ANNUAL
REPORT
PENGANA CAPITAL
GROUP LIMITED
ANNUAL REPORT
30 JUNE
2018
PENGANA CAPITAL
HEAD OFFICE
ABN 43 059 300 426
Level 12, 167 Macquarie Street
Sydney NSW 2000
Australia
Ph: +61 2 8524 9900
Fax: +61 2 8524 9901
PENGANA.COM
PENGANA.COM
PENGANA IS A LEADING
PROVIDER OF PREMIUM
PRODUCTS THAT ARE
BENCHMARK UNAWARE
AND ACTIVELY MANAGED.
CURRENTLY, PENGANA
HAS CIRCA $3.5 BILLION
OF FUNDS UNDER
MANAGEMENT
ACROSS BOTH GLOBAL
AND AUSTRALIAN
INVESTMENT STRATEGIES.
TABLE OF
CONTENTS
Corporate Directory
Letter from the Chairman
Chief Executive Officer’s Report
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
14
25
26
27
28
29
30
31
68
69
72
ANNUAL REPORT 2018 | 3
ANNUAL
REPORT
4 | PENGANA CAPITAL GROUP
CORPORATE
DIRECTORY
DIRECTORS
Warwick Negus
Non-Executive Chairman
Russel Pillemer
Managing Director and Chief Executive Officer
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/shareholders/
pengana-capital-group/corporate-governance/
ANNUAL REPORT 2018 | 5
ANNUAL
REPORT
6 | PENGANA CAPITAL GROUP
6 | PENGANA CAPITAL GROUP
LETTER FROM
THE CHAIRMAN
DEAR FELLOW PENGANA SHAREHOLDERS,
The 2018 financial year marked the first year of the newly
merged Pengana Capital Group Limited (ASX: PCG).
PCG delivered an underlying profit after tax of
$12.4 million for the year ending 30 June 2018,
representing underlying earnings of 12.19 cents per
share. This is derived from the $7.0 million statutory
profit after tax, adding back $3.1 million of non-cash
amortisation expenses, $2.1 million of interest on the off
balance sheet employee Loan Funded Share Plan and
$0.2 million in unrealised investment gains accounted
through equity. This enabled the Board to declare
a final fully franked dividend of 6.5 cents per share,
bringing the total dividends paid for the financial year
to 13 cents per share.
During the year, our strategies continued to perform
well, and 21% of our gross revenue was derived from
performance fees. Although this is lower than our
4-year average, it is not unexpected that our primary
focus of “generating superior long-term returns” with
benchmark unaware mandates will deliver somewhat
variable short-term relative returns. We are proud of the
proven long-term performance track record of each of
our key strategies, with all strategies outperforming their
benchmarks since inception.
ANNUAL REPORT We maintained a focus on our cost base, enabling us to deliver the
merger cost synergies set out in the Explanatory Memorandum of
27 April 2017, while also investing in our sales and distribution capability
by making key hires in New South Wales and Victoria.
With no debt and $19 million of net liquid assets in excess of our
regulatory requirements of $10 million we remain focused on continuing
to utilise our strong balance sheet in a highly disciplined way. Pengana’s
unique operating model enables horizontal growth prospects with its
robust and scalable infrastructure and strong distribution capabilities and
in 2019 we expect to further leverage our current infrastructure.
Creating value for both our shareholders and the investors in our funds
only occurs because we have created a team of exceptional people and
I would like to thank my fellow board members, fund manager partners
and our staff for their dedication, passion and commitment to excellence.
Finally, I would like to thank our shareholders for their continued support
and I look forward to meeting many of you at the PCG Annual General
Meeting. Details will be sent to you separately in the Notice of Meeting.
Yours sincerely,
Warwick Negus
Chairman
ANNUAL REPORT 2018 | 7
ANNUAL
REPORT
8 | PENGANA CAPITAL GROUP
CEO’S
REPORT
DEAR FELLOW PENGANA SHAREHOLDER
The 2018 financial year was significant for Pengana Capital Group
Limited (ASX: PCG). We successfully completed the integration of the
Hunter Hall funds, captured the merger cost synergies set out in the
Explanatory Memorandum of 27 April 2017 and have grown funds
under management (‘FUM’) from $3,127 million to $3,519 million.
We believe that we are building a strong platform for further growth,
and that our success is primarily attributed to our unique funds
management business model that provides significant competitive
advantages and proven ability to deliver long-term returns.
There are a few factors that we believe are key to our
continued growth:
• Our centralised corporate support structure is highly scalable, giving
us the ability to grow horizontally (i.e. by adding new teams and
strategies), as well as being highly disciplined when it comes to
assessing each strategy’s capacity constraints.
• Our strong balance sheet and access to capital allows us to take
advantage of strategic acquisition opportunities.
• We spend substantial time nurturing our culture as we believe that
a great workplace culture has an inevitable positive impact on the
happiness, engagement and productivity of our employees. This
gives us the ability to attract and retain the right people to deliver
our future success.
• We have strong alignment between staff who own approximately
34% of the Company, many of whom have a material proportion of
their wealth invested in PCG.
• Our relationship with our largest shareholder, Washington H. Soul
Pattinson, whose support permitted the successful completion of
the Hunter Hall transaction.
• And finally, our shareholders and investors, many of who have
placed their trust and wealth with us and who are often investors
across a number of our funds.
FINANCIAL RESULTS
Pengana generated an underlying net profit after tax of
$12.4 million which represents 12.19 cents per share.
30 June 20181
Management fee revenue
Performance fee revenue
Operating expenses
Team profit share
Operating EBITDA
Other income
Amortisation
Other non-operating expenses
Profit before tax
Income tax expense
Statutory profit after tax attributable to Pengana shareholders2
Basic earnings per share on statutory profit – cents per share3
Add back:4
Amortisation
Unrealised investment gains
Interest on Loan Funded Share Plan
Underlying profit
Basic earnings per share on underlying profit – cents per share5
1. Source: Pengana Management Accounts
2. As per Pengana Capital Group Limited 30 June 2018 Financial Statements
3. Calculated on 78,623,370 shares (i.e. excluding 22,853,722 treasury shares)
4. Source: Pengana Management Accounts
5. Calculated on 101,477,092 shares (i.e. including 22,853,722 treasury shares)
($’000)
38,450
11,580
(19,440)
(18,750)
11,840
1,921
(3,140)
(560)
10,061
(3,081)
6,980
8.86
3,140
170
2,110
12,400
12.19
ANNUAL REPORT 2018 | 9
ANNUAL
REPORT
CEO’S REPORT (CONTINUED)
Growth in FUM, through investment performance and fund inflows, is the
key metric that drives the long-term profitability of our Company. Our FUM
increased from $3,127 million to $3,519 million in the year to 30 June 2018,
with investment performance of $378 million and net inflows of $189 million
comfortably offsetting distributions of $175 million paid in the period.
