ANNUAL
REPORT
PENGANA CAPITAL
GROUP LIMITED
Formerly known as
Hunter Hall International Limited
ABN 43 059 300 426
ANNUAL REPORT
PENGANA CAPITAL
HEAD OFFICE
Level 12, 167 Macquarie Street
Sydney NSW 2000
Australia
Ph: +61 2 8524 9900
Fax: +61 2 8524 9901
PENGANA.COM
30 JUNE
2017
PENGANA.COM
PENGANA IS A LEADING
PROVIDER OF PREMIUM
PRODUCTS THAT ARE
BENCHMARK UNAWARE
AND ACTIVELY MANAGED.
CURRENTLY, PENGANA
HAS CIRCA $3.1 BILLION
OF FUNDS UNDER
MANAGEMENT
ACROSS BOTH GLOBAL
AND AUSTRALIAN
EQUITY STRATEGIES.
TABLE OF
CONTENTS
Corporate Directory
Letter from the Chairman
Letter from the Chief Executive Officer
Directors’ Report
Auditor’s Independence Declaration
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Members of Pengana Capital Group Limited
Shareholder Information
5
6
8
17
29
30
31
32
33
34
35
72
73
77
ANNUAL REPORT 2017 | 3
ANNUAL
REPORT
4 | PENGANA CAPITAL GROUP
CORPORATE
DIRECTORY
DIRECTORS
Warwick Negus
Non-Executive Chairman
Russel Pillemer
Managing Director and Chief Executive Officer
Robert Barry
Non-Executive Director
Jeremy Dunkel
Non-Executive Director
Kevin Eley
Non-Executive Director
David Groves
Non-Executive Director
COMPANY SECRETARY
Paula Ferrao
REGISTERED OFFICE
Level 12, 167 Macquarie Street
Sydney NSW 2000
Tel: +61 2 8524 9900
SHARE REGISTER
Computershare Investor Services Pty Limited
Level 4, 60 Carrington Street
Sydney NSW 2000
Tel: 1300 787 272
AUDITOR
Grant Thornton Audit Pty Ltd
Level 17, 383 Kent Street
Sydney NSW 2000
STOCK EXCHANGE
LISTING
Pengana Capital Group Limited shares are listed on
the Australian Securities Exchange (ASX: PCG)
WEBSITE
www.pengana.com
CORPORATE GOVERNANCE
STATEMENT
The Corporate Governance Statement,
which is approved at the same time as the Annual
Report, can be found at www.pengana.com
ANNUAL REPORT 2017 | 5
ANNUAL
REPORT
6 | PENGANA CAPITAL GROUP
6 | PENGANA CAPITAL GROUP
LETTER FROM
LETTER FROM
THE CHAIRMAN
THE CHAIRMAN
DEAR FELLOW PENGANA SHAREHOLDER
Thank you for your support of Pengana Capital Group (‘PCG’, the
‘Company’) through the 2017 financial year. I would also like to
welcome the 507 new shareholders who joined through the year.
This year has been one of significant change that has resulted in a
very positive outcome and future for the Company. After a period
of uncertainty for Hunter Hall International Limited (‘HHL’), you, our
shareholders, voted in favour of the merger of Pengana Holdings Pty
Ltd and HHL to create Pengana Capital Group Limited. The merged
entity will deliver a diversified offering of investment solutions to clients,
with $3.1 billion funds under management (‘FUM’) and it builds from
the strength and stability of the Pengana business model.
The highly synergistic nature of the businesses has meant that
our integration projects have been going well, and I’m happy to
report that we anticipate being able to deliver the cost savings
and revenue benefits to shareholders that we outlined in the
Explanatory Memorandum.
To understand the financial results in this report, it is important to note
that Australian Accounting Standards require that, as Pengana Holdings
Pty Ltd was determined the acquiring entity, only 1 month of financial
results from the previous Hunter Hall business was incorporated into
the financial results of PCG. This, along with the costs of integration,
means that this year’s results are not indicative of the future financial
performance of the Company. The letter from your Chief Executive
Officer, Russel Pillemer, provides more detail to accompany the financial
results, as well as some further insight into the Pengana business which
our newer shareholders in particular will find compelling.
The Board and the Pengana executive team are unanimous in
their excitement for the future of the Company. We are very well
placed to grow the merged entity and deliver value to our clients
and shareholders.
ANNUAL REPORT “ THE BOARD AND THE PENGANA EXECUTIVE
TEAM ARE UNANIMOUS IN THEIR
EXCITEMENT FOR THE FUTURE OF THE
COMPANY. WE ARE VERY WELL PLACED
TO GROW THE MERGED ENTITY AND
DELIVER VALUE TO OUR CLIENTS AND
SHAREHOLDERS.”
ANNUAL GENERAL MEETING
COMMUNICATION
Our Annual General Meeting (‘AGM’)
details are as follows:
Date:
Tuesday, 28 November, 2017
Time:
10.00 am
Location: Computershare
Level 4, 60 Carrington Street
Sydney
If you are unable to attend, we
encourage you to complete your
proxy vote.
Keeping our shareholders, as owners of the Company, informed is of utmost
importance to us. We have reviewed our communications strategy to ensure that
we provide you with timely, relevant information. You can keep up-to-date via:
• Investor and adviser roadshows twice per year
• Our AGM each year
• Our monthly fund newsletters
• Regular thought leadership and market insights papers
• Webinars and video insights from our Portfolio Managers
• Our new website, which you’ll continue to access via pengana.com
The best way to ensure that you are kept up-to-date on all of our communications
and insights, is to keep your email address updated and current on your
Computershare account and to subscribe to our communications via our website.
Thank you for your support in this year of change. Pengana is well placed to grow in
the coming years and I look forward to meeting many of you at our upcoming AGM.
Yours sincerely,
Warwick Negus
Chairman
ANNUAL REPORT 2017 | 7
LETTER FROM
THE CEO
DEAR FELLOW PENGANA SHAREHOLDER
I am very pleased to present the results for Pengana Capital Group
Limited (‘Pengana’, ASX: PCG). This being the first Annual Report post
the merger with Hunter Hall International Limited (‘HHL’), I want to
take the opportunity to introduce myself and Pengana, and give you a
brief background on our history, our focus and why our unique funds
management model is a platform that delivers long-term returns for our
investors and in turn, for you as a PCG shareholder.
The attached financial statements, which are prepared using the
Australian Accounting Standards (‘AAS’) and statutory requirements
are likely to be quite confusing for most shareholders and in my view,
are not a good indicator of the future potential earnings of the merged
group. In this report, I will attempt to address the issues in the financial
statements by providing further information and analysis that will
hopefully provide you with additional clarity regarding the historical
pro-forma performance of the merged group, as well as some insights
into our future earnings potential.
ANNUAL
REPORT
8 | PENGANA CAPITAL GROUP
THE PENGANA
STORY
PENGANA IS A LEADING PROVIDER OF PREMIUM
PRODUCTS THAT ARE BENCHMARK UNAWARE
AND ACTIVELY MANAGED. CURRENTLY, PENGANA
HAS CIRCA $3.1 BILLION OF FUNDS UNDER
MANAGEMENT (‘FUM’) ACROSS BOTH GLOBAL
AND AUSTRALIAN EQUITY STRATEGIES.
AN UNRELENTING
QUEST TO GENERATE
SUPERIOR LONG-TERM
RETURNS.
Over our 15-year history, Pengana’s primary focus has been “an unrelenting quest
to generate superior long-term returns” for our investors – which we define as good
long-term returns with lower risk and capital preservation. We are firmly of the view
that our clients come first and that if we deliver for our clients then our shareholders
will ultimately be major beneficiaries. This principle has guided Pengana as a private
company and will continue to guide us as a public company.
The recent merger with HHL was a landmark event for Pengana. Under this
transaction, Pengana effectively acquired HHL through a reverse takeover and
became a listed entity. This transaction created significant value for both sets of
shareholders as the two businesses were highly synergistic and complementary.
Both businesses operated predominantly in the Australian retail and high-net-worth
markets, and HHL funds were predominantly in global equities whereas Pengana’s
were predominantly in Australian equities. The addition of the HHL funds to Pengana
has substantially enhanced our business and prospects, creating a larger and more
diversified business.
Pengana’s unique funds management business model provides significant competitive
advantages and proven ability to deliver long-term returns. Pengana delivers
centralised support from our corporate team, so that our fund managers can focus
on managing their portfolios. Our fund managers are our partners and we share the
profits of the business with them. In addition, our active strategies, coupled with
non-benchmark mandates, gives our investment teams the freedom to invest in their
best ideas. These elements of the Pengana model provide us with an unrivalled
opportunity to attract and retain exceptional fund management teams who are vital to
generating long-term investment performance across our funds.
The Pengana corporate model also enhances the security of our client’s investments.
Our highly capable centralised risk management, compliance and operations
functions result in an extra layer of protection for our investors by providing an
inherent segregation of duties that is usually only found at much larger institutional
fund managers.
ANNUAL REPORT 2017 | 9
ANNUAL
REPORT
LETTER FROM THE CEO (CONTINUED)
Finally, because of Pengana’s ability to grow horizontally (i.e. by adding new
teams and strategies), we can afford to be highly disciplined when it comes
to assessing each strategy’s capacity constraints. For most strategies, at a
large amount of FUM, there is a well-known inverse relationship between
portfolio size and portfolio performance, and we will close (and have closed)
strategies to new investments when we assess that further growth will impede
future performance.
Over the past 4 years, Pengana pre-merger has experienced significant
increases in FUM growing by +26.7% p.a. whereas the HHL funds decreased
by -8.1% p.a. resulting in pro-forma growth for the merged group of +11.5%
p.a. One of the major aims of the merger is to put the ex-HHL funds on a
positive growth trajectory.
FUM OF MERGED GROUP (AS AT 30 JUNE 2017)1
$3,500
$3,000
$2,500
$2,020
$2,000
$1,500
$1,115
$1,000
1 . 5 %
$2,879
e d 4 Y C A G R : 1
$2,528
C o m b i n
$3,127
$794
$1,140
6 . 7 %
$2,333
$1,739
$2,140
$1,117
$960
n
e
P
A G R : 2
Y C
a 4
n
a
g
$1,411
$500
$905
$1,180
$0
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
Pengana pre-merger
Hunter Hall
1 Note: past performance is not a reliable indicator of future performance. The amount of FUM can
increase and decrease due to a range of factors including net fund flows, distributions to investors
and investment performance.
10 | PENGANA CAPITAL GROUP
ANNUAL REPORT PENGANA’S
INVESTMENT STRATEGIES
DIVERSIFICATION WITH PROVEN LONG-TERM TRACK RECORDS
Pengana’s FUM is spread across several active strategies including: Australian
multi-caps; Australian small-caps; global multi-caps; global small caps; Asian
absolute return equities; global equities market neutral; global impact investing;
and high conviction.
FUND STRATEGY BREAKDOWN OF MERGED GROUP (AS AT 30 JUNE 2017)
6%
1%
1%
24%
43%
25%
Australian multi-caps
Australian small-caps
Global multi-caps
Global small-caps
Hedge funds
Other
2 Note: past performance is not a reliable indicator of future performance. The value of investments
can increase and decrease.
We are particularly proud of the proven long-term performance track records
of each of our key strategies2. This is illustrated by the following table which
summarises performance since inception (‘SI’) to 30 June 2017 relative to the
equity index benchmarks.
ANNUAL REPORT 2017 | 11
ANNUAL
REPORT
LETTER FROM THE CEO (CONTINUED)
PENGANA’S INVESTMENT STRATEGIES (CONTINUED)
STRATEGY
Absolute Return Asia3
Australian Multi-caps4
Australian Small-caps5
Global Market Neutral6
Global Multi-caps7
Global Small-caps8
Global Impact Investing9
High Conviction10
* Since Inception
Strategy
inception
Strategy SI*
net return
Benchmark SI*
return
Outperformance of
benchmark SI*
Oct-08
Jul-08
Nov-04
Sep-10
Jul-15
Apr-15
Jan-06
Dec-14
8.4%
11.1%
13.8%
9.2%
8.5%
10.2%
5.1%
57.2%
na
5.4%
3.9%
na
7.0%
6.3%
4.9%
8.4%
na
5.7%
9.9%
na
1.4%
3.9%
0.2%
48.8%
Prior to the merger, HHL managed six vehicles with the bulk of the FUM invested in global equities, i.e. Hunter
Hall Value Growth Trust (‘VGT’), Hunter Hall Global Equities Trust (‘GET’) and the listed investment company
Hunter Hall Global Value Limited (ASX: HHV). Following the merger, there have been significant changes
with each of these vehicles now being managed by a highly experienced team that manages the Pengana
International Equities Fund (‘PIEF’), utilising the same global multi-cap strategy that has been used to run that
fund since 2015.
The Pengana International Equities strategy’s focus is on investing in a well-constructed portfolio of growing
businesses at reasonable valuations. It employs a benchmark–unaware strategy with freedom to invest across all
international equity markets and company sizes. I am confident that the Pengana International Equities team is
well placed to achieve the strategy’s ultimate aim of generating superior and consistent long-term returns whilst
reducing volatility and the risk of losing capital.
3 Pengana Absolute Return Asia Pacific Fund: equity market benchmark is na; performance fee benchmark is the RBA cash rate which has
returned +3.1% SI of the strategy. These performance figures show the returns of the Absolute Return Asia Pacific Fund from inception on
1 September 2010 to the current date and, for the period prior to 1 September 2010, the since inception returns for the Australian dollar
denominated shares issued by the Pengana Asia Special Events (Offshore) Fund (“Offshore Fund”) adjusted to reflect the different fees which
apply to the Fund. The strategy inception date is 1 October 2008. The Fund is fully invested into the Offshore Fund.
4 Pengana Australian Equity Fund: benchmark shown is the S&P/ASX All Ords Index; performance fee benchmark is the RBA cash rate which has
returned +3.2% SI of the strategy.
5 Pengana Emerging Companies Fund: benchmark is the S&P/ASX Small Ordinaries Index.
6 Pengana PanAgora Absolute Return Global Equities: equity market benchmark is na as this is a market neutral strategy; performance fee
benchmark is the RBA cash rate which has generated a 2.9% return SI of the strategy. From December 2015, these performance figures are those
of the Fund’s class A units. Between September 2010 and November 2015, AUD performance has been simulated by Pengana from the actual
USD Composite gross strategy returns (prior to April 2013 using the Monthly Liquidity Composite; thereafter using the Daily Liquidity Composite)
using 3 month rolling forwards to hedge movements in the AUDUSD spot rate. The effect of fees form part of this simulation. The Composite is
comprised of all discretionary institutional accounts managed by PanAgora in this investment style.
