2010 - annualreports.com · notes to the consolidated financial statements. 32. ... , with positive...
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HFA HOLDINGS LIMITED ABN: 47 101 585 737
Office Level 5151 Macquarie StreetSydney NSW 2000
Telephone+61 (2) 8302 3333
Facsimilie(02) 9252 4580
Websitewww.hfaholdings.com.au
Shareholder information and inquiriesAll inquiries and correspondence regarding shareholdings should be directed to HFA’s share registry provider:
Link Market Services LimitedAddressLevel 12680 George StreetSydney NSW 2000
Mailing AddressLocked Bag A14Sydney South NSW 1235
Telephone1300 554 474 or (overseas) +61 (2) 8280 7111
Facsimilie(02) 9287 0303
Websitewww.linkmarketservices.com.au
Chairman’s review 2
Directors’ report 5
Lead auditor’s independence declaration 26
Consolidated statement of financial position 27
Consolidated income statement 28
Consolidated statement of comprehensive income 29
Consolidated statement of changes in equity 30
Consolidated statement of cash flows 31
Notes to the consolidated financial statements 32
1 Reporting entity 32
2 Basis of preparation 32
3 Significant accounting policies 32
4 Determination of fair values 38
5 Risk management 39
6 Operating segments 40
7 Revenue and expenses 43
8 Finance and income costs 44
9 Income tax expense 45
10 Cash and cash equivalents 46
11 Trade and other receivables 46
12 Investments 47
13 Tax assets and liabilities 47
14 Plant and equipment 48
15 Intangible assets 49
16 Trade and other payables 51
17 Employee benefits 51
18 Derivatives 51
19 Share-based payments 52
20 Loans and borrowings 54
21 Capital and reserves 55
22 Earnings per share 57
23 Parent entity disclosures 58
24 Reconciliation of cash flows from operating activites
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25 Financial instruments 60
26 Commitments 64
27 Contingent liabilities 65
28 Auditor’s remuneration 65
29 Related parties 65
30 Group entities 70
31 Events after balance sheet date 70
Directors’ declaration 71
Independent auditor’s report to the members of HFA Holdings Limited 72
ASX additional information 74
Notes 76
Corporate directory Back Cover
CONTENTS
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CHAIRMAN’S REVIEW
Highlights
• Netincomeof$60.62million(2009:$95.54m)
• Operatingcashflowsof$29.40million(2009:$42.54m)
• OperatingEBITDAof$24.09million(2009:$40.25m)
• Pre-taxprofitof$6.30million(2009:lossof$580.46m)
• Netprofitaftertaxof$4.70million(2009:lossof$573.18m)
Assets under management and fund flows
• AssetsUnderManagement(AUM)of$5.54billion (2009:$6.16billion)
• FundsUnderManagement(FUM)of$5.51billion (2009:$5.62billion)
•LighthousePartnersAUMup11%withpositivenetinflows
WelcometotheHFAHoldingsLimited(“HFA”)annualreportforthe2010financialyear.ItiswithgreatsatisfactionthatIcanreportanumberofstrongpositivesfromtheperformanceofyourcompanyoverthelast12months.Inmytwopreviousreportstoshareholdersin2008and2009IdetailedhowHFAwasimpactedbyandwasrespondingtothefalloutfromtheglobalfinancialcrisis(GFC).TheseweredifficultandextremelychallengingtimesfortheBoard,managementandstaffofHFA,astheywereforthefundsmanagementindustryglobally.Iampleasedtoreportthatwhilesomechallengesremain,wehaveseenoverthelast12monthsastabilisingofourbusinessandimportantlyamaterialreductionintheadverseexternalpressureswhichaffectourabilitytocreatevalueforshareholders.
REVIEW OF RESULTS
Inthe12monthsto30June2010,HFAdeliveredasolidfinancialperformance,withpositivenetearningsforthefinancialyear.HighlightsfortheyearincludeEBITDAof$24.09millionandoperatingcashflowof$29.40million.HFA’spre-taxearningswere$6.3millionfortheyearto30June2010,withanetprofitaftertaxof$4.70millioncomparedtoanetlossin2009of$573.18million.The2009financialresultswereseverelyimpactedbynoncashimpairmentsandwrite-downsof$599.53millionprimarilyrelatedtotheacquisitionofLighthousein2008.
TotalFundsUnderManagement(FUM)felllessthan2%to$5.51billionfortheyeardemonstratingastabilisationofthegroup’sFUMcomingoutoftheGFC.Reflectingageneraldeleveragingofinvestmentproductsglobally,HFA’sAustralianbusinessreduceditsownproductleverage,resultinginAssetsUnderManagement(AUM)of$5.54billion.
TheLighthousebusinesscontinuedthestrongrecoveryfromthefirsthalfintothesecondhalfwithan11%increaseinAUMfortheyearandpositivefundflowsfor10ofthe12months.Lighthousecontributed78%oftheGroup’stotalnetincomeof$60.62millionand89%ofOperatingEBITDAof$24.09millionforthefullyear.
TheseresultsareindicativeoftheconfidencetheBoardandmanagementhaveinthebusinessandthatwehavedealtwiththeworstramificationsoftheGFCandemergedasaleaderintheglobalalternateinvestmentindustrythroughLighthouse’smanaged accountsprogram.
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LIGHTHOUSE PARTNERS
HFA’sstrongfinancialresultswereunderpinnedbyanexcellentcontributionandperformancebyourwholly-ownedUS-basedLighthousePartnersbusiness.Underthefirst-rateguidanceofPresidentSeanMcGouldandhisteam,theLighthousebusinesshasemergedfromtheGFCasastrong,stablebusinesswithtremendouspotentialtogrowwellintothefuture.
Lighthouse’scurrentsuccessisbuiltnotjustonitsindustryleadinginvestmentperformancebutalsoontheprecipitousdecisionin2005tomigratefundportfoliopositionsawayfrominvestmentsinunderlyinghedgefundstodirectinvestmentsviaaproprietarymanagedaccountsprogram.WhentheGFCstruckin2007hedgefundinvestorsimmediatelybegandemandinggreatertransparency,securityofinvestmentassetsandenhancedliquidityfromtheirmanagersandtheprogressLighthousehadalreadymadeinmigratingtomanagedaccounts,albeitstillworkinprogress,positionedthemwelltobeagloballeaderinmeetinginvestors’expectations.
Asoneofthelargestfundofmanagedaccountsprovidersinhedgefundproductsglobally,Lighthouse’smanagedaccountsprogramhasbeenwellreceivedbyitsexistingandnewclients,with70%ofallinflowsreceivedduringFY10goingtoLighthouseproductswhichhave100%oftheirassetsinvestedviathemanagedaccountsprogram.
TheLighthousebusinesswillcontinuetofocusonthedevelopmentanddistributionofitsmanagedaccountsprogram,inparticularfocussingonbroadeningdistributionnotonlygeographically,butalsodeeperintothelargerinstitutionalinvestorspace.
CERTITUDE GLOBAL INVESTMENTS
OurAustralianbusinesscontinuedtofeelthepressurefromthestructuralupheavaloftheAustralianretailfundmanagementmarketduringFY10.However,wearebeginningtoseeevidenceofastabilisationinthelocalmarketandhaverecentlyre-positionedthebusinesstomaximiseopportunitiesastheinvestmentenvironmentreturnstomorehistoricallynormallevels.
FromAugust1,2010,ourAustralianbusiness,previouslycalledHFAAssetManagement,becameknownasCertitudeGlobalInvestments.Changingthenameofthebusinessisjustoneelementofourstrategytore-positionthebusinesstoensureitslongtermsustainabilityandmaximiseopportunitiesforgrowth.
Underpinningthenamechangeisanewstrategicdirectionfocussingonmovingtoanopenarchitecturemodelofinvestmentmanagementservices.Previouslythebusinesshadbeenfocussedonasinglemulti-managerstrategywithdistributionprimarilytoretailinvestorsthroughIndependentFinancialAdvisers(IFAs).
Underitsrevisedstrategythebusinesswillnowfocusonofferingabroaderrangeofproducts,toamorediverserangeofinvestors,withafocusonprovidingsimpleandtransparentaccesstosomeoftheworld’sleadingactiveinvestmentmanagers.IntheprocessCertitudewillretainitsmarketleadingexpertiseinabsolutereturnsandmulti-managerproductsandenvisagesapivotalongoingroleforproductssourcedfromLighthousewiththeirmanagedaccountsprogramcapabilitiesandbenefits.ThesuccessfulimplementationofthenewbusinessstrategyundertheCertitudebrand,includingtheintroduction
HFA HOLDINGS IS A DIVERSIFIED GLOBAL FUND MANAGER
Global Partnerships
Multi-Manager Products
Structured Products
Managed Account Program
Marshall Wace GavKal
Other TBA
HFA Branded
Investment Funds
HFA Octane Branded
Customised Client Solutions
CHAIRMAN’S REVIEW
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Certitude Global
• Multi-capabilityPlatformincludingFundofManagedAccountsand singlestrategies
• Diversifiedclientbase
• Positionas‘Alpha’solutionsprovider
• Growthbusinessmodelwithsustainablemarginsforthelong-term
• Adifferentiationstrategyimplementedbymatchinghighqualityproductwithsustainablemargintoadiversified clientbase
HFA Asset Management
• MultiManagerFundofHedgeFund (FoHF)providerbuiltonstrong distributionnetwork
• Largelyretailclientbase
• Positionedasthe‘LeaderinAbsoluteReturns’
• Businessmodelnotsuitedtopost-GFC financialandproductclimate
• Longtermsuccessrequiresincreased diversificationandimprovedinvestor engagement&productunderstanding
IwouldliketotakethisopportunitytothankmyfellowBoardmembers,theseniormanagementandstaffofHFA,LighthouseandCertitude,fortheircontinuedeffortsnotjustinsustainingHFAthroughouttheGFCbutmoreimportantlytoentrenchitasacompanythatiswellpositionedtodeliverlongtermvalueforbothourshareholdersandourproductinvestors.
KindRegards
Spencer Young Chairman
ofhighqualitysinglemanagerproductsthatareliquid,transparentandsimple,willlaythefoundationsforrenewedAUMgrowthandprofitabilityoverthemedium-term.
ThechangesatCertitudearebeingdrivenbyexperiencedfinancialservicesexecutiveCraigMowllasthenewlyappointedChief ExecutiveOfficeroftheAustralianbusiness.
OUTLOOK
TheoperatingandfinancialperformanceofHFAoverthelast12monthsallowsustonowlookforwardandplanwithmoreclaritythanatanytimesincetheonsetoftheGFC.OurUSbusinessispushingaheadstronglyandourAustralianbusinessisbuildingthenecessaryfoundationstoprovidelastingreturns.TheGFChaschangedtheglobalfundsmanagementlandscape,withallinvestorsrequiringenhancedtransparency,liquidityandsecurityofassetsintheirinvestments.BoththeLighthouseandtheCertitudebusinesseshavefacedthesechallengesandre-focussedtheirstrategiesonmeetingthesedemandsthroughtheirproductofferingsandservices.Inaddition,bothbusinessesareactivelypursuingadiversificationoftheirtraditionaldistributionchannels.
NEW OPEN ARCHITECTURE FOR AUSTRALIAN BUSINESS
Migration To Open
Architecture Model
CHAIRMAN’S REVIEW
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DIRECTORS’ REPORT
The directors present their report together with the financial report of HFA Holdings Limited and its subsidiaries (the “Group”)
for the financial year ended 30 June 2010 and the auditor’s report thereon.
1. DIRECTORS The directors of HFA Holdings Limited (the “Company”/ “HFA”) at any time during or since the end of the financial year are:
Mr Spencer Young B.Eng. MBA
Chairman, Executive Director and Chief Executive Officer
Spencer founded HFA in 1998. He has over 19 years of alternate asset class investment experience and close relationships with a network of international hedge funds and domestic research and rating agencies.
Spencer holds a B.Eng (U.Qld) and an MBA from Harvard. He has held several senior investment positions including executive director of Rothschild Australia Private Equity and Lend Lease Corporation’s senior executive in the USA for venture capital and private equity investments. An experienced company director, his recent directorships have included Tremblant Capital, a significant New York based hedge fund.
Appointed Executive Director 15 May 2003.
Appointed Non-Executive Director 13 April 2007 to 18 September 2007.
Appointed Chief Executive Officer and Executive Director 18 September 2007.
Name, qualifications and independence status
Mr Sean McGouldBSc. Accounting
Executive Director
Sean is the co-founder of Lighthouse Investment Partners, LLC (Lighthouse) and serves as President and Co-Chief Investment Officer. He supports the investment team in the manager search, selection and review process and is the Chairperson of the Investment Committee. Sean has been overseeing all aspects of the portfolios since August 1996.
Sean joined Asset Management Advisors (“AMA”), a multi-family office as Chief Investment Officer in August 1996. Lighthouse was formally spun out of AMA in 1999. For the past 16 years, Sean has been investing in various alternative investment strategies. Prior to founding Lighthouse, Sean was the director of the Outside Trader Investment Program at Trout Trading Management Company and was responsible for the allocation of the fund's assets to external alternative asset strategies.
Prior to Trout, Sean worked for PriceWaterhouse.
Appointed 3 January 2008.
Experience, special responsibilities and other directorships
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Mr John LarumB. Com MEc GAICD
Independent Non-Executive Director
John has extensive experience in the financial services industry having held a range of senior positions including, President of China Business for UBS Global Asset Management, Chief Executive Officer of UBS Global Asset Management (Australia), and Chief Economist for UBS Warburg (Australia). Prior to joining UBS, he spent more than a decade with the Federal Treasury in Canberra, where he rose to the position of Assistant Secretary, Domestic Economy Branch, Economic Division. John holds a Bachelor of Commerce (Econometrics) from the University of New South Wales and a Master of Economics from the Australian National University.
Chairperson of the Remuneration Committee and Member of the Audit Committee.
Appointed 12 December 2008.
Mr Michael Shepherd
Independent Non-Executive Director
Michael has extensive experience in financial markets and the financial services industry having held a range of senior positions including Vice Chairman of ASX Limited, and directorships of several of ASX’s subsidiaries including Australian Clearing House Pty Ltd. He was also National President of the Financial Services Institute of Australasia.
Currently Michael is a director of ASX Market Supervision Pty Ltd, Chairman of the Shepherd Centre and is an independent Compliance Committee Member for UBS Global Asset Management (Australia) Limited.
Member of the Remuneration Committee and Member of the Audit Committee.
Appointed 16 December 2009.
Mr F P (Andy) EstebanB.Bus ASA MAICD METI
Independent Non-Executive Director
Andy holds a Bachelor of Business majoring in Accounting. He is an Associate of the Australian Society of CPA’s and a member of the Australian Institute of Company Directors. He has 31 years experience in the financial services industry, of which 21 years were with Perpetual Trustees Australia Limited.
In 1999 he established FP Esteban and Associates, a private business specialising in implementing and monitoring risk management and compliance frameworks in the financial services industry. He has provided compliance consulting services to a number of organisations including UBS Global Asset Management for their funds management operations in Australia, and South East Asia operations located in Hong Kong, Singapore, Taiwan and China. From July 2005 until June 2008 he was an independent director of Credit Suisse Asset Management (Australia) Ltd. He is currently the Chairman of Certitude Global Investments Limited, a wholly-owned subsidiary of the Company.
Chairperson of the Audit Committee and Member of the Remuneration Committee.
Appointed 18 June 2008.
DIRECTORS’ REPORT
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2. COMPANY SECRETARIESMsJoanneHillBALLBwasappointedtothepositionofjointcompanysecretaryon20November2008.Joanneisaqualifiedsolicitor.JoannehasovertenyearsexperienceinthefinancialservicessectorandpriortojoiningHFAin2007heldseniorlegaladvisorypositionsinbothAustralianSecuritiesExchange(ASX)andNewZealandExchange(NZX)listedfinancialservicescompanies.Joannehasbeensolecompanysecretarysince1June2010.
MrRobertWhiteBBuswasappointedtothepositionofjointcompanysecretaryon15February2007.Roberthasover15yearsexperienceinthefinancialservicesindustryworkingwithinboththeinstitutionalandretailmarketsegmentsintheUK,EuropeandAustralia.Robertresignedascompanysecretaryon1June2010.
3. DIRECTORS’ INTERESTSTherelevantinterestofeachdirectorintheordinarysharecapitaloftheCompanyatthedateofthisreportisasfollows:
Number of ordinary shares
Mr Spencer Young1 22,516,951
Mr Sean McGould2 77,752,335
Mr F P (Andy) Esteban 8,354
Mr John Larum 36,400
Mr Michael Shepherd3 100,000
1.SharesareheldindirectlybySpencerYoungasTrusteefortheSpencerYoungFamilyTrust. 2.77,744,335sharesheldindirectlybySGMHoldings,LLC.
3.SharesareheldindirectlybyTidalaPtyLtdasTrusteefortheShepherdProvidentFund.
4. DIRECTORS’ MEETINGSThenumberofdirectors’meetings(includingmeetingsofcommitteesofdirectors)andnumberofmeetingsattendedbyeachofthedirectorsoftheCompanyduringthefinancialyearare:
Director A B A B A B
Mr Spencer Young 11 11 - - - -
Mr Sean McGould 10 11 - - - -
Mr F P (Andy) Esteban 11 11 1 1 3 3
Mr John Larum 10 11 1 1 2 3
Mr Michael Shepherd 8 8 - - 2 2
A–Numberofmeetingsattended. B–Numberofmeetingsheldduringthetimethedirectorheldofficeandwaseligibletoattend
duringtheyear.
Audit committee meetings
Remuneration committee meetings
Board meetings
Duringthefinancialyearending30June2010,theboardhadresponsibilityfortheperformanceofthefunctionsofthe nominationcommitteeandnoseparatenominationcommitteemeetingswereheld.
5. CORPORATE GOVERNANCE STATEMENTThisstatementoutlinesthemaincorporategovernancepracticesinplacethroughoutthefinancialyear,whichcomplywiththeASXGovernanceCouncilrecommendations,unlessotherwisestated.
TheCompany’spolicies,chartersandcodesinrelationtocorporategovernanceareavailableontheCompany’swebsite.
5.1 BOARD OF DIRECTORS
ROLE OF THE BOARD
Theboard’sprimaryroleistheprotectionandenhancementoflong-termshareholdervalue.
Tofulfilthisrole,theboardisresponsiblefortheoverallcorporategovernanceoftheGroup,including:
• ensuringtheintegrityofriskmanagement,internalcontrol,legalcomplianceandmanagementcontrolsystems;
• reviewingandapprovingcorporatestrategies,budgets,plansandpoliciesdevelopedbymanagementandevaluatingperformanceoftheGroupagainstthosestrategiesandbusinessplansin orderto: - monitortheperformanceoffunctionsdelegatedtosenior managementincludingtheprogressofmajorcapital expenditure,capitalmanagement,acquisitions,divestitures andstrategiccommitments;and
- assessthesuitabilityoftheGroup’soverallstrategies, businessplansandresourceallocation;
• ensuringthateffectiveaudit,riskmanagementandregulatorycomplianceprogramsareimplementedtoprotecttheGroup’sassetsandshareholdervalue;
• reviewingandapprovinggovernancepolicies;
• oversightofcorporategovernancematterspertainingtoboardmanagement;
• appointingandremovingthechiefexecutiveofficer(”CEO”);
• ratifyingtheappointmentofthechieffinancialofficer(“CFO”) andthecompanysecretary;
• evaluatingtheperformanceoftheCEOandseniormanagement;
• reviewingboardandexecutivesuccessionplanning;
• monitoringfinancialperformanceandbusinessresults(includingtheauditprocess)tounderstandatalltimesthefinancialpositionoftheGroup;
• oversightoftheCompany’scontinuousdisclosureobligationsincludingapprovingtheGroup’sstatutoryaccountsanddirectors’reportsandthedeclarationofanydividends;
• reportingtoshareholdersandotherstakeholders;
DIRECTORS’ REPORT
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Name Position Independent First appointed
Mr Spencer Young Chairman,CEOandExecutiveDirector No May2003
Mr Sean McGould ExecutiveDirector No January2008
Mr F P (Andy) Esteban Non-ExecutiveDirector Yes June2008
Mr John Larum Non-ExecutiveDirector Yes December2008
Mr Michael Shepherd Non-ExecutiveDirector Yes December2009
• capitalmanagement,includingissues,callson,forfeitureofshares,declarationofdividendsandsharebuybacks;
• membershipandroleofboardsub-committees;
• reviewingtheperformanceoftheboardandboardcommittees;and
• implementingacultureofcompliancewiththehighestlegalandethicalstandardsandbusinesspractices.
TheboardhasdelegatedtotheCEOand,undertheCEO’sleadership,executivemanagement,thepowersandauthoritynecessarytoimplementthestrategiesapprovedbytheboardandtomanagethedaytodaybusinessaffairsoftheCompany.TheCEOisrequiredtoconsulttheboardonmattersthataresensitive,extraordinary,ofastrategicnatureorareotherwiseoutsidetheCEO’sdelegatedauthoritylimitsasspecifiedbytheboardfromtimetotime.
Atthetimeoftheirappointment,non-executivedirectorsreceiveaformalletterofappointmentwhichsetsoutthekeytermsandconditionsoftheirappointment,includingexpectationsofattendanceandpreparationforallboardmeetings,appointmentstootherboards,theproceduresfordealingwithconflictsofinterest,andtheavailabilityofindependentprofessionaladvice.TherolesandresponsibilitiesoftheCEOandCFOareformallyoutlined.
Detailsoftheboard’scharterarelocatedontheCompany’swebsite(www.hfaholdings.com.au).
COMPOSITION OF THE BOARD
Thecompositionoftheboardisdeterminedusingthefollowingprinciples:
• aminimumoffourdirectors,withabroadrangeofexpertise;
• amaximumofninedirectors;and
• amajorityofnon-executivedirectors.
RefertoTable1(below)forasummaryofthecompositionoftheboardasat19August2010.
Theboardcomprisedofonlyfourmembersuntiltheappointmentofnon-executivedirectorMrMichaelShepherdinDecember2009,atwhichpointthemajorityoftheboardwereindependent.FollowingtheresignationofthepreviousChairmanon31March2009,therolesofChairmanandCEOhavebeenexercisedbythesameperson.
Atthattime,theboarddeterminedthatgiventheglobaleconomiccircumstancesandtheirpotentialimpactontheCompany,MrYounghadtheappropriateknowledgeandexperiencetobestundertaketheChairmanrole.Thisarrangementwillremainunderreviewbytheboard.Accordingly,theCompanywasnotincompliancewithASXCorporateGovernancePrinciple2.1,2.2and2.3throughoutthe entirefinancialyear.
DIRECTOR INDEPENDENCE
Anindependentdirectorisadirectorwhoisnotamemberofmanagement(anon-executivedirector),isfreeofanybusinessorotherrelationshipsthatcouldmateriallyinterferewith,orcouldreasonablybeperceivedtomateriallyinterferewith,theexerciseoftheirunfetteredandindependentjudgement,andwho:
• isnotasubstantialshareholderoftheCompany,holdslessthan5%ofthevotingsecuritiesoftheCompanyandisnotanofficerof,orotherwiseassociated,directlyorindirectly,withaholderofmorethan10%oftheCompany’svotingsecurities;
• hasnot,withinthelastthreeyears,beenemployedinanexecutivecapacitybytheCompanyoranothergroupmember,orbeenadirectorafterceasingtoholdanysuchemployment;
• withinthelastthreeyearshasnotbeenaprincipaloremployeeofamaterialprofessionaladviseroramaterialconsultanttotheCompanyoranothergroupmember;
• isnotamaterialsupplierorcustomeroftheCompanyoranothergroupmember,oranofficeroforotherwiseassociated,directlyorindirectly,withamaterialsupplierorcustomer;
• hasnomaterialcontractualrelationshipwiththeCompanyoranothergroupmemberotherthanasadirectoroftheCompany;and
• isfreefromanyinterestandanybusinessorotherrelationshipwhichcould,orcouldreasonablybeperceivedto,materiallyinterferewiththedirector’sabilitytoactinthebestinterestoftheCompany.
TABLE1.Compositionoftheboard
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DIRECTORS’ REPORT
INDEPENDENT PROFESSIONAL ADVICE AND ACCESS TO COMPANY INFORMATION
EachdirectorhastherightofaccesstoallrelevantCompanyinformationandtotheCompany’sexecutivesand,subjecttopriorconsultationwiththeChairman,mayseekindependentprofessionaladvicefromasuitablyqualifiedadviserattheGroup’sexpense.Thedirectormustconsultwithanadvisorsuitablyqualifiedintherelevantfield,andobtaintheChairman’sapprovalofthefeepayablefortheadvicebeforeproceedingwiththeconsultation.Acopyoftheadvicereceivedbythedirectoristobemadeavailabletoallothermembersoftheboard.
DIRECTOR AND EXECUTIVE EDUCATION
TheGroupeducatesnewdirectorsaboutthenatureofthebusiness,currentissues,thecorporatestrategyandtheexpectationsoftheGroupconcerningperformanceofdirectors.Directorsareencouragedtointeractwithmanagementtogainabetterunderstandingofbusinessoperations,andareencouragedtoundertakecontinuingeducationinrelationtotheGroupandtheindustryinwhichitoperatestoupdateandenhancetheirskillsandknowledge.
BOARD PROCESSES
Toassistintheexecutionofitsresponsibilities,theboardhasprovidedfortheestablishmentofanumberofboardcommitteesincludinganominationcommittee,aremunerationcommittee,andanauditcommittee.Thesecommitteeshavewrittenchartersoutliningthedutiesandresponsibilitiesofthecommittee,whicharereviewedonaregularbasis.TheboardhasalsoestablishedaframeworkformanagementoftheGroupincludingasystemofinternalcontrol,abusinessriskmanagementprocessandtheestablishmentofappropriateethicalstandardsandcodesofconduct.
Theframeworkincludes:
• internalcontrols(forexample:dualsignatories,reconciliations,andsegregationofduties);
• businessriskmanagementprocess(riskregister,complianceplansfortheoperationofmanagedinvestmentschemes,stafftradingpolicies,andemployeemanual);and
• ethicalstandardsandcodesofconduct(directorcodeofconduct,employeecodeofconduct,andemployeemanual).
Theboardmeetsapproximatelyeverytwomonths,withadditionalmeetingsheldasrequiredtoaddressspecificissues.TheagendaformeetingsispreparedinconjunctionwiththeCEO,CFOandcompanysecretarytoensureadequatecoverageofstrategic,financial,governanceandcompliancematters.Submissionsarecirculatedinadvanceofthemeetings.Seniorexecutivesareinvitedtoattendboardmeetingsandareavailableforcontactbynon-executivedirectorsbetweenmeetings.Thedirectorsmayhaveclosedsessionswithoutanyexecutiveinvolvementduringmeetingsattheirdiscretion.
5.2 NOMINATION COMMITTEE
Thenominationcommitteecharterrequiresthatthenominationcommitteebecomprisedofthreenon-executivedirectors,themajorityofwhichmustbeindependent.
Thenominationcommitteeistoadvisetheboardonmattersrelatingtothecompositionandperformanceoftheboard.Boardcandidatesmuststandforelectionatthenextgeneralmeetingofshareholders.Thenominationcommitteeisalsoresponsibleformakingrecommendationsregardingtheappointmentandremovalofdirectors,havingregardtoanappropriatemixofskillsetsandexpertise.Thenominationcommitteealsoreviewsperformanceoftheboard,committeesandkeyexecutives,reviewsboardsuccessionplans,aswellasoverseeingtheinductionprocessfornewdirectorsandcommitteemembers.
Thenominationcommittee’snominationofexistingdirectorsforre-appointmentisnotautomaticandiscontingentontheirpastperformance,contributiontotheCompanyandthecurrentandfuturerequirementsoftheboard.Thenominationcommitteesubmitsrecommendationstotheboard,whichthenvotesonthem.
TheCompanydoesnotcurrentlycomplywithASXCorporateGovernancePrinciple2.4andthefunctionsofthenominationcommitteearebeingundertakenbytheboardwhichtheCompanyconsidersappropriateatthistimegiventhesmallsizeoftheboard.Theboardundertakeson-goingself-assessmentandiscurrentlyreassessingitsprocessforaformalperformanceevaluation.
Underitscharter,thenominationcommitteemeetsbi-annuallyunlessotherwiserequired.Asthefunctionsofthenominationcommitteewereundertakenbytheboardfortheyearended30June2010,separatemeetingsofthecommitteewerenotheld.