3%
1%
5%
3%
1%
5%
23%
23%
41%
41%
27%
27%
Australian multi-caps
Australian small-caps
Global multi-caps
Australian multi-caps
Australian small-caps
Global multi-caps
Global small-caps
Hedge funds
Other
Global small-caps
Hedge funds
Other
Whilst the majority of our FUM is currently in Australian focused funds, over
time we expect our international funds to grow to become the dominant
segment of our business.
This result generated $50 million in gross management and performance fee
revenue, of which $19 million was shared with our fund manager partners.
We have a highly scalable infrastructure and this capability was evidenced
by the seamless integration of the Hunter Hall business, which included over
$6 million in cost synergies. We are well placed to grow FUM and fees at a
much faster rate than the growth in expenses, allowing us to seize strategic
opportunities without disrupting the day to day operations of our existing
funds. At 30 June 2018 our annualised management fee was 1.15%, having
remained steady over the last 4 years. Total fee margin was 1.49% which
is below our historical 4-year average of 2.15%. It is important to note that
performance fees will fluctuate, especially over relatively short periods of
time. However, over the longer term, we expect a reversion to the mean as
demonstrated by the current performance of our two largest funds.
10 | PENGANA CAPITAL GROUP
ANNUAL REPORT With circa $1.4 billion under management, the Australian Equities Fund was the biggest driver of management and
performance fee revenues. The majority of our funds delivered solid absolute performance, building on our excellent
long-term performance track record of each of our key strategies:
Fund
Strategy
Benchmark
Gross
Performance
Since Inception
Gross
Outperformance
of Benchmark
Since Inception
Pengana
Australian Equities Fund 6
Pengana
Emerging Companies Fund 7
Pengana
International Fund 8
Pengana
International Equities Ltd (LIC) 9
Pengana
PanAgora Absolute
Return Global Equities Fund 10
Pengana
Global Small Companies Fund 11
Australian Multi-caps
Absolute
13.3%
Australian Small-caps
S&P/ASX
Small Ords Acc.
18.0%
Global Multi-caps
N/A
11.8%
Global Multi-caps
MSCI World
10.2%
Global Market Neutral
RBA Cash Rate
10.4%
Global Small-caps
MSCI ACWI SMID
14.4%
Pengana
Absolute Return Asia Pacific Fund 12 Absolute Return Asia
RBA Cash Rate
6.3%
13.3%
12.8%
11.8%
3.0%
7.7%
5.1%
3.6%
Pengana
High Conviction Equities Fund 13
Pengana
WHEB Sustainable Impact Fund 14
High Conviction
RBA Cash Rate + 3%
49.0%
44.2%
Global Impact Investing
N/A
7.2%
7.2%
The various funds run by our International Equities team saw an improvement in research house ratings early in the
calendar year, which, combined with continued performance, should attract increased support from platforms and key
financial advisory groups.
The Global Small Companies Fund and the WHEB Sustainable Impact Fund recorded impressive returns over the period
and experienced strong inflows, albeit the WHEB Sustainable Impact Fund coming from a lower base.
Finally, shareholders of our listed investment company Pengana International Equities Limited (ASX: PIA) were granted a
bonus one-for-one option on 12 December 2017 and voted to reduce its management fee from 1.5% p.a. to 1.2% p.a. in
exchange for the one-off re-setting of its performance fee benchmark to nil, effective 1 December 2017.
6. Australian Equity Fund: benchmark shown is the S&P/ASX All Ords Index; performance fee benchmark is the RBA cash rate
7. Emerging Companies Fund: benchmark is the S&P/ASX Small Ordinaries Index
8. International Fund: benchmark is the MSCI All Country World Net Unhedged in AUD
9. International Equities Limited: benchmark is the MSCI World Total Return Index, Net Dividends Reinvested, in A$
10. 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. 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
11. Global Small Companies Fund: benchmark is the MSCI All Country World SMID Cap Net Unhedged in AUD
12. Absolute Return Asia Pacific Fund: equity market benchmark is na; performance fee benchmark is the RBA cash rate. 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.
13. High Conviction Fund: benchmark shown is the S&P/ASX All Ordinaries Index; performance fee benchmark is the RBA Cash Rate + 3% p.a.
14. 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
ANNUAL REPORT 2018 | 11
ANNUAL
REPORT
CEO’S REPORT (CONTINUED)
BALANCE SHEET MANAGEMENT
At 30 June 2018, our Underlying Net Tangible Assets15 were $53 million, or 51 cents per share. Pengana has no
borrowings and at 30 June 2018, had $19 million of net liquid assets in excess of our regulatory requirements
of $10 million. The management of our balance sheet is critically important to our business and the returns we
deliver shareholders in the long term, as it allows us to take advantage of strategic opportunities as they arise.
Pengana Capital Group Balance Sheet 30 June 201816
Cash net of $5m AFSL cash requirements
Current receivables
Current liabilities
Net working capital
Investments net of $5m AFSL liquid asset requirements
AFSL capital requirements
Loans (on and off-balance sheet)
Other assets
Other non-current liabilities
Total non-current assets and liabilities
Net Tangible Assets17
Less: Off balance sheet Loan Funded Share Plan
Add: Intangibles
Net Assets as per 30 June 2018 Financial Statements18
($’000)
11,070
5,690
(9,472)
7,288
12,118
10,000
28,786
1,770
(7,246)
45,428
52,716
(27,530)
64,542
89,728
Today the Board declared a fully franked dividend of 6.5 cents per share. The record date for the dividend is
Friday, 14 September 2018 and the dividend will be paid on Friday, 28 September 2018. This brings the total fully
franked dividends declared for the 2018 financial year to 13 cents per share.
15. Net Assets as per the 2018 Financial Statements of $90 million, adding balance sheet employee loans of $28 million
and subtracting intangibles of $65 million, calculated on 101,589,016 shares (i.e. including 22,853,722 treasury shares)
16. Source: Pengana Management Accounts
17. Source: Pengana Management Accounts
18. As per Pengana Capital Group Limited 30 June 2018 Financial Statements
12 | PENGANA CAPITAL GROUP
ANNUAL REPORT
OUTLOOK
We are continuously looking to broaden and strengthen our range of strategies. In the last few months
we have made a strategic investment, taking a minority stake in boutique credit fund manager,
Global Credit Investments Pty Ltd (‘GCI’).
In the next 12 months, our challenge will be to drive increased growth in our International Equities strategies
by leveraging PCG’s highly developed infrastructure and distribution capabilities. We will also remain focused
on our other best-in-class strategies, and the solid support from our clients and advisors. And, finally, we will
continue to seek to utilise our balance sheet to develop exciting new investment opportunities for the Australian
retail market and further drive shareholder value.
As we indicated previously, a key focus of Pengana has been on exploring opportunities in the listed investment
space. Over the last year, we have made solid progress in this regard and plan to launch a new listed investment
trust that will invest in the alternative assets segments by way of a joint venture type arrangement with a leading
offshore alternative asset management firm. We expect to announce details about this exciting new offering over
the next several weeks.