7 Pengana International Equity Fund: benchmark is the MSCI All Country World Net Unhedged in AUD.
8 Pengana Global Small Companies Fund: benchmark is the MSCI All Country World SMID Cap Net Unhedged in AUD.
9 Pengana WHEB Sustainable Impact Fund: benchmark is the MSCI World Net Unhedged in AUD. The strategy’s AUD performance has been
simulated by Pengana from the monthly net GBP returns of the Henderson Industries of the Future Fund (from 1 January 2006 to 31 December
2011) and the FP WHEB Sustainability Fund (from 30 April 2012 to 31 July 2017). This was done by: 1) converting the GBP denominated net
returns to AUD using FactSet’s month-end FX rates (London 4PM); 2) adding back the relevant fund’s monthly ongoing charge figure; then 3)
deducting the Pengana WHEB Sustainable Impact Fund’s management fee of 1.35% p.a. The WHEB Listed Equity strategy did not operate
between 1 January 2012 and 29 April 2012 – during this period returns are nulled. The Henderson Industries of the Future Fund’s and the FP
WHEB Sustainability Fund’s GBP net track record data is historical.
10 Hunter Hall High Conviction Trust: benchmark shown is the S&P/ASX All Ordinaries Index; performance fee benchmark is the RBA Cash Rate +
3% p.a. which returned 4.9% SI of the strategy.
12 | PENGANA CAPITAL GROUP
ANNUAL REPORT
COMMENTS ON RESULTS
FOR 2017
AN ATTEMPT TO PROVIDE ADDITIONAL CLARITY AND INSIGHTS
Pengana posted a statutory loss after tax attributable to Pengana shareholders of
$2.8 million for the year to 30 June 2017. As noted above, due to the reverse
acquisition accounting, the attached financial statements are likely to be quite
confusing for most shareholders and in my view, are not a good indicator of the
potential future earnings of the merged group. There are several key reasons for
this including:
1. Exclusion of the earnings associated with the HHL business for the first 11 months
of the year. The reason for this exclusion is that under the AAS, Pengana is deemed
to be the acquiring entity and because the acquisition took place on 1 June 2017,
only 1 month of HHL earnings are consolidated. In my view, it is relevant to include
the full 12 months in order to gain a better understanding of the future earnings of
the merged group.
2. Inclusion of costs associated with the merger. In my view, as these costs are non-
recurring, it is relevant to exclude them in order to gain a better understanding of
future earnings potential.
3. Inclusion of expenses associated with the Employee Loan Share Plan which was
established prior to the merger. In my view, as these costs are non-recurring
and/or non-cash items, it is relevant to exclude them in order to gain a better
understanding of future earnings potential.
4. Consolidation of one fund where Pengana has significant holdings. The reason
for this consolidation is that under AAS, where Pengana has been deemed to
“control” the fund vehicles it invests in, the financial accounts of these vehicles are
required to be consolidated into the financial results and position of Pengana. In
my view, in order to gain a clearer understanding of the future earnings potential
of our operating business, it is beneficial to exclude the consolidation of these fund
vehicles. I note, that over time, Pengana intends not to have “control” in
any of our funds.
In this report, I will attempt to address the above issues by providing additional
information and analysis. Hopefully this will provide you with further clarity and
insights relevant to your assessment of Pengana.
The following table shows a restatement of Pengana’s operating earnings before
interest, tax, depreciation and amortisation (‘Merged Entity Adjusted Operating
EBITDA’) for the year to 30 June 2017, after adjustments 1-4 as detailed above.
ANNUAL REPORT 2017 | 13
LETTER FROM THE CEO (CONTINUED)
PENGANA’S INVESTMENT STRATEGIES (CONTINUED)
ADJUSTED OPERATING EBITDA – YEAR ENDED 30 JUNE 201711
Pengana – excluding HHL
Operating revenue
Net fund administration expenses
Ongoing operating expenses
Net performance fees12
Pengana pre-merger adjusted operating EBITDA
HHL 12 months operating EBITDA
Merged Entity Adjusted Operating EBITDA
Reconciliation to Financial Statements
HHL 11 months operating EBITDA
Return on other investments and cash
Merger expenses (reverse acquisition and restructuring costs)
Employee loan share costs (share based payments expense)
Other non-operating expenses
Non-controlling interest
Loss before tax attributable to Pengana shareholders
Income tax expense
Statutory loss after tax attributable to Pengana shareholders13
$’000
14,565
(1,711)
(13,331)
5,530
5,053
6,129
11,182
(5,706)
2,771
(4,504)
(5,029)
(389)
(120)
(1,795)
(1,019)
(2,814)
11 Source: Pengana Management Accounts
12 Net of profit share to teams
13 As per Pengana Capital Group Limited 30 June 2017 Financial Statements
14 | PENGANA CAPITAL GROUP
ANNUAL REPORT
FUTURE EARNINGS
POTENTIAL
OPPORTUNITY TO GROW FUM AND LEVERAGE OUR EXPENSE BASE
Over the coming years, we aim to improve the profitability of the Pengana business
by growing our FUM and thereby our investment management fees. We have a highly
scalable infrastructure and are well placed to grow FUM and fees at a much faster rate
than the growth in expenses.
Going forward, our operating EBITDA will be affected by the following:
• Growth/reduction in management fees from growth/reduction in FUM. Note,
at least 45-50% of these fees should flow to the bottom line after profit share
payments to teams.
• Performance fees from various funds. Note, at least 45-50% of these fees should
flow to the bottom line after profit share payments to teams.
• Management fees from the ex-HHL vehicles. Note, these fees will be reduced due
to reductions in management fee rates as well as any net outflows of FUM.
• Increased ongoing operating expenses from the HHL business. Note, these were
stated in the Explanatory Memorandum to be $3 million i.e. $9 million less cost
savings of $6 million.
• As at 30 June 2017, Pengana had total net liquid assets of $29.7 million, including
$11.4 million in net cash and $18.3 million in investments in various Pengana
unit trusts and HHV. The return on these investments will impact earnings either
through the consolidation of fund vehicles or return on investments. Note,
Pengana has two Australian Financial Services Licenses (‘AFSL’), and for each AFSL,
we are required to maintain $5 million in liquid assets (including $2.5 million in
bank deposits).
CAPITAL MANAGEMENT
AND DIVIDENDS
ANNOUNCEMENT OF FINAL DIVIDEND
Pengana has no borrowings and at 30 June 2017 had $19.7 million of net liquid
assets in excess of our regulatory requirements of $10 million.
In addition to our net liquid assets, I also note that Pengana has provided employees
with loans of $27 million, used to acquire shares in Pengana (prior to the merger).
Whilst these loans do not appear on the balance sheet due to their treatment under
the AAS, they nevertheless are economic assets of Pengana. The average interest
rate on these loans is 7.9% (i.e. $2.1 million in total) and the employees are required
to apply 100% of the dividends that they receive on these shares (net of tax) to make
interest and capital payments.
We are pleased to announce a fully franked final dividend of 4.5 cents per share for
the six months to 30 June 2017. Shareholders on record at 14 September will receive
this dividend on 28 September 2017.
ANNUAL REPORT 2017 | 15
LETTER FROM THE CEO (CONTINUED)
CHARITABLE
CONTRIBUTIONS
SUSTAINABLE SOCIAL IMPACT
We aim to have a positive social impact via supporting worthy charities without diluting
shareholder returns. We do this in two key areas:
1. Encouraging our staff to donate time to charitable causes and we are very proud of the
contributions that they make.
2. The rebate of investment management fees where Pengana manages investments on behalf
of various charitable organisations, including the Third Link Growth Fund, the ORAH Fund,
and the Australian Philanthropic Services Foundation. In 2017, these equated to $146,000 and
these amounts are projected to grow over time.
THE
FUTURE
BUSINESS GROWTH AND ENHANCEMENT OF SHAREHOLDER VALUE
Over the last 15 years, Pengana built a funds management business that succeeded in delivering
long-term returns to our clients. This has enabled us to build a trusted brand and a wonderfully
loyal client base. By continuing to focus on our “unrelenting quest to generate superior long-
term returns for our investors”, we are well placed to continue to grow the business and enhance
shareholder value. Our growth prospects are further enhanced by, our exceptional people, and
our highly scalable business model and infrastructure.
Over the coming months, Pengana will be holding numerous events for shareholders and clients
around the country. I encourage you to contact us (via our website or telephone) and book
a place to attend. At Pengana, we pride ourselves on the relationship that we have with our
stakeholders and we would very much welcome the opportunity to meet with you in person.
I am truly excited about the long-term future of Pengana and I look forward to sharing this
journey with you.
Yours sincerely,
Russel Pillemer
Chief Executive Officer
16 | PENGANA CAPITAL GROUP
ANNUAL REPORT DIRECTORS’ REPORT
30 JUNE 2017
The Directors present their report, together with the Financial Statements, on the consolidated entity (referred to
hereafter as the ‘group’) consisting of Pengana Capital Group Limited (referred to hereafter as the ‘company’ or
‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2017.
DIRECTORS
The following persons were Directors of Pengana Capital Group Limited during the whole of the financial year
and up to the date of this report, unless otherwise stated:
Warwick Negus – Chairman
Russel Pillemer
Robert Barry
Jeremy Dunkel
Kevin Eley
David Groves
Wayne Hawkins
Peter Hall
Mark Forstmann
PRINCIPAL ACTIVITIES
Appointed on 1 June 2017
Appointed on 1 June 2017
Appointed on 1 June 2017
Appointed on 1 June 2017
Resigned on 1 June 2017
Resigned on 7 March 2017
Resigned on 8 September 2016
The principal activity of the group is funds management with the objective of offering investment funds to high
net worth and retail investors in Australia and New Zealand, and offshore investors.
DIVIDENDS
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2016 of $10.74 per Pengana Holdings Pty Ltd
ordinary share paid on 18 October 2016 prior to the reverse acquisition
Consolidated
2016
$’000
2017
$’000
6,000
–
On 30 August 2017, an inaugural dividend was declared for the year ended 30 June 2017 of 4.5 cents per
ordinary share fully franked with a record date of 14 September 2017 to be paid on 28 September 2017 by
Pengana Capital Group Limited.
Hunter Hall International Limited paid the following dividends prior to the reverse acquisition and they are not
included in the consolidated results:
(i) Final dividend for the year ended 30 June 2016 of 14.6 cents per ordinary share fully franked with a record
date of 12 September 2016 and payment date of 26 September 2016.
(ii) Interim dividend for the year ended 30 June 2017 of 4.0 cents per ordinary share fully franked with a record
date of 7 March 2017 and payment date 21 March 2017.
REVIEW OF OPERATIONS
On 1 June 2017, Hunter Hall International Limited (now renamed Pengana Capital Group Limited) (‘the legal
parent’ or ‘Hunter Hall’) acquired all the shares in Pengana Holdings Pty Ltd (‘the legal subsidiary’ or ‘Pengana
Holdings’) in return for the issuance of 74,147,449 Hunter Hall shares to the Pengana Holdings shareholders.
The result of the transaction is that the original Hunter Hall shareholders owned 26.9% and the Pengana Holdings
shareholders owned 73.1% of all the issued shares of the merged entity, known soon after as Pengana Capital
Group Limited (ASX: PCG).
The transaction has been accounted for as a business combination and the principles of reverse acquisition
accounting applied i.e. a reverse acquisition of Hunter Hall by Pengana Holdings. The current year represents the
consolidated entity comprising Pengana Holdings for the entire year and Hunter Hall from 1 June 2017 to
30 June 2017. The comparative information represents the results of Pengana Holdings only.
ANNUAL REPORT 2017 | 17
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
The loss for the group after providing for income tax and non-controlling interest amounted to $2,814,000
(30 June 2016: profit of $1,986,000) and includes a $4,504,000 non-recurring expense for costs of the reverse
acquisition and associated restructuring, and a share-based payment expense of $5,029,000.
The equity of the group has been reduced by 22,853,722 treasury shares ($27,220,000), which are a result of the
accounting of the loan share plan implemented during the year.
Please refer to the letter from the Chief Executive Officer for further information on the current year results and
future outlook.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 1 June 2017, Hunter Hall acquired Pengana Holdings Pty Ltd, as detailed above, and changed its name from
Hunter Hall International Limited to Pengana Capital Group Limited.
There were no other significant changes in the state of affairs of the group during the financial year.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since
30 June 2017 that has significantly affected, or may significantly affect the group’s operations, the results of
those operations, or the group’s state of affairs in future financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
Refer to the letter from the Chief Executive Officer for information on likely developments and further outlook.
ENVIRONMENTAL REGULATION
The group is not subject to any significant environmental regulation under Australian Commonwealth or State law.
INFORMATION ON DIRECTORS
Name:
Title:
Experience and expertise:
Other current directorships:
Warwick Negus
Non-Executive Chairman
Warwick Negus has more than 30 years’ experience in the finance industry
across Asia, Europe and Australia. His previous executive roles include
the Chief Executive Officer (‘CEO’) of Colonial First State Global Asset
Management, co-founder and CEO of 452 Capital, and a Managing Director
of Goldman Sachs in Australia, London and Singapore. He was also a Vice
President of Bankers Trust Australia.
Bank of Queensland Limited (ASX: BOQ); URB Investments Limited (ASX:
URB); Virgin Australia Holdings Limited (ASX: VAH) and Washington H Soul
Pattinson and Company Limited (ASX: SOL).
Former directorships (last 3 years): None.
Special responsibilities:
Member of the Audit and Risk Committee.
Interests in shares:
3,400,000 ordinary shares.
18 | PENGANA CAPITAL GROUP
ANNUAL REPORT Name:
Title:
Experience and expertise:
Russel Pillemer
Managing Director and Chief Executive Officer
Russel Pillemer co-founded Pengana in 2003 together with the Hon.
Malcolm Turnbull MP. He has been Pengana’s CEO since inception. Prior
to founding Pengana, Russel Pillemer worked in the Investment Banking
Division of Goldman Sachs in New York where he specialised in providing
advice to funds management businesses. Before moving to New York, he
was responsible for leading Goldman Sachs’ Australian Financial Institutions
Group. Russel Pillemer was previously Chairman of Centric Wealth Group
and a Principal of Turnbull Pillemer Capital.