Furtherdetailsofthenominationcommittee’scharterandpolicies,includingthoseforappointingdirectorsandseniorexecutives,areavailableontheCompany’swebsite.
5.3 REMUNERATION COMMITTEE
Theremunerationcommittee’sdutiesandresponsibilitiesareoutlinedintheremunerationcommitteecharter.Theremunerationcommitteecharterrequiresthattheremunerationcommitteebecomprisedofthreenon-executivedirectors,themajorityofwhichmustbeindependent.
TheremunerationcommitteereviewsandmakesrecommendationstotheboardonremunerationpackagesandpoliciesapplicabletotheexecutiveofficersanddirectorsoftheCompany.
Itisalsoresponsibleforreviewingandmakingrecommendationsinrelationtoshareschemes,incentiveperformancepackages,superannuationentitlements,retirementandterminationentitlements,fringebenefitspoliciesandprofessionalindemnityandliabilityinsurancepolicies.
Themembersoftheremunerationcommitteeduringtheyearwere:
• MrFP(Andy)Esteban-Independentnon-executivedirector
• MrJohnLarum-Independentnon-executivedirector
• MrMichaelShepherd-Independentnon-executivedirector(appointed16December2009).
Theremunerationcommitteecomprisedofonlytwomembersuntiltheappointmentofnon-executivedirectorMrMichaelShepherdinDecember2009.Accordingly,theCompanywasnotincompliance
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DIRECTORS’ REPORT
withASXCorporateGovernancePrinciple8.1throughouttheentirefinancialyear.
TheCEOisinvitedtoremunerationcommitteemeetingsasrequired,todiscussseniorexecutives’performanceandremunerationpackagesbutdoesnotattendmeetingsinvolvingmatterspertainingtohimselfasCEO.
Theremunerationcommitteemeetsbi-annuallyorasoftenasnecessarytoenableittoeffectivelydischargeitsresponsibilities.Thefrequencyofmeetingsandtheattendancerecordofcommitteemembersaredisclosedinthedirectors’report.
Asummaryoftheremunerationcommittee’scharterisavailableontheCompany’swebsite.
REMUNERATION POLICIES
CompensationlevelsforkeymanagementpersonnelandsecretariesoftheCompanyandrelevantkeymanagementpersonneloftheGrouparecompetitivelysettoattractandretainappropriatelyqualifiedandexperiencedindividuals.Externalremunerationbenchmarksandsurveysareconsideredwhensettingcompensationlevels.
Compensationstructuresaredesignedtorewardtheachievementofstrategicobjectivesandachievethebroaderoutcomeofcreationofvalueforshareholders.Thecompensationstructurestakeintoaccount:
• thecapabilityandexperienceofkeymanagementpersonnel;
• keymanagementpersonnel’sabilitytocontrolrelevantperformance;
• theGroup’sperformance;and
• theamountofincentiveswithineachkeymanagementperson’s
compensation.
Compensationpackagesincludeamixoffixedcompensationplusperformancelinkedcompensationwhichincludesashorttermincentive(STI)andmayincludealongtermincentive(LTI).Detailsoffixedcompensation,STIandLTIarrangementsarediscussedintheremunerationreportinthedirectors’report.
NON-EXECUTIVE DIRECTOR REMUNERATION
Non-executivedirectorsreceivedirectorfees.Theaggregateofnon-executivedirectorfeesiscappedatamaximumof$750,000perannum,asapprovedbyshareholdersattheannualgeneralmeetingheldon14December2007.Non-executivedirectorsarenotentitledtoparticipateinexecutiveremunerationschemes,maynotreceiveoptionsorbonuspayments,andarenotprovidedwithretirementbenefitsotherthanstatutorysuperannuationentitlements.
Executiveandnon-executivedirectorsmaybereimbursedfortheirreasonableexpensesproperlyincurredasdirectors.
Detailsoftheremunerationofnon-executivedirectorsandkeypersonnelareincludedintheremunerationreportinthedirectors’report.
5.4 AUDIT COMMITTEE
Theauditcommitteehasadocumentedcharterapprovedbytheboard.
Thecommitteememberscompriseaminimumofthreenon-executivedirectors,withamajoritybeingindependent.TheChairmanmaynotbetheChairmanoftheboard.
Themembersoftheauditcommitteeduringtheyearwere:
• MrFP(Andy)Esteban-Independentnon-executivedirector
• MrJohnLarum-Independentnon-executivedirector
• MrMichaelShepherd-Independentnon-executivedirector (appointed16December2009).
Theauditcommitteecomprisedofonlytwomembersuntiltheappointmentofnon-executivedirectorMrMichaelShepherdinDecember2009.Accordingly,theCompanywasnotincompliancewithASXCorporateGovernancePrinciple4.2throughouttheentirefinancialyear.
Atthediscretionoftheauditcommittee,theexternalauditorand othermembersoftheboardandmanagementwillbeinvitedto auditcommitteemeetings.
TheCEOandtheCFOdeclareinwritingtotheboardonanannualbasisthatthefinancialrecordsoftheCompanyforthefinancialyearhavebeenproperlymaintainedandthattheCompany’sfinancialreportsforthefinancialyearcomplywithaccountingstandardsandpresentatrueandfairviewoftheGroup’sfinancialconditionandoperationalresults.
Thefrequencyofmeetingsandtheattendancerecordofcommitteemembers,alongwithasummaryofdirectorqualificationsaredisclosedinthedirectors’report.
Asummaryoftheauditcommittee’scharterisavailableontheCompany’swebsitealongwithinformationonproceduresfortheselectionandappointmentoftheexternalauditor,andfortherotationofexternalauditengagementpartners.
Theroleoftheauditcommitteeistoassisttheboardindischargingitsoversightresponsibilitiesinrelationtoauditandfinancialreportingmatters.Responsibilitiesinclude:
• overseeingthefinancialreportingprocesstoensurethebalance,transparencyandintegrityofpublishedfinancialreports,including; - reviewingthehalfyearandannualfinancialreportsand otherfinancialinformationdistributedexternally.This includesapprovingnewaccountingpoliciestoensure compliancewithAustralianAccountingStandards(AASBs), andassessingwhetherthefinancialinformationis consistentwithcommitteemembers’informationand adequateforshareholders’needs; - assessingmanagement’sproceduressurroundingthe financialreportingprocess; - consideringtheresultsoftheaudit,including recommendationssubmittedbytheexternalauditorand management’sresponses;and - makingrecommendationstotheboardregardingsame;
• reviewingtheeffectivenessofinternalcontrolsrelevanttothefinancialreportingfunction;
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• reviewingtheindependenceoftheexternalauditorsandauditprocess,including: - makingrecommendationsregardingtheappointment/ removaloftheexternalauditorandrotationoftheexternal auditpartner; - assessingtheperformanceoftheexternalauditor;and - reviewingnon-auditservicesprovidedbytheexternal auditorandcompliancewiththeCompany’sExternal AuditorPolicy;
• reviewingtheCompany’sprocessformonitoringcompliancewithlawsandregulationsaffectingfinancialreporting;and
• consideringandreportingtotheboardonanysuchothermattersastheboardmayrefertothecommitteefromtimetotime.
Theauditcommitteereviewstheperformanceoftheexternalauditorsonanannualbasisandnormallymeetswiththemduringtheyearto:
• discusstheauditplans,identifyanysignificantchangesinstructure,operations,internalcontrolsoraccountingpolicieslikelytoimpactthefinancialstatementsandtoreviewthefeesproposedfortheauditworktobeperformed;
• reviewthehalf-yearandpreliminaryfinalreportpriortolodgementwiththeASX,andanysignificantadjustmentsrequiredasaresultoftheauditor’sfindings,andtorecommendboardapprovalofthesedocumentspriortoannouncementofresults;
• reviewthedraftannualandhalf-yearfinancialreports,andrecommendboardapprovalofthefinancialreport;and
• reviewtheresultsandfindingsoftheauditor,theadequacyofaccountingandfinancialcontrols,andtomonitortheimplementationofanyrecommendations.
EXTERNAL AUDITORS
TheCompanyhasengagedKPMGasitsexternalauditors.TheexternalauditormustremainindependentoftheGroupatalltimesandcomplywithAPES110CodeofEthicsforProfessionalAccountantspertainingtofinancialindependenceandbusinessrelationships.Inaddition,theexternalauditormustnotprovidenon-auditservicesthatcouldbeconsideredtoimpairtheauditor’sindependencewhetherinfactoronaperceptionbasis.
Theleadauditengagementpartnershouldberotatedafteraperiodofnolongerthanfiveyearsandcannotresumetheroleuntilatleasttwoyearshaveelapsed.MrRobertJones,thecurrentleadauditengagementpartner,willrotateofftheCompany’sauditfollowingcompletionofthecurrentfinancialyearendaudit.
Ananalysisoffeespaidtotheexternalauditors,includingabreak-downoffeesfornon-auditservices,isprovidedinnote28ofthefinancialstatements.
5.5 RISK MANAGEMENT
OVERSIGHT OF THE RISK MANAGEMENT SYSTEM
Theboardoverseestheestablishment,implementation,andannualreviewoftheCompany’sriskmanagementsystem.Managementhas
establishedandimplementedariskmanagementsystemforassessing,monitoringandmanagingallrisks,includingmaterialbusinessrisks,fortheGroup.AsummaryoftheseproceduresiscontainedontheCompany’swebsite.TheCEOandtheCFOhaveprovidedassurance,inwritingtotheboard,thatthefinancialreportingriskmanagementandassociatedcomplianceandcontrolshavebeenassessedandfoundtobeoperatingefficientlyandeffectively.Theoperationalandotherriskmanagementcomplianceandcontrolshavealsobeenassessed,foundtobeoperatingeffectivelyandthesamereportedbymanagementtotheboard.AllriskassessmentscovertheentirefinancialyearandtheperioduptothesigningoftheannualfinancialreportforallmaterialoperationsintheGroup.
RISK PROFILE
TheGroup’sriskmanagementpoliciesandproceduresareaimedatensuringrisksareidentified,assessedandappropriatelymanaged.TheboardreviewsthestatusoftheGroup’sriskprofileatleastannually.Riskreportingincludesthestatusofrisksthroughintegratedriskmanagementprogramsaimedatensuringrisksareidentified, assessedandappropriatelymanaged.
Eachbusinessunitisresponsibleandaccountableforimplementingandmanagingthestandardsrequired.
MaterialbusinessrisksfortheCompanymayarisefromsuchmattersasproductinvestmentperformance,interestrateandexchangeratemovements,actionsbycompetitors,counterpartyrisk,systemsrisk,governmentpolicychanges,financialreporting,andthepurchase,developmentandapplicationofinformationtechnologysystems.
RISK MANAGEMENT AND COMPLIANCE AND CONTROLS
TheGroupstrivestoensurethatitsinvestmentproductsareofthehigheststandard.Theboardisresponsiblefortheoverallinternalcontrolframework,butrecognisesthatnocost-effectiveinternalcontrolsystemwillprecludeallerrorsandirregularities.Theboard’spolicyoninternalcontrolcomprisestheCompany’sinternalcomplianceandcontrolsystems,including:
• Operatingunitcontrols–Operatingunitsconfirmcompliancewithfinancialcontrolsandproceduresincludinginformation systemscontrols.
• Functionalspecialityreporting–Keyareassubjecttoregularreportingtotheboardincludefinance,operations,regulatoryandcompliance.
• Investmentappraisal–Guidelinesforcapitalexpenditureincludeannualbudgets,detailedappraisalandreviewprocedures,levelsofauthority,andduediligencerequirementswherebusinessesarebeingacquiredordivested.
Comprehensivepracticeshavebeenestablishedtoensure:
• compliancewithfinancialservicesregulation;
• financialexposuresarecontrolled,includingtheuseofderivatives.FurtherdetailsoftheCompany’spoliciesrelatingtointerestratemanagement,foreignexchangeratemanagementandcreditriskmanagementareincludedinnotes5and25ofthefinancialstatements;
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• businesstransactionsareproperlyauthorisedandexecuted;
• thequalityandintegrityofpersonnel(seebelow);
• financialreportingaccuracyandcompliancewiththefinancialreportingregulatoryframework(seebelow);and
• environmentalregulationcompliance(seebelow).
GiventhesizeandnatureoftheGroup,theboarddoesnotconsideritnecessarytoestablishaninternalauditfunction.TheGrouphasanumberofalternativepoliciesinplaceinrelationtoindependentoversightofcompliancewithfinancialserviceslegislation,suchasdedicatedcomplianceresourcesineachbusinessunitandtheestablishmentofanexternalcompliancecommitteeforeachregisteredschemeoperatedunderanAustralianFinancialServicesLicence.
QUALITY AND INTEGRITY OF PERSONNEL
Writtenconfirmationofcompliancewithpoliciesisobtainedfromallbusinessunits.Performanceappraisalsareconductedatleastannuallyforallemployees.Traininganddevelopmentandappropriateremunerationandincentiveswithregularperformancereviewscreateanenvironmentofcooperationandconstructivedialoguewithemployeesandseniormanagement.
FINANCIAL REPORTING
TheCEOandtheCFOhaveprovidedassuranceinwritingtotheboardthattheCompany’sfinancialreportsarefoundedonasoundsystemofriskmanagementandinternalcomplianceandcontrolwhichimplementsthepoliciesadoptedbytheboard.
Monthlyactualresultsarereportedagainstbudgetsapprovedbythedirectors,andrevisedforecastsfortheyeararepreparedregularly.
ENVIRONMENTAL REGULATION
TheGroup’soperationsarenotsubjecttoanysignificantenvironmentalregulationundereitherAustralianorUnitedStateslegislation.However,theboardbelievesthattheGrouphasadequatesystemsinplaceforthemanagementofitsenvironmentalrequirementsandisnotawareofanybreachofthoseenvironmentalrequirementsastheyapplytotheGroup.
5.6 ETHICAL STANDARDS
Alldirectors,managersandemployeesareexpectedtoactwiththeutmostintegrityandobjectivity,strivingatalltimestoenhancethereputationandperformanceoftheGroup.Everyemployeehasanominatedsupervisortowhomtheymayreferanyissuesarisingfromtheiremployment.Processesareinplacetopromoteandcommunicatethesestandardsofethicalbehaviour.
CONFLICT OF INTEREST
Directorsmustkeeptheboardadvised,onanongoingbasis,ofanyinterestthatcouldpotentiallyconflictwiththoseoftheCompany.Theboardhasdevelopedprocedurestoassistdirectorstodisclosepotentialconflictsofinterest.
Wheretheboardbelievesthatasignificantconflictexistsforadirectoronaboardmatter,thedirectorconcernedmayonlybepresentwhentheitemisbeingconsideredattheboard’sdiscretion.Detailsof
directorrelatedentitytransactionswiththeGrouparesetoutinnote29tothefinancialstatements.
CODE OF CONDUCT
TheGrouphasadvisedeachdirector,managerandemployeethattheymustcomplywiththeCodeofConductandEmployeeManual.TheCodeofConductandEmployeeManualcoversthefollowing:
• aligningthebehaviouroftheboardandmanagementwiththeCodeofConductbymaintainingappropriatecoreCompanyvaluesandobjectives;
• fulfillingresponsibilitiestoshareholdersbydelivering shareholdervalue;
• usefulnessoffinancialinformationbymaintainingappropriateaccountingpolicies,practicesanddisclosure;
• fulfillingresponsibilitiestoclients,customersandconsumersbymaintaininghighstandardsofservice,andsafety;
• employmentpracticessuchasoccupationalhealthandsafety,equalemploymentopportunity,trainingandeducationalsupport,communityactivities,sponsorshipsanddonations;
• responsibilitiestotheindividual,suchasprivacy,useofprivilegedorconfidentialinformation,andconflictresolution;
• compliancewithlegislation;
• managingactualorpotentialconflictsofinterest;
• corporateopportunitiessuchaspreventingdirectorsandkeyexecutivesfromtakingadvantageofproperty,informationorpositionforpersonalgain;
• confidentialityofcorporateinformation;
• fairdealing;
• protectionandproperuseoftheCompany’sassets;and
• reportingofunlawfulorunethicalbehaviourandbreachesoftheCodeofConduct.
AsummaryoftheCodeofConductisincludedontheCompany’swebsite.
TRADING IN GENERAL COMPANY SECURITIES BY DIRECTORS AND EMPLOYEES
ThekeyelementsoftheTradingPolicyare:
• identificationofthedesignatedofficerstowhomthepolicyapplies,whichincludesalldirectorsandallstaff;
• prohibitionofdesignatedofficersfromtradinginCompanysecurities: – exceptduringthefourweekperiodcommencingthefirst businessdayaftertheannouncementofhalf-yearlyand annualresultstotheASX,ortheAnnualGeneralMeeting; – exceptduringperiodsoutsidetheabovementionedtrading window,whereapprovalhasbeengrantedbytheboardor theboard’sdelegate;and – whilstinpossessionofpricesensitiveinformationnotyet releasedtothemarket.
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• raisingtheawarenessoflegalprohibitionsincludingtransactionswithcolleaguesandexternaladvisers;
• requiringdetailstobeprovidedofintendedtradingintheCompany’sshares;
• requiringdetailstobeprovidedofthesubsequentconfirmationofthetrade;
• identificationofprocessesforunusualcircumstanceswherediscretionsmaybeexercisedincasessuchasfinancialhardship;
• aprohibitiononentryintotransactionsorarrangementsdesignedtolimittheeconomicriskofsecurityholdingsintheCompanyoverunvestedentitlements.
ThepolicyalsodetailstheinsidertradingprovisionsoftheCorporationsAct2001andissummarisedontheCompany’swebsite.
5.7 COMMUNICATION WITH SHAREHOLDERS
TheboardprovidesshareholdersandthebroaderpublicwithinformationinaccordancewithitsContinuousDisclosurePolicyanditsShareholderCommunicationPolicy.AsummaryofeachpolicyiscontainedontheCompany’swebsite.
CONTINUOUS DISCLOSURE
TheContinuousDisclosurePolicyoutlineshowtheCompanyidentifiesmattersthatmayhaveamaterialeffectonthepriceoftheCompany’ssecurities,notifyingthemtotheASX,postingthemontheCompany’swebsiteandissuingmediareleases.
TheCEOisresponsibleforensuringHFAcomplieswithcontinuousdisclosurerequirements,whilstthecompanysecretaryoverseesandmonitorsdisclosureofinformationtotheASX,analysts,brokers,shareholders,investors,themediaandthepublic.
AnymattersrequiringdisclosureareadvisedtotheASXonthedaytheyarediscovered,andallstaffmustfollowtheContinuousDisclosureProcess,whichinvolvesmonitoringallareasoftheGroup’sinternalandexternalenvironment.
SHAREHOLDER COMMUNICATION
TheCompanyshareholdercommunicationplatformconsistsof:
• theCompany’sContinuousDisclosurePolicywhichisdesignedtofacilitatecompliancewithcontinuousdisclosureobligationsimposedundertheCorporationsAct2001andASXListingRules;
• theCompany’swebsitewhichcontainsrelevantinformationabouttheCompany’sactivitiesandcorporategovernanceframework;
• participationbyshareholdersattheCompany’sgeneralmeetings,toensureahighlevelofaccountabilityandidentificationwiththeGroup’sstrategyandgoals;
• attendancebytheCompany’sauditorattheCompany’sAnnualGeneralMeetingtoanswershareholderqueriesregardingtheconductoftheauditandthepreparationandcontentoftheauditor’sreport;and
• theuseofelectronictechnologywhereappropriatetofacilitategreatereffectivenessofcorporatecommunication.
InformationismadeavailableontheCompany’swebsitewithinonedayofpublicrelease.Importantissuesarepresentedtoshareholdersatgeneralmeetingsassingleresolutions.Inparticular,shareholdersarerequestedtovoteontheelectionandre-electionofdirectors,theaggregateremunerationofnon-executivedirectors,thegrantingofoptionsandsharestodirectors,theremunerationreportandchangestotheConstitution.
AcopyoftheConstitutionisavailabletoanyshareholderuponrequest.
5.8 REMUNERATION REPORT - AUDITED
ThedirectorsoftheCompanypresenttheremunerationreportpreparedinaccordancewithsection300AoftheCorporationsAct2001fortheGroupfortheyearended30June2010.
TheCompany’sremunerationstrategyisdesignedtoattract,retainandmotivateappropriatelyqualifiedandexperienceddirectorsandseniorexecutives.DetailsoftheCompany’sremunerationstrategyforthe2010financialyeararesetoutinthisremunerationreport.Theremunerationreportformspartofthedirectors’report.
5.8.1 PRINCIPLES OF COMPENSATION
Remunerationisreferredtoascompensationthroughoutthisreport.
Keymanagementpersonnelhaveauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheCompanyandtheGroup,includingdirectorsoftheCompanyandotherexecutives.KeymanagementpersonnelcomprisethedirectorsoftheCompanyandexecutivesfortheCompanyandtheGroupincludingthefivemosthighlyremuneratedCompanyandGroupexecutives.
CompensationlevelsforkeymanagementpersonnelandsecretariesoftheCompanyandrelevantkeymanagementpersonneloftheGrouparecompetitivelysettoattractandretainappropriatelyqualifiedandexperiencedindividuals.Externalremunerationbenchmarksandsurveysareconsideredwhensettingcompensationlevels.
Compensationstructuresaredesignedtorewardtheachievementofstrategicobjectivesandachievethebroaderoutcomeofcreationofvalueforshareholders.Thecompensationstructurestakeintoaccount:
• thecapabilityandexperienceofthekeymanagementpersonnel;
• thekeymanagementpersonnel’sabilitytocontrolrelevantperformance;
• theGroup’sperformance;and
• theamountofincentiveswithineachkeymanagementperson’scompensation.
Compensationpackagesincludeamixoffixedcompensationplusperformancelinkedcompensationwhichincludesashorttermincentive(STI)andmayincludealongtermincentive(LTI).TheoverallobjectiveofthisremunerationstrategyistosupportthebusinessstrategyoftheGroupbyattracting,retainingandrewardingqualityexecutiveemployeesandstaff,withaviewtoaligningemployeeandshareholdergoals.
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FIXED COMPENSATION
Fixedcompensationconsistsofbasecompensation(whichiscalculatedonatotalcostbasisandincludesanyFBTchargesrelatedtoemployeebenefitsincludingmotorvehicles),aswellasemployercontributionstosuperannuationfundsandretirementplans.KeyexecutivecompensationlevelsarereviewedannuallybytheremunerationcommitteethroughaprocessthatconsidersindividualandoverallperformanceoftheGroup.Aseniorexecutive’scompensationisalsoreviewedonpromotion.
SHORT TERM INCENTIVES (STI)
STIsarepaidtoseniorexecutivesandemployeesintheformofanannualbonus,whichisusuallypaidincash,butmaybesatisfiedbytheissueofshares.TheaimofthearrangementsinplaceacrosstheGroupistorecognisethecontributionsandachievementsofindividuals.PerformancemeasuresgenerallyincludemeasuresrelatingtotheGroupandtheindividual,andincludefinancial,people,clientservice,strategyandriskmeasuresasappropriate.Themeasuresarechosenastheydirectlyaligntheindividual’srewardtothesuccessoftheGroupandtoitsstrategyandperformance.
AustraliandistributionstaffareeligibleforanSTIbasedona“SalesIncentiveScheme”,whichdeterminesthecashbonusasafunctionofnetfundsraisedbyeachindividualoverapre-determinedminimumthreshold.OtherAustralianstaffandexecutivesareentitledtoadiscretionarySTIbonus,determinedaftertakingintoaccounttheirachievementofperformancemeasuresandtheoverallperformanceofthebusinessunit.
EmployeesofLighthouseInvestmentPartners,LLCareentitledtoparticipateinaSTIbonuspoolwhichisdeterminedasupto20%ofearningsbeforeinterest,tax,depreciationandamortisation(EBITDA)ofLighthouseInvestmentPartners,LLC.AllocationoftheSTIbonuspoolisrecommendedbyseniormanagementofLighthousebasedonachievementofperformancemeasures.InDecember2009,Lighthousemanagementrecommended,andtheboardapproved,thegrantof8,547,009sharestoseniorLighthouseexecutivesinadditiontothecashbonuspool.ThesharesweregrantedforthepurposeofrecognitionofstaffcontributiontothegrowthoftheLighthousebusinessduringtheyeardespitechallengingexternalfactors,andtoprovideadditionalmotivationtoretainkeystaffwithinthebusiness.Thenon-cashexpenserecognisedinrelationthisgrantofsharesfortheyearended30June2010totalled$2,008,547.
STIbonusesallocatedtoseniorexecutivesarereviewedandapprovedbytheremunerationcommittee.TheremunerationcommitteeexercisesdiscretionwhenapprovingSTIbonusestoseniorexecutives,bytakingintoaccountqualitativeassessmentsofanindividual’sperformanceduringthepreviousyearaswellasachievementoftangibleperformanceindicators.
LONG TERM INCENTIVES (LTI)
TheCompanyhasestablishedLTIplanstoassistintheattraction,retentionandmotivationofemployeesandkeymanagementpersonnel.TheplansprovidelongtermincentivesforemployeesandmanagementtocontributetothelongtermprofitabilityandsharepricegrowthoftheGroupthroughadirectgrowthinthevalueoftheirshareholdingsandfuturedividendstreams.
2008 Employee Performance Rights Plan
AnofferofrightstoissuedsharesintheCompanywasmadetoemployeesoftheHFAAustralianbusinesson12March2008atwhichtimetheboardapprovedtheallocationof3,955,000performancerightstoemployees.
Noconsiderationispayablebyemployeesupontheissueofperformancerightsorinrespectofthesharestobeissuedupontheexerciseoftheperformancerights.Vestingconditionsmustbesatisfiedfortheperformancerightstobeexercised.
Vestingoftheperformancerightsisintranchesof25%,35%and40%withrespectivevestingdatesof31December2008,31December2009and31December2010.VestingconditionsincludebeingemployedbytheGroupatrelevantvestingdatesandmeetingperformancehurdlesrelatingtoassetsundermanagement,baserevenue(excludingperformancefees)andEBITDA.
TheHFAHoldingsLimitedboardretainstheabilitytopermitvestingincircumstanceswherehurdlethresholdsarenotmetbutcommercialcircumstanceswarrantlimitedorfullvesting.
AllocationsundertheperformancerightsplanwereapprovedbytheboardbasedonrecommendationsfromtheCEO,withseniorityintheorganisationandpotentialtocontributetothefuturesuccessoftheGroupformingthebasisoftheserecommendations.
Tranche1oftheperformancerightsplanvestedat31December2008,with100%oftheshares(901,250shares)availableunderthetrancheforeligibleemployeesbeingissuedatthediscretionoftheboard.Thenon-cashexpenserecognisedinrelationtoTranche1fortheyearended30June2009totalled$218,977.
Tranche2oftheperformancerightsplanvestedat31December2009,with30%oftheshares(299,250shares)availableunderthetrancheforeligibleemployeesbeingissuedduetothesatisfactionofthebaserevenueperformancehurdle.TheboarddidnotexerciseitsdiscretiontovestanyadditionalsharesunderTranche2.Thenon-cashexpenserecognisedinrelationtoTranche2fortheyearended30June2010totalled$241,395.
Lighthouse Investment Partners Incentive Compensation Plan
AnincentiveplanforemployeesofLighthouseInvestmentPartners,LLCwasestablishedbySGMHoldings,LLCon1July2008.SGMHoldings,LLCisarelatedentityofexecutivedirectorSeanMcGouldandisnotpartoftheHFAHoldingsLimitedGroup.GrantsmadeundertheplanarefundedbySGMHoldings,LLCnottheHFAHoldingsLimitedGroup.However,asSGMHoldings,LLCisashareholderofHFAHoldingsLimited,accountingstandardsrequirethattheCompanyrecogniseanexpenseassociatedwiththesharesgrantedundertheplanwithacorrespondingincreaseintheCompany’sequitytorecognisethecontributionbySGMHoldings,LLCasashareholder.
TheincentiveplangrantsparticipantsanopportunitytoearnapaymentofcashorparticipateinanofferingofordinarysharesofHFAHoldingsLimited.Thevestingoftheincentiveplanisinthreeequaltrancheswithvestingdatesof1January2009,1January2010and1January2011,providedtheemployeeremainsemployedatvestingdate.Therearenoothervestingconditionsorperformancehurdles.Noconsiderationispayablebyemployeesinrelationtothe
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In Thousands of AUD 2010 2009 2008 2007
Net profit / (loss) attributable to equity holders of the parent 4,701 (573,184) 35,170 20,279
Dividends paid - 16,085 14,895 8,274
Dividends per share (cents) - 3.5 6.1 4.1
Change in share price (dollars) (0.01) (0.98) (1.39) 0.86
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grantofthesharesofHFAHoldingsLimited.SGMHoldings,LLChasfulldiscretioninrelationtotheallocationofentitlementsandvestingconditionsundertheplan.
