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pinnacleinvestment.com
2018ANNUALREPORT
Contents
00 Glossary
01 Chairman’s letter
02 Overview, Operating and Financial Report
03 Community
04 Directors’ profiles
05 Directors’ Report
06 Auditor’s independence declaration
07 Financial Statements
08 Directors’ Declaration
09
Independent Auditor’s Report
10 Shareholder Information
11 Corporate Directory
Page
1
3
5
14
15
19
42
44
98
99
104
108
Financial calendar
Final dividend record date
Final dividend payment date
Annual General Meeting
Interim Results announcement
Full Year Results announcement
The Company reserves the right to change these dates.
21 September 2018
5 October 2018
18 October 2018
22 February 2019
27 August 2019
Annual General Meeting
The 2018 Annual General Meeting will be held at 9am
on 18 October 2018 at PricewaterhouseCoopers’ Brisbane
office at Level 23, 480 Queen St, Brisbane City QLD 4000.
Notice of the Annual General Meeting will be forwarded
to all shareholders separately.
Corporate Governance
The corporate governance statement for PNI can be found
at https://www.pinnacleinvestment.com/shareholders-investor-centre/
00
Glossary
Term
Meaning
2017 Annual Report
the Group’s annual report for the 2017 financial year.
2017 financial year
the period 1 July 2016 to 30 June 2017.
2018 Annual Report
this document.
2018 financial year
the period 1 July 2017 to 30 June 2018.
Affiliates or Pinnacle Affiliates
Pinnacle’s eleven affiliated investment managers, being Antipodes, Firetrail,
Hyperion, Metrics, Omega, Palisade, Plato, Resolution Capital, Solaris, Spheria
and Two Trees.
Antipodes
ASX Principles
Auditor
Board
Board Committees
Chairman
Company
Antipodes Partners Limited.
the Corporate Governance Principles and Recommendations, 3nd Edition,
published by the ASX Corporate Governance Council.
PricewaterhouseCoopers.
the Board of Directors.
the Audit, Compliance and Risk Management Committee and the Remuneration
and Nominations Committee.
Alan Watson, the Chairman of the Board.
Pinnacle Investment Management Group Limited.
Company Secretary
Calvin Kwok, who held the position during the 2018 financial year.
Corporations Act
Corporations Act 2001 (Cth).
Deutsche Australia
Directors
EOSP
Firetrail
Foundation
FUM
Deutsche Australia Limited, which held an 18.8% shareholding in the Company
at the start of the 2016 financial year. As at the date of this report, Deutsche
Australia no longer has any shareholding in the Company.
Directors of Pinnacle Investment Management Group Limited.
Pinnacle Investment Management Group Employee Option Share Plan.
Firetrail Investments Pty Limited
the Pinnacle Charitable Foundation.
funds under management.
Group or Pinnacle Group
Pinnacle and the entities that it controlled during the 2018 financial year.
Hyperion
Hyperion Asset Management Limited.
Key Management Personnel
the individuals identified as such on page 23 of the 2018 Annual Report.
LTI
long term incentives offered to individuals who are staff of the Group.
Managing Director
Ian Macoun.
Metrics or MCP
Metrics Credit Partners Pty Limited.
New Loans
NLAT
is a reference to the loans more fully described at page 37.
net loss after tax.
1
Annual Report 2018
00
Glossary
00
Term
NPAT
NTA
Omega
Palisade
PIML
Meaning
net profit after tax.
net tangible assets.
Omega Global Investors Pty Limited.
Palisade Investment Partners Limited.
Pinnacle Investment Management Limited, the principal operating subsidiary of
the Group.
PIML Acquisition
the transaction approved by shareholders on 16 August 2016, pursuant to which
the Company acquired the 24.99% equity stake in PIML it did not already own.
PIML LTI scheme
the long term incentive scheme described on page 25 of the 2018 Annual Report.
Pinnacle or PNI
Pinnacle Investment Management Group Limited.
Plato
Plato Investment Management Limited.
Principal Investments
investments made by the Group in listed and unlisted equities and unit trusts on
its own behalf and for its own benefit.
Resolution Capital
Resolution Capital Limited.
Securities business
Sellers
the corporate finance, equity capital markets, institutional sales, research and
private wealth management businesses previously owned by the Company and
now known as Wilsons Advisory.
each of Macoun Superannuation Fund Pty Ltd as trustee for the Macoun
Superannuation Fund, Macoun Generation Z Pty Ltd as trustee for the Macoun
Generation Z Family Trust, Usinoz Pty Ltd as trustee for the Ihlenfeldt Family
Trust, AJF Squared Pty Ltd as trustee for the AJF Squared Family Trust, Andrew
Chambers and Fleur Chambers as trustee for the Andrew C Chambers Family
Trust, Adrian Whittingham as trustee for the Whittingham Family Trust, Mark
Cormack and Melanie Cormack as trustee for the Cormack Family Trust and
Dellreid Pty Limited as trustee for the Dell Family Trust.
Solaris
Spheria
STI
Two Trees
Solaris Investment Management Limited.
Spheria Asset Management Pty Limited.
short term incentive.
Two Trees Investment Management Pty Limited.
Annual Report 2018
2
01
Chairman’s letter
Dear Fellow Shareholders
The 2018 financial year marked a significant step-up in Pinnacle’s breadth and depth of activities
as the business continued its growth. This was based upon a combination of strong growth in Funds
Under Management and financial results from existing Affiliates, a careful expansion of Pinnacle’s
own distribution activities and, more recently, the introduction of new Affiliates.
These activities delivered NPAT from continuing operations of $23.1 million, representing basic
earnings per share of 14.3 cents, up 76.5% from the 2017 financial year. Similarly, total fully
franked dividends declared for the year rose 66% to 11.6 cents per share. In addition, Pinnacle
retained a robust and flexible balance sheet, with no debt, and cash and principal investments
of $31.4 million at the end of the year.
Aggregate Affiliate revenues, driven by ongoing sound investment performance and continued
strong fund inflows, grew 31% to $168.4 million. Performance fees represented 10.2% of Affiliates’
revenues this year, and once again all of the Affiliates’ strategies and products that have a track
record of at least 5 years outperformed their benchmarks over the 5 years to 30 June 2018.
Details of funds flows are included within the report but, in summary, net funds inflows totalled
$7.9 billion, including $2.2 billion of retail net inflows, and overall aggregate Group Funds Under
Management increased 43% to $38.0 billion at the end of the year. (Retail net inflows include
$132m raised for the Spheria LIC but do not include $726m raised for the Metrics Credit LIT,
as Pinnacle did not own equity in Metrics Credit at the time of the raisings).
Whilst the Managing Director will comment on individual Affiliates in detail in his report, it is worth
noting that recently established Affiliates, Antipodes and Spheria, have both grown rapidly since
inception, with Antipodes having grown to FUM of $7.6 billion (up 97% this year) and Spheria having
achieved FUM of $700 million, a rise of 232% in the year. Not to be outdone, longer established
Affiliates Solaris and Resolution Capital also showed very strong FUM growth of 62% to $8.3bn
and 35% to $8.0bn respectively. We also note strong investment performance from Hyperion’s
global equities strategy, and Palisade’s infrastructure investments; whilst Plato also performed well,
particularly in market conditions not favourable to their style, and also grew their FUM substantially.
Towards the end of the year a new Affiliate, Firetrail Investments, was commenced, and was very
well received by the market, and our systematic global macro manager, Two Trees, received
a significant cornerstone commitment for its offshore Funds.
It has been a very busy start to the 2019 financial year, with the addition of two new Affiliates.
In late July, we announced the acquisition of a 35% interest in Metrics Credit Partners, and 40%
of Omega Global Investors. Whilst we have known MCP for five years as their distribution agent,
it is exciting to now be in equity partnership with them as they continue to build their business
of offering corporate borrowers tailored direct lending solutions, thus allowing investors access
to Australia’s growing inter-bank corporate lending market. Omega provides smart beta, factor
investing and client solution capabilities across multiple asset types, and managed FUM of $4.2bn
at end of FY18. These acquisitions were funded from an institutional placement of new equity
raising $60m at $5.50 per share, which was a 1.3% discount to the prevailing 5-day VWAP,
combined with an SPP for retail investors.
The combination of these new initiatives, together with the continuing strong growth of our existing
Affiliates, means we enter the 2019 financial year with substantial impetus. Whilst it is evident
that we would not be immune to a severe deterioration in market conditions, we recognise that
our defence against such an event is to work with our Affiliates to create the best conditions within
them where exceptional investment professionals can provide their clients with outstanding
3
Annual Report 2018
01
Chairman’s letter
01
investment performance. Also helpful in this regard is the fact that approximately 27% of all Affiliate
FUM has the potential to earn performance fees, with none of those performance fees dependent
on the performance of the market (they are all based on performance relative to benchmarks).
In addition, we will strive to continue to achieve strong net fund inflows in both the retail and the
institutional markets in Australia, as well as continuing to further develop our early distribution
efforts in offshore markets. We have recently opened a small office in London (jointly with Antipodes)
to accelerate this process. As we have consistently stated, we will continue to invest in activities
which we believe will bring substantial benefits over the medium term, whilst recognising that such
investment may restrain our profits to some degree in the short term. In addition, we will continue
to adhere to our ‘high hurdle’ criteria in evaluating Horizon 3 opportunities.
We have previously stated, and continue to hold fundamental, that the most important part of our
business is our people, within both the Affiliates and our Company. These people have elected
to work within our business model and culture, which we believe will continue to deliver long term
benefits both for shareholders and for investors in our funds. The Board thanks all of the respective
teams for their commitment to the business and the success that they have achieved to date and
remains determined to sustain the environment that will allow the continuation of that success.
It was announced last year that an orderly process of Board succession would be undertaken this year.
Consequently, we are delighted to welcome Ms Lorraine Berends to the Board as of 1 September 2018.
Ms Berends’ biographical details are set out on page 16. Alongside this, Steve Wilson will be retiring
from the Board at the conclusion of this year’s AGM. Steve has been associated with Pinnacle and its
predecessor Wilson Group for over 30 years, having joined Wilson & Co in 1984. Since that time, he
has had various roles including Managing Director, executive Chairman and non-executive Director.
Under his leadership Hyperion Asset Management and Pinnacle Investment Management were
established in 1996 and 2006 respectively, and Wilson Group was listed on the ASX in 2007. Since
the Pinnacle “roll-up” transaction in 2016, Steve has been a non-executive Director of Pinnacle.
As he now steps aside from the Pinnacle Board, I don’t think there can be a higher compliment paid
to Steve than the public acknowledgement that his vision for the transformation of the company
from primarily a stockbroking firm into a high quality, ‘pure-play’ funds management business has
become a reality and resulted in great success. On behalf of all shareholders, thank you Steve.
Finally, I would like to thank you, our shareholders, for the continued support and encouragement that
you have shown to us throughout the year, including in the recently completed equity capital raisings.
We look forward to welcoming you to the Company’s Annual General Meeting, which will be held
in Brisbane on 18 October 2018.
Yours sincerely
Alan Watson
28 August 2018
Annual Report 2018
4
02
Overview, Operating and Financial Report
Nature of operations and principal activities
Pinnacle is a leading Australian-based “multi-affiliate” investment management firm. Our mission is to establish,
grow and support a diverse stable of world-class investment management firms.
Established in its current form in 2006, Pinnacle currently consists of eleven investment affiliates. At 30 June 2018,
Pinnacle’s Affiliates collectively managed approximately A$38.0 billion in assets across a diverse range of asset
classes. Pinnacle provides its Affiliates with:
equity, seed capital and working capital;
superior distribution services, business support and responsible entity services to allow fund managers to focus
on delivering fund outperformance;
independence, including separate management reporting structures and Boards of Directors, whilst still offering
the economies of scale and financial support inherent in being part of a larger investment group.
The principal activities of the Group during the 2018 financial year were:
developing and operating investment management businesses; and
providing distribution services, business support and responsible entity services to the Pinnacle Affiliates.
The diagram below shows the Pinnacle Affiliates and Pinnacle’s effective ownership stake and economic rights
in each as at the date of this report:
23.57%
43.96%
24.35%
40.00%
49.99%
40.00%
35.00%
41.50%
40.00%
46.64%
38.34%
^ In respect of Omega, Firetrail and Spheria, the percentage represents Pinnacle’s total shareholding in the Affiliate. Pinnacle currently holds
(or will hold) less than 1% of the voting shares in the Affiliate. However, it has full economic rights in respect of its holdings.
5
Annual Report 2018
02
Key financial highlights
$168.4 million
Affiliate revenues
NPAT of
$23.1 million
$38.0 billion
in FUM
14.3c earnings
per share
7.0c fully franked
dividend
During the 2018 financial year, the Group held shareholdings (through its principal operating subsidiary, PIML) of
between 23.5% and 49.9% in each of the Pinnacle Affiliates (other than Metrics and Omega) which together have
$38.0 billion in FUM as at 30 June 2018.
In the 2018 financial year:
Pinnacle Affiliates generated aggregate revenues of $168.4 million, up 31.3 %. Of this, $17.2 million was
performance fees
Pinnacle generated NPAT from continuing operations attributable to shareholders of $23.1 million, up 92.5%
from $12.0 million in the prior year
Pinnacle’s share of NPAT from Pinnacle Affiliates was $24.9 million, up 41.4 % on the prior year.
The table below outlines the performance of the Pinnacle Group for the 2018 and 2017 financial years.
Pinnacle Affiliates (100% aggregate basis)
FUM ($billion)
Revenue ($million)
Net profit before tax
Tax expense
Net profit after tax
Pinnacle
Revenue
Expenses
Share of Pinnacle Affiliates net profit after tax
Net profit before tax (NPBT) from continuing operations
Minority interests
NPBT from continuing operations attributable to shareholders
Taxation
NPAT from continuing operations attributable to shareholders
Discontinued operations
Total profit attributable to shareholders
Earnings per share:
From continuing operations
Total attributable to shareholders
FY2018
FY2017
38.0
168.4
88.9
(27.3)
61.6
26.5
128.3
62.7
(19.1)
43.6
FY2018
FY2017
16.5
(18.3)
24.9
23.1
-
23.1
-
23.1
0.3
23.4
14.3
14.5
10.9
(16.4)
17.6
12.1
(0.1)
12.0
-
12.0
1.1
13.1
8.1
8.9
Annual Report 2018
6
02
Overview, Operating and Financial Report
Pinnacle Affiliates – FUM Growth1
%
0
0
1
t
a
–
)
n
o
i
l
l
i
(
b
$
M
U
F
40.00
38.00
36.00
34.00
32.00
30.00
28.00
26.00
24.00
22.00
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
38.0
26.5
19.8
16.1
10.3
10.0
10.9
12.3
8.0
3.5
4.4
1.7
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Jun 12
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Pinnacle Affiliates – Revenue Growth2
)
n
o
i
l
l
i
m
$
(
e
u
n
e
v
e
R
Affiliate performance fees – 100%
Affiliate revenues – 100% (excl. performance fees)
180
160
140
120
100
80
60
40
20
0
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Jun 12
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
1 Pinnacle FUM includes 100% of FUM managed by Pinnacle Affiliates.
2 Revenue shown is 100% of all Pinnacle Affiliates’ revenue. This is shown to indicate trend and excludes revenue derived by Pinnacle itself.
7
Annual Report 2018
02
Pinnacle Affiliates
Pinnacle’s focus during the year was on continuing to support each of the Pinnacle Affiliates and assisting them to grow
their business and profitability. The quality of the Pinnacle Affiliates was affirmed and demonstrated in many ways
during the year, including by the investment returns they produced and the strength of market interest and support
for their investment offerings. Following is an overview of each of the Pinnacle Affiliates during the 2018 financial year:
Antipodes Partners
Antipodes Partners is a global equities manager offering a pragmatic value approach across
long-only and long-short strategies.
Antipodes aspires to grow client wealth over the long-term by generating absolute returns
in excess of the benchmark, at below market levels of risk. Its investment approach seeks to take
advantage of the market’s tendency for irrational extrapolation, to identify investments that
offer a high margin of safety and build portfolios with a capital preservation focus.
Antipodes experienced strong inflows in the 2018 financial year from investors attracted to the
team’s pedigree, differentiated approach and strong risk-adjusted returns since inception. During
the year Antipodes established Dublin-domiciled UCITS vehicles to enable investors outside
Australia to access its investment strategies. As at 30 June 2018 Antipodes had $7.6 billion
in funds under management.
Firetrail Investments
Firetrail is an investment management boutique founded in 2018. The firm was established
with a goal to align its people with their clients. Importantly, the firm is majority owned by its
investment staff and the team is invested alongside their clients in the investment strategies.
Firetrail are specialists in high conviction equities investing and manage two key investment
strategies:
The Firetrail Australian High Conviction Fund – A concentrated portfolio of our best
Australian equities ideas.
The Firetrail Absolute Return Fund – A market-neutral, fundamental equities strategy that
is uncorrelated to Australian equities, global equities and bond markets.
Both funds have been running since 14 March 2018 and are delivering performance in excess of
their respective Benchmarks since inception to 30 June 2018.
Hyperion Asset Management
Hyperion is a specialist manager of Australian and global equities following a concentrated
quality growth style.
Hyperion ended the financial year with $6.5 billion in funds under management.
The returns of the global portfolio have been very strong, returning 120.9% total return after
fees for the four years to 30 June.
The Hyperion Australian Growth Companies Fund ended the year with a performance of
15.1% after fees for the 12 months and the Hyperion Small Growth Companies Fund ended the
year with a performance of 16.3% after fees. The Hyperion Global Growth Companies Fund
produced a 35.9% net return for the current year.
Annual Report 2018
8
02
Overview, Operating and Financial Report
Metrics Credit Partners
MCP is a Sydney-based alternative asset manager specialising in private debt, fixed income and
capital markets. Assets under management of $3.0 billion as at 30 June 2018, of which FUM
was $2.5 billion.
MCP has four partners with over 100 years of combined credit experience and 18 employees.
MCP has lent $4.6 billion across 172 transactions since June 2013. All MCP strategies have
exceeded their investment objectives since inception. Pinnacle has worked extensively with
the management team since 2013, prior to acquiring an equity interest in July 2018.
Omega Global Investors
Omega offers smart beta, factor investing and client solutions (including ESG) capability, multi-
asset investment and implementation capabilities and a track record across government and
corporate bonds, cash, FX and Australian & global equities delivered by a team of 11 including
8 investment professionals.
Pinnacle acquired an equity interest in Omega in July 2018. As at 30 June 2018 Omega had FUM
of $4.2 billion.
Palisade Investment Partners
Palisade is a specialist manager of unlisted infrastructure assets with pooled funds and separately
managed portfolios for wholesale investors.
As at 30 June 2018, funds under management and investor commitments totalled approximately
$2.7 billion, across its three pooled funds and separately managed accounts. During the year
Palisade continued to identify and invest in assets throughout the infrastructure sector that are
forecast to generate strong risk-adjusted returns. Palisade’s flagship fund, Palisade’s Diversified
Infrastructure Fund, generated a gross return of 14.5% for the year, including 7.5% yield.
Palisade continues to enjoy the support of asset consultants, is raising further capital for
investment and has a strong pipeline of investment opportunities, particularly in the renewable
energy sector.
Plato Investment Management
Plato is a specialist manager of Australian and global equities following a systematic quantitative
style, with a focus on after tax investing for pension phase and accumulation phase superannuation.
During the year all of Plato’s beta one strategies outperformed or matched their benchmarks.
Plato’s lower risk strategy did, however, struggle during the year, but is still up strongly since
inception.
Plato continues to have very significant interaction with consultants and prospective investors,
including financial advisers. During the year Plato successfully launched a listed investment
company – Plato Income Maximiser Limited – raising $326m making it the third largest LIC
IPO in Australia. This, together with other inflows, lifted FUM to $4.9 billion at the end of the
financial year.
9
Annual Report 2018
02
Resolution Capital
Resolution Capital is a dedicated global listed property securities investment manager.
Resolution Capital has delivered outstanding medium to long term investment performance.
The business continues to enhance the investment team as well as its client service capabilities.
With the support of major asset consultants and research houses, during the year it further
progressed its client diversification ambitions with an increased level of funds sourced from
international markets as well as additional domestic backing.
Funds under management increased to $8 billion, an increase of 35% over the financial year.
Solaris Investment Management
Solaris is a specialist manager of listed Australian equities following a neutral style.
Solaris had $8.3 billion in funds under management as at 30 June 2018 with incremental funds
coming from new and existing clients and investment performance.
Solaris’ clients benefited from strong investment out-performance in the year with the Core
strategy outperforming the S&P/ASX200 by 4.7%. Solaris’ core strategy has outperformed the
S&P/ASX 200 Index by 2.3% per annum since inception on 9 January 2008 (to 30 June 2018). The
information ratio for the strategy is notably strong over 1 year, 3 year, 5 year, and since inception.
Launched in the 2017 financial year, the Solaris Australian Equity Long Short Fund has had
particularly strong investment performance since inception of 15.2%.
In the forthcoming year, Solaris seeks to continue to provide its clients in all strategies with
consistent investment performance.
Spheria Asset Management
Spheria Asset Management is a fundamental-based investment manager specialising in small
and microcap companies.
Spheria commenced operations in April 2016 and has a bottom-up focus to achieve strong
investment returns for clients with an emphasis on risk management. Assessing risk is fundamental
to Spheria’s investment philosophy. Explicit risk controls include a preference for companies
with low or no balance sheet gearing. When the company does have debt, Spheria ensures that
free cash flow can support the level of gearing and is appropriate for the nature of the business.
At 30 June 2018 Spheria had $702 million in funds under management.
Two Trees Investment Management
Two Trees Investment Management is a specialist systematic global macro investment firm
based in Sydney, Australia. Two Trees combines a deep understanding of financial economics,
quantitative techniques, and cutting edge risk management to construct liquid, diversified,
absolute return multi-asset portfolios that exhibit low correlations to traditional asset classes.
The firm was launched in 2017 and currently manages $71m in the Two Trees Global Macro strategy.