Other current directorships:
Hunter Hall Global Value Limited (ASX: HHV).
Former directorships (last 3 years): None.
Special responsibilities:
None.
Interests in shares:
10,350,081 ordinary shares and 15,872,528 ordinary shares (treasury shares
held under the loan share plan).
Name:
Title:
Experience and expertise:
Robert Barry
Non-Executive Director
Robert Barry was previously Non-Executive Chairman of Pengana Holdings
Pty Ltd. He was previously Chairman of Snowy Hydro Limited, Deputy
Chairman of AWB Limited and Chairman and Director of a number of other
public and charitable organisations. He has spent 27 years in the investment
banking industry. He co-founded the Dominguez & Barry Group and was
Chief Executive of Dominguez Barry Samuel Montagu Limited, a predecessor
to UBS Australia. He has had extensive experience in the financial services
industry, both in Australia and internationally with three years in London as
Head of International Capital Markets for the Midland Bank Group.
Other current directorships:
None.
Former directorships (last 3 years): None.
Special responsibilities:
Interests in shares:
None.
None.
Name:
Title:
Experience and expertise:
Jeremy Dunkel
Non-Executive Director
Jeremy Dunkel is a Director of Taurus Capital, a family office investment
consultancy specialising in philanthropy. His accounting and finance
experience includes working for Chemical Bank, Chase Manhattan and Price
Waterhouse. He is a director of Education Heritage Foundation, and the
Moriah College Foundation, as well as the Chair of Y2i.
Other current directorships:
None.
Former directorships (last 3 years): None.
Special responsibilities:
Chairman of the Nomination and Remuneration Committee and member of
the Audit and Risk Committee.
Interests in shares:
1,803,150 ordinary shares.
ANNUAL REPORT 2017 | 19
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
Name:
Title:
Experience and expertise:
Kevin Eley
Non-Executive Director
Kevin Eley has over 31 years’ experience in management and investment in
a broad range of industries including, manufacturing, mining, retail, finance
and investment. Kevin Eley has worked for a major international accounting
firm, two investment banks and was CEO of HGL Limited.
Other current directorships:
Milton Corporation Limited (ASX: MLT); EQT Holdings Ltd (ASX: EQT) and
HGL Limited (ASX: HNG).
Former directorships (last 3 years): Po Valley Energy Limited (ASX: PVE) and Kresta Holdings Limited (ASX: KRS).
Special responsibilities:
Member of the Nomination and Remuneration Committee and former
member of the Audit and Risk Committee and former Chairman of the
Independent Board Committee.
Interests in shares:
200,000 ordinary shares.
Name:
Title:
Experience and expertise:
David Groves
Non-Executive Director
David Groves has 25 years’ experience as a company Director, including
15 years’ experience in financial services. David Groves is a Director of
Pipers Brook Vineyard Pty Ltd and Tasman Sea Salt Pty Ltd. He is a former
Director of Tassal Group Ltd and GrainCorp Ltd and a former executive with
Macquarie Bank Limited and its predecessor, Hill Samuel Australia. David
Groves is an advisory board member of the Australian Rugby Foundation
and a member of the Council of Wollongong University.
Other current directorships:
Hunter Hall Global Value Limited (ASX: HHV).
Former directorships (last 3 years): EQT Holdings Limited (ASX: EQT) and BCD Resources NL (ASX: BCD).
Special responsibilities:
Chairman of the Audit and Risk Committee, member of the Nomination
and Remuneration Committee and former member of the Independent
Board Committee.
Interests in shares:
343,473 ordinary shares.
‘Other current directorships’ quoted above are current directorships for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only
and excludes directorships of all other types of entities, unless otherwise stated.
20 | PENGANA CAPITAL GROUP
ANNUAL REPORT COMPANY SECRETARY
Ms Paula Ferrao has held the role of Company Secretary since 4 January 2017. Paula Ferrao is an executive
of the group and was previously interim CEO of Hunter Hall International Limited, having previously held the
position of Chief Financial Officer since 2010. Paula Ferrao has 19 years’ experience in the funds management
industry with strong expertise in financial reporting and tax for corporate entities, listed investment companies,
managed investment schemes and public offer superannuation funds and in all aspects of funds operations.
MEETINGS OF DIRECTORS
The number of meetings of the company’s Board of Directors (‘the Board’) and of each Board committee held
during the year ended 30 June 2017, and the number of meetings attended by each Director were:
Full Board
Nomination and
Remuneration
Audit and Risk
Committee
Attended
Held
Attended
Held
Attended
Held
Warwick Negus
Russel Pillemer
Robert Barry
Jeremy Dunkel
Kevin Eley
David Groves
Wayne Hawkins
Peter Hall
Mark Forstmann
Kevin Eley
David Groves
Wayne Hawkins
2
2
2
1
15
15
12
5
2
2
2
2
2
15
15
13
7
2
–
–
–
–
3
3
3
–
2
–
–
–
–
3
3
3
–
2
1
–
–
1
5
6
4
–
1
1
–
–
1
5
6
5
–
1
Independent Board Committee*
Held
Attended
9
9
9
9
9
9
Held: represents the number of meetings held during the time the Director held office or was a member of the
relevant committee.
*The Independent Board Committee was established to assess the various options available to Hunter Hall following the resignation of Peter Hall
as its Chief Investment Officer. This committee has now been dissolved.
REMUNERATION REPORT (AUDITED)
The Remuneration Report details the key management personnel (‘KMP’) remuneration arrangements for the
group, in accordance with the requirements of the Corporations Act 2001 and its Regulations.
KMP are those persons having authority and responsibility for planning, directing and controlling the activities of
the entity, directly or indirectly, including all Directors.
ANNUAL REPORT 2017 | 21
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
REMUNERATION REPORT (AUDITED) (CONTINUED)
Principles used to determine the nature and amount of remuneration
The objective of the group’s executive reward framework is to ensure reward for performance is competitive and
appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic
objectives and the creation of value for shareholders, and it is considered to conform to the market best practice
for the delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the
following key criteria for good reward governance practices:
• competitiveness and reasonableness;
• acceptability to shareholders;
• performance linkage/alignment of executive compensation; and
• transparency.
The Nomination and Remuneration Committee (‘NRC’) is responsible for determining and reviewing
remuneration arrangements for its Directors and executives. The performance of the group depends on the
quality of its Directors and executives. The remuneration philosophy is to attract, motivate and retain high
performance and high quality personnel.
The remuneration framework of Pengana Holdings Pty Ltd has been adopted by the group and the recently
established NRC will monitor, review and amend the framework going forward to ensure that it remains market
competitive and complementary to the reward strategy of the group.
In accordance with best practice corporate governance, the structure of Non-Executive Director and executive
remuneration is separate.
Non-Executive Directors’ remuneration
Non-Executive Directors each have a letter of appointment with the company. Fees and payments to Non-
Executive Directors reflect the demands and responsibilities of their role. Non-Executive Directors’ fees and
payments are reviewed annually by the NRC. The NRC may, from time to time, receive advice from independent
remuneration consultants to ensure Non-Executive Directors’ fees and payments are appropriate and in line with
the market. The Chairman’s fees are determined independently to the fees of other Non-Executive Directors
based on comparative roles in the external market. The Chairman is not present at any discussions relating to the
determination of his own remuneration. Non-Executive Directors do not receive share options or other incentives.
ASX listing rules require the aggregate Non-Executive Directors’ remuneration be determined periodically by
a general meeting. The most recent determination was at the Annual General Meeting held on 16 November
2016, where the shareholders approved a maximum annual aggregate remuneration of $500,000.
Executive remuneration
The group aims to reward executives based on their position and responsibility, with a level and mix of
remuneration which has both fixed and variable components.
The executive remuneration and reward framework has the following components:
• fixed remuneration, including superannuation and long service leave; and
• share-based payments.
The combination of these comprises the executive’s total remuneration.
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, will be reviewed
annually by the NRC based on individual and business unit performance, the overall performance of the group
and comparable market remuneration.
Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not
create any additional costs to the group and provides additional value to the executive.
Short-Term Incentives (‘STI’) are payable to KMP and other executives at the discretion of the Board and are not
directly linked to the group profitability, however the profitability of the group is taken into consideration when
determining bonuses. No STI was paid to KMP and other executives for the year ended 30 June 2017.
22 | PENGANA CAPITAL GROUP
ANNUAL REPORT
Long-Term incentives (‘LTI’)
The Long-Term Incentives (‘LTI’) include long service leave and share-based payments.
Prior to the reverse acquisition, Pengana Holdings Pty Ltd implemented a Loan Share Plan (‘LSP’) whereby it
provided limited recourse loans to the CEO, certain employees and fund managers to acquire shares in Pengana
Holdings Pty Ltd. Refer to section ‘Share-based compensation’ below for details of the LSP.
A condition of the merger was a voluntary escrow of equity owned by KMP and other executives. The escrow
periods range from one to six years.
Use of remuneration consultants
During the financial year PricewaterhouseCoopers was engaged by Pengana Holdings Pty Ltd to establish the
LSP. PricewaterhouseCoopers was paid $189,357 for these services.
An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free
from undue influence from KMP. The Board is satisfied that these protocols were followed and as such there was
no undue influence.
Voting and comments made at the company’s 2016 Annual General Meeting (‘AGM’)
At the 2016 AGM, shareholders voted to approve the adoption of the Remuneration Report of Hunter Hall
International Limited for the year ended 30 June 2016. The company did not receive any specific feedback at the
AGM regarding its remuneration practices.
Details of remuneration
Amounts of remuneration
Details of the remuneration of KMP of the group are set out in this section.
Prior to the acquisition on 1 June 2017, Pengana Holdings Pty Ltd was not required to prepare a Remuneration
Report in accordance with the Corporations Act 2001. As such, Remuneration Report information is presented
only for 2017.
The 2017 table below represents remuneration paid by the group consisting of Pengana Holdings Pty Ltd and
its subsidiaries for the entire financial year and Hunter Hall International Limited (now known as Pengana Capital
Group Limited) for the period from 1 June 2017 to 30 June 2017.
The KMP of the group consisted of the Directors of Pengana Capital Group Limited and the following person:
• Katrina Glendinning – Chief Financial Officer
ANNUAL REPORT 2017 | 23
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
REMUNERATION REPORT (AUDITED) (CONTINUED)
Short-term benefits
Post-
employment
benefits
Long-
term
benefits
Share-
based
payments
Cash salary
and fees
$
Cash
bonus
$
Non-
monetary
$
Super-
annuation
$
Long
service
leave
$
Equity-
settled
$
1,012
28,472
651
578
723
–
–
–
–
–
–
–
–
–
–
Total
$
11,667
61,919
7,500
6,666
8,333
19,616
9,721
4,906,218
5,519,085
19,616
(3,421)
7,463
357,188
70,668
6,300
4,913,681
5,972,358
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
Non-Executive Directors:
Warwick Negus*
Robert Barry
Jeremy Dunkel
Kevin Eley*
David Groves*
10,655
33,447
6,849
6,088
7,610
Executive Directors:
Russel Pillemer
583,530
Other KMP:
Katrina Glendinning
333,530
981,709
* KMP of the group from 1 June 2017
Non-Executive Directors’ remuneration is 100% fixed. The share-based payment incentive relates to the LSP.
Name
Executive Directors:
Russel Pillemer
Other KMP:
Katrina Glendinning
Fixed
remuneration
2017
LTI
2017
11%
89%
98%
2%
LTI components of Russel Pillemer is skewed for the year ended 30 June 2017 due to the share-based payment
expense resulting from loan funded share issued to Russel Pillemer under the LSP. Refer to ‘Share-based
compensation’ section below for further details.
24 | PENGANA CAPITAL GROUP
ANNUAL REPORT SERVICE AGREEMENTS
Remuneration and other terms of employment for group executives are formalised in employment agreements.
Details of the employment agreements with KMP are as follows:
Name:
Title:
Russel Pillemer
Managing Director and Chief Executive Officer
Term of agreement:
Ongoing – no fixed minimum term
Details:
Name:
Title:
Total fixed salary of $603,146 per annum, which includes statutory
superannuation contributions and any salary sacrifice arrangements.
Russel Pillemer participates in the LSP. Either party may terminate the
employment agreement by providing six months’ notice.
Katrina Glendinning
Chief Financial Officer
Term of agreement:
Ongoing – no fixed minimum term
Details:
Salary: Total fixed salary of $364,173 per annum, which includes
statutory superannuation contributions and any salary sacrifice
arrangements. Katrina Glendinning participates in the LSP. Either
party may terminate the employment agreement by providing six
months’ notice.
KMP have no entitlement to termination payments in the event of removal for misconduct.
SHARE-BASED COMPENSATION
Issue of shares under the Loan Share Plan (‘LSP’)
Pengana Holdings Pty Ltd (‘Pengana Holdings’) implemented a LSP whereby Pengana Holdings provided
limited recourse loans to the CEO and certain employees and fund managers of Pengana Holdings to acquire
shares in Pengana Holdings. Under the LSP, Russel Pillemer received two loans totalling $18,905,360 to acquire
15,872,528 shares and Katrina Glendinning received one loan of $503,704 to acquire 422,899 shares. The shares
associated with the LSP granted to Russel Pillemer were not subject to a vesting condition and vested on the
date the shares were granted. Katrina Glendinning’s shares have a service vesting period of five years.
As the share acquisitions are funded by limited recourse loans they are treated for accounting purposes similar
to grants of share options and accounted for as equity-settled share-based payments. The shares issued under
the LSP are fair valued on the date they are granted and amortised as an expense in profit or loss over the
vesting period.
The terms and conditions of each grant of shares under the LSP affecting remuneration of Directors and other
KMP in this financial year or future reporting years are as follows:
Grant date
Name: Number of loan shares
Expiry date
Exercise price
01/03/2017
Russel Pillemer: 5,149,796
01/03/2017
Russel Pillemer: 10,722,732
03/03/2017
Katrina Glendinning: 422,899
28/02/2024
28/02/2024
01/03/2024
$1.49
$1.20
$1.49
Fair value per loan
shares at grant date
$0.271
$0.328
$0.271
ANNUAL REPORT 2017 | 25
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
REMUNERATION REPORT (AUDITED)(CONTINUED)
The number of shares under the LSP granted to and vested by Directors and other KMP as part of compensation
during the year ended 30 June 2017 are set out below:
Name
Russel Pillemer
Katrina Glendinning
Number of loan shares
granted during the year 2017
Number of loan shares
vested during the year 2017
15,872,528
422,899
15,872,528
–
There were no options over ordinary shares issued to Directors and other KMP as part of compensation that were
outstanding as at 30 June 2017.