We will once again be conducting a series of roadshows in the coming months and I encourage you contact us
(via our website or telephone) and register for our updates.
Once again, thank you for continued support. I look forward to meeting many of you in the upcoming months,
Russel Pillemer
Chief Executive Officer
ANNUAL REPORT 2018 | 13
DIRECTORS’ REPORT
30 JUNE 2018
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 2018.
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
Jeremy Dunkel
Kevin Eley
David Groves
Robert Barry
PRINCIPAL ACTIVITIES
Resigned on 31 October 2017
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:
On 30 August 2017, fully franked final dividend of 4.5 cents per ordinary share
was declared for the year ended 30 June 2017 and paid on 28 September 2017 to
shareholders registered on 14 September 2017 (2017: $10.74 per Pengana Holdings Pty
Ltd ordinary share paid on 18 October 2016 prior to the reverse acquisition).
Consolidated
2017
$’000
2018
$’000
3,538
6,000
On 27 February 2018, fully franked interim dividend of 6.5 cents per ordinary share was
declared for the year ended 30 June 2018 and paid on 19 March 2018 to shareholders
registered on 5 March 2018.
5,111
–
8,649
6,000
On 28 August 2018, fully franked final dividend of 6.5 cents per ordinary share was declared for the year ended
30 June 2018 to be paid on 28 September 2018 to shareholders registered on 14 September 2018.
REVIEW OF OPERATIONS
The profit for the group after providing for income tax and non-controlling interest amounted to $6,980,000 (30
June 2017: loss of $2,814,000).
Please refer to the CEO’s Report for further information on the current year results and future outlook.
14 | PENGANA CAPITAL GROUP
ANNUAL REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no 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 2018 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 CEO’s Report 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:
3,425,000 ordinary shares.
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:
Pengana International Equities Limited (ASX: PIA)
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).
ANNUAL REPORT 2018 | 15
DIRECTORS’ REPORT – 30 JUNE 2018 (CONTINUED)
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.
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).
Special responsibilities:
Member of the Nomination and Remuneration Committee.
Interests in shares:
200,000 ordinary shares.
Name:
Title:
Experience and expertise:
David Groves
Non-Executive Director
David Groves has over 25 years’ experience as a company director. Mr Groves
is Chairman of Pyrolyx AG and Tasman Sea Salt Pty Ltd and is a non-executive
director of Pengana International Equities Limited and of Pipers Brook Vineyard
Pty Ltd. He is a former director of EQT Holdings Ltd, Tassal Group Ltd and
GrainCorp Ltd and a former executive with Macquarie Bank Limited and its
antecedent, Hill Samuel Australia. Mr Groves is an advisory board member of
the Australian Rugby Foundation and a member of the Council of Wollongong
University. Mr Groves is a member of the Australian Institute of Chartered
Accountants and a fellow of the Australian Institute of Company Directors.
Other current directorships:
Pengana International Equities Limited (ASX: PIA) and Pyrolyx AG (ASX: PLX).
Former directorships (last 3 years): None.
Special responsibilities:
Chairman of the Audit and Risk Committee and member of the Nomination
and Remuneration Committee
Interests in shares:
393,667 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.
16 | 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 2018, 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
Jeremy Dunkel
Kevin Eley
David Groves
Robert Barry
Warwick Negus
Russel Pillemer
Jeremy Dunkel
9
9
9
7
8
1
9
9
9
9
9
3
–
–
2
2
2
–
–
–
2
2
2
–
4
–
4
–
4
–
4
–
4
–
4
–
Board sub-committee
Held
Attended
1
2
1
1
2
1
Held: represents the number of meetings held during the time the director held office or was a member of the
relevant committee.
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 2018 | 17
DIRECTORS’ REPORT – 30 JUNE 2018 (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.
In accordance with best practice corporate governance, the structure of non-executive director and executive
director 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 28 November 2017,
where the shareholders approved a maximum annual aggregate remuneration of $750,000.
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 2018.
18 | PENGANA CAPITAL GROUP
ANNUAL REPORT Long-Term incentives (‘LTI’)
The long-term incentives (‘LTI’) include long service leave and share-based payments.
The group operates a Loan Share Plan (‘LSP’) which is outlined below in the section ‘share-based compensation’.
A condition of the merger in the prior period 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 ended 30 June 2018, the group did not engage any remuneration consultants.
Voting and comments made at the company’s 2017 Annual General Meeting (‘AGM’)
At the 2017 AGM, shareholders voted to approve the adoption of the remuneration report for the year ended 30
June 2017. 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.
The KMP of the group consisted of the Directors of Pengana Capital Group Limited and the following person:
• Katrina Glendinning – Chief Financial Officer
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
$
12,146
2,314
7,808
6,940
8,675
–
–
–
–
–
–
–
–
–
–
Total
$
140,000
26,667
90,000
80,000
100,000
2018
Non-Executive Directors:
Warwick Negus
Robert Barry*
Jeremy Dunkel
Kevin Eley
David Groves
127,854
24,353
82,192
73,060
91,325
Executive Directors:
Russel Pillemer
583,530
Other KMP:
Katrina Glendinning
344,124
1,326,438
* KMP of the group until 31 October 2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,049
25,560
–
629,139
20,049
12,013
22,891
399,077
77,981
37,573
22,891 1,464,883
ANNUAL REPORT 2018 | 19
DIRECTORS’ REPORT – 30 JUNE 2018 (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
LTI
2018
2017
2018
2017
100%
11%
–
89%
94%
98%
6%
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.
20 | 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 $614,615 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 $364,656 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’)
The group operates a LSP whereby limited recourse loans were provided to employees and fund managers
to acquire shares in the company. As the share acquisitions were 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 (referred to as ‘treasury shares’) are fair valued on the date
they are granted and amortised as an expense in profit or loss over the vesting period. The impact of this
accounting treatment is a reduction in net assets equivalent to the value of loans outstanding under the LSP.
As at 30 June 2018 loans outstanding under the LSP and not recorded as a receivable on statement of financial
position totalled $27,528,000 (2017: $27,928,000). Treasury shares have a service vesting period of 5 years,
except those granted to Russel Pillemer all of which vested on the date they were granted.
As at 30 June 2018 outstanding loans to Russel Pillemer and Katrina Glendinning respectively are $18,884,000
(2017: $19,342,000) and $524,000 (2017: $520,000).