Annual Report 2018
10
02
Overview, Operating and Financial Report
Business strategies and prospects for future financial years
We continue to build Pinnacle by taking a measured approach to growth. We are focusing on supporting the growth
of our current Affiliates with increased investment in distribution channels (for example, in international and listed
markets). We will also continue to invest in and seed new Affiliates where management teams have a strong track
record and growth potential.
Additionally, we are seeking to diversify into asset classes with substantial growth potential, such as global equities
(developed & emerging markets); private capital (debt & equity); and absolute return (single & multi-asset).
Economic Conditions and Material Business Risks
The material business risks facing the Group are equity market conditions and regulatory risk.
Equity market conditions
The Group’s results and outlook are influenced by prevailing equity market conditions and, to a lesser extent, by
broader economic trends and investor sentiment.
Broadly, the global economy performed strongly during the 2018 financial year, which drove strong gains across
equity markets. There remain numerous global and domestic risks, particularly with the prospect of rising interest
rates and an uncertain global political climate. Whilst it is evident that we would not be immune to a severe
deterioration in market conditions, we recognise that our defence against such an event is to work with our
Affiliates to create the best conditions within them where exceptional investment professionals can provide their
clients with outstanding investment performance. Also helpful in this regard is the fact that approximately 27% of
all Affiliate FUM has the potential to earn performance fees, with none of those performance fees dependent on the
performance of the market (they are all based on performance relative to benchmarks).
The majority of the Pinnacle Affiliates delivered positive returns against their respective benchmarks for the year,
in challenging conditions. Importantly, long-term performance remains excellent across all Affiliates.
Regulatory risk
The Group operates within a highly regulated environment. We have added significant resources to our Risk and
Compliance function during the year. The Group remains vigilant in regards to regulatory requirements which are
continually evolving and, in response, Pinnacle will continue to develop its business model to accommodate the
changing environment within which it operates.
Review of Group Results
Group net profit after tax from continuing operations attributable to shareholders for the 2018 financial year is
$23.1 million. Total profit attributable to shareholders is $23.4 million, after accounting for a gain from discontinued
operations of $0.3 million.
The Group delivered a $23.1 million net profit from continuing operations attributable to shareholders for
the 2018 financial year, a 92.5% improvement. This was underpinned by a 41.4% increase to $24.9 million in
Pinnacle’s share of net profits from the Pinnacle Affiliates. FUM increased by 43% to $38.0 billion in the 2018
financial year.
Group net tangible assets have increased by 29.6% to $98.1 million with earnings per share of 14.3 cents up
76.5% from 8.1 cents from continuing operations.
The Board has declared a fully franked final dividend of 7.0 cents per share payable on 5 October 2018.
11
Annual Report 2018
02
Statement of Comprehensive Income
The following commentary provides an analysis of revenues and expenses for the 2018 financial year for continuing
operations in comparison to the prior comparative period.
During the 2018 financial year, the Group’s revenues and expenses were derived from Pinnacle and its controlled
entities, which excludes the revenues and expenses of the Pinnacle Affiliates, the effect of which is reflected
through Pinnacle’s share of the equity accounted net profits.
Revenue from Continuing Operations
Revenue from continuing operations increased $5.5 million to $16.5 million, from $11.0 million in the prior period.
Further information regarding revenues are provided below and at note 1 of the financial statements.
Performance Fees
Performance fees for Pinnacle Affiliates are included in the equity accounted net profits attributable to Pinnacle
Affiliates and are not separately included in the Group’s financial statements.
Gains/(losses) on financial assets at fair value through profit or loss
This reflects the mark-to-market gains or losses on the Group’s Principal Investments.
During the year to 30 June 2018, the Group lost a net $0.7 million on its Principal Investments, on a ‘marked to
market’ basis.
Expenses from Continuing Operations
Employee benefits expense increased $0.8 million to $8.2 million mainly through increased headcount. This
increase reflects Pinnacle’s continuing investment in both distribution and infrastructure in support of the existing
Affiliates, and in pursuit of new channels for future growth.
Legal and professional fees are down $0.9 million during the year. There were a number of one-off costs incurred during
FY17 relating to the set-up of new Affiliates and the Group’s strengthening of its offshore distribution capabilities.
Share of net profit of jointly controlled entities accounted for using the equity method relates to the Group’s share
of the profits of the Pinnacle Affiliates which are equity accounted. Net profits after tax from Pinnacle Affiliates
are up 41.4% or $7.3 million on the prior comparative period. Pinnacle Affiliates’ FUM, which underpins the share
of Pinnacle Affiliates’ profits, increased by 43.4% to $38.0 billion during the 2018 financial year. Underlying base
management fees within the Pinnacle Affiliates also increased 35.5% on the prior comparative period. Further
information is provided in note 21 to the financial statements.
Discontinued Operations
Discontinued operations contributed $nil to total comprehensive income, and a $0.3 million increase to NPAT. This
represents $0.3 million in relation to recycling of the balance received from the Securities business for use of the
deferred tax asset transferred on separation. This balance was recognised within other comprehensive income in
the prior comparative period, and was reclassified to form part of NPAT on receipt of the funds during the current
financial year. Further information is provided at note 23 of the financial statements.
Annual Report 2018
12
02
Overview, Operating and Financial Report
Consolidated Statement of Financial Position
The following commentary provides an analysis of assets and liabilities for the 2018 financial year for continuing
operations.
Cash. Cash and cash equivalents reduced by $1.6 million to $9.3 million at year-end compared to $10.9 million at the
end of the prior year. Cash inflows from operating activities were $20.9 million, which included net inflows of $8.3
million relating to purchases and sales of financial assets during the year, including Principal Investments. Further
information is provided at notes 6 and 24.
Trade and other receivables. The value of trade and other receivables increased by $5.5 million during the year
largely due to an increase in income receivable, which relates directly to higher revenues in Pinnacle. Further
information is provided at note 7 of the financial statements.
Financial assets at fair value through profit or loss were $22.1 million, a decrease of $9.3 million on the prior period.
During the year, Pinnacle has deployed almost $10 million in support of the recycling of equity in Palisade ($3.8
million additional equity purchased; $5.9 million outstanding in loans to Palisade executives and the share trust at
30 June 2018), as well as $2 million capital injected into Firetrail. Until required, additional capital is being invested
as seed and foundation FUM in strategies managed by our Affiliates. Of the $22.1 million, $21.1 million is held in
strategies managed by the Pinnacle Affiliates. The Group has hedged approximately 30% of its total exposure to
movements in the underlying indices.
Other current assets increased by $0.2 million to $1.1 million at year end. This balance includes loans to entities
under joint control. Further information is provided at note 9 of the financial statements.
Investments accounted for using the equity method reflects the carrying value Pinnacle’s investments in the Pinnacle
Affiliates. This increased by $23 million during the period to $55.6 million. The change is attributable to the equity
accounted profits of $24.9 million from Pinnacle Affiliates, less the dividends received from the Pinnacle Affiliates
of $17.3 million, plus additional capital contributed to the Pinnacle Affiliates during the year of $14.7 million, less
impairment of $0.6 million. Further information is provided at note 21 of the financial statements.
Trade and other payables increased by $0.9 million to $5.9 million, relating largely to increases in accrued incentive
payments. Further information is provided at note 11 of the financial statements.
Provisions. The value of current and non-current provisions decreased slightly compared with the prior year. Further
information is provided at note 13 of the financial statements.
13
Annual Report 2018
03
03
Community
Pinnacle has a strong belief in corporate Australia’s responsibility to give back to the communities which sustain
and inspire businesses both large and small.
In partnership with Affiliates, Pinnacle primarily supports the community through the Pinnacle Charitable Foundation,
which operates as an independent public ancillary fund.
Pinnacle Charitable Foundation
The Foundation has a longstanding mission to facilitate positive social change and help build its vision of an engaged
and vibrant Australia. To achieve this, the Foundation and its forerunners have for thirty years maintained a commitment
to actively champion great Australian not for profit organisations.
In each case the Foundation’s aim has been to facilitate the delivery of solutions which can be analysed and assessed,
strengthened and scaled. As an early stage backer which frequently offers seed funding to encourage trials and to
incubate new projects, the Foundation has often seen this initial investment become a stepping stone for organisations
to secure further funding from private and public donors.
With the financial backing of Pinnacle and access to pro bono services across investment management, portfolio
reporting, finance and IT, the Foundation operates in an efficient manner with low overheads and high impact.
Its investment strategy aims to provide reasonable capital protection whilst driving growth over the longer term,
with investments held in a range of suitable products offered across Affiliates. These include funds offering franking
credits, monthly income streams, global exposure and a range of non-equity exposed assets.
Affiliates are committed to rebating management fees, and collaborate with the Foundation to partner with organisations
which reflect their adherence to broad ESG (environmental, social and governance) principles. During the 2018
financial year donations totalling $261,000 were made, with the majority of funds directed towards prevention and
early intervention programs and services which aim to reduce the high incidence of mental ill health across Australia.
Partnerships in support of this goal are in place with three inspiring organisations – R U OK?, batyr Australia and ReachOut
Australia – which are addressing mental health issues at the outset and aiming to prevent them from escalating.
Throughout its history the Foundation is proud to have built meaningful relationships with more than 60 Australian
charities. Donations exceeding $3.4 million, coupled with pro bono advice and assistance, have aimed to foster
innovation and enable sustainable growth. Detailed activities of the Foundation and all its current charity partnerships
can be found at http://www.pinnacleinvestment.com/foundation/
Workplace giving
During the year Pinnacle and several Affiliates introduced employee payroll giving, with donations made through
salary sacrifice being matched by employers. From the program’s inception in October through to the end of June,
a total of $35,000 was donated to 40 different charities – including the Pinnacle Charitable Foundation.
Collaboration
The company also supports and sponsors events together with Affiliates and the wider funds management industry,
where there is strategic relevance to Pinnacle’s business operations.
Annual Report 2018
14
04
Directors’ profiles
Alan Watson
(Non-executive independent Chairman and Chairman of Remuneration and Nominations
Committee) BSc, GAICD
Mr Watson joined the Board on 15 July 2013 and became Chairman on 23 October 2015.
Mr Watson is a Sydney-based investment banker with 35 years of experience within
various global equity markets. Over this period he has established, directed and been
responsible for the conduct of securities business both in Europe and Asia advising many
companies on capital structuring, initial public offerings, takeovers and mergers and
investment relations strategies.
Mr Watson has held positions at Barclays de Zoete Wedd Limited, Donaldson, Lufkin &
Jervette Securities Corporation, Lehman Brothers Holdings Inc and as Head of Securities
Europe for Macquarie Capital (Europe) Ltd.
Mr Watson is also an Independent Director of Airboss of America, listed on the Toronto
Stock Exchange; an independent non-executive Director of Australis Oil and Gas, listed on
ASX; and Chairman of The Frensham Foundation.
ASX Listed Company Directorships held
in last 3 years (current & recent):
Interests in shares and options
125,000 ordinary shares
Director of Australis Oil & Gas
Director of Aurora Oil and Gas
Ian Macoun
(Managing Director) CFA, B Com, MFM, Dip FinSer (FP), FCPA, FAICD
Mr Macoun was appointed as Managing Director of the Company on 17 August 2016
and an executive Director on 25 August 2016, having been the Managing Director and
Chairman of Pinnacle since 2006. Mr Macoun’s career to date has included more than 20
years as the CEO and chief investment officer of investment management firms, including
the establishment of Australia’s first “multi-boutique” funds management firm (Perennial
Investment Partners – founding Managing Director from 1998), building a major new
investment corporation (Queensland Investment Corporation; inaugural Chief Executive
from 1988), and the management of a major Australian bank’s investment operation
(Westpac Investment Management; Managing Director from 1993).
Mr Macoun’s early experience, in more than 10 years at Queensland Treasury, included
extensive involvement with many major Australian and International financial market
participants, and the Queensland Government’s commercial participation in many major
industrial development projects during the late 1970’s and the 1980’s. He was a First
Assistant Under Treasurer when he moved to build and lead QIC.
Mr Macoun is also a Director of the following Pinnacle Affiliates: Antipodes, Hyperion,
Metrics, Palisade, Plato, Resolution Capital and Solaris.
ASX Listed Company Directorships held
in last 3 years (current & recent)
None
Interests in shares and options
27,123,997 ordinary shares
in the Company
375,000 options
15
Annual Report 2018
04
Deborah Beale
(Non-executive independent Director and member of the Audit Compliance and Risk
Management Committee and Remuneration and Nominations Committee) B Comm,
Grad Dip App Fin, MBA
Ms Beale began her working career in the finance industry where she was employed by
Merrill Lynch for over a decade. She then moved to Ernst & Young where she specialised in
risk management, governance and public and government relations. Ms Beale also served
and continues to serve on a number of government, public, private and not-for-profit
Boards. Her broad experience includes the areas of finance, corporate governance, risk
management, government and public relations.
Ms Beale is currently the Chair of Hyperion Asset Management Ltd one of the Company’s
most successful affiliated fund managers.
Ms Beale is also the Chair of Federation Square Pty Ltd and a Director of Visit Victoria,
Victorian Ports Corporation (Melbourne) and The Production Company.
ASX Listed Company Directorships held
in last 3 years (current & recent):
Interests in shares and options
102,500 ordinary shares in the Company
None
Lorraine Berends
(Non-executive independent Director – effective from 1 September 2018) B Sc, FIAA
and FASFA
Ms Berends has worked in the financial services industry for over 35 years and possesses
extensive experience in both investment management and superannuation. Before moving
to a non-executive career in 2014 she worked for 15 years with US based investment
manager Marvin & Palmer Associates. Ms Berends contributed extensively to industry
associations throughout her executive career, serving on the Boards of the Investment
Management Consultants Association (IMCA australia) for 13 years (7 as Chair) and the
Association of Superannuation Funds Australia (ASFA) for 12 years (3 as Chair). Ms Berends
has been awarded Life Membership of both IMCA australia and ASFA. Lorraine holds a BSc
from Monash University, is a Fellow of the Actuaries Institute and a Fellow of ASFA.
Ms Berends is an independent non-executive director of Antipodes Global Investment
Company Limited, Plato Income Maximiser Limited and Spheria Emerging Companies
Limited (listed investment companies), Director of BT Funds Management Limited, BT
Funds Management No. 2 Limited and Westpac Securities Administration Limited. She is a
Director of MDC Foundation Limited (a not for profit company).
ASX Listed Company Directorships held
in last 3 years (current & recent):
Antipodes Global Investment Company
Limited
Plato Income Maximiser Limited
Spheria Emerging Companies Limited
Interests in shares and options
Nil
Annual Report 2018
16
04
Directors’ profiles
Gerard Bradley
(Non-executive independent Director and member of the Audit Compliance and Risk
Management Committee and Remuneration and Nominations Committee) B Com,
Dip Adv Acc
Mr Bradley is Chairman of Queensland Treasury Corporation and related companies,
having served for 14 years as Under Treasurer and Under Secretary of the Queensland
Treasury Department. He has extensive experience in public sector finance in both the
Queensland and South Australian Treasury Departments.
Mr Bradley has substantial Board experience, including 10 years as Chair of QSuper, and
a wide range of Directorships of major Government financial and commercial corporations.
Since 2012, he has worked in non-executive director roles in the public and private sectors.
Mr Bradley is also a Fellow of the Australian Institute of Company Directors, CPA Australia,
Australian Institute of Chartered Accountants and Institute of Managers and Leaders.
ASX Listed Company Directorships held
in last 3 years (current & recent):
The Star Entertainment Group Limited
Interests in shares and options
51,284 ordinary shares in the Company
Andrew Chambers
(Executive Director) MSc, B Arts (Hons), Grad Dip App Fin
Mr Andrew Chambers was appointed as an executive Director to the Company on
1 September 2016 and has been a senior executive with Pinnacle since he commenced
with the firm in March 2008. Mr Chambers has extensive multi-channel (retail, wholesale
and institutional) and multi-jurisdictional distribution experience and is currently responsible
for leading the firm’s institutional and international distribution strategy and execution.
Prior to joining Pinnacle, Mr Chambers worked for Legg Mason, one of the world’s largest
pure play, multi-affiliate investment management firms.
Mr Chambers is also a Director of the following Pinnacle Affiliates: Metrics, Omega and
Two Trees.
ASX Listed Company Directorships held
in last 3 years (current & recent):
None
Interests in shares and options
4,725,414 ordinary shares
in the Company
375,000 options
17
Annual Report 2018
04
Adrian Whittingham
(Executive Director) B Bus
Prior to joining the Company in 2008, Mr Whittingham was Director, Head of Retail Sales
with Schroder Investment Management in Sydney, from 2002 to April 2008. At Schroders
Mr Whittingham was responsible for leading the businesses direction and engagement
with researchers, consultants, dealer groups and private clients.
Prior to Schroders, Mr Whittingham spent 8 years at Zurich in product, research and business
development roles.
Mr Whittingham is also a Director of the following Pinnacle Affiliates: Firetrail, Hyperion
and Spheria.
ASX Listed Company Directorships held
in last 3 years (current & recent):
None
Interests in shares and options
4,325,414 ordinary shares
in the Company
375,000 options
Steve Wilson AM
(Non-Executive Director and member of the Audit Compliance and Risk Management
Committee and Remuneration and Nominations Committee) B Com, LLB, Hon PhD,
FAICD, SF Fin, MSAA
Mr Wilson has some 40 years of investment market experience, including 4 years with
Cazenove & Co. in London before joining Wilson & Co in 1984.
Under his leadership, Wilson Stockbroking was transformed, Hyperion was established
in 1996 and Pinnacle in 2006.
Mr Wilson has substantial Board experience including as Chairman of Southbank
Corporation, Racing Queensland and Hyperion Flagship and Directorships of Telstra
and Tourism Queensland.
ASX Listed Company Directorships held
in last 3 years (current & recent):
None
Interests in shares and options
20,520,000 ordinary shares
in the Company
Annual Report 2018
18
05
Directors’ Report
Your Directors present their report on the Group, consisting of the Company and the entities it controlled at the
end of, or during, the year ended 30 June 2018.
Directors
The Directors of the Company during the whole of the financial year and up to the date of this report were:
Mr A Watson
Mr I Macoun
Ms D Beale
Mr G Bradley
Mr A Chambers
Mr A Whittingham
Mr S M Wilson AM
Information on the qualifications, experience and responsibilities of the Directors is included in the Directors’
profiles on pages 15 to 18 of the 2018 Annual Report.
Earnings per share
From continuing operations
Basic earnings per share
Diluted earnings per share
Total attributable to shareholders
Basic earnings per share
Diluted earnings per share
Dividends
2018
Cents
2017
Cents
14.3
13.2
14.5
13.4
8.1
7.6
8.9
8.2
In the 2018 financial year, the following dividends were paid:
a fully franked final dividend of 4.8 cents per share on 6 October 2017.
a fully franked interim dividend of 4.6 cents per share on 23 March 2018.
Since the end of the financial year, the Company has declared:
a fully franked final dividend of 7.0 cents per share, to be paid on 5 October 2018.
Operating and Financial Review
The Operating and Financial Review can be found at pages 5 to 13 of the 2018 Annual Report.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the Group during the reporting period.
19
Annual Report 2018
05
Matters subsequent to the end of the financial year
Other than as outlined in note 29 of the financial statements at page 88, there has not arisen in the interval between
the end of the financial year and the date of this Directors’ report any item, transaction or event of a material and
unusual nature likely, in the opinion of the Directors of the Company, to significantly affect:
the Group’s operations in future financial years; or
the results of those operations in future financial years; or
the Group’s state of affairs in future financial years.
Remuneration Report
The Group’s 2018 Remuneration Report sets out remuneration information for the Group’s non-executive
Directors and Key Management Personnel.
The Remuneration Report contains the following sections:
1 Letter from the Chair of the Remuneration and Nominations Committee
2 Key Management Personnel
3 Role of Remuneration and Nominations Committee
4 Executive remuneration policy and framework for the Company
5 Links between performance and outcomes
6 Details of Executive Key Management Personnel remuneration
7 Executive service agreements
8 Non-Executive Director remuneration
9 Share based payment compensation
10 Equity instrument disclosures relating to Key Management Personnel
11 Loans to Key Management Personnel
12 Other transactions with former Key Management Personnel
13 Equity Capital
Information in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act.
Annual Report 2018
20
05
Directors’ Report
1 Letter from the Chair of the Remuneration and Nominations Committee
Dear Fellow Shareholders
In presenting shareholders with the 2018 Remuneration Report, we thought it would assist if we summarise the
philosophy underpinning our remuneration structures and practices, and highlighted key recent developments.
Responsibility
The Board is responsible for the remuneration of the Directors and employees of Pinnacle and its controlled entities.
The Board does not set the remuneration of the senior executives or employees of our Affiliates, as these arrangements
are the responsibility of their respective Boards, are negotiated prior to the establishment of each Affiliate and are
subject to formal agreements in each case. The Board of each Affiliate includes at least one representative of Pinnacle.
Philosophy
We believe that Pinnacle’s success is inextricably linked to our ability to attract and retain a consistently high quality
management team, operating in a flexible and entrepreneurial environment, within which individual behaviours and
interests of the leadership of our executive group are directly aligned with external long term shareholders through
common long term equity ownership, and this philosophy has been applied to Pinnacle since its foundation in 2006.
Whilst this has been delivered to executives in a combination of base salary, short term incentive and long term
incentive, it is worth noting that a consistent characteristic of Pinnacle LTI arrangements over the past decade has
been the longevity of service required for executives to access the full benefits of these schemes. Our original LTI plan,
established in 2009, required executives to stay with us for 6 years to earn the full equity awards. Similarly, its successor
plan, currently in place and approved by shareholders in 2015, vested a proportion of its awards in January 2018, but
requires our senior executives (with the exception of Mr Macoun, who must remain employed until 31 January 2020)
to be employed by Pinnacle until the end of 2020 to get the full benefit of these arrangements. We have previously
stated that as a consequence of the long term nature of these provisions, shareholders should expect there will
be years when little or no new LTI will be awarded, (this was the case during the last three financial years and there
may be years (such as the 2019 financial year) when a more substantial LTI will be required, amongst other things,
to accommodate new significant hires, promote and retain existing high performing employees and reset provisions
that are expiring. The Board has recently approved a new LTI scheme consistent with this philosophy, which is summarised
in this letter and detailed at page 25 of the Remuneration Report.