ADDITIONAL DISCLOSURES RELATING TO KMP
Shareholding
The number of shares in the company, excluding shares under the LSP, held during the financial year by each
Director and other members of KMP of the group, including their personally related parties, is set out below:
Balance at the
start of the year
Additions Disposal/other
Shares issued
on reverse
acquisition
Balance at
the end of
the year
Ordinary shares:
Warwick Negus
Jeremy Dunkel
Kevin Eley*
David Groves*
Peter Hall*
Mark Forstmann* **
Wayne Hawkins* **
Russel Pillemer
Katrina Glendinning
–
–
60,000
31,221
12,002,270
60,215
48,000
–
–
41,693
–
140,000
312,252
–
–
–
–
–
–
–
–
–
(12,002,270)
(60,215)
(48,000)
3,358,307
3,400,000
1,803,150
1,803,150
–
–
–
–
–
200,000
343,473
–
–
–
–
–
10,350,081
10,350,081
2,186,620
2,186,620
12,201,706
493,945
(12,110,485)
17,698,158
18,283,324
* Balance at the start of the year represents original shareholding in Hunter Hall International Limited.
** Disposals/other represents shares held at resignation date and not necessarily physical disposal.
26 | PENGANA CAPITAL GROUP
ANNUAL REPORT Shares under the Loan Share Plan
The number of shares under the LSP in the company held during the financial year by each Director and other
members of KMP of the group, including their personally related parties, is set out below:
Balance at
the start of
the year
Granted
Exercised
Shares issued
on reverse
acquisition*
Balance at
the end of
the year
Shares under the Loan
Share Plan:
Russel Pillemer
Katrina Glendinning
–
–
–
–
–
–
–
–
–
15,872,528
15,872,528
422,899
422,899
16,295,427
16,295,427
* Shares under the LSP granted in Pengana Holdings were converted to shares under the LSP in Pengana Capital Group Limited.
This concludes the Remuneration Report, which has been audited.
SHARES UNDER THE LOAN SHARE PLAN AND SHARES UNDER OPTIONS
Shares under the LSP in Pengana Capital Group Limited and reported as treasury shares at the date of this report
are as follows:
Grant date
01/03/2017
01/03/2017
03/03/2017
Expiry date
28/02/2024
28/02/2024
01/03/2024
Exercise price
Number of loan shares
$1.49
$1.20
$1.49
5,149,796
10,722,732
6,981,194
22,853,722
Loans attached to the treasury shares total $27,220,000 and are reported as a reduction in issued capital, due to
the operability of the LSP being accounted for as share-based payments, similar in nature to options.
There were no unissued ordinary shares of Pengana Capital Group Limited under option outstanding at the date
of this report.
SHARES ISSUED ON THE EXERCISE OF OPTIONS
There were no ordinary shares of Pengana Capital Group Limited issued on the exercise of options during the
year ended 30 June 2017 and up to the date of this report.
INDEMNITY AND INSURANCE OF OFFICERS
During the financial year the company and Pengana Holdings Pty Ltd paid premiums in respect of contracts to
insure the Directors and executives of the company and group. The contract of insurance prohibits disclosure of
the nature of the risks insured and the amount of the premium.
INDEMNITY AND INSURANCE OF AUDITOR
The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the
auditor of the company or any related entity against a liability incurred by the auditor.
During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of
the company or any related entity.
ANNUAL REPORT 2017 | 27
DIRECTORS’ REPORT – 30 JUNE 2017 (CONTINUED)
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for
the purpose of taking responsibility on behalf of the company for all or part of those proceedings.
NON-AUDIT SERVICES
There were no non-audit services provided during the financial year by the auditor.
OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF GRANT THORNTON AUDIT PTY LTD
There are no officers of the company who are former partners of Grant Thornton Audit Pty Ltd.
ROUNDING OF AMOUNTS
The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities
and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off
in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the
nearest dollar.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001
is set out immediately after this Directors’ Report.
AUDITOR
Grant Thornton Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations
Act 2001.
On behalf of the Directors,
Russel Pillemer
Chief Executive Officer
30 August 2017
Sydney
28 | PENGANA CAPITAL GROUP
ANNUAL REPORT AUDITOR’S INDEPENDENCE
DECLARATION
ANNUAL REPORT 2017 | 29
STATEMENT OF
PROFIT OR LOSS
Revenue
Management fees
Performance fees
Other fee revenue
Total revenue
Share of profits/(losses) of associates accounted for using the equity method
Other income and gains
Total revenue and income
Expenses
Human resources expenses
Fund manager profit share expense
Fund administration expenses
Distribution expenses
Distributions paid to unitholders
Occupancy expenses
Technology and communications expenses
Marketing and research expenses
Insurance expenses
Professional, registry and listing related expenses
Reverse acquisition and restructuring costs
Depreciation and amortisation expenses
Other operating expenses
Finance costs
Total expenses
Profit/(loss) before income tax expense
Income tax expense
Profit/(loss) after income tax expense for the year
Profit/(loss) for the year is attributable to:
Non-controlling interest
Owners of Pengana Capital Group Limited
Basic earnings per share
Diluted earnings per share
Refer to note 1 for explanation on comparatives.
Consolidated
2017
$’000
24,871
11,947
76
2016
$’000
18,764
16,505
82
36,894
35,351
859
7,348
(746)
59
45,101
34,664
(14,725)
(14,729)
(3,128)
(558)
(4,230)
(1,146)
(1,013)
(1,052)
(224)
(769)
(4,504)
(388)
(310)
–
(9,810)
(13,672)
(2,896)
(1,621)
–
(953)
(1,140)
(887)
(154)
(497)
–
(203)
(259)
(201)
(46,776)
(32,293)
(1,675)
(1,019)
(2,694)
120
(2,814)
(2,694)
Cents
(4.39)
(4.39)
2,371
(362)
2,009
23
1,986
2,009
Cents
2.96
2.96
Note
4
5
5
5
5
6
35
35
The above statement of profit or loss should be read in conjunction with the accompanying notes.
30 | PENGANA CAPITAL GROUP
ANNUAL REPORT STATEMENT OF
COMPREHENSIVE INCOME
Profit/(loss) after income tax expense for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Gain on the revaluation of available-for-sale financial assets, net of tax
Other comprehensive income for the year, net of tax
Consolidated
2017
$’000
(2,694)
2016
$’000
2,009
3
3
–
–
Total comprehensive income for the year
(2,691)
2,009
Total comprehensive income for the year is attributable to:
Non-controlling interest
Owners of Pengana Capital Group Limited
Refer to note 1 for explanation on comparatives.
120
(2,811)
(2,691)
23
1,986
2,009
The above statement of profit or loss should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2017 | 31
STATEMENT OF
FINANCIAL POSITION
Assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Investments in financial assets at fair value through profit or loss
Derivative financial instruments
Income tax refund due
Other current assets
Total current assets
Non-current assets
Other receivables
Investments accounted for using the equity method
Investments in available-for-sale financial assets
Property, plant and equipment
Intangibles
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Derivative financial instruments
Employee benefits
Net assets attributable to unitholders
Total current liabilities
Non-current liabilities
Security deposits held
Deferred tax
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Equity attributable to the owners of Pengana Capital Group Limited
Non-controlling interest
Total equity
Refer to note 1 for explanation on comparatives.
Note
Consolidated
2017
$’000
2016
$’000
7
8
9
6
10
11
12
13
14
15
6
16
6
17
18
20,167
4,940
26,768
–
905
802
6,347
7,153
3,620
29
319
511
53,582
17,979
2,258
3,712
7,196
362
65,992
–
79,520
133,102
16,876
–
511
18,768
36,155
5
6,256
569
6,830
42,985
90,117
87,161
28,899
(25,995)
90,065
52
2,777
21,726
–
314
–
813
25,630
43,609
8,971
11
274
2,081
11,337
18
–
240
258
11,595
32,014
25,298
29,867
(23,181)
31,984
30
90,117
32,014
The above statement of profit or loss should be read in conjunction with the accompanying notes.
32 | PENGANA CAPITAL GROUP
ANNUAL REPORT STATEMENT OF
CHANGES IN EQUITY
Consolidated
Balance at 1 July 2015
Profit after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
25,298
29,867
(25,167)
–
–
–
–
–
–
1,986
–
1,986
Balance at 30 June 2016
25,298
29,867
(23,181)
Non-
controlling
interest
$’000
7
23
–
23
30
Total
equity
$’000
30,005
2,009
–
2,009
32,014
Total
equity
$’000
32,014
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Non-
controlling
interest
$’000
25,298
29,867
(23,181)
30
Consolidated
Balance at 1 July 2016
Profit/(loss) after income tax expense for
the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Contributions of equity,
net of transaction costs (note 17)
Treasury shares (note 17)
Share-based payments
Dividends paid (note 19)
–
–
–
89,083
(27,220)
–
3
3
–
–
–
–
5,029
(6,000)
(2,814)
120
(2,694)
–
–
3
(2,814)
120
(2,691)
–
–
–
–
–
–
–
(98)
52
89,083
(27,220)
5,029
(6,098)
90,117
Balance at 30 June 2017
87,161
28,899
(25,995)
Refer to note 1 for explanation on comparatives.
The above statement of profit or loss should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2017 | 33
STATEMENT OF
CASH FLOWS
Consolidated
Note
2017
$’000
2016
$’000
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers, customers and employees (inclusive of GST)
Dividends received
Interest received
Other revenue
Interest and other finance costs paid
Proceeds from the sale of financial instruments held at fair value
Purchase of financial instruments held at fair value through profit or loss
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Cash acquired on acquisition of subsidiaries
Cash on disposal of interests in subsidiaries
Payments for property, plant and equipment
Redemption of non-controlling interest shares
Proceeds from security deposits
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from unitholders
Payment made towards issue of loan share plan
Proceeds from loan repayments
Repayment of borrowings
32
28
Dividends paid to company shareholders
19
Dividends paid to non-controlling interests and unitholders
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
41,579
(40,255)
1,324
249
94
483
–
26,778
(2,245)
(1,032)
38,961
(33,891)
5,070
1,448
80
566
(103)
2,320
(6,929)
(2,021)
25,651
431
18,836
(553)
(232)
(1,121)
(5)
16,925
–
–
(101)
–
57
(44)
–
4,041
(18,905)
436
–
(6,000)
(4,249)
(28,718)
13,858
6,347
(38)
–
–
(4,000)
–
–
41
428
5,958
(39)
Cash and cash equivalents at the end of the financial year
7
20,167
6,347
Refer to note 1 for explanation on comparatives.
The above statement of profit or loss should be read in conjunction with the accompanying notes.
34 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
NEW OR AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED
The group has adopted all of the new or amended Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption
of these Accounting Standards and Interpretations did not have any significant impact on the financial performance
or position of the group.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
BASIS OF PREPARATION
On 1 June 2017, Pengana Capital Group Limited (previously known as Hunter Hall International Limited (‘Hunter
Hall’) acquired Pengana Holdings Pty Ltd (‘the legal subsidiary’ or ‘Pengana Holdings’). For accounting purposes,
the transaction has been accounted for by applying the principles of reverse acquisition accounting.
These financial statements represent a continuation of Pengana Holdings since that entity is deemed the
accounting acquirer pursuant to accounting standards, and therefore the comparative results represents that of
Pengana Holdings’ operations and not that of Hunter Hall. Therefore, the comparatives will not compare to the
consolidated financial statements of Hunter Hall International Limited published in the prior financial reporting
period. The current year financial results represent those of the consolidated entity comprising Pengana Holdings
for the entire year and the legal parent Hunter Hall from 1 June 2017 to 30 June 2017.
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations
Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International
Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’).
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the
revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss and
derivative financial instruments.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the financial statements, are disclosed in note 2.
PARENT ENTITY INFORMATION
In accordance with the Corporations Act 2001, these financial statements present the results of the group only.
Supplementary information about the parent entity is disclosed in note 27.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Pengana Capital Group
Limited (‘company’ or ‘parent entity’) as at 30 June 2017 and the results of all subsidiaries for the year then ended.
Pengana Capital Group Limited and its subsidiaries together are referred to in these financial statements as the ‘group’.
Subsidiaries are all those entities over which the group has control. The group controls an entity when the group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the group. They are de-consolidated from the date that control ceases.
The acquisition of Pengana Holdings by Hunter Hall has been accounted for by applying the principles of reverse
acquisition accounting, and the consolidated financial statements represent a continuation of the financial
statements of Pengana Holdings. Refer to ‘Business Combinations’ accounting policy for a further explanation of
the accounting for this transaction.
ANNUAL REPORT 2017 | 35
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION (CONTINUED)
Intercompany transactions, balances and unrealised gains on transactions between entities in the group are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment
of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in
ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference
between the consideration transferred and the book value of the share of the non-controlling interest acquired is
recognised directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the Statement of Profit
or Loss, Statement of Financial Position and Statement of Changes in Equity of the group. Losses incurred by the
group are attributed to the non-controlling interest in full, even if that results in a deficit balance.
Where the group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-
controlling interest in the subsidiary together with any cumulative translation differences recognised in equity.
The group recognises the fair value of the consideration received and the fair value of any investment retained
together with any gain or loss in profit or loss.
OPERATING SEGMENTS
Operating segments are presented using the ‘management approach’, where the information presented is on
the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM
are responsible for the allocation of resources to operating segments and assessing their performance.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in Australian dollars, which is Pengana Capital Group Limited’s functional
and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates
at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars
using the average exchange rates, which approximate the rates at the dates of the transactions, for the period.
All resulting foreign exchange differences are recognised in other comprehensive income through the foreign
currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is
disposed of.
REVENUE RECOGNITION
Revenue is recognised when it is probable that the economic benefit will flow to the group and the revenue can
be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.
Management fees
Management fees are recognised on an accruals basis based on the portfolio managed, net of any fund
manager rebates.
Performance fees
Performance fees are recognised when the right to receive payment has been established. Performance fees
which are contingent upon performance to be determined at future dates have not been recognised as income
or as a receivable at the reporting date as they are not able to be estimated or measured reliably and may
change significantly.
36 | PENGANA CAPITAL GROUP
ANNUAL REPORT Dividends and distributions
Dividends and distributions are recognised when received or when the right to receive payment is established.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the relevant period
using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount of the financial asset.