100%ofthesharesavailableundertheplanweretransferredtoeligibleemployeesduringtheyearended30June2009(9,904,925shares).Thetotalnon-cashexpenserecognisedbytheGroupinrelationtothisplanfortheyearended30June2009totalled$12,177,025.NoexpenseinrelationtotheplanwasrecognisedbytheGroupfortheyearended30June2010.
CONSEQUENCES OF PERFORMANCE ON SHAREHOLDERS’ WEALTH
Theoveralllevelofkeymanagementpersonnel’scompensationtakesintoaccounttheperformanceoftheGroupoveranumberofyears. InconsideringtheGroup’sperformanceandbenefitsforshareholders’wealth,theremunerationcommitteehaveregardtotheseindicatorsasseeninTable2(below).
OTHER BENEFITS
TheGroupdoesnotcurrentlypayanyotherbenefits,eithercashornon-cashtodirectorsoftheCompanyorkeymanagementpersonneloftheGroup.
SERVICE CONTRACTS
TheGrouphasenteredintoemploymentcontractswitheachexecutivedirectorandmemberofkeymanagementpersonnel.Theemploymentcontractoutlinesthecomponentsofcompensationpaidbutdoesnotprescribehowcompensationlevelsaremodifiedyeartoyear.Compensationlevelsarereviewedeachyeartotakeintoaccountcost-of-livingchanges,anychangeinthescopeoftheroleperformedandanychangesrequiredtomeettheprinciplesofthecompensationpolicy.IndividualperformanceevaluationswereundertakenfortheCompany’sseniorexecutivesinaccordancewiththeCompany’semploymentpoliciesandindividuals’contractualarrangements.
Spencer Young, Chief Executive Officer, HFA Holdings Limited. TheCompanyiscurrentlyfinalisingaserviceagreementwithSpencerYoung.Aspectsofthisserviceagreementmayrequireshareholderapproval.
Sean McGould, President, Chief Investment Officer Lighthouse Investment Partnersenteredintoaserviceagreementon1January2006,andwhichwasamendedon1November2009.Theagreement
specifiesthedutiesandobligationstobefulfilled.Theamendedserviceagreementisforatermoftwoyearscommencingfrom1January2010andthereaftershallautomaticallybeextendedforoneyeartermsunlesseithertheGrouportheemployeegivesnotlessthansixtydaysnoticeofitsintentionnottoextendtheagreement.
TheGroupmayterminatetheserviceagreementatanytimeforgrossnegligenceorwilfulmisconduct.Theemployeemayterminatetheserviceagreementatanytimebygivingsixtydaysnotice.
TheemployeemayterminatetheagreementatanytimeiftheGroupfailstocomplyinanymaterialrespectwiththetermsoftheagreement,thereisamaterialreductioninthecompensationopportunities,thereisamaterialandunconsentedchangetoresponsibilities,ortheemployeeinvoluntarilyceasestobeamemberoftheboardofdirectorsofHFAHoldingsLimitedforanyreasonotherthancause.InthesecircumstancesapaymentofUSDollars(“USD”)1,000,000multipliedbythenumberofdayssincethefiscalyearendingbeforeterminationdividedby365willbemadeinlieuofanyunpaidbonus.
TheGroupmayterminatetheagreementforanyreasonotherthangrossnegligenceorwilfulmisconductatanytimebygivingnotlessthansixtydaysnotice.Inthesecircumstancealso,apaymentofUSD1,000,000multipliedbythenumberofdayssincethefiscalyearendingbeforeterminationdividedby365willbemadeinlieuofanyunpaidbonus.
Scott Perkins, Director of Investor Relations, Lighthouse Investment Partners enteredintoaserviceagreementon1January2006,andwhichwasamendedon1November2009.Theagreementspecifiesthedutiesandobligationstobefulfilled.Theserviceagreementisforatermoftwoyearscommencingfrom1January2010andthereaftershallautomaticallybeextendedforoneyeartermsunlesseithertheGrouportheemployeegivesnotlessthansixtydaysnoticeofitsintentionnottoextendtheagreement.
TheGroupmayterminatetheserviceagreementatanytimeforgrossnegligenceorwilfulmisconduct.Inthesecircumstancesthereisnoentitlementtoaterminationpayment.
TheemployeemayterminatetheagreementatanytimeiftheGroupfailstocomplyinanymaterialrespectwiththetermsoftheagreement,thereisamaterialreductioninthecompensation
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opportunitiesorthereisamaterialandunconsentedchangetoresponsibilities.Theemployeemustgivesixtydatesnoticeoftermination.InthesecircumstancesapaymentofUSD1,000,000multipliedbythenumberofdayssincethefiscalyearendingbeforeterminationdividedby365willbemadeinlieuofanyunpaidbonus.
TheGroupmayterminatetheagreementforanyreasonotherthangrossnegligenceorwilfulmisconductatanytimebygivingnotlessthansixtydaysnotice.Inthesecircumstancealso,apaymentofUSD1,000,000multipliedbythenumberofdayssincethefiscalyearendingbeforeterminationdividedby365willbemadeinlieuofanyunpaidbonus.
Kelly Perkins Co-Chief Investment Officer, Lighthouse Investment Partnersenteredintoaserviceagreementon1January2008.Theagreementspecifiesthedutiesandobligationstobefulfilled.Theserviceagreementisforanon-fixedterm.
TheemployeeortheGroupmayterminatetheserviceagreementatanytimeandforanyreasonornoreason,withorwithoutcause.Theemployeemustgivesixtydaysnoticeoftermination.Uponterminationtheemployeeisentitledtoapro-rataportionofthesemi-annualcompensation.Thesemi-annualcompensationiscalculatedas1.25%ofthegrossrevenueofLighthouseInvestmentPartners,LLC.
Robert Swan, Chief Operating Officer, Lighthouse Investment Partners enteredintoaserviceagreementon1January2008.Theagreementspecifiesthedutiesandobligationstobefulfilled.Theserviceagreementisforanon-fixedterm.
TheemployeeortheGroupmayterminatetheserviceagreementatanytimeandforanyreasonornoreason,withorwithoutcause.Theemployeemustgivesixtydaysnoticeoftermination. Uponterminationtheemployeeisentitledtoapro-rataportionofthesemi-annualcompensation.Thesemi-annualcompensationiscalculatedas1.0%ofthegrossrevenueofLighthouseInvestmentPartners,LLC.
Thefollowingkeymanagementpersonnelareengagedpursuantto anexecutiveservicesagreement:
• AmberStoney,ChiefFinancialOfficer,HFAHoldingsLimited
• CraigMowll,ChiefExecutiveOffice,CertitudeGlobalInvestmentsLimited(“Certitude”)(formerlyHFAAssetManagementLimited)
• OscarMartinis,JointManagingDirectorofCertitude(Resigned 1June2010)
• RobertWhite,CompanySecretaryofHFAHoldingsLimitedandJointManagingDirectorofCertitude(Resigned1June2010)
Theagreementsspecifythedutiesandobligationstobefulfilled.
TheGroupmayterminatetheagreementatanytime,withoutnoticeforanumberofreasonsincludingbankruptcy,grossnegligenceorwilfulandseriousmisconduct.Inthesecircumstancesthereisnoentitlementtoterminationpayment.Theemployeemayterminate theagreementatanytimebygiving6monthsnoticeandtheGroupmayterminatetheagreementatanytimebythegivingof6monthsnoticeorpaymentinlieu.
NON-EXECUTIVE DIRECTORS
Theaggregatecompensationforallnon-executivedirectors,lastvoteduponbyshareholders,isnottoexceed$750,000perannumandisdeterminedwithreferencetoexternalbenchmarks,surveysandfeespaidtoothernon-executivedirectorsofcomparablecompanies.Actualcompensationfornon-executivedirectorsforthefinancialyearended30June2010was$226,831(2009:$260,893).
Non-executivedirector’scompensationis$80,000plussuperannuationperannum.
Directors’feescoverallmainboardactivitiesandmembershipofanycommittee.Non-executivedirectorsdonotreceiveanyperformancerelatedremuneration.
DirectorsareentitledtobepaidalltravellingandotherexpensestheyincurinattendingtotheCompany’saffairs,includinggeneralmeetings.
Non-executivedirectorsarenotentitledtoanybenefitsorpaymentsonretirementfromoffice.
DIRECTOR’S AND EXECUTIVE OFFICER’S REMUNERATION (COMPANY AND CONSOLIDATED)
Table3onpages17and18detailsthenatureandamountofeachmajorelementofremunerationofeachdirectoroftheCompanyandeachoftheeightnamedCompanyandGroupexecutiveswhoreceivethehighestremuneration.
Insurancepremiumsinrelationtodirectorsandofficeholdershavenotbeenincludedinthesedisclosuresasthereisnoappropriatebasisforallocationofpremiumspaid.
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DIRECTORS
Non-Executive
Mr F P (Andy) Esteban1 84,410 - 84,410 7,597 - - 92,007 - -
(appointed 18 June 2008) 80,000 - 80,000 7,200 - - 87,200 - -
Mr John Larum 80,000 - 80,000 7,200 - - 87,200 - -
(appointed 12 December 2008) 42,769 - 42,769 3,849 - - 46,618 - -
Mr Michael Shepherd 43,692 - 43,692 3,932 - - 47,624 - -
(appointed 16 December 2009) - - - - - - - - -
Mr Brett Howard - - - - - - - - -
Chairperson 80,250 - 80,250 7,222 - - 87,472 - - (resigned 31 March 2009)
Mr Robert Fraser - - - - - - - - -
(appointed 14 December 2007, 36,333 - 36,333 3,270 - - 39,603 - - resigned 24 November 2008)
Executive
Mr Spencer Young 286,871 - 286,871 14,461 - - 301,332 - -
Chief Executive Officer 286,871 - 286,871 13,745 - - 300,616 - -
Mr Sean McGould 283,134 - 283,134 16,988 - - 300,122 - -
(Chief Investment Officer, Lighthouse) 335,300 - 335,300 20,118 - - 355,418 - -
TABLE3.Director’sandexecutiveofficer’sremuneration(companyandconsolidated)
1.Inadditiontothe$80,000receivedbyMrFP(Andy)Estebanforhisroleasnon-executivedirectorofHFAHoldingsLimited,hereceived$4,410forhisroleasnon-executivedirectorofCertitudeGlobal
InvestmentsLimited(appointed21May2010).
S300A (1)(e)(vi) Value of
shares as a percent of
remuneration
SHORT TERM POST EMPLOYMENT
SHARE-BASED PAYMENTS
Termination benefits
Salary and fees
$
STI cash
bonus
$
Total
$
Super & retirement
plan contributions
$ $
Shares and performance
rights
$
Total
$ %
S300A (1)(e)(i)
Proportion of remuneration performance
based
%
$ $ $ $ $ $ $ % %
2010 2009
DIRECTORS’ REPORT
18
Executives
Mr Craig Mowll 50,059 - 50,059 3,615 - - 53,674 - -
Chief Executive Officer, - - - - - - - - - Certitude (appointed 14 May 2010)
Ms Amber Stoney 112,822 20,000 132,822 9,673 - 19,312 161,807 24% 12%
Chief Financial Officer 250,000 90,000 340,000 13,745 - 22,112 375,857 30% 6% (appointed 26 Sept 20081)
Mr Scott Perkins 283,134 348,620 631,754 11,487 - 237,821 881,062 67% 27%
Director of Investor 335,300 843,555 1,178,855 32,859 - - 1,211,714 70% - Relations, Lighthouse
Mr Kelly Perkins 283,134 421,618 704,752 9,488 - 311,432 1,025,672 71% 30%
Co-Chief Investment 335,300 1,054,445 1,389,745 34,536 - 1,424,281 74% - Officer, Lighthouse
Mr Robert Swan 283,134 348,620 631,754 11,487 - 237,821 881,062 67% 27%
Chief Operating 335,300 843,555 1,178,855 32,859 - - 1,211,714 70% - Officer, Lighthouse
Former
Mr Oscar Martinis 399,253 - 399,253 14,461 162,500 43,451 619,665 7% 7%
Joint Managing Director, 325,000 165,000 490,000 13,745 - 49,751 553,496 39% 9% Certitude (resigned 1 June 2010)
Mr Robert White 360,752 - 360,752 14,461 162,500 43,451 581,164 7% 7%
Joint Managing Director, 325,181 165,000 490,181 13,745 - 49,751 553,677 39% 9% Certitude (resigned 1 June 2010)
Mr Jonathan Pain2 157,197 - 157,197 5,317 - - 162,514 - -
Chief Investment Strategist, 395,833 280,000 675,833 13,745 - 27,640 717,218 43% 4% Certitude (resigned 18
September 20092)
Mr Rodney Hughes - - - - - - - - -
Chief Financial Officer, 62,455 - 62,455 3,436 113,771 22,112 201,774 11% 11% (appointed 14 January 2007,
resigned 26 September 2008)
TABLE3.Director’sandexecutiveofficer’sremuneration(companyandconsolidated)(continued)
1.MsAmberStoneytookaleaveofabsenceduringtheperiod15May2009to12October2009.Herdutiesandresponsibilitiesduringthatperiodweresharedamongstotheremployeesandmembers
ofKeyManagementPersonnel.
2.MrJonathanPainresignedasanexecutiveofficeron18September2009.On6April2010heresignedhispositionasanon-executivedirectorofCertitude,awholly-ownedsubsidiaryoftheCompany.
S300A (1)(e)(vi) Value of
shares as a percent of
remuneration
SHORT TERM POST EMPLOYMENT
SHARE-BASED PAYMENTS
Termination Benefits
Salary and fees
$
STI cash
bonus
$
Total
$
Super & retirement
plan contribution
$ $
Shares and performance
rights
$
Total
$ %
S300A (1)(e)(i)
Proportion of remuneration performance
based
%
$ $ $ $ $ $ $ % %
2010 2009
DIRECTORS’ REPORT
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Mr Oscar Martinis1 112,500
157,500
180,000
12/03/08
12/03/08
12/03/08
0.9950
0.9196
0.8499
31/12/09
31/12/10
31/12/11
2009
2010
2011
112,500
47,250
-
6,750
11,017
-
Nil
110,250
-
Nil
25,707
-
Mr Robert White1 112,500
157,500
180,000
12/03/08
12/03/08
12/03/08
0.9950
0.9196
0.8499
31/12/09
31/12/10
31/12/11
2009
2010
2011
112,500
47,250
-
6,750
11,017
-
Nil
110,250
-
Nil
25,707
-
Mr Jonathan Pain1 62,500
87,500
100,000
12/03/08
12/03/08
12/03/08
0.9950
0.9196
0.8499
31/12/09
31/12/10
31/12/11
2009
2010
2011
62,500
Nil
-
3,750
Nil
-
Nil
87,500
-
Nil
20,402
-
Mr Rodney Hughes1 50,000
70,000
80,000
12/03/08
12/03/08
12/03/08
0.9950
0.9196
0.8499
31/12/09
31/12/10
31/12/11
2009
2010
2011
50,000
Nil
-
3,000
Nil
-
Nil
70,000
-
Nil
16,322
-
Ms Amber Stoney 50,000
70,000
80,000
12/03/08
12/03/08
12/03/08
0.9950
0.9196
0.8499
31/12/09
31/12/10
31/12/11
2009
2010
2011
50,000
21,000
-
3,000
4,897
-
Nil
49,000
-
Nil
11,425
-
1.Inaccordancewiththeplanrules,MrJonathanPainandMrRodneyHughesforfeitedtheirrightstoTranche2and3oftheperformanceplanupontheirresignation.MrOscarMartinisandMrRobert
WhiteforfeitedtheirrightstoTranche3oftheperformanceplanupontheirresignation.
NOTES IN RELATION TO THE TABLE OF DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION
Theshort-termincentivebonusisforperformanceduringtherespectivefinancialyearusingthecriteriasetoutonpage14.
Short-termincentivesfortheLighthouseexecutives,excludingexecutivedirectors,arecalculatedonasemi-annualbasisinaccordancewiththeirservicecontracts.Thissemi-annualbonusformspartoftheLighthouseSTIbonuspool.
ThefairvalueoftheperformancerightshasbeencalculatedusingtheBlack-Scholesoptionpricingmodeladjustedfordividendsandisexpensedevenlyovertheperiodfromgrantdatetovestingdate.Thevaluedisclosedistheportionoffairvalueoftheperformancerightsissuedascompensationinthecurrentreportingperiod.
Thefairvalueoftheordinarysharesgrantedwasbasedonthemarketvalueofthesharesongrantdate.
DETAILS OF PERFORMANCE RELATED REMUNERATION
DetailsoftheGroup’spolicyinrelationtotheproportionofremunerationthatisperformancerelatedisdiscussedonpage14.
5.8.3 ANALYSIS OF PERFORMANCE RIGHTS GRANTED OVER EQUITY INSTRUMENTS GRANTED AS COMPENSATION
DetailsoftheperformancerightsgrantedasremunerationtoeachkeymanagementpersonoftheGroupandeachofthenamedCompanyandGroupexecutivesaredetailedinthetablebelow.
Therighttoreceivesharesisconditionaloncontinuingservice,andtheachievementofcertainperformancehurdles.Detailsofperformancecriteriaaresetoutonpage14.
Inaccordancewiththetermsoftheperformanceplan,theboardexerciseditsdiscretiontovest100%ofthesharesavailableunderTranche1.
Inaccordancewiththetermsoftheperformanceplananduponthesatisfactionofthebaserevenueperformancehurdle,30%ofthesharesavailableunderTranche2vested.TheboarddidnotexerciseitsdiscretiontovestanyfurthersharesunderTranche2.
Notermsofperformancerightsgrantedhavebeenalteredormodifiedbytheissuingentityduringthereportingperiodorpriorperiod.Therightswereprovidedatnocosttotheparticipants.
Total number of rights granted
DIRECTORS’ REPORT
Executives
Grant date
Fair value at grant
date
Expiry date
Financial year in
which grant vests
Number of options
vested during the financial
year
Value of vested
options at exercise
date
Number of options
lapsed during the financial
year
Value of lapsed
options at exercise
date
$ $ $
20
DIRECTORS’ REPORT
6. PRINCIPAL ACTIVITIES TheprincipalactivitiesoftheGroupduringthecourseofthefinancialyearweretheprovisionofabsolutereturnfundproductstoinvestorsgloballyviaLighthouseInvestmentPartners,LLCandCertitudeGlobalInvestmentsLimited(“Certitude”).
HFAHoldingsLimitedisacompanylimitedbysharesthatisincorporatedinAustralia.Awhollyownedsubsidiary,HFALighthouseHoldingsCorpistheparententityoftheUSbasedLighthouseGroup(“Lighthouse”),whichthroughLighthouseInvestmentPartners,LLCactsasaglobalabsolutereturnfundsmanager.Anotherwhollyownedsubsidiary,Certitude,actsastheResponsibleEntityandManagerofschemesandotherproductsinAustralia.
DetailsoftheConsolidatedGroupareincludedatnote30tothefinancialstatements.
7. OPERATING AND FINANCIAL REVIEW
CONSOLIDATED RESULTS
In thousands of AUD 2010 2009
Revenue 72,576 112,855
Investmentmanagementcosts (11,956) (17,312)
Operating income 60,620 95,543
Foreignexchangegain/(loss)onoperatingactivities 119 1,214
Operatingexpenses,netofotherincome (34,399) (44,109)
Operating EBITDA (before equity settled transactions) 26,340 52,648
Equitysettledtransactionexpense (2,250) (12,396)
Operating EBITDA (after equity settled transactions) 24,090 40,252
Depreciationandamortisation (11,977) (14,949)
Impairmentlosses - (599,537)
Netinterestincome/(expenses) (5,808) (6,230)
Profit/(loss) before income tax 6,305 (580,464)
Incometaxbenefit/(expense) (1,604) 7,280
Net profit/(loss) after income tax 4,701 (573,184)
Basic EPS (cents) 1.013 (124.641)
TheGrouprecordedaconsolidatedprofitaftertaxof$4.701millionforthefinancialyearended30June2010(2009:consolidatedlossaftertaxof$573.184million).TheGroupgeneratedanoperatingEBITDAof$24.090million.Thisisdown40%ontheprioryear,andreflectsbothloweraverageAssetsUnderManagement(“AUM”)for2010comparedtotheprioryear,aswellasthenegativeimpactoftheincreaseintheaverageAustralianDollarexchangeratefortheyearto88.30cents(2009:74.56cents).
NET INCOME FROM OPERATING ACTIVITIES
Netincomefromoperatingactivitiesdecreasedto$60.620millionforthefinancialyearended30June2010.Thisrepresentsadecreaseof37%fromthe2009financialyear.
NetoperatingincomefromtheUSLighthouseoperationswas$47.522million,down20%inUSdollarcurrencytermsfromthe prioryear.ThisreflectsthefactthatwhilstLighthousehadpositiveAUMgrowththroughoutthe2010financialyear,theaverageAUMfor2010was10%lowerthantheprioryear.Theaveragenetmanagementfee(afterinvestmentmanagementcosts)earnedonAUMremainedunchangedcomparedtotheprioryear.
TheAustralianCertitudeoperationsexperienceda48%decreaseinnetoperatingincometo$13.098million,mirroringthedecreaseintheaverageAUMfor2010comparedtotheprioryear.Theaveragenetmanagementfee(afterinvestmentcosts)forCertituderemainedsteadywhencomparedtotheprioryear.
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OPERATING EXPENSES
Operatingexpenses(excludingdepreciation,amortisationandimpairmentlosses)decreasedto$34.399millionforthefinancialyearended30June2010.Thisrepresentsadecreaseof$9.710millionor22%whencomparedtothepriorfinancialyear.ThisdecreaseisduetoahigheraverageAustraliandollarexchangerateforthe2010financialyearandactivecostmanagementacrosstheGroup.
DEBT AND NET INTEREST EXPENSE
Since30June2009,theGrouphasreduceditsUSDollar(“USD”)denominateddebtfromUSD113.074milliontoUSD102.375million,anditsAustralianDollar(“AUD”)denominateddebtfromAUD6.899milliontoAUD1.087million.
ThisreductionindebthasresultedinadecreaseinnetinterestexpensefortheGroupforthe2010financialyear.
IMPAIRMENT LOSSES
Animpairmentlossof$585.621millioninrelationtothegoodwillrecognisedontheacquisitionoftheUSoperationswasrecognisedinthe2009financialyear.ThislossreflectedthesignificantlylowerexpectedfuturenetcashflowsfromtheUSoperationsatthattime,ascomparedtothebusinessatthetimeofacquisition.TheexpectationsoftheUSoperation’sfuturecashflowshavemateriallyimprovedsince2009,andhencenofurtherimpairmentlosseswererecognisedduringthe2010financialyear.
Inaddition,animpairmentlossof$13.916millionwasrecognisedinthe2009financialyearinrelationtogoodwill,otherintangibleassets,non-currentproductreceivablesandinvestmentsheldbytheAustralianbusiness.NofurtherimpairmentlosseswererecognisedbytheAustralianbusinessduringthe2010financialyear.
REVIEW OF OPERATIONS
HFAoperatesaspecialistglobalfundsmanagementbusinessprovidingabsolutereturnfundproductstoinvestorswiththeaimofachievingconsistentriskadjustedreturns.
OneoftheGroup’smostimportantassetsisitsqualitypeople.TheGrouphas98staffinlocationsaroundtheworld.
BrisbaneSydney
Melbourne
Florida
Chicago New York
London
Hong Kong
11
11 3
DIRECTORS’ REPORT
22
BoththeLighthouseandCertitudeoperationsarestructuredbyfunction:
INVESTOR BASE
TheGroup’soverallinvestorbasehasremainedsolidandcontinuestobewelldiversifiedacrossbothclienttypeandgeographicalregion.
TheLighthousebusinesshasaninvestorbasethatspanstheUnitedStates,Europe,CanadaandAsiaandincludeshighnetworthindividuals,familyoffices,endowments,foundations,trusts,investmentbanks,benefitplans,pensionfunds,healthcareandinsurancecompanies.
InAustralia,Certitudeprovidesabsolutereturnproductstoretail,wholesaleandinstitutionalinvestorsviatheoperationanddistributionofmanagedinvestmentschemes.
AttheGrouplevel,allocationsoftheinvestorbaseasat30June2010byinvestortypeandgeographicalregionareasfollows:
ASSETS UNDER MANAGEMENT
Globaleconomicfactorseasedthroughoutthe2010financialyearascomparedtotheGlobalFinancialCrisis(“GFC”)intheprioryear.TheGroup’sfundsundermanagement(“FUM”)inAUDterms(excludingleveragewithintheproducts)remainedrelativelysteady.
Asat30June2010,HFAhadtotalFUMof$5.51billion(2009:$5.62billion)andtotalAUMof$5.54billion(2009:$6.16billion).Thisrepresentsadecreaseof2%inFUMand10%inAUMsincetheendofthepreviousfinancialyear.Thefollowingchartshowshowperformance,netflows,reductioninleveragewithintheproductsandforeignexchangetranslationimpactedtheFUM(representedasproductequityinthechart)andAUMoverthefinancialyear:
AUMbyInvestorType
Certitude Lighthouse Head Office
Corporate/Institutional (26%) Americas (55%)
Retail (21%) Asia Pacific (26%)
Employee (3%) Europe (19%)
HNW & Family Offices (17%)
Endowment & Foundation (10%)
Benefit Plans (23%)
AUMbyRegion
DIRECTORS’ REPORT
3
21
1113
11
29
2
3
5
InvestmentDistribution/
Investor Services Operations/Corporate Compliance
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AUMbyInvestorType
LIGHTHOUSE - US OPERATIONS
TheLighthouseoperationsintheUShavedemonstratedasteadyrecoveryfromtheworstimpactsoftheGFCin2008and2009.AUMforLighthousehasincreasedfromUSD3.27billiontoUSD3.63billion,anincreaseof11%forthefinancialyearended30June2010.ThisincreaseisdrivenbybothpositivenetinflowsfortheyearofUSD195million,andpositiveinvestmentperformanceacrossthecoreLighthouseproducts.
OneofLighthouse’skeyfocusesduringthe2010financialyearhasbeenthedistributionofitsmanagedaccountprogram.Lighthousefirstestablisheditsmanagedaccountprogramin2005,andhasbeenrefiningandexpandingtheprogramsincethattime,withtheprogrambeingcompletedduringthisfinancialyear.
AmajorthemeamongstinvestorscomingoutoftheGFChasbeenademandforincreasedtransparency,directsecurityoverunderlyingassets,greatercertaintyofassetvaluationsandaccesstotheliquidityoftheunderlyingassets.Benefitsofmanagedaccountstoinvestorsincludeabetterunderstandingoftheoverallriskswithinaportfolio,andenhancedmanagementandmonitoringofrisk.TheLighthousemanagedaccountprogram,whichmeetsthedemandsofInvestorsposttheGFCanddeliverstherelatedbenefits,hasbeenwellreceivedbyexistingandpotentialLighthouseinvestors.TheprogramhasbeenrolledoutasmuchaspossibleacrosstheexistingLighthousefunds,andnewLighthousefundsarebeingestablishedtocapitaliseonthebenefitsthatthemanagedaccountprogramoffers.During2010,70%ofsubscriptionsintoLighthouseproductswerereceivedintoLighthousefundswhichutilisethemanagedaccountprogram.
Lighthousehascontinuedtomaintainastrong,diversifiedglobalinvestorbase,withallocationstodifferentinvestortypesasat30June2010asfollows:
WiththegrowthofAUMthroughoutthe2010financialyear,LighthousehasbeenthemajorcontributortotheGroup’sresult,withtheUSoperationsaccountingforapproximately78%ofnetoperatingincome,and89%ofEBITDA(excludingtheforeignexchangelossesontheintercompanyloan).
CERTITUDE - AUSTRALIAN OPERATIONS
TheAustralianoperationshaveexperiencedamorechallengingyear,withtherecoveryoftheAustralianretailfundsmanagementsectoroccurringmoreslowlythanthebroaderglobalhedgefundmarket.The2010financialyearwasaperiodofresolutionofresidualissuesfromtheGFC,andprovidedtheopportunitytore-evaluatethestrategicdirectionoftheAustralianbusiness.
