Annual
Report
2019
Financial
Calendar
Final dividend record date 20 September 2019
Final dividend payment date 4 October 2019
Annual General Meeting 31 October 2019
Interim Results announcement 21 February 2020
Full Year Results announcement 5 August 2020
The Company reserves the right to change these dates.
Annual
General
Meeting
The 2019 Annual General Meeting will be held at 9am on 31 October
2019 at Pinnacle’s Sydney office at Level 35, 60 Margaret Street,
Sydney NSW 2000.
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/
Annual Report 2019 Pinnacle Investment Management Annual Report 2019
Contents
01 Pinnacle Glossary
02 Chair’s Letter
03 Overview, Operating and Financial Report
04 Community
05 Directors’ Profiles
06 Directors’ Report
07 Auditor’s Independence Declaration
08 Financial Statements
09 Directors’ Declaration
10
Independent Auditor’s Report
11 Shareholder Information
12 Corporate Directory
F Y
18/19
02
05
08
20
22
26
48
51
101
102
110
113
01
Pinnacle Investment Management 01/12
Pinnacle
Glossary
02
Annual Report 2019 Term
Meaning
2018 Annual Report
the Group’s annual report for the 2018 financial year.
2018 financial year
the period 1 July 2017 to 30 June 2018.
2019 Annual Report
this document.
2019 financial year
the period 1 July 2018 to 30 June 2019.
Affiliates or Pinnacle Affiliates
Pinnacle’s thirteen affiliated investment managers, being Antipodes, Firetrail, Hyperion,
Longwave, Metrics, Omega, Palisade, Plato, Resolution Capital, Riparian, Solaris,
Spheria and Two Trees.
Antipodes
Antipodes Partners Limited.
ASX Principles
Auditor
Board
Board Committees
Chair
Company
the Corporate Governance Principles and Recommendations, 3rd 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 Chair of the Board.
Pinnacle Investment Management Group Limited.
Company Secretary
Calvin Kwok, who held the position during the 2019 financial year.
Corporations Act
Corporations Act 2001 (Cth).
Deutsche Australia
Directors
EOSP
Firetrail
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.
Foundation
the Pinnacle Charitable Foundation.
FUM
funds under management.
Group or Pinnacle Group
Pinnacle and the entities that it controlled during the 2019 financial year.
Hyperion
Hyperion Asset Management Limited.
Key Management Personnel
the individuals identified as such on page 30 of the 2019 Annual Report.
LTI
Longwave
long-term incentives offered to individuals who are staff of the Group.
Longwave Capital Partners Pty Limited.
Managing Director
Ian Macoun, who was appointed as an executive director on 25 August 2016.
Metrics or MCP
Metrics Credit Partners Pty Limited.
New Loans
is a reference to the loans more fully described at page 43.
03
Pinnacle Investment Management 01 Pinnacle Glossary (continued)
Term
NPAT
NPBT
NTA
Omega
Palisade
PIML
Meaning
net profit after tax.
net profit before 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 32 of the 2019 Annual Report.
Pinnacle or PNI
Pinnacle Investment Management Group Limited.
Pinnacle Omnibus Plan
the Pinnacle Omnibus Incentive Plan described on page 32 of the 2019 Annual Report.
Plato
Plato Investment Management Limited.
Principal Investments
investments made by the Group in listed and unlisted equities and unit trusts on its
own behalf.
Resolution Capital
Resolution Capital Limited.
Riparian
Riparian Capital Partners Pty Limited.
Securities business
Sellers
Solaris
Spheria
STI
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 Investment Management Limited.
Spheria Asset Management Pty Limited.
short-term incentives.
Two Trees
Two Trees Investment Management Pty Limited.
04
Annual Report 2019 02/12
Chair’s Letter
Dear Fellow Shareholders
At Pinnacle, we are not soothsayers of financial markets.
What we are seeking to do on your behalf is develop
a business that will continue to prosper in all market
conditions, and which, whilst not being immune to a
challenging environment, will be increasingly resilient to it,
and thus allow shareholders to benefit across the whole
cycle. We believe this resilience is enhanced when we
increase our diversity of asset classes under management,
increase the diversity of sources of funds under
management, retain a healthy percentage of funds under
management exposed to performance fees, and maintain
a robust balance sheet which would assist us to consider
opportunities that would be expected to present themselves
in challenging market conditions. With this in mind, before
commenting on the specific detail of the past year’s results,
it may be useful to reflect on the medium-term mission that
Pinnacle described to its new shareholders when it became
a pure play listed Funds Management Group in 2016, and
consider our progress towards those goals over the past
three years.
In an Investor presentation dated 2 June 2016 (available on
our website) it was stated that:
• Pinnacle was a multi-affiliate investment management firm
with a mission to establish, grow and support a diverse
stable of world-class fund managers.
• FUM was $19.25 billion as at 30 April 2016.
• Pinnacle’s net profit after tax 1HFY16 was $4.7 million.
And that Pinnacle’s strategy was to:
• Continue to provide high-quality distribution, Responsible
Entity and infrastructure services.
• Support its affiliated fund managers’ high standards.
• Remain focused on investing, to enable continued strong
performance and FUM growth.
• Grow retail FUM.
• Continue to assess third-party distribution and new
boutique opportunities.
It is for shareholders to judge our progress, but it should
be noted that as at 30 June 2019 Pinnacle consisted of
13 Affiliates, offering a wide range of asset classes, with
aggregate FUM of $54.3 billion, and FY19 NPAT of
$30.5 million. In FY19 shareholders will benefit from
15.4 cents of fully franked ordinary dividends per share,
which compares to 3.3 cents of fully franked ordinary
dividends per share in FY16, a compound growth rate of
67% pa over the period.
Turning to the specifics of the 2019 financial year, Pinnacle
continued its strong growth, with FUM, earnings and
dividends all growing substantially. Existing Affiliates have
grown their FUM (Horizon 1), additional Affiliates and
investment strategies have been added (Horizons 2 and 3),
and resourcing levels have been prudently expanded to cater
for current and future growth, including in new markets.
NPAT from continuing operations was $30.5 million (up
32% from the 2018 financial year), which represented basic
earnings per share of 18.3 cents, up 28% from the 2018
financial year. Similarly, total fully franked dividends declared
for the year rose 33% to 15.4 cents per share. In addition,
Pinnacle retained a strong and flexible balance sheet, with
cash and principal investments of $51.2 million at the end of
the year (up from $31.4 million at 30 June 2018).
Aggregate Affiliate revenues grew 41% to $236.8 million.
Performance fees represented only 6.5% of Affiliates’
revenues this year. 94% of the Affiliates’ strategies and
products that have a track record of at least five years
outperformed their benchmarks over the five years to
30 June 2019, although shorter term investment
performances were more mixed, ranging from some very
strong performances to some weaker performances over
shorter time periods.
Further details of funds flows can be found within the
report itself but, in summary, net funds inflows totalled
$6.5 billion, including $2.9 billion of retail net inflows,
and overall aggregate Group FUM increased 43% to
05
Pinnacle Investment Management 02 Chairman’s Letter (continued)
Pinnacle continued its strong growth,
with Funds Under Management,
earnings and dividends all growing
substantially.
$54.3 billion at the end of the year (an increase of 25%
if the ‘acquired’ FUM is excluded). Retail net inflows
included $1 billion raised in LICs/LITs during the year.
Early in the financial year (in late July 2018) the acquisitions
of a 35% interest in Metrics Credit Partners, and 40%
of Omega Global Investors were completed. Metrics in
particular has had a busy and successful year, having grown
FUM by 50% to $3.8 billion, including raising $845 million in
LIT funds, launched several new products (the MCP Credit
Trust, MCP Income Opportunities Trust (ASX: MOT), MCP
Wholesale Investment Trust and the MCP Wholesale Income
Opportunities Trust), and deployed significant growth
capital. Currently all Metrics funds have outperformed their
benchmarks over all time periods. Metrics will be expanding
into new distribution channels in the coming year (launching
an unlisted retail managed fund for the ‘intermediated
retail / platform market’ and creating an offshore fund for
international institutional investors). The market opportunity
for non-bank lenders continues to grow as banks face
increased regulatory headwinds and the investment appetite
for private debt accelerates, both in Australia and offshore.
These acquisitions were funded by an institutional
placement of new equity in July 2018, raising $60 million,
and a $10 million Share Purchase Plan.
Whilst we comment in the Overview, Operating and
Financial Report on individual Affiliates in detail, it is worth
noting that recently established Affiliates, Spheria and
Firetrail, have both grown rapidly since inception, with
Spheria, a small cap manager, having grown to FUM of
$1.2 billion (up 70% during the 2019 financial year) and
Firetrail having achieved FUM of $4.4 billion from just
$74 million at the beginning of the financial year. All of our
longer established Affiliates have also experienced FUM
growth during the year, assisted by equities markets, both
domestic and global, which finished the year significantly
higher than they began the year, notwithstanding the
substantial drop during the September – December 2018
period. Firetrail and Spheria were both profitable during
the year and now pay Pinnacle for the Pinnacle services of
which they avail themselves.
There has been substantial media comment this year
on challenges confronting Australian institutional fund
managers, driven by continuing amalgamations of large
06
Australian superannuation funds, the ‘insourcing’ of funds
management functions by some of those funds, some
increased adoption of index funds, and ongoing pressure
for reductions in the fees paid to fund managers. Indeed,
during the 2019 financial year a number of Australian fund
managers have ‘closed their doors’, with these trends
partly blamed for the failure of some of those firms. It
is reasonable for shareholders to ask whether these
represent serious problems for Pinnacle and Pinnacle
Affiliates. Whilst these trends do impact us to some
degree, we believe it is important that shareholders see
these in perspective and recognise that their impact on
Pinnacle is likely to be modest over the foreseeable future.
That is not to say that we are complacent or oblivious
to them – on the contrary, we have for some years been
vigilant in relation to them, and we continue to be very
keen observers of (indeed, participants in) those markets,
and our strategies have been designed with these trends in
mind. Pinnacle will continue to evolve both in response to
and in anticipation of these market developments, and we
would note:
• We have a very diversified client base (78 institutional
separate account clients, 95 institutional separate
accounts across our Affiliates).
• Retail FUM continues to grow, both in absolute terms
and as a proportion of our total FUM.
• Given the strong growth in FUM in our industry
(especially large superannuation funds) it is not
unreasonable, and very manageable, that basis point
fees may trend lower – however, aggregate fees continue
to grow with growing FUM.
• Our Affiliates restrict capacity wherever appropriate, and
consequently are better placed to receive higher fees in
capacity-constrained strategies.
• Large superannuation funds continue to be willing to pay
substantial fees for investment strategies and managers
that produce attractive investment performance.
• Performance fees can often be a ‘win-win’ and provide
attractive economics for our strongly performing managers.
• We continue to diversify our asset class offerings.
• We are diversifying the markets into which we are
offering our investment strategies.
Annual Report 2019 Although our institutional client base is diversified, and
whilst we have consistently stated that net inflows from the
institutional market are very lumpy, our FY19 aggregate
Affiliates institutional sales were not as strong as we might
have expected at the beginning of the year. The reality is
that in any given year a subset of our Affiliates accounts
for the majority of our overall net inflows – this year it was
Firetrail and Antipodes; last year it was Resolution Capital,
Solaris and Antipodes. Encouragingly, we enter the new
financial year with a substantial pipeline of institutional
sales prospects. For one reason or another several large
mandates, that we had expected to receive during the 2019
financial year, have been delayed and are now anticipated
in the new financial year.
We have entered
the 2020
financial year as
a substantially
larger and more
profitable company
than when we
commenced the
2019 financial year.
As I mentioned above, equities markets fell substantially
during the four-month period to 31 December 2018 (the
S&P/ASX 300 index was down 10.8% and the MSCI World
index was down 12.9% over that period), although those
markets did recover strongly by year-end (in fact, over
the full year to 30 June 2019, the S&P/ASX 300 index was
up 6.8% and the MSCI World index was up 3.6%). As I
indicated in my Chair’s letter last year, 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 deliver outstanding investment
performance. Also helpful in this regard is the fact that now
approximately 30% 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.
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 constrain our profits to some degree in the
short term. In addition, we will remain vigilant to potential
opportunities that may arise, including potentially as a
result of changes in the funds management industries,
both domestically (for example, as a result of Royal
Commission fallout) and internationally (for example, as a
result of Brexit, trade tensions and other disruptive forces).
We will nevertheless continue to adhere to our ‘high hurdle’
criteria in evaluating Horizon 3 opportunities.
Pinnacle continues to hold fundamental, that in order
to deliver excellent investment performance for our
clients, we must retain the best 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. Given the
recruitment and advancement of a substantial number of
new executives during the past couple of years, the Board,
and shareholders, approved a new set of LTI arrangements
during the year to ensure that the interests of our executive
group are directly aligned with external, long-term
shareholders through common long-term equity ownership.
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.
Finally, I would like to thank you, our shareholders, for the
continued support that you have shown to us throughout
the year, including in the equity capital raisings undertaken
early in the financial year just completed. We have entered
the 2020 financial year as a substantially larger and more
profitable company than when we commenced the 2019
financial year.
We look forward to welcoming you to the Company’s
Annual General Meeting, which will be held in Sydney on
31 October 2019.
Yours sincerely
Alan Watson
6 August 2019
07
Pinnacle Investment Management
03/12
Overview,
Operating
and
Financial
Report
08
Annual Report 2019 The principal activities of the Group during the 2019
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 ownership stake in each as at the date of
this report:
Nature of operations and principal activities
Pinnacle is a leading Australia-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 13 investment Affiliates. At 30 June 2019, the
Pinnacle Affiliates collectively managed approximately
$54.3 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 investment managers
to focus on delivering investment outperformance; and
• 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.
4
4
.
0
%
%
5
.
3
2
%
3.5
2
4
0.0
%
40.0%
0 . 0 %
4
9 .9 %
4
4 0 . 0 %
35.0%
43.5 %
4
0
.
0
%
%
1
.
3
4
3
6
.
0
%
Note: In respect of Omega, Firetrail, Longwave 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 holding.
09
Pinnacle Investment Management
03 Overview, Operating and Financial Report (continued)
Key financial highlights
During the 2019 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, which together have $54.3 billion in FUM as at 30 June 2019.
In the 2019 financial year:
• Pinnacle Affiliates generated aggregate revenues of $236.8 million, up 40.6%.
Of this, $15.3 million was performance fees.
• Pinnacle generated NPAT from continuing operations attributable to
shareholders of $30.5 million, up 32.0% from $23.1 million in the prior year.
• Pinnacle’s share of NPAT from Pinnacle Affiliates was $33.1 million, up 32.9%
on the prior year.
The table below outlines the performance of the Pinnacle Group for the 2019 and
2018 financial years:
Pinnacle Affiliates (100% aggregate basis)
FY2019 ($m)
FY2018 ($m)
FUM ($billion)*
Revenue ($million)
Net profit before tax
Tax expense
Net profit after tax
Pinnacle
Revenue
Expenses
Share of Pinnacle Affiliates net profit after tax
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
*Non-statutory measure
54.3
236.8
123.1
(34.0)
89.1
21.1
(23.7)
33.1
30.5
-
30.5
0.0
30.5
18.3
18.3
38.0
168.4
88.9
(27.3)
61.6
16.5
(18.3)
24.9
23.1
-
23.1
0.3
23.4
14.3
14.5
$236.8
million Affiliate
revenues
NPAT
of $30.5
million
$54.3
billion
in FUM
18.3c
earnings
per share
9.3c
fully franked
final dividend
10
Annual Report 2019
Pinnacle Affiliates – FUM Growth1
%
0
0
1
t
a
–
)
n
b
$
(
M
U
F
60
55
50
45
40
35
30
25
20
15
10
5
0
54.3
38.0
26.5
19.8
16.1
10.3
10.0
10.9
12.3
7.9
3.5
4.4
1.7
Jun07
Jun08
Jun09
Jun10
Jun11
Jun12
Jun13
Jun14
Jun15
Jun16
Jun17
Jun18
Jun19
Pinnacle Affiliates – Revenue Growth2
250,000,000
Affilliate performance fees – 100%
200,000,000
Affilliate revenues – 100% (excl. performance fees)
)
s
n
o
i
l
l
i
m
%
(
e
u
n
e
v
e
R
150,000,000
100,000,000
50,000,000
0
Jun07
Jun08
Jun09
Jun10
Jun11
Jun12
Jun13
Jun14
Jun15
Jun16
Jun17
Jun18
Jun19
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.