Rental income
Rent revenue is recognised on a straight-line basis over the lease term. Lease incentives granted are recognised
as part of the rental revenue. Contingent rentals are recognised as income in the period when earned.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
FUND MANAGER PROFIT SHARE EXPENSE
Fund manager profit share expense represent a ‘shadow equity’ program for fund managers under which the
fund managers receive an agreed percentage of the profits of their respective fund and/or strategy ensuring
alignment of interests between shareholders, fund managers and fund investors.
INCOME TAX
The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on
the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods,
where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be
applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or
substantively enacted, except for:
• When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or
liability in a transaction that is not a business combination and that, at the time of the transaction, affects
neither the accounting nor taxable profits; or
• When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures,
and the timing of the reversal can be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date.
Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits
will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are
recognised to the extent that it is probable that there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current
tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate
to the same taxable authority on either the same taxable entity or different taxable entities which intend to
settle simultaneously.
Tax consolidated group
Pengana Capital Group Limited (the ‘head entity’) and its wholly-owned Australian subsidiaries formed an
income tax consolidated group under the tax consolidation regime on 1 July 2003, which Pengana Holdings Pty
Ltd and its wholly-owned Australian subsidiaries joined on 1 June 2017.
The head entity and each subsidiary in the tax consolidated group continue to account for their own current and
deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in
determining the appropriate amount of taxes to allocate to members of the tax consolidated group.
ANNUAL REPORT 2017 | 37
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAX CONSOLIDATED GROUP (CONTINUED)
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each
subsidiary in the tax consolidated group.
The head entity and its wholly owned subsidiaries have entered a tax sharing agreement whereby each company
in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax
of the tax consolidated group. In addition, Pengana Holdings Pty Ltd and its wholly owned subsidiaries have a
tax funding agreement that ensures the tax payable is met by Pengana Holdings Pty Ltd. Any difference between
the amounts assumed and the amount receivable or payable under the tax funding agreement is recognised as a
contribution to, or distribution from, Pengana Holdings Pty Ltd.
CURRENT AND NON-CURRENT CLASSIFICATION
Assets and liabilities are presented in the Statement of Financial Position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in
the group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised
within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are
classified as non-current.
A liability is classified as current when: it is either expected to be settled in the group’s normal operating cycle;
it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period;
or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting
period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-
term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
TRADE AND OTHER RECEIVABLES
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment. These receivables represent management fees that
are accrued daily and paid monthly by the funds. They are usually recoverable within 20 business days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable
are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised
when there is objective evidence that the group will not be able to collect all amounts due according to the
original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 30 days overdue)
are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance
is the difference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted
if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. Subsequent changes in fair value are taken to
profit or loss as the group does not designate derivatives as hedging instruments.
Derivatives are classified as current or non-current depending on the expected period of realisation.
38 | PENGANA CAPITAL GROUP
ANNUAL REPORT ASSOCIATES
Associates are entities over which the group has significant influence but not control or joint control. Investments
in associates are accounted for using the equity method. Under the equity method, the share of the profits or
losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised
in other comprehensive income. Investments in associates are carried in the Statement of Financial Position at
cost plus post-acquisition changes in the group’s share of net assets of the associate. Goodwill relating to the
associate is included in the carrying amount of the investment and is neither amortised nor individually tested for
impairment. Dividends received or receivable from associates reduce the carrying amount of the investment.
When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any
unsecured long-term receivables, the group does not recognise further losses, unless it has incurred obligations
or made payments on behalf of the associate.
The group discontinues the use of the equity method upon the loss of significant influence over the associate
and recognises any retained investment at its fair value. Any difference between the associate’s carrying amount,
fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
INVESTMENTS AND OTHER FINANCIAL ASSETS
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part
of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently
measured at either amortised cost or fair value depending on their classification. Classification is determined
based on the purpose of the acquisition and subsequent reclassification to other categories is restricted.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the group has transferred substantially all the risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains
and losses are recognised in profit or loss when the asset is derecognised or impaired.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are either: (i) held for trading, where they are acquired for the
purpose of selling in the short-term with an intention of making a profit; or (ii) designated as such upon initial
recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting
mismatch. Fair value movements are recognised in profit or loss.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets, principally equity securities, which are
either designated as available-for-sale or not classified as any other category. After initial recognition, fair value
movements are recognised in other comprehensive income through the available-for-sale reserve in equity.
Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when
the asset is derecognised or impaired.
Impairment of financial assets
The group assesses at the end of each reporting period whether there is any objective evidence that a financial
asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the
issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a
borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes
probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active
market for the financial asset; or observable data indicating that there is a measurable decrease in estimated
future cash flows.
The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost
that would have been recognised had the impairment not been made and is reversed to profit or loss.
ANNUAL REPORT 2017 | 39
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF FINANCIAL ASSETS (CONTINUED)
The amount of the impairment allowance for financial assets carried at cost is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the current market rate of
return for similar financial assets.
Available-for-sale financial assets are considered impaired when there has been a significant or prolonged
decline in value below initial cost. Subsequent increments in value are recognised in other comprehensive
income through the available-for-sale reserve.
PROPERTY, PLANT AND EQUIPMENT
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and
equipment over their expected useful lives as follows:
Leasehold improvements
Furniture and fittings
Plant and equipment
5 years
5–10 years
2–4 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of
the lease or the estimated useful life of the assets, whichever is shorter.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic
benefit to the group. Gains and losses between the carrying amount and the disposal proceeds are taken to
profit or loss.
LEASES
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use
of a specific asset or assets and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially
all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the
lessor effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets,
or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal
component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the
remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of
the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at
the end of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a
straight-line basis over the term of the lease.
INTANGIBLE ASSETS
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their
fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost.
Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment.
Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains
or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the
difference between net disposal proceeds and the carrying amount of the intangible asset. The method and
useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption
or useful life are accounted for prospectively by changing the amortisation method or period.
40 | PENGANA CAPITAL GROUP
ANNUAL REPORT
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually
for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and
is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss
and are not subsequently reversed.
Acquired relationships
Relationships acquired in a business combination are amortised on a straight-line basis over the period of their
expected benefit, being their finite useful life of between 7 and 13 years.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events
or changes in circumstances indicate that it might be impaired. Other non-financial assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use
is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific
to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows
are grouped together to form a cash-generating unit.
TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services provided to the group prior to the end of the financial
year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
BORROWINGS
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction
costs. They are subsequently measured at amortised cost using the effective interest method.
Borrowings are removed from the Statement of Financial Position when the obligation specified in the contract is
discharged, cancelled or expired. The difference between the carrying amount and the consideration received is
recognised in profit or loss.
NET ASSETS ATTRIBUTABLE TO UNITHOLDERS
Net assets attributable to unitholders represent the economic interest in the net assets of consolidated subsidiary
trusts that are attributable to non-controlling interests. The funds consider their equity to be unitholders’ funds.
The funds manage their net assets attributable to unitholders as capital, notwithstanding net assets attributable
to unitholders are classified as a liability in the Statement of Financial Position.
FINANCE COSTS
Finance costs are expensed in the period in which they are incurred based on the effective interest method.
EMPLOYEE BENEFITS
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected
to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid
when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave, long service leave and other long-term employee benefits not expected to be
settled within 12 months of the reporting date are measured as the present value of expected future payments
to be made in respect of services provided by employees up to the reporting date. Consideration is given to
ANNUAL REPORT 2017 | 41
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
OTHER LONG-TERM EMPLOYEE BENEFITS (CONTINUED)
expected future wage and salary levels, experience of employee departures and periods of service. Expected
future payments are discounted using market yields at the reporting date on corporate bonds with terms to
maturity and currency that match, as closely as possible, the estimated future cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Equity-settled transactions are awards of shares, or options over shares, which are provided to employees in
exchange for the rendering of services. The group operates a loan share plan that is accounted for as equity-
settled share-based payments similar to options.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using Black-Scholes option pricing model that takes into account the exercise price, the term of the
option/share under the loan share plan, the impact of dilution, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the
option/share under the loan share plan, together with non-vesting conditions that do not determine whether
the group receives the services that entitle the employees to receive payment. No account is taken of any other
vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity
over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value
of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the
vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at
each reporting date less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met, provided all
other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not
been made. An additional expense is recognised, over the remaining vesting period, for any modification that
increases the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the group or employee, the failure to satisfy the condition is
treated as a cancellation. If the condition is not within the control of the group or employee and is not satisfied
during the vesting period, any remaining expense for the award is recognised over the remaining vesting period,
unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award,
the cancelled and new award is treated as if they were a modification.
FAIR VALUE MEASUREMENT
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on 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; and assumes that the
transaction will take place either: in the principal market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is
based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each
reporting date and transfers between levels are determined based on a reassessment of the lowest level of input
that is significant to the fair value measurement.
42 | PENGANA CAPITAL GROUP
ANNUAL REPORT For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise
is either not available or when the valuation is deemed to be significant. External valuers are selected based on
market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from
one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the
latest valuation and a comparison, where applicable, with external sources of data.
CONTRIBUTED EQUITY
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
DIVIDENDS
Dividends are recognised when declared during the financial year.
BUSINESS COMBINATIONS
The acquisition method of accounting is used to account for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity
instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of
any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the
acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All
acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the group assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic conditions, the
group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the group remeasures its previously held equity interest in
the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying
amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is
recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent
settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the
pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase
to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity
interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises additional assets or liabilities during the measurement
period, based on new information obtained about the facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to determine fair value.
Acquisition of Pengana Holdings Pty Ltd
During the financial year, Pengana Holdings Pty Ltd’s original shareholders obtained a majority share interest
in Hunter Hall International Limited (now known as Pengana Capital Group Limited) after the acquisition
transaction. This transaction is accounted by applying the principles of a reverse acquisition accounting in
accordance with AASB 3 ‘Business Combinations’.
ANNUAL REPORT 2017 | 43
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
ACQUISITION OF PENGANA HOLDINGS PTY LTD (CONTINUED)
The overall accounting effect is in accordance with AASB 3 with the following principles having been applied:
• fair value adjustments arising at acquisition were made to Hunter Hall International Limited’s assets and
liabilities and not to those of Pengana Holdings Pty Ltd;
• the cost of the acquisition, and amount recognised as issued capital to affect the transaction, is based on the
notional amount of shares that Pengana Holdings Pty Ltd would have needed to issue to acquire the same
shareholding percentage in Hunter Hall International Limited at the acquisition date;
• retained earnings and other equity balances in the consolidated financial statements at acquisition date are
those of Pengana Holdings Pty Ltd;
• the equity structure in the consolidated financial statements (the number and type of equity instruments) represents
the continuation of Pengana Holdings Pty Ltd, including the equity instruments issued to effect the acquisition;
• the results for the financial year ended 30 June 2017 comprise the consolidated results for the year of
Pengana Holdings Pty Ltd together with the results of Hunter Hall International Limited from 1 June 2017 to
30 June 2017; and
• the comparative results represent the consolidated results of Pengana Holdings Pty Ltd only.
EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Pengana Capital Group
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number
of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued
during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take
into account the after income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares and the weighted average number of shares assumed to have been issued for no consideration
in relation to dilutive potential ordinary shares.
GOODS AND SERVICES TAX (‘GST’) AND OTHER SIMILAR TAXES
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the
asset or as part of the expense.
Trade debtors and creditors are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the Statement
of Financial Position.
All other receivables and payables are stated exclusive of GST recoverable or payable.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
tax authority.
ROUNDING OF AMOUNTS
The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and
Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance
with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the group for the annual reporting period ended 30 June 2017. The
group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most
relevant to the group, are set out below.
44 | PENGANA CAPITAL GROUP
ANNUAL REPORT AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces
all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition
and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. A financial
asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in
order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other
financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity
makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not
held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities, the standard requires the portion
of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create
an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the
accounting treatment with the risk management activities of the entity. New impairment requirements will use an
‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL
method unless the credit risk on a financial instrument has increased significantly since initial recognition in which
case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The group will adopt
this standard from 1 July 2018 but the impact of its adoption is yet to be assessed by the group.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides
a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts
(either written, verbal or implied) to be identified, together with the separate performance obligations within the
contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of
the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each
distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue
when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than
adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control
of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for
promises to transfer services to customers. For performance obligations satisfied over time, an entity would select
an appropriate measure of progress to determine how much revenue should be recognised as the performance
obligation is satisfied. Contracts with customers will be presented in an entity’s Statement of Financial Position as a
contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance
and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to
understand the contracts with customers; the significant judgements made in applying the guidance to those
contracts; and any assets recognised from the costs to obtain or fulfill a contract with a customer. The group will
adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed by the group.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. For lessee accounting,
the standard eliminates the ‘operating lease’ and ‘finance lease’ classification required by AASB 117 ‘Leases’. Subject
to exceptions, a ‘right-of-use’ asset will be capitalised in the Statement of Financial Position, measured as the present
value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term
leases of 12 months or less and leases of low-value assets (such as personal computers and office furniture) where an
accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to
profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease
prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal
or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge
for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included
in finance costs). For classification within the Statement of Cash Flows, the lease payments will be separated into
both a principal (financing activities) and interest (either operating or financing activities) components. For lessor
accounting, the standard does not substantially change how a lessor accounts for leases. Had the standard been
adopted from 1 July 2017, and using the transitional rules available, the group would have recognised a lease
liability, being the present value of the lease commitments as disclosed in note 25 discounted using the group’s
incremental borrowing rate, with a corresponding increase in property, plant and equipment. However, the group
will adopt this standard from 1 July 2019 and the actual impact will depend on the operating lease assets held by
the group as at 1 July 2019 and the transitional elections made at that time.
ANNUAL REPORT 2017 | 45
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates
its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements,
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.
Share-based payment transactions
The group measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes
model taking into account the terms and conditions upon which the instruments were granted. 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 profit or loss
and equity.
Fair value measurement hierarchy
The group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1:
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability.
Considerable judgement is required to determine what is significant to fair value and therefore which category
the asset or liability is placed in can be subjective.
Goodwill
The group tests annually, or more frequently if events or changes in circumstances indicate impairment,
whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1. The
recoverable amount of cash-generating unit has been determined based on fair value less costs of disposal,
using external market data.