AustralianAUMfell39%,whilstoverallFUM(whichexcludesleverage)fell21%.Thekeydriversforthisdecreasewere:
• ThecompletionofdeleveragingbytheAustralianfundportfolios;
• $235millionofwithdrawaloffersbytheHFADiversified InvestmentsFund;and
• thediscontinuationofthe$78millioninvestmentmanagement agreementwithSignatureCapitalInvestmentsLimited(formerly HFAAcceleratorPlusLimited)inFebruary2010.
Tocountertheresultantfallinrevenue,theAustralianbusinesshasplacedakeyfocusoncontrollingoperatingcosts,witha28%reductioninoperatingcostsfor2010comparedtotheprioryear.
Throughouttheyear,theAustralianbusinesshasworkedtoretainthestrengthofitsIndependentFinancialAdviser(“IFA”)network,andcontinuestobesupportedby1,532independentfinancialadvisers,withproductslistedon28mastertrustplatforms.
AUM
$M
4000
5540(197)
(19) Leverage(178) Equity
(494)312(244)6163
5263ProductEquity
5513ProductEquity
27 Leverage540 Leverage
2000
0
6000
AUM
JUNE
2009
AUM
JUNE
2010
FX TR
ANSL
ATIO
N
NET
ROW
S
NET
PERF
ORMA
NCE
CHAN
GE IN
LEVE
RAGE
AUM(AUD)MovementsfortheyearendedJune2010
DIRECTORS’ REPORT
FLOW
S
Corporate/Institutional (26%)
Americas (71%)
Employee (3%)
Asia Pacific (4%)
HNW & Family Offices (23%)
Europe (25%)
Endowment & Foundation (14%)
Benifit Plans (35%)
AUMbyRegion
24
ThecloseofthefinancialyearhasseenpositivedevelopmentsfortheAustralianbusiness,includingtheliftingoftheredemptionsuspensionfromitslargestAustralianfund,theHFADiversifiedInvestmentsFund.
OfkeyimportanceisthelaunchofanewbusinessfocusandstrategyunderthenewbrandnameofCertitude,ledbythenewAustralianbusinessChiefExecutiveOfficer,MrCraigMowll.
Underthisnewapproach,Certitudewillbroadenitsbusinessstrategyontwokeyfronts:
• abroaderinvestmentoffering,fromanexclusivemulti-strategyabsolutereturnproductbasetobeingamorecomprehensiveproviderof activefundsmanagementsolutions;and
• anexpansionofitsinvestmentbasebeyonditstraditionalIFAsourcedretailinvestorbasetowardtheneedsofinstitutionalandhighnet worthinvestorsaswell.
WhilsttheexistingAustralianfundswillretaintheHFAbrand,newproductswhichfitwithinabroaderactivemanagerproductsuitewillcarrytheCertitudebrandname.
ResultsoftheAustralianoperationswillcontinuetobeimpactedintheshort-termbythedeclineinAUMwhichhasoccurredoverthe2009and2010financialyears.However,thesuccessfulimplementationofthenewbusinessstrategyundertheCertitudebrand,includingtheintroductionofhighqualitysinglemanagerproductsthatareliquid,transparentandsimple,willlaythefoundationsforrenewedAUMgrowthandprofitabilityoverthemedium-term.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
IntheopinionofthedirectorstherewerenosignificantchangesinthestateofaffairsoftheGroupthatoccurredduringthefinancialyearunderreview.
8. DIVIDENDS DividendspaidordeclaredbytheCompanytomemberssincetheendofthepreviousfinancialyearare:
Final2009ordinary - - - N/A
Interim2010ordinary - - - N/A
Total amount -
Final2008ordinary 3.5 16,085 Franked 26September2008
Interim2009ordinary - - - N/A
Total amount 16,085
Frankeddividendsdeclaredandpaidduringthe2009yearwerefrankedatthetaxrateof30%.
DECLARED AFTER END OF YEAR
Thedirectorshaveatthedateofthisreportdeclaredthatnofinaldividendwillbepaidforthefinancialyearended30June2010.
9. EVENTS SUBSEQUENT TO REPORTING DATE IntheopinionofthedirectorsoftheCompany,therehasnotarisenintheintervalbetweentheendofthefinancialyearandthedateofthisreportanyitem,transactionoreventofamaterialandunusualnaturelikelytoaffectsignificantlytheoperationsoftheGroup,theresultsofthoseoperations,orthestateofaffairsoftheGroup,infuturefinancialyears.
DIRECTORS’ REPORT
Declared and paid during the 2010 financial year
Declared and paid during the 2010 financial year
Cents per share
Cents per share
Total amount $000’s
Total amount $000’s
Franked / unfranked
Franked / unfranked
Date of payment
Date of payment
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12. AUDITOR KPMGcontinuesinofficeasauditorinaccordancewithsection327 oftheCorporationsAct2001.
NON-AUDIT SERVICES
DuringtheyearKPMG,theCompany’sauditor,hasperformedcertainotherservicesinadditiontotheirstatutoryduties.
Theboardhasconsideredthenon-auditservicesprovidedduringtheyearbytheauditoranditissatisfiedthattheprovisionofthosenon-auditservicesduringtheyearbytheauditoriscompatiblewith,anddidnotcompromise,theauditorindependencerequirementsoftheCorporationsAct2001forthefollowingreasons:
• allnon-auditservicesweresubjecttothecorporategovernance proceduresadoptedbytheCompanyandhavebeenreviewedby theauditcommitteetoensuretheydonotimpacttheintegrity andobjectivityoftheauditor;and
• thenon-auditservicesprovideddonotunderminethegeneral principlesrelatingtoauditorindependenceassetoutinAPES110 CodeofEthicsforProfessionalAccountants,astheydidnot involvereviewingorauditingtheauditor’sownwork,actingina managementordecisionmakingcapacityfortheCompany,acting asanadvocatefortheCompanyorjointlysharingrisksand rewards.
DetailsoftheamountspaidorpayabletoKPMGforauditandnonauditservicesareprovidedinnote28ofthefinancialstatements.
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001
Theleadauditor’sindependencedeclarationrequiredundersection307CoftheCorporationsAct2001issetoutonpage26andformspartofthedirectors’reportforthefinancialyearended30June2010.
13. ROUNDING OFF TheCompanyisakindreferredtoinASICClassOrder98/100dated10July1998andinaccordancewiththatClassOrder,amountsinthefinancialreportanddirectors’reporthavebeenroundedofftothenearestthousanddollars,unlessotherwisestated.
Signedinaccordancewitharesolutionofthedirectors:
Spencer Young F P (Andy) EstebanChairman/ExecutiveDirector/ Non-ExecutiveDirectorChiefExecutiveOfficer
DatedatSydneythis19thdayofAugust2010
10. LIKELY DEVELOPMENTS TheUSLighthousebusinesswillcontinuetofocusonthedevelopmentanddistributionofitsmanagedaccountprogram,inparticularfocusingonbroadeningdistributionnotonlygeographically,butalsointothelargerinstitutionalinvestorspace.
TheAustralianbusinesswillpursueitsnewbusinessstrategy,rollingoutnewproductswhichfitwithitsbroader“activefundsmanagementsolution”philosophy,andfocusingdistributioneffortsnotonlyontheindependentfinancialadvisernetwork,butalsohighnetworthandinstitutionalinvestors.
FurtherinformationaboutlikelydevelopmentsintheoperationsoftheGroupandtheexpectedresultsofthoseoperationsinfuturefinancialyearshasnotbeenincludedinthisreportbecausedisclosureoftheinformationwouldbelikelytoresultinunreasonableprejudiceto theGroup.
11. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERSINDEMNIFICATION
TheCompanyhasagreedtoindemnifycurrentdirectorsandformerdirectorsagainstallliabilitiestoanotherperson(otherthantheCompanyorarelatedbodycorporate)thatmayarisefromtheirpositionasdirectorsoftheCompanyanditscontrolledentities,exceptwheretheliabilityarisesoutofconductinvolvingalackofgoodfaith.TheagreementstipulatesthattheCompanywillmeetthefullamountofanysuchliabilities,includingcostsandexpenses.
TheCompanyhasalsoagreedtoindemnifythecurrentdirectorsofitscontrolledentitiesforallliabilitiestoanotherperson(otherthantheCompanyorarelatedbodycorporate)thatmayarisefromtheirposition,exceptwheretheliabilityarisesoutofconductinvolvingalackofgoodfaith.TheagreementstipulatesthattheCompanywillmeetthefullamountofanysuchliabilities,includingcostsandexpenses.
INSURANCE PREMIUMS
Thedirectorshavenotincludeddetailsoftheamountofthepremiumpaidinrespectofthedirectors’andofficers’liabilityinsurancecontracts,assuchdisclosureisprohibitedunderthetermsofthecontract.Theinsurancepremiumspaidrelatetocostsandexpensesincurredbytherelevantofficersindefendingproceedings,whethercivilorcriminalandwhatevertheiroutcome;andotherliabilitiesthatmayarisefromtheirposition,withtheexceptionofconductinvolvingawillfulbreachofdutyorimproperuseofinformationorpositiontogainapersonaladvantage.
DIRECTORS’ REPORT
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LEAD AUDITOR’S INDEPENDENCE DECLARATION
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001
TO THE DIRECTORS OF HFA HOLDINGS LIMITED:
Ideclarethat,tothebestofmyknowledgeandbelief,inrelationtothe auditforthefinancialyearended30June2010therehavebeen:
• nocontraventionsoftheauditorindependencerequirementsasset outintheCorporationsAct2001inrelationtotheaudit;and
• nocontraventionsofanyapplicablecodeofprofessionalconductin relationtotheaudit.
KPMG
Robert S JonesPartner
DatedatBrisbanethis19thdayofAugust2010
KPMG,anAustralianpartnershipandamemberfirmoftheKPMGnetworkofindependantmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
LiabilitylimitedbyaschemeapprovedunderProfessionalStandardsLegislation.
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Thenotesonpages32to70areanintegralpartoftheseconsolidatedfinancialstatements.
As at 30 June 2010
in thousands of AUD Note 2010 2009 Assets
Cashandcashequivalents 10 32,977 29,290
Tradeandotherreceivables 11 12,817 19,391
Currenttaxassets 13 500 307
Total current assets 46,294 48,988
Investments 12 2,373 2,319
Plantandequipment 14 1,615 1,893
Deferredtaxassets 13 293 496
Intangibleassets 15 171,683 191,959
Total non-current assets 175,964 196,667
Total assets 222,258 245,655
Liabilities
Tradeandotherpayables 16 7,252 9,294
Employeebenefits 17 4,399 5,303
Derivatives 18 1,359 -
Loansandborrowings 20 10,322 7,879
Total current liabilities 23,332 22,476
Employeebenefits 17 172 217
Derivatives 18 - 3,455
Loansandborrowings 20 110,351 137,039
Total non-current liabilities 110,523 140,711
Total liabilities 133,855 163,187
Net assets 88,403 82,468
Equity
Sharecapital 504,730 504,730
Reserves 21 112,971 113,987
Retainedearnings/(accumulatedlosses) (529,298) (536,249)
Total equity attributable to equity holders of the Company 88,403 82,468
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2010
in thousands of AUD Note 2010 2009 Revenue
7
72,576
112,855
Investmentmanagementcosts (11,956) (17,312)
Net income from operating activities 60,620 95,543
Otherincome 7 4 208
Expenses 7 (45,391) (57,635)
Results from operating activities before impairment losses and equity settled transactions 15,233 38,116
Impairmentlosses 7 - (599,537)
Equitysettledtransactions 7 (2,250) (12,396)
Results from operating activities 12,983 (573,817)
Financeincome 8 660 2,018
Financecosts 8 (7,338) (8,665)
Net finance costs (6,678) (6,647)
Profit / (loss) before income tax 6,305 (580,464)
Incometax(expense)/benefit 9 (1,604) 7,280
Net profit / (loss) for the period 4,701 (573,184)
Attributable to:
OwnersoftheCompany 4,701 (573,184)
Profit / (loss) for the period 4,701 (573,184)
Earnings per share
Basicearnings/(loss)pershare(centspershare) 22 1.013 (124.641)
Dilutedearnings/(loss)pershare(centspershare) 22 1.013 (124.474)
Thenotesonpages32to70areanintegralpartoftheseconsolidatedfinancialstatements.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2010
in thousands of AUD Note 2010 2009
Profit for the period 4,701 (573,184)
Other comprehensive income
Foreigncurrencytranslationdifferencesforforeignoperations 8 (3,187) 178,436
Effectiveportionofchangesinfairvalueofcashflowhedges 8 2,096 (6,207)
Netchangeinfairvalueofavailable-for-salefinancialassets 8 107 7
Incometaxonothercomprehensiveincome 9 (32) (24,094)
Other comprehensive income / (expense) for the period, net of income tax (1,016) 148,142
Total comprehensive income / (expense) for the period 3,685 (425,042)
Attributable to:
OwnersoftheCompany 3,685 (425,042)
Total comprehensive income / (expense) for the period 3,685 (425,042)
Thenotesonpages32to70areanintegralpartoftheseconsolidatedfinancialstatements.
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2010
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
in thousands of AUD
Balanceat1July2008 504,730 (4) 1,613 (35,764) 40,624 511,199
Total comprehensive income for the period
Profit/(loss)fortheperiod - - - - (573,184) (573,184)
Other comprehensive income
Foreigncurrencytranslationdifferences,netoftax 8(b) - - - 153,206 - 153,206
Effectiveportionofchangesinfairvalueofcashflowhedges,netoftax 8(b) - - (5,068) - - (5,068)
Netchangeinfairvalueofavailable-for-salefinancialassets,netoftax 8(b) - 4 - - - 4
Totalothercomprehensiveincome - 4 (5,068) 153,206 - 148,142
Totalcomprehensiveincomefortheperiod - 4 (5,068) 153,206 (573,184) (425,042)
Transactions with owners, recorded directly in equity
Dividendstoequityholders 21 - - - - (16,085) (16,085)
Equitysettledtransactions 19 - - - - 12,396 12,396
Totaltransactionswithowners - - - - (3,689) (3,689)
Balanceat30June2009 504,730 - (3,455) 117,442 (536,249) 82,468
Balanceat1July2009 504,730 - (3,455) 117,442 (536,249) 82,468
Total comprehensive income for the period
Profit/(loss)fortheperiod - - - - 4,701 4,701
Other comprehensive income
Foreigncurrencytranslationdifferences,netoftax 8(b) - - - (3,187) - (3,187)
Effectiveportionofchangesinfairvalueofcashflowhedges,netoftax 8(b) - - 2,096 - - 2,096
Netchangeinfairvalueofavailable-for-salefinancialassets,netoftax 8(b) - 75 - - - 75
Totalothercomprehensiveincome - 75 2,096 (3,187) - 1,016
Totalcomprehensiveincomefortheperiod - 75 2,096 (3,187) 4,701 3,685
Transactions with owners, recorded directly in equity
Dividendstoequityholders 21 - - - - - -
Equitysettledtransactions 19 - - - - 2,250 2,250
Totaltransactionswithowners - - - - 2,250 2,250
Balanceat30June2010 504,730 75 (1,359) 114,255 (529,298) 88,403
Equitysettledtransactionsrelatetotherecognitionofsharesissuedtoemployeesunderthe2008HFAEmployeePerformanceRightsPlanandtheLighthouseInvestmentPartnersShortTermIncentivePlan(2009:2008EmployeePerformanceRightPlanandtheLighthouseInvestmentPartnersIncentiveCompensationPlan).Thisisanon-cashexpense.Theseamountsarerecognisedinretainedearnings.
Thenotesonpages32to70areanintegralpartoftheseconsolidatedfinancialstatements.
NoteShare
CapitalFair Value Reserve
Hedging Reserve
Translation Reserve
Retained Earnings
Total Equity
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CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2010
in thousands of AUD
Note 2010 2009
Cash flows from operating activities
Cashreceiptsfromcustomers 79,995 123,918
Cashpaidtosuppliersandemployees (49,610) (72,250)
Cashgeneratedfromoperations 30,385 51,668
Interestreceived 541 796
Dividendsanddistributionsreceived - 8
Incometaxespaid (1,528) (9,931)
Net cash from operating activities 24 29,398 42,541
Cash flows from investing activities
Acquisitionofplantandequipment (525) (162)
Acquisitionofinvestments (167) (67)
Proceedsfromdisposalofinvestment 310 -
Net cash used in investing activities (382) (229)
Cash flows from financing activities
Proceedsfromborrowings - 9,999
Repaymentofborrowings (17,660) (34,803)
Borrowingcosts (135) (1,659)
Dividendspaid - (16,085)
Interestpaid (6,930) (6,562)
Net cash used in financing activities (24,725) (49,110)
Net increase/(decrease) in cash and cash equivalents 4,291 (6,798)
Cashandcashequivalentsat1July 29,290 38,828
Effectofexchangeratefluctuationsoncashheld (604) (2,740)
Cash and cash equivalents at 30 June 10 32,977 29,290
Thenotesonpages32to70areanintegralpartoftheseconsolidatedfinancialstatements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. REPORTING ENTITY HFAHoldingsLimited(the“Company”/“HFA”)isdomiciledinAustralia.HFAisacompanylimitedbyshares,incorporatedinAustraliawhosesharesarepubliclylistedontheAustralianSecuritiesExchange.TheconsolidatedfinancialstatementsoftheCompanyasatandfortheyearended30June2010comprisetheCompanyanditssubsidiaries(the“Group”).
HFAhasfourAustraliandomiciledwhollyownedsubsidiaries,CertitudeGlobalInvestmentsLimited(formerlyHFAAssetManagementLimited)(“Certitude”),AdminPtyLtd(formerlyHFAAdminPtyLtd)(“Admin”),A.C.N.122776550PtyLtdandA.C.N.143806651Limited.CertitudeistheresponsibleentityfortheAustralianbasedinvestmentschemes.AdminisaserviceentitytoCertitudeandprovidesadministrativeservicesincludingstaff,premisesandotherresourcestoCertitudeandtheCompany.A.C.N122776550PtyLtdandA.C.N.143806651aredormantentities.
HFAalsohastwoforeignsubsidiaries,HFALighthouseHoldingsCorp.andHFALighthouseCorp.BothforeignsubsidiariesareincorporatedintheUnitedStatesandwereestablishedtofacilitatetheacquisitionofUSbasedLighthouseGroup.TheLighthouseGroupcomprisesfiveforeignentitiesbeingLHPInvestmentsLLC,LighthouseInvestmentPartnersLLC,LighthousePartnersNYLLC,LighthousePartnersUKLLC(allincorporatedintheUnitedStates)andLighthousePartnersLimited(HK)(incorporatedinHongKong).LighthouseInvestmentPartnersLLCistheinvestmentmanagerfortheLighthouseinvestmentschemes.
TheregisteredofficeofHFAisLevel5,151MacquarieStreet, SydneyNSW2000.
2. BASIS OF PREPARATION (A) STATEMENT OF COMPLIANCE
TheconsolidatedfinancialreportisageneralpurposefinancialreportwhichhasbeenpreparedinaccordancewithAustralianAccountingStandards(AASBs)(includingAustralianInterpretations)adoptedbytheAustralianAccountingStandardsBoard(AASB)andtheCorporationsAct2001.TheconsolidatedfinancialreportoftheGroupalsocomplieswiththeInternationalFinancialReportingStandards(IFRSs)andinterpretationsadoptedbytheInternationalAccountingStandardsBoard(IASB).
Thefinancialstatementswereapprovedbytheboardofdirectorson19August2010.
(B) BASIS OF MEASUREMENT
Theconsolidatedfinancialstatementshavebeenpreparedonagoingconcernbasis.Assuch,theconsolidatedfinancialstatementshavebeenpreparedonahistoricalcostbasisexceptforthefollowingitemsinthestatementoffinancialposition:
• derivativefinancialinstrumentsaremeasuredatfairvalue
• financialinstrumentsatfairvaluethroughtheprofitorlossare measuredatfairvalue
• available-for-salefinancialassetsthataremeasuredatfairvalue
Methodsusedtomeasurefairvaluearediscussedfurtherinnote4.
(C) FUNCTIONAL AND PRESENTATION CURRENCY
TheseconsolidatedfinancialstatementsarepresentedinAustraliandollars,whichistheCompany’sfunctionalcurrency.TheCompanyisofakindreferredtoinASICClassOrder98/100dated10July1998andinaccordancewiththeClassOrder,amountsinthefinancialreporthavebeenroundedtothenearestthousanddollars,unlessotherwisestated.
(D) USE OF ESTIMATES AND JUDGEMENTS
ThepreparationofconsolidatedfinancialstatementsinconformitywithAASBsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.
Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiod inwhichtheestimateisrevisedandinanyfutureperiodsaffected.
Informationaboutcriticaljudgementsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountrecognisedinthefinancialstatementsaredescribedbelow:
• note12-measurementofinvestments
• note13-utilisationoftaxlosses
• note15-measurementoftherecoverableamountsof cash-generatingunitscontaininggoodwill
• note19-measurementofsharebasedpayments
• note25-valuationoffinancialinstruments
(E) CHANGES IN ACCOUNTING POLICIES
Startingasof1July2009,theGrouphaschangeditsaccountingpoliciesinthefollowingareas:
• Accountingforbusinesscombinations
• Determinationandpresentationofoperatingsegments
• Presentationoffinancialstatements
3. SIGNIFICANT ACCOUNTING POLICIES Theaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedintheseconsolidatedfinancialstatements,andhavebeenappliedconsistentlybyGroupentities,exceptasexplainedinnotes2(e),3(a)(i),3(q)and3(r)whichaddresschanges inaccountingpolicies.
(A) BASIS OF CONSOLIDATION
TheconsolidatedfinancialstatementsarethoseoftheGroup,comprisingHFAHoldingsLimited(theparentcompany)andallentitiesthatHFAHoldingsLimitedcontrolledfromtimetotimeduringtheperiodandatthereportingdate.
For the year ended 30 June 2010
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(B) FOREIGN CURRENCY
(i) Foreign currency transactions
TransactionsinforeigncurrenciesaretranslatedtotherespectivefunctionalcurrenciesoftheGroupentitiesattheexchangeratesatthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthereportingdateareretranslatedtothefunctionalcurrencyattheforeignexchangerateatthatdate.Theforeigncurrencygainorlossonmonetaryitemsisthedifferencebetweenamortisedcostinthefunctionalcurrencyatthebeginningoftheperiod,adjustedforeffectiveinterestandpaymentsduringtheperiod,andtheamortisedcostinforeigncurrencytranslatedattheexchangerateattheendoftheperiod.Non-monetaryassetsandliabilitiesdenominatedinforeigncurrenciesthataremeasuredatfairvalueareretranslatedtothefunctionalcurrencyattheexchangerateatthedatethatthefairvaluewasdetermined.Foreigncurrencydifferencesarisingonretranslationarerecognisedinprofitorloss,exceptfordifferencesarisingonretranslationofavailable-for-saleequityinstrumentsandafinancialliabilitydesignatedasaqualifyingcashflowhedge,whicharerecogniseddirectlyinequity(see(c)(ii)below).
(ii) Foreign operations
Theassetsandliabilitiesofforeignoperations,includinggoodwillandfairvalueadjustmentsarisingonacquisition,aretranslatedtoAustraliandollarsatexchangeratesatthereportingdate.TheincomeandexpensesofforeignoperationsaretranslatedtoAustraliandollarsusingexchangeratesapproximatingthedateoftherelevanttransaction.
Foreigncurrencydifferencesarerecogniseddirectlyintheforeigncurrencytranslationreserve(FCTR)inequity.Whenaforeignoperationisdisposedof,inpartorinfull,therelevantamountintheFCTRistransferredtotheprofitorloss.
Foreignexchangegainsorlossesarisingfromamonetaryitemreceivablefrom,orpayableto,aforeignoperation,thesettlementofwhichisneitherplannednorlikelyintheforeseeablefuture,areconsideredtoformpartofanetinvestmentinaforeignoperationandarerecogniseddirectlyinequityintheFCTR.
(C) FINANCIAL INSTRUMENTS
(i) Non-derivative financial instruments
TheGroupinitiallyrecognisesfinancialinstrumentsonthedatethattheyareoriginated.Allotherfinancialinstruments(includinginstrumentsdesignatedatfairvaluethroughprofitorloss)arerecognisedinitiallyonthetradedateatwhichtheGroupbecomesapartytothecontractualprovisionsoftheinstrument.TheGroupderecognisesafinancialassetwhenthecontractualrightstothecashflowsfromtheassetexpireandderecognisesafinancialliabilitywhenitscontractualobligationsaredischargedorcancelledorexpire.
Financialassetsandliabilitiesareoffsetandthenetamountpresentedinthestatementoffinancialpositionwhen,andonlywhen,theGrouphasalegalrighttooffsettheamountsandintendseithertosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.
TheGrouphasthefollowingnon-derivativefinancialinstruments:
(i) Business combinations
Change in accounting policy
TheGrouphasadoptedrevisedAASB3BusinessCombinations(2008)andamendedAASB127ConsolidatedandSeparateFinancialStatements(2008)whichwouldberelevanttotheGroup’soperationsintheeventofanyfuturechangestoitsbusinesscombinations.Thechangeinaccountingpolicyisappliedprospectivelyandhadnomaterialimpactonearningspershare.
Foreverybusinesscombination,theGroupidentifiestheacquirer,whichisthecombiningentitythatobtainscontroloftheothercombiningentitiesorbusinesses.Controlisthepowertogovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Inassessingcontrol,theGrouptakesintoconsiderationpotentialvotingrightsthatcurrentlyareexercisable.Theacquisitiondateisthedateonwhichcontrolistransferredtotheacquirer.Judgementisappliedindeterminingtheacquisitiondateanddeterminingwhethercontrolistransferredfromonepartytoanother.
Measuring goodwill
TheGroupmeasuresgoodwillasthefairvalueoftheconsiderationtransferredincludingtherecognisedamountofanynon-controllinginterestintheacquiree,lessthenetrecognisedamount(generallyfairvalue)oftheidentifiableassetsacquiredandliabilitiesassumed,allmeasuredasoftheacquisitiondate.
Considerationtransferredincludesthefairvaluesoftheassetstransferred,liabilitiesincurredbytheGrouptothepreviousownersoftheacquiree,andequityinterestsissuedbytheGroup.Considerationtransferredalsoincludesthefairvalueofanycontingentconsiderationandshare-basedpaymentawardsoftheacquireethatarereplacedmandatorilyinthebusinesscombination(seebelow).Ifabusinesscombinationresultsintheterminationofpre-existingrelationshipsbetweentheGroupandtheacquiree,thentheloweroftheterminationamount,ascontainedintheagreement,andthevalueoftheoff-marketelementisdeductedfromtheconsiderationtransferredandrecognisedinotherexpenses.
Transaction costs
TransactioncoststhattheGroupincursinconnectionwithabusinesscombination,suchasfinder’sfees,legalfees,duediligencefees,andotherprofessionalandconsultingfees,areexpensedasincurred.
(ii) Subsidiaries
SubsidiariesareentitiescontrolledbytheGroup.Thefinancialstatementsofsubsidiariesareincludedintheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.
TheaccountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoalignthemwiththepoliciesadoptedbytheGroup.Thefinancialstatementsofsubsidiariesarepreparedforthesamereportingperiodastheparentcompany.
(iii) Transactions eliminated on consolidation
Intra-groupbalances,andanyunrealisedincome&expensesarisingfromintra-grouptransactions,areeliminatedinpreparingtheconsolidatedfinancialstatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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accountingisdiscontinuedprospectively.Thecumulativegainorlosspreviouslyrecognisedinequityremainsthereuntiltheforecasttransactionoccurs.Whenthehedgeditemisanon-financialasset,theamountrecognisedinequityistransferredtothecarryingamountoftheassetwhenitisrecognised.Inothercasestheamountrecognisedinequityistransferredtoprofitorlossinthesameperiodthatthehedgeditemaffectsprofitorloss.
(iii) Share capital
Ordinary shares
Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofordinarysharesandshareoptionsarerecognisedasadeductionfromequity,netofanytaxeffects.
(D) PLANT AND EQUIPMENT
(i) Recognition and measurement
Itemsofplantandequipmentaremeasuredatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses.
Costincludesexpendituresthataredirectlyattributabletotheacquisitionoftheasset.Purchasedsoftwarethatisintegraltothefunctionalityoftherelatedequipmentiscapitalisedaspartofthatequipment.
