PACIFIC CURRENT GROUP LIMITED - Annual Report 2014

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Annual Report 2014
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Annual Report 2014

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1 Results at a Glance
2 About us
4 Chairman’s Report
6 CEO’s Report
10 Review of Boutiques
12 Treasury Group Services
13 Directors
14 Directors’ Report
30 Auditor’s Independence Declaration
31 Corporate Governance Statement
36 Income Statement
37 Statement of Comprehensive Income
38 Statement of Financial Position
39 Statement of Changes in Equity
40 Statement of Cash Flows
41 Notes to the Financial Statements
77 Director’s Declaration
78 Independent Audit Report
80 ASX Additional Information 81 Corporate Directory

Results at a Glance

Favourable market conditions and continued funds inflows at RARE Infrastructure and Investors Mutual underpinned another year of strong earnings growth.

Key Financial Highlights during the year:

Normalised net profit after tax (NPAT)

$14.0m

Total funds under management $25.4bn

Full year dividend (fully franked) 50c

Full year dividend (fully franked) 50c
	$	% change
Year End FUM ($bn)	25.4	48.5
Aggregate Boutique Management Fees ($m)	98.3	18.4
Reported NPAT ($m)	13.1	26.0
Underlying NPAT ($m	14.0	27.3
Final Dividend (cps)	27.0	17.4
Full Year Dividend (cps)	50.0	25.0

Annual Report 2014

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About us

Treasury Group is a specialist investment and financial services business, focused on boutique funds management companies.

Our philosophy is to partner with talented investment professionals to deliver the highest standard of investment outcomes for investors. We invest capital and provide a range of services to support the growth and development of our partner boutiques. The structure of our services and investments are flexible in order to the meet the needs of boutiques in their different stages of development.

Our offering can include some, or all of the following:

Capital investment structured as equity, debt or otherwise for specified purposes;
Distribution and marketing services;
Responsible Entity services; and
Other business support services including risk and compliance, accounting, finance, HR, and operations.

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170.3%

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32.9% 3 year returns 2011–2014

Treasury Group total shareholder return has significantly exceeded the S&P/ ASX 300 Accumulation Index over the past three years.

42.2% 17.3% 1 year returns 2013/14 S&P ASX 300 total returns TRG total returns

Annual Report 2014

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Chairman’s Report

On behalf of your Board, I am pleased to report another successful year at Treasury Group. Excellent financial results were a consequence of a rising market benefitting our boutiques and hard work by our executive team and staff.

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During the year, our Managing Director and Chief Executive Andrew McGill, finalised his restructuring of Treasury Group with the merger of Evergreen Capital and Freehold Investment Management, the sale of Treasury Asia Asset Management, optimising outcomes for Treasury Group from the closure of Orion’s funds management business, and the acquisition of a minority interest in ROC Partners, an MBO from Macquarie Bank. The second half of the year was dominated by work on the exciting Northern Lights transaction which was announced on 5 August 2014.

We also added to our executive strength, hiring the experienced Andrew Howard from Mercer as Chief Investment Officer, and adding a further sales resource in London.

Financial Result

Treasury Group’s underlying net profit after tax increased to $14.0m, up 27% on the prior year. Statutory net profit after tax was $13.1m, an increase of 26%. Treasury Group continues to maintain a strong balance sheet.

Funds Under Management

Funds under management increased by 49% to $25.4 billion at year end. The acquisition of ROC Partners in May 2014 contributed $5.3bn in FUM for the full year ended 30 June 2014. The aggregated net retail funds inflow from RARE and IML for the year ending 30 June 2014 totalled $648 million, compared to $425 million in FY2013.

Dividend

The Board of Directors has declared a fully franked final dividend of 27 cents per share, an increase of 17% on the final dividend for FY2013. The increase reflects the Board’s confidence in the Company’s strong full year result and operating outlook.

Market Conditions

The strong financial result for Treasury Group can be primarily attributed to the positive growth in funds under management and earnings from two of our key boutiques, RARE Infrastructure and Investors Mutual. Treasury Group’s model is operationally leveraged to financial markets and this year we benefitted from the positive market conditions.