Business combinations
As discussed in note 1, business combinations are initially accounted for on a provisional basis. The fair value
of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the group taking into
consideration all available information at the reporting date. Fair value adjustments on the finalisation of the
business combination accounting is retrospective, where applicable, to the period the combination occurred and
may have an impact on the assets and liabilities, depreciation and amortisation reported.
Unconsolidated structured entities
The group has significant influence over the funds it manages due to its role as responsible entity and investment
manager together with direct holdings in the funds. The funds referred to in note 31 are not consolidated by
the group, and instead, equity accounted as interests in associates, as the group does not have control or joint
control. These investments are managed in accordance with financial risk management practices as set out in
note 20.
46 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 3. OPERATING SEGMENTS
Identification of reportable operating segments
The main business activities of the group are the provision of funds management services. The Board of
Directors and the Managing Director and Chief Executive Officer, are identified as the Chief Operating Decision
Makers (‘CODM’), and they consider the performance of the main business activities on an aggregated basis to
determine the allocation of resources.
Other activities undertaken by the group, including investing activities, are incidental to the main
business activities.
Based on the internal reports that are used by the CODM the group has one operating segment being the
provision of funds management services with the objective of offering investment funds to high net worth
and retail investors in Australia and New Zealand, and offshore investors globally. There is no aggregation of
operating segments.
The operating segment information is the same information as provided throughout the financial statements and
are therefore not duplicated.
The information reported to the CODM is on a regular basis.
NOTE 4. OTHER INCOME AND GAINS
Dividends and distributions
Interest
Rental income
Net change in assets attributable to unitholders
Realised and unrealised gains/(losses) on financial instruments held at
fair value through profit or loss
Realised and unrealised losses on held for trading financial assets
Other income
Consolidated
2017
$’000
16
91
307
6,599
244
(15)
106
7,348
2016
$’000
29
82
243
45
(345)
(56)
61
59
ANNUAL REPORT 2017 | 47
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EXPENSES
Profit/(loss) before income tax includes the following specific expenses:
Consolidated
2017
$’000
2016
$’000
Depreciation
Leasehold improvements
Fixtures and fittings
Plant and equipment
Total depreciation
Amortisation
Acquired relationships
Total depreciation and amortisation
Finance costs
Interest and finance charges paid/payable
Amortisation of borrowing costs
Finance costs expensed
Net foreign exchange loss
Net foreign exchange loss
Rental expense relating to operating leases
Minimum lease payments
Amortisation of deferred lease incentives
Total rental expense relating to operating leases
Defined contribution superannuation expense
Share-based payments expense – included in human resources expenses
Share-based payments expense
Staff termination payments on termination of Global Resources Fund
Reverse acquisition and restructuring costs
Professional fees
Salaries, redundancies and other employee benefit costs
Onerous leases and write downs
Other
Total reverse acquisition and restructuring costs
48 | PENGANA CAPITAL GROUP
33
39
116
188
200
388
–
–
–
18
37
148
203
–
203
103
98
201
57
15
938
155
1,093
512
5,029
–
334
3,381
402
387
4,504
902
32
934
473
–
621
–
–
–
–
–
ANNUAL REPORT NOTE 6. INCOME TAX
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Consolidated
2017
$’000
1,329
(310)
1,019
2016
$’000
238
124
362
(Increase)/decrease in deferred tax assets
(310)
124
Numerical reconciliation of income tax expense and tax at the statutory rate
(Loss)/profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Non-assessable income
Permanent differences
Share-based payment expense
Assessable income not in profit or loss
(1,675)
2,371
(503)
711
(370)
165
1,509
218
–
(349)
–
–
Income tax expense
1,019
362
Amounts credited directly to equity
Deferred tax assets
Tax losses not recognised
Capital tax losses for which no deferred tax asset has been recognised
Potential tax benefit at statutory tax rates
(1)
–
–
–
5,028
1,508
The tax benefit for capital losses have been fully recognised during the financial year ended 30 June 2017.
ANNUAL REPORT 2017 | 49
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAX (CONTINUED)
Deferred tax asset/(liability)
Deferred tax asset/(liability) comprises temporary differences attributable to:
Amounts recognised:
Property, plant and equipment
Provision
Unrealised losses /(gains)
Acquired relationships
Deferred tax asset /(liability)
Movements:
Opening balance
Credited/(charged) to profit or loss
Credited to equity
Additions through business combinations (note 28)
Closing balance
Income tax refund due
Income tax refund due
NOTE 7. CURRENT ASSETS – CASH AND CASH EQUIVALENTS
Cash on hand and at bank
Cash on deposit
Consolidated
2017
$’000
2016
$’000
82
1,559
(1)
(7,896)
(6,256)
813
310
1
(7,380)
(6,256)
905
14,951
5,216
20,167
91
464
258
–
813
937
(124)
–
–
813
319
3,776
2,571
6,347
50 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 8. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Trade receivables
Accrued income
Redemptions receivable
Other receivables
Consolidated
2017
$’000
25
4,915
–
–
4,940
2016
$’000
3,239
293
3,617
4
7,153
Impairment of receivables
As at 30 June 2017 and 30 June 2016 there were no impaired receivables or any past due but not impaired.
NOTE 9. CURRENT ASSETS – INVESTMENTS IN FINANCIAL ASSETS
AT FAIR VALUE THROUGH PROFIT OR LOSS
Listed shares – held for trading
26,768
3,620
Reconciliation
Reconciliation of the fair values at the beginning and end of the
current and previous financial year are set out below:
Opening fair value
Additions
Additions through business combinations (note 28)
Disposals
Revaluation increments
Revaluation decrements
Reclassification to investments accounted for using equity method
3,620
3,687
25,518
(2,986)
549
–
(3,620)
1,011
4,941
–
(2,312)
–
(20)
–
Closing fair value
26,768
3,620
Refer to note 21 for further information on fair value measurement.
NOTE 10. CURRENT ASSETS – OTHER CURRENT ASSETS
Prepayments
Security deposits
Other deposits
Other current assets
569
75
11
147
802
357
71
83
–
511
ANNUAL REPORT 2017 | 51
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. NON-CURRENT ASSETS – OTHER RECEIVABLES
Other receivables
Security deposits
Other loans
Consolidated
2017
$’000
400
442
1,416
2,258
2016
$’000
400
442
1,935
2,777
NOTE 12. NON-CURRENT ASSETS
– INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investments in associates
3,712
21,726
Refer to note 30 for further information on interests in associates.
NOTE 13. NON-CURRENT ASSETS
– INVESTMENTS IN AVAILABLE-FOR-SALE FINANCIAL ASSETS
Investments in available-for-sale financial assets at fair value
7,196
–
Refer to note 21 for further information on fair value measurement.
NOTE 14. NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
588
(437)
151
238
(166)
72
937
(798)
139
362
448
(407)
41
389
(301)
88
808
(623)
185
314
52 | PENGANA CAPITAL GROUP
ANNUAL REPORT Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Consolidated
Balance at 1 July 2015
Additions
Impairment on disposal
Depreciation expense
Balance at 30 June 2016
Additions
Additions through business combinations (note 28)
Write-off of assets
Depreciation expense
Balance at 30 June 2017
NOTE 15. NON-CURRENT ASSETS – INTANGIBLES
Goodwill – at cost
Acquired relationships – at cost
Less: Accumulated amortisation
Leasehold
improvements
$’000
Furniture
and fittings
$’000
Plant and
equipment
$’000
19
40
–
(18)
41
143
–
–
(33)
151
124
2
(1)
(37)
88
23
254
(254)
(39)
72
268
68
(3)
(148)
185
66
36
(32)
(116)
139
Total
$’000
411
110
(4)
(203)
314
232
290
(286)
(188)
362
Consolidated
2017
$’000
39,672
26,520
(200)
26,320
65,992
2016
$’000
–
–
–
–
–
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Consolidated
Balance at 1 July 2015
Balance at 30 June 2016
Additions through business combinations (note 28)
Amortisation expense
Balance at 30 June 2017
Goodwill
$’000
Acquired
relationships
$’000
–
–
39,672
–
–
–
26,520
(200)
Total
$’000
–
–
66,192
(200)
39,672
26,320
65,992
ANNUAL REPORT 2017 | 53
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. NON-CURRENT ASSETS – INTANGIBLES (CONTINUED)
Goodwill acquired through the business combination with Hunter Hall amounted to $39,672,000 has
been incorporated into the existing cash-generating unit (‘CGU’) of Pengana Capital Group funds
management business.
The recoverable amount of the CGU to which goodwill has been allocated is greater than the carrying value and
therefore not impaired. The recoverable amount is based on fair value less costs of disposal.
The remaining amortisation period for the acquired relationships is between 7 and 13 years.
NOTE 16. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Fund manager profit share
Due to brokers
GST payable
Other payables
Consolidated
2017
$’000
1,055
12,106
3,219
–
–
496
2016
$’000
60
5,362
3,033
62
421
33
16,876
8,971
Refer to note 20 for further information on financial instruments.
NOTE 17. EQUITY – CONTRIBUTED EQUITY
The number of shares and dollar value represents the continuation of Pengana Holdings Pty Ltd (‘PH’).
Consequent to reverse acquisition accounting, with effect from 1 June 2017, the shares were converted into
issued capital of Pengana Capital Group Limited (‘PCG’).
Ordinary shares – fully paid
Less: Treasury shares
Movements in ordinary share capital
Details
Balance
Balance
Issue of shares in PH under Loan Share Plan
Shares in PH relinquished on reverse acquisition
New shares issued in PCG on reverse acquisition
Consolidated
2017
Shares
101,477,092
(22,853,722)
2016
Shares
558,741
–
78,623,370
558,741
2017
$’000
114,381
(27,220)
87,161
2016
$’000
25,298
–
25,298
Date
Shares
$’000
1 July 2015
558,741
25,298
30 June 2016
3 March 2017
1 June 2017
1 June 2017
558,741
58,075
(616,816)
74,147,449
25,298
8,315
–
–
80,896
(128)
Shares to effect the deemed acquisition of Hunter Hall
(note 28)
Share issue transaction costs, net of tax
1 June 2017
27,329,643
–
Balance
30 June 2017
101,477,092
114,381
54 | PENGANA CAPITAL GROUP
ANNUAL REPORT Movements in treasury shares
Details
Balance
Balance
Shares acquired in PH under Loan Share Plan
Issue of shares in PH under Loan Share Plan
Shares in PH relinquished on reverse acquisition
New shares issued in PCG on reverse acquisition
Date
1 July 2015
30 June 2016
1 March 2017
3 March 2017
1 June 2017
1 June 2017
Shares
$’000
–
–
(132,040)
(58,075)
190,115
(22,853,722)
–
–
(18,905)
(8,315)
–
–
Balance
30 June 2017
(22,853,722)
(27,220)
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the
company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares
have no par value and the company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a
poll each share shall have one vote.
Treasury shares
The company has an equity scheme pursuant to which certain employees and fund managers may access a Loan
Share Plan (‘LSP’). The acquisition of shares under this LSP is fully funded by the company through the granting
of a limited recourse loan. The LSP shares are subject to escrow and transfer is restricted until the vesting
conditions are satisfied and the loan is repaid. Vested and unvested shares are recorded as treasury shares
representing a deduction against issued capital. These have been accounted for as a share-based payment.
Refer to note 34 for further details. When the loans are settled the treasury shares are reclassified as ordinary
shares and the equity will increase by the amount of the loan repaid.
Share buy-back
There is no current on-market share buy-back.
Capital risk management
The group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that
it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
Capital is regarded as total equity, as recognised in the Statement of Financial Position, plus net debt. Net debt
is calculated as total borrowings less cash and cash equivalents. The group has no borrowings as at 30 June 2017
(June 2016: nil)
Two wholly owned subsidiaries of the group, Pengana Capital Limited (‘PCL’) and Hunter Hall Investment
Management Ltd (‘HHIML’), hold an Australian Financial Services License and are subject to regulatory financial
requirements that include maintaining a minimum level of net tangible assets. As at 30 June 2017 both
PCL and HHIML were required to maintain $5,000,000 each in liquid assets, of which 50% is held in cash or
cash equivalents.
The Directors believe the group has adequate capital at 30 June 2017 to maintain the groups existing business
activities and facilitate growth.
ANNUAL REPORT 2017 | 55
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. EQUITY – RESERVES
Profits reserve
Share-based payments reserve
Available-for-sale reserve
Consolidated
2017
$’000
23,867
5,029
3
2016
$’000
29,867
–
–
28,899
29,867
Profits reserve
The profits reserve records the 2013 profit, which has not been offset against accumulated losses from prior
years. The reserve is used for distribution of dividends.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and fund managers as part
of their remuneration, and other parties as part of their compensation for services.
Available-for-sale reserve
The reserve is used to recognise increments and decrements in the fair value of available-for-sale financial assets.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2015
Balance at 30 June 2016
Revaluation – gross
Deferred tax
Dividends paid
Share-based payments
Share-based
payments
reserve
$’000
Available-for-
sale reserve
$’000
Profits
reserve
$’000
29,867
29,867
–
–
(6,000)
–
–
–
–
–
–
5,029
Total
$’000
29,867
29,867
4
(1)
(6,000)
5,029
–
–
4
(1)
–
–
Balance at 30 June 2017
23,867
5,029
3
28,899
NOTE 19. EQUITY – DIVIDENDS
Dividends paid during the financial year were as follows:
Consolidated
2017
$’000
2016
$’000
Final dividend for the year ended 30 June 2016 of $10.74 per Pengana Holdings Pty
Ltd ordinary share paid on 18 October 2016 prior to the reverse acquisition
6,000
–
On 30 August 2017, an inaugural dividend was declared for the year ended 30 June 2017 of 4.5 cents per
ordinary share fully franked with a record date of 14 September 2017 to be paid on 28 September 2017 by
Pengana Capital Group Limited.
56 | PENGANA CAPITAL GROUP
ANNUAL REPORT Hunter Hall International Limited paid the following dividends prior to the reverse acquisition and they are not
included in the consolidated results:
(i) Final dividend for the year ended 30 June 2016 of 14.6 cents per ordinary share fully franked with a record
date of 12 September 2016 and payment date of 26 September 2016.
(ii) Interim dividend for the year ended 30 June 2017 of 4.0 cents per ordinary share fully franked with a record
date of 7 March 2017 and payment date 21 March 2017.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
Consolidated
2017
$’000
3,746
2016
$’000
4,822
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the
reporting date;
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
NOTE 20. FINANCIAL INSTRUMENTS
Financial risk management objectives
The group’s activities expose it to a variety of financial risks: market risk (including foreign currency, interest
rate and price risk), credit risk and liquidity risk. The group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance
of the group. The group uses different methods to measure different types of risk to which it is exposed,
including sensitivity analysis.