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
Fair value per loan
shares at grant date
03/03/2017
Katrina Glendinning: 422,899
01/03/2024
$1.49
$0.271
ANNUAL REPORT 2018 | 21
DIRECTORS’ REPORT – 30 JUNE 2018 (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
2018
Number of loan
shares granted
during the year
2017
Number of loan
shares vested
during the year
2018
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
Russel Pillemer
Katrina Glendinning
3,400,000
1,803,150
200,000
343,473
10,350,081
2,186,620
25,000
–
–
50,194
–
–
18,283,324
75,194
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,425,000
1,803,150
200,000
393,667
10,350,081
2,186,620
18,358,518
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:
Shares under the Loan
Share Plan:
Russel Pillemer
Katrina Glendinning
Balance at
the start of
the year
15,872,528
422,899
16,295,427
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
–
–
–
–
–
–
–
–
–
15,872,528
422,899
16,295,427
This concludes the remuneration report, which has been audited.
22 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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
Initial 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 2018 and up to the date of this report.
INDEMNITY AND INSURANCE OF OFFICERS
The company has indemnified the directors and executives of the company for costs incurred, in their capacity as
a director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year the group 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.
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.
ANNUAL REPORT 2018 | 23
DIRECTORS’ REPORT – 30 JUNE 2018 (CONTINUED)
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
28 August 2018
Sydney
24 | PENGANA CAPITAL GROUP
ANNUAL REPORT AUDITOR’S INDEPENDENCE
DECLARATION
ANNUAL REPORT 2018 | 25
Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.au Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Pengana Capital Group Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Pengana Capital Group Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants M A Adam-Smith Partner – Audit & Assurance Sydney, 28 August 2018 STATEMENT OF
PROFIT OR LOSS
Revenue
Management fees
Performance fees
Other fee revenue
Total revenue
Share of profits 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 operating expenses
Distribution expenses
Distributions paid to unitholders
Occupancy expenses
Net change in assets attributable to unitholders
Technology and communications expenses
Marketing and investment research expenses
Insurance expenses
Professional, registry and listing related expenses
Reverse acquisition and restructuring costs
Depreciation and amortisation expenses
Other operating expenses
Total expenses
Profit/(loss) before income tax expense
Income tax expense
Consolidated
2018
$’000
39,621
11,696
–
2017
$’000
24,872
11,946
76
51,317
36,894
311
2,565
859
7,348
54,193
45,101
(12,343)
(18,634)
(3,761)
(195)
–
(1,021)
(281)
(972)
(1,397)
(502)
(968)
(633)
(2,559)
(756)
(14,725)
(14,729)
(3,128)
(558)
(4,230)
(1,146)
–
(1,013)
(1,052)
(224)
(769)
(4,504)
(388)
(310)
(44,022)
(46,776)
10,171
(1,675)
(3,081)
(1,019)
Note
4
5
5
6
Profit/(loss) after income tax expense for the year
7,090
(2,694)
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
36
36
110
6,980
7,090
Cents
8.88
7.73
120
(2,814)
(2,694)
Cents
(4.39)
(4.39)
The above statement of profit or loss should be read in conjunction with the accompanying notes.
26 | 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
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Non-controlling interest
Owners of Pengana Capital Group Limited
Consolidated
2018
$’000
2017
$’000
7,090
(2,694)
168
168
3
3
7,258
(2,691)
110
7,148
7,258
120
(2,811)
(2,691)
The above statement of profit or loss should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2018 | 27
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
Income tax refund due
Other current assets
Total current assets
Non-current assets
Other receivables
Investments accounted using the equity method
Investments in available-for-sale financial assets
Property, plant and equipment
Intangibles
Prepayments
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Net assets attributable to unitholders
Total current liabilities
Non-current liabilities
Deferred tax
Employee benefits
Other
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
Note
Consolidated
2018
$’000
2017(a)
$’000
7
8
9
6
10
11
12
13
14
15
16
17
6
18
19
16,070
5,206
–
759
782
20,167
4,940
26,768
905
802
22,817
53,582
1,732
7,481
9,637
315
64,541
197
83,903
2,258
3,712
7,196
362
66,947
–
80,475
106,720
134,057
9,889
943
–
10,832
6,077
78
5
6,160
16,992
89,728
87,914
29,445
(27,664)
89,695
33
16,876
511
18,768
36,155
7,211
569
5
7,785
43,940
90,117
87,161
28,899
(25,995)
90,065
52
89,728
90,117
Refer to note 29 for the finalisation of prior period business combinations which has resulted in comparatives being adjusted.
(a) Restated
The above statement of profit or loss should be read in conjunction with the accompanying notes.
28 | PENGANA CAPITAL GROUP
ANNUAL REPORT STATEMENT OF
CHANGES IN EQUITY
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Non-
controlling
interest
$’000
25,298
29,867
(23,181)
30
Total
equity
$’000
32,014
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 18)
Treasury shares (note 18)
Share-based payments
Dividends paid (note 20)
–
–
–
89,083
(27,220)
–
3
3
–
–
–
–
5,029
(6,000)
Balance at 30 June 2017
87,161
28,899
(25,995)
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
87,161
28,899
(25,995)
–
6,980
Consolidated
Balance at 1 July 2017
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 18)
Treasury shares (note 18)
Share-based payments (note 35)
Dividends paid (note 20)
–
–
–
753
–
–
–
168
168
–
–
378
–
(2,814)
120
(2,694)
–
–
3
(2,814)
120
(2,691)
–
–
–
–
–
–
–
–
(98)
52
Non-
controlling
interest
$’000
52
110
–
89,083
(27,220)
5,029
(6,098)
90,117
Total
equity
$’000
90,117
7,090
168
6,980
110
7,258
–
–
–
–
–
–
–
753
378
(8,649)
(129)
(8,778)
Balance at 30 June 2018
87,914
29,445
(27,664)
33
89,728
The above statement of profit or loss should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2018 | 29
STATEMENT OF
CASH FLOWS
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
Consolidated
2018
$’000
2017
$’000
Note
55,197
(49,078)
41,579
(40,255)
6,119
1,324
225
186
939
21,363
(16,790)
(4,327)
249
94
483
26,778
(2,245)
(1,032)
Net cash from operating activities
34
7,715
25,651
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 disposal of interests in subsidiaries
Payments for security deposits
Proceeds from security deposits
–
–
(85)
–
7,732
–
2
18,836
(553)
(232)
(1,121)
–
(5)
–
Net cash from/(used in) investing activities
7,649
16,925
Cash flows from financing activities
Payment made towards issue of loan share plan
Payments to unitholders
Proceeds from loan repayments
Dividends paid to company shareholders, net of treasury shares reinvested
Dividends paid to non-controlling interests and unitholders
–
(18,905)
(11,080)
246
(8,542)
(129)
–
436
(6,000)
(4,249)
Net cash from/(used in) financing activities
(19,505)
(28,718)
Net increase/(decrease) 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
(4,141)
20,167
44
13,858
6,347
(38)
Cash and cash equivalents at the end of the financial year
7
16,070
20,167
The above statement of profit or loss should be read in conjunction with the accompanying notes.
30 | 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
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 28.
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 2018 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, in the previous year was 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.
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.
ANNUAL REPORT 2018 | 31
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION (CONTINUED)
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.
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.
32 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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 represents 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.