Social Responsibility

Treasury Group continues to support a number of very capable and hard working organisations in their efforts to bring about worthwhile social change. For a number of years, we have supported Third Link Investment Managers via the provision of investment and support services on a pro-bono basis. Third Link invests in social change by increasing the impact and sustainability of a range of charities. It provides funding and strategic support to carefully selected non-profit partners. Third Link is a pioneer organisation and I invite you to learn more about their work by visiting www.thirdlink.com.au

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Funds Under Management
($ billions)
All managers associated with Treasury Group – June 2002 to June 2014
25
20
15
10
5
0
JUN 02 DEC 02 JUN 03 DEC 03 JUN 04 DEC 04 JUN 05 DEC 05 JUN 06 DEC 06 JUN 07 DEC 07 JUN 08 DEC 08 JUN 09 DEC 09 JUN 10 DEC 10 JUN 11 DEC 11 JUN 12 DEC 12 JUN 13 DEC 13 JUN 14
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Outlook

The Board and management of Treasury Group have worked hard on behalf of shareholders over the course of the 2014 Financial Year to build on the strong position that the company ended the previous year. With the continuation of positive market conditions and strong contributions from our key boutiques, RARE Infrastructure and Investors Mutual, a satisfying earnings result has been achieved for shareholders.

We are now embarking on a new phase of growth building from the new platform which will be provided from the proposed merger with the merger of Northern Lights Capital Group. This company transforming transaction will provide for improved earnings diversification, a seamless international distribution capability and access to new high growth boutiques; overseen by a management team with greater depth.

Finally, I would like to thank all our staff, boutique partners and clients for their continued support and I look forward to continuing to work closely with you as Treasury Group embarks on this next phase of growth.

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Mike Fitzpatrick Chairman

Annual Report 2014

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CEO’s Report

Favourable market conditions and continued funds inflows at RARE Infrastructure and Investors Mutual underpinned another year of strong earnings growth. The proposed merger with Northern Lights is expected to provide the platform for continued growth going forward.

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Business Performance

Through the course of 2014, we saw equity markets rise, volatility remain relatively low and Australian investors continue to favour higher yielding investments. Across the Australian funds management industry, net funds flows to equities strategies were generally subdued but in contrast Treasury Group’s largest boutiques saw inflows including net inflows from retail investors. Generally, market conditions provided a favourable background for RARE Infrastructure and Investors Mutual which underpinned the higher earnings .

In August, we were delighted to announce a proposed merger with Northern Lights Capital Group (“Northern Lights”). The proposed merger is expected to be a transformational event in the history of Treasury Group and will result in the creation of an international portfolio of asset management businesses and will execute on key elements of our stated strategy. Management committed very considerable effort to the Northern Lights transaction during the second half of the 2014 financial year and since. The merger is addressed in more detail later in this report.

There were also significant outcomes achieved during the year across Treasury Group’s existing portfolio as we continued our proactive approach to the management of Treasury Group’s investments and interests. Actions commenced or completed during the year included:

Merger of Evergreen Capital and Freehold Investment Management;
Sale of Treasury Asia Asset Management to Nikko Asset Management;
Negotiation with Orion management in relation to the restructure of Orion Asset Management’s funds management business; and
Acquisition of an equity stake in ROC Partners, an Australian and Asian private equity investment and advice business acquired by way of a management buyout of a well established business from Macquarie Bank.

Operational and Financial Performance

Total funds under management rose by 48.5%[1] during the year to finish at $25.4bn. In part, this reflected more favourable market conditions. However, it also reflected strong investment performance at Treasury Group boutiques and funds flows. Funds inflows were experienced at RARE Infrastructure and Investors Mutual, while outflows were experienced at Celeste.

The average net margin earned by our boutique partners on managed funds was up to 58 basis points, the third consecutive year of increase. Once again, this reflected an improved mix of business across the Treasury Group portfolio.

Normalised net profit after tax was $14.0 million, an increase of 27% versus prior year. This reflects significantly improved outcomes across our portfolio of boutiques during FY2014 with aggregate management fee income across Treasury Group boutiques up 18%. Treasury Group’s Share of Associates Net Profit after Tax was up 32% versus prior year, demonstrating once again the “scalability” of the multi-boutique model of funds management.

On a normalised basis, the increase was 17.6% excluding $5.3bn of FUM added due to investment in ROC Partners

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6 7
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Composition of FUM vs Average Margin
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30
Trilogy
25 Freehold (Evergreen) & AR Capital
Aubrey & Global Value Investors
20 TAAM
FUM Avg ROC Partners
$bn at
15 Margin Celeste
year (bps)
end RARE Infrastructure
10 Orion
Investors Mutual
5
% incl Trilogy (RHS)
% excl Trlogy (RHS)
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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Statutory net profit after tax was $13.1 million, up 26% compared to last year. The statutory result includes the impact of one-off abnormal income or expenses associated with actions taken during the year and profits on investments sold during the year. It also includes the impact of accounting decisions at year end such as impairment charges and the write off of deferred tax assets within GVI.