Gainsandlossesondisposalofanitemofplantandequipmentaredeterminedbycomparingtheproceedsfromdisposalwiththecarryingamountofplantandequipmentandarerecognisednetwithin“expenses”inprofitorloss.
(ii) Depreciation
Depreciationisrecognisedintheprofitorlossonastraight-linebasisovertheestimatedusefullifeoftheassetasfollows:
Furnititureandequipment 7years
Leaseholdimprovements LeaseTerm
Computerequipment 3-5years
Theresidualvalue,theusefullifeandthedepreciationmethodappliedtoanassetarereassessedatleastannually.Thecarryingvalueofplantandequipmentisreviewedforimpairment(seeaccountingpolicy(g))wheneventsorchangesincircumstancesindicatethecarryingvaluemaynotberecoverable.
(E) LEASED ASSETS
LeasesunderthetermsofwhichtheGroupassumessubstantiallyalltherisksandrewardsofownershipareclassifiedasfinanceleases.Uponinitialrecognitiontheleasedassetismeasuredatanamountequaltothelowerofitsfairvalueandthepresentvalueoftheminimumleasepayments.Subsequenttoinitialrecognition,theassetisaccountedforinaccordancewiththeaccountingpolicyapplicabletothatasset.
OtherleasesareoperatingleasesandtheleasedassetsarenotrecognisedontheGroup’sbalancesheet.
Cash and cash equivalents
Cashandcashequivalentscomprisecashbalancesandcalldeposits.
Trade and other receivables
Tradeandotherreceivablesarefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Suchassetsarerecognisedinitiallyatfairvalue,andthensubsequentlyaremeasuredatamortisedcostlessimpairmentlosses(seeaccountingpolicy(g)).
Available-for-sale financial assets
TheGroup’sinvestmentsinequitysecuritiesareclassifiedasavailable-for-salefinancialassets.Subsequenttoinitialrecognition,theyaremeasuredatfairvalueandchangestherein,otherthanimpairmentlosses(seeaccountingpolicy(g)),arerecognisedasaseparatecomponentofequity.Whenaninvestmentisderecognised,thecumulativegainorlossinequityistransferredtoprofitorloss.
Financial assets at fair value through profit or loss
Afinancialassetisclassifiedasatfairvaluethroughprofitorlossifitisheldfortradingorisdesignatedassuchuponinitialrecognition.FinancialassetsaredesignatedatfairvaluethroughprofitorlossiftheGroupmanagessuchinvestmentsandmakespurchaseandsaledecisionsbasedonthefairvalueinaccordancewiththeGroup’sinvestmentstrategyorriskmanagementstrategy.Uponinitialrecognition,attributabletransactioncostsarerecognisedinprofitorlosswhenincurred.Financialinstrumentsatfairvaluethroughprofitorlossaremeasuredatfairvalue,andchangesthereinarerecognisedinprofitorloss.
Trade and other payables
Tradeandotherpayablesarestatedattheiramortisedcost.Tradepayablesarenon-interestbearingandarenormallysettledon 30-dayterms.
Loans and borrowings
Loansandborrowingsarerecognisedinitiallyatfairvalueplusanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognitionthesefinancialliabilitiesaremeasuredatamortisedcostusingtheeffectiveinterestratemethod.
(ii) Derivative financial instruments
TheGroupholds/hasheldderivativefinancialinstrumentstohedgecertainforeigncurrencyandinterestrateriskexposures.Derivativesarerecognisedinitiallyatfairvalueandattributabletransactioncostsarerecognisedinprofitorlosswhenincurred.Subsequenttoinitialrecognition,derivativesaremeasuredatfairvalueandchangesthereinaccountedforasdescribedbelow.
Cash flow hedges
Changesinfairvalueofderivativehedginginstrumentsdesignatedascashflowhedgesarerecogniseddirectlyinequitytotheextentthatthehedgeiseffective.Totheextentthatthehedgeisineffective,changesinfairvaluearerecognisedinprofitorloss.
Ifthehedginginstrumentnolongermeetsthecriteriaforhedgeaccounting,expiresorissold,terminatedorexercised,thenhedge
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(F) INTANGIBLE ASSETS
(i) Goodwill
Goodwillonacquisitionofsubsidiariesisinitiallymeasuredatcost,beingtheexcessofthecostoftheacquisitionovertheGroup’sinterestinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheacquiree.Followinginitialrecognition,goodwillismeasuredatcostlessanyaccumulatedimpairmentlosses(seeaccountingpolicy(g)).
Asatacquisitiondate,anygoodwillisallocatedtotheacquiredcash-generatedunitsthatgaverisetotherecognitionofthegoodwill.Goodwillisnotamortisedbutreviewedforimpairmentannuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired.
Impairmentisdeterminedbyassessingtherecoverableamountofthecash-generatingunittowhichthegoodwillrelates.Whentherecoverableamountofthecashgeneratingunitislessthanthecarryingamount,animpairmentlossisrecognised.
(ii) Management rights and customer relationships
Whereacquiredseparately,managementrightsandcustomerrelationshipassetsarecapitalisedatcost.Subsequenttoacquisition,theassetsaremeasuredatcostlessaccumulatedamortisationandaccumulatedimpairmentlosses(seeaccountingpolicy(g)).
(iii) Other intangible assets
OtherintangibleassetsacquiredbytheGroup,whichhavefinitelives,aremeasuredatcostlessaccumulatedamortisationandaccumulatedimpairmentlosses.
Intangibleassetscreatedwithinthebusinessarenotcapitalisedandexpenditureischargedagainstprofitsintheyearinwhichtheexpenditureisincurred.
(iv) Amortisation
Amortisationisrecognisedinprofitorlossonastraight-linebasisovertheestimatedusefullivesofintangibleassets,otherthangoodwill,fromthedatethattheyareavailableforuse.Theestimatedusefullivesforthecurrentandcomparativeperiodsareasfollows:
Managementrightsandcustomerrelationships 5-10years
Trademarks 20years
Capitalisedsoftwaredevelopmentcosts 5years
(G) IMPAIRMENT
(i) Financial assets
Afinancialassetisassessedateachreportingdatetodeterminewhetherthereisanyobjectiveevidencethatitisimpaired.Afinancialassetisconsideredtobeimpairedifobjectiveevidenceindicatesthatoneormoreeventshavehadanegativeeffectontheestimatedfuturecashflowsofthatasset.
Animpairmentlossinrespectofafinancialassetmeasuredatamortisedcostiscalculatedasthedifferencebetweenitscarrying
amount,andthepresentvalueoftheestimatedfuturecashflowsdiscountedattheoriginaleffectiveinterestrate.Animpairmentlossinrespectofanavailable-for-salefinancialassetiscalculatedbyreferencetoitsfairvalue.
Significantfinancialassetsaretestedforimpairmentonanindividualbasis.Theremainingfinancialassetsareassessedcollectivelyingroupsthatsharesimilarcreditriskcharacteristics.
Allimpairmentlossesarerecognisedinprofitorloss.Anycumulativelossinrespectofanavailable-for-salefinancialassetrecognisedpreviouslyinequityistransferredtoprofitorloss.
Animpairmentlossisreversedifthereversalcanberelatedobjectivelytoaneventoccurringaftertheimpairmentlosswasrecognised.Forfinancialassetsmeasuredatamortisedcostthereversalisrecognisedinprofitorloss.Foravailable-for-salefinancialassetsthatareequitysecurities,thereversalisrecogniseddirectlyinequity.
(ii) Non-financial assets
ThecarryingamountsoftheGroup’snon-financialassets,otherthandeferredtaxassets(seeaccountingpolicy(n)),arereviewedateachreportingdatetodeterminewhetherthereisanyindicationofimpairment.Ifanysuchindicationexists,theasset’srecoverableamountisestimated.Forgoodwillandintangibleassetsthathaveindefinitelives,therecoverableamountisestimatedateachreportingdate.
Therecoverableamountofanassetorcash-generatingunitisthegreaterofitsvalueinuseanditsfairvaluelesscoststosell.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Forthepurposeofimpairmenttesting,assetsaregroupedtogetherintothesmallestgroupofassetsthatgeneratescashinflowsfromcontinuingusethatarelargelyindependentofthecashinflowsofotherassetsorgroupsofassets(the“cash-generatingunit”).
Animpairmentlossisrecognisedwheneverthecarryingamountofanassetoritscash-generatingunitexceedsitsrecoverableamount.Impairmentlossesarerecognisedinprofitorloss.Impairmentlossesrecognisedinrespectofcash-generatingunitsareallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitsandthentoreducethecarryingamountoftheotherassetsintheunit(groupofunits)onapro-ratabasis.
Animpairmentlossinrespectofgoodwillisnotreversed.Inrespectofotherassets,impairmentlossesrecognisedinpriorperiodsareassessedateachreportingdateforanyindicationsthatthelosshasdecreasedornolongerexists.Animpairmentlossisreversediftherehasbeenachangeintheestimatesusedtodeterminetherecoverableamount.Animpairmentlossisreversedonlytotheextentthattheasset’scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciationandamortisation,ifnoimpairmentlosshadbeenrecognised.
(H) PROVISIONS
Aprovisionisrecognisedif,asaresultofapasteventtheGrouphasapresentobligation(legalorconstructive)thatcanbeestimatedreliably,anditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.
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Iftheeffectofthetimevalueofmoneyismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.
(I) EMPLOYEE BENEFITS
(i) Wages and salaries, annual leave and long service leave
Liabilitiesarisinginrespectofwagesandsalaries,annualleaveandanyotheremployeebenefitsexpectedtobesettledwithin12monthsofthereportingdatearemeasuredattheirnominalamountsbasedonremunerationrateswhichareexpectedtobepaidwhentheliabilityissettled,includingrelatedon-costs.Allotheremployeebenefitliabilitiesaremeasuredatthepresentvalueoftheestimatedfuturecashoutflowtobemadeinrespectofservicesprovidedbyemployeesuptothereportingdate.Indeterminingthepresentvalueoffuturecashoutflows,themarketyieldasatthereportingdateonnationalgovernmentbonds,whichhavetermstomaturityapproximatingthetermsoftherelatedliability,areused.
Employeebenefitsexpensesarisinginrespectofthefollowingcategories:
• wagesandsalaries,non-monetarybenefits,annualleave,long serviceleave,sickleaveandotherleavebenefits;
• terminationbenefits;and
• othertypesofemployeebenefits,
arerecognisedagainstprofitsonanetbasisintheirrespectivecategories.
(ii) Defined contribution plans
Adefinedcontributionplanisapost-employmentbenefitplanunderwhichanentitypaysfixedcontributionsintoaseparateentityandwillhavenolegalorconstructiveobligationtopayfurtheramounts.Obligationsforcontributionstodefinedcontributionplansarerecognisedasanemployeebenefitexpenseinprofitorlossintheperiodsduringwhichservicesarerenderedbyemployees.
(iii) Short-term benefits
Short-termemployeebenefitobligationsaremeasuredonanundiscountedbasisandareexpensedastherelatedserviceisprovided.
Aliabilityisrecognisedfortheamountexpectedtobepaidundershort-termcashbonusorprofit-sharingplansiftheGrouphasapresentlegalorconstructiveobligationtopaythisamountasaresultofpastserviceprovidedbytheemployee,andtheobligationcanbemeasuredreliably.
(iv) Share-based payments
TheGroupprovidesbenefitstoitsemployeesintheformofshare-basedpaymenttransactions,wherebyemployeesrenderservicesinexchangeforsharesorrightsovershares(“equity-settledtransactions”).
Thegrantdatefairvalueofshare-basedpaymentawardsgrantedtoemployeesisrecognisedasanequitysettledtransactionexpensein
theprofitorloss,withacorrespondingincreaseinequity,overtheperiodthattheemployeesunconditionallybecomeentitledtotheawards.Theamountrecognisedasanexpenseisadjustedtoreflectthenumberofawardsforwhichtherelatedserviceandnon-marketvestingconditionsareexpectedtobemet,suchthattheamountultimatelyrecognisedasanexpenseisbasedonthenumberofawardsthatmeettherelatedserviceandnon-marketperformanceconditionsatthevestingdate.
Thecumulativeexpenserecognisedforequity-settledtransactionsateachreportingdateuntilvestingdatereflects:(i)theextenttowhichthevestingperiodhasexpired;and(ii)thenumberofawardsthat,intheopinionofthedirectorsoftheGroup,willultimatelyvest.Thisopinionisformedbasedonthebestavailableinformationatbalancedate.
SharebasedpaymentarrangementsinwhichtheGroupreceivesgoodsorservicesasconsiderationforitsownequityinstrumentsareaccountedforasequity-settledshare-basedpaymenttransactions,regardlessofhowtheequityinstrumentsareobtainedbytheGroup.
(J) REVENUE
Revenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheentityandtherevenuecanbereliablymeasured.Thefollowingspecificrecognitioncriteriamustalsobemetbeforerevenueisrecognised.Whereamountsdonotmeettheserecognitioncriteria,theyaredeferredandrecognisedintheperiodinwhichtherecognitioncriteriaaremet.
Management fees and performance fees
PeriodicmanagementfeesarereceivedformanagementservicesprovidedbyGroupentitiesthatactasinvestmentmanagerinrelationtovariousinvestmentproducts.Thesefeesarerecognisedasrevenuesasthemanagementservicesareprovided.
Periodicperformancefeesarereceivedbygroupentitiesthatactasinvestmentmanagerofvariousinvestmentproductswhentheperformanceoftheproductexceedsapredeterminedlevel.Thesefeesarerecognisedasrevenueswhenitisestablishedthatperformanceoftheinvestmentproducthasexceededtherequiredlevel.
(K) INVESTMENT MANAGEMENT COSTS
Investmentmanagementcostsconsistoffeesforinvestmentmanagementservicesfrominvestmentadvisors,distributionrebatesandtrailcommissionspaidtofinancialadvisorsandotherthirdpartydistributors.Thesecostsarerecognisedonanaccrualbasis.
(L) LEASE PAYMENTS
Paymentsmadeunderoperatingleasesarerecognisedinprofitorlossonastraight-linebasisoverthetermofthelease.Leaseincentivesreceivedarerecognisedasanintegralpartofthetotalleaseexpense,overthetermofthelease.
(M) FINANCE INCOME AND FINANCE COSTS
Financeincomecomprisesinterestincomeonfundsinvested,dividendanddistributionincome,gainsonthedisposalofavailable-for-salefinancialassetsandchangesinthefairvalueoffinancialassetsheldatfairvaluethroughtheprofitorloss.Interestincomeisrecognisedasit
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accruesinprofitorloss,usingtheeffectiveinterestmethod.DividendanddistributionincomeisrecognisedinprofitorlossonthedatethattheGroup’srighttoreceivepaymentisestablished,whichinthecaseofquotedsecuritiesistheex-dividenddate.
Financecostscompriseinterestexpenseonborrowings,changesinthefairvalueoffinancialassetsatfairvaluethroughprofitorloss,andlossesonhedginginstrumentsthatarerecognisedinprofitorloss.
Foreigncurrencygainsandlossesarerecognisedonanetbasis.
(N) INCOME TAX
Incometaxexpensecomprisescurrentanddeferredtax.Incometaxexpenseisrecognisedintheprofitorlossexcepttotheextentthatitrelatestoitemsrecogniseddirectlyinequity,inwhichcaseitisrecognisedinequity.
Currenttaxistheexpectedtaxpayableonthetaxableincomefortheyear,usingtaxratesenactedorsubstantivelyenactedatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousyears.
Deferredtaxisrecognisedusingthebalancesheetmethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Theamountofdeferredtaxprovidedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities,usingtaxratesenactedorsubstantivelyenactedatthereportingdate.Deferredtaxassetsandliabilitiesareoffsetifthereisalegallyenforceablerighttooffsetcurrenttaxliabilitiesandassets,andtheyrelatetoincometaxesleviedbythesametaxauthorityonthesametaxableentity,orondifferenttaxentities,buttheyintendtosettlecurrenttaxliabilitiesandassetsonanetbasisortheirtaxassetsandliabilitieswillberealisedsimultaneously.
Adeferredtaxassetisrecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.Deferredtaxassetsarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealised.
Additionalincometaxesthatarisefromthedistributionofdividendsarerecognisedatthesametimeastheliabilitytopaytherelateddividendisrecognised.
Tax consolidation
TheCompanyanditswholly-ownedAustralianresidententitiesformedatax-consolidatedgroupwitheffectfrom1May2006andarethereforetaxedasasingleentityfromthatdate.Theheadentitywithinthetax-consolidatedgroupisHFAHoldingsLimited.
Currenttaxexpense/income,deferredtaxliabilitiesanddeferredtaxassetsarisingfromtemporarydifferencesofthemembersofthetax-consolidatedgrouparerecognisedintheseparatefinancialstatementsofthemembersofthetax-consolidatedgroupusingthe‘separatetaxpayerwithingroup’approachbyreferencetothecarryingamountsofassetsandliabilitiesintheseparatefinancialstatementsofeachentityandthetaxvaluesapplyingundertaxconsolidation.
Anycurrenttaxliabilities(orassets)anddeferredtaxassetsarisingfromunusedtaxlossesofthesubsidiariesisassumedbytheheadentityinthetax-consolidatedgroupandarerecognisedasamountspayable(receivable)to(from)otherentitiesinthetax-consolidatedgroup.
TheCompanyrecognisesdeferredtaxassetsarisingfromunusedtaxlossesofthetax-consolidatedgrouptotheextentthatitisprobablethatfuturetaxableprofitsofthetax-consolidatedgroupwillbeavailableagainstwhichtheassetcanbeutilised.
Anysubsequentperiodadjustmentstodeferredtaxassetsarisingfromunusedtaxlossesasaresultofrevisedassessmentsoftheprobabilityofrecoverabilityisrecognisedbytheheadentityonly.
(O) GOODS AND SERVICES TAX
Revenue,expensesandassetsarerecognisednetoftheamountofgoodsandservicestax(GST)exceptwheretheGSTincurredonapurchaseofgoodsandservicesisnotrecoverablefromthetaxationauthority.Inthesecircumstances,theGSTisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpense.
ReceivablesandpayablesarestatedwiththeamountofGSTincluded.ThenetamountofGSTrecoverablefrom,orpayableto,thetaxationauthorityisincludedaspartofreceivablesorpayablesintheconsolidatedstatementoffinancialposition.
CashflowsareincludedintheStatementofCashFlowsonagrossbasis.TheGSTcomponentsofcashflowsarisingfrominvestingandfinancingactivities,whicharerecoverablefrom,orpayableto,thetaxationauthority,areclassifiedasoperatingcashflows.
(P) EARNINGS PER SHARE
TheGrouppresentsbasicanddilutedearningspershare(EPS)dataforitsordinaryshares.BasicEPSiscalculatedbydividingtheprofitorlossattributabletoordinaryshareholdersoftheCompanybytheweightedaveragenumberofordinarysharesoutstandingduringtheperiod.DilutedEPSisdeterminedbyadjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofordinarysharesoutstandingfortheeffectsofalldilutivepotentialordinaryshares,whichincludesshareoptionsgrantedtoemployees.
(Q) SEGMENT REPORTING
Asof1July2009theGroupdeterminesandpresentsoperatingsegmentsbasedontheinformationthatinternallyisprovidedtotheGroup’sCEOandboardofdirectors,whoaretheGroup’schiefoperatingdecisionmakers.ThischangeinaccountingpolicyisduetotheadoptionofAASB8OperatingSegments.PreviouslyoperatingsegmentsweredeterminedandpresentedinaccordancewithAASB114SegmentReporting.Thenewaccountingpolicyinrespectofsegmentoperatingdisclosuresispresentedasfollows.
Comparativesegmentinformationhasbeenre-presentedinconformitywiththetransitionalrequirementsofthestandard.Sincethechangeinaccountingpolicyonlyimpactspresentationanddisclosureaspects,thereisnoimpactonearningspershare.
AnoperatingsegmentisacomponentoftheGroupthatengagesinbusinessactivitiesfromwhichitmayearnrevenuesandincurexpenses,includingrevenuesandexpensesthatrelatetotransactionswithanyoftheGroup’sothersegments.Alloperatingsegments’operatingresultsareregularlyreviewedbytheGroup’sCEOandboardofdirectorstomakedecisionsaboutresourcestobeallocatedtothesegmentandassessitsperformance,andforwhichdiscretefinancialinformationisavailable.
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SegmentresultsthatarereportedtotheCEOandboardofdirectorsincludeitemsdirectlyattributabletoasegment.
UnallocateditemscompriseassetsandliabilitiesrelatingtoHFAHoldingsLimitedandAdminPtyLtd(theAustralianparentandserviceentities),corporateexpensesandamountsthatareeliminatedonconsolidationoftheGroup.
(R) PRESENTATION OF FINANCIAL STATEMENTS
TheGroupappliesrevisedAASB101PresentationofFinancialStatements(2007),whichbecameeffectiveasof1January2009.Asaresult,theGrouppresentsintheconsolidatedstatementofchangesinequityallownerchangesinequity,whereasallnon-ownerchangesinequityarepresentedintheconsolidatedstatementofcomprehensiveincome.
Comparativeinformationhasbeenre-presentedsothatitalsoisinconformitywiththerevisedstandard.Sincethechangeinaccountingpolicyonlyimpactspresentationaspects,thereisnoimpactonearningspershare.
(S) NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
Thefollowingstandards,amendmentstostandardsandinterpretationshavebeenidentifiedasthosewhichmayimpacttheentityintheperiodofinitialapplication.Theyareavailableforearlyadoptionat30June2010,buthavenotbeenappliedinpreparingthisfinancialreport:
• AASB9Financial Instruments includesrequirementsforthe classificationandmeasurementoffinancialassetsresulting fromthefirstpartofPhase1oftheprojecttoreplaceAASB139 Financial Instruments: Recognition and Measurement.AASB9will becomemandatoryfortheGroup’s30June2014financial statements.Retrospectiveapplicationisgenerallyrequired, althoughthereareexceptions,particularlyiftheentityadoptsthe standardfortheyearended30June2012orearlier.TheGroup hasnotyetdeterminedthepotentialeffectofthestandard.
• AASB124Related Party Disclosures(revisedDecember2009) simplifiesandclarifiestheintendedmeaningofthedefinitionof arelatedpartyandprovidesapartialexemptionfromthe disclosurerequirementsforgovernment-relatedentities.The amendments,whichwillbecomemandatoryfortheGroup’s30 June2012financialstatements,arenotexpectedtohaveany impactonthefinancialstatements.
• AASB2009-5Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect variousAASBsresultinginminorchangesforpresentation, disclosure,recognitionandmeasurementpurposes.The amendments,whichbecomemandatoryfortheGroup’s30June 2011financialstatements,arenotexpectedtohaveasignificant impactonthefinancialstatements.
• AASB2009-8Amendments to Australian Accounting Standards - Group Cash-settled Share-based Payment Transactionsresolves diversityinpracticeregardingtheattributionofcash-settledshare- basedpaymentsbetweendifferententitieswithinagroup.Asa resultoftheamendmentsAI8Scope of AASB 2andAI11AASB
2 - Group and Treasury Share Transactions willbewithdrawnfrom theapplicationdate.Theamendments,whichbecomemandatory fortheGroup’s30June2011financialstatements,arenot expectedtohaveasignificantimpactonthefinancialstatements.
• IFRIC19Extinguishing Financial Liabilities with Equity Instruments addressestheaccountingbyanentitywhenthetermsofa financialliabilityarerenegotiatedandresultintheentityissuing equityinstrumentstoacreditoroftheentitytoextinguishall orpartofthefinancialliability.IFRIC19willbecomemandatory fortheGroup’s30June2011financialstatements,with retrospectiveapplicationrequired.TheGrouphasnotyet determinedthepotentialeffectoftheinterpretation.
4. DETERMINATION OF FAIR VALUES AnumberoftheGroup’saccountingpoliciesanddisclosuresrequirethedeterminationofthefairvalue,forbothfinancialandnon-financialassetsandliabilities.Fairvalueshavebeendeterminedformeasurementand/ordisclosurepurposesbasedonthefollowingmethods.Whereapplicable,furtherinformationabouttheassumptionsmadeindeterminingfairvaluesisdisclosedinthenotesspecifictothatassetorliability.
PLANT AND EQUIPMENT
Thefairvalueofplantandequipmentrecognisedasaresultofabusinesscombinationisbasedonmarketvalues.Themarketvalueofitemsofplant,equipment,fixturesandfittingsisbasedonthequotedmarketpricesforsimilaritems.
INTANGIBLE ASSETS
Thefairvalueofintangiblesacquiredinabusinesscombinationisbasedonthediscountedcashflowsexpectedtobederivedfromtheuseandeventualsaleoftheassets.
INVESTMENTS IN EQUITY SECURITIES AND INVESTMENT VEHICLES
Thefairvalueoffinancialassetsatfairvaluethroughprofitorlossandavailable-for-salefinancialassetsisdeterminedbyreferencetotheirquotedclosingbidpriceatthereportingdate.
TRADE AND OTHER RECEIVABLES
Thefairvalueoftradeandotherreceivablesisestimatedasthepresentvalueoffuturecashflows,discountedatthemarketrateofinterestatthereportingdate.Thefairvalueisdeterminedfordisclosurepurposes.
DERIVATIVES
Thefairvalueofinterestrateswapsisbasedonvaluationsreceivedfromtheinterestswapprovider.Thesevaluationsaretestedforreasonablenessbydiscountingestimatedfuturecashflowsbasedonthetermsandmaturityofeachcontractandusingmarketinterest ratesforasimilarinstrumentatmeasurementdate.
NON-DERIVATIVE FINANCIAL ASSETS
Fairvalueiscalculatedbasedonthepresentvalueoffutureprincipalandinterestcashflowsdiscountedatthemarketrateofinterestatthereportingdate.
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NON-DERIVATIVE FINANCIAL LIABILITIES
Fairvalue,whichisdeterminedfordisclosurepurposes,iscalculatedbasedonthepresentvalueoffutureprincipalandinterestcashflows,discountedatthemarketrateofinterestatthereportingdate.
SHARE-BASED PAYMENT TRANSACTIONS
Thefairvalueofequitysettledshare-basedpaymenttransactionsrightsismeasuredusingtheBlack-Scholesmodel.Measurementinputsincludesharepriceongrantdate,exercisepriceoftheinstrument,expectedvolatility(basedonhistoricalsharepricevolatility),lifeoftheinstrument,expecteddividends,andtheriskfreeinterestrate(basedongovernmentbonds).Serviceandnon-marketconditionsarenottakenintoaccountindeterminingfairvalue.
Thefairvalueofcashsettledshare-basedpaymenttransactionsisbasedonthemarketvalueofthesharesonsettlementdate.
5. RISK MANAGEMENT OVERVIEW
TheGrouphasexposuretothefollowingrisksfromitsuseoffinancialinstruments:
• creditrisk
• liquidityrisk
• marketrisk
• operationalrisk
ThisnotepresentsinformationabouttheGroup’sexposuretoeachoftheaboverisks,itsobjectives,policiesandprocessesformeasuringandmanagingrisk,andtheGroup’smanagementofcapital.Furtherquantitativedisclosuresareincludedthroughouttheseconsolidatedfinancialstatements.
RiskmanagementpoliciesareestablishedtoidentifyandanalysetherisksfacedbytheGroup,tosetappropriaterisklimitsandcontrols,andtomonitorrisksandadherencetolimits.RiskmanagementpoliciesandsystemsarereviewedregularlytoreflectchangesinmarketconditionsandtheGroup’sactivities.TheGroup,throughitstraining,employeemanualsandprocedures,aimstodevelopadisciplinedandconstructivecontrolenvironmentinwhichallemployeesunderstandtheirrolesandobligations.
TheboardofdirectorshasoverallresponsibilityfortheestablishmentandoversightoftheriskmanagementframeworkandoverseeshowmanagementmonitorscompliancewiththeGroup’sriskmanagementpoliciesandproceduresandreviewstheadequacyoftheriskmanagementframework.
(A) FINANCIAL RISK MANAGEMENT
Credit risk
CreditriskistheriskoffinanciallosstotheGroupifacustomerorcounterpartytoafinancialinstrumentfailstomeetitscontractualobligations,andarisesprincipallyfromtheGroup’sreceivablesandinvestmentsecurities.
