 and of its consolidated financial performance for the year ended on that date; and b. Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of mat t er – Subsequent event s We draw attention to Note 27 to the financial statements which describes subsequent events related to a non-binding indicative proposal received from Regal Partners Limited (ASX: RPL) in co-operation with River Capital Pty Ltd, a major shareholder of the Group, to acquire 100%of the shares in the Group and to a notification by GQG Inc (ASX: GQG) that the latter intends to submit a non-binding indicative proposal to acquire 100%of the shares in the Group. Our opinion is not modified in respect of these matters. Key audit mat t ers Key audit matters are those matters that , in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 106 Annual Report 2023 INDEPENDENT AUDITOR’S REPORT For the year ended 30 June 2023 We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Invest ment s in associat es and joint vent ures Why significant How our audit addressed t he key audit mat t er As at 30 June 2023, the carrying value of the invest ment s in associates and joint venture totals $190m, which is 31%of the total asset s and the share of profit s totals $8m, which is 21%of the total income for the year. The Group classifies investments in ent ities over which it has significant influence as associates in the statement of financial position and applies the equity method account ing in accordance with AASB 128 Investments in Associates and Joint Ventures. The Group performs an annual assessment to determine whether there is any objective evidence that investment s in associates and joint ventures are impaired. The identif ication of indicators of impairment requires the application of significant judgement in terms of future cash flows, discount rates and terminal growth rates. This was considered a key audit matter due to its subjective nature and the quant itative impact on the Group’s financial statements. Our procedures included: - Evaluating the Group’s assessment of signif icant inf luence over the investments, and the accounting treat ment and presentat ion thereon; - Testing the appropriateness of the equity account ing for the Group’s investments in associates. For the material associates, we issued group instructions to associate’s auditors covering mat ters significant to the audit . We assessed the auditor ’s final report to confirm procedures were performed in accordance with the instructions and the conclusion reached was appropriate for the purposes of our audit; - Assessing the methodology used in the impairment models to calculate the recoverable amount of the associate in accordance with relevant Australian Accounting St andards; - Testing the mathemat ical accuracy of the impairment models; - Assessing assumptions applied in calculat ing the recoverable amount, including future cash flows, discount rates and terminal growth rates, in conjunction with our internal valuat ion specialists; and - Assessing the adequacy and appropriateness of the disclosures in Note 22 to the financial report. Invest ment s valuat ion Why significant The Group has a signif icant portfolio of financial asset s at fair value. As at 30 June 2023, the value of these asset s, as disclosed in Note 10 to the financial report was $324m, which equates to 53% of the total asset s held by t he Group. As disclosed in Note 10, $315m of the Group’s fair value investment s were classif ied as ‘f inancial assets at fair value through profit or loss’ (“ FVTPL” ), and $9m are classified as ‘financial assets at fair value through other comprehensive income’ (“ FVTOCI” ). For the financial instruments classified as Level 3, the fair value measurement is based on unobservable input s and has a high level of complexity. Significant judgement and high level of uncertainty is involved in developing unobservable input s, including forecasted future cash flows, terminal growth rates, and discount rates. This was considered a key audit mat ter due to its subject ive nature and the quant itat ive impact on the Group’s financial statement s. How our audit addressed t he key audit mat t er Our procedures included: - Agreeing the fair value of investments in the portfolio held at 30 June 2023 to independent pricing sources for listed securities; For Level 3 investments: - Assessing the methodology used by management to calculate the fair value of the invest ment in accordance with relevant Aust ralian Accounting Standards; - Testing the mathemat ical accuracy of the model; - Assessing the assumptions applied in calculat ing the fair value, including future cash flows, discount rates and terminal growth rates, in conjunct ion wit h our internal valuation specialists; and - Assessing the adequacy of the disclosures in Note 10 to the financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislat ion 107 98 99 Impairment assessment of goodwill Why significant As at 30 June 2023, the Group has goodwill of $27m. Goodwill has been recognised as a result of the Group’s historical acquisit ions, representing the excess of the purchase considerat ion over the fair value of asset s and liabilities acquired. On acquisition date, the goodwill has been allocated to the applicable Cash Generating Units (“ CGUs” ). Goodwill is required to be tested for impairment annually. The determination of recoverable amount requires significant judgement in both identifying and then calculat ing the value of the relevant CGUs. Recoverable amounts are based on the Group’s view of the key inputs and assumptions applied in measuring the recoverable amount of asset s, including future cash flows, terminal growth rates, and discount rates. Accordingly, it was considered a key audit matter. How our audit addressed t he key audit mat t er Our procedures included: - Assessing the Group’s determinat ion of the CGUs to which goodwill is allocated; - Assessing the methodology used by management in the impairment model to calculate the recoverable amount of the CGU in accordance with relevant Australian Accounting Standards; - Testing the mathemat ical accuracy of the impairment model; - Assessing the assumptions applied in calculat ing the recoverable amount, including future cash flows, discount rates and terminal growth rates, in conjunction with our internal valuat ion specialist ; and - Assessing the adequacy of the disclosures in Note 21 to the financial report. Informat ion ot her t han t he financial report and audit or’s report t hereon The directors are responsible for the other information. The other information comprises the information included in the Group’s 2023 annual report other than the financial report and our auditor’s report t hereon. We obtained the Directors’ Report and Corporate Directory that are to be included in the annual report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the annual report after the date of this auditor’s report . Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, wit h the exception of the Remuneration Report and our related assurance opinion. In connection wit h our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilit ies of t he direct ors for t he financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement , whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislat ion 108 Annual Report 2023 INDEPENDENT AUDITOR’S REPORT For the year ended 30 June 2023 Audit or’s responsibilit ies for t he audit of t he financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whet her due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance wit h the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► Obtain an understanding of internal control relevant to t he audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s abilit y to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, st ructure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate wit h the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislat ion 109 100 101 We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on t he audit of t he Remunerat ion Report Opinion on t he Remunerat ion Report We have audited the Remuneration Report included in pages 21 to 33 of the Directors’ Report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Pacific Current Group Limited for the year ended 30 June 2023, complies wit h section 300A of the Corporations Act 2001. Responsibilit ies The directors of the Company are responsible for the preparation and present ation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Rita Da Silva Partner Sydney 25 August 2023 Jaddus Manga Partner Sydney 25 August 2023 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislat ion 110 Annual Report 2023 ASX ADDITIONAL INFORMATION Corporate Governance In accordance with ASX Listing Rule 4.10.3, the Group’s Corporate Governance Statement can be found on its website at www. paccurrent.com/shareholders/corporate-governance/ The Corporate Governance statement has been approved by the Board and is current as at 25 August 2023. Shareholder Information as at 8 September 2023 Additional information required by the Australian Securities Exchange listing rules and not shown elsewhere in this report is as follows: a. Distribution of equity securities (as at 8 September 2023) The number of shareholders by size of holding for fully paid ordinary shares are: Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Number of shareholders 1,379 1,023 251 182 29 2,864 Number of shares 539,580 2,611,960 1,868,875 4,674,976 41,878,343 51,573,734 The number of shareholders holding less than a marketable parcel of 48 shares is 227, a total of 895 shares. b. Twenty largest shareholders (as at 8 September 2023) The names of the 20 largest holders of quoted shares are: Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED UBS NOMINEES PTY LTD BELLWETHER INVESTMENTS PTY LTDRIVER CAPITAL NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MRS ANTONIA CAROLINE COLLOPY BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP REGAL PARTNERS LIMITED PAUL GREENWOOD BNP PARIBAS NOMINEES PTY LTD BOND STREET CUSTODIANS LIMITED NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 MR BRYAN F SHORT MR MICHAEL BRENDAN PATRICK DE TOCQUEVILLE MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED Number of shares 10,759,300 9,823,178 4,505,372 2,282,483 2,187,808 1,580,294 1,160,160 980,112 847,128 825,000 677,000 667,782 663,383 660,604 635,000 584,438 540,949 405,000 400,000 266,953 % 1.05 5.06 3.62 9.07 81.20 100.00 % 20.86 19.05 8.74 4.43 4.24 3.06 2.25 1.90 1.64 1.60 1.31 1.29 1.29 1.28 1.23 1.13 1.05 0.79 0.78 0.52 Total 20 Holders Balance of Register Total Register 40,451,944 11,340,827 51,573,734 78.44 21.99 100.00 ASX ADDITIONAL INFORMATION 102 103 c. Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Name Regal Funds Management Pty Limited1 River Capital Pty Ltd1 Perpetual Limited and its related bodies corporate Mr Michael C. Fitzpatrick Notes: Number of Shares 16,459,645 16,459,645 7,375,810 2,701,285 Current Interest 31.91% 31.91% 14.42% 5.24% 1 Regal Funds Management Pty Limited is a subsidiary of Regal Partners Limited (“Regal”) whereby the latter and River Capital Pty Ltd (“River Capital”) have become associates as a result of entering into a Funding Co-operation Agreement on 24 July 2023. Under the Funding Co-operation Agreement, Regal and River Capital have agreed to work together in relation to a potential acquisition of PAC, for which River Capital would provide funding. Regal and River Capital collectively owns 16,459,645 shares in PAC. d. Unquoted securities As at 8 September 2023, the Company has the following unquoted performance rights and options under its Employee LTI Plan – 412,500 performance rights – 2,430,000 options e. Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. f. Buyback There is no current on-market buy-back. Annual Report 2023 CORPORATE INFORMATION ABN 39 006 708 792 Directors Mr. Antony Robinson, Non-Executive Chairman Mr. Paul Greenwood, Executive Managing Director Mr. Jeremiah Chafkin, Non-Executive Director Ms. Melda Donnelly, Non-Executive Director Mr. Gilles Guérin, Lead Independent Director Mr. Peter Kennedy, Non-Executive Director Executive Management Mr. Paul Greenwood, Chief Executive Officer and Chief Investment Officer Mr. Ashley Killick, Chief Financial Officer Company Secretary Ms. Clare Craven Registered Office / Principal Place of Business Suite 3, Level 3, 257 Collins Street, Melbourne, VIC, 3000 Phone +61 3 8375 9611 www.paccurrent.com Share Register Computershare Investor Services Pty Limited 452 Johnston Street, Abbotsford, VIC, 3067 Phone +61 3 9415 5000 Bankers Westpac Banking Corporation Auditor Ernst & Young 200 George Street Sydney, NSW, 2000 Stock Exchange Listing Pacific Current Group Limited shares are listed on the Australian Securities Exchange, code: PAC MELBOURNE Suite 3, Level 3 257 Collins Street Melbourne, VIC 3000 Ph: +61 3 8375 9611 – TACOMA 909 A Street, Suite 810 Tacoma, WA 98402 Ph: +1 (253) 238 0417 – DENVER 44 Cook St., Suite 420 Denver, CO 80206 Ph: +1 (303) 321 9900