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 a tax funding agreement that ensures the tax payable is
met by Pengana Capital Group Ltd. Any difference between the amounts assumed and the amount receivable or
payable under the funding agreement is recognized as a contribution to, or distribution from, the parent.
ANNUAL REPORT 2018 | 33
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 are 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.
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.
34 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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, that 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.
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.
ANNUAL REPORT 2018 | 35
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
36 | PENGANA CAPITAL GROUP
ANNUAL REPORT
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
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
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.
ANNUAL REPORT 2018 | 37
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
EMPLOYEE BENEFITS (CONTINUED)
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, that 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.
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.
38 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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 previous 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’.
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;
ANNUAL REPORT 2018 | 39
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNT POLICIES (CONTINUED)
BUSINESS COMBINATIONS (CONTINUED)
• 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; and
• the results for the comparative 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.
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 2018. 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.
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
40 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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. The adoption of AASB 9 will change the way the group accounts
for equity investments however the impact will be immaterial due to the relative size and incidental nature
of investing activities.
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 fulfil a contract with a
customer. The group will adopt this standard from 1 July 2018. The adoption of AASB 15 will have no material
impact on how the group currently recognises revenue.
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. 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 26 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. The impact of its adoption is yet to be assessed by the group.
ANNUAL REPORT 2018 | 41
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.
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 33 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 21.
42 | 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
2018
$’000
541
182
277
–
171
1,047
347
2,565
2017
$’000
16
91
307
6,599
244
(15)
106
7,348
ANNUAL REPORT 2018 | 43
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EXPENSES
Profit/(loss) before income tax includes the following specific expenses:
Depreciation
Leasehold improvements
Fixtures and fittings
Plant and equipment
Total depreciation
Amortisation
Acquired relationships
Total depreciation and amortisation
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
Consolidated
2018
$’000
2017
$’000
36
29
88
153
2,406
2,559
33
39
116
188
200
388
4
57
967
(12)
955
625
938
155
1,093
512
Share-based payments expense – included in human resources expenses
Share-based payments expense
378
5,029
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
–
–
–
–
633
633
–
334
3,381
402
387
4,504
44 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 6. INCOME TAX
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Consolidated
2018
$’000
3,144
(63)
2017
$’000
1,329
(310)
Aggregate income tax expense
3,081
1,019
Deferred tax included in income tax expense comprises:
(Increase)/decrease in deferred tax assets
(63)
(310)
Numerical reconciliation of income tax expense and tax at the statutory rate
profit/(loss) 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
Income tax expense
Amounts charged/(credited) directly to equity
Deferred tax assets
10,171
(1,675)
3,051
(503)
(42)
(675)
113
634
(370)
165
1,509
218
3,081
1,019
72
(1)
The tax benefit for capital losses have been fully recognised during the financial year ended 30 June 2018.
ANNUAL REPORT 2018 | 45
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 to profit or loss
Credited/(charged) to equity
Additions through business combinations (note 29)
Tax effects on intangibles
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
2018
$’000
2017
$’000
73
429
595
82
1,559
(1)
(7,174)
(8,851)
(6,077)
(7,211)
(7,211)
63
(72)
–
1,143
813
310
1
(8,335)
–
(6,077)
(7,211)
759
905
12,406
3,664
16,070
14,951
5,216
20,167
46 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 8. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Trade receivables
Accrued income
Other receivables
Consolidated
2018
$’000
2
5,198
5,200
6
5,206
2017
$’000
25
4,915
4,940
–
4,940
Impairment of receivables
As at 30 June 2018 and 30 June 2017 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
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 29)
Disposals on deconsolidation
Revaluation increments
Reclassification to investments accounted for using equity method
Closing fair value
Refer to note 22 for further information on fair value measurement.
NOTE 10. CURRENT ASSETS – OTHER CURRENT ASSETS
Prepayments
Security deposits
Other deposits
Other current assets
–
26,768
26,768
–
–
(26,768)
–
–
–
725
40
17
–
782
3,620
3,687
25,518
(2,986)
549
(3,620)
26,768
569
75
11
147
802
ANNUAL REPORT 2018 | 47
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. NON-CURRENT ASSETS – OTHER RECEIVABLES
Other receivables
Security deposits
Other loans
Consolidated
2018
$’000
400
476
856
1,732
2017
$’000
400
442
1,416
2,258
NOTE 12. NON-CURRENT ASSETS
– INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investments in associates
7,481
3,712
Refer to note 32 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
9,637
7,196
Refer to note 22 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
162
(46)
116
253
(201)
52
901
(754)
147
315
588
(437)
151
238
(166)
72
937
(798)
139
362
48 | 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 2016
Additions
Additions through business combinations (note 29)
Write off of assets
Depreciation expense
Balance at 30 June 2017
Additions
Write off of assets
Depreciation expense
Balance at 30 June 2018
Leasehold
improvements
$’000
Furniture
and fittings
$’000
Plant and
equipment
$’000
41
143
–
–
(33)
151
1
–
(36)
116
88
23
254
(254)
(39)
72
9
–
(29)
52
185
66
36
(32)
(116)
139
97
(1)
(88)
147
Total
$’000
314
232
290
(286)
(188)
362
107
(1)
(153)
315
NOTE 15. NON-CURRENT ASSETS – INTANGIBLES
Goodwill – at cost
Acquired relationships – at cost
Less: Accumulated amortisation
Consolidated
2018
$’000
2017
$’000
40,627
40,627
26,520
(2,606)
23,914
64,541
26,520
(200)
26,320
65,992
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 2016
Additions through business combinations (note 29)
Amortisation expense
Balance at 30 June 2017
Amortisation expense
Balance at 30 June 2018
Goodwill
$’000
Acquired
relationships
$’000
–
40,627
–
40,627
–
–
26,520
(200)
26,320
(2,406)
Total
$’000
–
67,147
(200)
66,947
(2,406)
40,627
23,914
64,541
Refer note 29 for the finalisation of prior period business combinations which has resulted in comparatives being adjusted.
ANNUAL REPORT 2018 | 49
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. NON-CURRENT ASSETS – INTANGIBLES (CONTINUED)
The Group identifies a single cash-generating unit (‘CGU’) and, therefore, the recoverable amount has been
determined at the group level.
The recoverable amount of the group’s goodwill has been determined by value-in-use calculations. The
calculations use cash flow projections based on the business plan approved by management covering a five year
period. Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below.
The following key assumptions were used in the discounted cash flow model:
a. Pre-tax discount rate: 11.9%;
b. Projected growth rate of 2.5% beyond five year period for the CGU; and
c. Increase in operating costs and overheads based on current expenditure levels adjusted for inflationary increases.
For the financial year ended 30 June 2018, the recoverable amount of net assets for the Group is greater than
the carrying value of the assets and therefore, the goodwill is not considered to be impaired.
Sensitivity analysis:
Management estimates that any reasonable changes in the key assumptions would not have a significant impact
on the value-in-use of goodwill that would require the assets to be impaired.