Trade and other receivables
TheGroup’sexposuretocreditriskispredominantlyrelatedtomanagementfees,performancefeesandotherrelatedfeesfromproductsmanagedbytheGroup(approximately68%oftheGroup’sAUMisinvestedintheLighthouseDiversifiedFundandLighthouseGlobalLongShortFund).ReceivablesareactivelymonitoredtominimisetheGroup’sexposuretobaddebts.
Investments
TheGrouplimitsitsexposuretocreditriskfrominvestmentsbyonlyinvestingineitherquotedsecuritiesorunquotedsecuritieswheretheinvestmententityismanagedbytheGroup.Basedonhistoricalperformance,managementdoesnotexpectanycounterpartytofailtomeetitsobligations.
Liquidity risk
LiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsastheyfalldue.TheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatithassufficientliquiditytomeetitsliabilitieswhendue,underbothnormalandstressedconditions,withoutincurringunacceptablelossesorriskingdamagetotheGroup’sreputation.
Asdetailedinnote20tothefinancialstatements,theGrouphasvariousbankfacilitiesinplace.Undercurrentarrangements,thesefacilitiesareduetomatureinNovember2011.TheGrouphasprocessesinplacetoensurethetermsandconditionsofborrowingarrangementscontinuetobemet.Inthenormalcourse,thefacilitieswillberenegotiatedorrefinancedpriortomaturity.
TheGroupactivelymonitorscashflowandfunding.TheGroupensuresthatithassufficientcashondemandtomeetoperationalrequirements,includingtheservicingoffinancialobligations.Thisapproachexcludesthepotentialimpactofextremecircumstanceswhichcannotbepredicted.
Market risk
Marketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interestratesandequitypriceswillaffecttheGroup’sincomeorthevalueofitsholdingsoffinancialinstruments.Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturn.
Currency risk
TheGroupisexposedtocurrencyriskonfeerevenue,receivablesandborrowingsthataredenominatedinacurrencyotherthantherespectivefunctionalcurrenciesoftheGroupentities.ThisrelatesprimarilytoAustraliandollar(AUD)denominatedbalancesheldbytheUSLighthouseGroup,whichhasafunctionalcurrencyofUSdollars(USD).
Inaddition,theGroupisexposedtocurrencyriskinrespectoffinancialassetsandliabilitiesdenominatedinforeigncurrenciesandtheforeigncurrencyriskofnetassetsrelatingtotheGroup’sforeignoperations.HFAisalsoexposedtocurrencyriskinrespectofthetranslationofitsUSDearnings.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TheGroupisalsoindirectlyexposedtoforeigncurrencyriskonrevenueearnedfromAUDdenominatedmanagedinvestmentproductsinvestedinmarketsdenominatedinacurrencyotherthanAUD.ThecurrencygivingrisetothisriskisprimarilyUSD.Thisriskisprimarilyhedgedbythemanagedinvestmentproductdirectly,therebyreducingtheforeigncurrencyriskonrevenuesearnedbytheGroup.
Whereverappropriate,theGroupseekstoensureborrowingsandrelatedpaymentsarestructuredtoprovideaneconomichedge,therebyminimisingcurrencyriskarising.
Interest rate risk
TheGroup’sexposuretointerestrateriskrelatesprimarilytotheGroup’ssecuredbankloans.Interestratesonborrowingsareonavariableratebasis.TheGroupmanagesinterestrateriskbyenteringintointerestrateswapstoconvertaportionofitsexposuretochangesininterestrateborrowingstoafixedratebasis.
Equity risk
Equitypriceriskarisesfromavailable-for-saleassetsandfinancialassetsdesignatedatfairvaluethroughprofitorloss.Available-for-salefinancialassetsconsistofinvestmentsinordinaryshares.Financialassetsdesignatedatfairvaluethroughprofitorlossareunitsininvestmentvehiclesthatwouldotherwisebeclassifiedasavailable-for-sale.ThevalueoftheseinvestmentsheldbytheGroupisnotconsideredtoresultinanysignificantrisktotheGroup’sincome.
Furtherinformationoncreditrisk,liquidityriskandmarketriskisincludedatnote25.
Capital management
TheGroupaimstomaintainastrongcapitalbasesoastomaintaininvestor,creditorandmarketconfidenceandtosustainfuturedevelopmentofthebusiness.Theboardofdirectorsmonitorsthereturnoncapital,thelevelofdividendspaidandrelateddividendpolicy.TheGroup’scapitalmanagementpoliciesarealsomonitoredtoensurethattheyarewithintherequirementsoftheGroup’sexternaldebtfacility.
InaccordancewiththerequirementsoftheAustralianSecuritiesandInvestmentsCommissionAustralianFinancialServicesLicence,Certitudemustensurethatatalltimesthevalueofitsnettangibleassetsaremaintainedatanamountequaltonotlessthan0.5%ofschemeproperty,uptoamaximumof$5million.Certitude’spositionisactivelymonitoredtoensurecompliancewiththisrequirement.Therequirementwascompliedwiththroughouttheyear.
(B) OPERATIONAL RISK MANAGEMENT
OperationalriskistheriskofdirectorindirectlossarisingfromawidevarietyofcausesassociatedwiththeGroup’sprocesses,personnel,technologyandinfrastructure,andfromexternalfactorsotherthancredit,marketandliquidityriskssuchasthosearisingfromlegalandregulatoryrequirementsandgenerallyacceptedstandardsofcorporatebehaviour.
TheGroup’sobjectiveistomanageoperationalrisksoastobalancetheavoidanceoffinanciallossesanddamagetotheGroup’sreputationwithoverallcosteffectivenessandtoavoidcontrolproceduresthatrestrictinitiative.
ThisobjectiveissupportedbythedevelopmentofoverallGroupstandardsforthemanagementofoperationalriskinthefollowingareas:
• requirementsforappropriatesegregationofduties,includingthe independentauthorisationoftransactions
• requirementsforthereconciliationandmonitoringoftransactions
• compliancewithregulatoryandotherlegalrequirements
• documentationofcontrolsandprocedures
• developmentofcontingencyplans
• trainingandprofessionaldevelopment
• ethicalandbusinessstandards
• riskmitigation,includinginsurancewherethisiseffective.
6. OPERATING SEGMENTS TheGrouphastworeportablesegments,asdescribedbelow,whicharetheGroup’sstrategicbusinessunits.ThestrategicbusinessunitsarebasedontheGroup’stwoprincipalgeographiclocations,beingAustraliaandtheUnitedStates.Foreachofthestrategicbusinessunits,theGroup’sCEOandboardofdirectorsreviewinternalmanagementreportsonamonthlybasis.ThefollowingsummarydescribestheoperationsineachoftheGroup’sreportablesegments:
• Australia.IncludestheAustralianCertitudebusiness,whichacts astheResponsibleEntityofschemesandotherproductswhich areprovidedtoretail,wholesaleandinstitutionalinvestors throughoutAustralia.
• UnitedStates.IncludestheUSbasedLighthouseGroup,whichacts asaglobalabsolutereturnfundsmanagerforUSandCayman Islandbasedfunds.
$485million(2009:$629million)oftheAssetsunderManagementwhicharemanagedbyCertitudeareinvestedinfundsmanagedbytheLighthouseGroup.ThiscrossinvestmentresultsinmanagementfeerebatesbetweentheAustralianandUSoperatingsegments.
Informationregardingtheresultsofeachreportablesegmentisincludedbelow.Performanceismeasuredonsegmentresultsbeforeforeignexchangelossesontheintercompanyloan(whicheliminateonconsolidationoftheGroup)asincludedintheinternalmanagementreportsthatarereviewedbytheGroup’sCEOandboardofdirectors.
ComparativesegmentinformationhasbeenrepresentedinconformitywiththerequirementofAASB8Operating Segments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Information about reportable segments 2010 Reportable segments Reconciliation to consolidated totals
in thousands of AUD Australia
United States
Total reportable segments
Corporate / service entities
Elimination entries
Consolidated totals
Externalrevenue 17,038 55,538 72,576 - - 72,576
Inter-segmentrevenue - 2,945 2,945 - (2,945) -
Investmentmanagementcosts (3,940) (10,961) (14,901) - 2,945 (11,956)
Net income from operating activities 13,098 47,522 60,620 - - 60,620
OtherIncome - 2 2 2 - 4
Expenses
Depreciationandamortisationexpense - (11,046) (11,047) (189) - (11,235)
Otherexpenses (9,021) (23,761) (32,781) (1,374) - (34,156)
Results from operating activities before impairment expense and equity settled transactions 4,077 12,717 16,794 (1,561) - 15,233
Impairment(expense)/reversal - - - 24,812 (24,812) -
Equitysettledtransactions - (2,009) (2,009) (241) - (2,250)
Results from operating activities 4,077 10,708 14,785 23,010 (24,812) 12,983
Finance income / (costs)
Interestincomeonbankdeposits 459 8 467 74 - 541
Netforeignexchangegain/(loss) - (26,824) (26,824) - 26,943 119
Interestexpense(external) - (7,427) (7,427) (248) 585 (7,090)
Interestexpense(internal) - (3,545) (3,545) 1,195 2,350 -
Otherfinancecosts (2) (300) (302) 639 (585) (248)
Profit / (loss) before tax 4,534 (27,380) (22,846) 24,670 4,481 6,305
Profit/(loss)beforetax(eliminatingforeigncurrency movementsonintercompanyloan) 4,534 (439) 4,095 24,670 (22,460) 6,305
Incometax(expense)/benefit (1,360) (77) (1,437) (167) - (1,604)
Segmentassets 20,939 198,646 219,585 124,174 (121,501) 222,258
Segmentliabilities (3,318) (129,730) (133,048) (2,438) 1,631 (133,855)
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Information about reportable segments2009 Reportable segments Reconciliation to consolidated totals
in thousands of AUD Australia
United States
Total reportable segments
Corporate / service entities
Elimination entries
Consolidated totals
Externalrevenue 36,140 76,715 112,855 - 112,855
Inter-segmentrevenue - 9,512 9,512 - (9,512) -
Investmentmanagementcosts (10,807) (16,017) (26,824) - 9,512 (17,312)
Net income from operating activities 25,333 70,210 95,543 - - 95,543
OtherIncome 88 116 204 4 - 208
Expenses
Depreciationandamortisationexpense (668) (13,393) (14,061) (255) - (14,316)
Otherexpenses (10,353) (29,447) (39,800) (3,519) - (43,319)
Results from operating activities before impairment expense and equity settled transactions 14,400 27,486 41,886 (3,770) - 38,116
Impairment(expense)/reversal (11,446) (585,621) (597,067) (435,156) 432,686 (599,537)
Equitysettledtransactions - (12,177) (12,177) (219) - (12,396)
Results from operating activities 2,954 (570,312) (567,358) (439,145) 432,686 (573,817)
Finance income / (costs)
Interestincomeonbankdeposits 279 201 480 316 - 796
Dividendincomeonavailbale-for-salefinancialassets - - - 8 - 8
Netforeignexchangegain/(loss) - 45,654 45,654 110 (44,550) 1,214
Interestexpense(external) - (7,196) (7,196) (530) 67 (7,659)
Interestexpense(internal) - (19,965) (19,965) 15,161 4,804 -
Otherfinancecosts (2) (1,170) (1,172) 233 (67) (1,006)
Profit / (loss) before tax 3,231 (552,788) (549,557) (423,847) 392,940 (580,464)
Profit/(loss)beforetax(eliminatingforeigncurrency movementsonintercompanyloan) 3,231 (597,338) (594,107) (423,847) 437,490 (580,464)
Incometax(expense)/benefit (969) (3,749) (4,718) (4,598) 16,596 7,280
Segmentassets 17,915 220,610 238,525 103,850 (96,720) 245,655
Segmentliabilities (3,595) (393,662) (397,257) (9,055) 243,125 (163,187)
MAJOR REVENUE SOURCE
9%(2009:12%)and50%(2009:45%)oftheGroup’stotalrevenuerelatestomanagementandperformancefeesearnedontheHFADiversifiedInvestmentsFundandLighthouseDiversifiedFundrespectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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in thousands of AUD 2010 2009
(A) REVENUE
Managementfeeincome 71,149 110,369
Performancefeeincome 1,252 844
Originationfees 175 1,642
Total revenue 72,576 112,855
(B) OTHER INCOME
Sundryincome 4 208
Total other income 4 208
(C) EXPENSES
Personnelexpenses1 (24,648) (31,584)
Professionalfees (1,894) (2,920)
Depreciation (536) (804)
Amortisationintangibleassets (10,699) (13,512)
Occupancyexpenses (2,378) (2,987)
Marketingandpromotioncosts (81) (263)
Travelcosts (1,198) (1,384)
Otherexpenses (3,957) (4,181)
Total expenses (45,391) (57,635)
(D) IMPAIRMENT LOSSES
Impairmentlosses-intangibleassets - (596,119)
Impairmentlosses-financialassets - (3,418)
Total impairment losses - (599,537)
(E) EQUITY SETTLED TRANSACTIONS
Equitysettledtransactions (2,250) (12,396)
Total equity settled transactions (2,250) (12,396)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. REVENUE AND EXPENSES Profit/(loss)beforeincometaxexpenseincludesthefollowingspecificrevenuesandexpenseswhosedisclosureisrelevantinexplainingtheperformanceoftheGroup:
1.includesconsolidatedcontributionstodefinedcontributionplansof$717thousand(2009:$1,019thousand).
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in thousands of AUD 2010 2009
(A) RECOGNISED DIRECTLY IN PROFIT OR LOSS
Finance income
Interestincomeonbankdeposits 541 796
Dividendanddistributionincomeonavailable-for-salefinancialassets - 8
Netforeignexchangegain 119 1,214
Total finance income 660 2,018
Finance costs
Interestexpenseonfinancialliabilitiesmeasuredatamortisedcost (7,090) (7,659)
Financecosts (135) (726)
Netchangeinfairvalueoffinancialassetsatfairvaluethroughprofitorloss (113) (280)
Total finance costs (7,338) (8,665)
Net finance costs recognised in profit or loss (6,678) (6,647)
(B) RECOGNISED DIRECTLY IN OTHER COMPREHENSIVE INCOME
Foreigncurrencytranslationdifferenceforforeignoperations (3,187) 178,436
Effectiveportionofchangesinfairvalueofcashflowhedges 2,096 (6,207)
Changeinfairvalueofavailable-for-salefinancialassetstransferredtoprofitorloss 107 7
Incometaxonincomeandexpenserecogniseddirectlyinequity (32) (24,094)
Finance income attributable to equity holders recognised directly in equity, net of tax (1,016) 148,142
Recognised in:
Translationreserve (3,187) 153,206
Hedgingreserve 2,096 (5,068)
Fairvaluereserve 75 4
1,016 148,142
8. FINANCE AND INCOME COSTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(A) RECOGNISED IN THE INCOME STATEMENT
in thousands of AUD 2010 2009
Current tax expense
Currentyear (1,422) (7,471)
Deferred tax expense
Originationandreversaloftemporarydifferences 12,744 217,486
Taxlossesforwhichnodeferredtaxwasrecognised (15,133) (15,295)
Changeinunrecognisedtemporarydifferences 2,207 (187,440)
Income tax (expense) / benefit reported in income statement (1,604) 7,280
(B) INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME
2010 2009
in thousands of AUD
Before tax
Tax benefit (expense)
Net of tax
Before tax
Tax benefit (expense)
Net of tax
Foreigncurrencytranslationdifferenceforforeignoperations (3,187) - (3,187) 178,436 (25,230) 153,206
Effectiveportionofchangesinfairvalueofcashflowhedges 2,096 - 2,096 (6,207) 1,139 (5,068)
Changeinfairvalueofavailable-for-salefinancialassets 107 (32) 75 7 (3) 4
Income tax benefit / (expense) recognised in equity (984) (32) (1,016) 172,236 (24,094) 148,142
(C) RECONCILIATION OF EFFECTIVE TAX RATE
in thousands of AUD 2010 2009
Accountingprofit/(loss)beforetax 6,305 (580,464)
Incometaxusingthedomesticcorporationtaxrateof30%(2009:30%) (1,891) 174,139
Effectoftaxratesinforeignjurisdictions* 3,383 42,771
Non-deductibleexpenses 1,176 (7,069)
Taxbenefitsnotincludedinaccountingprofit (6,738) 131,853
Taxlossesforwhichnodeferredtaxisrecognised (15,133) (15,295)
Changesinunrecognisedtemporarydifferences 17,733 (319,293)
Under/(over)providedinpriorperiods (134) 174
Income tax (expense) / benefit on pre-tax net profit (1,604) 7,280
9. INCOME TAX EXPENSE
*TheGroup’sUSsubsidiariesoperateinataxjurisdictionwithhighertaxrates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(C) RECONCILIATION OF EFFECTIVE TAX RATE
TheGroup’sconsolidatedeffectivetaxratefortheyearended30June2010was25.4%(fortheyearended30June2009:1.3%).Theeffectivetaxratefortheyearended30June2010wasimpactedbythefollowing:
• TaxlossesincurredforthefinancialyearbytheUSLighthouseGroup,whichhavenotbeenrecognisedasadeferredtaxasset.Inparticular,thecurrentfinancialyeartaxlossesfortheUSLighthouseGroupincludeaninterestexpenseinrelationtotheintercompanyloanthatexistedbetweentheparententity,HFAHoldingsLimited,anditswholly-ownedsubsidiary,HFALighthouseHoldingsCorp.Nodeferredtaxassethasbeenrecognisedinrelationtothisinterestexpense,andhencenocorrespondingincometaxbenefitisincludedintheincomestatement.However,theequivalentinterestincomeisassessabletotheAustraliantaxconsolidationgroupinthefinancialyearended30June2010,resultinginanincometaxexpenseinrelationtotheinterestwithoutanoff-settingincometaxbenefit.TheGrouphasdeterminedthatduetothecurrentoperatingenvironmentintheglobalfinancialmarketsitisnotprobablethatsufficienttaxableprofitswillbegeneratedinthefuturetoutilisethepotentialbenefitsassociatedwiththecarriedforwardoperatinglosses.Assuch,theGroupdidnotrecognisethevalueofthepotentialbenefitassociatedwiththeselossesinthecurrentperiod.
10. CASH AND CASH EQUIVALENTS
in thousands of AUD 2010 2009
Cashatbank 16,431 27,865
Calldeposits 16,546 1,425
32,977 29,290
CashatbankearnsinterestatfloatingratesbasedondailybankdepositratesfortheAustraliancashdeposits,andtheFederatedGovernmentObligationsFundfortheUScashdeposits.
Calldepositsincludes$577thousandoffundsthatareheldinnominatedaccountsinrelationtosecuritydepositsfortheleaseofofficepremises.
Thefairvalueofcashandcashequivalentsis$32,977thousand(2009:$29,290thousand).
TheGroup’sexposuretointerestrateriskandasensitivityanalysis forfinancialassetsandliabilitiesisdisclosedinnote25.
11. TRADE AND OTHER RECEIVABLES
in thousands of AUD 2010 2009
Current
ReceivablesduefromGroupmanagedproducts 11,389 17,893
Otherreceivablesandprepayments 1,428 1,498
12,817 19,391
Receivablescomprisemanagementfees,performancefees,andrecoverablecostsfromGroupmanagedproductsandarenon-interestbearingandgenerallyon30dayterms.
Impairment of non-current receivables
Duringthe2009year,$2,968thousandofnon-currentreceivablesrelatingtotheperformanceofIndexOutperformanceCallOptionsincludedinthreeoftheGroup’sstructuredproductswereimpairedandwrittendowntozeroduetoadecreaseinthevalueoftheoptions.Thisreductioninthecarryingvalueofnon-currentreceivableswasrecognisedin“impairmentlosses”inthefinancialstatementsoftheGroup.
Therehasbeennofurtherimpairmentofnon-currentreceivablesinthe2010year.
TheGroup’sexposuretocreditandcurrencyriskandimpairmentlossesrelatedtotradeandotherreceivablesisdisclosedinnote25.
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12. INVESTMENTS
in thousands of AUD 2010 2009
Non-current
Available-for-salefinancialassets 191 84
Financialassetsdesignatedatfairvaluethroughprofitorloss 2,182 2,235
2,373 2,319
Available-for-salefinancialassetsconsistofinvestmentsinordinaryshares(refertonote29fortransactionswithrelatedparties).
Thefinancialassetsdesignatedatfairvaluethoughprofitorlossareunitsininvestmentvehiclesthatotherwisewouldhavebeenclassifiedasavailable-for-sale.
Impairment of available-for-sale financial assets
HFAHoldingsLimitedholds562thousandsharesinSignatureCapitalInvestmentsLimited(formerlyHFAAcceleratorPlusLimited)withacostbaseof$534thousand(95centspershare).Asat30June2009,thefairvalueoftheseshareswas$84thousand(15centspershare).Asaresult,thecarryingvalueofthisassetwasassessedundertheimpairmentprovisionsofAASB139FinancialInstruments:RecognitionandMeasurement.Duetothesignificantdeclineinthefairvalueofthisinvestment,animpairmentlossof$450thousandwasrecognisedandisincludedin“impairmentlosses”intheprofitorlossoftheGroupfortheyearended30June2009.
Asat30June2010,thefairvalueoftheseshareswas$191thousand(34centspershare),thereforenofurtherimpairmentlosshasbeenrecognisedfortheyearended30June2010.Theincreaseinthefairvaluehasbeenrecognisedinaseparatecomponentofequity(refernote3(c)(i)).
TheGroup’sexposuretocredit,liquidityandmarketraterisksrelatedtootherinvestmentsisdisclosedinnote25.
13. TAX ASSETS AND LIABILITIES (A) CURRENT TAX ASSETS AND LIABILITIES
ThecurrenttaxassetfortheGroupof$500thousand(2009:$307thousand)representstheamountofincometaxesrecoverableinrespectofpriorperiodsandthatarisefromthepaymentoftaxinexcessoftheamountsduetotherelevanttaxauthority.
(B) RECOGNISED DEFERRED TAX ASSETS
Deferredtaxassetsareattributabletothefollowing:
in thousands of AUD 2010 2009
Consolidated
Amortisation/depreciation 51 -
Available-for-salefinancialassets (30) 2
Otherreceivables (5) -
Tradecreditors 67 168
Employeebenefits 149 235
Deferredrevenue - -
Otherprovisions 61 91
Net tax assets / (liabilities) 293 496
(C) UNRECOGNISED DEFERRED TAX ASSETS
Deferredtaxassetshavenotbeenrecognisedinrespectofthefollowingitems:
in thousands of AUD 2010 2009
Deductibletemporarydifferences 275,758 293,202
Taxlosses 29,746 15,295
305,504 308,497
Thesedeferredtaxassetsariseasaresultofimpairmentlossesrecognisedintheprioryear,andcarriedforwardoperatingtaxlosses.
Thesedeferredtaxassetshavenotbeenrecognisedonthebasisthatduetothecurrentoperatingenvironmentintheglobalfinancialmarkets,itisnotprobablethatfuturetaxableprofitorcapitalgainswillbeavailableagainstwhichtheGroupcanutilisethesebenefits. Assuch,theGroupdidnotrecognisethevalueofthepotentialbenefitassociatedwiththeselossesinthecurrentperiod.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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in thousands of AUDFurniture and
equipmentComputer
equipment Leasehold
improvements Total
COST
Balanceat1July2008 1,096 1,185 962 3,243
Additions 8 123 31 162
Disposals (33) (83) (118) (234)
Effectofmovementinexchangerates 175 127 83 385
Balance at 30 June 2009 1,246 1,352 958 3,556
Balanceat1July2009 1,246 1,352 958 3,556
Additions 201 283 41 525
Disposals (261) (38) (180) (479)
Effectofmovementinexchangerates (56) (35) (33) (124)
Balance at 30 June 2010 1,130 1,562 786 3,478
DEPRECIATION
Balanceat1July2008 (141) (574) (170) (885)
Depreciationchargefortheyear (235) (407) (162) (804)
Disposals 13 70 24 107
Effectofmovementinexchangerate (1) (46) (34) (81)
Balance at 30 June 2009 (364) (957) (342) (1,663)
Balanceat1July2009 (364) (957) (342) (1,663)
Depreciationchargefortheyear (152) (268) (116) (536)
Disposals 177 34 70 281
Effectofmovementinexchangerate 18 29 8 55
Balance at 30 June 2010 (321) (1,162) (380) (1,863)
CARRYING AMOUNTS
At1July2008 955 611 792 2,358
At 30 June 2009 882 395 616 1,893
At1July2009 882 395 616 1,893
At 30 June 2010 809 400 406 1,615
14. PLANT AND EQUIPMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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in thousands of AUD Goodwill
Managment rights / customer
relationships Trademarks Software Total
COST
Balanceat1July2008 520,946 88,203 1,974 831 611,954
Additions - - - - -
Writtenoff - (34) - - (34)
Effectofmovementinexchangerates 96,699 14,209 368 155 111,431
Balance at 30 June 2009 617,645 102,378 2,342 986 723,351
Balanceat1July2009 617,645 102,378 2,342 986 723,351
Additions - - - - -
Writtenoff - - - - -
Effectofmovementinexchangerates (29,542) (4,341) (113) (47) (34,043)
Balance at 30 June 2010 588,103 98,037 2,229 939 689,308
AMORTISATION AND IMPAIRMENT LOSSES
Balanceat1July2008 - (7,535) (49) (84) (7,668)
Amortisationfortheyear - (13,165) (129) (218) (13,512)
Impairmentlosses (587,640) (8,479) - - (596,119)
Effectofmovementinexchangerate 85,598 301 2 6 85,907
Balance at 30 June 2009 (502,042) (28,878) (176) (296) (531,392)
Balanceat1July2009 (502,042) (28,878) (176) (296) (531,392)
Amortisationfortheyear - (10,410) (107) (182) (10,699)
Impairmentlosses - - - - -
Effectofmovementinexchangerate 23,995 459 4 8 24,466
Balance at 30 June 2010 (478,047) (38,829) (279) (470) (517,625)
CARRYING AMOUNTS
At1July2008 520,946 80,668 1,925 747 604,286
At 30 June 2009 115,603 73,500 2,166 690 191,959
At1July2009 115,603 73,500 2,166 690 191,959
At 30 June 2010 110,056 59,208 1,950 469 171,683
15. INTANGIBLE ASSETS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
50
IMPAIRMENT TESTING OF INTANGIBLE ASSETS
Therecoverableamountofgoodwillandintangibleassetsiscalculatedasthepresentvalueoftheestimatedfuturecashflows,discountedusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictothoseassets.
Forgoodwill,intangibleassetswithanindefinitelifeandintangibleassetsthatarenotyetavailableforuseanimpairmenttestiscarriedoutannually.Otherintangibleassetsaretestedforimpairmentwhenanimpairmentindicatorexists(seenote3(g)).
Forthepurposeofimpairmenttesting,intangibleassetsareallocatedtothefollowingcashgeneratingunits:
in thousands of AUD
2010Carryingamount
2009Carryingamount
Australian based funds management
Goodwill - -
Managementrights - -
US based funds management
Goodwill 110,056 115,603
Managementrights/customerrelationships 59,208 73,500
Trademarks 1,950 2,166
Software 469 690
171,683 191,959
A) 30 JUNE 2010 IMPAIRMENT TESTING
Australian based funds management cash generating unit (AUS CGU)
Asnotedinthetableabove,the30June2010carryingvalueforintangibleassetsallocatedtotheAUSCGUwas$Nil.ThereforenofurtherimpairmenttestingfortheAUSCGUwascarriedoutasat30June2010.
US based funds management cash generating unit (US CGU)
ImpairmenttestingcarriedoutontheUSCGUasat30June2010didnotresultintherecognitionofanyadditionalimpairmentlosses.
TherecoverableamountoftheUSCGUwasdeterminedbasedonavalueinusecalculation.
Tocalculatethis,cashflowprojectionswerebasedonthefinancialbudgetfortheUSbusinessagreedbytheexecutivedirectorsforthe2011
to2013financialyears.Forecastsfor2014and2015werebasedonrevenuegrowththatwasbroadlyconsistentwiththeapprovedgrowthratesforthe2011to2013periodandnormalisedcostpercentages.
Alongtermgrowthrateof4.4%wasusedintheterminalvaluecomponentofthecalculation.Thisratewasbasedona2.4%CPIlongtermforecastplus2.0%forrealGDPassourcedfromtheEconomistIntelligenceUnit,andisconsistentwiththegrowthassumptionappliedbymanyUScompanieswhenperformingimpairmenttests.
Thesecashflowprojectionswerethendiscountedusingthepre-taxdiscountrateof15.3%.