In particular, the group manages the investments of certain funds and clients where it is entitled to receive
management fees and fees contingent upon performance of the portfolio managed, on an annual basis or
longer. All fees are exposed to significant risk associated with the funds’ performance, including market risks
(interest rate risk and indirectly market risk and foreign exchange risk) and liquidity risk as detailed below.
Risk management is carried out by the Board of Directors and discussed at board meetings. Management
identifies and evaluates financial risks.
Market risk
Foreign currency risk
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial
liabilities denominated in a currency that is not the entity’s functional currency. The group undertakes certain
transactions denominated in foreign currency (mainly US dollar) and the balances at the reporting date are not
material and a 10% movement in those balances would not cause a significant fluctuation in profit or loss or
equity of the group.
ANNUAL REPORT 2017 | 57
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 20. FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN CURRENCY RISK (CONTINUED)
Price risk
The group is exposed to direct equity price risk on its financial assets that are at fair value. The table below
summarises the impact of a 10% movement in the market value of these assets:
Average price increase
Average price decrease
%
Change
Effect
on profit
before tax
Effect
on equity
%
Change
Effect
on profit
before tax
Effect
on equity
10%
2,677
1,874
(10%)
(2,677)
(1,874)
Average price increase
Average price decrease
%
Change
Effect
on profit
before tax
Effect on
equity
%
Change
Effect
on profit
before tax
Effect on
equity
10%
362
253
(10%)
(362)
(253)
Consolidated – 2017
Listed shares
Consolidated – 2016
Listed shares
Interest rate risk
The group’s main interest rate risk arises from cash and cash equivalents. Cash and cash equivalents held at
variable rates expose the group to interest rate risk. Cash and cash equivalents held at fixed rates expose the
group to fair value interest rate risk.
As at the reporting date, the group had the following variable rate cash and cash equivalents:
Consolidated
Cash at bank
Cash on deposit
Net exposure to cash flow interest rate risk
2017
Weighted
average
interest rate
0.49%
2.34%
Balance
$’000
14,951
5,216
20,167
2016
Weighted
average
interest rate
0.26%
2.88%
Balance
$’000
3,776
2,571
6,347
The table below summarises the impact of a 50 basis point movement in interest:
Basis points increase
Basis points decrease
Consolidated – 2017
Basis points
change
Effect on
profit/loss
before tax
Effect on
equity
Basis
points
change
Effect on
profit/loss
before tax
Effect on
equity
Net exposure to cash flow interest rate risk
50
101
71
(50)
(101)
(71)
Consolidated – 2016
Net exposure to cash flow interest rate risk
50
32
22
(50)
(32)
(22)
58 | PENGANA CAPITAL GROUP
ANNUAL REPORT An analysis by remaining contractual maturities is shown in ‘liquidity and interest rate risk management’ below.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the group. The maximum exposure to credit risk at the reporting date to recognised financial assets is the
carrying amount, net of any provisions for impairment of those assets, as disclosed in the Statement of Financial
Position and notes to the financial statements. The group does not hold any collateral.
The group has a credit risk exposure with the cash at bank, redemptions receivable, loans to shareholders and
fund managers and funds under management. The funds under management as at 30 June 2017 owed the
group 100% (2016: 100%) of trade receivables and accrued income. The balance was within its terms of trade
and no impairment was made as at the reporting date. These receivables represent management fees that are
accrued daily and paid monthly by the Funds.
Other loans receivables amount to $1,416,000 as at 30 June 2017 (2016: $1,935,000). The loans were made to
shareholders and used to fund the purchase of shares in Pengana Capital Group Limited. The loans are interest
free and secured against the purchased shares in Pengana Capital Group Limited. The timing of these amounts
due under these agreements are at the discretion of the group.
Liquidity risk
Managing liquidity risk requires the group to maintain sufficient liquid assets (mainly cash and cash equivalents
and listed investments) to be able to pay debts as and when they become due and payable.
The group manages liquidity risk by maintaining adequate cash reserves by monitoring actual and forecast cash
flows and matching the maturity profiles of financial assets and liabilities.
Remaining contractual maturities
The following tables detail the group’s remaining contractual maturity for its financial instrument liabilities. The
tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest
date on which the financial liabilities are required to be paid. The tables include both interest and principal cash
flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying
amount in the Statement of Financial Position.
Consolidated – 2017
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Fund manager profit share
Security deposits held
Net assets attributable to unitholders
Total non-derivatives
1 year
or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
1,055
496
3,219
–
18,768
23,538
–
–
–
5
–
5
–
–
–
–
–
–
–
–
–
–
–
–
1,055
496
3,219
5
18,768
23,543
ANNUAL REPORT 2017 | 59
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
REMAINING CONTRACTURAL MATURITIES (CONTINUED)
Consolidated – 2016
Non-derivatives
Non-interest bearing
Trade payables
Due to Brokers
Other payables
Fund manager profit share
Security deposits held
Net assets attributable to unitholders
Total non-derivatives
Derivatives
Forward equity exchange contract
Total derivatives
1 year
or less
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
60
62
33
3,033
–
2,081
5,269
11
11
–
–
–
–
18
–
18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60
62
33
3,033
18
2,081
5,287
11
11
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually
disclosed above.
NOTE 21. FAIR VALUE MEASUREMENT
Fair value hierarchy
The following tables detail the group’s assets and liabilities, measured or disclosed at fair value, using a three
level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at
the measurement date;
Level 2: Observable market data used in valuation techniques to determine the fair value. Level 2 instruments are
not traded in an active market;
Level 3: Unobservable inputs for the asset or liability.
Consolidated – 2017
Assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Listed investments – held for trading
Investments in available-for-sale financial assets
Total assets
26,768
7,196
33,964
–
–
–
–
–
–
26,768
7,196
33,964
60 | PENGANA CAPITAL GROUP
ANNUAL REPORT Consolidated – 2016
Assets
Listed investments – held for trading
Derivative financial instruments
Total assets
Liabilities
Derivative financial instruments
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
3,620
–
3,620
–
–
–
29
29
11
11
–
–
–
–
–
Total
$’000
3,620
29
3,649
11
11
There were no transfers between levels during the financial year.
The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables
approximate their fair values due to their short-term nature.
NOTE 22. KEY MANAGEMENT PERSONNEL DISCLOSURES
Compensation
The aggregate compensation made to Directors and other members of key management personnel of the group
is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2017
$
2016
$
981,709
1,255,636
70,668
6,300
4,913,681
63,153
–
–
5,972,358
1,318,789
Short-term employee benefits consists of cash salaries and fees.
NOTE 23. REMUNERATION OF AUDITORS
During the financial year the following fees were paid or payable for services provided by Grant Thornton Audit
Pty Ltd, the auditor of the company:
Audit services – Grant Thornton Audit Pty Ltd (2016: PricewaterhouseCoopers)
Audit or review of the financial statements
133,500
121,995
NOTE 24. CONTINGENT LIABILITIES
The group had no contingent liabilities at 30 June 2017 and 30 June 2016.
ANNUAL REPORT 2017 | 61
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25. COMMITMENTS
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Consolidated
2017
$’000
2016
$’000
801
1,913
73
2,787
734
1,887
–
2,621
The property leases are non-cancellable leases with a maximum six year term, with rent payable monthly in
advance. Options exist to renew the leases at the end of the term.
NOTE 26. RELATED PARTY TRANSACTIONS
Parent entity
Pengana Capital Group Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 29.
Associates
Interests in associates are set out in note 30.
Key management personnel
Disclosures relating to key management personnel are set out in note 22 and the remuneration report included
in the Directors’ Report.
Transactions with related parties – managed investment schemes
The following transactions occurred with related parties:
Sale of goods and services:
Management fees
Performance fees
Other fee revenue received from related parties
Payment for goods and services:
Purchase of services from other related parties
25,065,271
18,998,244
11,953,010
16,649,295
4,483
–
5,125
2,212,415
62 | PENGANA CAPITAL GROUP
ANNUAL REPORT Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Consolidated
2017
$
2016
$
Current receivables:
Trade receivables and accrued income from other related parties
4,939,857
3,516,024
Receivables from other related parties for year-end redemptions
Current payables:
Trade payables to other related party
–
–
3,616,591
2,325,961
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting date.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 27. PARENT ENTITY INFORMATION
Set out below is the supplementary information about the parent entity.
Statement of Profit or Loss and other comprehensive income
Profit/(loss) after income tax
Total comprehensive income
Statement of Financial Position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Available-for-sale reserve
Retained profits/(accumulated losses)
Parent
2017
$’000
(1,052)
(1,052)
7,784
240,633
4,369
4,629
238,564
–
(2,560)
2016
$’000
6,426
6,749
13,433
26,517
4,796
5,282
18,572
611
2,052
Total equity
236,004
21,235
ANNUAL REPORT 2017 | 63
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 27. PARENT ENTITY INFORMATION (CONTINUED)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2017 and 30 June 2016.
Parent entity information
Parent entity financial information relates to Pengana Capital Group Limited (formerly known as Hunter
Hall International Limited). As detailed in note 1, Pengana Capital Group Limited is ‘the legal parent’ of the
consolidated entity with effect from 1 June 2017. The information for the periods represents the standalone
financial information of the parent entity.
Shares issued on reverse acquisition of Pengana Holdings Pty Ltd
During the financial year, the parent entity issued 74,147,449 ordinary shares at their fair value of $219,476,000
on the acquisition of Pengana Holdings Pty Ltd. This amount is included in the total assets and contributed
equity above.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 and 30
June 2016.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the group, as disclosed in note 1, except
for the following:
• Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Investments in associates are accounted for at cost, less any impairment, in the parent entity.
• Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may
be an indicator of an impairment of the investment.
NOTE 28. BUSINESS COMBINATIONS
On 1 June 2017, Hunter Hall International Limited (now renamed Pengana Capital Group Limited) (‘the legal
parent’ or ‘Hunter Hall’) acquired all the shares in Pengana Holdings Pty Ltd (‘the legal subsidiary’ or ‘Pengana
Holdings’) in return for the issuance of 74,147,449 Hunter Hall shares to the Pengana Holdings shareholders.
Hunter Hall shareholders owned 26.9% and the Pengana Holdings shareholders owned 73.1% of the issued
shares of Hunter Hall. The transaction has been accounted for as a business combination and the principles of
reverse acquisition accounting applied i.e. Pengana Holdings acquiring Hunter Hall.
Hunter Hall was an investment management business.
64 | PENGANA CAPITAL GROUP
ANNUAL REPORT Details of the acquisition are as follows:
Cash and cash equivalents
Trade and other receivables
Income tax refund due
Investment in financial assets
Other investments
Other current assets
Plant and equipment
Acquired relationships
Deferred tax liability
Trade and other payables
Employee benefits
Net assets attributable to unitholders
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
Hunter Hall International Limited
Fair value $’000
18,836
1,787
888
25,518
6,953
277
290
26,520
(7,380)
(5,349)
(1,358)
(25,758)
41,224
39,672
80,896
Notional Pengana Capital Group Limited shares issued to effect the acquisition (note 17)*
80,896
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
Less: notional Pengana Capital Group Limited shares issued to effect the acquisition
Less: cash and cash equivalents acquired
Net cash received
80,896
(80,896)
(18,836)
(18,836)
* Acquisition date fair value of consideration transferred is calculated based on 27,329,643 shares of Hunter Hall International Limited (ASX: HHL)
public market price of $2.96 per share on the date of acquisition.
The goodwill of $39,672,000 represents expected synergies and future growth prospects that will arise from the
acquisition. The business combination brings together two synergistic retail focused, active investment managers
to create a funds management business with in excess of $3 billion in funds under management with a strong
platform for growth. None of the goodwill recognised is expected to be deductible for income tax purpose.
The acquired business contributed revenues of $900,000 and loss after tax of $1,076,000 to the group for the
period from 1 June 2017 to 30 June 2017. If the acquisition occurred on 1 July 2016, the contributions for the
year 1 July 2016 to 30 June 2017 would have been revenues of $11,944,000 and profit after tax of $1,951,000.
The values identified in relation to the acquisition of Hunter Hall are provisional as at 30 June 2017.
ANNUAL REPORT 2017 | 65
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 29. INTERESTS IN SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries
with non-controlling interests in accordance with the accounting policy described in note 1:
Name
Principal place
of business
/ Country of
incorporation
Pengana Holdings Pty Ltd
Australia
Pengana Capital Ltd
Australia
Pengana European Asset
Management Pty Limited
Pengana Affinity Funds
Pty Ltd
Pengana International
Equities Fund
Pengana Singapore
Pte. Ltd
Hunter Hall Investment
Management Pty Ltd
Rushcutter Investments
Pty Ltd
Bennelong Administration
Services Pty Ltd
Hunter Hall International
(UK) Ltd
Australia
Australia
Australia
Singapore
Australia
Australia
Australia
United
Kingdom
Hunter Hall High Conviction
Equity Trust
Australia
Principal
activities
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Investment
management
Parent
Non-controlling interest
Ownership
interest
2017
%
Ownership
interest
2016
%
Ownership
interest
2017
%
Ownership
interest
2016
%
100.00%
–
100.00%
100.00%
–
–
–
–
50.00%
50.00%
50.00%
50.00%
70.00%
70.00%
30.00%
30.00%
–
99.99%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
32.60%
–
–
–
–
–
–
–
–
–
–
–
67.40%
0.01%
–
–
–
–
–
–
As at 30 June 2016, Pengana Holdings Pty Ltd was the parent entity of the consolidated group (refer to note 2
‘Business combinations’). Therefore the 2016 percentages in the table above represents Pengana Holdings Pty
Ltd’s interest in its subsidiaries.
Summarised financial information for subsidiaries that have non-controlling interests, has not been provided as
they are not material to the group.
66 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 30. INTERESTS IN ASSOCIATES
The following interests in associates are accounted for using the equity method of accounting:
Name
Principal place of business /
Country of incorporation
Pengana Asia Special Events (Offshore) Fund
Cayman Islands
Pengana Global Small Companies Fund
Pengana Global Resources Fund
Pengana International Equities Fund
Australia
Australia
Australia
Ownership interest
2017
%
2.21%
5.79%
–
3.19%
2016
%
20.19%
16.53%
4.44%
–
As at 30 June 2016, Pengana Holdings Pty Ltd was the parent entity of the consolidated group (refer to note 2
‘Business combinations’). Therefore the 2016 percentages in the table above represents Pengana Holdings Pty
Ltd’s interest in its associates.