The remaining amortisation period for the acquired relationships is between 6 and 12 years.
NOTE 16. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
Consolidated
Trade payables
Accrued expenses
Fund manager profit share
Other payables
Refer to note 21 for further information on financial instruments.
NOTE 17. CURRENT LIABILITIES – EMPLOYEE BENEFITS
Annual leave
Long service leave
2018
$’000
426
3,761
5,353
349
9,889
475
468
943
2017
$’000
1,055
12,106
3,219
496
16,876
511
–
511
NOTE 18. 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’).
Consolidated
Ordinary shares – fully paid
101,689,016
101,477,092
Less: Treasury shares
(22,853,722)
(22,853,722)
2018
Shares
2017
Shares
2018
$’000
115,134
(27,220)
78,835,294
78,623,370
87,914
2017
$’000
114,381
(27,220)
87,161
50 | PENGANA CAPITAL GROUP
ANNUAL REPORT Movements in ordinary share capital
Details
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
Date
1 July 2016
3 March 2017
1 June 2017
1 June 2017
Shares
$’000
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 29)
Share issue transaction costs, net of tax
1 June 2017
27,329,643
–
Balance
30 June 2017
101,477,092
114,381
Issue of shares as part consideration for investment in
Global Credit Investments Pty Ltd
19 June 2018
Issue of shares in accordance with short term incentive
29 June 2018
137,350
74,574
490
263
Balance
30 June 2018
101,689,016
115,134
Movements in treasury shares
Details
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
Balance
Balance
Date
1 July 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)
–
–
30 June 2017
(22,853,722)
(27,220)
30 June 2018
(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 35 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.
ANNUAL REPORT 2018 | 51
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. EQUITY – CONTRIBUTED EQUITY (CONTINUED)
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 2018
(June 2017: Nil)
Two wholly owned subsidiaries of the group, Pengana Capital Limited (‘PCL’) and Pengana Investment
Management Ltd (‘PIML’) (formerly Hunter Hall Investment Management Ltd), 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 2018 PCL and PIML were required to maintain $5,000,000 and $4,000,000
respectively in liquid assets, of which 50% is held in cash or cash equivalents.
The directors believe the group has adequate capital at 30 June 2018 to maintain the groups existing business
activities and facilitate growth.
The capital risk management policy remains unchanged from the 2017 Annual Report.
NOTE 19. EQUITY – RESERVES
Profits reserve
Share-based payments reserve
Available-for-sale reserve
Consolidated
2018
$’000
23,867
5,407
171
29,445
2017
$’000
23,867
5,029
3
28,899
Profits reserve
The profits reserve records the 2013 Pengana Holdings 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.
52 | PENGANA CAPITAL GROUP
ANNUAL REPORT Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 30 June 2016
Revaluation – gross
Deferred tax
Dividends paid
Share-based payments
Balance at 30 June 2017
Revaluation - gross
Deferred tax
Share-based payments
Share-based
payments
reserve
$’000
Available-for-
sale reserve
$’000
Profits
reserve
$’000
29,867
–
–
(6,000)
–
–
–
–
–
5,029
23,867
5,029
–
–
–
–
–
378
Total
$’000
29,867
4
(1)
(6,000)
5,029
28,899
240
(72)
378
–
4
(1)
–
–
3
240
(72)
–
Balance at 30 June 2018
23,867
5,407
171
29,445
NOTE 20. EQUITY – DIVIDENDS
Dividends paid during the financial year were as follows:
On 30 August 2017, fully franked final dividend of 4.5 cents per ordinary share
was declared for the year ended 30 June 2017 and paid on 28 September 2017 to
shareholders registered on 14 September 2017 (2017: $10.74 per Pengana Holdings
Pty Ltd ordinary share paid on 18 October 2016 prior to the reverse acquisition).
On 27 February 2018, fully franked interim dividend of 6.5 cents per ordinary share
was declared for the year ended 30 June 2018 and paid on 19 March 2018 to
shareholders registered on 5 March 2018.
Consolidated
2018
$’000
2017
$’000
3,538
6,000
5,111
8,649
–
6,000
On 28 August 2018, fully franked final dividend of 6.5 cents per ordinary share was declared for the year ended
30 June 2018 to be paid on 28 September 2018 to shareholders registered on 14 September 2018.
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
3,553
3,746
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
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
ANNUAL REPORT 2018 | 53
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. 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.
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:
Consolidated – 2018
Listed shares
Consolidated – 2017
Listed shares
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%
–
–
(10%)
–
–
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)
54 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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
2018
Weighted
average
interest rate
0.14%
2.00%
Balance
$’000
12,406
3,664
16,070
2017
Weighted
average
interest rate
0.49%
2.34%
Balance
$’000
14,951
5,216
20,167
The table below summarises the impact of a 50 basis point movement in interest:
Basis points increase
Basis points decrease
Consolidated – 2018
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
80
56
(50)
(80)
(56)
Consolidated – 2017
Net exposure to cash flow interest rate risk
50
101
71
(50)
(101)
(71)
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 2018 owed the
group 100% (2017: 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 $856,000 as at 30 June 2018 (2017: $1,416,000). 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.
ANNUAL REPORT 2018 | 55
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. FINANCIAL INSTRUMENTS (CONTINUED)
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 – 2018
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Fund manager profit share
Security deposits held
Total non-derivatives
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
426
349
5,353
–
6,128
–
–
–
5
5
–
–
–
–
–
–
–
–
–
–
426
349
5,353
5
6,133
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
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually
disclosed above.
56 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 22. 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 – 2018
Assets
Level 1
$’000
Level 2
$’000
Level 3
$’000
Investments in available-for-sale financial assets
Total assets
9,637
9,637
–
–
–
–
Total
$’000
9,637
9,637
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
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.
ANNUAL REPORT 2018 | 57
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23. 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
2018
$
2017
$
1,326,438
981,709
77,981
37,573
22,891
70,668
6,300
4,913,681
1,464,883
5,972,358
Short-term employee benefits consists of cash salaries and fees.
NOTE 24. 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
Audit or review of the financial statements
NOTE 25. CONTINGENT LIABILITIES
The group had no contingent liabilities at 30 June 2018 and 30 June 2017.
NOTE 26. 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
2018
$’000
2017
$’000
203,318
133,500
Consolidated
2018
$’000
2017
$’000
829
1,196
–
2,025
801
1,913
73
2,787
The property leases are non-cancellable leases with a maximum 5 year term, with rent payable monthly in
advance. Options exist to renew the leases at the end of the term.
58 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 27. RELATED PARTY TRANSACTIONS
Parent entity
Pengana Capital Group Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 31.
Associates
Interests in associates are set out in note 32.