11
Pinnacle Investment Management
03 Overview, Operating and Financial Report (continued)
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.
12
Annual Report 2019 Pinnacle Affiliates
Once again, Pinnacle focused strongly on continuing to support each of the Pinnacle Affiliates and assisting them to grow
their business and profitability. To enable this, Pinnacle’s resourcing was increased significantly during the year both in
distribution and in infrastructure services. The quality of the Pinnacle Affiliates was again affirmed and demonstrated during
the year. Following is an overview of each of the Pinnacle Affiliates during the 2019 financial year:
Antipodes Partners
Antipodes Partners is a pragmatic value manager of global equities (long and
long-short) founded in 2015 by Jacob Mitchell, former Deputy Chief Investment
Officer of Platinum Asset Management, together with a number of former
colleagues and like-minded value investors.
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. Antipodes’
approach seeks to take advantage of the market’s tendency for irrational
extrapolation around change, identify great businesses that are not valued as
such and build high conviction portfolios with a capital preservation focus.
Antipodes continued to experience strong inflows in the 2019 financial year.
During the year, Antipodes established NZ-based portfolio investment entity
(PIE) funds, additional investment vehicles in the Cayman Islands and Ireland
and Antipodes Global Shares (Quoted Managed Fund) (ASX: AGX1), an active
ETF quoted on the Australian Securities Exchange, to provide further access
channels for onshore and offshore investors. As at 30 June 2019 Antipodes
had $9.1 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.
While founded in 2018, the Firetrail staff have a long successful track record of
investing in equities. Prior to establishing Firetrail, the portfolio management team
including Patrick Hodgens, Blake Henricks and James Miller worked together
at Macquarie for over a decade. The team were responsible for managing the
highly successful Macquarie High Conviction Fund, which was one of the top-
performing Australian equity funds over the medium and long term.
The Firetrail Australian High Conviction Fund and the Firetrail Absolute Return
Fund have been running since 14 March 2018. Firetrail has experienced strong
early inflows. As at 30 June 2019 funds under management were $4.4 billion.
Hyperion Asset Management
Hyperion Asset Management exists to help clients protect and grow their
capital over the long term. When investing capital in listed companies on its
clients’ behalf, Hyperion has the mindset of long-term business owners, not
short-term traders. The average holding period for the companies in their
portfolios is 10 years and long-term sustainability of the businesses Hyperion
invests in is core to its philosophy.
The Hyperion Global Growth Companies Strategy was established in 2014 for
wholesale investors. Based on the strong performance record of the strategy, it
was opened to retail investors during the 2019 financial year. As at 30 June 2019,
the fund has outperformed its benchmark by 9.7% (since inception, gross of fees).
Hyperion’s total funds under management at 30 June 2019 were $6.6 billion.
13
Pinnacle Investment Management 03 Overview, Operating and Financial Report (continued)
Longwave Capital Partners
Longwave is a boutique investment manager that is dedicated to delivering
superior, long-term results through the innovative combination of technology,
experience and insight.
David Wanis and Jai Beathe are the founders of Longwave. Together, they have
a long history of designing, building and managing highly successful investment
strategies. From pioneering the Schroders Australia small and micro-cap
strategies to running global multi-asset portfolios they have worked with a broad
range of institutional, retail, charitable and sovereign wealth fund clients.
The Longwave Australian Small Companies Fund, Longwave’s active and
diversified portfolio of high-quality small companies that has been built through
the combination of quantitative discipline and fundamental insight, launched on
1 February 2019.
Metrics
Metrics is a leading Australian non-bank corporate lender and alternative asset
manager specialising in fixed income, private credit, equity and capital markets.
Through its managed funds Metrics provides unrivalled access to the highly
attractive Australian private debt market to investors ranging from individuals to
global institutions.
Metrics launched its first wholesale fund in 2013 and is the manager of a
number of wholesale investment trusts in addition to the MCP Master Income
Trust (ASX: MXT), which successfully listed on the ASX in October 2017. Metrics’
second ASX-listed vehicle, MCP Income Opportunities Trust (ASX: MOT), started
trading in April 2019. Pinnacle acquired an equity interest in Metrics in August
2018, having been its distribution partner for a number of years. Assets under
management at 30 June 2019 were $4.6 billion, of which FUM was $3.8 billion.
Omega Global Investors
Omega’s “Smart Beta Plus” approach optimises exposures to factors that are
researched to be return drivers while controlling common risk, thereby ensuring
investors are appropriately rewarded.
Omega believes the benefits derived from Smart Beta Plus are compelling,
providing the opportunity for investors to improve investment outcomes via a
low-cost and systematic approach. Omega offers smart beta, factor-based
investing across bonds, equities, FX and cash. Pinnacle acquired an equity interest
in Omega in July 2018. As at 30 June 2019 Omega had FUM of $4.3 billion.
Palisade Investment Partners
Palisade provides institutional investors with access to Australian infrastructure
projects through tailored portfolios and co-mingled funds. Palisade’s multi-
disciplinary and experienced team focuses on attractive mid-market assets that are
essential to the efficient functioning of the communities and economies they serve.
Palisade manages investments in assets within the Transport, Energy, Utilities,
Renewables, Agri-infrastructure, and Social (PPP) sectors. Each asset is
specifically targeted in sectors where Palisade believes it can exhibit a
competitive advantage.
As at 30 June 2019, funds under management and investor commitments totalled
approximately $2.9 billion across Palisade’s three pooled funds and separately
managed accounts. Palisade’s flagship fund, Palisade’s Diversified Infrastructure
Fund, generated a gross return of 10.5% for the year, including 7.7% yield.
14
Annual Report 2019 Plato Investment Management
Plato was founded in Sydney, Australia, in 2006 and is majority owned and
operated by its investment staff. Plato is a stable, research-led organisation
focused on and aligned to client outcomes. The firm’s strategies today
encompass global and Australian equities that are tailored to specific investor
objectives of wealth accumulation, income generation and downside protection.
In a difficult year for active management in Australia, Plato’s tax-exempt and
income strategies performed strongly, whilst its core and enhanced strategies
slightly underperformed. With record low interest rates, Plato is seeing
increased demand for its Australian shares income strategy now that the
proposed reform to franking credit refunds is no longer being considered by
the federal government.
Resolution Capital
Resolution Capital is a specialist global real estate securities manager with
a successful long-term investment track record. The firm was established in
2004 and is headquartered in Sydney, Australia and maintains an office in New
York. The firm is a value-orientated investment manager with the objective of
delivering superior risk adjusted long-term returns, compared with recognised
industry benchmarks. This is achieved through investment in a concentrated
portfolio of carefully selected listed real estate securities with an emphasis
on avoiding fundamental flaws which could reasonably result in permanent
impairment of the underlying investments.
The firm continues to grow its investment and operational capabilities. During
the year the firm launched a Collective Investment Trust for US-domiciled
ERISA qualified pension plans and continues to diversify its client base and
grow its funds sourced from international markets.
Funds under management were $8.3 billion as at 30 June 2019.
Riparian Capital Partners
Riparian is a specialist water, agriculture and food investment firm, established
in early 2019 with the specific purpose of identifying, acquiring and managing
investments across the agricultural sector.
Riparian’s investment team has extensive experience in agriculture, finance
and asset management, predominantly in Australia but also covering the
United States and Asia-Pacific. The team has proven its ability to identify key
areas for operational efficiency, expansion and redevelopment of assets while
driving value through active management of water portfolios and exposures.
15
Pinnacle Investment Management 03 Overview, Operating and Financial Report (continued)
Solaris Investment Management
Solaris is a style neutral, Australian equities fund manager. The Solaris team
consists of a diverse and experienced group of investment professionals.
Solaris analysts are empowered as portfolio managers, making them fully
accountable for their investment ideas and decisions. Solaris’ tried and tested
investment process offers Core, High Alpha and Long Short strategies with
after-tax investment as a specialty.
Solaris had $9.1 billion in funds under management as at 30 June 2019 with
incremental funds coming from new and existing clients and investment
performance. Solaris’ core strategy has outperformed the S&P/ASX 200 Index
by 2.0% per annum since inception on 9 January 2008 (to 30 June 2019). The
information ratio for the strategy is notably strong over 3 years, 5 years and
since inception.
Launched in the 2017 financial year, investors in the Solaris Australian Equity
Long Short Fund have benefited from strong investment performance since
inception of 19.9% per annum against the S&P/ASX 200 Index returning
11.3% per annum over the same period.
Spheria Asset Management
Spheria is a fundamental-based investment manager specialising in small
and microcap companies. Spheria specifically seeks out businesses where
the present value of future free cash flows can be reasonably ascertained and
the underlying security is trading at a discount to its intrinsic value. Spheria’s
mission is to achieve strong investment performance for its clients with an
emphasis on risk management.
At 30 June 2019 Spheria had $1.2 billion in funds under management.
Two Trees Investment Management
Two Trees is an investment management firm that specialises in systematic
global macro investing. Two Trees’ mission is to help institutions, advisers, and
individuals around the world grow their long-term wealth and attain genuine
portfolio diversity for when they need it most.
Two Trees’ competitive edge is in fusing together a deep philosophical
understanding of financial economics with rigorous scientific techniques for
forecasting returns, risk, and volatility, and the way in which they change
through time.
Two Trees’ Global Macro strategy is available through Australian and Cayman
Islands domiciled vehicles, with a UCITS fund due to launch imminently.
Funds under management at 30 June 2019 were $245 million.
16
Annual Report 2019 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) and infrastructure. We will also continue to
invest in and seed new Affiliates where management teams
have a strong track record and growth potential.
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.
There was considerable turbulence in domestic and
global equity markets during the 2019 financial year, with
sharp declines in the last quarter of calendar year 2018
reversing equally sharply in the first quarter of calendar
year 2019. The S&P/ASX 300 closed the year at close to
its pre-GFC high. Despite the strong end to the financial
year, the market declines during the first half did impact
management fee revenues within our Affiliates.
There remain numerous global and domestic risks, with
the prospect of escalating trade tensions threatening to
impact on global growth prospects. 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 deliver outstanding investment
performance. Also helpful in this regard is the fact that
approximately 30% 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).
Whilst the past year has presented challenges for short-
term returns, importantly, long-term performance remains
excellent across all Affiliates.
Regulatory risk
The Group operates within a highly regulated environment.
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. We continue to invest in our Risk and
Compliance function.
Review of Group Results
Group net profit after tax from continuing operations
attributable to shareholders for the 2019 financial year is
$30.5 million. Total profit attributable to shareholders is
also $30.5 million with discontinued operations now all
but concluded.
• The Group delivered a $30.5 million net profit from
continuing operations attributable to shareholders for
the 2019 financial year, a 32.0% improvement. This
was underpinned by a 32.9% increase to $33.1 million
in Pinnacle’s share of net profits from the Pinnacle
Affiliates. FUM increased by 42.9% to $54.3 billion in the
2019 financial year, which includes $6.8 billion ‘acquired’
in the Metrics and Omega transactions in July 2018.
• Group net tangible assets have increased by 80.5% to
$177.1 million with earnings per share of 18.3 cents up
28.0% from 14.3 cents from continuing operations.
• The Board has declared a fully franked final dividend of
9.3 cents per share payable on 4 October 2019.
Statement of Comprehensive Income
The following commentary provides an analysis of
revenues and expenses for the 2019 financial year
for continuing operations in comparison to the prior
comparative period.
During the 2019 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 $4.6 million
to $21.1 million, from $16.5 million in the prior period.
Further information regarding revenues are provided below
and at note 1 of the 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 2019, the Group gained a net
$2.7 million on its Principal Investments, on a ‘marked to
market’ basis.
Expenses from Continuing Operations
During FY19, the Group has invested significantly to
support future growth. Employee benefits expense
increased $4.2 million to $12.4 million, mainly through
increased headcount. Pinnacle invested in additional
distribution and infrastructure staff to support existing
Affiliates, and in preparation for future growth.
17
Pinnacle Investment Management 03 Overview, Operating and Financial Report (continued)
the provision of seed and foundation FUM for strategies
managed by our Affiliates. Of the $24.5 million, $23.2
million is held in strategies managed by Pinnacle Affiliates.
The Group has partially hedged its exposure to movements
in the underlying indices.
Assets held at amortised cost increased by $0.2 million
to $2.2 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 of Pinnacle’s investments in the
Pinnacle Affiliates. This increased by $57.7 million during
the period to $113.4 million. The change is attributable
to the equity accounted profits of $33.1 million from
Pinnacle Affiliates, less the dividends received from the
Pinnacle Affiliates of $27.0 million, plus additional net
capital contributed to the Pinnacle Affiliates during the
year of $51.3 million (including the $48 million deployed
in the Metrics and Omega transactions), plus impairment
reversals of $0.3 million. Further information is provided
at note 21 of the financial statements.
Trade and other payables increased by $2.6 million to
$8.5 million, which relates directly to higher costs in
Pinnacle. Further information is provided at note 12 of
the financial statements.
Provisions. The value of current and non-current
provisions increased by $0.3 million compared with the
prior year, which relates directly to the increase in staff
costs. Further information is provided at note 13 of the
financial statements.
Share of net profit of jointly controlled entities
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. Pinnacle’s share of the net profits after tax
from Pinnacle Affiliates is up 32.9% or $8.2 million on the
prior comparative period. Pinnacle Affiliates’ FUM, which
underpins the share of Pinnacle Affiliates’ profits, increased
by 42.9% to $54.3 billion in the 2019 financial year, which
includes $6.8 billion ‘acquired’ in the Metrics and Omega
transactions in July 2018. Underlying base management
fees within the Pinnacle Affiliates also increased 46.4%
on the prior comparative period. Further information is
provided in note 21 to the financial statements.
Discontinued Operations
Discontinued operations contributed a $0.04 million
increase to NPAT. This represents the gain on 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 retained earnings at 1 July 2018 on adoption of
AASB 9. The gain on the receipt of the funds during the
current financial year was recognised in the statement of
comprehensive income. There are no further payments
due from the Securities business in relation to this item.
Consolidated Statement of
Financial Position
The following commentary provides an analysis of
assets and liabilities for the 2019 financial year for
continuing operations.
Cash. Cash and cash equivalents increased by $17.4 million
to $26.7 million at year-end compared to $9.3 million at the
end of the prior year. Cash inflows from operating activities
were $20.9 million, which included dividends received from
Affiliates of $27.0 million, compared with $17.7 million in
the prior year. Further information is provided at notes
6 and 23. The Group also completed a successful
capital raising in July 2018, raising a net $67.5m. $48m
was deployed in the Metrics and Omega transactions,
with a further $6.9m deployed to other Affiliates in
accordance with Pinnacle’s commitments under various
shareholders’ agreements in place.
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
$24.5 million, an increase of $2.2 million on the prior
period. During the year, Pinnacle has continued to
support its Affiliates in both equity recycling and through
18
Annual Report 2019 19
Pinnacle Investment Management 04/12
Community
20
Annual Report 2019 Pinnacle is passionate about enabling better lives through investment
excellence. This belief is reflected through Pinnacle’s strong commitment –
together with the Affiliates – towards partnering with the Pinnacle Charitable
Foundation to drive positive, long-term social change. For the 2019 financial
year, Pinnacle made cash contributions of $311,000 (FY18: $225,000) to the
Foundation, with the Pinnacle Affiliates contributing a further $110,000 to
Foundation projects in collaboration (FY18: $66,000).
Pinnacle Charitable Foundation
The Foundation operates as an independent public
ancillary fund (PuAF), with a vision to help build a
compassionate, creative and clever Australia. To achieve
this, the Foundation and its forerunners have for 30 years
maintained a commitment to actively grow the capacity
and sustainability of inspiring Australian
not-for-profit (NFP) organisations.
In every partnership, 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 that frequently offers seed funding
to encourage trials and incubate new projects, the
Foundation has often been able to invest in the future
of young, passionate charities as they seek to make a
real difference within their communities.
With the financial backing of Pinnacle and access
to extensive pro bono services across investment
management, portfolio reporting, finance and IT, the
Foundation operates 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. As part of their
broad commitment to the Foundation, all Affiliates rebate
management fees associated with its management of
investments for the Foundation.
This access to expertise, insight and market knowledge
creates excellent opportunities for the Foundation to help
improve the lives of those who need support – through
partnering with professional, well-governed organisations
so they can achieve greater results and focus on what
matters most to them.