B) IMPAIRMENT TESTING FOR THE YEAR ENDED 30 JUNE 2009
TheGFC,particularlyfollowingthecollapseofLehmanBrothersinvestmentbankinSeptember2008,createdoneofthemostdifficultoperatingenvironmentsforfundmanagersinhistory.Theseverityandswiftnessofthecrisis,andtheresultantdistressincreditandcapitalmarketsaroundtheworldmeantthattheabsolutefundssectorexperiencedinvestmentlossesandsignificantnetfundoutflows.
TheGroupassessedthecarryingvalueofgoodwillandintangibleassetsasat31December2008duetothereductionintheGroup’sAUMandtheexpectationthattheseconditionswouldcontinueintheshorttermbeforefundflowsandperformancereturnedtonormallevels.
Australian based funds management cash generating unit (AUS CGU)
AsaresultofthetestingcarriedoutontheAUSCGUduringtheyearended30June2009,thecarryingamountofmanagementrightsandgoodwillallocatedtothisCGUwasdeterminedtobehigherthanitsrecoverableamount,andanimpairmentlossof$10,498thousandwasrecognisedandisincludedin“impairmentlosses”forthatperiod.
TherecoverableamountoftheAUSCGUwasdeterminedbasedonavalueinusecalculation.
Tocalculatethis,cashflowprojectionswerebasedonthefinancialbudgetfortheAustralianbusinessapprovedbytheboardofdirectorsforthe2009to2012financialyears.Forecastsfor2013werebasedonlevelsconsistentwith2012.Aterminalvaluewascalculatedusingagrowthrateof0%.
Thesecashflowprojectionswerethendiscountedusingthepre-taxdiscountrateof20.2%.
US based funds management cash generating unit (US CGU).
AsaresultofthetestingcarriedoutontheUSCGUduringtheyearended30June2009,theaggregatecarryingamountofassetsallocatedtothisCGUwasdeterminedtobehigherthanitsrecoverableamount,
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
andanimpairmentlossof$585,621thousandwasrecognisedandisincludedin“impairmentlosses”forthatperiod.Theimpairmentlosswasallocatedfullyagainstgoodwill.
ThislossreflectssignificantlylowerthanexpectedfuturecashflowsfromtheUSoperationscomparedtothebusinessatthetimeofacquisition.
TherecoverableamountoftheUSCGUwasdeterminedbasedonavalueinusecalculation.
Tocalculatethis,cashflowprojectionsarebasedonthefinancialbudgetfortheUSbusinessapprovedbytheboardofdirectorsforthe2009to2012financialyears.Forecastsfor2013werebasedonrevenuegrowththatwasbroadlyconsistentwiththeapprovedgrowthratesfor2011and2012andnormalisedcostpercentages.
Alongtermgrowthrateof3.5%wasusedintheterminalvaluecomponentofthecalculation.Thisratewasbasedona2.1%CPIlongtermforecastplus1.4%forrealGDPassourcedfromtheEconomistIntelligenceUnit,andisconsistentwiththegrowthassumptionappliedbymanyUScompanieswhenperformingimpairmenttests.
Thesecashflowprojectionswerethendiscountedusingthepre-taxdiscountrateof16.6%.
16. TRADE AND OTHER PAYABLES
in thousands of AUD 2010 2009
Current
Tradecreditors 1,716 1,859
Othercreditorsandaccruals 5,536 7,435
Total trade and other payables 7,252 9,294
Tradecreditorsarenon-interestbearingandnormallysettledon30dayterms.TheGroup’sexposuretocurrencyandliquidityriskrelatedtotradeandotherpayablesisdisclosedinnote25.
17. EMPLOYEE BENEFITS
in thousands of AUD 2010 2009
Current
Salariesandwagesaccrued 4,037 4,704
Liabilityforannualleave 362 599
Total employee benefits – current 4,399 5,303
Non-current
Liabilityforlongserviceleave 172 217
Total employee benefits – non-current 172 217
18. DERIVATIVES
in thousands of AUD 2010 2009
Current
Derivativesusedforhedging 1,359 -
Non-current
Derivativesusedforhedging - 3,455
Total derivatives 1,359 3,455
DerivativesusedforhedgingrelatetointerestrateswapsusedtohedgetheGroup’sexposuretointerestraterisk.Thefairvalueofthesederivativesisbasedonvaluationsreceivedfromtheinterestrateswapprovider.
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19. SHARE-BASED PAYMENTS
2008 HFA EMPLOYEE PERFORMANCE RIGHTS PLAN
AnofferofrightstoissuedsharesintheCompanywasmadetoemployeesofHFA’sAustralianbusinesson12March2008.Theboardapprovedtheallocationof3,955,000performancerightstoemployees.
Noconsiderationispayablebyemployeesupontheissueofperformancerightsorinrespectofthesharestobeissuedupontheexerciseoftheperformancerights.Vestingconditionsmustbesatisfiedfortheexerciseoftheperformancerights.
Vestingoftheperformancerightsisintranchesof25%,35%and40%withrespectivevestingdatesof31December2008,31December2009and31December2010.VestingconditionsincludebeingemployedbytheGroupattherelevantvestingdateandmeetingofperformancehurdlesfortheGrouprelatingtoassetsundermanagement,baserevenue(excludingperformancefees)andEBITDA.
TheHFAHoldingsLimitedboardretainstheabilitytopermitvestingincircumstanceswherehurdlethresholdsarenotmetbutcommercialcircumstanceswarrantlimitedorfullvesting.
Detailsoftheperformancerightsgrantedareasfollows:
in thousands of AUD
Total number of rights granted
Grant date Fair value at grant date
$
Expiry date Financial year in which grant vests
Tranche1 988,750 12/03/2008 0.9950 31/12/2009 2009
Tranche2 1,384,250 12/03/2008 0.9196 31/12/2010 2010
Tranche3 1,582,000 12/03/2008 0.8499 31/12/2011 2011
Thefollowingisareconciliationofperformancerightsoutstandingunderthe2008HFAEmployeePerformanceRightsPlan:
Number of shares
Outstandingat1July2008 3,955,000
Forfeitedduringtheperiod (953,750)
IssuedduringtheperiodinrelationtoTranche1 (901,250)
Outstanding at 30 June 2009 2,100,000
Outstandingat1July2009 2,100,000
Forfeitedduringtheperiod (1,330,750)
IssuedduringtheperiodinrelationtoTranche2 (299,250)
Outstanding at 30 June 2010 470,000
Tranche1oftheperformancerightsplanvestedat31December2008,with100%oftheshares(901,250shares)availableunderthetrancheforeligibleemployeesbeingissuedatthediscretionoftheboard.Thenon-cashexpenserecognisedinrelationtoTranche1fortheyearended30June2009totalled$219thousand.
Tranche2oftheperformancerightsplanvestedat31December2009,with30%oftheshares(299,250)availableunderthetrancheforeligibleemployeesbeingissuedduetothesatisfactionofthebaserevenueperformancehurdle.TheboarddidnotexerciseitsdiscretiontovestanyadditionalsharesunderTranche2.Thenon-cashexpenserecognisedinrelationtoTranche2fortheyearended30June2010totalled$241thousand.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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ThefairvalueofperformancerightsiscalculatedusingtheBlack-Scholesoptionpricingmodeladjustedfordividendsandisallocatedtoreportingperiodsevenlyovertheperiodfromgrantdatetovestingdateafterestimatingprobabilitiesofvesting.
Thefollowingfactorsandassumptionswereusedindeterminingthefairvalueoftherightsatgrantdate:
in thousands of AUD
Grant date Life of right granted
Exerciseprice
$
Share price at grant date
$
Risk free interest rate
Dividend yield
Fair value per right at grant
date$
Tranche1 12/03/08 1.8years - 1.06 6.630% 8.2% 0.9950
Tranche2 12/03/08 2.8years - 1.06 6.323% 8.2% 0.9196
Tranche3 12/03/08 3.8years - 1.06 6.190% 8.2% 0.8499
LIGHTHOUSE INVESTMENT PARTNERS INCENTIVE COMPENSATION PLAN
AnincentiveplanforemployeesofLighthouseInvestmentPartners,LLCwasestablishedbySGMHoldings,LLCon1July2008.SGMHoldings,LLCisarelatedentityofexecutivedirectorSeanMcGouldandisnotpartoftheHFAHoldingsLimitedGroup.GrantsmadeundertheplanwillbefundedbySGMHoldings,LLCnottheHFAHoldingsLimitedGroup.However,asSGMHoldings,LLCisshareholdersofHFAHoldingsLimited,accountingstandardsrequirethattheCompanyrecogniseanexpenseassociatedwiththesharesgrantedundertheplanwithacorrespondingincreaseintheCompany’sequitytorecognisethecontributionbySGMHoldings,LLCasashareholder.
TheincentiveplangrantsparticipantsanopportunitytoearnapaymentofcashorreceiveordinarysharesofHFAHoldingsLimited.100%ofthesharesavailableundertheplanweretransferredtoeligibleemployeesduringtheyearended30June2009(9,904,925shares),withthenon-cashexpenserecognisedbytheGroupforthatyeartotalling$12,177thousand.
ThefairvalueofordinarysharesavailableundertheplaniscalculatedusingtheBlack-Scholesoptionpricingmodeladjustedfordividendsandisallocatedtoreportingperiodsevenlyovertheperiodfromgrantdatetovestingdateafterestimatingprobabilitiesofvesting.
Thefollowingfactorsandassumptionswereusedindeterminingthefairvalueoftherightsatgrantdate:
in thousands of AUD
Grant date Life of right granted
Exerciseprice
$
Share price at grant date
$
Risk free interest rate
Dividend yield
Fair value per right at grant
date$
Tranche1 01/07/2008 0.5years - 1.09 6.947% 8.0% 1.0489
Tranche2 01/07/2008 1.5years - 1.09 6.849% 8.0% 0.9712
Tranche3 01/07/2008 2.5years - 1.09 6.748% 8.0% 0.8992
LIGHTHOUSE INVESTMENT PARTNERS SHORT TERM INCENTIVE PLAN
EmployeesofLighthouseInvestmentPartners,LLCareentitledtoparticipateinashorttermincentive(STI)planwhichisbasedontheperformanceoftheLighthouseGroup.
Fortheyearended31December2009,LighthouseemployeesweregrantedsharesinHFAHoldingsLimitedinpartialsettlementoftheirbonusentitlements.Noconsiderationwaspayablebyemployeesuponissueoftheshares.ThetotalnumberofHFAHoldingsLimitedsharesissuedtoLighthouseemployeesunderthisincentiveplanwas8,547,009.
Thefairvalueoftheordinarysharesgrantedundertheplanwasbasedonthemarketvalueofthesharesonthe31December2010grantdate.Thenon-cashexpenserecognisedbytheGroupinrelationtothisplanfortheyearended30June2010was$2,009thousand(2009:$Nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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20. LOANS AND BORROWINGS
in thousands of AUD 2010 2009
Current
Bankloan–secured
FacilityA–USD 10,322 5,885
FacilityB–AUD - 1,994
Total current loans and borrowings 10,322 7,879
Non-current
Bankloan–secured
FacilityA–USD 109,293 132,247
FacilityB–AUD 1,058 4,792
Total non-current loans and borrowings 110,351 137,039
Total loans and borrowings 120,673 144,918
Currentloansandborrowingsaretheportionofbankloansexpectedtobepaidwithinoneyear.
TERMS AND DEBT REPAYMENT SCHEDULE
Thetermsandconditionsoftheoutstandingloansasat30June2010wereasfollows:
in thousands of AUDNominal
interest rateDate of
maturityFace value Carrying
amountFace value Carrying
amount
2010 2009
FacilityA LIBOR+2.25% 1/11/2011 120,116 119,615 139,357 138,132
FacilityB BBSY+2.25% 1/11/2011 1,087 1,058 6,899 6,786
Total loans and borrowings 121,203 120,673 146,256 144,918
FINANCING ARRANGEMENTS
BankloanscompriseofthefollowingfacilitiesavailableunderaCashAdvanceFacilitiesAgreement(“CAFA”)withWestpacBankingCorporation:
• FacilityA(USDLighthouseGroupAcquisitionFacility)
• FacilityB(AUDWorkingCapitalFacility).
BothfacilitiesaresecuredbyfirstrankingfixedandfloatingchargesandmortgagesoveralltheassetsandundertakingsofHFAHoldingsLimitedandAdminPtyLtdinfavourofWestpac,withUSChargesgrantedbyHFALighthouseHoldingsCorp,HFALighthouseCorp,LHPInvestments,LLCandLighthouseInvestmentPartners,LLCinfavourofWestpacandDepositAccountControlAgreementsgrantedbyLHPInvestmentsLLCandLighthouseInvestmentPartnersLLCinfavourofWestpac.ThefacilitiesmatureinNovember2011.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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HFAHoldingsLimited,AdminPtyLtd,CertitudeGlobalInvestmentsLimited,HFALighthouseHoldingsCorpandHFALighthouseCorpguaranteetheobligationsofHFAHoldingsLimitedandHFALighthouseHoldingsCorp(“theBorrowers”).TheBorrowersandguarantorsalsoprovideacrossguaranteeinrelationtotheseobligationsandanyneworacquiredHFAsubsidiarymustalsoprovideaguaranteeandfirstrankingsecurityoveritsassets.TheCAFAcontainsrepresentations,warranties,undertakingsandeventsofdefaultofatypeusualforadebtfacilityofthiskindandhavingregardtothenatureofHFA’sbusiness.Undertakingsincludeobligationstocomplywithapplicablelaws,carryonbusinessinaproperandefficientmanner,ensurethatnoeventofdefaultoccursandinsureallsecuredproperty.
FinancialundertakingsincludethatHFAanditsrelatedentitieswillensurethat:
• EBITDAforeachperiodisalwaysatleast1.5timesgreaterthantheinterestexpenseforthesameperiod;and
• AssetsundermanagementoftheConsolidatedGrouparenotlessthanUSD2.6billion.
Thefinancialundertakingsaretestedquarterly,basedonthepreceding12months.
TheGroup’sexposuretocurrencyandinterestrateriskrelatedtoloansandborrowingsisdisclosedinnote25.
BankloansaredenominatedinbothAustraliandollarsandUSdollars.ThebankloanamountsincurrentliabilitiescomprisestheportionoftheGroup’sbankloanspayableandtheexpectedamounttobepaidwithinoneyear(2010:$10,322thousand)(2009:$7,879thousand).
21. CAPITAL AND RESERVES
MOVEMENT IN ORDINARY SHARES ON ISSUE
in thousands of shares 2010 2009
Balanceatbeginningoffinancialyear 460,484 459,583
Exerciseofperformancerights-6March2009 - 901
SharesissuedundertheLighthouseInvestmentPartnersShortTermIncentivePlan-9February2010 8,547 -
Exerciseofperformancerights-11February2010 299 -
Balance at end of financial year 469,330 460,484
TheCompanydoesnothaveauthorisedcapitalorparvalueinrespectofissuedshares.
Ordinaryshareshavetherighttoreceivedividendsasdeclaredand,intheeventofwindingupHFA,toparticipateintheproceedsfromthesaleofallsurplusassetsinproportiontothenumberofandamountspaiduponsharesheld.Ordinarysharesentitletheirholdertoonevote,eitherinpersonorbyproxy,atameetingofHFA.
Tranche1oftheperformancerightsplanvestedat31December2008,with100%oftheshares(901,250shares)availableunderthetrancheforeligibleemployeesbeingissuedatthediscretionoftheboard.
Tranche2oftheperformancerightsplanvestedat31December2009,with30%oftheshares(299,250shares)availableunderthetrancheforeligibleemployeesbeingissuedduetothesatisfactionofthebaserevenueperformancehurdle.TheboarddidnotexerciseitsdiscretiontovestanyadditionalsharesunderTranche2.
Fortheyearended31December2009,LighthouseemployeesweregrantedsharesinHFAHoldingsLimitedinpartialsettlementoftheirbonusentitlementsundertheLighthouseInvestmentPartnersShortTermIncentivePlan.ThetotalnumberofHFAHoldingsLimitedsharesissuedtoLighthouseemployeesunderthisincentiveplanwas8,547,009.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NATURE AND PURPOSE OF RESERVES
in thousands of AUD 2010 2009
Fairvaluereserve 75 -
Translationreserve 114,255 117,442
Hedgingreserve (1,359) (3,455)
112,971 113,987
Fair value reserve
Thefairvaluereservecomprisesthecumulativenetchangeinthefairvalueofavailable-for-salefinancialassetsuntiltheinvestmentisderecognisedorimpaired. Translation reserve
Thetranslationreservecomprisesallforeigncurrencydifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperations.
Hedging reserve
Thehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstrumentsrelatedtohedgedtransactionsthathavenotyetoccurred. Dividends
DividendsrecognisedinthecurrentyearbytheGroupare:
Declared and paid during the 2010 financial yearCents per
shareTotal amount
$000'sFranked /
unfrankedDate of
payment
Final2009ordinary - - - N/A
Interim2010ordinary - - - N/A
Total amount -
Declared and paid during the 2009 financial year
Final2008ordinary 3.5 16,085 Franked 26September2008
Interim2009ordinary - - - N/A
Total amount 16,085
Frankeddividendsdeclaredandpaidduringthe2009yearwerefullyfrankedatthetaxrateof30%.
Thedirectorshaveatthedateofthisreportdeclaredthatnofinaldividendwillbepaidforthefinancialyearended30June2010.
DIVIDEND FRANKING ACCOUNT
Company
in thousands of AUD 2010 2009
30%frankingcreditsavailabletoshareholdersofHFAHoldingsLimitedforsubsequentfinancialyears. 11,213 10,140
Theaboveavailableamountsarenowbasedonthebalanceofthedividendfrankingaccountatyear-endadjustedforfrankingcreditsthatwillarisefromthepaymentofcurrenttaxliabilities.Inaccordancewiththetaxconsolidationlegislation,theCompanyastheheadentityinthetax-consolidatedgrouphasalsoassumedthebenefitof$11,213thousand(2009:$10,140thousand)frankingcredits.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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22. EARNINGS PER SHARE
Thecalculationofbasicearningspershareanddilutedearningspershareat30June2010wasbasedonprofitattributabletoordinaryshareholdersof$4,701thousand(2009:lossof$573,184thousand)andaweightedaveragenumberofordinarysharesoutstandingduringthefinancialyearended30June2010of463,900thousandand464,085thousandrespectively(2009:459,869thousandand460,484respectively),calculatedasfollows:
in thousands of AUD Note 2010 2009
Earningsfromoperationsusedincalculatingbasicearningspershare 4,701 (573,184)
Earningsfromoperationsusedincalculatingdilutedearningspershare 4,701 (573,184)
Weighted average number of shares issued
Issuedordinarysharesat1July 21 460,484 459,583
Effectofsharesissued6March2009 286
Effectofsharesissued9February2010 3,302 -
Effectofsharesissued11February2010 114 -
Weighted average number of ordinary shares used in calculating basic earnings per share 463,900 459,869
Effectofperformancerightsissued12March2008 185 615
Weighted average number of ordinary shares used in calculating diluted earnings per share 464,085 460,484
Cents Per Share 2010 2009
Basicearningspershare 1.013 (124.641)
Dilutedearningspershare 1.013 (124.474)
On11February2010and6March2009theCompanyissued299,250and901,250sharesrespectivelyfornoconsiderationinrelationtothe2008EmployeePerformanceRightsPlanofferedtoemployeeson12March2008.
On9February2010theCompanyissued8,547,009sharesfornoconsiderationinrelationtotheLighthouseInvestmentPartnersShortTermIncentivePlanforthetwelvemonthsended31December2009.
Therehavebeennoothertransactionsinvolvingordinarysharesorpotentialordinarysharessincethereportingdateandbeforethecompletionofthesefinancialstatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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23. PARENT ENTITY DISCLOSURES
Asat,andthroughoutthefinancialyearended30June2010,theparentcompanyoftheGroupwasHFAHoldingsLimited.
Company
in thousands of AUD 2010 2009
Result of the parent entity
Profit/(loss)fortheperiod 24,577 (422,877)
Othercomprehensiveincome 75 4
Total comprehensive income for the period 24,652 (422,873)
Financial position of the parent at year end
Currentassets 2,496 6,747
Totalassets 122,618 102,032
Currentliabilities (411) (2,454)
Totalliabilities (1,514) (7,831)
Total equity of the parent comprising of:
Sharecapital 504,730 504,730
Fairvaluereserve 75 -
Retainedearnings (383,701) (410,529)
Total equity 121,104 94,201
PARENT ENTITY CONTINGENT LIABILITIES
GSTandcurrenttaxliabilitiesofotherentitieswithintheAustralianGSTgrouparetransferredtotheparententityandareincludedinthecurrentliabilitiesdisclosedabove.
Pleaserefertonote27forcommentsregardingcontingentliabilities.
PARENT ENTITY GUARANTEES IN RESPECT OF DEBTS OF ITS SUBSIDIARIES
TheparententityhasenteredintoadeedofcrossguaranteewiththeeffectthattheCompanyguaranteesthebankloanfacilityheldbysubsidiaryHFALighthouseHoldingsCorpundertheCashAdvanceFacilitiesAgreementwithWestpacBankingCorporation.
Furtherdetailsofthedeedofcrossguaranteeandthesubsidiariessubjecttothedeed,aredisclosedatnote20.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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24. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
in thousands of AUD Note 2010 2009
Cash flows from operating activities
Netprofit/(loss)fortheperiod(aftertax) 4,701 (573,184)
Adjustments for:
Depreciationexpense 7(c) 536 804
Impairmentlosses 7(d) - 599,537
Amortisationofintangibleassets 7(c) 10,699 13,512
Interestexpenseonfinancialliabilitiesmeasuredatamortisedcost 8(a) 7,090 7,659
Netlossondisposalofplant&equipment 199 127
Financecosts 8(a) 135 726
Equity-settledtransactions 7(e) 2,250 12,396
Incometaxexpense/(benefit) 76 (17,211)
Profitondisposalofwrittenoffinvestment (310) -
Fairvaluegain/(loss)onfinancialassetsatfairvaluethroughprofitorloss 8(a) 113 280
Foreigncurrency(gain)/loss (471) 113
Operating cash flow before changes in working capital and provisions 25, 018 44,759
(Increase)/decreaseinreceivables 6,223 5,235
(Increase)/decreaseinotherassets 22 (174)
Increase/(decrease)inpayables (1,129) (2,116)
Increase/(decrease)inprovisionsandemployeebenefits (736) (3,696)
Increase/(decrease)indeferredincome - (1,467)
Net cash from operating activities 29,398 42,541
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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25. FINANCIAL INSTRUMENTS
Exposuretocredit,liquidity,currency,equitypriceandinterestrateriskarisesinthenormalcourseoftheGroup’sbusiness.
CREDIT RISK
Exposure to credit risk
ThecarryingamountoftheGroup’sfinancialassetsatreportingdaterepresentsthemaximumcreditexposure:
in thousands of AUD Note
Carrying amount
2010
Carrying amount
2009
Cashandcashequivalents 10 32,977 29,290
Tradeandotherreceivables 11 12,817 19,391
Available-for-salefinancialassets 12 191 84
Financialassetsatfairvaluethroughprofitorloss 12 2,182 2,235
Total financial assets 48,167 51,000
TheGroup’sexposuretocreditriskfortradeandotherreceivablespredominantlyrelatestomanagementfees,performancefeesandotherrelatedfeesfromproductsmanagedbytheGroup.Atreportingdate,89%oftheGroup’sloansandreceivablesrelatedtomanagementfees,performancefeesandotherrelatedfeesowingfromproductsmanagedbytheGroup(2009:92%);47%ofreceivablesrelatetotheLighthouseDiversifiedFundandLighthouseGlobalLongShortFund(2009:43%).
WithrespecttocreditriskarisingfromtheotherfinancialassetsoftheGroup,whichcomprisecashandcashequivalents,available-for-salefinancialassets,financialassetsatfairvaluethroughprofitorlossandinterestrateswapsusedforhedging,theGroup’sexposuretocreditriskarisesfromdefaultofthecounterparty,withamaximumexposureequaltothecarryingamountoftheseinstruments.
Impairment losses
Basedonhistoricdefaultrates,theGroupbelievesthatnoimpairmentallowanceisnecessaryinrespectoftradereceivables.96%ofthetradereceivablesbalanceisnotpastdue(2009:94%).Paymentforthe4%oftradereceivablespastduewasreceivedon9July2010.
Impairment of non-current receivables
Themovementintheallowanceforimpairmentinrespectofnon-currentloansandreceivablesduringtheyearwasasfollows:
in thousands of AUD 2010 2009
Balanceat1July 2,968 -
Impairmentlossrecognised - 2,968
Balance as at 30 June 2,968 2,968
Duringthe2009year,$2,968thousandofnon-currentreceivablesrelatingtotheperformanceofIndexOutperformanceCallOptionsincludedinthreeoftheGroup’sstructuredproductswereimpairedandwrittendowntozeroduetoadecreaseinthevalueoftheoptions.Thisreductioninthecarryingvalueofnon-currentreceivableswasrecognisedin“impairmentlosses”inthefinancialstatementsoftheGroup.
Therehasbeennofurtherimpairmentofnon-currentreceivablesinthe2010year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Impairment of available-for-sale financial assets
Themovementintheallowanceforimpairmentinrespectofavailable-for-saleinvestmentsduringtheyearwasasfollows:
in thousands of AUD 2010 2009
Balanceat1July 450 -
Impairmentlossrecognised - 450
Balance at 30 June 450 450
HFAHoldingsLimitedholds562thousandsharesinSignatureCapitalInvestmentsLimited(formerlyHFAAcceleratorPlusLimited)withacostbaseof$534thousand(approximately95centspershare).Asat30June2009,thefairvalueoftheseshareswas$84thousand(15centspershare).Asaresult,thecarryingvalueofthisassetwasassessedundertheimpairmentprovisionsofAASB139FinancialInstruments:RecognitionandMeasurement.Duetothesignificantdeclineinthefairvalueofthisinvestment,animpairmentlossof$450thousandwasrecognisedandisincludedin“impairmentlosses”intheprofitorlossoftheGroupfortheyearended30June2009.
Asat30June2010,thefairvalueoftheseshareswas$191thousand(0.34centspershare),thereforenofurtherimpairmentlosshasbeenrecognisedfortheyearended30June2010.Theincreaseinthefairvaluehasbeenrecognisedinaseparatecomponentofequity(refernote3(c)(i)).
LIQUIDITY RISK
TheGroup’sdebtfacilitieswillmatureinNovember2011.
Thefollowingarethecontractualmaturitiesofnon-derivativefinancialliabilities,includingestimatedinterestpaymentsandexcludingtheimpactofnettingagreements:
2010
in thousands of AUD NoteFair
Value6 months
or less6-12
months1-2
years2-5
yearsMore than
5 years
Non derivative financial liabilities:
Loansandborrowings 20 121,203 (8,923) (4,495) (113,862) - -
Tradeandotherpayables 16 7,252 (7,252) - - - -
128,455 (16,175) (4,495) (113,862) - -
2009
in thousands of AUD NoteFair
Value6 months
or less6-12
months1-2
years2-5
yearsMore than
5 years
Non derivative financial liabilities:
Loansandborrowings 20 146,256 (4,340) (10,320) (11,384) (130,935) -
Tradeandotherpayables 16 9,294 (9,294) - - - -
155,550 (13,634) (10,320) (11,384) (130,935) -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Thefollowingtableindicatestheperiodinwhichthecashflowsassociatedwithderivativesthatarecashflowhedgesareexpectedtooccurandwhentheyareexpectedtoimpactprofitorloss:
2010
in thousands of AUD NoteFair
Value6 months
or less6-12
months1-2
years2-5
yearsMore than
5 years
Interest rate swaps:
Liabilities 18 1,359 (1,459) - - - -
1,359 (1,459) - - - -
2009
in thousands of AUD NoteFair
Value6 months
or less6-12
months1-2
years2-5
yearsMore than
5 years
Interest rate swaps:
Liabilities 18 3,455 (1,240) (1,428) (1,640) - -
3,455 (1,240) (1,428) (1,640) - -
CURRENCY RISK
TheGroupisexposedtocurrencyriskasatreportingdateinrespectofAUDreceivablesheldbytheLighthouseGroup,whichhasafunctionalcurrencyofUSD.Thevalueofreceivablesheldatbalancedatewas$695thousand(2009:$617thousand).