Applying our philosophy to 2018 financial year results
The outcome for the 2018 financial year can be summarised as follows:
there have been no increases in fixed remuneration for any KMP
no new LTIs were issued to any KMP during the 2018 financial year. A new LTI scheme was approved by the
Board early in the 2019 financial year and shareholders will be asked to approve the new LTI scheme and awards
to Directors pursuant to that scheme at the forthcoming AGM
STIs were paid to KMP in relation to the 2018 financial year. In considering these, the Board noted:
• growth in basic earnings per share from continuing operations of 76.5% (2017: 56%)
• growth in NPAT from continuing operations to $23.1m (2017: $12.2m)
• 34% growth in funds under management to $38.0bn (2017 $26.5bn)
• net funds under management inflows of $7.9bn (2017: $4.9bn)
• retail net inflows of funds under management of $2.2bn (2017: $2.5bn)
21
Annual Report 2018
05
Historical Remuneration Outcomes
New shareholders in particular may not be familiar with the circumstances that have driven certain historical
remuneration outcomes, and we felt it would be helpful to give some background to two specific matters. These are:
the PIML LTI Scheme
various related party loans
Shareholder approval for these matters has been previously sought and granted, hence these matters appear in the
Remuneration Report as a matter of historical record.
PIML LTI Scheme – 2015 and 2018
Shareholders approved the participation of certain KMP in the LTI on 26 June 2015. Under this approval, executives
received a combination of PIML equity and options in the Company. The options, 50% of which remain in place,
were issued at a strike price which was at a premium to the prevailing share price. Further details are set out at
pages 25 to 27. No new options have been issued as part of the PIML LTI Scheme since 2015; however 50% of these
options vested to executives in January 2018, and the balance are due to vest in 2020.
Given this background, the Board has recently approved a new set of LTI arrangements for senior executives, and
will recommend to shareholders to approve the new LTI scheme and awards to Executives Directors under this
scheme at the upcoming AGM. The key characteristics of the new scheme are:
Instrument: Non-recourse loan funded acquisition of new equity in Pinnacle
Scheme size: Board approval to issue up to 5m shares, of which 4.3m to be issued to existing employees, of which
1.7m will be allocated to KMP, subject to shareholder approval in relation to awards to executive Directors. Initial
awards will be made to 19 executives.
Vesting conditions: combination of employment tenure and compound earnings per share growth, with relative
proportions dependent on seniority in Pinnacle.
These new arrangements are detailed on page 25 of the Remuneration Report.
Related party loans
As shareholders will recall, the PIML Acquisition, which involved a “swap” of equity held by a number of PIML senior
executives for newly issued equity in the Company, was approved by shareholders on 16 August 2016.
As part of the acquisition, the Company re-issued existing loans to PIML executives which had previously allowed
executives’ prior purchases of PIML equity, and issued the New Loans to PIML senior executives totalling $3 million
for the express purpose of acquiring additional equity from Deutsche Bank. The key terms of the aforementioned
loans are set out on page 29.
The Company’s approach to remuneration will be regularly reviewed to ensure continued alignment with the
Company’s strategy and growth. We hope you find the Remuneration Report that follows to be instructive and helpful.
Alan Watson
Chair of Remuneration and Nominations Committee
Annual Report 2018
22
05
Directors’ Report
2 Key Management Personnel
This Remuneration Report provides details of the remuneration of the Key Management Personnel of the Group
for the year ended 30 June 2018. The Key Management Personnel for this period are listed in the tables below:
Executive Key Management Personnel
Name
Ian Macoun
Andrew Chambers
Adrian Whittingham
Alex Ihlenfeldt
Position
Managing Director and Executive Director
Executive Director
Executive Director
Chief Operating Officer and Chief Financial Officer
Non-executive Key Management Personnel
Current
Name
Alan Watson
Steve Wilson AM
Deborah Beale
Gerard Bradley
Position
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
In accordance with the Corporations Amendment (Improving Accountability on Director and Executive Remuneration)
Act 2011 (Cth)), the Key Management Personnel of the Group for the year ended 30 June 2018 comprised:
each non-executive Director;
Ian Macoun, Andrew Chambers and Adrian Whittingham, each being executive Directors;
Alex Ihlenfeldt as Chief Operating Officer and Chief Financial Officer of the Company.
23
Annual Report 2018
05
3 Role of Remuneration and Nominations Committee
The Remuneration and Nominations Committee is a committee of the Board. The Committee performs its role
consistent with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality,
high performing Board and executive team. Its responsibilities during the 2018 financial year included the following:
reviewing and making recommendations in relation to the Group’s remuneration policies and practices to ensure that
the Group provides a competitive and flexible remuneration structure, fairly and responsibly rewards employees,
recognises categories of financial and non-financial performance, links reward to the creation of shareholder
value, adopts an appropriate balance between fixed remuneration, short-term incentives and long- term
incentives and limits payments on termination to statutory or pre-agreed contractual amounts;
reviewing executive remuneration and incentives and making recommendations to the Board in relation to share
option schemes and equity participation plans;
setting the terms and conditions of the employment of the Managing Director, advising the Board on the Managing
Director’s remuneration package, reviewing the performance of the Managing Director at least annually including
progress made towards achieving the Group’s strategic goals;
reviewing the remuneration of non-executive Directors for serving on the Board or any committee (both individually
and in total) and recommending to the Board the remuneration and retirement policies for non-executive Directors
having regard to market trends and shareholder interests;
setting the entitlements and expenses policy for the Chairman, non-executive Directors and the Managing Director;
ensuring the Group’s remuneration policies and practices comply with the provisions of the ASX Listing Rules
and the Corporations Act and have regard to the ASX Principles;
facilitating the review of individual Directors’ performance and of the Board annually;
making recommendations to the Board concerning the appointment of new Directors and, to the extent delegated
to it by the Board, the Managing Director;
identifying individuals who, by virtue of their experience, expertise, skills, qualifications, backgrounds, contacts
or other qualities, are suitable candidates for appointment to the Board or to any relevant management position
and recommending individuals accordingly for consideration by the Board;
preparing, recommending for approval by the Board and overseeing the implementation of the Company’s
diversity policy; and
on an annual basis, reviewing the proportion of women who are employed by the Company and submitting
a report to the Board outlining its findings.
During the 2018 financial year, the Remuneration and Nominations Committee received recommendations
on the remuneration for employees from Mr Macoun, the Managing Director. These recommendations were
reviewed and in turn recommended to the Board.
The Charter for the Remuneration and Nominations Committee is incorporated in the Company’s Corporate
Governance Board Charters which can be found on the Company’s website at
http://www.pinnacleinvestment.com/shareholders-investor-centre/
Annual Report 2018
24
05
Directors’ Report
4 Executive remuneration policy and framework for the Company
The Board remains focused on achieving sustainable growth and returns for investors in the medium to long-term.
During the 2018 financial year, it has adopted a remuneration framework consisting of base salary, short-term
incentives and long-term incentives and a remuneration policy which is aimed to motivate and retain highly skilled
executives and align their interests with shareholders.
Base salary
Base salary is structured as a package, which may be delivered as a combination of cash and prescribed non-financial
benefits and includes superannuation contributions.
Executives are offered a competitive base salary that comprises a fixed component of pay and rewards. An executive’s
base salary is reviewed on promotion or a substantial change in responsibilities.
There are no guaranteed base salary increases included in any executive’s contract.
During the 2018 financial year, no Executive Key Management Personnel received any increase to their base salary.
Short-term incentives (STI)
STI is a discretionary ‘at risk’ cash incentive payment which is paid to executives and employees on an annual basis
and in accordance with remuneration policies and the terms and conditions of employment.
The Remuneration and Nominations Committee is responsible for reviewing recommendations from the Managing
Director for STI and recommending them to the Board for approval.
Long-term incentives (LTI)
LTI are designed to encourage alignment of the interests of staff with increased value to shareholders in the long term.
Participants are granted LTI, which only vest subject to specific conditions being met at the end of the vesting period.
LTI awards are granted at the Board’s discretion following recommendations from the Remuneration and Nominations
Committee, which has responsibility for reviewing recommendations made by the Managing Director in relation
to LTI awards.
Omnibus incentive plan
The Board has recently approved an Omnibus Incentive Plan which constitutes a new set of LTI arrangements
that provide for the ability to offer options, performance rights and loan funded shares to staff.
It is intended that senior executives will principally be offered loan funded ordinary shares in the Company,
whereby the Company will provide limited recourse loans to senior executives to acquire shares at their current
market value at the time of grant. The shares will only vest upon the satisfaction of the following service and
performance conditions:
the employee must remain employed with the Group for 5 years; and
the Company’s earnings per share grows by a compound annual growth rate of at least 15% per annum over
the 5 year period.
While LTI grants have historically been comprised of options granted under the EOSP, it is proposed that LTI will
be granted under the Omnibus Incentive Plan going forward as it has been designed to follow best practice long
term incentive plans in the market and provides the Board with greater flexibility to award LTI that enhance the
alignment of the interests of staff and shareholders.
Options component
In December 2014, the Company negotiated the PIML LTI Scheme with the senior executive shareholders of PIML.
In July 2015, and as part of the PIML LTI Scheme, the Company issued 4.25 million options in the Company to
senior executives under the EOSP at a strike price of 98.6 cents per share, calculated as the Company’s NTA as at
1 January 2015 and a premium of 20% of the volume weighted average price of the Company’s fully paid ordinary
shares from 1 December 2014 to 31 March 2015.
25
Annual Report 2018
05
50% of the options vested on 1 January 2018 and the balance are due to vest in 1 January 2020 with a six month
exercise period. Any options that remain unexercised at the end of the exercise period will lapse. The options
are subject to claw back arrangements and bad leaver provisions. The participation of certain Key Management
Personnel in this scheme was approved by shareholders on 26 June 2015.
Equity component
As part of the PIML LTI Scheme, in May 2015 the Company sold 4.29% of its equity in PIML to senior executives, subject
to claw back arrangements. As part of the PIML Acquisition, this equity was ‘swapped’ for equity in the Company and
a deed of acknowledgment was put in place, the effect of which is to roll over and preserve the long- term retentive
elements of the PIML LTI scheme by creating service conditions. In particular, should the relevant executives of the
Group cease employment prior to certain dates ranging from March 2017 to December 2020, they will be required
to forfeit and repay any increases in the value of certain equity holdings based on a pre-agreed formula. The PIML
Acquisition, including the terms of these equity arrangements for senior executives, was approved by shareholders
on 16 August 2016.
5 Links between performance and outcomes
During the 2018 financial year, the Managing Director conducted performance reviews of senior executives and
made recommendations to the Remuneration and Nominations Committee in respect of their STIs. In making those
recommendations, regard was had to the group, team and individual performance relative to expectations (both
financial and non-financial) over the period.
The table below shows key financial performance indicators which described the progress of the Group’s
performance over the last five financial years.
Key indicators of the Company’s progress towards achieving its medium term objectives included:
growth in earnings per share from continuing operations of 76.5% in the 2018 financial year
growth in NPAT from continuing operations attributable to shareholders from $12.0m in the 2017 financial year
to $23.1m in the 2018 financial year
increase in FUM from $26.5bn as at 30 June 2017 to $38.0bn as at 30 June 2018
net FUM inflows of $7.9bn during the 2018 financial year
net retail FUM inflows of $2.2bn during the 2018 financial year
100% of Affiliate strategies and products that have a track record of at least 5 years outperformed their
benchmarks over the 5 years to 30 June 2018
a new Affiliate, Firetrail, being commenced during 2018
Net profit/(loss) after tax from continuing
operations attributable to shareholders ($m)
Funds Under Management (FUM) ($bn)
Net FUM Inflows ($bn)
Net Retail FUM Inflows ($bn)
Closing share price ($)
Dividend per share (cents)
Basic earnings per share (cents) from continuing
operations
Diluted earnings per share (cents) from
continuing operations
2018
2017
2016
2015
2014
23.1
38.0
7.9
2.2
5.37
11.60
14.3
13.2
12.0
26.5
4.9
2.5
2.90
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5.8
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0.6
1.45
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5.2
5.2
(5.5)
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2.3
0.5
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1.60
(5.2)
(5.2)
3.6
12.2
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0.3
0.61
2.75
3.5
3.4
* In the 2015 year NPAT from continuing operations was reduced by $9.4 million relating to the de-recognition of deferred tax assets.
Annual Report 2018
26
05
Directors’ Report
6 Details of Executive Key Management Personnel remuneration
The relative weightings of the three remuneration components for Key Management Personnel are set out in the
table below for the year to 30 June 2018.
% of total remuneration
Fixed
remuneration
47%
44%
44%
45%
Performance-based remuneration
STI
46%
45%
45%
44%
LTI
7%
11%
11%
11%
Ian Macoun
Andrew Chambers
Adrian Whittingham
Alex Ihlenfeldt
Ian Macoun
In the 2018 financial year, Mr Macoun’s base salary remained unchanged at $600,000 per annum (inclusive
of superannuation) and he earned an STI of $600,000 (inclusive of superannuation). STI is a performance incentive
of up to 100% of base salary awarded on the basis of meeting business and strategic objectives. Mr Macoun’s salary
and STI has remained unchanged since the 2016 financial year.
In addition and in accordance with the terms of the PIML LTI scheme described on page 25, on 1 July 2015 the
Company granted 750,000 options over its ordinary shares to Mr Macoun. This grant of options was subject to
shareholder approval given at an extraordinary general meeting on 26 June 2015.
Andrew Chambers
In the 2018 financial year, Mr Chambers’ base salary remained unchanged at $400,000 per annum (inclusive
of superannuation) and he earned an STI of $400,000 (inclusive of superannuation). STI is a performance incentive
of up to 100% of base salary awarded on the basis of meeting business and strategic objectives.
In addition and in accordance with the terms of the PIML LTI scheme described on page 25, on 1 July 2015 the
Company granted 750,000 options over its ordinary shares to Mr Chambers.
Adrian Whittingham
In the 2018 financial year, Mr Whittingham’s base salary remained unchanged at $400,000 per annum (inclusive
of superannuation) and he earned an STI of $400,000 (inclusive of superannuation). STI is a performance incentive
of up to 100% of base salary awarded on the basis of meeting business and strategic objectives.
In addition and in accordance with the terms of the PIML LTI scheme described on page 25, on 1 July 2015 the
Company granted 750,000 options over its ordinary shares to Mr Whittingham.
Alex Ihlenfeldt
In the 2018 financial year, Mr Ihlenfeldt’s base salary remained unchanged at $300,000 per annum (inclusive
of superannuation) and he earned an STI of $300,000 (inclusive of superannuation). STI is a performance incentive
of up to 100% of base salary awarded on the basis of meeting business and strategic objectives.
In addition and in accordance with the terms of the PIML LTI scheme described on page 25, on 1 July 2015 the
Company granted 425,000 options over its ordinary shares to Mr Ihlenfeldt. This grant of options was subject
to shareholder approval given at an extraordinary general meeting on 26 June 2015.
27
Annual Report 2018
05
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Annual Report 2018
28
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R
05
Directors’ Report
7 Executive service agreements
Remuneration and other terms of employment for Executive Key Management Personnel are formalised in service
agreements.
Ian Macoun
During the 2017 financial year, and as part of the PIML Acquisition that was approved by shareholders on 16 August 2016,
Ian Macoun was appointed Managing Director of the Company and entered into a new service agreement, the terms
of which were substantially similar to his previous contract as Managing Director of PIML. Mr Macoun’s contract
provides for termination by either party upon giving three months’ notice except where termination is due to
misconduct. In addition, as part of the PIML Acquisition, shareholders voted to approve the payment of termination
benefits to Mr Macoun in an amount of $900,000 or 12 months’ salary (whichever is higher), should Mr Macoun’s
employment be terminated in certain circumstances and consistent with his previous terms of employment. The
termination provisions were agreed between Mr Macoun and PIML as part of his employment agreement in 2006
when he was initially employed by the Group. Termination benefits are not payable in the event of misconduct.
No termination benefits were paid during the 2018 financial year.
In May 2015, PIML advanced to shareholding entities associated with Mr Macoun a loan of $547,293 to acquire
shares in PIML. The loan was unsecured, limited recourse and interest free. As part of the PIML Acquisition, this
loan has been repaid and new loans reissued by the Company under the EOSP on substantially the same terms, save
that it is now subject to a share mortgage.
In August 2016, as part of the PIML Acquisition which was approved by shareholders on 16 August 2016, the Company
advanced to Mr Macoun’s nominated shareholding entity a loan of $500,000 for the express purpose of acquiring
shares in the Company in the secondary market from Deutsche Australia. This loan is interest bearing and subject
to a 5 year term, limited recourse and secured by way of a share mortgage. Repayment will occur at the earlier of the
end of the 5 year term, the date on which any of the underlying shares are sold or within 6 months’ of the cessation
of Mr Macoun’s employment. Events of default under the loan include cessation of employment.
Andrew Chambers
Andrew Chambers, an executive Director, is engaged under an employment agreement dated 9 March 2008 and
subsequently amended on 7 May 2015 and 25 August 2016. The contract provides for termination by either party
on at least three months’ notice except where termination is due to misconduct.
In June 2009, July 2011 and January 2012, PIML advanced to Mr Chambers’ nominated shareholding entity,
three unsecured, limited recourse and interest free loans to acquire shares in PIML. The loans were immediately
repayable if Mr Chambers ceased employment with the Company or sold some or all of his shares.
In May 2015, and as part of the PIML LTI Scheme, PIML advanced to Mr Chambers’ nominated shareholding entity,
an unsecured, limited recourse and interest free loan of $547,293 to acquire shares in PIML. The loan included
clawback and share cancellation arrangements if Mr Chambers ceased employment with the Company prior to
certain key dates. As part of the PIML Acquisition which was approved by shareholders on 16 August 2016, all of
the aforementioned loans were repaid and new loans reissued by the Company under the EOSP on substantially the
same terms, save that they are now subject to various share mortgages.
In August 2016, as part of the PIML Acquisition, the Company advanced to Mr Chambers’ nominated shareholding
entity a loan of $500,000 for the express purpose of acquiring shares in the Company in the secondary market from
Deutsche Australia. This loan is interest bearing and subject to a 5 year term, limited recourse and secured by way
of a share mortgage. Repayment will occur at the earlier of the end of the 5 year term, the date on which any of the
underlying shares are sold or within 6 months’ of the cessation of Mr Chambers’ employment. Events of default
under the loan include cessation of employment.
29
Annual Report 2018
05
Adrian Whittingham
Adrian Whittingham, an executive Director, is engaged under an employment agreement dated 28 April 2008 and
subsequently amended on 7 May 2015 and 25 August 2016. The contract provides for termination by either party
on at least three months’ notice except where termination is due to misconduct.
In June 2009, July 2011 and January 2012, PIML advanced to Mr Whittingham’s nominated shareholding entity, three
unsecured, limited recourse and interest free loans to acquire shares in PIML. The loans were immediately repayable
if Mr Whittingham ceased employment with the Company or sold some or all of his shares. In May 2015, and as
part of the PIML LTI Scheme, PIML advanced to Mr Whittingham’s nominated shareholding entity, an unsecured,
limited recourse and interest free loan of $547,293 to acquire shares in PIML. The loan included clawback and share
cancellation arrangements if Mr Whittingham ceased employment with the Company prior to certain key dates.
As part of the PIML Acquisition which was approved by shareholders on 16 August 2016, all of the aforementioned
loans were repaid and new loans were reissued by the Company under the EOSP on substantially the same terms,
save that they are now subject to various share mortgages.
In August 2016, as part of the PIML Acquisition, the Company advanced to Mr Whittingham’s nominated
shareholding entity a loan of $500,000 for the express purpose of acquiring shares in the Company in the secondary
market from Deutsche Australia. This loan is interest bearing and subject to a 5 year term, limited recourse and secured
by way of a share mortgage. Repayment will occur at the earlier of the end of the 5 year term, the date on which any
of the underlying shares are sold or within 6 months’ of the cessation of Mr Whittingham’s employment.
Events of default under the loan include cessation of employment.
Alex Ihlenfeldt
Alex Ihlenfeldt, the Chief Operating Officer and Chief Financial Officer, is engaged under an employment agreement
dated 1 February 2011 and subsequently amended on 30 January 2012, 7 May 2015 and 25 August 2016. The contract
provides for termination by either party on one month’s notice except where termination is due to misconduct.
In January 2012, PIML advanced to Mr Ihlenfeldt’s nominated shareholding entity, an unsecured, limited recourse
and interest free loan of $416,070 to acquire shares in PIML. The loan was immediately repayable if Mr Ihlenfeldt
ceased employment with PIML or sold some or all of his shares. In May 2015, PIML advanced to interests associated
with Mr Ihlenfeldt a loan of $309,522 to acquire shares in PIML. The loan was interest free and limited recourse
with various repayment terms on cessation of employment if before 31 December 2018 or following a sale of equity.
As part of the PIML Acquisition, both of the aforementioned loans have been repaid and loans on substantially
similar terms reissued by the Company under the EOSP, save that they are now subject to share mortgages.
In August 2016, as part of the PIML Acquisition which was approved by shareholders on 16 August 2016, the
Company advanced to Mr Ihlenfeldt’s nominated shareholding entity a loan of $500,000 for the express purpose
of acquiring shares in the Company in the secondary market from Deutsche Australia. This loan is interest bearing
and subject to a 5 year term, limited recourse and secured by way of a share mortgage. Repayment will occur at the
earlier of the end of the 5 year term, the date on which any of the underlying shares are sold or within 6 months’ of
the cessation of Mr Ihlenfeldt’s employment. Events of default under the loan include cessation of employment.
Annual Report 2018
30
05
Directors’ Report
8 Non-executive Director remuneration
The structure of non-executive Director remuneration is separate and distinct from that of executive remuneration.
The Board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and
retain non-executive Directors with the appropriate skills and experience while incurring a cost that is acceptable to
shareholders and other stakeholders.