Affiliates collaborate with the Foundation to donate directly
to eligible NFP organisations which actively demonstrate
alignment with the interests of each Affiliate’s employees,
clients, investors and business strategies. During the 2019
financial year donations totalling $306,000 were made
by the Foundation, increased by a further $110,000 from
Affiliates. These funds have supported the ongoing efforts
of charity partners working across Australia within the
following five designated areas of focus:
• promotion of strong mental health awareness and
support for prevention / early intervention strategies
aimed at reducing mental illness and driving down
suicide rates;
• support for children from a range of environments
who face acute and/or systemic disadvantage;
• legal assistance and advocacy for victims of sexual
abuse and domestic violence;
• development of access to corporate supply chains
and procurement initiatives for remote and Indigenous
communities; and
• capacity building for world-leading medical researchers
seeking treatments and cures for children’s genetic
diseases.
Detailed activities of the Foundation and all current
charity partnerships can be found at
http://www.pinnacleinvestment.com/foundation
Workplace giving
During the year, Pinnacle and a number of Affiliates
continued to offer employee payroll giving, with donations
made through salary sacrifice being matched by
employers. Over the financial year this regular, monthly
giving resulted in $42,000 being donated to 44 charities.
In the month of May, Pinnacle hosted a special appeal
in support of the Foundation, offering to give triple the
amount of all donations made by employees across the
Group via the Workplace Giving platform. A total of $17,600
was generated, taking the program’s total for FY19 to just
under $60,000.
Collaboration
Substantial additional support is provided by Pinnacle
and Affiliates through other initiatives, reflecting their
strong adherence to broad ESG (environmental, social and
governance) principles. In FY19 this included Pinnacle and
Plato’s engagement with women studying finance through
the provision of scholarships across several leading
universities, and Antipodes’ continued provision of pro
bono investment services to the Future Generation Global
Investment Company Limited (ASX: FGG).
Pinnacle also supports and sponsors events together
with Affiliates and the wider funds management industry,
where there is strategic relevance to Pinnacle’s business
operations, interests and values.
21
Pinnacle Investment Management 05/12
Directors’
Profiles
Alan Watson
(Non-executive Independent Chair; member of Remuneration and Nominations Committee) BSc, GAICD.
Mr Watson joined the Board on 15 July 2013 and became Chair on 23 October 2015. Mr Watson is
a Sydney-based former investment banker with 35 years of experience within various global equity
markets. Over this period he established, directed and was 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 as Managing Director at Barclays de Zoete Wedd Limited, Donaldson,
Lufkin & Jenrette Securities Corporation, at Lehman Brothers Holdings Inc and as Head of Securities
Europe for Maquarie 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 Chair
of The Winifred West Schools Foundation.
ASX Listed Company Directorships
held in last 3 years (current & recent):
• Director of Australis Oil & Gas
• Director of Aurora Oil and Gas
Interests in shares and options
• 130,936 ordinary shares
22
Annual Report 2019 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 chair of Pinnacle since 2006. Mr
Macoun’s career to date has included more than 25 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 1970s and the 1980s. 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
• 27,654,085 ordinary shares in the Company
• 375,000 options
Deborah Beale AM
(Non-executive Independent Director, Chair of Remuneration and Nominations Committee and member of the
Audit, Compliance and Risk Management 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 also the Chair of Federation Square Pty Ltd, Chair of Hyperion Asset Management
Limited, Chair of Hyperion Holdings Limited 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):
• None
Interests in shares and options
• 105,668 ordinary shares in the Company
23
Pinnacle Investment Management 05 Directors’ Profiles (continued)
Lorraine Berends
(Non-executive Independent Director and member of Audit, Compliance and Risk Management Committee and
Remuneration and Nominations Committee) 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, now the CIMA Society of Australia) for 13 years (seven as Chair) and the Association of
Superannuation Funds Australia (ASFA) for 12 years (three as Chair). Ms Berends has been awarded
Life Membership of both IMCA Australia and ASFA. She 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, Spheria Emerging Companies Limited and Hearts and
Minds Investments Limited (listed investment companies). She is a company appointed director of
Qantas Superannuation Limited and 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
• Hearts and Minds Investments Limited
Interests in shares and options
• 11,944 ordinary shares in the Company
Gerard Bradley
(Non-executive Independent Director and Chair of the Audit, Compliance and Risk Management Committee and
member of the Remuneration and Nominations Committee) B Com, Dip Adv Acc
Mr Bradley is Chair 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):
• Star Entertainment Group Limited
Interests in shares and options
• 55,691 ordinary shares in the Company
24
Annual Report 2019 Andrew Chambers
(Executive Director) MSc, B Arts (Hons), Grad Dip App Fin
Mr Andrew Chambers was appointed as 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, Riparian and
Two Trees.
ASX Listed Company Directorships
held in last 3 years (current & recent):
• None
Interests in shares and options
• 5,525,414 ordinary shares in the Company
• 375,000 options
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 business’s direction and engagement with researchers, consultants,
dealer groups and private clients.
Prior to Schroders, Mr Whittingham spent eight years at Zurich in product, research and business
development roles.
Mr Whittingham is also a director of the following Pinnacle Affiliates: Firetrail, Hyperion, Longwave 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
25
Pinnacle Investment Management 06/12
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 2019.
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 AM
• Ms L Berends (appointed 1 September 2018)
• Mr G Bradley
• Mr A Chambers
• Mr A Whittingham
• Mr S M Wilson AM (resigned 18 October 2018)
Information on the qualifications, experience and responsibilities of the directors is included in the directors’ profiles on
pages 22 to 25 of the 2019 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
26
2019
Cents
2018
Cents
18.3
17.1
18.3
17.1
14.3
13.2
14.5
13.4
Annual Report 2019 Dividends
In the 2019 financial year, the following dividends were paid:
• a fully franked final dividend of 7.0 cents per share on 5 October 2018.
• a fully franked interim dividend of 6.1 cents per share on 22 March 2019.
Since the end of the financial year, the Company has declared:
• a fully franked final dividend of 9.3 cents per share, to be paid on 4 October 2019.
Operating and Financial Review
The Operating and Financial Review can be found at pages 8 to 19 of the 2019 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.
Matters subsequent to the end of the financial year
Other than as outlined in note 28 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 2019 Remuneration Report sets out remuneration information for the Group’s non-executive directors and Key
Management Personnel.
The Remuneration Report contains the following sections:
01 Letter from the Chair of the Remuneration and Nominations Committee
02 Key Management Personnel
03 Role of Remuneration and Nominations Committee
04 Executive remuneration policy and framework for the Company
05 Links between performance and outcomes
06 Details of Executive Key Management Personnel remuneration
07 Executive service agreements
08 Non-executive director remuneration
09 Share-based payment compensation
10 Equity instrument disclosures relating to Key Management Personnel
11 Loans to Key Management Personnel
12 Equity Capital
Information in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act.
27
Pinnacle Investment Management 01 Letter from the Chair of the Remuneration
and Nominations Committee
Dear Fellow Shareholders
In presenting shareholders with the 2019 Remuneration Report, we thought it would assist if we again summarise the
philosophy underpinning our remuneration structures and practices and highlight 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 generally 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
our executive group are directly aligned with external long-term shareholders through common long-term equity ownership.
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 six 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 to be
employed by Pinnacle until the end of 2020 (31 January 2020 for Mr Macoun) 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 (as was the case during the three years ended 30 June 2018)
and there may be years (such as the current 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 approved a new LTI scheme (the Pinnacle Omnibus Plan), consistent with this philosophy, on
22 August 2018, which was then affirmed by shareholders on 18 October 2018. This scheme is summarised in this letter
and detailed at page 32 of the Remuneration Report.
Applying our philosophy to 2019 financial year results
The outcome for the 2019 financial year can be summarised as follows:
• there has been a modest increase in fixed remuneration for two KMP (Andrew Chambers, from $400,000 including
superannuation, to $425,000 including superannuation, an increase of 6.25%; and Alex Ihlenfeldt, from $300,000 including
superannuation, to $320,000 including superannuation, an increase of 6.7%), the first increases since 2015. The fixed
remuneration of the Managing Director, Ian Macoun, and Executive Director, Adrian Whittingham, remains unchanged (and
has not been changed since 2015).
• a new LTI scheme (the Pinnacle Omnibus Plan) was approved by the Board on 22 August 2018. The weighted average
price of the shares issued under the Pinnacle Omnibus Plan during the 2019 financial year was $6.45 per share.
• STIs reflecting the assessment of performance were paid to KMP in relation to the 2019 financial year (refer to the table on
page 34). In considering these, the Board noted:
– growth in basic earnings per share from continuing operations of 27.8%
– growth in NPAT from continuing operations to $30.5m (2018: $23.1m)
– 43% growth in funds under management to $54.3bn (2018: $38.0bn), which includes FUM ‘acquired’ in the Metrics and
Omega transactions of $6.8bn. FUM growth was 25%, excluding this acquired FUM
– net funds under management inflows of $6.5bn (2018: $7.9bn)
– retail net funds under management inflows of $2.9bn (2018: $2.2bn)
– we are clear that ‘results matter’ in determining remuneration. Whilst a lot of good work has been done during the year,
and our business and profits have grown significantly, we have fallen short of the expectations we set ourselves and it
is important that we recognise this. A number of factors have impacted on our results, some outside of our control, but
our job is to deliver strong results for our shareholders and clients. It is on this basis that we are remunerated. We are
accountable for the outcomes.
28
06 Directors’ Report (continued)Annual Report 2019 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 Schemes
• 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 2019
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 then prevailing share price. Further details are set out at pages 32 to
33. 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, and the recruitment and advancement since 2015 of a substantial number of new executives, the
Board approved a new set of LTI arrangements (the Pinnacle Omnibus Plan) on 22 August 2018. The new LTI scheme and
awards to executive directors under this scheme were approved by shareholders at the AGM on 18 October 2018. The key
characteristics of the new scheme are:
• Instrument: Non-recourse loan funded acquisition of new equity in Pinnacle, as well as options in the Company for
overseas employees.
• Scheme size: 4.8m loan shares and 0.25m options have been issued to employees, of which 1.7m loan shares have been
allocated to KMP following shareholder approval at the AGM. Awards were made to 21 executives.
• Vesting conditions: combination of employment tenure for all awards and earnings per share growth for a portion of the
awards, with the proportions varying dependent on the seniority of each particular role in Pinnacle.
These new arrangements are detailed on page 32 of the Remuneration Report.
Related party loans
As shareholders will recall, the PIML Acquisition, which involved a “swap” of PIML 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 reissued 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 36.
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.
Deborah Beale AM
Chair of Remuneration and Nominations Committee
29
Pinnacle Investment Management 02 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 2019. 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
Position
Chair
Steve Wilson AM (resigned on 18 October 2018)
Non-executive Director
Lorraine Berends (appointed on 1 September 2018)
Non-executive Director
Deborah Beale AM
Gerard Bradley
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 2019 comprised:
• each non-executive director of the Company;
• Ian Macoun, Andrew Chambers and Adrian Whittingham, each being executive directors of the Company;
• Alex Ihlenfeldt as Chief Operating Officer and Chief Financial Officer of the Company.
30
06 Directors’ Report (continued)Annual Report 2019 03 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 2019 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;
• 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 Chair, 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 2019 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,
following discussion, recommendations were made 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/
31
Pinnacle Investment Management 04 Executive remuneration policy and framework for the Company
The Board remains focused on achieving sustainable growth and attractive returns for investors in the medium-to-long term.
During the 2019 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 2019 financial year, two executive Key Management Personnel received modest increases to their base salary
(Andrew Chambers, from $400,000 including superannuation, to $425,000 including superannuation, an increase of 6.25%;
and Alex Ihlenfeldt, from $300,000 including superannuation, to $320,000 including superannuation, an increase of 6.7%),
the first increases since 2015. The fixed remuneration of the Managing Director, Ian Macoun, and Executive Director, Adrian
Whittingham, remains unchanged (and has not been changed since 2015) as detailed on page 28.
Short-term incentives (STI)
An 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
On 22 August 2018 the Board approved the Pinnacle 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.
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
only vest once the employee remains employed with the Group for five years from the time of grant, with a portion vesting
only upon the satisfaction of the following performance condition: the Company’s earnings per share grows by an average
annual growth rate of at least 15% per annum over the five-year period.
While LTI grants have historically been comprised of options granted under the EOSP, 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 higher of the Company’s NTA as at 1 January
2015 plus a premium of 20%, or the volume weighted average price of the Company’s fully paid ordinary shares from
1 December 2014 to 31 March 2015.
50% of the options vested on 1 January 2018 and the balance are due to vest on 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 clawback
arrangements and bad leaver provisions. The participation of certain Key Management Personnel in this scheme was
approved by shareholders on 26 June 2015.
32
06 Directors’ Report (continued)Annual Report 2019 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 clawback 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 nature of
the PIML LTI Scheme by continuing the 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.
05 Links between performance and outcomes
During the 2019 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
during the 2019 financial year and 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 27.8% in the 2019 financial year
• growth in NPAT from continuing operations attributable to shareholders from $23.1 million in the 2018 financial year to
$30.5 million in the 2019 financial year
• increase in FUM from $38.0bn as at 30 June 2018 to $54.3bn as at 30 June 2019
• net FUM inflows of $6.5bn during the 2019 financial year
• net retail FUM inflows of $2.9bn during the 2019 financial year
• 94% of Affiliate strategies and products that have a track record of at least five years outperformed their benchmarks over
the five years to 30 June 2019
• two new Affiliates, Riparian and Longwave, commenced during 2019, and the equity stakes in Metrics and Omega were
also successfully acquired
2019
2018
2017
2016
2015
Net profit/(loss) after tax from continuing operations
attributable to shareholders ($m)
30.5
23.1
12.0
5.8
Funds Under Management (FUM) ($bn)*
54.3
38.0
26.5
19.8
Net FUM Inflows*
Net Retail FUM Inflows*
Closing share price ($)
Dividend per share (cents)
Basic earnings per share (cents) from continuing operations
Diluted earnings per share (cents) from continuing operations
6.5
2.9
7.9
2.2
4.38
5.37
15.40
11.60
18.3
17.1
14.3
13.2
4.9
2.5
2.90
7.00
8.1
7.6
2.1
0.6
1.45
3.30
5.2
5.2
*Non-statutory measure
Note: In the 2015 year NPAT from continuing operations was reduced by $9.4 million relating to the derecognition of deferred tax assets.
(5.5)
16.0
2.3
0.5
1.20
1.60
(5.2)
(5.2)
33
Pinnacle Investment Management 06 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 2019:
Ian Macoun
Andrew Chambers
Adrian Whittingham
Alex Ihlenfeldt
Ian Macoun
% of total remuneration
Performance-based remuneration
Fixed
remuneration
52%
41%
55%
49%
STI
38%
33%
28%
35%
LTI
10%
26%
17%
16%
In the 2019 financial year, Mr Macoun’s base salary remained unchanged at $600,000 per annum (inclusive of
superannuation) and he earned an STI of $450,000 (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 has remained
unchanged since the 2016 financial year.
In addition and in accordance with the terms of the PIML LTI Scheme described on page 32, 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.
In 2019, the Company also granted 300,000 loan shares under the Pinnacle Omnibus Plan described on page 32. This issue
of loan shares was subject to shareholder approval given at the annual general meeting on 15 November 2018.
Andrew Chambers
In the 2019 financial year, Mr Chambers’s base salary was increased from $400,000 to $425,000 per annum, the first
increase since 2015 (inclusive of superannuation) and he earned an STI of $318,750 (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 32, on 1 July 2015 the Company
granted 750,000 options over its ordinary shares to Mr Chambers.
In 2019, the Company also granted 800,000 loan shares under the Pinnacle Omnibus Plan described on page 32. This issue
of loan shares was subject to shareholder approval given at the annual general meeting on 15 November 2018.
Adrian Whittingham
In the 2019 financial year, Mr Whittingham’s base salary remained unchanged at $400,000 per annum (inclusive of
superannuation) and he earned an STI of $200,000 (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 32, on 1 July 2015 the Company
granted 750,000 options over its ordinary shares to Mr Whittingham.
In 2019, the Company also granted 300,000 loan shares under the Pinnacle Omnibus Plan described on page 32. This issue
of loan shares was subject to shareholder approval given at the annual general meeting on 15 November 2018.