Expenses at Treasury Group were again lower than the prior year as we continue to benefit from the cost saving actions undertaken two years ago. However, Treasury Group’s revenues were materially lower this year as the full impact was felt from having fewer fee paying boutiques within our portfolio and lower revenues from current boutiques.

Capital levels at Treasury Group are surplus to all regulatory requirements and contribute to funding for the proposed merger with Northern Lights. At year end, cash, available-for-sale investments and loans to boutiques totalled $23.9m. There was no outstanding debt and operating cash flow during the year was $12.2m.

The value of Treasury Group’s investments in partner boutiques is carried at $29.2m which represents historical cost plus our share of undistributed earnings over time. A significant proportion of this carrying value is reflected in cash and liquid assets held at boutique level.

At 30 June, the aggregate cash and liquid assets held by Treasury Group boutiques was $72.5m and Treasury Group’s proportionate share of that amount was $29.6m.

Annual Report 2014

CEO’s Report continued

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Market Environment

Against a back drop of a continued record low interest rate environment the Australian Share market recorded a double digit return for the 2014 Financial Year, which follows a similar result from the previous fiscal year. The market remained sensitive to movements of Central Banks, with the Australian market having a strong start to the Financial Year in no small part due to the Reserve Bank lowering the cash rate to 2.5% in August last year, a level which it still sits at today. The All Ordinaries Price Index rose by 17.6%, while the Small Ordinaries Index rose by 13.1%. While Industrial stocks strongly outperformed Resources stocks in the 2013 Financial Year, it was a different result this fiscal year with the All Resources Index returning 14.2% against the All Industrials result of 11.9%. With cash rates and bond yields remaining at record lows, investors remained attracted to the dividend yields available from stocks, particularly the big four banks.

While it was a strong year for the local market, it still lagged a number of its developed market peers, with the US market ending the Financial Year strongly as the S&P 500 reached an all-time high in late June. The US Federal Reserve indicated that it would continue to keep rates at record low levels based on its desire to see economic conditions in the US improve.

Overall, the market backdrop provided a positive environment for both our local and global managers. Investor demand for yield assisted both Investors Mutual and RARE Infrastructure, while stronger sentiment towards small cap stocks assisted Celeste in delivering positive absolute returns for investors. Funds management as an industry continues to provide an attractive investment opportunity for investors with mandated compulsory superannuation contributions rising and Australia remaining one of the fastest growing funds management sectors globally. Treasury Group remains well placed to benefit from these strong industry fundamentals.

Via our wholly owned subsidiary, Treasury Group Investment Services Limited, we provide a full suite of business support services to our partner boutiques and selected external clients.

Proposed Merger with Northern Lights Capital Group

In August, we announced a proposed merger with Northern Lights Capital Group, a US based multiboutique asset management business with FUM of approximately A$24.2bn across its portfolio of 13 associated funds management businesses. Together with Treasury Group’s existing portfolio, the merger will create an international business with A$49.6bn of FUM across 21 boutiques diversified across a range of investment strategies and geographies.

The merger is to be structured via a newly established Australian trust into which both Northern Lights and Treasury Group portfolio assets will be transferred[2] . Treasury Group Limited will remain listed and following the merger will own a 61% equity interest in the merger trust. Management and operations will be integrated and the business will be operated as one group under the direction of a common board of directors. From Treasury Group’s perspective, there will be no change of control.

Treasury Group will retain all existing franking credits. Importantly, Treasury Group expects to be able to continue to pay franked dividends to its shareholders in future.

All necessary upfront funding has been committed. However, the proposed merger remains subject to a number of conditions including regulatory approvals, consents from clients of some Northern Lights boutiques, finalisation of the merger structure, and satisfaction of conditions to draw down of an external debt facility. In addition, in relation to some of Treasury Group’s existing boutique investments[3] , we must comply with pre-emptive rights processes before being entitled to transfer or sell to the merger trust the shares that we own in those boutiques. We continue to work towards completion of the transaction by the end of October.

It is expected that the transaction will deliver significant strategic and financial benefits. The transaction is expected to be materially accretive from completion, deliver increased portfolio diversification, provide exposure to key Northern Lights boutiques which have experienced strong growth and deliver strengthened investment and distribution capabilities.