Non-executive Directors’ fees are determined within an aggregate non-executive Directors’ fee pool limit, with
any increase in the fee pool requiring approval by shareholders. The current aggregate fee pool currently stands at
$600,000 per annum and was approved by shareholders at the Company’s annual general meeting on 24 October
2006. No changes were proposed or made to the aggregate fee pool during the 2018 financial year.
For the 2019 financial year, it is intended that a proposal will be submitted to the AGM that allows non-executive
Directors to sacrifice a proportion of their fees in favour of immediately vesting Performance Rights.
The fees paid to non-executive Directors from 16 December 2016 for Board and Committee positions are set out
in the table below:
Chairman
Non-executive Director
Audit Compliance and Risk Management Committee
– Chair
– Member
Remuneration and Nominations Committee
– Chair
– Member
Subsidiary Boards
Base fees
$100,000
$70,000
$10,000
$0
$10,000
$0
$0
Non-executive Directors are not eligible to receive STI but may be eligible to participate in the EOSP. There are
currently no outstanding grants to non-executive Directors under the EOSP and during the 2018 financial year, no
non-executive Directors participated in the EOSP.
Further details concerning the EOSP are set out on page 25.
31
Annual Report 2018
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Annual Report 2018
32
05
Directors’ Report
Retirement allowances for non-executive Directors
The Company does not provide retirement allowances for non-executive Directors, which is consistent with
the guidance contained in the ASX Principles. Superannuation contributions required under the Australian
superannuation guarantee legislation are deducted from the relevant Directors’ overall fee entitlements where
their fees are paid through payroll.
New non-executive Director appointments
On appointment to the Board, new non-executive Directors are provided with a letter of appointment setting out
the Company’s expectations, their responsibilities, rights and the terms and conditions of their engagement. All
new non-executive Directors participate in an induction process, which covers the operation of the Board and
its committees and financial, strategic, operational and risk management issues. For further detail, refer to the
Corporate Governance Statement on the Company’s website.
9 Share based payment compensation
Options
The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting
periods as at 30 June 2018 are as follows:
Grant Date
Category Expiry date
Exercise
period
Exercise
price
Value
per right
/ option
at grant
date
Number
of rights
/ options
granted
during
the year
Number
of rights
/ options
exercised
during
the year
Number
of rights
/ options
forfeited
during
the year
Number
of rights
/ options
at end of
financial
year
%
Vested
1 July 2015
Options
30 Jun 20 125 Days
$0.99
$0.32 2,125,000
21 December 2017 Options
12 Jun 23 182 Days
$3.93
600,000
0
0
0 2,125,000
0
0
0%
0%
33
Annual Report 2018
05
Details of options provided as remuneration to Executive Key Management Personnel are set out below. These
options form part of the PIML LTI Scheme and were approved for Mr Macoun and Mr Ihlenfeldt by shareholders
on 26 June 2015. Mr Chambers and Mr Whittingham were not Key Management Personnel at the date of grant
and accordingly their participation did not require shareholder approval.
Number
of options /
rights granted
Value ($)
of options /
rights granted
(i)
Number
of options/
rights vested
(ii)
Value ($)
of options/
rights vested
(iii)
Vesting
date
Number
of options/
rights
forfeited/
lapsed/ sold
Value ($)
of options/
rights
forfeited/
lapsed/ sold
Name
Date of grant
Key Management Personnel of the Group
Ian Macoun
Options
Options
Sub-Total
1-Jul-15
375,000
$110,663
1-Jan-18
375,000 $1,036,500
1-Jul-15
375,000
$120,525
1-Jan-20
-
-
750,000
375,000 $1,036,500
Andrew Chambers
Options
Options
Sub-Total
1-Jul-15
375,000
$110,663
1-Jan-18
375,000 $1,036,500
1-Jul-15
375,000
$120,525
1-Jan-20
-
-
750,000
375,000 $1,036,500
Adrian Whittingham
Options
Options
Sub-Total
Alex Ihlenfeldt
Options
Options
Sub-Total
1-Jul-15
375,000
$110,663
1-Jan-18
375,000 $1,036,500
1-Jul-15
375,000
$120,525
1-Jan-20
-
-
750,000
375,000 $1,036,500
1-Jul-15
213,000
$62,856
1-Jan-18
213,000
$588,732
1-Jul-15
212,000
$68,137
1-Jan-20
-
-
425,000
213,000
$588,732
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) Fair values at grant date are calculated using a Black-Scholes option pricing model that takes into account the exercise price, the terms of
the right or option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected
dividend yield and the risk free interest rate for the term of the right or option. Model inputs for the grants made are set out in note 27 to the
financial statements.
(ii) On the vesting of each option/right, the holder becomes entitled to receive one fully paid ordinary share in the Company on exercise of the
option/right.
(iii) The amount is based on the intrinsic value of the option or right at vesting date.
Annual Report 2018
34
05
Directors’ Report
Loan Shares
The terms and conditions of each grant of equity and associated loan to Key Management Personnel is provided at
pages 27 to 28. Details of the loan arrangements affecting remuneration in the previous, this or future reporting
periods as at 30 June 2018 are as follows:
Name
Date of grant
Number of
loan shares
Loan value
at date
of grant
Share based
payments
value (i) Vesting date
Number
of shares
vested
Value ($)
of shares
vested (ii)
Number
of shares
forfeited/
lapsed/sold
Value ($)
of shares
forfeited/
lapsed/sold
Key Management Personnel of the Group
Ian Macoun
Loan Shares 25-Aug-16
288,210
273,799 $30,799 31-Dec-18
Loan Shares 25-Aug-16
287,888
273,494 $33,846 31-Jan-20
-
-
-
-
Loan Shares
25-Aug-16 1,111,112
500,000
$14,162 25-Aug-16 1,111,112 1,955,555
Sub-Total
1,687,210 1,047,293 $78,807
1,111,112 1,955,555
Andrew Chambers
Loan Shares 25-Aug-16 133,509
126,834
$1,221 21-Mar-17 133,509
311,076
Loan Shares 25-Aug-16
288,210
273,799 $30,799 31-Dec-18
Loan Shares 25-Aug-16
287,888
273,494 $36,392 31-Dec-20
-
-
-
-
Loan Shares
25-Aug-16 1,111,112
500,000
$14,162 25-Aug-16 1,111,112 1,955,555
Sub-Total
1,820,719 1,174,127 $82,575
1,244,621 2,266,631
Adrian Whittingham
Loan Shares 25-Aug-16 133,509
126,834
$1,221 21-Mar-17 133,509
311,076
Loan Shares 25-Aug-16
288,210
273,799 $30,799 31-Dec-18
Loan Shares 25-Aug-16
287,888
273,494 $36,392 31-Dec-20
-
-
-
-
Loan Shares
25-Aug-16 1,111,112
500,000 $14,162 25-Aug-16 1,111,112 1,955,555
Sub-Total
1,820,719 1,174,127 $82,575
1,244,621 2,266,631
Alex Ihlenfeldt
Loan Shares 25-Aug-16
437,968
416,070 $74,503 30-Jan-18
Loan Shares 25-Aug-16 163,083
154,929
$17,428 31-Dec-18
Loan Shares 25-Aug-16
162,761
154,623 $20,575 31-Dec-20
-
-
-
-
-
-
Loan Shares 25-Aug-16 1,111,112
500,000
$14,162 25-Aug-16 1,111,112 1,955,555
Sub-Total
1,874,924 1,225,622 $126,667
1,111,112 1,955,555
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) Fair values are calculated using a Black-Scholes option pricing model that takes into account the exercise price, the terms of the arrangement,
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 arrangement.
(ii) The amount is based on the intrinsic value of the option or right at vesting date.
35
Annual Report 2018
05
10 Equity instrument disclosures relating to Key Management Personnel
Options and rights holdings
The number of options and rights over ordinary shares in the Company held during the 2018 financial year by the
Directors of the Company and other Key Management Personnel of the Group, including personally related parties,
are set out below.
Balance at start of year
Granted as compensation
Exercised
Expired and other changes*
Balance at end of the year
2018
2017
2,675,000
1,175,000
-
(1,338,000)
-
-
-
1,500,000
1,337,000
2,675,000
* Includes changes due to staff commencing or ceasing to be Key Management Personnel during the year.
Shareholdings
The numbers of shares in the Company held during the financial year by each Director of the Company and other
Key Management Personnel of the Group, including their related parties, are set out below.
Balance at
start of year
Granted during
reporting year as
compensation
Received
during the year
on the exercise
of options
and rights
Other changes
during the year*
Balance at the
end of the year
Name
Non-executive Directors
Alan Watson
Steve Wilson
Deborah Beale
Gerard Bradley
Executive Directors
Ian Macoun
Andrew Chambers
Adrian Whittingham
125,000
20,020,000
62,500
50,000
25,983,596
4,647,214
4,447,214
Key Management Personnel
Alex Ihlenfeldt
4,689,696
* includes changes resulting from commencing or ceasing to be KMP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
125,000
500,000 20,520,000
40,000
102,500
1,284
51,284
1,090,401
27,123,997
78,200
4,725,414
(121,800)
4,325,414
40,517
4,730,213
Annual Report 2018
36
05
Directors’ Report
11 Loans to Key Management Personnel
Details of loans made to Directors of the Company and other Key Management Personnel of the Group, including
their related parties, are set out below.
(i) Aggregates for Key Management Personnel
Balance at
start of year
$
Loan issued
during year
$
Other
changes
during
the year (i)
$
Interest
paid and
payable for
the year
$
Repayments
made
$
Interest
not
charged
$
Balance at
end of year
$
Number
in Group at
end of year
2018
4,794,426
-
-
(193,090)
51,529 201,014 4,652,865
4
(ii) Individuals with loans above $100,000 during the financial year
Balance at
start of year
$
Loan issued
during year
$
Other
changes
during the
year (i)
$
Interest
paid and
payable for
the year
$
Interest
not
charged
$
Repayments
made
$
Highest
indebtedness
during
the year
$
Balance at
end of year
$
Ian Macoun
1,034,331
Andrew Chambers
1,268,586
Adrian Whittingham 1,268,586
Alex Ihlenfeldt
1,222,922
-
-
-
-
-
-
-
-
(54,153)
12,882
41,298
993,060
1,037,549
(54,153)
12,882
53,865
1,227,315
1,271,803
(54,153)
12,882
53,865
1,227,315
1,271,803
(30,629)
12,882
51,986 1,205,175
1,226,138
The loans referenced in the above table comprise:
loans originally advanced by PIML and were for the purpose of acquiring shares in PIML
the New Loans.
As part of the PIML Acquisition, shareholders approved the repayment of the original loans with the proceeds
of loans reissued by the Company on 25 August 2016, as well as the advance of the New Loans. See pages 29 to 30
for further detail on the terms of the loans.
The amounts shown for interest not charged in the tables above represents the difference between the amount
paid and payable for the year and the amount of interest that would have been charged on an arms’ length basis.
12 Other transactions with former Key Management Personnel
Steven Skala AO
Mr Skala was a non-executive Director of the Company, is Vice Chairman of Deutsche Bank AG Australia and
New Zealand and was a Director of Deutsche Australia. During the 2016 financial year, Deutsche Bank AG was
a substantial shareholder of the Company through Deutsche Australia, which held an 18.55% interest in the
Company’s shares (2015 – 18.55%) until 18 May 2016 and a 9.27% interest from 18 May 2016 to 30 June 2016.
On 25 August 2016, Deutsche Australia ceased to be a shareholder. On 26 August 2016, Mr Skala resigned
as a Director of the Company.
37
Annual Report 2018
05
13 Equity Capital
Shares under option/rights
Unissued ordinary shares of the Company under option at 30 June 2018 are as follows:
Date options granted
Expiry date
Exercise price of options
Number under option
1 July 2015
21 December 2017
14 March 2018
TOTAL
30 June 2020
12 June 2023
14 March 2021
$0.99
$3.93
Nil
2,125,000
600,000
2,158,733
4,883,733
Under the terms of the transaction documents in respect of the PIML Acquisition, approved by shareholders
on 16 August 2016, in the event that the Company conducts a placement prior to 30 June 2020 in respect of the
options issued on 1 July 2015, the Sellers are entitled to subscribe in the placement for up to 1,416,667 ordinary
shares at the subscription price of the options. The Sellers will be entitled to subscribe in the placement in proportions
that are pro-rata to their unvested options.
On 3 May 2018, the Sellers subscribed for 708,192 additional ordinary shares pursuant to their entitlement
described above.
On 14 March 2018 Pinnacle Investment Management Limited entered into an agreement with Firetrail Investments
Pty Ltd for 24.35% ownership interest. This was funded partly by cash and partly by 2,158,733 zero-price options
issued by Pinnacle Investment Management Group Limited.
Shares issued under the EOSP
As part of the PIML Acquisition, on 25 August 2016, 37,043,917 ordinary shares were issued under the EOSP
to the Sellers as consideration for the sale of their equity in PIML. This allocation was approved by shareholders
on 16 August 2016.
End of Remuneration Report
Annual Report 2018
38
05
Directors’ Report
Meetings of Board and Board Committees
The number of meetings of the Company’s Board and of each Board committee held during the year ended 30 June
2018 and the number of meetings attended by each Director were as follows:
Meetings of Board and Board Committees
Board
Audit, Compliance
and Risk Committee
Remuneration and
Nominations Committee
Attended
Eligible
to Attend
Attended
Eligible
to Attend
Attended
Eligible
to Attend
12
12
12
12
11
11
12
12
12
12
12
12
12
12
4
5
5
5
-
-
5
-
-
5
5
-
-
5
5
5
5
5
-
-
5
5
-
5
5
-
-
5
A Watson
I Macoun
D Beale
G Bradley
A Chambers
A Whittingham
S Wilson AM
Committee Membership
As at the date of this report, the Company had an Audit, Compliance and Risk Management Committee and a
Remuneration and Nominations Committee.
Members acting on the committees of the Board are:
Audit, Compliance and Risk Committee
Remuneration and Nominations Committee
G Bradley (Chairman)
A Watson (Chairman)
D Beale
S Wilson AM
Company Secretary
D Beale
G Bradley
S Wilson AM
The role of Company Secretary is performed by Mr Calvin Kwok. Mr Kwok is also general counsel of the Company
with prior experience at Herbert Smith Freehills, UBS Global Asset Management and Deutsche Bank. Mr Kwok
holds a Master of Applied Finance, a Bachelor of Laws and a Bachelor of Commerce.
Environmental regulation
The Group is not affected by any significant environmental regulation in respect of its operations.
39
Annual Report 2018
05
Insurance of officers
The Company has paid a premium for a contract insuring all Directors and executive officers of the Company and
certain related bodies corporate against all liabilities and expenses arising as a result of work performed in their
respective capacities, to the extent permitted by law. The Directors have not included in this report details of the
nature of the liabilities covered or the amount of the premium paid in respect of the Directors and executive officers
insurance liability contract as disclosure is prohibited under the terms of the contract.
The Company has agreed to indemnify each person who is, or has been a Director, officer or agent of the Company
and/or of certain of its related bodies corporate against all liabilities to another person (other than the Company or
a related body corporate) that may arise from their position as Director, officer or agent, except where the liability
arises out of conduct involving a lack of good faith. The Company is required to meet the full amount of any such
liabilities, including costs and expenses for a period of seven years.
No liability has arisen since the end of the previous financial year which the Company would, by operation of the
above indemnities, be required to meet.
Non-audit services
The Company may decide to employ the Auditor on assignments additional to their statutory audit duties.
Details of the amounts paid or payable to the Auditor for audit and non-audit services provided during the year are
set out below.
The Board has considered the position and, in accordance with the advice received from the Audit Compliance
and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the
general standard of independence for auditors imposed by the Corporations Act. The Directors are satisfied that
the provision of non-audit services by the Auditor, as set out below, did not compromise the auditor independence
requirements of the Corporations Act for the following reasons:
all non-audit services have been reviewed by the Audit Compliance and Risk Management Committee to ensure
they do not impact the impartiality and objectivity of the Auditor
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants, including reviewing or auditing the Auditor’s own work, acting in
a management or a decision making capacity for the Company, acting as advocate for the Company or jointly
sharing economic risk and rewards.
Annual Report 2018
40
05
Directors’ Report
During the 2018 financial year the following fees were paid or are payable for services provided by the Auditor,
its related practices and non-related audit firms:
(i) Audit and other assurance services
Audit and review of financial statements
Other assurance services:
Audit of regulatory returns
Audit of compliance plan – Responsible entity *
Other assurance services
2018
$
2017
$
206,056
212,491
20,688
68,466
-
20,085
52,178
-
Total remuneration for audit and other assurance services
295,210
284,754
(ii) Taxation services
Tax services
Total remuneration for taxation services
(iii) Other services
Other services
Total remuneration of PricewaterhouseCoopers Australia
Total remuneration of auditors
103,893
103,893
-
399,103
399,103
42,968
42,968
-
327,722
327,722
* Compliance plan audit charges are on-charged to managed funds to which responsible entity services are provided.
Auditor’s independence declaration
A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act is set out
on page 42 of the 2018 Annual Report.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors reports) Instrument
2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts
in the Directors’ report. Amounts in this report have been rounded off in accordance with that Instrument to the
nearest thousand dollars, or in certain cases, to the nearest dollar.
Auditor
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act. This report
is made in accordance with a resolution of Directors.
A Watson
Chairman
Pinnacle Investment Management Group Limited
Sydney
28 August 2018
41
Annual Report 2018
06
Auditor’s independence declaration
06
Auditor’s Independence Declaration
As lead auditor for the audit of Pinnacle Investment Management 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.
This declaration is in respect of Pinnacle Investment Management Group Limited and the entities it
controlled during the period.
Craig Thomason
Partner
PricewaterhouseCoopers
Sydney
28 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Annual Report 2018
42
43
Annual Report 2018
07
Financial Statements
07
Pinnacle Investment Management Group Limited
ABN 22 100 325 184
Financial Report – 30 June 2018
Consolidated statement of profit or loss
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report to the members
Page
45
46
47
48
49
50
98
99
These financial statements are the consolidated financial statements
of the consolidated entity consisting of Pinnacle Investment Management
Group Limited and its subsidiaries. The financial statements are presented
in Australian currency.
Pinnacle Investment Management Group Limited is a company limited
by shares, incorporated and domiciled in Australia. Its registered office
is Level 19, 307 Queen St, Brisbane QLD 4000 and its principal place
of business is Level 35, 60 Margaret St, Sydney NSW 2000.
A description of the nature of the consolidated entity’s operations
and its principal activities is included in the Director’s report, which
is not part of these financial statements.
These financial statements were authorised for issue by the Directors
on 28 August 2018. The Directors have the power to amend and reissue
the financial statements.
Through the use of the internet, we have ensured that our corporate
reporting is timely and complete. All press releases, financial reports
and other information are available at the ‘about us’ and investor relations
pages on our website: www.pinnacleinvestment.com/ shareholders-
investor-centre/
Annual Report 2018
44
Pinnacle Investment Management Group Limited
07
Consolidated statement of profit or loss
For the year ended 30 June 2018
Revenue from continuing operations
Fair value gains/(losses) on financial assets at fair value through profit or loss
Employee benefits expense
Incentives expense
Professional services expense
Property expense
Travel and entertainment expense
Technology and communications expense
Other expenses from operating activities
Notes
1
2
2
Share of net profit of jointly controlled entities accounted for using the equity method 21(d)
Profit before income tax
Income tax expense
Profit from continuing operations
Profit/(loss) from discontinued operations
Profit for the year
Profit for the year is attributable to:
Owners of Pinnacle Investment Management Group Limited
Non-controlling interests
3
23(b)
2018
$’000
16,542
(1,813)
(8,190)
(4,600)
(648)
(649)
(706)
(529)
(1,168)
24,903
23,142
-
23,142
334
23,476
23,476
-
23,476
2017
$’000
10,976
(636)
(7,413)
(4,087)
(1,555)
(533)
(441)
(373)
(1,361)
17,598
12,175
-
12,175
1,082
13,257
13,098
159
13,257
Earnings per share:
Cents
Cents
From continuing operations attributable to owners of Pinnacle Investment
Management Group Limited
Basic earnings per share
Diluted earnings per share
Total profit attributable to owners of Pinnacle Investment Management
Group Limited
Basic earnings per share
Diluted earnings per share
5
5
5
5
14.3
13.2
14.5
13.4
8.1
7.6
8.9
8.2
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
45
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Consolidated statement of comprehensive income
For the year ended 30 June 2018
Profit for the year
Other comprehensive income:
Items that may be reclassified to profit or loss
Notes
2018
$’000
2017
$’000
23,476
13,257
Changes to the fair value of available-for-sale financial assets
23(c)
Total comprehensive income/(loss) for the year
Total comprehensive income for the year is attributable to:
Owners of Pinnacle Investment Management Group Limited
Non-controlling interests
Total comprehensive income for the year attributable to owners of Pinnacle
Investment Management Group Limited arises from:
Continuing operations
Discontinued operations
23(b)
(334)
23,142
23,142
-
23,142
23,142
-
23,142
(495)
12,762
12,603
159
12,762
11,521
1,082
12,603
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Annual Report 2018
46
07 Pinnacle Investment Management Group Limited
07
Consolidated statement of financial position
For the year ended 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Other current assets
Total current assets
Non-current assets
Notes
2018
$’000
2017
$’000
6
7
8
9
9,332
10,563
22,156
2,011
44,062
10,945
5,079
31,571
933
48,528
Investments accounted for using the equity method
21
55,601
32,627
Property, plant and equipment
Intangible assets
Available-for-sale financial assets
Other non current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
23(c)
11
12
13
13
14
15(a)
15(b)
125
7
114
4,990
60,837
104,899
5,892
805
6,697
105
105
6,802
98,097
154,762
(46,137)
(10,528)
98,097
139
10
448
-
33,224
81,752
5,021
1,000
6,021
71
71
6,092
75,660
148,834
(54,383)
(18,791)
75,660
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
47
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Consolidated statement of changes in equity
For the year ended 30 June 2018
Attributable to owners of Pinnacle
Investment Management Group Limited
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Notes
Non-
controlling
interests
$’000
Total
$’000
Total
equity
$’000
Balance at 1 July 2016
61,946
1,167
(19,982)
43,131
6,452
49,583
Total comprehensive income
for the year
-
(495)
13,098
12,603
159
12,762
Transactions with owners in their capacity as owners:
15(a)
16
-
-
575
-
-
575
(11,907)
(11,907)
-
-
575
(11,907)
Share-based payments
Dividends paid to shareholders
Acquisition of non-controlling
interests
15(c)
65,197
(59,603)
Share placement, net of issue costs
14
28,527
-
Employee loan arrangements
14,
15(a)
(6,836)
3,973
-
-
-
5,594
(6,611)
(1,017)
28,527
(2,863)
-
-
28,527
(2,863)
86,888
(55,055)
(11,907)
19,926
(6,611)
13,315
Balance at 30 June 2017
Balance at 1 July 2017
Total comprehensive income for
the year
148,834
(54,383)
(18,791)
75,660
148,834
(54,383)
(18,791)
75,660
-
(334)
23,476
23,142
Transactions with owners in their capacity as owners:
Share-based payments
15(a)
627
(263)
-
364
Shares issued on exercise of
options
Shares issued
Dividends paid to
shareholders
Acquisition of non-controlling
interests
Options issued
Share placement, net of issue
costs
Employee loan arrangements
2,096
698
16
1,519
15(c)
21(a)
14
14,
15(a)
-
-
-
988
5,928
-
-
9,498
-
(655)
8,580
2,096
698
(15,213)
(13,694)
-
-
-
-
(15,213)
-
9,498
-
333
(705)
Balance at 30 June 2018
154,762
(46,137)
(10,528)
98,097
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
-
-
-
-
-
75,660
75,660
23,142
364
2,096
698
(13,694)
-
9,498
-
333
(705)
98,097
Annual Report 2018
48
07 Pinnacle Investment Management Group Limited
07
Consolidated statement of cash flows
For the year ended 30 June 2018
Notes
2018
$’000
2017
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends and distributions received
Interest received
Finance and borrowings costs paid
Proceeds from sale of financial assets at fair value through profit or loss
Payments to purchase financial assets at fair value through profit or loss
Net cash inflow/(outflow) from operating activities
24
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Proceeds from sale of investments in subsidiaries
Proceeds from sale of investments accounted for using the equity method
Payments for investments accounted for using the equity method
Loan advances to shareholders
Loan repayments from shareholders
Loan repayments from related parties
Loan advances to related parties
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Dividends paid to shareholders
Proceeds from issue of shares, net of issue costs
Net cash (outflow)/inflow from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at end of year
6
12,350
(17,584)
17,686
222
(103)
18,003
(9,704)
20,870
(43)
-
-
446
(6,515)
-
333
-
(5,804)
(11,583)
9,344
(17,539)
11,400
126
(94)
10,652
(31,307)
(17,418)
(55)
-
975
-
(615)
(3,000)
145
1,500
(751)
(1,801)
(13,694)
(11,907)
2,794
(10,900)
(1,613)
10,945
9,332
28,527
16,620
(2,599)
13,544
10,945
The consolidated statement of cash flows includes cash flows from continuing and discontinued operations.