34
06 Directors’ Report (continued)Annual Report 2019 Alex Ihlenfeldt
In the 2019 financial year, Mr Ihlenfeldt’s base salary was increased from $300,000 to $320,000 per annum, the first
increase since 2015 (inclusive of superannuation) and he earned an STI of $240,000 (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 32, 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.
In 2019, the Company also granted 300,000 loan shares under the Pinnacle Omnibus Plan described on page 32. This
issue of loan shares was subject to shareholder approval given at the annual general meeting on 15 November 2018.
Remuneration details for Executive Key Management Personnel (calculated in accordance with applicable accounting
standards) are set out in the table below:
Short-term
employee benefits
Post-employment
benefits
Long-term
benefits
Share-
based
payments
Cash
salary &
fees
$
Cash
bonus
(STI)
$
Non-
mone-
tary
benefits
$
Super-
annuation
$
Retire-
ment
benefits
$
Name
Total
short-term
and post-
employment
benefits
$
Long
service
leave
$
Options
& rights
(LTI)
$
Term-
ination
benefits
$
Portion
of
remun-
eration
at risk
– STI
%
Portion
of
remun-
eration
at risk
– LTI
%
Total
$
Managing Director
Ian Macoun
2019
2018
575,000
450,000
575,000
600,000
-
-
25,000
25,000
Other Key Management Personnel
Andrew Chambers
2019
400,000
318,750
2018
375,000
400,000
Adrian Whittingham*
2019
2018
375,000
200,000
359,616
400,000
Alex Ihlenfeldt
295,000
240,000
275,000
300,000
2019
2018
Totals
2019
1,645,000 1,208,750
2018
1,584,616 1,700,000
-
-
-
-
-
-
-
-
25,000
25,000
25,000
25,000
25,000
25,000
100,000
100,000
-
-
-
-
-
-
-
-
-
-
1,050,000
9,910
117,250
1,200,000
9,910
97,744
743,750
(20,843)
254,876
800,000
(14,663)
97,984
600,000
(11,689)
119,545
784,616
6,604
97,984
560,000
7,595
109,949
600,000
9,349
75,678
2,953,750
(15,027)
601,620
3,384,616
11,200
369,390
-
-
-
-
-
-
-
-
-
-
1,777.160
38%
10%
1,307,654
46%
7%
977,783
33% 26%
883,321
45%
11%
707,856
28%
17%
889,204
45%
11%
677,544
35%
16%
685,027
44%
11%
3,540,343
3,765,206
* Mr Whittingham’s base salary has remained unchanged since 2015. He took a short period of unpaid leave during the 2018 financial year,
hence remuneration paid to him for that year was lower.
35
Pinnacle Investment Management
07 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 2019 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 five-year term, limited
recourse and secured by way of a share mortgage. Repayment will occur at the earlier of the end of the five-year term, the date
on which any of the underlying shares are sold or within six months of the cessation of Mr Macoun’s employment. Events of
default under the loan include cessation of employment.
In November 2018, 300,000 loan shares were issued to Mr Macoun under the Pinnacle Omnibus Plan, approved by the
Board on 22 August 2018. The shares are subject to service and performance conditions and will vest after three years, if the
conditions are met. The loans are interest free and limited in recourse to the shares. They are repayable 10 years from grant
date, on termination of employment or when the underlying equity is sold, whichever occurs earlier.
Andrew Chambers
Andrew Chambers, an executive director of the Company, 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 five-year term, limited recourse and secured by way of a share
mortgage. Repayment will occur at the earlier of the end of the five-year term, the date on which any of the underlying shares
are sold or within six months of the cessation of Mr Chambers’ employment. Events of default under the loan include cessation
of employment.
In November 2018, 800,000 loan shares were issued to Mr Chambers under the Pinnacle Omnibus Plan, approved by the
Board on 22 August 2018. The shares are subject to service and performance conditions and will vest after five years, if the
conditions are met. The loans are interest free and limited in recourse to the shares. They are repayable 10 years from grant
date, on termination of employment or when the underlying equity is sold, whichever occurs earlier.
36
06 Directors’ Report (continued)Annual Report 2019 Adrian Whittingham
Adrian Whittingham, an executive director of the Company, 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 five-year term, limited recourse and secured by way of a share
mortgage. Repayment will occur at the earlier of the end of the five-year term, the date on which any of the underlying shares
are sold or within six months of the cessation of Mr Whittingham’s employment. Events of default under the loan include
cessation of employment.
In November 2018, 300,000 loan shares were issued to Mr Whittingham under the Pinnacle Omnibus Plan, approved by the
Board on 22 August 2018. The shares are subject to service and performance conditions and will vest after five years, if the
conditions are met. The loans are interest free and limited in recourse to the shares. They are repayable 10 years from grant
date, on termination of employment or when the underlying equity is sold, whichever occurs earlier.
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 five-year term,
limited recourse and secured by way of a share mortgage. Repayment will occur at the earlier of the end of the five-year term,
the date on which any of the underlying shares are sold or within six months of the cessation of Mr Ihlenfeldt’s employment.
Events of default under the loan include cessation of employment.
In November 2018, 300,000 loan shares were issued to Mr Ihlenfeldt under the Pinnacle Omnibus Plan, approved by the
Board on 22 August 2018. The shares are subject to service and performance conditions and will vest after five years, if the
conditions are met. The loans are interest free and limited in recourse to the shares. They are repayable 10 years from grant
date, on termination of employment or when the underlying equity is sold, whichever occurs earlier.
37
Pinnacle Investment Management 08 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 2019 financial year.
From the 2019 financial year, non-executive directors are able to sacrifice up to 100% of their fees in favour of immediately
vesting Performance Rights under the Pinnacle Omnibus Incentive Plan, as approved at the AGM on 15 November 2018.
32,165 performance rights were granted to non-executive directors, of which 10,720 were exercised during the year. The
performance rights were granted in lieu of fees.
The fees paid to non-executive directors from 1 July 2018 for Board and Committee positions are set out in the table below:
Chair
Non-executive director
Audit, Compliance and Risk Management Committee
• Chair
• Member
Remuneration and Nominations Committee
• Chair
• Member
Subsidiary Boards
Base fees
$180,000
$100,000
$15,000
$5,000
$15,000
$5,000
$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 2019 financial year, no non-executive
directors participated in the EOSP.
Further details concerning the EOSP are set out on page 32.
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.
38
06 Directors’ Report (continued)Annual Report 2019 Total remuneration for the non-executive directors in relation to the Company, Committee positions and subsidiaries for
the 2019 financial year was $554,593 and is presented in accordance with applicable accounting standards and shown in
the table below:
Short-term
employee benefits
Post-employment
benefits
Long-term
benefits
Per-
formance
rights
Cash
salary &
fees
$
Cash
bonus
(STI)
$
Non-
mone-
tary
benefits
$
Name
Super-
annuation
$
Retire-
ment
benefits
$
Long
service
leave
$
Per-
formance
rights
$
Term-
ination
benefits
$
Non-executive directors
Total excl-
uding non
fee remun-
eration
$
Total
$
Portion
of
remun-
eration
at risk
– STI
%
Portion
of
remun-
eration
at risk
– LTI
%
Alan Watson
2019
2018
131,558
100,457
Deborah Beale
2019
2018
86,659
63,927
Gerard Bradley
2019
2018
97,032
80,000
Steven Wilson (i)
2019
2018
32,925
70,000
Lorraine Berends (ii)
64,764
-
2019
2018
Totals
2019
412,938
2018
314,384
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,498
9,543
8,233
6,073
-
-
-
-
6,153
-
26,884
15,616
-
-
-
-
-
-
-
-
-
-
-
-
(i) 2019: Mr Wilson was a Director until his resignation on 18 October 2018.
(ii) 2019: Ms Berends was appointed a Director on 1 September 2018.
-
-
-
-
-
-
-
-
-
-
-
-
50,303
-
20,750
-
22,968
-
-
-
20,750
-
114,771
-
-
-
-
-
-
-
-
-
-
-
-
-
194,359
144,056
110,000
110,000
115,642
94,892
70,000
70,000
120,000
97,032
80,000
80,000
32,925
32,925
70,000
70,000
91,667
70,917
-
-
554,593
439,822
330,000
330,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39
Pinnacle Investment Management
09 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 2019 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
$0.32
0
0
0
1,337,000
0%
Details of options provided as remuneration to Executive Key Management Personnel are set out below. These options
form part of the PIML LTI Scheme and were approved for Mr Macoun and Mr Ihlenfeldt by shareholders on 26 June 2015.
Mr Chambers and Mr Whittingham were not Key Management Personnel at the date of grant and accordingly their
participation did not require shareholder approval.
Name
Date of
grant
Number
of options/
rights
granted
Value ($)
of options/
rights
granted
(i)
Number
of options/
rights
vested
(ii)
Value ($)
of options/
rights
vested
(iii)
Number
of options/
rights
forfeited/
lapsed/sold
Value ($)
of options/
rights
forfeited/
lapsed/sold
Vesting
date
Key Management Personnel of the Group
Ian Macoun
Options
Options
Subtotal
Andrew Chambers
Options
Options
Subtotal
Adrian Whittingham
Options
Options
Subtotal
Alex Ihlenfeldt
Options
Options
Subtotal
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
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
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
$588,732
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) Fair values at grant date are calculated using a Black-Scholes option pricing model that takes into account the exercise price, the terms of the right or
option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk
free interest rate for the term of the right or option. Model inputs for the grants made are set out in note 26 to the financial statements.
(ii) On the vesting of each option/right, the holder becomes entitled to receive one fully paid ordinary share in the Company on exercise of the option/right.
(iii) The amount is based on the intrinsic value of the option or right at vesting date
40
06 Directors’ Report (continued)Annual Report 2019 Loan Shares
The terms and conditions of each grant of equity and associated loan to Key Management Personnel is provided at
pages 34 to 35. Details of the loan arrangements affecting remuneration in the previous, this or future reporting periods
as at 30 June 2019 are as follows:
Name
Date of
grant
Number
of loan
shares
Loan value
at date of
grant
Share-
based
payments
value (i)
Vesting
date
Number
of shares
vested
Value ($)
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
288,210
1,265,242
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
Loan Shares
15-Nov-18
300,000
1,697,460
$649,587
14-Nov-21
-
-
Subtotal
1,987,210
2,744,753
$728,394
1,399,322
3,220,797
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
288,210
1,265,242
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
Loan Shares
15-Nov-18
800,000
4,526,560
$1,732,233
14-Nov-23
-
-
Subtotal
2,620,719
5,700,687
$1,814,807
1,532,831
3,531,873
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
288,210
1,265,242
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
Loan Shares
15-Nov-18
300,000
1,697,460
$649,587
14-Nov-23
-
-
Subtotal
2,120,719
2,871,587
$732,161
1,532,831
3,531,873
Alex Ihlenfeldt
Loan Shares
25-Aug-16
437,968
416,070
$74,503
30-Jan-18
437,968
2,023,412
Loan Shares
25-Aug-16
163,083
154,929
$17,428
31-Dec-18
163,083
715,934
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
Loan Shares
17-Sep-18
300,000
2,187,510
$777,184
16-Sep-23
-
-
Subtotal
2,174,924
3,413,132
$903,852
1,712,163
4,694,901
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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.
41
Pinnacle Investment Management 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 2019 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
2019
2018
1,337,000
2,675,000
32,165
(10,720)
0
0
(1,338,000)
0
1,358,445
1,337,000
*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
4,712
1,224
130,936
-
(1,170,000)
19,350,000
1,944
1,944
2,120
-
-
-
-
10,000
1,224
2,287
11,944
105,668
55,691
230,088
27,654,085
-
5,525,414
(300,000)
4,325,414
(137,664)
4,892,549
Name
Non-executive directors
Alan Watson
Steve Wilson
Lorraine Berends
Deborah Beale
Gerard Bradley
Executive directors
Ian Macoun
Andrew Chambers
Adrian Whittingham
125,000
20,520,000
-
102,500
51,284
27,123,997
4,725,414
4,325,414
-
-
-
-
-
300,000
800,000
300,000
Key Management Personnel
Alex Ihlenfeldt
4,730,213
300,000
42
06 Directors’ Report (continued)Annual Report 2019 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
$
Loans
issued
during year
$
Other
changes
during
the year (i)
$
Repayments
made
$
Interest paid
and payable
for the year
$
Interest
not charged
$
Balance at
end of year
$
Number in
Group at end
of year
2019
4,652,865
10,108,990
-
(363,502)
52,828
190,226
14,451,181
4
(ii) Individuals with loans above $100,000 during the financial year
Balance at
start of year
$
Loans
issued
during year
$
Other
changes
during
the year (i)
$
Repayments
made
$
Interest
paid and
payable for
the year
$
Interest
not charged
$
Balance at
end of year
$
Highest
indebtedness
during the
year
$
Ian Macoun
993,060
1,697,460
Andrew
Chambers
Adrian
Whittingham
Alex
Ihlenfeldt
1,227,315
4,526,560
1,227,315
1,697,460
1,205,175
2,187,510
-
-
-
-
(89,324)
13,207
38,211
2,614,403
2,658,928
(112,414)
13,207
50,791
5,654,668
5,722,282
(89,324)
13,207
50,791
2,848,658
2,893,182
(72,440)
13,207
50,433
3,333,452
3,395,982
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.
• loans granted under the Pinnacle Omnibus Plan.
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 36 to 37 for further
detail on the terms of the loans.
During the year to 30 June 2019, 1.7 million loan shares were issued to Key Management Personnel under the Pinnacle
Omnibus Plan, approved by the Board on 22 August 2018. See pages 34 to 35 for further details 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 arm’s-length basis.
43
Pinnacle Investment Management 12 Equity Capital
Shares under options/rights
Unissued ordinary shares of the Company under option at 30 June 2019 are as follows:
Date options granted
Expiry date
Exercise price of options
Number under option
1 July 2015
21 December 2017
14 March 2018
15 November 2018
15 November 2018
Total
30 June 2020
12 June 2023
14 March 2021
15 November 2023
15 November 2028
$0.99
$3.93
Nil
$5.6582
Nil
2,125,000
600,000
1,079,365
250,000
21,445
4,075,810
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 Limited
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. 1,079,365 options were exercised in the current year.
On 15 November 2018 250,000 options were issued to overseas staff under the Pinnacle Omnibus Plan. Additionally, 32,165
performance rights were granted to non-executive directors under the plan, of which 10,720 were exercised during the year.
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
44
06 Directors’ Report (continued)Annual Report 2019 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 2019
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
14
14
14
14
12
13
14
6
14
14
14
14
12
14
14
6
5
5
5
5
3
-
-
2
-*
-*
5
5
3
-
-
2
5
5
5
5
3
-
-
2
5
-*
5
5
3
-
-
2
A Watson
I Macoun
D Beale AM
G Bradley
L Berends
A Chambers
A Whittingham
S Wilson AM
*A Watson and I Macoun attended respective meetings by invitation.
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 (Chair)
D Beale AM
L Berends
D Beale AM (Chair)
L Berends
G Bradley
A Watson
Company Secretary
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 Masters 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.
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
45
Pinnacle Investment Management 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; and
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants, 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.
During the 2019 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
2019
$
2018
$
212,650
206,056
21,299
91,198
-
20,688
68,466
-
Total remuneration for audit and other assurance services
325,147
295,210
(ii) Taxation services
Tax services
Total remuneration for taxation services
(iii) Other services
Other services
Total remuneration of PricewaterhouseCoopers Australia
Total remuneration of auditors
108,873
108,873
60,808
494,828
494,828
103,893
103,893
-
399,103
399,103
*Compliance plan audit charges are on-charged to managed funds to which responsible entity services are provided.
46
06 Directors’ Report (continued)Annual Report 2019 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 49 of the 2019 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
Chair
Pinnacle Investment Management Group Limited
Sydney
6 August 2019
47
Pinnacle Investment Management
07/12
Auditor’s
Independence
Declaration
48
Annual Report 2019 Auditor’s Independence Declaration
As lead auditor for the audit of Pinnacle Investment Management Group Limited for the year ended 30
June 2019, 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.
Ben Woodbridge
Partner
PricewaterhouseCoopers
Brisbane
6 August 2019
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
49
Pinnacle Investment Management 50
Annual Report 2019 08/12
Financial
Statements
Pinnacle Investment Management Group Limited
ABN 22 100 325 184
Financial Report – 30 June 2019
Contents
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
52
53
54
55
56
57
101
102
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 Directors’
Report, which is not part of these financial statements.