Key management personnel
Disclosures relating to key management personnel are set out in note 23 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
Consolidated
2018
$’000
2017
$’000
39,557,398
25,065,271
11,696,361
11,953,010
–
–
4,483
5,125
Receivable from and payable to related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Consolidated
2018
$’000
2017
$’000
Current receivables:
Trade receivables and accrued income from other related parties
5,200,630
4,939,857
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.
ANNUAL REPORT 2018 | 59
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 28. 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
Share-based payments reserve
Available-for-sale reserve
Retained profits/(accumulated losses)
Total equity
Parent
2018
$’000
18,824
18,824
2017
$’000
(1,052)
(1,052)
10,021
7,784
227,929
240,633
1,970
1,785
4,369
4,629
212,097
238,564
5,407
82
8,558
–
–
(2,560)
226,144
236,004
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 2018 and 30 June 2017.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and
30 June 2017.
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.
60 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 29. BUSINESS COMBINATIONS IN THE PREVIOUS YEAR
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.
The values identified in relation to the acquisition of Hunter Hall International Limited (‘Hunter Hall’) as at
30 June 2017 were provisional and have now been finalised. This has resulted in an increase in goodwill by
$955,000 and an increase in deferred tax liabilities by $955,000.
There was no impact on the comparative period statement of profit or loss and other comprehensive income
or the opening retained earnings. The fair value table below and the comparative year statement of financial
position as at 30 June 2017 have been adjusted accordingly.
Details of the acquisition are as follows:
Hunter Hall International Limited
Fair value $’000
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:
18,836
1,787
888
25,518
6,953
277
290
26,520
(8,335)
(5,349)
(1,358)
(25,758)
40,269
40,627
80,896
Notional Pengana Capital Group Limited shares issued to effect the acquisition (note 18)*
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.
ANNUAL REPORT 2018 | 61
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 30. DECONSOLIDATION OF SUBSIDIARY
On 25 September 2017, the Group sold its controlling interest in High Conviction Equity Fund.
Details of disposal are as follows:
Cash and cash equivalents
Trade and other receivables
Investment in financial assets
Trade and other payables
Net assets attributable to unitholders
Net carrying value of assets and liabilities on disposal
Cash received on sale, net of cash on disposal:
Fair value of consideration received
Less: Cash and cash equivalents held on disposal
Proceeds from disposal of interests in subsidiary
NOTE 31. INTERESTS IN SUBSIDIARIES
Carrying value
$’000
346
8,932
20,581
(4)
(21,777)
8,078
8,078
(346)
7,732
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:
Parent
Non-controlling interest
Principal place
of business
/ Country of
incorporation*
Ownership
interest
2018
%
Ownership
interest
2017
%
Ownership
interest
2018
%
Ownership
interest
2017
%
Name
Pengana Holdings Pty Ltd
Pengana Capital Ltd
Pengana European Asset
Management Pty Limited
Australia
Australia
Australia
Pengana Affinity Funds Pty Ltd
Australia
Pengana Singapore Pte. Ltd
Singapore
Pengana Investment
Management Ltd
Australia
Rushcutter Investments Pty Ltd
Australia
Bennelong Administration
Services Pty Ltd
Australia
Hunter Hall International (UK) Ltd
United Kingdom
High Conviction Equities Fund
Australia
100%
100%
50%
70%
100%
100%
100%
100%
–
–
100%
100%
50%
70%
100%
100%
100%
100%
100%
33%
–
–
50%
30%
–
–
–
–
–
–
–
–
50%
30%
–
–
–
–
–
67%
* Principal activities of the subsidiaries listed above are provision of Investment Management Services.
Summarised financial information for subsidiaries that have non-controlling interests, has not been provided as
they are not material to the group.
62 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 32. 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
Australia
Pengana International Fund – Managed Risk
Australia
Global Credit Investments Pty Ltd
Australia
Ownership interest
2018
%
2.49%
0.77%
1.38%
34.65%
2017
%
2.21%
5.79%
3.19%
–
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 after income tax
Acquisition of interests
Redemptions
Subsidiary transfer to investments accounted for
using the equity method
Exchange difference
Equalisation loss
Pengana Asia Special
Events (Offshore) Fund
Global credit
Investments
2018
$’000
50,357
50,357
56
56
2017
$’000
55,562
55,562
114
114
2018
$’000
1,596
1,596
243
243
Other
2018
$’000
2017
$’000
265,647
54,507
265,647
54,507
1,045
1,045
2,728
2,728
50,301
55,448
1,353
264,602
51,779
3,188
6,738
(3,557)
(1,219)
(369)
–
(369)
5,519
–
5,519
1,527
19,894
12
2
–
–
32
(2)
460
–
(18,838)
–
–
11
2,000
(1,329)
671
–
671
–
–
3,436
–
–
–
–
22,080
(2,894)
19,186
–
3,261
(678)
2,583
–
19,186
2,583
2,185
299
2
–
–
–
(13)
1,832
399
2,146
(4,267)
2,075
–
–
Closing carrying amount
1,571
1,527
3,436
2,473
2,185
The carrying amount of investments in associates is equal to its fair value.
ANNUAL REPORT 2018 | 63
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 33. 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% (2017: 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 $Nil (2017: $6,056,000). The carrying amount of the liabilities is $Nil
(2017: $6,056,000).
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 34. CASH FLOW INFORMATION
Reconciliation of profit/(loss) after income tax to net cash from operating activities
Profit/(loss) after income tax expense for the year
Depreciation and amortisation
Share of profit - associates
Share-based payments
Foreign exchange differences
Distributions paid to unitholders -financing activity
Unitholder share of profit or loss
Write downs
Other non-cash items
Net (gain)/loss on financial assets
Proceeds of investments in financial assets at fair value through profit or loss
Proceeds from sale of investments in financial assets at fair value through profit or loss
Consolidated
2018
$’000
2017
$’000
7,090
(2,694)
2,559
(311)
378
(21)
627
281
136
(173)
(3,848)
–
103
388
(859)
5,029
22
4,230
(6,630)
5
100
329
(347)
–
64 | PENGANA CAPITAL GROUP
ANNUAL REPORT Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in deferred tax assets
Decrease/(increase) in other financial assets at fair value through profit or loss
Increase/(decrease) in trade and other payables
Decrease/(increase) in income tax refund due
Increase/(decrease) in deferred tax liabilities
Consolidated
2018
$’000
2017
$’000
(267)
–
26,768
(6,985)
146
–
307
(250)
(2,439)
1,670
302
7,894
Increase/(decrease) in other financial liabilities at fair value through profit or loss
(18,768)
18,594
Net cash from operating activities
7,715
25,651
Non-cash investing and financing activities
Shares issued in relation to business combinations
Shares issued in relation to purchase of investments in Associates
Shares issued in accordance with short term retention scheme
Purchase of investment into associates- reinvestment of dividends
Sale of investment in associates
Purchase of property, plant and equipment
Changes in liabilities arising from financing activities
Consolidated
Balance at 1 July 2016
Net cash from financing activities
Non-cash repayment of loan via dividends
Balance at 30 June 2017
Net cash from financing activities
Non-cash amortisation of loan received
Non-cash repayment of loan via dividends
Balance at 30 June 2018
NOTE 35. SHARE-BASED PAYMENTS
–
490
263
(1,847)
1,571
(19)
458
80,896
–
(3,644)
3,677
–
–
80,929
Other loans
receivable
$’000
1,934
(436)
(82)
1,416
(246)
(222)
(92)
856
Loan Funded Share Plan (‘LSP’)
Loan Funded Share Plan (‘LSP’) The group operates a LSP, originally implemented by Pengana Holdings Pty
Ltd prior to the merger with Pengana Capital Group Ltd (Formerly known as Hunter Hall International Limited)
whereby Pengana Holdings provided limited recourse loans totalling $27,220,000 to the CEO and certain
ANNUAL REPORT 2018 | 65
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 35. SHARE-BASED PAYMENTS (CONTINUED)
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 $378,000 has been recognised in profit or loss for the year ended