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
49
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018
Group Results
1
2
3
4
5
Revenue
Expenses
Income tax
Segment information
Earnings per share
Operating Assets and Liabilities
6
7
8
9
10
11
12
13
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Other current assets
Net deferred tax assets
Other non-current assets
Trade and other payables
Provisions
Capital and Financial Risk Management
14
15
16
17
18
19
Contributed equity
Reserves and accumulated losses
Dividends
Current liabilities – Financing arrangements
Financial risk management
Contingencies and Commitments
Group Structure
20
21
22
23
Subsidiaries
Investments accounted for using the equity method
Parent Entity financial information
Discontinued operations
Other Information
24
25
26
27
28
29
30
31
Additional cash flow information
Related party transactions
Key Management Personnel
Share-based payments
Remuneration of auditors
Events occurring after the reporting period
Critical accounting estimates and judgements
Summary of significant accounting policies
Page
51
51
52
53
53
55
55
56
56
56
57
57
57
58
60
62
63
64
70
71
72
75
75
77
78
80
81
83
84
84
85
Annual Report 2018
50
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
Group Results
This section provides information regarding the results and performance of the group during the year, including
further detail regarding revenue and expenses, income tax, segment reporting and earnings per share.
1 Revenue
Services revenue
Fund management fees
Performance fee income
Service charges to entities under joint control
Interest income on structured products
Other revenue
Directors fees
Interest received or due
Dividends and distributions
Other revenue
2 Expenses
2018
$’000
2017
$’000
-
-
15,083
-
15,083
44
221
1,108
86
1,459
16,542
-
-
8,915
-
8,915
44
136
1,840
41
2,061
10,976
Profit before income tax includes the following specific expenses:
2018
$’000
2017
$’000
Finance cost expense
Interest and finance charges – corporate
Total finance cost expense
Rental expense relating to operating leases
Minimum lease payments
Total rental expense relating to operating leases
Depreciation and amortisation expense
Depreciation – property, plant and equipment
Amortisation – intangible assets
Total depreciation and amortisation expense
51
Annual Report 2018
108
108
413
413
68
-
68
94
94
425
425
51
3
54
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
3
Income tax
(a) Income tax expense / (benefit)
Income tax expenses is attributable to:
Continuing operations
Discontinued operations
Total income tax expense/(benefit)
Current tax
Deferred tax
Adjustments for tax in respect of prior periods
Deferred income tax expense/(benefit) included in income tax expense/(benefit)
comprises:
(Increase)/Decrease in deferred tax assets
Increase in deferred tax liabilities
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax
Profit / Loss from discontinued operations before income tax
Profit before income tax
Tax at the Australian tax rate of 30% (2017: 30%)
2018
$’000
2017
$’000
-
-
-
27
(27)
-
-
(27)
-
(27)
2018
$’000
23,142
334
23,476
7,043
-
-
-
(1,394)
1,394
-
-
1,394
-
1,394
2017
$’000
12,175
1,082
13,257
3,977
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Share of profits of entities under joint control
(7,471)
(5,279)
Impairment
Non-deductible expenditure
Sundry items
Adjustments for tax in respect of prior periods
Deferred tax assets not recognised
Total income tax expense/(benefit)
-
138
(100)
(390)
-
390
390
-
-
202
(272)
(1,372)
-
1,372
1,372
-
Annual Report 2018
52
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
3
Income tax (continued)
(c) Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 30%
2018
$’000
58,286
17,486
2017
$’000
59,607
17,882
A deferred tax asset in relation to tax losses is regarded as recoverable and therefore recognised only when, on the
basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits against which
to recover the losses and from which the future reversal of underlying timing differences can be deducted. The
deferred tax assets of the consolidated entity are currently not recognised under this criteria.
(d) Tax consolidation legislation
Pinnacle Investment Management Group Limited and its wholly-owned Australian controlled entities implemented
the tax consolidation legislation from 1 July 2003. Next Financial Limited and its subsidiaries joined the tax
consolidated group on 1 April 2009. Pinnacle Investment Management Limited and its subsidiaries joined the tax
consolidated Group on 25 August 2016. The accounting policy in relation to this legislation is set out in note 31(f) and
further information is provided at Note 31(z).
4 Segment information
The Group operates one business segment being the funds management operations of Pinnacle. The business is
principally conducted in one geographic location, being Australia.
5 Earnings per share
(a) Basic earnings per share
Attributable to the ordinary equity shareholders of the Company
From continuing operations
From discontinued operations
From total operations
(b) Diluted earnings per share
Attributable to the ordinary equity shareholders of the Company
From continuing operations
From discontinued operations
From total operations
53
Annual Report 2018
2018
Cents
2017
Cents
14.3
0.2
14.5
8.1
0.8
8.9
2018
Cents
2017
Cents
13.2
0.2
13.4
7.6
0.5
8.1
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
5 Earnings per share (continued)
(c) Reconciliations of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit/(loss) attributable to the ordinary owners of the Company used in calculating basic
and diluted earnings per share:
From continuing operations
From discontinued operation
Profit/(loss) used in calculating basic and diluted earnings per share
(d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Weighted average Treasury stock (see note 14(d))
Weighted average options
Weighted average number of ordinary and potential ordinary shares used
as the denominator in calculating diluted earnings per share
(e) Information concerning the classification of securities
2018
Cents
2017
Cents
23,142
334
23,476
12,016
1,082
13,098
2018
Number
2017
Number
161,700,282
147,598,707
10,438,184
9,191,633
3,114,346
2,226,861
175,252,812
159,017,201
Options granted to employees under the employee share schemes are considered to be potential ordinary shares and
have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The
options have not been included in the determination of basic earnings per share.
Annual Report 2018
54
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
Operating assets and liabilities
This section provides information regarding the assets and liabilities of the business and includes more detailed
breakdowns of individual balance sheet items.
6 Cash and cash equivalents
Available cash at bank and on hand
Fixed-term deposits
Other committed cash at bank and on hand
(a) Risk exposure
2018
$’000
8,965
367
-
2017
$’000
10,634
310
1
9,332
10,945
The Group’s exposure to interest rate risk is discussed in note 18. The maximum exposure to credit risk at the end
of each reporting period is the carrying amount of each class of cash and cash equivalents mentioned above.
(b) Fixed term and at call deposits
Fixed-term and at-call deposits bear floating interest rates between 1.45% and 1.75% (2017: 1.45% and 2.43%). At-call
deposits have an average maturity of 30 days. Fixed-term deposits have a maturity ranging from 90 days to 1 year.
7 Trade and other receivables
Trade receivables
Income receivable
Other receivables
Prepayments
2018
$’000
2,842
6,906
707
108
10,563
2017
$’000
2,200
2,413
338
128
5,079
(a) Effective interest rates and credit risk
All of the Group’s receivables are classified as current and are non-interest bearing.
There is no significant concentration of credit risk with relation to current receivables. Refer to note 18 for more
information on the financial risk management policy of the Group.
(b) Fair value and credit risk
Information about the Group’s exposure to credit risk and about the methods and assumptions used in determining
fair value is provided in note 18(b) and 18(d).
55
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
8 Financial assets at fair value through profit or loss
Australian listed securities
Other unlisted equity securities
Derivative financial assets
Unlisted unit trusts
2018
$’000
10,783
364
739
10,270
22,156
2017
$’000
12,551
364
1,208
17,448
31,571
Risk exposure and fair value measurements
Information about the Group’s exposure to price risk and the methods and assumptions used in determining fair
value is provided in note 18.
9 Other current assets
Loans to entities under joint control
2018
$’000
2,011
2,011
2017
$’000
933
933
Loans to entities under joint control includes accumulated equity accounted losses where the associated equity
investment value is less than zero as a result of accumulated losses being greater than the cost of the investment.
As outlined in note 30(a) loans to entities under joint control are assessed at least annually for possible indicators
of impairment. Where indicators of impairment exist, the recoverability of these loans is determined. This relies on
assumptions regarding the future profitability of the jointly controlled entities and their ability to service the loans.
10 Net deferred tax assets
Deferred tax assets (a)
Deferred tax liabilities (b)
Net deferred tax assets
(a) Deferred tax assets
The deferred tax asset balance comprises temporary differences attributable to:
Unrealised loss on fair value assets
Other
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
2018
$’000
154
(154)
-
2017
$’000
15
(15)
-
2018
$’000
2017
$’000
154
-
154
(154)
-
15
-
15
(15)
-
Annual Report 2018
56
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
10 Net deferred tax assets (continued)
(a) Deferred tax assets (continued)
A deferred tax asset in relation to tax losses is regarded as recoverable and therefore recognised only when, on the
basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits against which
to recover the losses and from which the future reversal of underlying timing differences can be deducted. The
deferred tax assets of the consolidated entity are currently not recognised under this criteria – refer note 3(c).
(b) Deferred tax liabilities
The deferred tax liabilities balance comprises temporary differences attributable to:
Financial assets at fair value through profit or loss
Receivables
Total deferred tax liabilities
11 Other non-current assets
Loans to other related parties
12 Trade and other payables
Trade payables
Accrued expenses
Accrued bonuses
Other payables
13 Provisions
Current
Employee benefits – annual leave and long service leave
Non-Current
Employee benefits – long service leave
57
Annual Report 2018
2018
$’000
2017
$’000
134
20
154
2018
$’000
4,990
4,990
2018
$’000
477
1,042
4,067
306
5,892
11
4
15
2017
$’000
-
-
2017
$’000
1,097
1,569
2,145
210
5,021
2018
$’000
2017
$’000
805
805
105
105
1,000
1,000
71
71
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
13 Provisions (continued)
(a) Movements in provisions
Movements in each class of provision during the financial year, are set out below:
Current
Balance at 1 July
Amounts utilised during the year
Balance at 30 June
Non-Current
Balance at 1 July
Amounts provided for during the year
Balance at 30 June
Employee
Benefits
$’000
1,000
(195)
805
71
34
105
Capital and financial risk management
This section provides information about the capital structure of the consolidated entity and dividends paid to
shareholders during the year, discusses the Group’s exposure to various financial risks and how these risks are
managed, and outlines the Group’s contingent assets and liabilities and its financial commitments.
14 Contributed equity
(a) Share capital
Ordinary shares:
2018
Shares
2017
Shares
2018
$’000
2017
$’000
Fully paid contributed equity – Company
153,905,571
149,818,238
Total contributed equity
153,905,571
149,818,238
154,762
154,762
148,834
148,834
Annual Report 2018
58
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
14 Contributed equity (continued)
(b) Movements in ordinary share capital
Date
Details
1 July 2016
Opening balance
Issue of ordinary shares as consideration for acquisition of non-
controlling interests of Pinnacle Investment Management Limited
(refer note 15(c))
Share placement, net of issue costs
Treasury stock at year-end
30 June 2017 Closing Balance
Number
of shares
Issue
price
111,131,752
$’000
61,946
37,043,917
$1.76
65,197
12,500,000
$2.40
28,527
(10,857,431)
149,818,238
(6,836)
148,834
Issue of ordinary shares on exercise of options
2,125,000
$0.99
2,095
Share based payment
Issue of ordinary shares
Dividend reinvestment
Treasury stock at year-end
708,192
$0.99
415,646
$3.65
838,495
627
699
1,519
988
30 June 2018 Closing Balance
153,905,571
154,762
(c) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company
in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one
vote and upon a poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(d) Treasury stock
Treasury stock are shares in Pinnacle Investment Management Group Limited that are subject to share mortgage
under employee loans used for the purposes of acquiring interests in the Company (refer note 15(c)). The value
ascribed to treasury stock is the value of the loans secured by share mortgage at period end.
(e) Employee share plans
Information relating to the Pinnacle Investment Management Group Employee Option Share Plan, including details
of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial
year, is set out in note 27.
(f) Capital risk management
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern, so it can
continue to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets.
The Group monitors capital on the basis of both Group liquidity and capital and liquidity ratios required under
various licenses held by subsidiaries.
There have been no material instances of non-compliance with externally imposed capital requirements in the
current period.
59
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
15 Reserves and accumulated losses
(a) Reserves
Share-based payments reserve
Options reserve
Transactions with non-controlling interests reserve
Available-for-sale financial assets reserve
Movements:
Share-based payments reserve
Balance at 1 July
Share-based payments expense
Shares issued on exercise of options
Employee loans subject to share-based payments arrangements (refer note 15(c))
Balance at 30 June
Options reserve
Balance at 1 July
Options issued (refer note 21(a))
Balance at 30 June
Transactions with non-controlling interests reserve
Balance at 1 July
Acquisition of non-controlling interests of Pinnacle Investment Management
Limited (refer note 15(c))
Balance at 30 June
Available-for-sale financial assets reserve
Balance at 1 July
Changes in fair value of available-for-sale financial assets (refer note 23)
Balance at 30 June
2018
$’000
3,854
9,498
2017
$’000
4,772
-
(59,603)
(59,603)
114
448
(46,137)
(54,383)
4,772
364
(627)
(655)
3,854
-
9,498
9,498
(59,603)
-
(59,603)
448
(334)
114
224
575
-
3,973
4,772
-
-
-
-
(59,603)
(59,603)
943
(495)
448
The share-based payments reserve is used to recognise:
the grant date fair value of options issued to employees but not exercised;
the grant date fair value of shares issued to employees;
the issue of shares held by employee share plans to employees; and
the grant date fair value of reissued loans under the Pinnacle Long-term Employee Incentive Plan.
The available-for-sale financial assets reserve is used to recognise changes in the fair value of available-for-sale
financial assets.
The transactions with non-controlling interests reserve is used to recognise the excess of the consideration paid to
acquire non-controlling interests above the carrying value of the non-controlling interest at time of acquisition.
Annual Report 2018
60
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
15 Reserves and accumulated losses (continued)
(b) Accumulated losses
Movements in accumulated losses were as follows:
Balance at 1 July
Profit/(loss) for the year attributable to owners of Pinnacle Investment Management
Group Limited
Dividends paid to shareholders
Balance at 30 June
2018
$’000
2017
$’000
(18,791)
(19,982)
23,476
(15,213)
(10,528)
13,098
(11,907)
(18,791)
(c) Acquisition of non-controlling interest (prior period)
Following approval by shareholders of the Company at an extraordinary general meeting held on 16 August 2016,
on 25 August 2016 the Company acquired the remaining 24.99% interest in its subsidiary Pinnacle Investment
Management Limited that it did not already own from Executive shareholders (“Vendors”).
As a consequence of the transaction the Company:
issued 37,043,917 shares in the Company to the Vendors in exchange for their shareholdings in Pinnacle Investment
Management Limited;
provided loans to the Vendors to assist them to acquire shares in the Company from Deutsche Australia
(refer note 25(d)(i));
re-issued existing loans in respect of shares in Pinnacle Investment Management Limited that were being exchanged
for the shares in the Company (refer note 25(d)(ii));
took security in respect of the various loans described above by way of Share Mortgage;
made a bonus payment to facilitate the repayment of a loan of $1,119,000 on behalf of Mr Ian Macoun in accordance
with contractual arrangements entered into in 2006 (refer note 25(d)(iii));
appointed Mr Ian Macoun as Managing Director, Mr Adrian Whittingham and Mr Andrew Chambers as executive
Directors, and Mr Gerard Bradley and Ms Deborah Beale as non-executive Directors; and
changed the name of the Company from Wilson Group Limited to Pinnacle Investment Management Group Limited.
The share price of the Company at the date of acquisition was $1.76, giving a fair value of the 37,043,917 shares
issued of $65,197,000. The carrying value of the non-controlling interest to the Group at the date of acquisition
was $6,611,000. The difference between the fair value of the consideration paid and the carrying value of the
non-controlling interest of $58,586,000, plus applicable transaction costs of $1,017,000, has been recognised
in equity in the Transactions with Non-Controlling Interests Reserve (refer note 15(a)).
Loans provided to the Vendors, and loans re-issued to the Vendors represent share based payments arrangements
and are accounted for in share based payments reserve (refer note 15 (b) and note 27). Shares issued to the Vendors
that are subject to share mortgage are regarded as treasury stock (refer note 14(a) and (d)).
61
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
16 Dividends
(a) Ordinary shares
2018
$’000
2017
$’000
Interim dividend for the year ended 30 June 2018 of 4.6 cents per fully paid ordinary
share paid on 23 March 2018 (2017 – 2.2 cents paid on 17 March 2017)
Fully franked based on tax paid @ 30.0%
7,501
3,535
Final dividend for the year ended 30 June 2017 of 4.8 cents per fully paid ordinary
share paid on 6 October 2017 (2017 – 1.9 cents paid on 3 October 2016)
Fully franked based on tax paid @ 30.0%
Special dividend of 5.0 cents per fully paid ordinary share paid on 9 September 2016
Fully franked based on tax paid @ 30.0%
Total dividends paid
7,712
2,815
-
15,213
5,557
11,907
(b) Dividends not recognised at the end of the reporting period
Since year end the Directors have declared the payment of a final dividend of 7 cents per fully paid ordinary share
fully franked based on tax paid at 30%. The aggregate amount of the dividend expected to be paid on 5 October 2018
but not recognised as a liability at year end, is $12,238,000 (2017 – 4.8 cent ordinary dividend totalling $7,712,000
not recognised as a liability at year-end).
(c) Franked dividends
The franked portions of final dividends recommended after 30 June 2018 will be franked out of existing franking credits.
Franking credits available for subsequent financial years based on a tax rate of 30%
(2017: 30%)
2018
$’000
2017
$’000
26,869
26,361
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a)
franking credits that will arise from the payment of the amount of the provision for income tax;
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c)
franking credits that will arise from the receipt of dividends recognised as receivables at the end of each
reporting date.
The consolidated amounts include franking credits that would be available to the Company if distributable profits
of subsidiaries were paid as dividends.
Annual Report 2018
62
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
17 Current liabilities – Financing arrangements
(a) Secured liabilities and assets pledged as security
The Group has a bank facility subject to annual review which is secured by a general security deed over the assets
of a subsidiary of the Group, Ariano Pty Ltd, and guarantees provided by the Company and other Group entities
(excluding entities within the Pinnacle Investment Management Limited and Next Financial Limited groups). The
facility’s next anniversary date is 30 June 2019. Details of the facility are as follows:
Bank guarantee (amount used at balance date - $5,050,000)
Corporate credit card (amount used at balance date – $63,000)
2018
$’000
5,500
360
5,860
2017
$’000
5,500
100
5,600
The bank facility is supported by a negative pledge that states that (subject to certain exceptions) the Group will not
provide any security over its assets and that the Group’s consolidated tangible net assets must not be less than 60%
of its total tangible assets. Ongoing compliance with covenants is reviewed on a regular basis and compliance has
been maintained during the period..
Assets pledged as security
The carrying amounts of assets pledged as security at balance date in relation to the corporate loan facilities are set
out below:
Current
Cash and cash equivalents
Receivables
Other current assets
Total current assets pledged as security
Non-current
Other non-current assets
Plant and equipment
Total non-current assets pledged as security
Total assets pledged as security
(b) Interest rate risk exposure
Information about the Group’s exposure to interest rate changes are provided in note 18.