These financial statements were authorised for issue by the Directors on 6 August 2019. 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/
51
Pinnacle Investment Management 08
Financial Statements (continued)
Consolidated statement of profit or loss
For the year ended 30 June 2019
Revenue from continuing operations
Fair value gains/(losses) on financial assets at fair value through profit or loss
Employee benefits expense
Short-term incentives expense
Long-term incentives expense
Professional services expense
Property expense
Travel and entertainment expense
Technology and communications expense
Other expenses from operating activities
Notes
1
26(d)
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:
3
2019
$’000
21,123
1,246
(12,420)
(4,485)
(1,435)
(1,715)
(1,259)
(814)
(760)
(2,103)
33,133
30,511
-
2018
$’000
16,542
(1,813)
(8,190)
(4,236)
(364)
(648)
(649)
(706)
(529)
(1,168)
24,903
23,142
-
30,511
23,142
38
334
30,549
23,476
Owners of Pinnacle Investment Management Group Limited
30,549
23,476
Earnings per share:
Notes
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
18.3
17.1
18.3
17.1
14.3
13.2
14.5
13.4
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
52
Annual Report 2019 Consolidated statement of comprehensive income
For the year ended 30 June 2019
Profit for the year
Other comprehensive income:
Items that may be reclassified to profit or loss
Changes to the fair value of available-for-sale financial assets
Total comprehensive income/(loss) for the year
Total comprehensive income for the year is attributable to:
Owners of Pinnacle Investment Management Group Limited
Total comprehensive income for the year attributable to owners of Pinnacle
Investment Management Group Limited arises from:
Continuing operations
Discontinued operations
Notes
2019
$’000
2018
$’000
30,549
23,476
-
(334)
30,549
23,142
30,549
30,549
23,142
23,142
30,511
23,142
38
-
30,549
23,142
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
53
Pinnacle Investment Management 08
Financial Statements (continued)
Consolidated statement of financial position
For the year ended 30 June 2019
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Assets held at amortised cost
Total current assets
Non-current assets
Notes
2019
$’000
2018
$’000
6
7
8
9
26,720
16,055
24,464
2,234
9,332
10,563
22,156
2,011
69,473
44,062
Investments accounted for using the equity method
21
113,351
55,601
Property, plant and equipment
Intangible assets
Available-for-sale financial assets
Assets held at amortised cost
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
118
3
-
125
7
114
11
3,813
4,990
117,285
60,837
186,758
104,899
12
13
13
14
15(a)
15(b)
8,495
1,119
9,614
91
91
5,892
805
6,697
105
105
9,705
6,802
177,053
98,097
231,255
154,762
(50,694)
(46,137)
(3,508)
(10,528)
177,053
98,097
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
54
Annual Report 2019 Consolidated statement of changes in equity
For the year ended 30 June 2019
Attributable to owners of Pinnacle
Investment Management Group Limited
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Notes
Total
equity
$’000
Balance at 1 July 2017
148,834
(54,383)
(18,791)
75,660
Total comprehensive income for the year
-
(334)
23,476
23,142
Transactions with owners in their capacity as owners:
Share-based payments
Shares issued on exercise of options
Shares issued
Dividends paid to shareholders
Options issued
Share placement, net of issue costs
15(a)
16
21(a)
14
Employee loan arrangements
14,15(a)
627
2,096
698
1,519
-
-
988
5,928
(263)
-
-
-
9,498
-
(655)
8,580
-
-
-
364
2,096
698
(15,213)
(13,694)
-
-
-
9,498
-
333
(15,213)
(705)
Balance at 30 June 2018
Balance at 1 July 2018
154,762
(46,137)
(10,528)
98,097
154,762
(46,137)
(10,528)
98,097
Changes in accounting policy
30(a)(iii)
-
(114)
114
-
Balance at 1 July 2018
154,762
(46,251)
(10,414)
98,097
-
30,549
30,549
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Share-based payments
Options vested
Shares issued
Dividends paid to shareholders
Performance rights
Share purchase plan, net of issue costs
Share placement, net of issue costs
15(a)
21(a)
16
14(a)
14
-
-
1,434
4,749
(4,749)
-
2,177
61
9,860
57,677
-
-
54
-
-
Employee loan arrangements
14,15(a)
1,969
(1,182)
-
-
-
1,434
-
-
(23,643)
(21,466)
-
-
-
-
115
9,860
57,677
787
Balance at 30 June 2019
231,255
(50,694)
(3,508)
177,053
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
76,493
(4,443)
(23,643)
48,407
55
Pinnacle Investment Management 08
Financial Statements (continued)
Consolidated statement of cash flows
For the year ended 30 June 2019
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
Notes
2019
$’000
2018
$’000
15,851
12,350
(22,307)
(17,584)
27,943
17,686
64
(105)
31,703
(32,059)
222
(103)
18,003
(9,704)
20,870
(43)
446
Net cash inflow/(outflow) from operating activities
23
21,090
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of investments accounted for using the equity method
(53)
3,639
Payments for investments accounted for using the equity method
(54,930)
(6,515)
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 increase/(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
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
787
2,283
333
-
(1,500)
(5,804)
(49,774)
(11,583)
(21,465)
(13,694)
67,537
2,794
46,072
(10,900)
17,388
9,332
26,720
(1,613)
10,945
9,332
56
Annual Report 2019 Notes to the consolidated financial statements
Group Results
1 Revenue from contracts with customers and other revenue
2 Expenses
3 Income tax expense
4 Segment information
5 Earnings per share
Operating Assets and Liabilities
6 Cash and cash equivalents
7 Trade and other receivables
8 Financial assets at fair value through profit or loss
9 Assets held at amortised cost
10 Net deferred tax assets
11 Assets held at amortised cost – non-current
12 Trade and other payables
13 Provisions
Capital and Financial Risk Management
14 Contributed equity
15 Reserves and accumulated losses
16 Dividends
17 Current liabilities – financing arrangements
18 Financial risk management
19 Contingencies and commitments
Group Structure
20 Subsidiaries
21 Investments accounted for using the equity method
22 Parent Entity financial information
Additional Notes
23 Additional cash flow information
24 Related party transactions
25 Key Management Personnel
26 Share-based payments
27 Remuneration of auditors
28 Events occurring after the reporting period
29 Critical accounting estimates and judgements
30 Summary of significant accounting policies
58
58
59
60
60
61
61
62
62
62
63
63
63
64
66
67
68
68
75
76
77
80
81
82
84
85
88
88
88
89
57
Pinnacle Investment Management 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 from contracts with customers and other revenue
(a) Disaggregation of revenue from contracts with customers
The Group derives its revenue from contracts with customers from the transfer of services over time. A disaggregation of
the Group’s revenue is shown below:
Revenue from contracts with customers
Services Revenue – over time
Service charges
Other revenue
Directors fees
Interest received or due
Dividends and distributions
Other revenue
2019
$’000
2018
$’000
19,357
19,357
40
248
1,469
9
1,766
21,123
15,083
15,083
44
221
1,108
86
1,459
16,542
Dividends and distributions are received from financial assets held at fair value through profit or loss.
2 Expenses
Profit before income tax includes the following specific expenses:
2019
$’000
2018
$’000
Finance cost expense – included in other expenses from operating activities
Interest and finance charges
Total finance cost expense
Rental expense relating to operating leases – included in property costs
Minimum lease payments
Total rental expense relating to operating leases
Depreciation and amortisation expense – included in other expenses
from operating activities
Depreciation – property, plant and equipment
Total depreciation and amortisation expense
105
105
876
876
72
72
108
108
413
413
68
68
58
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 3 Income tax expense
(a) Income tax expense/(benefit)
Income tax expenses attributable to:
Continuing operations
Discontinued operations
Total income tax expense/(benefit)
Current tax
Deferred tax
Adjustments for tax in respect of prior periods
Total current tax expense
Deferred income tax expense/(benefit) included in income tax
expense/(benefit) comprises:
(Increase)/Decrease in deferred tax assets
Increase in deferred tax liabilities
Total deferred tax expense/(benefit)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Profit / Loss from discontinued operations before income tax expense
Profit before income tax
Tax at the Australian tax rate of 30% (2018: 30%)
2019
$’000
2018
$’000
-
-
-
(608)
608
-
-
608
-
608
30,511
38
30,549
9,164
-
-
-
27
(27)
-
-
(27)
-
(27)
23,142
334
23,476
7,043
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Share of profits of entities under joint control
(9,940)
(7,471)
Impairment
Non-deductible expenditure
Sundry items
Adjustments for current tax in respect of prior periods
Deferred tax assets not recognised
Total income tax expense/(benefit)
(c) Tax losses not recognised
-
466
-
(310)
-
310
-
-
138
(100)
(390)
-
390
-
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 30%
60,364
18,109
58,286
17,486
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. Deferred tax assets have
not been recognised in full on the basis that there remains uncertainty regarding the timing and quantum of the generation
of taxable profits.
(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 30(f) and further information is provided at note 30(z).
59
Pinnacle Investment Management 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
Total basic earnings per share attributable to the ordinary equity
shareholders of the company
(b) Diluted earnings per share
Attributable to the ordinary equity shareholders of the Company
From continuing operations
From discontinued operations
Total diluted earnings per share attributable to the ordinary equity
shareholders of the company
(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
2019
Cents
2018
Cents
18.3
-
18.3
17.1
-
17.1
14.3
0.2
14.5
13.2
0.2
13.4
30,511
38
30,549
23,142
334
23,476
2019
Number
2018
Number
166,781,949
161,700,282
8,239,835
10,438,184
3,724,021
3,114,346
178,745,805
175,252,812
(e) Information concerning the classification of securities
Options and loan shares 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 and loan shares have not been included in the determination of basic earnings per share.
60
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 Operating Assets and Liabilities
This section provides information regarding the assets and liabilities of the entity
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
2019
$’000
26,343
377
-
26,720
2018
$’000
8,965
367
-
9,332
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% (2018: 1.45% and 1.75%). 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
2019
$’000
7,757
4,223
3,871
204
2018
$’000
2,842
6,906
707
108
16,055
10,563
(a) Fair values of trade receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
(b) Impairment and risk exposure
Information about the impairment of trade receivables and the Group’s exposure to credit risk, foreign currency risk and
interest rate risk can be found in notes 18(a) and 18(b).
61
Pinnacle Investment Management 8 Financial assets at fair value through profit or loss
Australian listed securities
Other unlisted equity securities
Derivative financial assets
Unlisted unit trusts
2019
$’000
12,615
479
712
10,658
24,464
2018
$’000
10,783
364
739
10,270
22,156
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 Assets held at amortised cost
Loans to entities under joint control
2019
$’000
2,234
2,234
2018
$’000
2,011
2,011
Loans to entities under joint control includes any adjustments for accumulated equity accounted losses where the
associated equity investment value is less than zero as a result of accumulated losses being greater than the carrying
value of the investment.
As outlined in note 30(l)(ii) 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.
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
2019
$’000
315
(315)
-
-
315
315
(315)
-
2018
$’000
154
(154)
-
154
-
154
(154)
-
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 income 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
62
302
13
315
134
20
154
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 11 Assets held at amortised cost – non-current
Loans to related parties
Note
24
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
(a) Movements in provisions
Movements in each class of provision during the financial year are set out below:
Current
Balance at 1 July 2018
Amounts provided for during the year
Balance at 30 June 2019
Non-Current
Balance at 1 July 2018
Amounts utilised during the year
Balance at 30 June 2019
2019
$’000
3,813
3,813
2019
$’000
2,513
1,303
4,238
441
8,495
2019
$’000
1,119
1,119
91
91
2018
$’000
4,990
4,990
2018
$’000
477
1,042
4,067
306
5,892
2018
$’000
805
805
105
105
Employee
Benefits
$’000
805
314
1,119
105
(14)
91
63
Pinnacle Investment Management 14 Contributed equity
(a) Share capital
Ordinary shares:
2019
Shares
2018
Shares
2019
$’000
2018
$’000
Fully paid contributed equity (b)
169,676,000
153,905,571
Total contributed equity
169,676,000
153,905,571
231,255
231,255
154,762
154,762
(b) Movements in ordinary share capital
Date
Details
Number of shares
Issue price
$’000
1 July 2017
Opening balance
149,818,238
Issue of ordinary shares on exercise of
options
2,125,000
$0.99
Share-based payment
Issue of ordinary shares
Dividend reinvestment
Treasury stock vested (d)
30 June 2018
Closing balance
Issue of ordinary shares on exercise
of options
Transfer from options reserve on exercise
of options
Share placement, net of issue costs
Share purchase plan, net of issue costs
Issue of ordinary shares on exercise of
performance rights
Transfer from performance rights reserve
on exercise of performance rights
Dividend reinvestment
Treasury stock vested (d)
30 June 2019
Closing balance
(c) Ordinary shares
708,192
415,646
838,495
153,905,571
1,079,368
-
10,909,091
1,811,402
10,720
-
333,199
1,626,649
169,676,000
$0.99
$3.65
-
-
$5.50
$5.50
-
-
$6.53
148,834
2,095
627
699
1,519
988
154,762
-
4,749
57,677
9,860
-
61
2,177
1,969
231,255
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.
64
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 (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. The value ascribed to treasury stock is the
value of the loans secured by share mortgage at period end.
Treasury stock movement for the year includes the issue of 4.8 million loan shares to employees, including executive
directors, issued under the Pinnacle Omnibus Plan approved by the Board on 22 August 2018. Shares issued to executive
directors were approved by shareholders at the AGM on 18 October 2018.
Date
Details
1 July 2017
Opening balance
Loan share repayments
Treasury stock vested during the year
30 June 2018
Closing balance
Issue of loan shares under Pinnacle Omnibus Plan
Loan share repayments
Treasury stock vested during the year
30 June 2019
Closing balance
(e) Employee share plans
Number of
treasury shares
10,857,431
(838,495)
10,018,936
4,800,000
(1,626,649)
13,192,287
$’000
6,836
(333)
(655)
5,848
30,978
(786)
(1,074)
34,966
Information relating to the Pinnacle Investment Management Group Employee Option Share Plan and Pinnacle Omnibus
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 26.
(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
licences held by subsidiaries. There have been no reportable instances of non-compliance with externally imposed capital
requirements in the current period.
65
Pinnacle Investment Management 15 Reserves and accumulated losses
(a) Reserves
Share-based payments reserve
Options reserve
2019
$’000
4,106
4,749
2018
$’000
3,854
9,498
Transactions with non-controlling interests reserve
(59,603)
(59,603)
Performance rights reserve
Available-for-sale financial assets reserve*
*Reclassified to retained earnings upon adoption of AASB 9 on 1 July 2018 (see note 30(a)(iii)).
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
Balance at 30 June
Options reserve
Balance at 1 July
Options issued (refer note 21(a))
Options exercised
Balance at 30 June
Transactions with non-controlling interests reserve
Balance at 1 July
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
54
-
-
114
(50,694)
(46,137)
3,854
1,434
-
(1,182)
4,106
9,498
-
(4,749)
4,749
4,772
364
(627)
(655)
3,854
-
9,498
-
9,498
(59,603)
(59,603)
(59,603)
(59,603)
-
-
-
448
(334)
114
*$114,000 reclassified from available-for-sale financial assets to retained earnings upon adoption of AASB 9 on 1 July 2018 (see note 30(a)(iii)).
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 and Pinnacle Omnibus
Incentive Plan approved by the Board on 22 August 2018.
The available-for-sale financial assets reserve was used up until 1 July 2018 to recognise changes in the fair value of available-
for-sale financial assets. This has been reclassified at 1 July 2018 to retained earnings following the adoption of AASB 9 (see
note 30(a)(iii)).
66
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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.
The options reserve is used to recognise the value of zero-priced options issued by Pinnacle associated with investments in
entities under joint control (see note 21).
(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
16 Dividends
(a) Ordinary shares
2019
$’000
(10,414)
30,549
(23,643)
(3,508)
2018
$’000
(18,791)
23,476
(15,213)
(10,528)
2019
$’000
2018
$’000
Interim dividend for the year ended 30 June 2019 of 6.1 cents per fully paid ordinary
share paid on 22 March 2019 (2018: 4.6 cents paid on 23 March 2018)
Fully franked based on tax paid @ 30.0%
11,095
7,501
Final dividend for the year ended 30 June 2018 of 7.0 cents per fully paid ordinary
share paid on 5 October 2018 (2018: 4.8 cents paid on 6 October 2017)
Fully franked based on tax paid @ 30.0%
Total dividends paid
12,548
23,643
7,712
15,213
(b) Dividends not recognised at the end of the reporting period
In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 9.3
cents per fully paid ordinary share (2018: 7.0 cents). The aggregate amount of the proposed dividend to be paid on 4 October
2019 out of retained earnings at 30 June 2019, but not recognised as a liability at year end, is $17,007,000 ($12,547,000).