30 June 2018 (2017: $5,029,000).
Interest accruing on the loans and dividends applied to the loans are not recorded in the financial statements but
do impact the outstanding loan balance. As at 30 June 2018 total outstanding loans related to treasury shares
were $27,528,000 (2017: $27,928,000).
Set out below are summaries of shares granted under the LSP:
2018
Grant date
Expiry date
Exercise
price*
Balance at
the start of
the year
Granted*
Exercised
Expired /
forfeited /
other
Balance at the
end of the year
01/03/2017
28/02/2024
$1.49
5,149,796
01/03/2017
28/02/2024
$1.20
10,722,732
03/03/2017
01/03/2024
$1.49
6,981,194
22,853,722
–
–
–
–
–
–
–
–
–
–
–
–
5,149,796
10,722,732
6,981,194
22,853,722
Weighted average exercise price
$1.35
$0.00
$0.00
$0.00
$1.35
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
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
2018
Number
2017
Number
5,149,796
5,149,796
10,722,732
10,722,732
15,872,528
15,872,528
The weighted average share price during the financial year was $3.26.
The weighted average remaining contractual life of shares granted under the LSP outstanding at the end of the
financial year was 5.67 years (2017:6.67 years).
66 | PENGANA CAPITAL GROUP
ANNUAL REPORT NOTE 36. 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
Adjustments for calculation of diluted earnings per share:
Options over ordinary shares
Weighted average number of ordinary shares used
in calculating diluted earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
2018
$’000
7,090
(110)
2017
$’000
(2,694)
(120)
6,980
(2,814)
Number
Number
78,628,294
64,067,308
11,704,450
–
90,332,744
64,067,308
Cents
8.88
7.73
Cents
(4.39)
(4.39)
The weighted average number of ordinary shares for year ended 30 June 2018 does not include 22,853,722
treasury shares (2017: 22,853,722).
NOTE 37. 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
28 August 2018. The directors have the power to amend and reissue the financial statements.
NOTE 38. EVENTS AFTER THE REPORTING PERIOD
Apart from the dividend declared as disclosed in note 20, no other matter or circumstance has arisen since 30
June 2018 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 2018 | 67
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 2018 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,
Russel Pillemer
Chief Executive Officer
28 August 2018
Sydney
Warwick Negus
Chairman
28 August 2018
Sydney
68 | PENGANA CAPITAL GROUP
ANNUAL REPORT INDEPENDENT
AUDITOR’S REPORT
ANNUAL REPORT 2018 | 69
Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.au Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 445 E info.nsw@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Pengana Capital Group Limited Report on the audit of the financial report Opinion We have audited the financial report of Pengana Capital Group Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. INDEPENDENT AUDITOR’S REPORT (CONTINUED)
70 | PENGANA CAPITAL GROUP
ANNUAL REPORT Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Impairment of goodwill & other intangibles – refer to Note 15. Non-current assets - intangibles On 1 June 2017, Hunter Hall International Limited (ASX: HHL) merged with Pengana Holdings Pty Limited to create Pengana Capital Group Limited (ASX: PCG). This reverse acquisition gave rise to goodwill and also finite life intangible assets for the investment management agreement and relationships acquired. All assets must be assessed at each reporting date for any indication of impairment. Goodwill must be tested annually for impairment regardless of whether any indication of impairment exists. Pengana Capital Group Limited has utilised the value in use method to calculate the recoverable amount of intangible assets. Due to the significant estimation involved in calculating the recoverable amount, we have determined this to be a key audit matter. Our procedures included, amongst others: assessing the competence and objectivity of management’s expert; reviewing the goodwill impairment model for compliance with AASB 136; assessing the determination of the Cash Generating Unit (CGU) based on our understanding of how management monitors the entity's operations and makes decisions about groups of assets that generate independent cash flows; verifying the mathematical accuracy of the underlying model calculations and assessing the appropriateness of the methodologies; evaluating the cash flow projections and the process by which they were developed; performing sensitivity analysis in relation to cash flow projections, discount and growth rate assumptions on CGUs with a higher risk of impairment; evaluating for indicators of management bias throughout our evaluation of the key inputs and assumptions of the estimate; and assessing the adequacy of financial report disclosures on the application of judgement in estimating future cash flows and the key methods and assumptions used in the impairment assessment. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. ANNUAL REPORT 2018 | 71
Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 17 to 22 of the directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Pengana Capital Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants M A Adam-Smith Partner – Audit & Assurance Sydney, 28 August 2018 SHAREHOLDER
INFORMATION
The shareholder information set out below was applicable as at 9 August 2018.
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
Number of holders
of ordinary shares
571
707
295
284
43
1,900
131
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
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)
RUSSEL CRAIG PILLEMER
DBR CORPORATION PTY LTD
TARK FAMILY HOLDINGS PTY LTD (TARK FAMILY A/C)
J P MORGAN NOMINEES AUSTRALIA LIMITED
STEVE BLACK
ED PRENDERGAST
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
26.73
24.55
6,641,522
5,434,653
3,358,307
2,079,994
1,803,150
1,789,325
1,341,904
1,262,205
1,255,260
1,100,162
1,026,369
973,701
973,701
672,335
672,335
575,133
529,525
520,000
6.53
5.34
3.30
2.05
1.77
1.76
1.32
1.24
1.23
1.08
1.01
0.96
0.96
0.66
0.66
0.57
0.52
0.51
84,146,581
82.75
72 | PENGANA CAPITAL GROUP
ANNUAL REPORT 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
36,091,334
39.17%
35.49%
* The substantial notice lodged for Russel Pillemer discloses that he has a relevant interest in 36,091,334 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)
36,091,334 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
Number of shares
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)
Ordinary shares
Until 25 June 2019
Ordinary shares
Until 19 June 2020
23,894,042
6,981,194
2,675,473
74,574
137,350
33,762,633
ANNUAL REPORT 2018 | 73
74 | PENGANA CAPITAL GROUP
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
PENGANA.COM