Summarised financial information relating to associates that are material to the group are set out below:
Summarised financial information
Summarised Statement of Financial Position
Assets
Total assets
Liabilities
Total liabilities
Net assets
Summarised Statement of Profit or Loss and
Other Comprehensive Income
Revenue
Expenses
Profit/(loss) before income tax
Other comprehensive income
Total comprehensive income
Reconciliation of the group’s carrying amount
Opening carrying amount
Share of profit/(loss) after income tax
Distributions declared
Acquisition of interests
Redemptions
Subsidiary transfer to investments accounted for
using the equity method
Equalisation loss in 2017
Closing carrying amount
Pengana Asia Special Events
(Offshore) Fund
Other
2017
$’000
55,562
55,562
114
114
2016
$’000
96,639
96,639
186
186
2017
$’000
54,507
54,507
2,728
2,728
2016
$’000
23,174
23,174
34
34
55,448
96,453
51,779
23,140
6,738
(1,219)
5,519
–
(6,300)
(2,039)
(8,339)
–
3,261
(678)
2,583
–
(1,507)
(335)
(1,842)
–
5,519
(8,339)
2,583
(1,842)
19,894
460
–
–
(18,838)
–
11
20,621
(723)
(25)
38,576
(38,555)
–
–
1,527
19,894
1,832
399
–
2,146
(4,267)
2,075
–
2,185
1,859
(23)
(4)
–
–
–
–
1,832
The carrying amount of investments in associates is equal to its fair value.
ANNUAL REPORT 2017 | 67
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31. UNCONSOLIDATED STRUCTURED ENTITIES
A structured entity is an entity that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity and the relevant activities are directed by means of
contractual arrangements.
The group has a 99.9% (2016: 99.9%) interest in Pengana Structured Investment Pty Ltd (‘PSIPL’), an entity
established to issue financial products to investors. The entity provides investors with a range of investment
opportunities through managed investment strategies. PSIPL has not been consolidated because the group
has determined the entity is not controlled on the basis that the variability of returns is borne by the third
party note holders rather than the group. The entity has acquired funds through the issuance of a number of
note instruments. The group is not exposed to significant losses through its interest. As at the reporting date,
the carrying amount of the assets of PSIPL is $6,056,000 (2016: $10,148,000). The carrying amount of the
liabilities is $6,056,000 (2016: $10,148,000).
The group has significant influence over the funds it manages due to its power to participate in the financial
and operating policy decisions of the investee through its investment management agreement.
The group considers all funds to be structured entities. The group invests in its own managed funds to seed
the funds to develop a performance track record prior to external investment being received or provides early
stage capital.
The funds’ objectives are defined in the offer document and constitution of the respective fund. The funds
invest in a number of different financial instruments including equities and debt instruments. The funds’
finance their operations by issuing redeemable units which are puttable at the holder’s option and entitle the
holder to a proportional stake in the respective fund’s net assets.
The group holds redeemable units in some of its own managed funds.
Unless specified otherwise, the group’s maximum exposure to loss is the total of its on-balance sheet positions
as at reporting date. There are no additional off balance sheet arrangements which would expose the group to
potential loss.
NOTE 32. RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX
TO NET CASH FROM OPERATING ACTIVITIES
Consolidated
Profit/(loss) after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Share of loss/(profit) – associates
Share-based payments
Foreign exchange differences
Distributions paid to unitholders – financing activity
Unitholder share of profit or loss
Impairment loss and write-downs
Distributions from associates
Net gain on financial assets
Other non-cash items
Proceeds of investments in financial assets at fair value through profit or loss
2017
$’000
(2,694)
388
(859)
5,029
22
4,230
(6,630)
5
–
100
329
(347)
2016
$’000
2,009
203
746
–
13
–
–
3
30
283
(49)
–
68 | PENGANA CAPITAL GROUP
ANNUAL REPORT Change in operating assets and liabilities:
Decrease in trade and other receivables
Decrease/(increase) in deferred tax assets
Increase in other financial assets at fair value through profit or loss
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase in deferred tax liabilities
Consolidated
2017
$’000
2016
$’000
307
(250)
(2,439)
1,670
302
7,894
4,839
124
10,948
2,344
(1,807)
_
Decrease in other financial liabilities at fair value through profit or loss
18,594
(19,255)
Net cash from operating activities
25,651
431
NOTE 33. NON-CASH INVESTING AND FINANCING ACTIVITIES
Shares issued in relation to business combinations
Proceeds from borrowings
Purchase of investment into associates
Sale of investment in associates
Reinvestment of dividends
Purchase of property, plant and equipment
NOTE 34. SHARE-BASED PAYMENTS
80,896
–
(3,644)
3,677
–
–
–
4,000
(44,099)
43,672
22
(9)
80,929
3,586
Loan Funded Share Plan (‘LSP’)
Pengana Holdings Pty Ltd (‘Pengana Holdings’) implemented a LSP whereby Pengana Holdings provided
limited recourse loans totalling $27,220,000 to the CEO and certain employees and fund managers of Pengana
Holdings to acquire shares in Pengana Holdings. Under the plan the CEO received 15,872,528 shares,
employees and fund managers received 6,981,194 shares.
The loans are interest bearing and have a maximum term of up to seven years. Recourse on the loans (including
associated interest) is limited to the associated shares and any dividend amounts applied to the loan balance. The
shares granted under the LSP are subject to a vesting condition, that the employees and fund managers must
remain continuously employed for five years from the grant date, except for shares associated with the LSP granted
to the CEO which are not subject to a vesting condition and vested on the date the shares were granted.
As the share purchases are funded by limited recourse loans they are treated for accounting purposes as grants of
share options and accounted for as equity-settled share-based payments. The shares issued under the LSP are fair
valued on the date they are granted and amortised as an expense in profit or loss over the vesting period.
As the loans and associated shares issued are not recorded on the Statement of Financial Position on grant date,
there are no transactions in the Statement of Financial Position relating to the issue of shares under the LSP,
however a share-based payment expense of $5,029,000 has been recognised in profit or loss for the year ended
30 June 2017 (2016: nil).
ANNUAL REPORT 2017 | 69
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 34. SHARE-BASED PAYMENTS (CONTINUED)
LOAN FUNDED SHARE PLAN (‘LSP’) (CONTINUED)
Set out below are summaries of shares granted under the LSP:
2017
Grant date
Expiry date
01/03/2017
28/02/2024
01/03/2017
28/02/2024
03/03/2017
01/03/2024
Exercise
price*
Balance at
the start of
the year
Granted*
Exercised
Expired /
forfeited /
other
Balance at the
end of the year
$1.49
$1.20
$1.49
–
–
–
–
5,149,796
10,722,732
6,981,194
22,853,722
–
–
–
–
–
–
–
–
5,149,796
10,722,732
6,981,194
22,853,722
Weighted average exercise price
$0.00
$1.35
$0.00
$0.00
$1.35
* Exercise price and shares granted under the LSP in Pengana Holdings have been adjusted for shares issued in Pengana Capital Group Limited
as detailed in note 17.
Set out below are the shares granted under the LSP exercisable at the end of the financial year:
Grant date
Expiry date
01/03/2017
28/02/2024
01/03/2017
28/02/2024
2017
Number
5,149,796
10,722,732
15,872,528
2016
Number
–
–
–
The weighted average remaining contractual life of shares granted under the LSP outstanding at the end of the
financial year was 6.67 years.
For the shares granted under the LSP during the current financial year, the Black-Scholes valuation model inputs
used to determine the fair value at the grant date, are estimated as follows:
Grant date
Expiry date
01/03/2017
28/02/2024
01/03/2017
28/02/2024
03/03/2017
01/03/2024
Share price at
grant date
Exercise
price
Estimated
volatility*
Dividend
yield
Risk-free
interest rate
Fair value at
grant date
$1.19
$1.19
$1.19
$1.49
$1.20
$1.49
38.66%
38.66%
38.66%
3.75%
3.75%
3.75%
2.31%
2.31%
2.31%
$0.271
$0.328
$0.271
*The expected price volatility is based on a period of observed historic volatility of a range of peer group companies.
70 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 35. EARNINGS PER SHARE
Profit/(loss) after income tax
Non-controlling interest
Profit/(loss) after income tax attributable to the owners of
Pengana Capital Group Limited
Weighted average number of ordinary shares used in calculating
basic earnings per share
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
2017
$’000
(2,694)
(120)
2016
$’000
2,009
(23)
(2,814)
1,986
Number
Number
64,067,308
67,166,253
64,067,308
67,166,253
Cents
(4.39)
(4.39)
Cents
2.96
2.96
The weighted average number of ordinary shares for year ended 30 June 2017 does not include 22,853,722
treasury shares.
The weighted average number of ordinary shares for the year ended 30 June 2016 has been adjusted to give
effect to capital reorganisation which occurred during the financial year.
NOTE 36. GENERAL INFORMATION
Pengana Capital Group Limited is a listed public company limited by shares, incorporated and domiciled in
Australia. Its registered office and principal place of business is:
Level 12
167 Macquarie Street
Sydney NSW 2000
A description of the nature of the group’s operations and its principal activities are included in the Directors’
Report, which is not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors, on 30 August
2017. The Directors have the power to amend and reissue the financial statements.
NOTE 37. EVENTS AFTER THE REPORTING PERIOD
Apart from the dividend declared as disclosed in note 19, no other matter or circumstance has arisen since
30 June 2017 that has significantly affected, or may significantly affect the group’s operations, the results of
those operations, or the group’s state of affairs in future financial years.
ANNUAL REPORT 2017 | 71
DIRECTORS’
DECLARATION
In the Directors’ opinion:
• the attached financial statements and notes comply with the Corporations Act 2001, the Accounting
Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
• the attached financial statements and notes comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board as described in note 1 to the financial statements;
• the attached financial statements and notes give a true and fair view of the group’s financial position as at
30 June 2017 and of its performance for the financial year ended on that date; and
• there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations
Act 2001.
On behalf of the Directors,
Warwick Negus
Chairman
30 August 2017
Sydney
Russel Pillemer
Chief Executive Officer
72 | PENGANA CAPITAL GROUP
ANNUAL REPORT INDEPENDENT AUDITOR’S
REPORT
ANNUAL REPORT 2017 | 73
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
74 | PENGANA CAPITAL GROUP
ANNUAL REPORT ANNUAL REPORT 2017 | 75
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
76 | PENGANA CAPITAL GROUP
ANNUAL REPORT SHAREHOLDER
INFORMATION
The shareholder information set out below was applicable as at 28 August 2017.
DISTRIBUTION OF EQUITABLE SECURITIES
Analysis of number of equitable security holders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
EQUITY SECURITY HOLDERS
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Number of holders
of ordinary shares
559
817
348
296
42
2,062
156
WHSP Pengana Pty Ltd
RC Pillemer Pty Ltd (RC Pillemer Family A/C)
WHSP Hunter Hall Pty Ltd
Washington H Soul Pattinson and Company
Farnworth House Pty Ltd
DJG Services Pty Limited (DKI Account)
Roxtrus Pty Limited (Roxanne Dunkel No. 2 A/C)
Damian Crowley Julie Crowley (Damian C Crowley Family Fund)
Radd Holdings Pty Limited (Myers Family A/C)
DBR Corporation Pty Ltd
Russel Craig Pillemer
Tark Family Holdings Pty Ltd (Tark Family A/C)
Steve Black
Ed Prendergast
Mr Andrew Stanley Hall
Steve Black (Black Family A/C)
Meg O'Hanlon (O'Hanlon Family A/C)
WHSP Hunter Hall Pty Ltd
Katrina Elizabeth Glendinning
Mr Frederick Bruce Wareham
Ordinary shares
Number
held
% of total
shares issued
27,176,596
24,960,404
6,641,522
5,434,653
3,358,307
2,079,994
1,803,150
1,789,325
1,341,904
1,300,260
1,262,205
1,100,162
973,701
973,701
690,000
672,335
672,335
575,133
529,525
520,000
26.78
24.60
6.54
5.36
3.31
2.05
1.78
1.76
1.32
1.28
1.24
1.08
0.96
0.96
0.68
0.66
0.66
0.57
0.52
0.51
83,855,212
82.62
ANNUAL REPORT 2017 | 77
SHAREHOLDER INFORMATION (CONTINUED)
Unquoted equity securities
There are no unquoted equity securities.
SUBSTANTIAL HOLDERS
Substantial holders in the company are set out below:
Washington H Soul Pattinson and Company, WHSP Hunter Hall Pty Ltd and WHSP
Pengana Pty Ltd
Russel Craig Pillemer*
Ordinary shares
Number held
% of total
shares issued
39,827,904
37,217,013
39.25
36.68
* The substantial notice lodged for Russel Pillemer discloses that he has a relevant interest in 37,217,013 ordinary shares in the company. These
relevant interests are as follows:
• 1,262,205 shares held by Russel Pillemer;
• 24,960,404 shares held by RC Pillemer Pty Ltd (which Russel Pillemer controls).
37,217,013 shares held by Pengana staff or their related parties (including the 26,222,609 shares referred to
above held by Russel Pillemer and RC Pillemer Pty Ltd). As Russel Pillemer has voting power in the company
above 20% pursuant to section 608(3)(a) of the Corporations Act 2001 he is deemed to have a relevant interest
in these shares as the company has the power to prevent the disposal of each of these shares pursuant to a
voluntary escrow agreement between the company and the relevant holder.
VOTING RIGHTS
The voting rights attached to ordinary shares are set out below:
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a
poll each share shall have one vote.
There are no other classes of equity securities.
SECURITIES SUBJECT TO VOLUNTARY ESCROW
Class
Expiry date
Ordinary shares
Until 15 February 2023 (portions to be released annually)
Ordinary shares
1 June 2022
Ordinary shares
Until 15 February 2020 (portions to be released annually)
Number of shares
26,222,609
6,981,194
4,013,210
37,217,013
78 | PENGANA CAPITAL GROUP
ANNUAL REPORT WWW.PENGANA.COM PENGANA CAPITAL GROUP LIMITED
ABN 30 103 800 568 AFSL 226566
Level 12, 167 Macquarie Street,
Sydney, NSW 2000
T: +61 2 8524 9900
F: +61 2 8524 9901
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