(c) Franked dividends
The final dividends recommended after 30 June 2019 will be fully franked out of existing franking credits.
Franking credits available for subsequent financial years based on a tax rate of
30% (2018: 30%)
2019
$’000
2018
$’000
28,779
26,869
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.
67
Pinnacle Investment Management 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 2020. Details of the facility are as follows:
Bank guarantees (amount used at balance date - $5,301,000)
Corporate credit card (amount used at balance date – $72,000)
2019
$’000
5,500
660
6,160
2018
$’000
5,500
360
5,860
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 bank guarantees are set out below:
Current
Cash and cash equivalents
Receivables
Total current assets pledged as security
Non-current
Plant and equipment
Total non-current assets pledged as security
Total assets pledged as security
2019
$’000
2018
$’000
1
493
494
18
18
512
1
486
487
34
34
521
(b) Interest rate risk exposure
Information about the Group’s exposure to interest rate changes in provided in note 18.
18 Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk, foreign currency 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.
68
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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 jointly controlled associates (including Affiliate executives) (non-current)
Loans to jointly controlled associates (including Affiliate executives) (current)
Financial liabilities
Trade and other payables
2019
$’000
2018
$’000
26,720
15,851
24,464
-
3,813
2,234
73,082
8,495
8,495
9,332
10,455
22,152
114
4,990
2,011
49,054
5,892
5,892
*Excludes prepayments (see note 7)
**Reclassified to financial assets at fair value through profit or loss upon adoption of AASB 9 on 1 July 2018.
(a) Market risk
(i) Foreign exchange risk
The Group is not materially exposed to foreign exchange risk. All of its major contracts with counterparties are denominated
and settled in Australian Dollars, which is the reporting and operating currency of the Group. Substantially all of the Group’s
principal investments are also quoted and priced in Australian Dollars.
(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 as shown in the table below:
Assets
Australian listed equity securities
Other unlisted equity securities
Unlisted unit trusts
Derivative financial instruments - futures
Total assets at FVPL
30 June
2019
$’000
12,615
479
10,658
712
24,464
2018
$’000
10,783
364
10,270
739
22,270
69
Pinnacle Investment Management 18 Financial risk management (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% at 30 June 2019 (2018: +/- 15%) 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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Group
+799/-799
+2,515/-2,515
+799/-799
+2,515/-2,515
(iii) Interest rate risk
The Group’s main interest rate risk arises from holding cash and cash equivalents. During 2019 and 2018, 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 2019
30 June 2018
Weighted
average
interest rate
%
1.17%
Weighted
average
interest rate
%
1.17%
Floating
interest rate
$’000
26,720
26,720
Floating
interest rate
$’000
9,332
9,332
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 in AASB 7.
Sensitivity
At 30 June 2019, 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 $187,000 lower/higher (2018: change of 100 basis points:
$65,000 lower/higher).
(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 significant 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)
*Excludes prepayments (see note 7).
**Reclassified to financial assets at fair value through profit or loss upon adoption of AASB 9 on 1 July 2018.
70
2019
$’000
26,720
15,851
24,464
-
2,234
3,813
73,082
2018
$’000
9,332
10,455
22,152
114
4,990
2,011
49,054
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 Impaired trade, other and loan receivables
The Group has two types of financial assets that are subject to the expected credit loss model:
• Trade and other receivables
• Loans to joint associates
While cash and cash equivalents and financial assets at fair value through profit or loss are also subject to the impairment
requirements of AASB 9, the identified impairment loss was nil.
Loans to joint associates (including Affiliate executives)
All loans to joint associates are considered low credit risk, have had no significant increase in credit risk during the year, and
as such the loss allowance was limited to 12 months expected credit losses. Loans to joint associates are considered to be
low credit risk when they have a low risk of default and the borrower has a strong capacity to meet its contractual cash flow
obligations in the near term. New loans provided to joint associates are only provided once the underlying prospects of the
entity have been fully evaluated. Additionally, loans to individuals to purchase shares are structured in such a way that they
are either full recourse or secured on the shares issued. As such, at 30 June 2019 and 30 June 2018, the expected credit
loss rate in relation to loans to joint associates was 0% and the loss allowance was $nil.
Refer to note 30(l) for more information on the investments and other financial assets policy of the Group.
Trade and other receivables
The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. The expected loss rate and loss allowance has been assessed as $nil as at 30 June 2019
(30 June 2018: $nil). This is because there is no history of default and revenue is generated primarily through investments
in jointly controlled entities, hence the recoverability of receivables can be determined with a high degree of certainty on
a forward-looking basis. Furthermore, the Group also considered the classification of trade receivables as shown below.
Refer to note 30(k) for more information on the trade receivables policy of the Group.
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 thus have no expected credit loss due to the reasons above.
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, with no change in credit risk based on the value of the
underlying equities and the financial position of the client or counterparty and as such there is no expected credit loss.
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 and thus would result in
an expected credit loss. This is $nil as at 30 June 2019 (2018: $nil).
Trade and other receivables
Neither past due nor impaired
Past due but not impaired
Loans held at amortised cost
Neither past due nor impaired
Total trade, other and loan receivables
2019
$’000
2018
$’000
16,055
-
16,055
6,047
6,047
10,455
-
10,455
7,001
7,001
71
Pinnacle Investment Management 18 Financial risk management (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-
(c) Liquidity risk
2019
$’000
26,720
26,720
2018
$’000
9,332
9,332
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 2019 the Group has $51.2 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.
Contractual maturities of financial liabilities
At 30 June 2019
Trade and other payables
Total financial liabilities
At 30 June 2018
Trade and other payables
Total financial liabilities
1 - 30 days
$’000
30 days to
90 days
$’000
90 days to
1 year
$’000
Total
contractual
cash flows
$’000
Carrying
amount
$’000
$'000
4,258
4,258
1,824
1,824
$'000
4,237
4,237
4,068
4,068
$'000
-
-
-
-
$'000
8,495
8,495
5,892
5,892
$'000
8,495
8,495
5,892
5,892
72
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 (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 and liabilities measured and recognised at fair value:
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
30 June 2019
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 2019.
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.
12,615
-
10,658
712
-
23,985
10,783
-
10,270
739
-
21,792
-
-
-
-
-
-
-
-
-
-
-
-
-
479
-
-
-
12,615
479
10,658
712
-
479
24,464
-
364
-
-
114
478
10,783
364
10,270
739
114
22,270
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.
The fair value of Australian listed securities and exchange traded futures 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 and trade receivables and payables, are assumed to approximate
their fair values due to their short-term nature. Loans to entities under joint control and loans to shareholders are carried
at amortised cost. 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.
73
Pinnacle Investment Management 18 Financial risk management (continued)
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 2019
and 30 June 2018:
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
Contingent consideration received
Fair value adjustments recognised in profit or loss
Closing balance 30 June 2019
(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
448
-
(334)
114
(152)
38
-
364
-
-
364
-
115
479
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. 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.
74
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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 (2018: $5,000,000)
(ii) Pinnacle RE Services Limited - $50,000 (2018: $50,000)
(iii) Pinnacle Services Administration Pty Limited - $251,000 (2018: $nil)
The unused bank guarantee facility available at balance date was $199,000 (30 June 2018: $450,000). The Group has also
provided guarantees in relation to its corporate credit card facility (facility limit of $660,000 of which $588,000 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.
(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
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
2019
$’000
1,583
2,695
4,278
2019
$’000
-
-
-
2018
$’000
1,110
3,512
4,622
2018
$’000
29
-
29
(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 24.
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
2019
$’000
2018
$’000
-
-
-
3,000
-
3,000
75
Pinnacle Investment Management 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 30(b). The country of incorporation of all subsidiaries is also their
principal place of business.
Equity holding
Name of entity
Country of
incorporation
Class of security
2019
%
2018
%
Pinnacle Investment Management Limited
Australia
Ordinary share
Pinnacle Funds Services Limited
Australia
Ordinary share
Pinnacle Services Administration Pty Ltd
Australia
Ordinary share
Pinnacle RE Services Limited
Priority Funds Management Pty Ltd
Australia
Ordinary share
Australia
Ordinary share
Priority Investment Management Pty Ltd
Australia
Ordinary share
Ariano Pty Ltd
Next Financial Holdings Pty Ltd
PNI Option Plan Managers Pty Ltd
Australia
Ordinary share
Australia
Ordinary share
Australia
Ordinary share
Pinnacle Investment Management (UK) Ltd
United Kingdom
Ordinary share
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
76
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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
Unlisted
Ownership interest
Carrying value
Principal Activity
2019
%
2018
%
2019
$’000
2018
$’000
Plato Investment Management Limited
Funds Management
Palisade Investment Partners Limited
Funds Management
Hyperion Holdings Limited
Foray Enterprises Pty Limited
Solaris Investment Management Ltd
Spheria Asset Management Pty Ltd
Funds Management
Funds Management
Funds Management
Funds Management
Antipodes Partners Holdings Pty Ltd
Funds Management
Two Trees Investment Management Pty Ltd
Funds Management
Firetrail Investments Limited
Metrics Credit Holdings Pty Limited
Omega Global Investors Pty Limited
Funds Management
Funds Management
Funds Management
Longwave Capital Partners Pty Limited
Funds Management
Riparian Capital Partners Pty Limited
Funds Management
Other
Funds Management
43.15
35.98
49.99
43.50
40.00
40.00
23.57
43.96
23.50
35.00
40.00
40.00
40.00
46.64
38.34
49.99
425
5,645
1,728
8,328
11,492
11,002
41.50
16,362
13,395
40.00
40.00
23.57
43.96
24.35
-
-
-
-
4,009
1,559
6,950
-
3,946
1,497
4,904
-
14,797
10,801
48,881
1,839
420
588
384
-
-
-
-
-
113,351
55,601
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 2 August 2018 the Company completed the acquisition of a 35% interest in Metrics Credit Partners Pty Limited (MCP)
for $46 million through its wholly owned subsidiary PIML. Following this investment MCP has approximately $40 million of
excess cash to deploy in support of its medium-term growth initiatives.
On 23 July 2018 the Company also completed the acquisition of a 40% interest in Omega for $2 million upfront and up to a
$1.2 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, as well as the Share Purchase Plan (SPP) which
raised $10 million (see note 14).
During the prior year, PIML entered into an agreement with Firetrail Investments Pty Ltd for a 24.35% ownership interest.
This was funded partly by cash and partly by zero-priced options issued by Pinnacle.
77
Pinnacle Investment Management 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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Summarised statement of financial position
Total current assets
9,044
17,207
16,766
13,771
25,410
19,239
11,854
12,513
Total non-current assets
17,898
7,671
5,763
3,376
6,404
4,450
438
548
Total current liabilities
(4,068)
(2,999)
(10,467)
(8,298)
(13,107)
(10,626)
(4,191)
(4,943)
Total non-current liabilities
(110)
(97)
(636)
(90)
(5,036)
(81)
(44)
(218)
Net Assets
Group share in %
22,764
21,782
11,426
8,759
13,671
12,982
8,057
7,900
49.99% 49.99% 43.5% 41.5% 35.98% 38.3% 40.0% 40.0%
Reconciliation to carrying amounts
Opening net assets 1 July
21,782
10,898
8,759
10,327
12,982
9,996
7,900
7,418
Issued shares
Reserves
-
-
-
-
-
65
-
22
-
136
-
40
-
-
-
-
Total comprehensive income
15,641
15,898
15,102
10,410
9,559
9,823
11,857
10,482
Dividends paid
(14,659)
(5,014)
(12,500)
(12,000)
(9,006)
(6,877)
(11,700)
(10,000)
Closing net assets
22,764
21,782
11,426
8,759
13,671
12,982
8,057
7,900
Group's share of net assets
11,380
10,889
4,970
3,635
4,919
4,978
3,223
3,160
Excess consideration over share of
net assets
112
113
11,392
9,760
726
3,350
786
786
Carrying amount
11,492
11,002
16,362
13,395
5,645
8,328
4,009
3,946
Summarised statement of comprehensive income
Revenue
31,217
30,245
37,192
28,973
25,600
25,331
24,582
21,851
Net profit for the year after tax
15,641
15,898
15,102
10,410
9,559
9,823
11,857
10,482
Other comprehensive income
-
-
-
-
-
-
-
-
Total comprehensive income
15,641
15,898
15,102
10,410
9,559
9,823
11,857
10,482
Dividends received from joint venture
entities
*Holding company for Resolution Capital Limited.
(7,328)
(2,507)
(5,278)
(5,010)
(3,410)
(2,704)
(4,680)
(4,000)
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
78
2019
$’000
75,842
10,725
-
10,725
2018
$’000
18,930
4,688
-
4,688
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 (c) Movements in carrying amounts
Carrying amount at the beginning of the financial year
Purchase of shares in entities under joint control
Sales of shares in entities under joint control
Share of profit after income tax
Adjustment for loan 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
2019
$’000
55,601
54,930
(3,639)
33,133
354
(27,028)
113,351
2019
$’000
85,778
(39,732)
46,046
(12,913)
33,133
2019
$’000
61,156
32,635
93,791
26,191
17,773
43,964
49,827
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
79
Pinnacle Investment Management Additional Notes
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)
(b) Guarantees entered into by the Parent Entity
Details of guarantees entered into by the Group are provided at note 19.
2019
$’000
2018
$’000
584
129,655
130,239
262
9,588
9,850
120,389
231,255
(62,794)
(48,072)
120,389
22,079
22,079
55,648
23,851
79,499
27,394
-
27,394
52,105
154,762
(56,688)
(45,969)
52,105
13,043
13,043
80
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019
23 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
Reinvested distributions received
Equity settled share-based payments
Net losses/(gains) on financial assets at fair value through profit or loss
Assets at amortised cost
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 at FVTPL
Trade and other payables
Provisions
Net cash (outflow)/inflow from operating activities
2019
$’000
26,720
26,720
2019
$’000
30,549
64
(554)
1,549
(1,695)
(183)
(5,492)
(6,106)
56
2,602
300
21,090
2018
$’000
9,332
9,332
2018
$’000
23,476
98
-
364
(227)
-
(4,125)
(7,700)
9,645
(500)
(161)
20,870
The reconciliation of net cash flow from operating activities to profit/(loss) includes both continuing and discontinued operations.
81
Pinnacle Investment Management 24 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 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 and Compensation
Disclosure relating to Key Management Personnel is set out in note 25.
Disclosure relating to share-based payments is set out in note 26.
(d) Transactions with other related parties
The following transactions occurred with related parties:
(i) Movement in loans to Key Management Personnel - loans provided 25 August 2016
Upon acquisition of the non-controlling interests of Pinnacle Investment Management Limited, the Company provided
senior executives of its subsidiary Pinnacle Investment Management Limited with loans totaling $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 $13,207 accrued on each of these loans to Key Management Personnel. The balance of each loan
at 30 June 2019 including capitalised interest was $536,748.
(ii) Movement in loans to Key Management Personnel – loans re-issued 25 August 2016
Upon acquisition of the non-controlling interest of Pinnacle Investment Management Limited, 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
82
Loan balance
1 July 2018
$
Repayments
made
$
Loan balance
30 June 2019
$
469,520
681,631
703,774
703,774
(75,469)
(42,686)
(75,469)
(75,469)
394,051
638,945
628,305
628,305
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019
(iii) Loan shares issued under the Pinnacle Omnibus Plan
During the year to 30 June 2019, 1.7 million loan shares were issued to Key Management Personnel under the Pinnacle
Omnibus Plan, approved by the Board on 22 August 2018. The shares are subject to service and performance conditions
and will vest after five years, if the conditions are met. The loans are interest free and limited in recourse to the shares.
They are repayable 10 years from grant date, on termination of employment or when the underlying equity is sold,
whichever occurs earlier.