Thefollowingsignificantexchangeratesappliedduringtheyear:
2010 2009
Average Rate Reporting date spot rate Average Rate Reporting date spot rate
AUD:USD 0.8830 0.8523 0.7456 0.8114
Sensitivity analysis
A10%appreciation(depreciation)intheAustraliandollaragainsttheUSdollarat30June2010wouldhaveincreased(decreased)theGroup’sprofitorlossby$45thousand(2009:$40thousand).Thisanalysisassumesthatallothervariablesremainconstant.
EQUITY PRICE RISK
Ananalysisoffinancialassetswhichareexposedtoequitypriceriskfluctuationsinfairvalueincludesthefollowing:
in thousands of AUD Note
Carrying amount
2010
Carrying amount
2009
Available-for-salefinancialassets 12 191 84
Financialassetsdesignatedasfairvaluethroughprofitorloss 12 2,182 2,235
2,373 2,319
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Sensitivity analysis
Available-for-sale financial assets
A10%increase(decrease)inequitypriceswouldhaveincreased(decreased)thefairvalueofavailable-for-salefinancialassetsby$13thousand(2009:$6thousand).TheequityvalueoftheGroupwouldhavebeenaffectedbyacorrespondingamount.
Financial assets designated as fair value through profit or loss
A10%increaseinthefairvalueofinvestmentsatreportingdatewouldhaveincreasedtheGroup’sprofitby$129thousand(2009:$121thousand).A10%decreasewouldhavedecreasedtheGroup’sprofitby$129thousand(2009:$138thousand).
INTEREST RATE RISK
TheGroup’sexposuretomarketriskforchangesininterestratesrelatesprimarilytotheGroup’ssecuredbankloans,cashdepositsandinterestrateswaps.
Theinterestrateprofileoffinancialliabilitiesisdetailedinnote20.Allinterestratesonborrowingsareonavariableratebasis.TheGroupmanagesinterestrateriskonitsUSDdenominatedborrowingbyenteringintofixedrateinterestrateswaps.
AtreportingdatetheGroup’sinterestbearingfinancialinstrumentswere:
in thousands of AUD Note
Carrying amount
2010
Carrying amount
2009
Fixed rate instruments
Interestrateswapliabilities 18 (1,359) (3,455)
Variable rate instruments
Cashandcashequivalents 10 32,977 29,290
Loansandborrowings 20 (120,673) (144,918)
Fair value sensitivity analysis for fixed rate instruments
TheGroupdoesnotaccountforanyfixedratefinancialassetsorliabilitiesatfairvaluethroughprofitorloss.Interestrateswapsaredesignatedaseffectivecashflowhedges,withmovementsinfairvaluebeingaccountedforthroughequity.Thereforeachangeininterestratesatthereportingdatewouldnotaffectprofitorloss.
Achangeof100basispointsininterestrateswouldhaveincreased(decreased)theGroup’sequityby$186thousand(2009:$1,087thousand).
Cash flow sensitivity analysis for variable rate instruments
AchangeininterestratesatreportingdatewouldnothaveimpactedthecarryingvalueoftheGroup’svariablerateinstruments,andwouldthereforenothavehadanimpactontheGroup’sequityorprofitorloss.
FAIR VALUES
Thecarryingvaluesoffinancialassetsandliabilitiesapproximatetheirfairvalues.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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FAIR VALUE HIERARCHY
Thetablebelowanalysesfinancialinstrumentscarriedatfairvalue,byvaluationmethod.Thedifferentlevelshavebeendefinedasfollows:
Level1:quotesprices(unadjusted)inactivemarketsforidenticalassetsorliabilities
Level2:inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(i.e.,asprices) orindirectly(i.e.,derivedfromprices)
Level3:inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs)
in thousands of AUD Note Level 1 Level 2 Level 3 Total
2010
Available-for-salefinancialassets 12 191 - - 191
Financialassetsatfairvaluethroughprofitorloss 12 - 2,182 - 2,182
Derivativefinancialliabilities 18 - (1,359) - (1,359)
191 823 - 1,014
2009
Available-for-salefinancialassets 12 84 - - 84
Financialassetsatfairvaluethroughprofitorloss 12 - 2,235 - 2,235
Derivativefinancialliabilities 18 - (3,445) - (3,445)
84 (1,210) - (1,126)
26. COMMITMENTS
OPERATING LEASE COMMITMENTS
TheGrouphasenteredintocommercialleasesonofficeequipmentandpremiseswhereitisnotinthebestinterestoftheGroupto purchasetheseassets.
Theseleaseshaveanaveragelifeofbetween1and8yearswithrenewaltermsincludedinthecontracts.Renewalsareattheoption ofthespecificentitythatholdsthelease.
Futureminimumrentalspayableundernon-cancellableoperatingleasesasat30Juneareasfollows:
in thousands of AUD 2010 2009
Withinoneyear 1,574 1,603
Afteroneyearbutnotmorethanfiveyears 4,177 3,526
Morethanfiveyears 2,395 263
8,146 5,392
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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29. RELATED PARTIES
REMUNERATION OF KEY MANAGEMENT PERSONNEL
Thekeymanagementpersonnelcompensationincludedin“personnelexpenses”and“equitysettledtransactions”(seenote7)isasfollows:
in AUD 2010 2009
Short-termemployeebenefits 3,846,450 6,667,447
Postemploymentbenefits 130,167 214,074
Terminationbenefits 325,000 113,771
Share-basedpayments 893,288 171,366
5,194,905 7,166,658
INDIVIDUAL DIRECTORS AND EXECUTIVES COMPENSATION DISCLOSURES
Informationregardingindividualdirectorsandexecutives’compensationandsomeequityinstrumentsdisclosuresasrequiredbyCorporationsRegulation2M.3.03isprovidedintheremunerationreportsectionofthedirectors’report.
Apartfromthedetailsdisclosedinthisnote,nodirectorhasenteredintoamaterialcontractwiththeGroupsincetheendofthepreviousfinancialyearandtherewerenomaterialcontractsinvolvingdirectors’interestsexistingatyear-end.
27. CONTINGENT LIABILITIES
LITIGATION
TheGroupisdefendinganactionboughtagainstitbyaformeremployeeasaresultofanemployeeshareofferatthetimeoftheinitialpublicoffering.
TheGroupstronglydeniesanyliabilityorwrongdoing.ThedirectorsdonotexpecttheoutcomeoftheactiontohaveamaterialeffectontheGroup’sfinancialposition.
Inthedirectors’opinion,disclosureofanyfurtherinformationwouldbeprejudicialtotheinterestoftheGroup.
28. AUDITOR’S REMUNERATION
in AUD 2010 2009
Audit services: Auditorsofthecompnany
KPMG Australia:
Auditandreviewoffinancialreports 123,200 183,750
Overseas KPMG Firm:
Auditandreviewoffinancialreports 135,900 189,780
259,100 373,530
Services other than statutory audit: Auditorsofthecompany
KPMG Australia:
Otherassuranceservices 12,900 24,480
Taxationservices 137,912 123,902
Otheradvisoryservices 9,000 10,000
159,812 158,382
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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OPTIONS AND RIGHTS OVER EQUITY INSTRUMENTS
ThemovementduringthereportingperiodinthenumberofperformancerightsoverordinarysharesintheCompanyhelddirectly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:
2010
Balance 1 July 2009
Granted as compensation
Vested during the year
Other changes*
Balance 30 June 2010
Directors
MrSpencerYoung - - - - -
MrSeanMcGould - - - - -
MrFP(Andy)Esteban - - - - -
MrJohnLarum - - - - -
MrMichaelShepherd - - - - -
Executives
MrCraigMowll - - - - -
MsAmberStoney 150,000 - (21,000) (49,000) 80,000
MrOscarMartinis 337,500 - (47,250) (290,250) -
MrRobertWhite 337,500 - (47,250) (290,250) -
MrJonathanPain 187,500 - - (187,500) -
MrScottPerkins - - - - -
MrKellyPerkins - - - - -
MrRobertSwan - - - - -
2009
Balance 1 July 2008
Granted as compensation
Vested during the year
Other changes*
Balance 30 June 2009
Directors
MrSpencerYoung - - - - -
MrSeanMcGould - - - - -
MrFP(Andy)Esteban - - - - -
MrJohnLarum - - - - -
MrBrettHoward - - - - -
MrRobertFraser - - - - -
Executives - - - - -
MsAmberStoney 200,000 - (50,000) - 150,000
MrOscarMartinis 450,000 - (112,500) - 337,500
MrRobertWhite 450,000 - (112,500) - 337,500
MrJonathanPain 250,000 - (62,500) - 187,500
MrRodneyHughes 200,000 - (50,000) (150,000) -
MrScottPerkins - - - - -
MrKellyPerkins - - - - -
MrRobertSwan - - - - -
*Otherchangesrepresentperformancerightsthatwereforfeitedduringtheyear.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Noperformancerightsheldbykeymanagementpersonnelarevestedandexercisable,orvestedbutnotexercisableat30June2010or2009.Noadditionalperformancerightsweregrantedtokeymanagementpersonnelduringthereportingperiodascompensation.Refertobelowreconciliationofmovementsinsharesforsharesthatweregrantedtokeymanagementpersonnelduringthereportingperiodascompensation.
FurtherdetailsofperformancerightsandsharesprovidedasremunerationtoeachkeymanagementpersonoftheGroup,togetherwiththetermsandconditionsoftherights,canbefoundintheremunerationreportonpages14to19.
MOVEMENTS IN SHARES
ThemovementduringthereportingperiodinthenumberofsharesintheCompanyheld,directly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:
2010
Balance 1 July 2009 Purchases Sales
Net Change Other
Balance 30 June 2010
Directors
MrSpencerYoung1 25,516,951 - (3,000,000) - 22,516,951
MrSeanMcGould2 77,752,335 - - - 77,752,335
MrFP(Andy)Esteban 8,354 - - - 8,354
MrJohnLarum - 36,400 - - 36,400
MrMichaelShepherd3 - 100,000 - - 100,000
Executives
MrCraigMowll - - - - -
MsAmberStoney4 700,491 - - 21,0006 721,491
MrOscarMartinis 909 - - 47,2506 N/A5
MrRobertWhite 117,807 - - 47,2506 N/A5
MrJonathanPain 204,281 - - - N/A5
MrScottPerkins 10,848,612 - - 897,4367 11,746,048
MrKellyPerkins 17,931,675 - - 1,175,2147 19,106,889
MrRobertSwan 10,848,612 - - 897,4367 11,746,048
1.SharesareheldindirectlybySpencerYoungasTrusteefortheSpencerYoungFamilyTrust.
2.77,744,335sharesareheldindirectlybySGMHoldings,LLC.
3.SharesareheldindirectlybyTidalaPtyLtdasTrusteefortheShepherdProvidentFund.
4.649,582sharesareheldindirectlybyAJStoneyFamilyTrust.
5.NolongerKeyManagementPersonnelasat30June2010.
6.Beingsharesissuedunderthe2008HFAPerformanceRightsPlan.
7.BeingsharesissuedundertheLighthouseInvestmentPartnersShortTermIncentivePlanforthecalendaryearended31December2009.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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2009
Balance 1 July 2008 Purchases Sales
Net Change Other
Balance 30 June 2009
Directors
MrSpencerYoung1 25,516,951 - - - 25,516,951
MrSeanMcGould2 91,476,460 - - (13,724,125)3 77,752,335
MrFP(Andy)Esteban 8,354 - - - 8,354
MrJohnLarum - - - - -
MrBrettHoward 450,000 - - - N/A5
MrRobertFraser 23,600 - - - N/A5
Executives
MsAmberStoney4 650,491 - - 50,0006 700,491
MrOscarMartinis 5,501,909 - (5,613,500) 112,5006 909
MrRobertWhite 1,110,000 - (1,104,693) 112,5006 117,807
MrJonathanPain 1,014,324 - (872,543) 62,5006 204,281
MrRodneyHughes 93,000 - - 50,0006 N/A5
MrScottPerkins 10,848,612 - - - 10,848,612
MrKellyPerkins 17,931,675 - - - 17,931,675
MrRobertSwan 10,848,612 - - - 10,848,612
KEY MANAGEMENT PERSONNEL AND DIRECTOR TRANSACTIONS
AnumberofkeymanagementpersonsoftheGroupholdpositionsinotherentitiesthatresultinthemhavingcontrolorsignificantinfluenceoverthefinancialoroperatingpoliciesoftheseentities.
AnumberoftheseentitiestransactedwiththeGroupinthereportingperiod.Thetermsandconditionsofthetransactionswithkeymanagementpersonnelwerenomorefavourablethanthoseavailable,orwhichmightreasonablybeexpectedtobeavailable,onsimilartransactionstonon-keymanagementpersonnelrelatedentitiesonanarm’slengthbasis.
Theaggregateamountsrecognisedduringtheyearrelatingtokeymanagementpersonnelandotherrelatedpartieswereasfollows:
Signature Capital Investment Limited (“Signature”) (Formerly HFA Accelerator Plus Limited)
SignatureCapitalInvestmentsLimitedisalistedinvestmentcompanythatwasmanagedbyCertitude,awhollyownedsubsidiaryofHFAHoldingsLimited,until19February2010pursuanttoamanagementagreement.
Duringthefinancialyear:
(i) TheCompanypurchasednoadditionalsharesinSignature.Thefairvalueoftheholdingof561,692sharesasat30June2010is$190,975 (2009:$84,254)
(ii) TheCompanyreceiveddividendsof$Nil(2009:$8,425fullyfranked)fromitsshareholdinginSignature.
(iii) Certituderecognisedmanagementandperformancefeespaidorpayableof$759,644(2009:$6,083,506)fromSignature.Amountsreceivable fromSignatureat30June2010were$460,286forwhichpaymentwasreceivedon9July2010(2009:$1,610,977).
1.SharesareheldindirectlybySpencerYoungasTrusteefortheSpencerYoungFamilyTrust.
2.77,744,335sharesareheldindirectlybySGMHoldings,LLC.
3.3,819,200sharesweretransferredfromSGMHoldings,LLCtoaminorityshareholderofSGMHoldings,LLCinaccordancewithanagreementbetweenthepartiesandasforeshadowedintheHFA
RightsIssueProspectusdated1November2007.9,904,925sharesfromSGMHoldings,LLCweretransferredtoHFALighthouseEmployeesinaccordancewiththeEmployeeIncentivePlan
establishedinJuly2008.Thisresultedintherecognitionof$12,177,025ofequitysettledtransactionexpenseintheconsolidatedincomestatement.
4.649,582sharesareheldindirectlybyAJStoneyFamilyTrust.
5.NolongerKeyManagementPersonnelasat30June2009.
6.Beingsharesissuedunderthe2008HFAPerformanceRightsPlan.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Certitude Global Investments Limited
CertitudeisawhollyownedsubsidiaryoftheGroupandresponsibleentityofanumberofmanagedinvestmentschemes.
DuringthefinancialyearCertituderecognisedmanagementandperformancefeespaidorpayableof$16,102,818(2009:$28,413,896)frommanagedinvestmentschemesforwhichitactsastheResponsibleEntity.
AmountsreceivablefromschemesforwhichCertitudeactsastheResponsibleEntityasat30June2010were$3,018,887(2009:$4,913,433).
Lighthouse Investment Partners, LLC
LighthouseInvestmentPartners,LLC(LIP)isawhollyownedsubsidiaryoftheGroupandisaregisteredinvestmentadvisorundertheInvestmentAdvisorsActof1940andoperatesasgeneralpartnerandinvestmentmanagerfortheLighthouseinvestmentproducts.
Duringthefinancialyearthefollowingrelatedpartytransactionsoccurred:
(i) LIPrecognisedmanagementandperformancefeespaidorpayableof$55,537,514(2009:$76,715,320)frominvestmentproductsfor whichLIPactsasgeneralpartnerandinvestmentmanager.Amountsreceivablefromtheseproductsat30June2010were$7,893,217 (2009:$11,109,344).
(ii) LIPholdsthefollowinginvestmentsinproductsinwhichtheyactasgeneralpartnerandinvestmentmanager:
in AUDProduct
Fair Value30 June 2010
Fair Value30 June 2009
LighthouseCompositeSeries 218,127 230,303
LighthouseGlobalSeries 206,724 223,810
LighthouseTrendSeries 212,644 224,188
LighthouseHealthcareSeries 185,723 171,741
LighthouseLowVolatilityFundQPII,LP 11,436 205,568
LighthouseAggressiveGrowthFund 151,456 138,945
LighthouseEnhancedGlobalSeries 49,341 62,545
LighthouseCreditOpportunitiesFund,LP 591,376 520,131
LHStrategiesMasterFundSPCLHEnhancedGlobalMasterSegregatedPortfolio 98,918 109,774
LighthouseEnhancedYieldFundLP - 283,642
LighthouseNavigatorFundLP 269,824 63,949
LLVFSLVLLC 10,301 -
LighthouseCreditCompassSeries 59,743 -
LighthousePrimeSeries 57,609 -
LighthouseGlobalLongShortFundLPSeriesB 58,665 -
2,181,887 2,234,596
Theaboveinvestmentsareclassifiedasfinancialassetsdesignatedatfairvaluethroughprofitorloss(refernote12).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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TERMS AND CONDITIONS OF TRANSACTIONS WITH RELATED PARTIES
Salestoandpurchasesfromrelatedpartiesaremadeinarmslengthtransactionsatbothnormalmarketpricesandnormalcommercialterms.
Outstandingbalancesatyear-endareunsecuredandsettlementoccursincash.
Therehavebeennoguaranteesprovidedorreceivedforanyrelatedpartyreceivables.
Fortheyearended30June2010,theGrouphasnotraisedaprovisionfordoubtfuldebtsrelatingtoamountsowedbyrelatedparties.Anassessmentisundertakeneachfinancialyearofthefinancialpositionoftherelatedpartyandthemarketinwhichtherelatedpartyoperatesin,andwhenrequired,theGroupraisessuchaprovision.
30. GROUP ENTITIESTheGroup’sfinancialstatementsincludethefinancialstatementsofHFAHoldingsLimitedandthesubsidiarieslistedinthefollowingtable:
Name
Country of incorporation
% Equity interest
2010 2009
CertitudeGlobalInvestmentsLimited1 Australia 100 100
AdminPtyLtd2 Australia 100 100
A.C.N122776550PtyLtd Australia 100 100
A.C.N143806651Limited3 Australia 100 -
HFALighthouseHoldingsCorp UnitedStates 100 100
HFALighthouseCorp UnitedStates 100 100
LHPInvestments,LLC UnitedStates 100 100
LighthouseInvestmentPartners,LLC UnitedStates 100 100
LighthousePartnersNY,LLC UnitedStates 100 100
LighthousePartnersUK,LLC UnitedStates 100 100
LighthousePartnersLimited(HK) HongKong 100 100
31. EVENTS AFTER BALANCE SHEET DATETherehasnotarisenintheintervalbetweentheendofthefinancialyearandthedateofthisreport,anyotheritem,transactionoreventofamaterialnature,likelytoaffectsignificantlytheoperationsoftheGroup,theresultsofthoseoperations,orthestateofaffairsoftheGroup,infuturefinancialyears.
1.FormerlyHFAAssetManagementLimited
2.FormerlyHFAAdminPtyLimited
3.Incorporated21May2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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For the year ended 30 June 2010
1. IntheopinionofthedirectorsofHFAHoldingsLimited(the“Company”):
(a) theconsolidatedfinancialstatementsandnotes,andtheremunerationreportinthedirectors’report,set outonpages13to19,areinaccordancewiththeCorporationsAct2001,including:
(i) givingatrueandfairviewoftheGroup’sfinancialpositionasat30June2010andofits performanceforthefinancialyearendedonthatdate;and
(ii) complyingwithAustralianAccountingStandards(includingtheAustralianAccounting Interpretations)andtheCorporationsRegulations2001;and
(b) therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhenthey becomedueandpayable.
2. ThedirectorshavebeengiventhedeclarationsrequiredbySection295AoftheCorporationsAct2001from thechiefexecutiveofficerandchieffinancialofficerforthefinancialyearended30June2010.
3. ThedirectorsdrawattentiontoNote2(a)totheconsolidatedfinancialstatements,whichincludesa statementofcompliancewithInternationalFinancialReportingStandards.
Signedinaccordancewitharesolutionofthedirectors.
Spencer Young F P (Andy) EstebanChairman/ExecutiveDirector/ Non-ExecutiveDirector ChiefExecutiveOfficer
DatedatSydneythis19thdayofAugust2010
DIRECTORS’ DECLARATION
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KPMG,anAustralianpartnershipandamemberfirmoftheKPMGnetworkofindependantmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
LiabilitylimitedbyaschemeapprovedunderProfessionalStandardsLegislation.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HFA HOLDINGS LIMITED REPORT ON THE FINANCIAL REPORT
WehaveauditedtheaccompanyingfinancialreportoftheGroupcomprisingHFAHoldingsLimited(theCompany)andtheentitiesitcontrolledattheyear’sendorfromtimetotimeduringthefinancialyear.Thefinancialreportcomprisestheconsolidatedstatementoffinancialpositionasat30June2010,andconsolidatedincomestatement,consolidatedstatementofcomprehensiveincome,consolidatedstatementofchangesinequityandconsolidatedstatementofcashflowsfortheyearendedonthatdate,adescriptionofsignificantaccountingpoliciesandotherexplanatorynotes 1to31andthedirectors’declaration.
Directors’ responsibility for the financial report
ThedirectorsoftheCompanyareresponsibleforthepreparationandfairpresentationofthefinancialreportinaccordancewithAustralianAccountingStandards(includingtheAustralianAccountingInterpretations)andtheCorporationsAct2001.Thisresponsibilityincludesestablishingandmaintaininginternalcontrolrelevanttothepreparationandfairpresentationofthefinancialreportthatisfreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatarereasonableinthecircumstances.Innote2(a),thedirectorsalsostate,inaccordancewithAustralianAccountingStandardAASB101Presentation of Financial Statements,thatthefinancialreportoftheGroup,comprisingthefinancialstatementsandnotes,complieswithInternationalFinancialReportingStandards.
Auditor’s responsibility
Ourresponsibilityistoexpressanopiniononthefinancialreportbasedonouraudit.WeconductedourauditinaccordancewithAustralianAuditingStandards.TheseAuditingStandardsrequirethatwecomplywithrelevantethicalrequirementsrelatingtoauditengagementsandplanandperformtheaudittoobtainreasonableassurancewhetherthefinancialreportisfreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialreport.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialreport,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialreportinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallpresentationofthefinancialreport.
Weperformedtheprocedurestoassesswhetherinallmaterialrespectsthefinancialreportpresentsfairly,inaccordancewiththeCorporationsAct2001andAustralianAccountingStandards(includingtheAustralianAccountingInterpretations),aviewwhichisconsistentwithourunderstandingoftheCompany’sandtheGroup’sfinancialpositionandofitsperformance.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HFA HOLDINGS LIMITEDFor the year ended 30 June 2010
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Independence
Inconductingouraudit,wehavecompliedwiththeindependencerequirementsoftheCorporationsAct2001.
Auditor’s opinion
Inouropinion:
(a) thefinancialreportoftheGroupisinaccordancewiththeCorporationsAct2001,including:
(i) givingatrueandfairviewoftheGroup’sfinancialpositionasat30June2010andofitsperformancefortheyearendedonthatdate;and
(ii) complyingwithAustralianAccountingStandards(includingtheAustralianAccountingInterpretations)andtheCorporationsRegulations2001.
(b)thefinancialreportalsocomplieswithInternationalFinancialReportingStandardsasdisclosedinnote2(a).
REPORT ON THE REMUNERATION REPORT
WehaveauditedtheremunerationreportincludedinSection5.8ofthedirectors’reportfortheyearended30June2010.ThedirectorsoftheCompanyareresponsibleforthepreparationandpresentationoftheremunerationreportinaccordancewithSection300AoftheCorporationsAct2001.Ourresponsibilityistoexpressanopinionontheremunerationreport,basedonourauditconductedinaccordancewithauditingstandards.
Auditor’s opinion
Inouropinion,theremunerationreportofHFAHoldingsLimitedfortheyearended30June2010,complieswithSection300AoftheCorporationsAct2001.
KPMG
Robert S JonesPartner
DatedatBrisbanethis19thdayofAugust2010
INDEPENDENT AUDITOR’S REPORT TO THEMEMBERS OF HFA HOLDINGS LIMITED
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ASX ADDITIONAL INFORMATION
Additional information required by the Australian Securities Exchange Limited Listing Rules is set out below.
SHAREHOLDINGS (AS AT 20 AUGUST 2010)SUBSTANTIAL SHAREHOLDERS
SeanMcGould,hiscontrolledentitiesandassociateshadarelevantinterestin77,752,335sharesasat20August2010whichrepresented16.56%ofHFA’stotalissuedcapital.
SpencerYoungastrusteeforSpencerYoungFamilyTrustanditsassociateshadarelevantinterestin22,516,951sharesasat20August2010,whichrepresented4.79%ofHFA’stotalissuedcapital.
UBSAGanditsrelatedbodiescorporateadvisedthat,asat5July2010,itanditsassociateshadarelevantinterestin38,069,776shares,whichrepresented8.11%ofHFA’stotalissuedcapital.
BankofAmericaCorporationadvisedthat,asat9November2009,itanditsassociateshadarelevantinterestin46,992,974shares,whichrepresented10.21%ofHFA’stotalissuedcapital.
DelawareStreetCapitalMasterFund,LPadvisedthat,asat9February2010,itanditsassociateshadarelevantinterestin79,476,588shares,whichrepresented17.26%ofHFA’stotalissuedcapital.
SECURITIES SUBJECT TO VOLUNTARY ESCROWTherearenosecuritiessubjecttoescrowasat20August2010.
DISTRIBUTION OF EQUITY SECURITY HOLDERS
Category
Number of equity security holders ordinary shares
1 – 1,000 164
1,001 – 5,000 704
5,001 – 10,000 605
10,001 – 100,000 1,522
100,001 and over 266
3,261
Thenumberofshareholdersholdinglessthanamarketableparcelofordinarysharesis452.
ON-MARKET BUY-BACK
Thereisnocurrenton-marketbuy-back.
ASX INFORMATION
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TWENTY LARGEST SHAREHOLDERS
NameNumber of Ordinary
Shares heldPercentage of
capital held
HSBCCustodyNominees(Australia)Limited 134,096,170 28.58%
CiticorpNomineesPtyLimited 61,181,202 13.04%
NationalNomineesLimited 45,701,866 9.74%
ANZNomineesLimited-CashIncomeA/C 26,469,475 5.64%
SpencerYoung-SpencerYoungFamilyA/C 22,516,951 4.80%
ButtonwoodNomineesPtyLtd 9,900,000 2.11%
MerrillLynch(Australia)NomineesLimited 7,922,106 1.69%
JPMorganNomineesAustraliaLimited 5,973,221 1.27%
CarringtonLandPtyLtd 5,971,396 1.27%
MrShayShimonHazan 5,500,000 1.17%
MrHeZhao 4,785,000 1.02%
UBSNomineesPtyLtd 4,463,643 0.95%
WoodmontTrustCompanyLtd-LeuchturmFoundationA/C 2,970,874 0.63%
UBSWealthManagementAustraliaNomineesPtyLtd 1,892,155 0.40%
QueenslandInvestmentCorporation 1,350,770 0.29%
PanAustralianNomineesPtyLtd 1,343,085 0.29%
MrRichardJamesWilliamsandMsJaneClareDunlop-BSDSuperFundA/C 1,300,000 0.28%
KewagInvestmentsPtyLtd 1,232,000 0.26%
MrDavidMichaelDwan 1,161,647 0.25%
MsGuozhenLu 1,062,000 0.23%
UNQUOTED EQUITY SECURITIES
Therearenounquotedequitysecurities.
VOTING RIGHTS
Ordinary shares
RefertoNote21ofthefinancialstatements.
ADDITIONAL ASX INFORMATION CONT.
2010
HFA HOLDINGS LIMITED ABN: 47 101 585 737
Registered OfficeLevel 5, 151 Macquarie Street Sydney NSW 2000 +61 (2) 8302 3333
Principal Administrative OfficeLevel 3, 46 Edward StreetBrisbane Qld 4000+61 (7) 3218 6200
Company Secretary Ms Joanne Hill
Auditors Of The CompanyKPMG
Share RegistryLink Market Services Limited Level 12, 680 George Street Sydney NSW 2000
ASX ListingThe Company is listed on the Australian Stock Exchange ASX Code Listing: HFAHome Exchange: Melbourne
Other InformationHFA Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares