Announcement PDF Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Financial report for the Year ended 30 June 2015 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Contents For the year ended 30 June 2015 Page Directors’ Report 2-15 Remuneration Report 7-15 Auditor’s Independence Declaration 16 Financial Report for the year ended 30 June 2015 17-42 Consolidated Statement of Comprehensive Income 17 Consolidated Statement of Financial Position 18 Consolidated Statement of Changes in Equity 19 Consolidated Statement of Cash Flows 20 Notes to the Financial Statements 21-42 Directors’ Declaration 43 Independent Auditor’s Report 44-45 Company Particulars 46 Additional Information for Listed Companies 47-48 1 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report For the year ended 30 June 2015 The directors present their report together with the financial report of the Company consisting of Contango MicroCap Limited and the entity it controlled, for the financial year ended 30 June 2015 and auditor’s report thereon. This financial report has been prepared in accordance with Australian Accounting Standards. Directors The names of directors in office during the year are: Mark G Kerr – appointed 7 December 2009 Ian N Ferres – appointed 7 December 2009 David I Stevens – appointed 14 January 2004 Glenn Fowles – appointed 14 January 2004 Principal activities The principal activities of the Company during the financial year were investing in microcap companies listed on the Australian Securities Exchange (ASX) and provision of funds management services to external clients. Results The consolidated loss after income tax attributable to the members of Contango MicroCap Limited was $734,606 (2014: Profit of $32,530,489). Basic earnings per share amounted to -0.5 cents per share for the year (2014: +21.0 cents). Review of operations MicroCap Investment Portfolio The current period loss is primarily attributed to the general market decline that occurred during the month of June 2015. For the full year the Company’s investment portfolio has performed better than the S&P/ASX Small Ordinaries Accumulation Index. During the year the parent company’s share price has risen from $1.020 to $1.075 – after adjusting for 8.6 cents per share of dividends paid this amounts to total return of 13.3%. By comparison, the S&P/ASX Small Ordinaries Accumulation Index rose 0.4% over the same period. The Net Tangible Asset (“NTA”) value per share of the parent entity has decreased by 7.0% - after inclusion of the 8.6 cents per share of dividends paid the NTA return was +0.5%. Fund Management This segment of the business contributed profit before tax of $870,845 for the year ended 30 June 2015. This compares with $7,047 for the 7 months from 30 November 2013 to 30 June 2014 when these activities began as 100% subsidiaries. As at 30 June 2015 funds under management totalled $774.7m (2014: $773.2m). Investment performance of Contango Asset Management Limited’s products over the year has been strong as indicated by the table below: Product (year to 30 June 2015) Product Benchmark Aust Equities Small Companies Microcaps Income Generator Leaders Income Global Unhedged S&P/ASX300 Accum S&P/ASX Small Ords Accum S&P/ASX Emerging Cos Accum ASX All Ordinaries Accum S&P/ASX300 Accum MSCI ACWI Ex-Aust $A 2 Contango Return +8.20% +2.11% +2.22% +9.70% +9.88% +26.91% Benchmark Return +5.61% +0.44% -3.60% +5.67% +5.61% +21.60% Excess Performance +2.59% +1.67% +5.82% +4.02% +4.27% +5.31% Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Significant changes in the state of affairs On 19th December 2014, the Company issued 265,000 unsecured redeemable convertible notes, raising proceeds of $26,500,000. The notes will pay interest at the rate of 5.5% per annum, half yearly on 31 March and 30 September until maturity on 31 March 2020. The notes have a conversion price of $1.30 per ordinary share and note holders may convert their notes into ordinary shares in the Company on maturity or at various times prior to that as approved by the Board. The notes are fully redeemable on maturity if not converted. There have been no other significant changes in the Company’s state of affairs during the financial year. After balance date events On 3 July 2015, a subsidiary of the Company, Contango Income Generator Limited (ASX code: “CIE”), lodged a prospectus with the Australian Securities and Investments Commission as an initial public offering of shares proposing to list on ASX. The offer for shares opened on 7 July 2015 and closed on 31 July 2015 with $71,451,000 subscribed including the $30m committed by the Company as the foundation shareholder. CIE successfully listed on 14 August 2015. CIE’s investment manager is Contango Asset Management Limited (“CAML”) and it will be entitled to a management fee of 0.95% per annum on the value of CIE’s investment portfolio - adding approximately $670,000 to CAML’s (and the Company’s consolidated) annual revenue. No other matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. Likely developments The Company will continue to pursue its operating strategy to create shareholder value by investing in microcap companies listed on the Australian Securities Exchange (ASX) and furthering its funds management activities. Environmental regulation The Company’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. Dividend paid, recommended and declared The final dividend for the year ended 30 June 2014 of 4.6 cents per share (50% franked) was paid to shareholders on 30 September 2014. The interim dividend for the year ended 30 June 2015 of 4 cents per share (50% franked) was paid to shareholders on 31 March 2015. The final dividend for the year ended 30 June 2015 has not yet been declared. Total dividends paid or declared during FY15 was $13,606,647 (2014: $12,278,508). Share options Unlisted Options 557,052 unlisted options were granted during the completion of the acquisition of the 50.004% of Contango Group Pty Ltd (CGPL) on 30 November 2013. These options have an exercise price of $1.106 and expire on 30 November 2016. There has been no exercise of any of the unlisted options up to 30 June 2015. 3 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Information on directors and company secretary The qualifications, experience and special responsibilities of each person who has been a director of Contango MicroCap Limited at any time during the year is provided below, together with details of the company secretary as at the year end. Name Mark G Kerr Position Chairman (Non-executive) Qualifications LL.B. (University of Melbourne) Appointment 7 December 2009 Experience and expertise Mark is an experienced director whose other current roles include NonExecutive Director of Contango Income Generator Limited (26 October 2012 to present); Non-Executive Chairman of Hawthorn Resources Limited (27 November 2007 to present) and Think Childcare and Education Limited (21 July 2014 to present). Mark is a director of Berkeley Consultants Pty Ltd which specialises in public relations and reputation management consultancy. He is also a director and adviser to various other private companies. Mark's community involvement currently extends to being a member of the Victorian Committee of the Juvenile Diabetes Research Foundation and a member of the St Vincent's Institute Charity Golf Day Committee. Mark was formerly the Non-Executive Chairman of one-time ASX listed company Process Wastewater Technologies Limited from December 2007 to June 2013. Name Ian N Ferres AM Position Board member (Non-executive) Qualifications AM, FIAA, FAICD Appointment 7 December 2009 Experience and expertise Ian has had a distinguished career in the funds management industry. He was employed by National Mutual Limited from 1956 to 1990. His executive positions within National Mutual Limited have included roles as Executive Director from 1983 to 1990, with responsibility for all worldwide equity, property, fixed interest investments and financial/banking ventures from 1975 to 1988, and as Managing Director of Meridian Funds Management 1988 to 1990. Ian was Group Managing Director of Australian Unity from 2002 to 2004. Ian has been chairman of some 15 entities, and a director of a further 15, since he began a non-executive career in 1990. They have included both Federal and State Government corporations, private companies, both listed and unlisted public companies, and community and charitable organizations. Ian is currently a director of Contango Income Generator Limited. He also holds a number of other non-executive positions including: Consultant, TressCox Lawyers since 2005 and Chairman of Technology Development Investment Limited (and a director of its investee companies). 4 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Name David I Stevens Position Managing Director Qualifications Bachelor of Economics (Monash University) Appointment 14 January 2004 Experience and expertise David was the founder in 2004 of Contango MicroCap Limited (CTN) and he was the Portfolio Manager from 2004 to 2011. He jointly founded Contango Asset Management Limited (CAML) in 1998. Prior to establishing Contango he was the Managing Director and Chief Investment Officer of HSBC Asset Management (Australia) Limited. David joined HSBC in 1989 he became CIO in 1990 and Managing Director in 1992. During this period, funds under management at HSBC rose from $700 million to $6.3 billion. Previously with HSBC he had worked in London managing Global portfolios on behalf of US institutional clients. More recently, David introduced a number of new Contango funds aimed at the retirement income and the global equities requirements of the SMSF sector. David continues as the Portfolio Manager of the Contango Global Value Fund which was established in 2007. Special Responsibilities Chief Executive Officer Name Glenn Fowles Position Board Member (Executive) Qualifications Bachelor of Business (Accounting and Finance) (Massey University, NZ) Appointment 14 January 2004 Experience and expertise Glenn has worked in the financial services industry since 1985. His roles at fund management organisations have included that of Company Accountant, Operations Manager, Financial Controller, Finance Director, Chief Operating Officer and Chief Executive Officer. Glenn has extensive experience in all aspects of investment administration, including investment accounting, custody, information systems, compliance and taxation. Special Responsibilities Company Secretary and Chief Financial Officer Directors’ meetings The number of meetings of the board of directors and of each board committee held during the financial year and the numbers of meetings attended by each director were: Board Meetings Mark G Kerr Ian N Ferres David I Stevens Glenn Fowles Eligible to attend Attended 12 12 12 12 12 12 12 12 Audit & Compliance Committee Meetings Ian N Ferres David I Stevens Mark G Kerr Jonathon Zdilar (Secretary) Eligible to attend Attended 4 4 4 4 4 4 4 4 5 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Indemnification and insurance of directors, officers and auditors During the financial year, the Company has paid insurance premiums amounting to $77,500 (2014: $76,230) insuring all the directors and the officers which indemnifies them against any claim made against them subject to the conditions contained within the insurance policy. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the policy terms. No indemnities have been given or insurance paid for the auditors of the Company. Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Non-audit and other assurance services provided by auditor Non-audit services are approved by the audit committee. Other assurance services provided by the auditors (Pitcher Partners) of the company during the year related to the issuance of an Investigating Accountants Report for the Contango Income Generator Prospectus’ and attendance at the Due Diligence Committee meetings for the Contango Microcap Limited convertible note issue. The directors are satisfied that the provision of non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Amounts paid and payable to Pitcher Partners for: 2015 $’000 2014 $’000 Audit and other assurance services Audit and review of financial reports 69 65 Other assurance services 64 - 133 65 Taxation services - 29 Total remuneration for non-audit services - 29 133 94 Total remuneration for audit and other assurance services Other non-audit services Total remuneration of Pitcher Partners ASX Corporate Governance Statement The Board of Directors of Contango Microcap Limited is responsible for corporate governance. The Board has chosen to prepare the Corporate Governance Statement (CGS) in accordance with the third edition of the ASX Corporate Governance Council’s Principles and Recommendations under which the CGS may be made available on the Company’s website. Accordingly, a copy of the Company’s CGS is available on the Contango website at http://www.contango.com.au/ctn_contango_microcap_about_us.php under the Corporate Governance section. Rounding of amounts The amounts contained in the report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies. 6 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Remuneration Report (audited)  Message from the Board We are pleased to present the Remuneration Report for the calendar year ending 30 June 2015. The report clearly explains to shareholders the remuneration framework and outcomes for our senior executives and nonexecutive directors during 2014/2015.  Remuneration Changes As we indicated in last year’s annual report, with the takeover of Contango Asset Management (CAML) in November 2013, the business became more complex, increasing staffing to 17 with significantly more portfolios to manage. Over the past year we have not increased staff but made changes to ensure that the organisation was focused on building its funds under management, so as to achieve a sustainable size, and deliver above benchmark investment performance. I indicated last year that we would review the job roles and responsibilities of all key management personnel, align key management to market rates of pay and to review the short and long-term incentive program to ensure that we were able to attract and retain high calibre personnel to achieve our medium to long-term business objectives. During the year we have reviewed the key management personnel’s job roles and responsibilities and added a new executive George Boubouras as Chief Investment Officer. The fixed salary levels for the key management personnel have been reduced to reduce the emphasis on fixed remuneration, with a greater emphasis on short and long-term incentive remuneration. Further, salary levels more closely align with market rates for similar size funds management companies. Finally the Board has agreed to a new incentive program that will commence from 1st July 2015. Over and above these management changes and reviews of remuneration, we have also undertaken a review of the non-executive director’s emoluments. In doing so, we have been able to reduce our overall non-executive director fees from prior years, when non-executive directors were heavily involved in the purchase of the investment management company, the integration of the staff into the wider Contango Group and the restructures referred to above. With the merger of Contango Microcap and CAML, and the finalisation of the new staff remuneration structure, we have been able to streamline this process to achieve a cost effective outcome with regards to remuneration rates for directors. It is the intent of the Board to employ more non-executive directors in the next financial year, to further enhance the skills and attributes of the Board.  2015 Financial Year As can be seen later in the report, remuneration levels for the key management personnel have been reduced to bring them in line with market rates of pay. Performance levels to date have not met benchmark and hence no incentives have been paid in the financial year. The new incentive program will however result in incentives being paid to the key management personnel and other staff, should the organisation be successful in meeting its profit and investment performance targets. 7 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 1 Introduction This section describes the scope of the Remuneration Report and the individuals whose remuneration details are disclosed. 1.1 Scope The Remuneration Report sets out in accordance with the Corporations Act 2001 (Cth) and relevant accounting standard requirements the remuneration arrangements in place for the Key Management Personnel (KMP’s) of the group during the 2015 financial year. The information provided in this Remuneration Report has been audited setting out the total remuneration realised in the 2015 financial year. To ensure transparency and simplicity, we have complied tables highlighting the actual remuneration provided to both Non-Executive Directors and senior executives in addition to the statutory requirements. 1.2 KMP’s for the 2015 Financial Year For the purposes of this Remuneration Report the KMP’s are referred to as either senior executives or NonExecutive Directors. The senior executives and the Non-Executive Directors as at 30 June 2015 are set out in the table below: Key Management Personnel (KMP’s) (as at 30 June 2015) Name Title Mark Kerr Ian Ferres David Stevens Glenn Fowles George Boubouras Chairman and Independent NonExecutive Director Independent Non-Executive Director Executive Director and Managing Director Executive Director, Chief Financial Officer and Company Secretary Chief Investment Officer Change during the 2015 financial year No change No change No change No change Commenced - 6th January 2015 2 Remuneration Governance This section describes the role of the Board, the Remuneration and Nominations Committee and the use of external advisors when making decisions. 2.1 Role of the Board and the Remuneration and Nominations Committee The Board is responsible for the group’s approach to remuneration. Consistent with this responsibility, the Board has established a Remuneration and Nominations Committee that comprises all of the independent directors. The role of the Remuneration and Nominations Committee is set out in its charter which was last revised and approved by the Board on 14 November 2013 and is available on our website. With respect to its remuneration functions, its role is to:  Review and approve the remuneration strategy and policies for the group.  Consider and propose to the Board the remuneration of the CEO and consider and approve the remuneration for all other senior executives.  Review and approve the group’s STI and LTI plans and the amount in terms of grants and payments made to senior executives under these plans.  Determine and approve the treatment of equity awards when senior executives cease employment.  Review and make recommendations to the Board regarding the remuneration of Non-Executive Directors. In making its decisions the Remuneration and Nominations Committee considers advice from the CEO and other members of management and from external advisors. Further information on the Remuneration and Nominations Committee role, responsibilities and membership is contained in the Company’s Corporate Governance Statement. 8 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 2.2 Use of External Advisors The Remuneration and Nominations Committee seeks and considers advice from independent and external advisors when required. Such advice will typically cover Non-Executive Director remuneration, senior executive remuneration, and advice in relation to short and long term incentive plans. Hart Consulting Group has been approved by the Remuneration and Nominations Committee to be the Group’s principal advisor on executive remuneration. During the 2015 financial year, the main focus of Hart Consulting Group’s role was to advise the Board in compiling the Remuneration Report. During the 2015 financial year, advice paid for by the organisation on this issue was $8,000 plus GST. 3 Executive Remuneration This section describes the remuneration approach that applied during the 2015 financial year as well as how performance is linked to reward under the executive remuneration framework. 3.1 Remuneration Principles The key remuneration principles are to: 3.2  Ensure that executives are rewarded on the basis of performance measures that support the group’s business plans and strategies and are consistent with our overall values.  Align the interests of executives and shareholders by focusing on those characteristics that underpin growth in shareholder value.  Attract and retain key talent.  Provide a balance between fixed and performance based variable remuneration. Remuneration Components Executive remuneration for the 2015 financial year was delivered as a mix of fixed and variable remuneration set out in the table below. Variable remuneration is remuneration that moves up or down to reflect group and individual performance and can be earned through the short term incentive plan and in the future through the long term plan. Fixed Remuneration Base salary, non-monetary benefits and superannuation. STI Annual variable remuneration delivered as cash, subject to company financial and personal performance measures. LTI Equity based award subject to performance hurdles measured over three year performance periods (commencing in FY16). How each of these components align with, and support, the group’s business strategy is shown in the diagram below. 9 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Executive Remuneration Framework Business Strategy Our aim is to be renowned for excellence through above average investment returns meeting customer service requirements across specific markets while empowering our people to achieve these results. Remuneration Framework Fixed Remuneration Reviewed as required Define peer groups for comparisons Define policy regarding how remuneration should compare to these peer groups. Influenced by individual performance Outcomes Market competitive remuneration to attract and retain executives. 3.3 Fixed Remuneration Reviewed as required Define peer groups for comparisons Remuneration Framework Fixed Remuneration Reviewed as required Define peer groups for comparisons Define policy regarding how remuneration should compare to these peer groups. Influenced by individual performance Define policy regarding how remuneration should compare to these peer groups. Influenced by individual performance Outcomes Market competitive remuneration to attract and retain executives. Outcomes Market competitive remuneration to attract and retain executives. Timing of Remuneration Components The different components of remuneration reflect a focus on both short and long term performance and delivery of these components over timeframes ensure that executives remained focused over a multi-year horizon. Retention of executives is assisted by:  Reducing fixed reward and increasing variable reward based on surpassing a suitable return on monies invested in the business. (Hence more remuneration payable if targets achieved).  The annual award and multi-year performance period of the LTI plan. (LTI to be introduced in FY16.) Generally if executives leave the group before the awards vest, they will forfeit their entitlement. The granting of equity to senior executives will ensure that executive rewards are aligned with shareholder returns by having ongoing exposure to the company’s share price. 3.4 Approach to Setting Remuneration Individual remuneration is determined by reference to:  The policy remuneration mix set out in the table below, applied in accordance with the terms of the senior executives contracts.  Available market data for comparable roles.  Consideration of factors specific to the individual. The market data referenced in reviewing remuneration is for comparable roles in similar sized funds management organisations based on funds under management. Fixed remuneration and total target remuneration is typically positioned between the median and the 75th percentile of the relevant market. The objective of this target positioning is to facilitate the attraction and retention of the best talent in a competitive market. Actual market positioning for each individual may deviate above or below the policy due to consideration of internal relativities, experience, tenure in the role and individual performance. 10 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 Remuneration levels are reviewed annually by the Remuneration and Nomination committee and upon change of an executive’s position. The Board approves any changes to the CEO’s, CFO’s and CIO’s remuneration arrangements following consideration by the Remuneration and Nominations Committee. Fixed Remuneration FY15 Policy Remuneration Mix CEO 50% CFO/Co. Sec. 50% CIO 50% FY16 Policy (once LTI plan implemented) CEO 33% CFO/Co. Sec. 33% CIO 33% 3.5 STI (Maximum) LTI (grant value) (Maximum) 50% 50% 50% 0 0 0 33% 33% 33% 33% 33% 33% Executive Components in Detail Detailed below is more detailed information on the fixed and short term incentive programs that currently exist for the senior executives. 3.5.1 Fixed Remuneration Fixed remuneration received by the senior executives comprise base salary and superannuation only. As at January 2015, senior executive’s remuneration was reviewed in accordance with their employment contracts and our new remuneration structure Mr Stevens’ and Mr Fowles’ remuneration was decreased as a result. During FY15 it was decided to simplify fixed remuneration even further so that the fixed remuneration covered only salary and superannuation. This fixed remuneration will be reviewed annually, once the Board has reviewed all of the salient factors. If and when minimum superannuation entitlements increase, this will not affect the fixed remuneration for the senior executives. Only increases granted by the Board will enable fixed remuneration to increase from one period to another. 3.5.2 STI Plan The FY15 short term incentive plan was based on meeting a performance hurdle which was above the required level of profit for Contango Asset Management Limited (CAML). Once the profit hurdle was surpassed, a proportion of the profits above that hurdle, established the bonus pool. A judgement on a range of key performance indicators for each participant was then used to determine the distribution of the profit pool to the participants. For FY15 the minimum performance profit target was not achieved. However, the Board had the option to allocate up to $200,000 in bonuses to all participants in the short term incentive on a discretionary basis considering all salient issues. No payments were made, other than the once off agreed contractual bonus to Mr Boubouras. For FY16 and beyond the company has developed a revised short-term incentive plan, applying to all staff, as well as a long-term incentive plan for its executives and investment professionals. These plans are aimed at aligning the interests of the staff with those of CTN’s shareholders, to provide incentives for above average performance and to provide a retention mechanism. The success of the plans are totally dependent on the growth and profitability of CTN’s funds management activities that are operated through its subsidiary’s - in particular through its wholly owned subsidiary Contango Asset Management Limited (CAML). Payments under the plans depend firstly on the profitability of CAML, over and above a satisfactory return on CTN’s investment in recent years when CTN purchased CAML from its previous shareholders. Profits above this base level will be shared between CTN shareholders and its staff. 11 Contango MicroCap Limited and Controlled Entities ABN 47 107 617 381 Directors’ Report (continued) For the year ended 30 June 2015 All staff will have annual and half yearly appraisals against a personal set of targets, covering not o