The value of the loans issued for each of the Key Management Personnel at period end and repayments made during the
half year were as follows:
Key Management Personnel
Ian Macoun
Alex Ihlenfeldt*
Adrian Whittingham
Andrew Chambers
Loan balance
1 July 2018
$
Repayments
made
$
Loan balance
30 June 2019
$
1,697,460
2,187,510
1,697,460
4,526,560
(13,855)
(29,754)
(13,855)
(36,946)
1,683,605
2,157,756
1,683,605
4,489,614
* Shares were issued to Mr Ihlenfeldt prior to the dividend paid on 5 October 2018.
Shares were issued to the other KMP subsequent to the AGM on 15 October 2018.
(iv) Loans to other Related Parties
On 27 October 2017, a subsidiary of the Company provided loan funding totalling $5.226 million 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.
During the year, interest of $0.2 million accrued on these loans and repayments of $1.4 million were made. The balance of
the loans at 30 June 2019 including capitalized interest was $3.813 million.
On 27 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. During the year, the Company sold a portion of its additional equity in Palisade for a total of $2.8 million.
The sale proceeds are 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
Share of equity accounted losses from Affiliates
Balance at 30 June
(f) Guarantees
The Group has provided guarantees to subsidiaries as described in note 19.
2019
$
2018
$
7,000,823
1,500,000
183,671
(2,282,847)
(354,629)
6,047,018
932,266
6,934,223
146,568
(368,000)
(644,234)
7,000,823
83
Pinnacle Investment Management 25 Key Management Personnel
(a) Key Management Personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
2019
$’000
2018
$’000
2,853,750
3,284,616
100,000
(15,027)
601,620
100,000
11,200
369,390
Total Key Management Personnel compensation
3,540,343
3,765,206
Certain Key Management Personnel are party to the long-term employee incentive arrangement described in note 30(r)(vii).
At 30 June 2019, the balance of loans issued to Key Management Personnel was $12,304,146 (2018: $2,558,701) relating to
4,685,272 shares issued in the Company (2018: 2,985,272 shares).
Detailed remuneration disclosures for Key Management Personnel are provided in the Remuneration Report.
(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
2019
2018
4,652,865
52,828
10,108,990
(363,502)
4,794,426
51,529
-
(193,090)
-
-
14,451,181
190,226
4,652,865
201,014
4
4
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.
84
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 26 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:
Expiry
date
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
2019
1 Jul 2016 (B)
30 Jun 2020
$0.986
2,125,000
Weighted average exercise price
2018
2,125,000
$0.99
1 Jul 2016 (A)
30 Jun 2018
$0.986
2,125,000
1 Jul 2016 (B)
30 Jun 2020
$0.986
2,125,000
Weighted average exercise price
4,250,000
$0.99
-
-
-
-
-
-
-
-
-
$0.99
(2,125,000)
-
(2,125,000)
$0.99
-
-
-
-
-
-
-
2,125,000
2,125,000
$0.99
-
2,125,000
2,125,000
$0.99
-
-
-
-
-
-
-
No options were exercised during the current year (2018: 2,125,000). In the current year, the weighted average share price at
the date of exercise of options exercised during the year was $nil (2018: $4.35). The weighted average remaining contractual
life of share options outstanding at the end of the year was 1.0 year (2018: 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 30(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 six months after vesting. The fair value of options was 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%
85
Pinnacle Investment Management 26 Share-based payments (continued)
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 six months after vesting. The fair value of options was 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%
(b) Pinnacle Long-term Employee Incentive Plan
Information regarding the Pinnacle Long-term Employee Incentive Plan is provided in notes 30(r)(vii) and 25(a).
(c) Pinnacle Omnibus Plan
The establishment of the Pinnacle Omnibus Plan was approved by the Board on 22 August 2018 and by shareholders at
the AGM on 18 October 2018. The Omnibus Plan is designed to provide long-term incentives for staff (including executive
and non-executive directors) to deliver long-term shareholder returns. The plan provides for the ability to offer options,
performance rights and loan funded Shares to staff. Under the plan, the shares and options only vest if certain service and
performance 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 and loan shares granted under the plan:
(i) Loan Shares
Grant
date
2019
Expiry
date
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
17 Sep 2018
16 Sep 2023
$7.2917
15 Nov 2018
14 Nov 2023
$5.6582
12 Mar 2019
11 Mar 2024
$5.1234
Weighted average exercise price
-
-
-
-
-
2,600,000
1,400,000
800,000
4,800,000
$6.45
-
-
-
-
-
-
-
-
-
-
2,600,000
1,400,000
800,000
4,800,000
$6.45
-
-
-
-
-
4,800,000 loan shares were issued to staff during the financial year. The shares are subject to service and performance
conditions and will vest after five years, if the conditions are met. The loans are interest free (until vesting date) and limited in
recourse to the shares. They are repayable 10 years from grant date, on termination of employment or when the underlying
equity is sold, whichever occurs earlier. Loan shares issued under the plan carry dividend and voting rights.
Fair value of interests granted – 17 September 2018
The fair value of loan shares 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: $2.59 per loan share
• Exercise price: $7.2917
• Grant date: 17 September 2018
• Vesting date: 16 September 2023
• Share price at grant date: $7.31
• Expected price volatility of the Company’s shares: 36%
• Expected dividend yield: 0.00%
• Risk free interest rate: 2.28%
86
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 Fair value of interests granted – 15 November 2018
The fair value of loan shares 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: $2.17 per loan share
• Exercise price: $5.6582
• Grant date: 15 November 2018
• Vesting date: 14 November 2023
• Share price at grant date: $5.64
• Expected price volatility of the Company’s shares: 40%
• Expected dividend yield: 0.00%
• Risk free interest rate: 2.28%
Fair value of interests granted – 12 March 2019
The fair value of loan shares 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: $2.31 per loan share
• Exercise price: $5.1234
• Grant date: 12 March 2019
• Vesting date: 11 March 2024
• Share price at grant date: $5.18
• Expected price volatility of the Company’s shares: 49%
• Expected dividend yield: 0.00%
• Risk free interest rate: 1.76%
(ii) Options
Expiry
date
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
2019
15 Nov 2018
14 Nov 2023
$5.6582
250,000
Weighted average exercise price
250,000
$5.66
-
-
-
-
-
-
-
-
-
250,000
250,000
$5.66
-
-
-
Fair value of interests granted – 15 November 2018
250,000 options were granted for no consideration and vest based on fulfilment of specified service and performance
conditions and will vest after five years if the conditions are met. 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: $1.86 per option
• Exercise price: $5.6582
• Grant date: 15 November 2018
• Vesting date: 14 November 2023
• Share price at grant date: $5.64
• Expected price volatility of the Company’s shares: 40%
• Expected dividend yield: 1.6%
• Risk free interest rate: 2.28%
Options issued under the plan carry no dividend and voting rights.
87
Pinnacle Investment Management 26 Share-based payments (continued)
(d) 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 Omnibus Plan
Pinnacle Long-term Employee Incentive Plan
Total share-based payment transactions
2019
$’000
153
1,210
72
1,435
2018
$’000
277
-
87
364
27 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:
(a) PricewaterhouseCoopers Australia
(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
2019
$’000
2018
$’000
212,650
206,056
21,299
91,198
-
20,688
68,466
-
Total remuneration for audit and other assurance services
325,147
295,210
(ii) Taxation services
Tax services
Total remuneration for taxation services
(iii) Other services
Other services
Total remuneration of PricewaterhouseCoopers Australia
Total remuneration of auditors
108,873
108,873
60,808
494,828
494,828
103,893
103,893
-
399,103
399,103
*Compliance plan audit charges are on-charged to managed funds to which responsible entity services are provided.
28 Events occurring after the reporting period
On 1 July 2019, the Company entered into a convertible shareholder loan agreement with Omega, an Affiliate of the
Company. The loan is for a maximum of $500,000, is interest-bearing and has a term of two years. If conversion
conditions are met, the loan will convert into equity at a rate of 0.99% for every $50,000 such that if the entire loan
converted to equity, the Company would own an additional 9.9% of Omega.
29 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
88
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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 non-financial assets
The Group tests at least annually whether assets have suffered any impairment, in accordance with the accounting policy
stated in note 30(i). Where required, the recoverable amounts of assets have been determined based on value-in-use
calculations. These calculations require the use of assumptions. For impairment policies regarding financial assets see
notes 30(k) and 30(l).
(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 30(b) for further details).
(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 30(r)(iv) and 26 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 through to the date of signing the Financial Report.
30 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 and the Group had to change
its accounting policies as a result of adopting the following standards:
• AASB 9 Financial Instruments, and
• AASB 15 Revenue from Contracts with Customers.
The impact of the adoption of these standards and the new accounting policies are disclosed below. The other standards
did not have any impact on the Group’s accounting policies.
(iii) AASB 9 Financial Instruments – Impact of adoption
The Group has adopted AASB 9 Financial Instruments from 1 July 2018.
89
Pinnacle Investment Management 30 Summary of significant accounting policies (continued)
AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial
assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies and adjustments
to the amounts recognised in the financial statements. The new accounting policies are set out in notes 30(k) and 30(l). In
accordance with the transitional provisions in AASB 9 (7.2.15) and (7.2.26), comparative figures have not been restated.
Under the new requirements the four current categories of financial assets have been replaced with three measurement
categories, namely fair value through profit and loss, fair value through other comprehensive income, and amortised cost.
On 1 July 2018 (the date of initial application of AASB 9), the Group’s management has assessed which business models
apply to the financial assets held by the Group and has classified its financial instruments into the appropriate AASB 9
categories. The result of this reclassification was to reclassify the available-for-sale financial asset (30 June 2018: $114,000)
to financial assets at fair value through profit and loss (FVTPL). There was no impact to the classification of other financial
assets or loans to joint associates (including Affiliate executives) included in other assets (current and non-current) and
they will continue to be recognised at amortised cost. Financial assets held at fair value through profit or loss (including
derivatives) also remain unchanged.
The total impact on the Group’s retained earnings as at 1 July 2018 is as follows:
Closing accumulated losses 30 June 2018
Reclassify investments from available-for-sale to FVPL
Opening accumulated losses 1 July 2018
2019
$’000
(10,528)
114
(10,414)
There is no impact on the Group’s accounting for financial liabilities held at fair value, as the Group does not have any such
financial liabilities. Trade payables also remain unchanged.
Similarly, the new hedging rules have also had no impact, as the Group does not undertake hedge accounting.
The new impairment model introduces the expected credit loss (ECL) model which could result in the earlier recognition of
credit losses, however there is no impact to impairment provisions to date as the expected credit loss rate is nil.
See notes 30(k) and 30(l).
(iv) AASB 15 Revenue from Contracts with customers – Impact of adoption
The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018.
AASB 15 Revenue from Contracts with Customers, which replaced AASB 18 Revenue and AASB 11 Construction Contracts.
It applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard
establishes a more systematic approach for revenue measurement and recognition by introducing a five-step model
governing revenue recognition. The five-step model requires the Group to (i) identify the contract with the customer, (ii)
identify each of the performance obligations included in the contract, (iii) determine the amount of consideration in the
contract, (iv) allocate the consideration to each of the identified performance obligations and (v) recognise revenue as each
performance obligation is satisfied.
There is no impact from the adoption of AASB 15 in relation to the timing of when the Group recognises revenues.
Revenue for providing services is recognised in the accounting period when the services are rendered. Fees are not
recognised where there is a risk of significant revenue reversal.
(v) 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 2018.
(vi) 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.
(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 2019 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”.
90
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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 30(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 26(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 30(i).
(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.
91
Pinnacle Investment Management 30 Summary of significant accounting policies (continued)
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 and presentation 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.
(e) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net
of amounts collected on behalf of third parties. The Group recognises revenue based on the principle that revenue is
recognised when control of a good or service transfers to a customer.
Revenue is recognised for the major business activities as follows:
(i) Service charges
Revenue for providing services is recognised over time using the output method in the accounting period when the services
are rendered. Fees are not recognised where there is a risk of significant revenue reversal. Where the contracts include
multiple performance obligations, the transaction will be allocated based on the standalone selling prices. Consideration is
payable when invoiced.
(ii) Interest received or due
Interest income is recognised using the effective interest method. Interest income is calculated by applying the effective
interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-
impaired. For credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the net
carrying amount of the financial asset (after deduction of the loss allowance).
(iii) Dividends and distributions
Dividends and distributions 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 30(i)).
(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.
92
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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 30(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.
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 non-financial assets
Non-financial 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
93
Pinnacle Investment Management 30 Summary of significant accounting policies (continued)
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 loss allowance. Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are
all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional
unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade
receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised
cost using the effective interest method.
For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires lifetime expected
losses to be recognised from initial recognition of the receivables. The expected loss rates are based on the payment
profiles of sales over a period of 36 months before the reporting date and the corresponding historical credit losses
experienced within this period. The historical loss rates are also adjusted to reflect current and forward-looking information
on factors affecting the ability of the customers to settle the receivables.
Trade receivables are written off if there is no reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a
failure to make contractual payments for a period of greater than 180 days past due. Impairment losses on trade receivables
are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are
credited against the same line item.
Previous accounting policy for impairment of trade receivables
Collectability of trade receivables were reviewed on an ongoing basis. Debts which were known to be uncollectable were
written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) was
used when there was objective evidence that the Group would not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganisation and default or delinquency in payments (more than 30 days overdue) were considered indicators that
the trade receivable was impaired. The amount of the impairment allowance was 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 were not discounted if the effect of discounting was immaterial.
The amount of the impairment loss was recognised in the consolidated statement of comprehensive income within other
expenses. When a trade receivable for which an impairment allowance had been recognised became uncollectable in a
subsequent period, it was written off against the allowance account. Subsequent recoveries of amounts previously written
off were credited against other expenses in the consolidated statement of comprehensive income.
(l) Investments and other financial assets
Classification and measurement
The classification and measurement of financial instruments is determined by the accounting standard AASB 9 Financial
Instruments. AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets
and liabilities, and is driven by the Group’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial instruments.
In accordance with AASB 9 Financial Instruments: Recognition and Measurement, the Group’s investments and other
financial assets are categorised in one of the three categories: amortised cost, fair value through other comprehensive
income and fair value through profit or loss.
(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
94
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 category if acquired principally for the purpose of selling in the short term. Derivatives are also carried at fair value through
profit or loss unless they are designated as hedges (see note 30(m) for further details about the types of derivatives held).
At initial recognition, the Group measures a financial instrument at fair value through profit or loss at its fair value. Transaction costs
of financial assets and liabilities at fair value through profit or loss are expensed in the statement of comprehensive income.
Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Gains
and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are
presented in the statement of comprehensive income within net gains/(losses) on financial instruments at fair value through
profit or loss in the period in which they arise.
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 at amortised cost
A financial asset is classified at amortised cost if the objective of the business model is to hold the financial asset for the
collection of the contractual cash flows and the contractual cash flows under the instrument represent solely payments
of principal and interest (SPPI) on the principal outstanding. This comprises loans to joint associates (including affiliate
executives) which are included in other current and non-current assets within the statement of financial position.
Loans are held for collection of contractual cash flows and the contractual cash flows under the instrument represent solely
payments of principal and interest (SPPI) on the principal outstanding. Loans assets are measured initially at fair value plus
transaction costs and subsequently at amortised cost using the effective interest rate method, less impairment losses if any.
Such assets are reviewed at each reporting date to determine whether there is objective evidence of impairment.
At each reporting date, the Group measures the loss allowance on loans at an amount equal to the lifetime expected credit
losses if the credit risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not
increased significantly since initial recognition, the Group shall measure the loss allowance at an amount equal to 12-month
expected credit losses. Significant financial difficulties of the counterparty, probability that the counterparty will enter
bankruptcy or financial reorganisation, and default in payments are all considered indicators that a loss allowance may be
required. If the credit risk increases to the point that it is considered to be credit impaired, interest income will be calculated
based on the gross carrying amount adjusted for the loss allowance.
The amount of the impairment loss is recognised in the statement of comprehensive income on a separate line item. When
a loan receivable for which an impairment allowance had been recognised becomes uncollectable 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 statement of comprehensive income.
Recognition and derecognition
The Group recognises financial assets on the date it becomes party to the contractual agreement (trade date) and
recognises changes in fair value of the financial assets from this date.
Financial assets are derecognised when the right to receive cash flows from the investments has expired or the Group has
transferred substantially all risks and rewards of ownership.
Previous accounting policy – investments and other financial assets
Classification
The Group classified 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 depended on the purpose for which the investments
were acquired. The classification of investments was determined at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss were financial assets held for trading. A financial asset was classified in
this category if acquired principally for the purpose of selling in the short term. Derivatives were classified as held for trading
unless they were designated as hedges. Assets in this category were classified as current assets if they were expected to
be settled within 12 months, otherwise they were classified as non-current.
(ii) Loans and receivables
Loans and receivables were non-derivative financial assets with fixed or determinable payments that were not quoted in
an active market. They were included in current assets, except for those with maturities greater than 12 months after the
reporting period, which were classified as non-current assets. Loans and receivables were included in trade and other
receivables and other current assets.
(iii) Available-for-sale financial assets
Financial assets that were not classified into any of the other categories were included in the available-for-sale category.
95
Pinnacle Investment Management 30 Summary of significant accounting policies (continued)
Recognition and derecognition
Regular purchases and sales of financial assets were recognised on trade-date, being the date on which the Group commits
to purchase or sell the asset. At initial recognition financial assets were 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
were initially recognised at fair value and transaction costs were expensed in the consolidated statement of comprehensive
income. Financial assets were 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 were 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 were subsequently carried at fair
value. Gains or losses arising from changes in fair value were 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; and
• For other monetary and non-monetary securities classified as available for sale – in other comprehensive income.
Fair value
The fair values of quoted investments were based on current bid prices. Units in managed funds were valued at the pre-
distribution exit price at year end. If the market for a financial asset was not active (and for unlisted securities) the Group
established 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 assessed at each balance date whether there was objective evidence that a financial asset or group of financial
assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only
if there was 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) had an impact on the estimated future cash flows of the financial
asset or group of financial assets that can be reliably estimated.
• Assets carried at amortised cost
If there was objective evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss
was 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 was reduced and the loss recognised in the consolidated statement of
comprehensive income.
If, in a subsequent period, the amount of the impairment loss decreased and the decrease can be related objectively to an
event that occured after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal
of the previously recognised impairment loss was recognised in the consolidated statement of comprehensive income.
• Assets classified as available-for-sale
If there was 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 was removed from equity and recognised in profit or loss.
Impairment losses on equity instruments that were recognised in profit or loss were not reversed through profit or loss in
a subsequent period.
If the fair value of a debt instrument classified as available-for-sale increased in a subsequent period and the increase
could be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the
impairment loss was reversed through profit or loss.
(m) Derivative financial instruments
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 through profit and loss at each reporting date. Derivative instruments include
equity futures, interest rate futures and equity options.
The Group enters into transactions in certain derivative financial instruments which have certain risks. A derivative is a
financial instrument or other contract which is settled at a future date and whose value changes in response to the change
in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates,
credit rating or credit index or other variable.
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08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 Derivative financial instruments require no initial net investment or an initial net investment that is smaller than would be
required for other types of contracts that would be expected to have a similar response to changes in market factors.
Derivative transactions include many different instruments such as forwards, futures and options. The Group uses
derivatives to manage its exposure to equity investments held.
The Group holds the following derivative instruments:
(a) Futures
Futures are contractual obligations to buy or sell financial instruments on a future date at a specified price established in an
organised market. The futures contracts are collateralised by cash or marketable securities. Changes in futures contracts’
values are usually settled net daily with the exchange.
(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
2 - 5 years
2 - 5 years
• Leasehold improvements
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 30(i)).
Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
(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 after 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 the 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.
97
Pinnacle Investment Management
30 Summary of significant accounting policies (continued)
(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.
(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, the Pinnacle Omnibus 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 26.
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 30(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 are payable when employment is terminated by the Group before the normal retirement date, 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
98
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 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.
(vii) Long-term employee incentive agreements
The Group has long-term employee incentive schemes which enable certain employees of the Group, under full recourse
and limited recourse loan arrangements, to acquire PNI shares. The schemes are 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 schemes are 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;
and
• 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 (see note 14(d)).
(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.
(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.
99
Pinnacle Investment Management 30 Summary of significant accounting policies (continued)
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 2019
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 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. The
standard is mandatory for financial years commencing on or after 1 January 2019.
The standard is applicable for the first time in the 2020 financial year and will affect the accounting for the Group’s property
leases by bringing them on balance sheet. As at the reporting date, the Group has non-cancellable operating lease
commitments of $4.3 million (see note 19(b)(ii)). For the remaining leave commitments, the Group expects to recognise
right-of-use assets of approximately $4.3 million on 1 July 2019 and lease liabilities of $4.3 million. Overall, net assets will
be unchanged, however net current assets will be $1.6 million lower due to the presentation of a portion of the liability as
a current liability. 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 30(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.
100
08 Financial Statements/Notes to the consolidated financial statements (continued)Annual Report 2019 Directors’ declaration
09/12
Directors’
Declaration
In the directors’ opinion:
(a)
the financial statements and notes set out on pages 51 to 100 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 2019 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 30(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
Chair
Sydney
6 August 2019
101
Pinnacle Investment Management Independent auditor’s report to the members
10/12
Independent
Auditor’s
Report
102
Annual Report 2019 Independent auditor’s report
Independent auditor’s report
To the members of Pinnacle Investment Management Group Limited
To the members of Pinnacle Investment Management Group Limited
Report on the audit of the financial report
Report on the audit of the financial report
Our opinion
In our opinion:
Our opinion
The accompanying financial report of Pinnacle Investment Management Group Limited (the
In our opinion:
Company) and its controlled entities (together the Group) is in accordance with the Corporations
The accompanying financial report of Pinnacle Investment Management Group Limited (the
Act 2001, including:
Company) and its controlled entities (together the Group) is in accordance with the Corporations
(a)
Act 2001, including:
giving a true and fair view of the Group's financial position as at 30 June 2019 and of its
financial performance for the year then ended
giving a true and fair view of the Group's financial position as at 30 June 2019 and of its
complying with Australian Accounting Standards and the Corporations Regulations 2001.
financial performance for the year then ended
(a)
(b)
the consolidated statement of financial position as at 30 June 2019
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b)
What we have audited
The Group financial report comprises:
What we have audited
The Group financial report comprises:
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of financial position as at 30 June 2019
the consolidated statement of profit or loss for the year then ended
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of profit or loss for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of changes in equity for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
the consolidated statement of cash flows for the year then ended
accounting policies
the notes to the consolidated financial statements, which include a summary of significant
the directors’ declaration.
accounting policies
Basis for opinion
the directors’ declaration.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
Basis for opinion
under those standards are further described in the Auditor’s responsibilities for the audit of the
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
financial report section of our report.
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.
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
Independence
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
We are independent of the Group in accordance with the auditor independence requirements of
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
are relevant to our audit of the financial report in Australia. We have also fulfilled our other
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that
ethical responsibilities in accordance with the Code.
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
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Liability limited by a scheme approved under Professional Standards Legislation.
103
Pinnacle Investment Management
10
Independent Auditor’s Report (continued)
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 thirteen affiliated 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 Pinnacle Affiliates 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 $1.5 million, 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
benchmark against which the performance of the Group is most commonly measured.
We utilised a 5% threshold based on our professional judgement, noting it is within the range
of commonly acceptable thresholds.
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Annual Report 2019
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.
We performed an audit of each of the financially significant Pinnacle Affiliates on a stand-
alone basis. In establishing the overall approach to the Group audit, we considered the type of
work that needed to be performed by us, as the Group’s auditor, or by the component auditors
operating under instructions.
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
Performance fee revenue of Pinnacle
Affiliates
(Refer to note 30(b)(iii) Summary of
significant accounting policies)
Pinnacle Affiliates’ funds under management
have the potential to earn performance fees,
based on an assessment of performance
relative to benchmarks. These benchmarks
are agreed between the 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
Pinnacle Affiliates are material in nature, and
the variability of returns can be significant.
This performance fee revenue has a
significant impact on the Group’s share of net
profits of jointly controlled entities accounted
We performed the following procedures,
amongst others:
● Tested a sample of calculated performance
fees as follows:
○ Assessed whether the calculation
methodologies utilised by management
were in accordance with the contractual
arrangements, the Group accounting
policy, and the requirements of
Australian Accounting Standards.
○ Compared the hurdle rates and
accumulated deficiency clauses back to
the relevant contracts.
○ Obtained audit evidence from relevant
external sources to assess key inputs into
the calculations (e.g. for net asset values
and fund returns).
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Pinnacle Investment Management
10
Independent Auditor’s Report (continued)
Key audit matter
How our audit addressed the key audit matter
for using the equity method.
○ Taking into account inputs into the
Additionally, during the year the Group and
its Affiliates adopted new revenue accounting
policies due to the mandatory introduction of
AASB 15 Revenue for Contracts with
Customers. This required additional
management analysis to ensure the
performance fee revenue was recognised and
measured appropriately in accordance with
the new accounting policies.
Carrying values of investments in
Affiliates
(Refer to note 21(a) Investments accounted
for using the equity method - Carrying
amounts) $113,351K
Investments in Affiliates are recorded in the
Group’s balance sheet at cost, with Pinnacle's
share of profits/(losses) of each Affiliate
increasing/(decreasing) the carrying value of
its’ investment and dividends received
reducing the investment carrying amount.
Pinnacle is also required to assess the
carrying value of the investment in each
Affiliate at each balance date for any
indicators of impairment. If the carrying value
is deemed to be higher than the fair value of
Pinnacle's share in the Affiliate, Pinnacle is
required to impair the investment carrying
amount to its fair value.
This was a key audit matter because of the
size of these investment balances and because
the movements which make up those
investment balances are significant.
calculation, recalculated the
performance fees.
○ Traced the performance fee revenue to
subsequent cash receipts.
● Assessed the adequacy of revenue
disclosures in light of the requirements of
Australian Accounting Standards.
We performed the following procedures,
amongst others:
● Evaluated the accounting for acquisitions of
investments in Affiliates during the year, as
follows:
○ Agreed key terms and transaction details
to relevant source documents.
○ Assessed the appropriateness of the
classification and accounting treatment
of the investment in each new Affiliate
with reference to Australian Accounting
Standards.
○ Assessed on a sample basis the
mathematical accuracy of management’s
calculations used to measure and record
each acquisition.
● Evaluated the changes in the carrying value
of investments in Affiliates during the year,
as follows:
○ Performed individual audits over the
underlying Affiliate financial
information, using component auditors
where required.
○ Considered the appropriateness of any
adjustments made to Affiliate financial
information in light of Australian
Accounting Standards.
○ Reperformed the equity method of
accounting calculations for a sample of
investments.
● Evaluated the Group’s impairment indicator
assessments at balance date, as follows:
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Annual Report 2019
Key audit matter
How our audit addressed the key audit matter
○ Assessed on a sample basis the
mathematical accuracy of management’s
calculations.
● Traced key assumptions used in
management’s assessments (comparable
publicly available net profit after tax
multiples) to external sources.
Our audit procedures included the following,
amongst others:
● Compared the terms and conditions in the
signed agreements for all options and
performance rights issued to directors and
employees during the financial year to those
included in the share-based payment
expense calculations.
● Assessed whether key inputs such as, spot
price, strike price, vesting period, share
price volatility, risk free rates, and dividend
yields, which are used in the calculations for
the performance rights and share option
valuation models (“model”), by comparing
to observable market data or the signed
agreements.
● Recalculated a sample of calculations from
the model to assess mathematical accuracy.
● Assessed whether the share based payment
expense was recognised over the
appropriate vesting period by comparing to
the contractual terms and assessing the
likelihood of performance and service
obligations being met.
● Evaluated the adequacy of disclosures in the
financial report in light of the requirements
of Australian Accounting Standards.
Accounting for Omnibus Incentive
Plan
(Refer to note 26 (c) Share based payments -
Pinnacle Omnibus Plan) $1,210K
During the year the Group provided benefits
to employees (including executive and non-
executive directors) in the form of a new long
term incentive plan called the Omnibus
Incentive Plan. Under this plan, options,
performance rights and loan funded shares
were issued to directors and employees. The
performance rights and options only vest if
certain service and performance conditions
are met. These transactions are classified by
the Group as equity-settled share-based
payment transactions.
This was a key audit matter because
accounting for share based payments requires
judgement in determining the fair value of
these equity instruments on grant date,
assessing the likelihood of specific
performance hurdles being met, and the
vesting period over which the share based
payment should be recognised.
It also relates to the remuneration of Key
Management Personnel, which we consider
material by nature.
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Pinnacle Investment Management
10
Independent Auditor’s Report (continued)
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2019, but does not include
the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the
date of this auditor’s report, 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 the Corporations
Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the 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.
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.
108
108
Annual Report 2019
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 34 to 44 of the directors’ report for
the year ended 30 June 2019.
In our opinion, the remuneration report of Pinnacle Investment Management Group Limited for
the year ended 30 June 2019 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
Ben Woodbridge
Partner
Brisbane
6 August 2019
109
109
Pinnacle Investment Management
11/12
Shareholder
Information
The shareholder information set out in the following pages is correct as at 2 August 2019.
110
Annual Report 2019 Ordinary fully paid shares (total)
Range of Units Snapshot
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
Range
No. of
shareholders
No. of
shares
% of issued
Captial
957
1,468
523
544
137
448,555
4,168,111
3,832,414
16,257,196
158,162,011
3,629
182,868,287
Minimum
parcel size
No. of
shareholders
0.25
2.28
2.10
8.89
86.49
-0.01
100.00
Units
7318
Minimum $ 500.00 parcel at $ 4.10 per unit
122
172
Twenty largest shareholders
Rank
Name
Units
% of Units
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
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Warragai Investments Pty Ltd
Macoun Superannuation Pty Ltd
Andrew and Fleur Chambers
BNP Paribas Noms Pty Ltd
Kinauld Pty Ltd
Mr Alexander William Macdonald Grant
Mr Adrian Whittingham
Usinoz Pty Ltd
AJF Squared Pty Ltd
National Nominees Limited
BNP Paribas Noms Pty Ltd
Mr David Francis Cleary
Earlston Nominees Pty Ltd
Mr David Noel Groth
Citicorp Nominees Pty Limited
Mark Cormack and Melanie Cormack
Mr Barry Athol Bicknell
20,896,469
19,638,913
16,370,396
7,040,000
5,903,323
5,525,414
5,491,278
4,810,000
4,670,090
4,325,414
3,934,463
3,866,484
3,355,325
3,100,918
2,907,149
2,870,000
2,811,224
2,351,537
1,585,435
1,225,000
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total)
122,678,832
Total remaining holders balance
60,189,455
11.43
10.74
8.95
3.85
3.23
3.02
3.00
2.63
2.55
2.37
2.15
2.11
1.83
1.70
1.59
1.57
1.54
1.29
0.87
0.67
67.09
32.91
111
Pinnacle Investment Management 10 Shareholder Information (continued)
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:
No. of
shares
% of issued
shares
27,654,085
18,950,000
15.12%
10.36%
Substantial shareholder
Ian Macoun and associates
Steve Wilson and associates
Voting rights
Upon a poll each share shall have one vote.
Options and performance rights on issue
Distribution of securities
Options
There are 3,804,365 options on issue as at 5 August 2019.
The options are held by:
A&T Structured Finance Services Pty Ltd as trustee for the Pinnacle Investment Management Group Employee Option
Share Plan; Redback Capital Pty Ltd; Headlands Nominees Pty Ltd; Roys Peak Pty Ltd; Fist Family Pty Ltd; Kyle Macintyre
and Daniella Macintyre.
The options are not listed.
Performance rights
There are 21,445 performance rights on issue as at 5 August 2019.
The performance rights are held by:
Alan Watson; Dab Hand Pty Ltd; Ronald Berends and Gerard Bradley
112
Annual Report 2019 12/12
Corporate
Directory
Pinnacle Investment Management Group Limited
Incorporated in Queensland on 23 April 2002
ABN
22 100 325 184
Directors
Alan Watson, Chair
Ian Macoun, Managing Director
(from 17 August 2016; executive director
from 25 August 2016)
Deborah Beale AM
Lorraine Berends
Gerard Bradley
Andrew Chambers
Adrian Whittingham
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
113
Pinnacle Investment Management 114
Annual Report 2019 Pinnacle Investment Management www.pinnacleinvestment.com
Australia
Brisbane
Registered Office
Level 19, 307 Queen Street
Brisbane QLD 4000
Telephone 1300 651 577
Sydney
Level 35, 60 Margaret Street
Sydney NSW 2000
Telephone 1300 651 577
Melbourne
Level 18, 567 Collins Street
Melbourne VIC 3000
United Kingdom
London
7th Floor Dashwood House
69 Old Broad Street,
London RC2M 1QS