2018
$’000
2017
$’000
1
486
-
487
-
34
34
521
23
493
-
516
-
57
57
573
63
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk),
credit risk and liquidity risk. A core focus of the Group’s overall risk management program focuses on the volatility of
the financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
Risk governance is managed through the Board’s Audit, Compliance and Risk Management Committee, which
provides direct oversight of the Group’s risk management framework and performance. The Board approves written
principles for risk management covering areas such as principal investments, including the use of appropriate
hedging strategies, and cash flow management. The management of risk throughout the Group is achieved through
the procedures, policies, people competencies and risk monitoring functions that form part of the overall Group
risk management framework. This is achieved through regular updates in the form of targeted risk management
analysis and reporting functions that provide an assessment of the Group’s risk exposure levels and performance to
benchmarks / tolerance limits.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Available for sale financial assets
Loans to joint associates (including affiliate executives) (non-current)
Loans to joint associates (including affiliate executives) (current)
Financial liabilities
Trade and other payables
Other current liabilities
(a) Market risk
(i) Foreign exchange risk
2018
$’000
2017
$’000
9,332
10,455
22,152
114
4,990
2,011
10,945
4,951
31,571
448
-
933
49,054
48,848
5,892
-
5,892
5,021
-
5,021
The Group is not materially exposed to foreign exchange risk.
(ii) Price risk
Through its business transactions and investments, the Group is exposed to equity securities price risk. This risk is
the potential for losses in Group earnings as a result of adverse market movements and arises from investments held
by the Group that are classified on the consolidated statement of financial position as financial assets at fair value
through profit or loss.
The Group manages the price impact of market risk through an established risk management framework. This
includes the procedures, policies and functions undertaken by the business to manage market risk within tolerances
set by the Board. Equity derivatives are used as an active risk mitigation function and the Group currently utilises
such derivatives to reduce market risk of its equity exposures. The performance of the Group’s direct equity
exposures and market risk mitigants are monitored on a regular basis.
The majority of the Group’s equity investments are Australian listed equity securities and unlisted unit trusts.
Annual Report 2018
64
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management (continued)
(a) Market risk (continued)
(ii) Price risk (continued)
Sensitivity
The table below summarises the impact of increases/decreases in equity securities prices on the Group’s after tax
profit for the year and on equity. The analysis is based on the assumption that equity securities prices had increased/
decreased by +/- 15% (2017: +/- 15%) at 30 June 2018 with all other variables held constant and all the Group’s equity
investments included in financial assets at fair value through profit and loss moved in correlation with the index.
Impact on after-tax profit
Impact on equity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
Group
+2,515/-2,515
+2,034/-2,034
+2,515/-2,515
+2,034/-2,034
(iii) Interest rate risk
The Group’s main interest rate risk arises from holding cash and cash equivalents. During 2018 and 2017, the Group’s
cash and cash equivalents were denominated in Australian dollars. The Group reviews its interest rate exposure as
part of the Group’s cash flow management and takes into consideration the yields, duration and alternative financing
options as part of the renewal of existing positions. As at the reporting date, the Group had the following cash and
cash equivalents:
Cash and cash equivalents
Exposure to cash flow interest rate risk
30 June 2018
30 June 2017
Weighted
average
interest rate
%
1.17%
Weighted
average
interest rate
%
1.15%
Balance
$’000
9,332
9,332
Balance
$’000
10,945
10,945
The Group’s loans to entities under joint control are subject to fixed interest rates and carried at amortised cost.
They are therefore not subject to interest rate risk as defined in AASB 7.
Sensitivity
At 30 June 2018, if interest rates had changed by -/+100 basis points from the year end rates with all other variables
held constant, after tax profit and equity for the year would have been $65,000 lower/higher (2017: change of 100
basis points: $77,000 lower/higher).
65
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management (continued)
(b) Credit risk
Credit risk arises from cash and cash equivalents, financial assets at fair value through profit or loss, loans to entities
under joint control, loans to shareholders and outstanding receivables.
Credit risk is managed on a Group basis. Credit risk relates to the risk of a client or counterparty defaulting on their
financial obligations resulting in a loss to the Group. These obligations primarily relate to distribution and management
fees. The Group does not carry material trade receivable exposure to either a single counterparty or a group
of counterparties. For banks and financial institutions, only independently rated parties with a minimum rating
of BBB+ / A-1 are accepted as counterparties. As at the reporting date, the Group held the following credit risks:
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Loans to joint associates (including affiliate executives) (non-current)
Loans to joint associates (including affiliate executives) (current)
2018
$’000
9,332
10,455
22,152
114
4,990
2,011
2017
$’000
10,945
4,951
31,571
448
-
933
49,054
48,848
The Group records trade receivables and loans in the following classifications:
Neither past due nor impaired trade receivables and loans are those that are within their relevant contractual
payment terms and there is no evidence to suggest that the client or counterparty will fail to meet their obligations.
Past due but not impaired trade receivables and loans are those that have fallen outside of their contractual
settlement terms. However there remains an expectation of full recovery based on the value of the underlying
equities and the financial position of the client or counterparty.
Past due and impaired trade receivables and loans are those that have fallen outside of the prescribed settlement
terms and/or there is evidence to suggest that the client or counterparty will fail to meet their obligations. Refer
to note 31(k) for more information on the trade receivables policy of the Group.
Trade and other receivables
Neither past due nor impaired
Past due but not impaired
Loans
Neither past due nor impaired
Total trade and loan receivables
Impaired trade and loan receivables
2018
$’000
2017
$’000
10,455
-
10,455
7,001
7,001
4,951
-
4,951
933
5,884
As at 30 June 2018 receivables of the Group with a nominal value of $nil (2017: $nil) were impaired.
Annual Report 2018
66
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management (continued)
(b) Credit risk (continued)
Credit quality
The credit quality of financial assets can be assessed by reference to external credit ratings. These credit ratings are
only available for cash assets, Australian listed debt securities and non-exchange traded derivative financial assets:
Cash at bank and short-term bank deposits
AA-
Australian listed debt securities
AA-
BBB
(c) Liquidity risk
2018
$’000
2017
$’000
9,332
9,332
10,945
10,945
-
-
-
51
-
51
The Group manages liquidity risk by continuously monitoring actual and forecast cash flows. Due to the dynamic
nature of the underlying businesses, the Group aims at maintaining flexibility in funding through available cash and
readily liquefiable investments in the Group’s Principal Investments portfolio. At 30 June 2018 the Group has $31.4
million in available cash and Principal Investments.
Subsidiaries of the Company, Pinnacle Funds Services Limited, Pinnacle Investment Management Limited and
Pinnacle RE Services Limited hold Australian Financial Services Licences and hold amounts in liquid assets in
accordance with relevant ASIC regulations on the basis of expected cash flows. This is generally carried out at a local
level in the operating companies of the Group in accordance with practice and limits set by the Group. In addition,
the Group’s liquidity management policy involves projecting cash flows and considering the level of liquid assets
necessary to meet these, monitoring liquidity ratios against internal and external regulatory requirements and
maintaining debt financing plans.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities. The financial liabilities are broken down into maturity
groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows.
1 to 30 days
$’000
30 days
to 90 days
$’000
90 days
to 1 year
$’000
Total
contractual
cash flows
$’000
Carrying
amount
$’000
1,824
1,824
2,826
2,826
4,068
4,068
2,195
2,195
-
-
-
-
5,892
5,892
5,021
5,021
5,892
5,892
5,021
5,021
Contractual maturities
of financial liabilities
At 30 June 2018
Trade and other payables
Total financial liabilities
At 30 June 2017
Trade and other payables
Total financial liabilities
67
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management (continued)
(d) Fair value measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for
disclosure purposes.
AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b)
inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) (level 2); and
(c)
inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
The following table presents the Group’s assets measured and recognised at fair value:
30 June 2018
Assets
Australian listed equity securities
Other unlisted equity securities
Unlisted unit trusts
Derivative financial instruments – futures
Contingent consideration from disposal
of discontinued operation
Total assets
No liabilities were held at fair value at 30 June 2018.
30 June 2017
Assets
Australian listed equity securities
Australian listed debt securities
Other unlisted equity securities
Unlisted unit trusts
Derivative financial instruments – futures
Contingent consideration from disposal of discontinued
operation
Total assets
No liabilities were held at fair value at 30 June 2017.
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
10,783
-
10,270
739
-
21,792
-
-
-
-
-
-
-
364
-
-
114
478
10,783
364
10,270
739
114
22,270
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
12,500
51
-
17,448
1,208
-
31,207
-
-
-
-
-
-
-
-
-
364
-
-
448
812
12,500
51
364
17,448
1,208
448
32,019
There were no transfers between levels for recurring fair value measurements during the current year. The Group’s
policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
Annual Report 2018
68
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
18 Financial risk management (continued)
(d) Fair value measurements (continued)
The fair value of Australian listed securities and exchange traded options is based on quoted market prices at the end
of the reporting period. The quoted price used for Australian listed securities and exchange traded options held by
the Group is the current bid price. The quoted market price used for unlisted unit trusts is the current exit unit price.
These instruments are included in level 1.
The fair value of unlisted equity securities and contingent consideration from disposal of discontinued operation is
determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based
on market conditions existing at the end of each reporting period. In the circumstances where a valuation technique
for these instruments is based on significant unobservable inputs, such instruments are included in level 3.
The carrying amounts of cash and cash equivalents, trade receivables and payables, loans to entities under joint control
and loans to shareholders are assumed to approximate their fair values due to their short-term nature. The fair value
of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the
current market interest rate that is available to the Group for similar financial instruments.
Fair value measurements using significant unobservable inputs (level 3)
Level 3 items include unlisted equity securities held by the Group, and contingent consideration from disposal of
discontinued operations. The following table presents the changes in level 3 instruments for the years ended 30 June 2018
and 30 June 2017:
Opening balance 1 July 2016
Unrealised gains recognised in fair value gains/(losses) on financial assets at fair value
through profit or loss
Fair value adjustments recognised in other comprehensive income
Closing balance 30 June 2017
Unrealised gains recognised in fair value gains/(losses) on financial assets at fair value
through profit or loss
Fair value adjustments recognised in other comprehensive income
Closing balance 30 June 2018
(i) Transfer between levels 1 and 3
There were no transfers between levels 1 and 3 during the year.
(ii) Valuation process
Contingent
consideration
$’000
Unlisted
equity
securities
$’000
943
-
(495)
448
-
(334)
114
231
133
-
364
-
-
364
Unlisted equities valued under Level 3 are investments in unlisted companies. Where possible, the investments
are valued based on the most recent transaction involving the securities of the company. Where there is no recent
information or the information is otherwise unavailable, the value is derived from calculations based on the value per
security of the underlying net tangible assets of the investee company.
Contingent consideration valued under Level 3 relates to the disposal of discontinued operations (refer note 23(c)).
The fair value of contingent consideration from disposal of the Securities business is determined based on forecasts
of profits, taxable income and deferred tax asset utilisation using the latest financial information available for the
business at balance date.
69
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
19 Contingencies and Commitments
(a) Contingent assets and liabilities
(i) Guarantees
The Group has provided guarantees in relation to Australian Financial Services License Net Tangible Asset
obligations (via bank guarantee) in respect of:
(i)
Pinnacle Funds Services Limited – $5,000,000 (2017: $5,000,000)
(ii) Pinnacle RE Services Limited – $50,000 (2017: $50,000)
The unused bank guarantee facility available at balance date was $450,000 (30 June 2017: $450,000). The Group
has also provided guarantees in relation to its corporate credit card facility (facility limit of $360,000 of which
$63,000 was unused at balance date).
These guarantees may give rise to liabilities in the Company if the related entities do not meet their obligations that
are subject to the guarantees.
No material losses are anticipated in respect of any of the above contingent liabilities.
(ii) Disposal of Securities Business
The group has contingent liabilities and assets in respect to its historical ownership of the Wilson HTM Securities
business prior to its disposal on 1 July 2015 (refer note 23).
(iii) Acquisition of non-controlling interests of Pinnacle Investment Management Limited
The group has contingent liabilities in respect to warranties provided to the vendors of the non-controlling interests
of Pinnacle Investment Management Limited, acquired on 25 August 2016 (refer note 15(c)).
(b) Commitments
(i) Capital commitments
There were no capital expenditure commitments at balance sheet date.
(ii) Lease commitments: Group as lessee
Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities are payable
as follows:
Within one year
Later than one year but not later than five years
Non-cancellable operating leases
(c) Other expenditure commitments
2018
$’000
1,110
3,512
4,622
4,622
Commitments contracted for at reporting date but not recognised as liabilities are payable as follows:
Within one year
Later than one year and not later than five years
2018
$’000
29
-
29
2017
$’000
622
1,449
2,071
2,071
2017
$’000
117
29
146
Annual Report 2018
70
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
19 Contingencies and Commitments (continued)
(d) Other commitments
The Group has previously entered into agreements whereby it has agreed to advance sufficient funds to entities
under joint control to cover their operating expenses until such time as the entity becomes profitable on a monthly
basis and is generating positive cash flows. Further information in relation to these balances is provided in note 25.
Joint Venture commitments contracted for at reporting date but not recognised as liabilities are payable as follows:
Within one year
Later than one year and not later than five years
2018
$’000
3,000
-
3,000
2017
$’000
-
-
-
Group Structure
This section provides information regarding the group’s subsidiaries and associates, and detail regarding discontinued
operations.
20 Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following significant
subsidiaries in accordance with the accounting policy described in note 31(b). The country of incorporation of all
subsidiaries is also their principal place of business.
Name of entity
Pinnacle Investment Management Limited
Pinnacle Funds Services Limited
Pinnacle Services Administration Pty Ltd
Pinnacle RE Services Limited
Priority Funds Management Pty Ltd
Priority Investment Management Pty Ltd
Ariano Pty Ltd
Next Financial Holdings Pty Ltd
PNI Option Plan Managers Pty Ltd
Country of
incorporation
Class of security
Equity holding
2018
%
2017
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary share
Ordinary share
Ordinary share
Ordinary share
Ordinary share
Ordinary share
Ordinary share
Ordinary share
Ordinary share
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
Pinnacle Investment Management (UK) Ltd
United Kingdom
Ordinary share
71
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
21 Investments accounted for using the equity method
(a) Carrying amounts
The Group holds investments in entities under joint control that undertake funds management activities. Information
relating to these entities under joint control is set out below.
Name of company
Principal Activity
Unlisted
Plato Investment Management Limited
Funds Management
Palisade Investment Partners Limited
Funds Management
Hyperion Holdings Limited
Foray Enterprises Pty Limited
Funds Management
Funds Management
Solaris Investment Management Ltd
Funds Management
Spheria Asset Management Pty Ltd
Funds Management
Antipodes Partners Holdings Pty Ltd
Funds Management
Two Trees Investment Management Pty Ltd
Funds Management
Firetrail Investments Limited
Funds Management
Effective ownership stake
and economic rights
Carrying Value
2018
%
2017
%
2018
$’000
2017
$’000
46.64
38.34
49.99
41.50
40.00
40.00
23.57
43.96
24.35
47.94
35.15
49.99
42.00
40.00
40.00
23.57
43.96
1,728
8,328
11,002
1,680
3,606
5,533
13,395
14,362
3,946
1,497
4,904
-
-
10,801
3,763
1,067
2,616
-
-
55,601
32,627
Each of the above entities under joint control is incorporated and has their principal place of business in Australia and
are accounted for using the equity method.
On 14 March 2018 Pinnacle Investment Management Limited entered into an agreement with Firetrail Investments
Pty Ltd (Firetrail) for 24.35% ownership interest. This was funded partly by cash and partly by zero-price options
issued by Pinnacle Investment Management Group Limited (PNI).
The Group has a contractual commitment to provide further equity funding to Firetrail until such time as Firetrail
becomes profitable (see note 19 (d)).
Annual Report 2018
72
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
21 Investments accounted for using the equity method (continued)
(b) Summarised financial information for joint ventures
Hyperion Holdings
Limited
Foray Enterprises
Pty Limited
Palisade Investment
Partners Limited
Solaris Investment
Management Limited
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
Summarised statement of financial position
Total current assets
17,207
11,761
13,771
13,514
19,239
15.273
12,513
Total non-current assets
7,671
2,661
3,376
3,379
4,450
1,912
548
9,961
648
Total current liabilities
(2,999)
(3,385)
(8,298)
(6,428)
(10,626)
(6,497)
(4,943)
(3,025)
Total non-current liabilities
(97)
(139)
(90)
(138)
(81)
Net Assets
Group share in %
21,782
10,898
8,759
10,327
12,982
49.99%
49.99%
41.5%
42.0%
38.3%
35.2%
40.0%
40.0%
(692)
9,996
(218)
7,900
(166)
7,418
Reconciliation to carrying amounts:
Opening net assets 1 July
10,898
8,251
10,327
8,674
9,996
5,726
7,418
4,957
Issued shares
Reserves
-
-
-
-
-
22
-
-
-
40
327
37
-
-
-
-
Total comprehensive income
15,898
15,208
10,410
7,630
9,823
7,934
10,482
5,619
Dividends paid
Closing net assets
(5,014)
(12,561)
(12,000)
(5,977)
(6,877)
(4,028)
(10,000)
(3,158)
21,782
10,898
8,759
10,327
12,982
Group’s share of net assets
10,889
5,448
3,635
4,337
4,978
9,996
3,513
7,900
3,160
7,417
2,967
Excess consideration
over share of net assets
113
85
9,760
10,026
Carrying amount
11,002
5,533
13,395
14,363
3,350
8,328
93
786
796
3,606
3,946
3,763
Summarised statement of comprehensive income
Revenue
30,245
30,577
28,973
23,279
25,331
21,548
21,851
15,410
Net profit for the year after tax
15,898
15,208
10,410
7,630
9,823
7,934
10,482
5,619
Other comprehensive income
-
-
-
-
-
-
-
-
Total comprehensive income
15,898
15,208
10,410
7,630
9,823
7,934
10,482
5,619
Dividends received from
joint venture entities
(2,507)
(6,280)
(5,010)
(2,400)
(2,704)
(1,439)
(4,000)
(1,280)
Individually immaterial jointly controlled entities
In addition to the interests disclosed above, the Group also has interests in a number of individually immaterial
entities under joint control that are accounted for using the equity method.
Aggregate carrying amount of individually immaterial joint ventures
Aggregate amounts of the Group’s share of:
Profit for the year
Other comprehensive income
Total comprehensive income
73
Annual Report 2018
2018
$’000
18,930
4,688
-
4,688
2017
$’000
8,968
4,944
-
4,944
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
21 Investments accounted for using the equity method (continued)
(c) Movements in carrying amounts
Carrying amount at the beginning of the financial year
Purchase of shares in entities under joint control
Share of profit after income tax
Adjustment for loan impairment
Recovery of impairment
Dividends received/receivable
Carrying amount at the end of the financial year
(d) Share of entities revenue, expenses and results
Revenues
Expenses
Profit before income tax
Income tax expense
Profit after income tax
(e) Summary of entities under joint control
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2018
$’000
32,627
14,661
24,903
644
-
(17,234)
55,601
2018
$’000
64,624
(28,940)
35,684
(10,781)
24,903
2018
$’000
39,075
8,736
47,811
20,092
231
20,323
27,488
2017
$’000
24,528
1,900
17,598
-
-
(11,399)
32,627
2017
$’000
51,073
(25,653)
25,420
(7,822)
17,598
2017
$’000
27,540
4,354
31,894
12,557
176
12,733
19,161
Annual Report 2018
74
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
22 Parent Entity financial information
(a) Summary financial information
The individual financial statements for the Parent Entity show the following aggregate amounts:
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Contributed equity
Reserves
Accumulated losses
Total equity
Profit/(loss) for the year
Total comprehensive income/(loss)
2018
$’000
2017
$’000
55,648
23,851
79,499
27,394
-
27,394
52,105
154,762
(56,688)
(45,969)
52,105
13,043
13,043
54,286
14,353
68,639
27,174
-
28,174
40,465
148,834
(64,570)
(43,799)
40,465
6,904
6,409
(b) Guarantees entered into by the Parent Entity
Details of guarantees entered into by the Group are provided at note 19.
23 Discontinued Operations
(a) Description
On 1 July 2015 the Company completed the sale of its Wilson HTM Securities business (now renamed Wilsons
Advisory). Under the terms of the sale agreement the Company:
received cash consideration of $4,000,000, and provided vendor finance with a fair value of $868,000;
may receive a future profit share for the first two years post completion of 50% of the profit before tax of the
Securities business exceeding $3,000,000, but capped at $1,000,000 each year*;
may receive additional value for deferred tax assets if the amount utilised by the Securities business exceeds
$350,000 during the first three years post completion;
has contingent liabilities relating to its historical ownership of the business which will run off over time;
committed to pay certain staff related costs, run-off insurances and other items.
*This was not achieved in either FY16 or FY17.
75
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
23 Discontinued Operations (continued)
(b) Financial performance and cash flows
The profit/(loss) for the current and prior corresponding period related to the discontinued operations were as follows:
Other income *
Expenses
Results from operating activities
Loss on disposal of discontinued operation (see (c) below)
Profit/(loss) before tax from discontinued operations
Income tax expense
Profit/(loss) from discontinued operation attributable to owners of Pinnacle Investment
Management Group Limited
Changes in fair value of contingent consideration
Total comprehensive income/(loss) attributable to discontinued operation
2018
$’000
334
-
334
-
334
-
334
(334)
-
2017
$’000
1,590
(508)
1,082
-
1,082
-
1,082
(495)
587
* Other income includes contingent consideration received during the year of $334,000 (2017 – $1,284,000) – refer note 23(c).
The cash-flows for the current and prior corresponding period related to the discontinued operations were as follows:
Net cash inflow/(outflow) from operating activities
Net cash (outflow)/inflow from investing activities
Net cash inflow from financing activities
Net cash flow for the year
(c) Contingent Consideration
2018
$’000
334
-
-
334
2017
$’000
(140)
975
-
835
The agreement for the disposal includes items of contingent consideration relating to a profit-share over the first two
years post disposal, and utilisation of deferred tax assets in the first three years following disposal. At 30 June 2018
the fair value of these items has been assessed at $114,000 (30 June 2017 – $448,000). This carrying value has been
included in available-for-sale financial assets in the statement of financial position.
Annual Report 2018
76
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
Other information
This section contains information on other items that require disclosure under Australian Accounting Standards
or other regulatory pronouncements, and includes details of the critical accounting estimates and judgements and
significant accounting policies adopted by the Group.
24 Additional cash flow information
(a) Reconciliation to cash at the end of the year
For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash at bank and
on hand, deposits at call and cash held in trust net of outstanding bank overdrafts. Cash and cash equivalents at the
end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related
items in the consolidated statement of financial position as follows:
Cash and cash equivalents
Balances per statement of cash flows
(b) Reconciliation of net cash flow from operating activities to profit
Profit/(loss) for the year
Depreciation and amortisation
Impairment
Equity settled share-based payments
Net losses/(gains) on financial assets at fair value through profit or loss
Discontinued operations
Change in operating assets and liabilities, net of effects from acquisition
and disposal of businesses:
Trade and other receivables
Investments accounted for using the equity method
Financial assets
Trade and other payables
Provisions
2018
$’000
9,332
9,332
2017
$’000
10,245
10,245
2018
$’000
2017
$’000
23,476
13,257
98
-
364
(227)
-
(4,125)
(7,700)
9,645
(500)
(161)
212
-
574
372
(851)
(685)
(7,557)
(21,025)
(1,734)
19
Net cash (outflow)/inflow from operating activities
20,870
(17,418)
The reconciliation of net cash flow from operating activities to profit/(loss) includes both continuing and
discontinued operations.
77
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
25 Related party transactions
(a) Parent Entity
The Parent Entity of the Group is Pinnacle Investment Management Group Limited (refer note 22).
(b) Subsidiaries and jointly controlled entities
Interests in subsidiaries are set out in note 20.
Interests in jointly controlled entities are set out in note 21.
Details of the disposal of a controlled entity are set out in note 23.
Details of service charges to jointly controlled entities are provided in note 1.
Details of dividend payments from entities under joint control are provided in note 21.
(c) Key Management Personnel
Disclosure relating to Key Management Personnel is set out in note 26.
Disclosure relating to share-based payments is set out in note 27.
(d) Transactions with other related parties
The following transactions occurred with related parties:
(i) Movement in loans to key management personnel – New Loans provided 25 August 2016
Upon acquisition of the non-controlling interests of Pinnacle Investment Management Limited (refer note 15(c)), the
Company provided senior executives of its subsidiary Pinnacle Investment Management Limited with loans totalling
$3,000,002, the proceeds of which were used to partially fund the acquisition of shares from Deutsche Australia.
This included loans of $500,000 each to Mr Ian Macoun, Mr Alex Ihlenfeldt, Mr Adrian Whittingham and Mr Andrew
Chambers who are key management personnel of the Group.
The key terms of the loans are as follows:
(a) The loans have a five year term, are limited recourse and are interest bearing;
(b) They are secured by way of a share mortgage (see further detail below);
(c)
(Repayment will occur at the earlier of the end of the five year term, the date on which any shares are sold or
within six months of cessation of employment;
(d) Events of default include cessation of employment, insolvency or any representation or warranty or statement
of the borrower being incorrect or misleading.
As security for the loans, the Company has obtained a first ranking mortgage over 1,111,111 shares held by each
executive. In the occasion of any event of default under the loans, the Company can exercise its rights to enforce its
security including by the appointment of a receiver.
During the year interest of $51,530 accrued on each of these loans to key management personnel. The balance of
each loan at 30 June 2018 including capitalised interest was $523,541.
Annual Report 2018
78
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
25 Related party transactions (continued)
(d) Transactions with other related parties (continued)
(ii) Movement in loans to key management personnel – Existing loans re-issued 25 August 2016
Upon acquisition of the non-controlling interest of Pinnacle Investment Management Limited (refer note 15(c)),
existing loans amounting to $4,303,485 issued by Pinnacle Investment Management Limited in prior years to its
senior executives to assist executives to acquire equity were re-issued by the Company. This included existing loans
to Mr Ian Macoun, Mr Alex Ihlenfeldt, Mr Adrian Whittingham and Mr Andrew Chambers who are key management
personnel of the Group.
The loans date from 2009, 2011, 2012 and 2015 and were used to assist the executives to acquire equity in PIML.
The loans are interest free and repayable on termination of employment or when the underlying equity is sold, whichever
event occurs earlier. The re-issued loans are also secured by share mortgages with limited recourse to the shares.
The value of re-issued loans for each of the key management personnel and repayments made during the year were
as follows:
Key Management Personnel
Ian Macoun
Alex Ihlenfeldt
Adrian Whittingham
Andrew Chambers
(iii) Loans to other Related Parties
Loan balance –
1 July 2017
$
Repayments
made
$
Loan balance –
30 June 2018
$
523,673
712,262
757,927
757,927
(54,153)
(30,631)
(54,153)
(54,153)
469,520
681,631
703,774
703,774
On 27th October 2017, a subsidiary of the Company provided loan funding totalling $5.226m to a number of
Executives of Palisade Investment Partners Limited (“Palisade”), an Affiliate of the Company, to facilitate their
purchase of shares in Palisade from an exiting shareholder. The loans have terms of between five and seven years,
are interest-bearing and secured by shares in Palisade. The loans are recorded within other non-current assets in the
consolidated statement of financial position.
On 27th October 2017, the Company also purchased additional shares in Palisade from an exiting shareholder.
The payment for additional capital is recorded within investments accounted for using the equity method in the
consolidated statement of financial position.
(e) Loans to/from related parties
Loans to joint associates (including Affiliate executives)
Balance at 1 July
Loans advanced
Interest accrued
Loans repaid
Impairment
Balance at 30 June
79
Annual Report 2018
2018
$
2017
$
932,266
1,766,002
6,934,223
751,010
146,568
-
(368,000)
(1,500,000)
(644,234)
7,000,823
(84,746)
932,266
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
25 Related party transactions (continued)
(f)
Investments in funds managed by subsidiaries
Balance at 1 July
Additions
Revaluation
Other changes*
Balance at 30 June
2018
$
2017
$
-
-
-
-
-
7,420,971
-
-
(7,420,971)
-
* Includes changes resulting from subsidiaries ceasing to be the investment manager of managed funds – refer note 25(d)(iv)
(g) Guarantees
The Group has provided guarantees to subsidiaries as described in note 19.
26 Key Management Personnel
(a) Key Management Personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2018
$
2017
$
3,284,616
3,200,273
100,000
11,200
-
117,901
24,680
-
369,390
342,841
3,765,206
3,685,695
Certain Key Management Personnel are party to the long term employee incentive arrangement described in note
31(r)(vii). During the year, loans provided under the arrangement were re-issued as a result of the acquisition of the
non-controlling interest in Pinnacle Investment Management Limited (PIML) from executives (refer note 15(c)). At 30
June 2018, the balance of loans issued to Key Management Personnel was $2,558,701 (2017: $2,751,790) relating to
2,985,272 shares issued in the Company (2017: 2,985,272 shares).
Detailed remuneration disclosures for Key Management Personnel are provided in the Remuneration Report.
Annual Report 2018
80
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
26 Key Management Personnel (continued)
(b) Loans to Key Management Personnel
Details of loans made to Directors of Pinnacle Investment Management Group Limited and other Key Management
Personnel of the Group, including their related parties, are set out below.
(i) Aggregates for Key Management Personnel
Balance
at the start
of the year
$
Interest paid
and payable
for the year
$
Loans
advanced
during
the year
$
Loan
repayments
received
$
Other
Changes*
$
Balance
at the end
of the year
$
Interest not
charged
$
Number
in Group
at the end
of the year
2018
2017
4,794,426
51,529
-
(193,090)
-
4,652,865
201,014
2,391,917
42,632
2,000,000 (1,203,220)
1,563,096
4,794,426
166,670
4
4
*includes changes due to commencing or ceasing to be Key Management Personnel during the year.
The amounts shown for interest not charged in the table above represents the difference between the amount paid
and payable for the year and the amount of interest that would have been charged on an arm’s length basis.
27 Share-based payments
(a) Pinnacle Investment Management Group Employee Option Share Plan
The establishment of the Pinnacle Investment Management Group Employee Option Share Plan (EOSP) was approved
by the Board during the 2007 financial year. The EOSP is designed to provide long-term incentives for staff (including
executive and non-executive Directors) to deliver long-term shareholder returns. Under the plan, participants are
granted options which only vest if certain service conditions are met. Participation in the plan is at the Board’s discretion
and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.
Set out below are summaries of options granted under the plan.
Exercise
price
Balance at
start of
the year
Granted
during
the year
Exercised
during
the year
Forfeited
during
the year
Balance
at end of
the year
Vested and
exercisable
at end of
the year
Grant date
Expiry date
2018
1 July 2016 (A)
30 June 2018
$0.986
2,125,000
1 July 2016 (B)
30 June 2020
$0.986
2,125,000
Weighted average exercise price
4,250,000
$0.99
-
-
-
-
(2,125,000)
-
(2,125,000)
$0.99
-
-
-
-
-
2,125,000
2,125,000
$0.99
-
-
-
-
Exercise
price
Balance at
start of
the year
Granted
during
the year
Exercised
during
the year
Forfeited
during
the year
Balance
at end of
the year
Vested and
exercisable
at end of
the year
Grant date
Expiry date
2017
1 July 2016 (A)
30 June 2018
$0.986
2,125,000
1 July 2016 (B)
30 June 2020
$0.986
2,125,000
Weighted average exercise price
4,250,000
$0.99
-
-
-
-
-
-
-
-
-
-
-
-
2,125,000
2,125,000
4,250,000
$0.99
-
-
-
-
81
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
27 Share-based payments (continued)
(a) Pinnacle Investment Management Group Employee Option Share Plan (continued)
2,125,000 options were exercised during the current year (2017: nil). In the current year, the weighted average
share price at the date of exercise of options exercised during the year was $4.35 (2017: $nil). The weighted average
remaining contractual life of share options outstanding at the end of the year was 2.0 years (2017: 2.0 years).
Under the plan, participants are granted options which vest if the employees are still employed by the Group at the
end of the vesting period. The Board may elect to waive the continuing service condition (for example in cases of
redundancy) and allow options to continue.
Options granted under the plan carry no dividend or voting rights.
The plan is consolidated into the Group’s financial statements in accordance with note 31(b)(ii).
Fair value of interests granted – 1 July 2016 (A)
Options were granted for no consideration and vest based on fulfilment of specified service conditions. Vested
options are exercisable for a period of 6 months after vesting. The fair value of options were determined using a
Black-Scholes pricing model taking into account the exercise price, the term of the option, 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 instrument.
Fair value at grant date: $0.30 per option
Exercise price: $0.986
Grant date: 1 July 2016
Vesting date: 1 January 2018
Share price at grant date: $1.20
Expected price volatility of the Company’s shares: 31%
Expected dividend yield: 3.63%
Risk-free interest rate: 2.03%
Fair value of interests granted – 1 July 2016 (B)
Options were granted for no consideration and vest based on fulfilment of specified service conditions. Vested
options are exercisable for a period of 6 months after vesting. The fair value of options were determined using a
Black-Scholes pricing model taking into account the exercise price, the term of the option, 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 instrument.
Fair value at grant date: $0.32 per option
Exercise price: $0.986
Grant date: 1 July 2016
Vesting date: 1 January 2020
Share price at grant date: $1.20
Expected price volatility of the Company’s shares: 31%
Expected dividend yield: 3.63%
Risk-free interest rate: 2.31%
Annual Report 2018
82
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
27 Share-based payments (continued)
(b) Pinnacle Long-term Employee Incentive Plan
Information regarding the Pinnacle Long-term Employee Incentive Plan is provided in notes 31(r)(vii) and 26(a).
(c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of incentive
expenses were as follows:
Pinnacle Investment Management Group Employee Option Share Plan
Pinnacle Long-term Employee Incentive Plan
2018
$’000
277
87
364
2017
$’000
403
172
575
28 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Company and its
related practices:
(i) Audit and other assurance services
Audit and review of financial statements
Other assurance services:
Audit of regulatory returns
Audit of compliance plan - Responsible entity *
Other assurance services
2018
$
2017
$
206,056
212,491
20,688
68,466
-
20,085
52,178
-
Total remuneration for audit and other assurance services
295,210
284,754
(ii) Taxation services
Tax services
Total remuneration for taxation services
(iii) Other services
Other services
Total remuneration of PricewaterhouseCoopers Australia
Total remuneration of auditors
103,893
103,893
42,968
42,968
-
399,103
399,103
-
327,722
327,722
* Compliance plan audit charges are on-charged to managed funds to which responsible entity services are provided.
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07
Notes to the consolidated financial statements
30 June 2018 (continued)
29 Events occurring after the reporting period
On 2 August 2018 the Company completed the acquisition of a 35% interest in Metrics Credit Partners Pty Limited
(MCP) for $46m through its wholly owned subsidiary Pinnacle Investment Management Limited (PIML). Following
this investment MCP will have approximately $40m of excess cash to deploy in support of its medium-term growth
initiatives. The existing 7.5% trailing revenue share agreement will also convert to a more robust and ongoing 7.5%
trailing revenue share agreement.
On 23 July 2018 the Company also completed the acquisition of a 40% interest in Omega Global Investors for $2 million
upfront and up to a $2 million earn-out subject to profitability milestones.
The acquisitions were funded through an institutional placement completed on 25 July 2018 which raised $60 million
at a price of $5.50 per share, representing a 1.3% discount to the 5 day VWAP.
The Company also announced a Share Purchase Plan (SPP) on 24 July 2018. Eligible shareholders were invited to
subscribe for up to a maximum of $15,000 of additional new shares, free of brokerage and transaction costs. The SPP
price was $5.50, being the same as the institutional placement. Subscriptions under the SPP exceeded the A$10 million
cap set by the Company. Consequently, applications were proportionately scaled-back to the A$10 million overall limit.
30 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the Group and that are believed to be
reasonable under the circumstances.
(a) Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future in the preparation of the financial statements.
The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
(i) Estimated impairment of assets
The Group tests at least annually whether assets have suffered any impairment, in accordance with the accounting
policy stated in note 31(i). Where required, the recoverable amounts of assets have been determined based on value-
in-use calculations. These calculations require the use of assumptions.
(ii)
Income taxes
The Group can recognise deferred tax assets relating to carried forward tax losses and deductible timing differences
to the extent that it is considered probable that there will be future taxable profits relating to the same taxation
authority against which the carried forward tax losses and deductible timing differences will be utilised. As at the
reporting date the deferred tax assets of the consolidated entity have not been recognised on the basis that their
recovery is not considered probable.
(b) Critical judgements in applying the Group’s accounting policies
(i) Fair value of financial assets
The fair value of financial assets that are not traded in an active market is determined by using valuation techniques.
The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market
conditions existing at each reporting date (refer to note 18(d) for further details).
(ii) Entities subject to joint control
Entities subject to joint control are not considered controlled entities for the purposes of AASB 10 on the basis that
all key strategic and operational decisions require a unanimous vote by the Board of Directors (refer to note 31(b) for
further details).
Annual Report 2018
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Notes to the consolidated financial statements
30 June 2018 (continued)
30 Critical accounting estimates and judgements (continued)
(b) Critical judgements in applying the Group’s accounting policies (continued)
(iii) Share-based payments
The Group measures equity settled share-based payment transactions by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value is determined by management using option pricing
models that use estimates and assumptions. Management exercises judgement in preparing the valuations and these
may affect the value of any share-based payments recorded in the financial statements (refer to notes 31(r)(iv) and 27
for further details).
(iv) Contingencies
The Group has made certain judgements and estimates relating to the contingent assets and liabilities outlined in
note 19(a). These assumptions are based on all existing information available at the signing date of the Financial Report.
31 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial
statements are for the consolidated entity consisting of Pinnacle Investment Management Group Limited and its
subsidiaries (“the Group”) – refer to note 20.
(a) 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 and the Corporations Act 2001. The Group
is a for profit entity for the purpose of preparing the financial statements.
(i) Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
(ii) New and amended standards adopted by the Group
A number of new or amended standards became applicable for the current reporting period, however, the Group did
not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.
(iii) Early adoption of standards
The Group has elected not to apply any of the pronouncements before their operative date in the annual reporting
period beginning 1 July 2017.
(iv) Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation
of available for sale financial assets, and financial assets (including derivative instruments) at fair value through profit
or loss.
(v) Critical accounting estimates and judgements
The preparation of financial statements requires the use of accounting estimates. It also requires management to
exercise its judgement in 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 30.
(vi) Adjustment of prior period balances
Prior period balances have been adjusted where changes in the business have resulted in additional or altered
disclosures in the current period.
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Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Pinnacle Investment
Management Group Limited as at 30 June 2018 and the results of all subsidiaries for the year then ended. Pinnacle
Investment Management Group Limited and its subsidiaries together are referred to in these financial statements as
the “Group” or the “consolidated entity”.
Subsidiaries are all entities (including structured 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
deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to note 31(h)).
Intercompany transactions, balances and unrealised gains on transactions between Group companies 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.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of financial
position, respectively.
(ii) Employee share trust
The Group has formed a trust to administer the Group’s employee share plans. Where the substance of the
relationship is that control rests with the Group, the employee share trust is consolidated and any shares held by the
trust are disclosed as treasury stock and deducted from contributed equity (refer to note 14 and note 27(a)).
(iii) Entities under joint control
Entities under joint control are all entities over which the Group has a shareholding of between 20% and 49.99%
of the voting rights, which have been assessed to meet the classification of joint venture under AASB 11 Joint
arrangements, due to the requirement for unanimous decision making in relation to a number of strategic matters
contained in the shareholders agreements. Further, the Group does not have direct rights to the assets, and
obligations for the liabilities of the entities. Investments in entities under joint control are accounted for in the
consolidated financial statements using the equity method of accounting, after initially being recognised at cost.
The Group’s investment in entities under joint control includes goodwill (net of any accumulated impairment loss)
identified on acquisition (refer to note 21).
The Group’s share of the post-acquisition profits or losses and other comprehensive income of entities under joint
control is recognised in the consolidated statement of comprehensive income.
The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends
received or receivable from entities under joint control are recognised as a reduction in the carrying amount of the
investment in the consolidated statement of financial position.
When the Group’s share of losses in an entity under joint control equals or exceeds its interest in the entity under
joint control, including any other unsecured long-term receivables, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of the entity under joint control.
Unrealised gains on transactions between the Group and entities under joint control are eliminated to the extent of
the Group’s interest in the entities under joint control. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Accounting policies of entities under joint control have
been changed where necessary to ensure consistency with the policies adopted by the Group.
The carrying amounts of investments in entities under joint control is tested for impairment in accordance with the
policy described in note 31(i).
Annual Report 2018
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07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(b) Principles of consolidation (continued)
(iv) Changes in ownership interests
The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions
with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying
amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any
difference between the amount of the adjustment to non-controlling interests and any consideration paid or received
is recognised in a separate transactions with non-controlling interests reserve within equity attributable to owners
of Pinnacle Investment Management Group Limited.
When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control
or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying
amount recognised in the consolidated statement of comprehensive income. This fair value becomes the initial
carrying amount for the purposes of subsequently accounting for the retained interest as an associate, entity under
joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This
may mean that amounts previously recognised in other comprehensive income are reclassified to the consolidated
statement of comprehensive income.
If the ownership interest in an entity under joint control is reduced but joint control or significant influence is
retained, only a proportionate share of the amounts previously recognised in other comprehensive income is
reclassified to profit or loss where appropriate.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker.
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial
statements are presented in Australian dollars, which is also the functional currency of all entities in the Group.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency 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 year end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the consolidated statement of comprehensive income.
87
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07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(e) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable net of the amount of Goods and
Services Tax (GST).
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future
economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as
described below. The Group bases its estimates on historical results, taking into consideration the type of customer,
the type of transaction and the specifics of each arrangement.
Revenue is recognised for the major business activities as follows:
(i) Management fees
Management fee income is recognised when the Group has performed the related service and the amount of revenue
can be reliably measured.
(ii) Performance fees
Performance fee income is recognised when the Group has met the relevant performance benchmarks and the
performance fees are contractually payable.
(iii) Interest income
Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces
the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original
effective interest rate of the loan, and continues unwinding the discount as interest income. Interest income on
impaired loans is recognised using the original effective interest rate.
(iv) Dividends
Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are
paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence
(refer to note 31(l)).
(v) Service charges to entities under joint control
Service charges to entities under joint control are recognised when the relevant services are performed.
(f)
Income tax
The income tax expense or benefit for the period is the tax payable or receivable on the current period’s taxable
income based on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period in the countries where the Company’s subsidiaries and entities under joint control operate
and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate
on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are
expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Annual Report 2018
88
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(f)
Income tax (continued)
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.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and
tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of the
temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax
liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
(i) Tax consolidation legislation
Pinnacle Investment Management Group Limited and its wholly-owned Australian controlled entities have
implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the
deferred tax assets and liabilities of these entities are set off in the consolidated statement of financial position.
The head entity, Pinnacle Investment Management Group Limited, and the controlled entities in the tax consolidated
group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if
each entity in the tax consolidated group continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred amounts, Pinnacle Investment Management Group Limited also
recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused
tax credits assumed from controlled entities in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts
receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-
owned tax consolidated entities. Details about the tax funding agreement are disclosed in note 31(z)(ii).
(g) Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee
are classified as operating leases (note 19). Payments made under operating leases (net of any incentives received
from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the
period of the lease.
(h) Business combinations
The acquisition method of accounting is used to account for all business combinations, including business combinations
involving entities or businesses under common control, regardless of whether equity instruments or other assets
are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets
transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also
includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity
interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their
fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s
net identifiable assets.
89
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Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(h) Business combinations (continued)
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of
the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net
identifiable assets of the subsidiary acquired, the difference is recognised directly in the consolidated statement of
comprehensive income as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate used is the Group’s incremental borrowing rate, being the rate
at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration for a business combination is classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised
in the consolidated statement of comprehensive income.
(i)
Impairment of assets
Assets are tested 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. The recoverable amount is the higher of an asset’s fair value less costs of disposal
and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups
of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed
for possible reversal of the impairment at the end of each reporting period.
(j) Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash
on hand, deposits held at call with financial institutions, and 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.
Cash held in trust for clients is reported as other cash and cash equivalents and is included within trade payables.
(k) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. Trade receivables are generally due 30 days from the date of recognition.
They are presented as current assets unless collection is not expected for more than 12 months after the reporting date.
Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written
off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is
used 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 re-organisation and default or delinquency in payments (more than 30 days overdue) are considered
indicators that the trade receivable is 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.
The amount of the impairment loss is recognised in the consolidated statement of comprehensive income within other
expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible
in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously
written off are credited against other expenses in the consolidated statement of comprehensive income.
Annual Report 2018
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Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(l)
Investments and other financial assets
Classification
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss,
loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the
investments were acquired. The classification of investments is determined at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified
in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held
for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are
expected to be settled within 12 months, otherwise they are classified as non-current.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. They are included in current assets, except for those with maturities greater than 12 months
after the reporting period, which are classified as non-current assets. Loans and receivables are included in trade and
other receivables (note 7) and other current assets (note 9).
(iii) Available-for-sale financial assets
Financial assets that are not classified into any of the other categories are included in the available-for-sale category.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade-date, being the date on which the Group
commits to purchase or sell the asset. At initial recognition financial assets are initially recognised at fair value
plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried
at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the
consolidated statement of comprehensive income. 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.
Measurement
Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Available for sale financial assets and financial assets at fair value through profit and loss are subsequently carried at
fair value. Gains or losses arising from changes in fair value are recognised as follows:
For financial assets at fair value through profit and loss – in fair value gains / (losses) on financial assets at fair
value through profit and loss;
For other monetary and non-monetary securities classified as available for sale - in other comprehensive income.
Fair value
The fair values of quoted investments are based on current bid prices. Units in managed funds are valued at the
pre-distribution exit price at year end. If the market for a financial asset is not active (and for unlisted securities)
the Group establishes fair value by using valuation techniques. These include reference to recent arm’s length
transactions or to other instruments that are substantially the same, discounted cash flow analysis and option pricing
models making maximum use of market inputs and relying as little as possible on entity-specific inputs.
Impairment
The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only
if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition
of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset or group of financial assets that can be reliably estimated.
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Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(l)
Investments and other financial assets (continued)
Assets carried at amortised cost
If there is objective evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss
is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced and the loss recognised in the consolidated statement of
comprehensive income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal
of the previously recognised impairment loss is recognised in the consolidated statement of comprehensive income.
Assets classified as available-for-sale
If there is objective evidence of impairment for available-for-sale financial assets, the cumulative loss - measured as
the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognised in profit or loss- is removed from equity and recognised in profit or loss.
Impairment losses on equity instruments that were recognised in profit or loss are not reversed through profit or loss
in a subsequent period.
If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and the increase
can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the
impairment loss is reversed through profit or loss.
(m) Derivative financial instruments – futures and options
Derivative instruments are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. Derivative instruments include equity futures,
interest rate futures and equity options.
(n) Property, plant and equipment
All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. All repairs and maintenance are charged to profit or loss during the reporting period
in which they are incurred.
Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their
estimated useful lives or in the case of leasehold improvements, the shorter lease term as follows:
Plant and equipment
Furniture and fittings
Leasehold improvements
2–5 years
2–5 years
3–10 years
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount (note 31(i)).
Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
Annual Report 2018
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Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(o) Intangible assets
IT development and software
Costs incurred in developing products or systems and acquiring software and licences that will contribute to future
period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems.
The costs capitalised are external direct costs of materials and services, and where applicable the direct payroll and
payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over
periods generally ranging from 3 to 5 years from the point at which the asset is ready to use.
IT development costs include only those costs directly attributable to the development phase that can be reliably
measured and are only recognised following completion of technical feasibility and where the Group has an intention
and ability to use the asset.
(p) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which
are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables
are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are
recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
(q) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably
estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle
the present obligation at the end of each reporting period. The discount rate used to determine the present value is a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The increase in the provision due to the passage of time is recognised as interest expense.
(r) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12
months after the end of each reporting period in which the employees render the related service are recognised in
respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be
paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits.
All other short term employee benefit obligations are presented as payables.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave which are not expected to be settled wholly within 12 months
after the end of the reporting period in which the employees render the related service are recognised in the
provision for employee benefits. They are measured as the present value of expected future payments to be made
in respect of services provided by employees up to the end of the reporting period using the projected unit credit
method. 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 end of the reporting
period on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows. Remeasurement as a result of experience adjustments and changes in assumption
are recognised in the consolidated statement of comprehensive income.
The obligations are presented as current liabilities in the consolidated statement of financial position if the Group
does not have an unconditional right to defer settlement for at least 12 months after the reporting period, regardless
of when the actual settlement is expected to occur.
93
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(r) Employee benefits (continued)
(iii) Retirement benefit obligations
Contributions to defined contribution funds are recognised as an employee benefits expense as they become
payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future
payments is available. The Group has no further payment obligations once the contributions have been paid.
(iv) Share-based payments
Share-based compensation benefits are provided to certain employees via the Pinnacle Investment Management
Group Employee Option Share Plan and where applicable, WHIG long term incentive share plan and Pinnacle long
term employee incentive agreements. Information relating to these schemes is set out in note 27.
The fair value of options and rights granted under the plans is recognised as an employee benefits expense with
a corresponding increase in share based payments reserve. The total amount to be expensed is determined by
reference to the fair value of the options and rights granted, which includes any market performance conditions
and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance
vesting conditions.
Non-market performance vesting conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the
number of options and rights that are expected to vest based on the non-market vesting conditions. It recognises
the impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with
a corresponding adjustment to the share based payment reserve.
The plan is administered by AET Structured Finance Services Pty Ltd, see note 31(b)(ii). When the options are exercised,
the trust transfers the appropriate amount of shares to the employee. The proceeds received net of any directly
attributable transaction costs are credited directly to equity.
The fair value at grant date of the plans is determined using option pricing models that take into account the exercise
price, the vesting period, the vesting and performance criteria, the impact of dilution, the share price at grant date,
expected price volatility of the underlying share, the expected dividend yield, and the risk-free interest rate for the
vesting period.
(v) Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into
consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises
a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
(vi) Termination benefits
Termination benefits may be payable when employment is terminated otherwise than in accordance with the
employment contract, or when an employee accepts voluntary redundancy in exchange for these benefits. The group
recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw
the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of
AASB 137 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary
redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.
Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.
Annual Report 2018
94
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(r) Employee benefits (continued)
(vii) Long-term employee incentive agreements
The Group has a long term employee incentive scheme which enables certain employees of the Group, under
full recourse and limited recourse loan arrangements, to acquire PNI shares. The scheme is designed to align the
interests of the employees with those of shareholders.
The fair value of the limited recourse loan arrangements under the long term employee incentive scheme is recognised
as an employee benefits expense with a corresponding increase in share-based payment reserve. The total amount
to be expensed is determined by reference to the fair value of the limited recourse loan arrangements, which includes
any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any
service and non-market performance vesting conditions. The total expense is recognised over the vesting period,
which is the period over all of the specified vesting conditions are to be satisfied. The inflows and outflows associated
with these arrangements are accounted for on a net basis, as the arrangements are expected to be settled net.
Certain entities under joint control have similar incentive schemes and Pinnacle may provide cash funding to certain
employees of these entities in order for the employees to acquire shares in the entities. Pinnacle accounts for these
contributions as investments in entities under joint control. Remuneration of the employees is recorded in the entities
under joint control and Pinnacle records its share of the profits or losses of these entities upon equity accounting.
A liability is recorded to the extent that Pinnacle has a net obligation to the employee of a jointly-controlled entity
under the employee contract.
(s) Contributed equity
Ordinary shares are classified as equity (note 14). 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.
(t) Dividends
Provision is made for the amount of any dividend declared being appropriately authorised and no longer at the discretion
of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period.
(u) Earnings per share
(i) Basic earnings per share
Basic earnings after tax per share is calculated by dividing:
the profit attributable to owners of the Company, 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 year and excluding treasury shares.
(ii) 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 additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
95
Annual Report 2018
Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(v) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the
consolidated statement of financial position.
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 taxation authority, are presented as operating cash flows.
(w) Disposal group held for sale and discontinued operations
The assets and liabilities of the disposal group are classified as held-for-sale and stated at the lower of carrying
amount and fair value less costs of disposal if their carrying amount is to be recovered principally through a sale
transaction rather than continuing use.
Assets of the disposal group classified as held-for-sale are presented separately from other assets in the consolidated
statement of financial position. The liabilities of the disposal group classified as held-for-sale are presented separately
from other liabilities in the consolidated statement of financial position.
A discontinued operation is a component of the Group’s business that has been disposed of or is classified as held
for sale and that represents a separate major line of business or geographical area of operations, is part of a single
coordinated plan to dispose of such line of business or area of operations, or is a subsidiary acquired exclusively with
a view to resale. The results of discontinued operations are presented separately in the consolidated statement of
comprehensive income.
(x) Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial / Director’s Reports) Instrument
2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts
in the financial statements. Amounts in the financial statements have been rounded off in accordance with that
instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
(y) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published which are not mandatory for 30 June 2018
reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new
standards and interpretations is set out below.
(i) AASB 9 Financial Instruments (effective from 1 January 2018)
AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and
introduces new rules for hedge accounting. In December 2014, the AASB made further changes to the classification
and measurement rules for financial assets and also introduced a new impairment model. These latest amendments
now complete the new financial instruments standard. The standard is not applicable until 1 January 2018 but is
available for early adoption.
There will be no impact on the Group’s accounting for financial liabilities. The new hedging rules will also have no
impact as the Group does not undertake hedge accounting. The new impairment model is an expected credit loss
(ECL) model which may result in the earlier recognition of credit losses. The Group does not expect its impairment
provisions to be significantly impacted by the new rules. Under the new requirements the four current categories
of financial assets will be replaced with two measurement categories, namely fair value and amortised cost. The
Company does not expect the new guidance to have significant impact on the classification, measurement or
derecognition of the Company’s financial assets. The Group may, however, be required to make additional disclosures
in the financial statements. The Group does not intend to adopt the standard ahead of the mandatory date.
Annual Report 2018
96
07 Pinnacle Investment Management Group Limited
07
Notes to the consolidated financial statements
30 June 2018 (continued)
31 Summary of significant accounting policies (continued)
(y) New accounting standards and interpretations not yet adopted (continued)
(ii)
AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018)
The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts
for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principal
that revenue is recognised when control of a good or services transfers to a customer – so the notion of control replaces
the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption.
Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application
(e.g. 1 January 2018), i.e. without re-stating the comparative period. They will only need to apply the new rules to contracts
that are not completed as of the date of initial application.
Management does not anticipate the new rules having a material impact on when its revenues are recognised, however,
further disclosure may be required. The Group does not intend to adopt the standard before its effective date.
(iii) AASB 16 Leases (effective from 1 January 2019)
AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the
distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the
leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value
leases. Mandatory for financial years commencing on or after 1 January 2019.
The standard will apply for the first time in the 2020 financial year and has the capacity to affect the accounting for the
Group’s property leases by bringing them on balance sheet, however the impact is not expected to be material (compared
to the Group’s overall balance sheet value). The Group does not intend to adopt the standard before its effective date.
There are no other standards that are not yet effective that are expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable future transactions.
(z) Parent Entity financial information
The financial information for the Parent Entity, Pinnacle Investment Management Group Limited, disclosed in note
22 has been prepared on the same basis as the consolidated financial statements, except as set out below.
(i)
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of Pinnacle Investment Management
Group Limited.
(ii) Tax consolidation legislation
Pinnacle Investment Management Group Limited and its wholly-owned Australian controlled entities have implemented
the tax consolidation legislation – refer note 31(f)(i).
The entities have entered into a tax funding agreement under which the wholly-owned entities fully compensate
Pinnacle Investment Management Group Limited for any current tax payable assumed and are compensated by Pinnacle
Investment Management Group Limited for any current tax receivable and deferred tax assets relating to unused
tax losses or unused tax credits that are transferred to Pinnacle Investment Management Group Limited under the
tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the
wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from
the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to
pay tax instalments.
(iii) Share based payments
The grant by the Parent Entity of options over its equity instruments to the employees of subsidiaries in the Group is
treated as a capital contribution to that subsidiary. The fair value of employee services received, measured by reference
to the grant date fair value, is recognised over the vesting period as an increase to investments in subsidiaries, with
a corresponding credit to share based payment reserve.
97
Annual Report 2018
08
Directors’ Declaration
08
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 44 to 97 are in accordance with the Corporations Act,
including:
(i)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements, and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its
performance for the year ended on that date, and
(b)
there are reasonable grounds to believe that Pinnacle Investment Management Group Limited will be able to
pay its debts as and when they become due and payable.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by
section 295A of the Corporations Act.
This declaration is made in accordance with a resolution of the Directors.
A Watson
Chairman
Sydney
28 August 2018
Annual Report 2018
98
09
Independent Auditor’s Report
30 June 2018
Independent auditor’s report
To the members of Pinnacle Investment Management Group Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Pinnacle Investment Management Group Limited (the Company)
and its controlled entities (together, the Group) is in accordance with the Corporations Act 2001,
including:
(a)
(b)
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial
performance for the year then ended
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of profit or loss for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
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.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
99
Annual Report 2018
09
Independent Auditor’s Report
30 June 2018 (continued)
09
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
During the year, the Group’s operations included nine boutique fund managers (“the Pinnacle
Affiliates”) with differing investment styles and offerings. The Group also provides distribution services,
business support and responsible entity services to the boutique fund managers and external parties via
subsidiaries.
The Group has minority shareholdings in the Pinnacle Affiliates and has assessed them to be joint
ventures due to the requirement for unanimous decision making in relation to a number of strategic
matters contained in the shareholders agreements. The financial results of the Group consolidate the
subsidiaries and apply equity accounting to the Pinnacle Affiliates.
Materiality
•
For the purpose of our audit we used overall Group materiality of $1,157,050 which represents approximately
5% of the Group’s profit before tax from continuing operations.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial
report as a whole.
• We chose Group profit before tax from continuing operations because, in our view, it is the metric against
which the performance of the Group is most commonly measured.
• We selected 5% based on our professional judgement noting that it is also within the range of commonly
acceptable profit related thresholds.
Audit Scope
•
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
• We audited the most financially significant subsidiaries within the Group, being Pinnacle Investment
Management Limited, Pinnacle Funds Services Limited and Pinnacle RE Services Limited. We performed
targeted audit procedures over the remaining significant balances and we performed further audit procedures
over the consolidation process.
Annual Report 2018
100
09
Independent Auditor’s Report
30 June 2018 (continued)
• We performed an audit of each of the nine Pinnacle Affiliates on a stand-alone basis.
• We audited the Group’s equity accounting for the Pinnacle Affiliates, including the Group’s share of net profit
of jointly controlled entities accounted for using the equity method and the Group’s investments accounted for
using the equity method recognised in the Group financial statements.
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 for the current period. The key audit 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. Further, any commentary on the outcomes of a particular
audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk
Committee.
Key audit matter
How our audit addressed the key audit matter
Our testing involved assessing a sample of calculated
performance fees by:
•
Verifying that the calculation methodologies
utilised by management were in accordance with
the contractual arrangements.
Agreeing the hurdle rates and accumulated
deficiency clauses back to the relevant contract.
Validating key inputs (for e.g. net asset values and
fund returns) to relevant external sources.
Taking into account inputs into the calculation,
recalculating the performance fees.
Tracing the performance fee revenue to subsequent
cash receipts.
•
•
•
•
•
Our testing of the accounting treatment of the interest in
Firetrail involved, amongst other things, the following:
Obtaining and reading the relevant purchase
•
agreements to develop an understanding of the
nature of the investment and the consideration
provided.
Agreeing the consideration paid during the year
ended 30 June 2018 back to the relevant bank
statements and purchase agreements.
Validating key inputs (e.g. share price) relating to
the valuation of the share options issued as part of
the purchase consideration back to supporting
documentation.
Reading the share option agreements to confirm
that they contained no service conditions.
Assessing the adequacy of disclosures in the
•
•
•
Performance fee revenue
(Refer to note 31(e) Summary of significant accounting
policies)
Performance fee arrangements require the assessment
of the performance of the relevant investments in
comparison to a specific benchmark. These benchmarks
are agreed between Affiliates and their clients, and set
out in relevant Product Disclosure Statements.
This was a key audit matter because the performance fee
revenues recognised by certain Pinnacle Affiliates were
material in nature and the variability of returns can be
significant. This can have a significant impact on the
Group’s share of net profit of jointly controlled entities
accounted for using the equity method.
Acquisition of interest in Firetrail Investments
Pty Ltd
(Refer to note 21 Investments accounted for using the
equity method)
During the year, Pinnacle Investment Management
Limited (a wholly owned subsidiary of the Company)
acquired an interest of 24.35% in Firetrail Investments Pty
Ltd (‘Firetrail’).
This was a key audit matter because of the significance of
the transaction, and level of judgement involved in
accounting for the transaction, including:
- Determination of the methodology used to record
the investment in Firetrail within the financial
101
Annual Report 2018
09
Independent Auditor’s Report
30 June 2018 (continued)
09
-
statements for the year ended 30 June 2018.
Timing of the recognition of consideration
provided for the interest acquired.
The valuation of the interest acquired.
-
- Disclosure of the acquisition of the interest in the
financial report at 30 June 2018 in light of the
requirements of Australian Accounting Standards.
financial statements as at 30 June 2018.
Other information
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, including the
Overview, Operating and Financial Report, Community, Directors’ Profiles, Directors’ Report,
Shareholder Information and Corporate Directory, 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
identified above 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.
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 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 ability of the Group 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 the financial report.
Annual Report 2018
102
09
Independent Auditor’s Report
30 June 2018 (continued)
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
Our opinion on the remuneration report
We have audited the remuneration report included in pages 20 to 39 of the directors’ report for the
year ended 30 June 2018.
In our opinion, the remuneration report of Pinnacle Investment Management 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.
PricewaterhouseCoopers
Craig Thomason
Partner
Sydney
28 August 2018
103
Annual Report 2018
10
Shareholder Information
The shareholder information set out below is correct as at 24 August 2018.
10
Shares on issue
Distribution of securities
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 9,999,999,999
Rounding
Total
Unmarketable parcels
No. of
shareholders
640
1,036
356
467
126
No. of shares
347,076
2,956,691
2,661,855
14,552,079
154,315,897
2,625
174,833,598
% of issued
shares
0.20
1.69
1.52
8.32
88.26
0.01
100.00
Minimum
parcel size
No. of
shareholders
No. of shares
Minimum $500 parcel at $6.70 per unit
75
75
399
Twenty largest shareholders (as at 24 August 2018)
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Macoun Generation Z Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Warragai Investments Pty Ltd
National Nominees Limited
BNP Paribas Noms Pty Ltd
Macoun Superannuation Pty Ltd
Kinauld Pty Ltd
Andrew Chambers & Fleur Chambers
Mr Alexander William Macdonald Grant
Mr Adrian Whittingham
AJF Squared Pty Ltd
Usinoz Pty Ltd
Earlston Nominees Pty Ltd
Mr David Francis Cleary
Mr David Noel Groth
Citicorp Nominees Pty Limited
Mark Cormack and Melanie Cormack
Mr Robert James Wilson
Mr Barry Athol Bicknell
Total
Total remaining holders balance
No. of shares
20,785,759
16,938,000
13,907,096
8,250,000
7,372,549
6,413,331
5,784,968
4,750,000
4,725,414
4,670,090
4,325,414
4,310,414
4,062,127
3,120,000
2,905,925
2,830,000
1,796,692
1,585,435
1,551,000
1,328,295
% of issued
shares
11.89
9.69
7.95
4.72
4.22
3.67
3.31
2.72
2.70
2.67
2.47
2.47
2.32
1.78
1.66
1.62
1.03
0.91
0.89
0.76
121,412,509
53,421,089
69.44
30.56
Annual Report 2018
104
10
Shareholder Information
Substantial shareholdings
The names of the shareholders who have notified the Company of a substantial holding in accordance with section
671B of the Corporations Act are:
Substantial shareholder
Ian Macoun and associates
Steve Wilson and associates
Voting rights
No. of shares % of shares
27,123,997
20,520,000
15.51%
11.74%
On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall
have one vote.
Options and performance rights on issue
Distribution of securities
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 9,999,999,999
Rounding
Total
The options are not listed.
Voting rights
There are no voting rights attaching to the options.
No. of holders No. of options
% of issued
options
0
0
0
3
3
6
0
0
0
187,038
4,696,695
0
0
0
3.83
96.17
0.00
4,883,733
100.00
105
Annual Report 2018
Notes
10
Annual Report 2018
106
Notes
107
Annual Report 2018
11
Corporate Directory
Pinnacle Investment Management Group Limited
Queensland
11
Brisbane
Registered Office
Level 19, 307 Queen Street
Brisbane QLD 4000
Telephone 1300 651 577
New South Wales
Sydney
Level 35, 60 Margaret Street
Sydney NSW 2000
Telephone 1300 651 577
Victoria
Melbourne
Level 26, 140 William Street
Melbourne VIC 3000
Website address
www.pinnacleinvestment.com
Incorporated in Queensland on 23 April 2002
ABN
22 100 325 184
Directors
Alan Watson, Chairman
Ian Macoun, Managing Director
Deborah Beale
Lorraine Berends (effective from 1 September 2018)
Gerard Bradley
Andrew Chambers
Adrian Whittingham
Steven Wilson AM
General Counsel and Company Secretary
Calvin Kwok
Chief Financial Officer and Chief Operating Officer
Alex Ihlenfeldt
Share Registry
Computershare Investor Services Pty Limited
Level 1, 200 Mary Street
Brisbane QLD 4000
Telephone 1300 850 505
ASX Code
PNI
Shares are listed on the Australian Securities Exchange
Bankers
Commonwealth Bank of Australia
Auditor
PricewaterhouseCoopers
Annual Report 2018
108
P
I
N
N
A
C
L
E
I
N
V
E
S
T
M
E
N
T
M
A
N
A
G
E
M
E
N
T
G
R
O
U
P
L
I
M
I
T
E
D
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
8
pinnacleinvestment.com
2018ANNUALREPORT