Strategy

Looking forward, the merged group will be well placed to partner with outstanding asset management professionals worldwide.

The merger will result in strengthened management and investment teams with executives located to access deal flow within international markets.

Subject to completion of required shareholders agreement processes at Investors Mutual, Celeste and Orion.
Investors Mutual, Celeste and Orion

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Financial Performance

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Treasury Group Underlying Profit
S&P/ASX 300
The S&P/ASX 300
Index increased by
12% during 2014.
Source:
Treasury Group,
Standard & Poor’s
2008 2009 2010 2011 2012 2013 2014
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Treasury Group financial performance is strongly correlated with the level of listed equities markets.

The S&P/ASX 300 Index increased by 12% during 2014.

In addition to partnering with early stage asset management businesses, the combined group will have scale and financial capacity to invest in established businesses. Over the past 5 years, Treasury Group and Northern Lights have completed a combined 14 investments.

The merged business will have 14 sales executives across offices in the US, Australia, and the UK. We will have access to an extensive US retail distribution platform. We will also have the benefit of a strategic relationship with BNP Paribas with its retail distribution capabilities, particularly across some European markets. Over the past 5 years, the combined Treasury Group and Northern Lights distribution teams have raised over A$8bn in FUM for our boutique partners.

In short, the proposed merger does not so much mark a change of strategy by Treasury Group but rather a significant enhancement of our capabilities to execute our strategy across international markets.

Conclusion

In a number of ways, 2014 has been an outstanding year for Treasury Group. At our largest boutiques we have seen continued growth in FUM and earnings. Together with favourable market conditions, this has delivered another year of strong returns for shareholders. At Treasury Group, we have made significant progress towards many of our strategic goals via the proposed merger with Northern Lights.

Also, we have again been diligent and proactive in the management of existing portfolio interests.

Assuming that all conditions are satisfied so as to allow the proposed merger to complete as planned, the merged business that will be created is expected to provide a platform for future growth in assets and earnings for the benefit of Treasury Group shareholders for years to come. It will be a very significant milestone in the history of your business.

Finally, I would like to thank all Treasury Group employees and also staff at our boutique partners for their hard work again this year. Treasury Group’s business is a people business and outcomes for our shareholders are a direct result of the skill, expertise and diligence of our people.

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Andrew McGill Managing Director and Chief Executive Officer

Annual Report 2014

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Review of Boutiques

Treasury Group boutiques have delivered strong investment returns for clients and outperformed their market benchmarks over medium and long term horizons.

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Celeste

RARE

Investors Mutual

Celeste Funds Management is a long only Australian equities manager with a focus on listed smaller companies. The Celeste team aims to provide above benchmark returns for investors with a conservative nature and a patient disposition. Celeste continues to be highly rated by asset consultants and research houses.

RARE Infrastructure, founded in 2006 by Richard Elmslie and Nick Langley, specialises in the investment and management of securities in global listed infrastructure including airports, toll roads, gas, electricity and water. RARE has product offerings in North America, Europe/UK as well as Australia.

Led by the experience of Anton Tagliaferro and Hugh Giddy, Investors Mutual (IML) has a conservative investment style with a long term focus that aims to deliver consistent returns for clients. It achieves this through the disciplined application of a fundamental and value based approach to investing.

During the year, FUM grew from $7.1 billion to $9.1 billion as at 30 June 2014. RARE continues to attract strong support from Australian institutional and retail clients as well as offshore institutions including sovereign wealth and pension funds.

During the year, FUM fell from $646m to $597m as at 30 June 2014. Celeste’s investment performance is well above its benchmark over 3 years and longer time periods including the delivery of 10% annualised returns over benchmark since inception (May 1998).

During the year ending 30 June 2014, funds under management rose to $4.9 billion, an increase of 15% for the year. This was sustained by the continued institutional support and positive retail flows experienced over the year. IML was also a Finalist for the Domestic Equity Awards by Morningstar and Australian Financial Markets Association (AFMA).

RARE’s significant outperformance versus its benchmark over 1, 3 & 5 year periods to 30 June 2014 has further cemented RARE’s leadership position amongst its global peers.

Recently, IML also successfully launched the listed investment company, QV Equities, raising $180 million from retail investors. QV equities specialises in companies outside the S&P/ ASX 20 Index.

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Orion Asset Management

Orion Asset Management during the year underwent a significant strategic and operational change, resulting in the closure of the Australian equities business. Going forward its focus will be on distribution and administration of funds by New York based, Trilogy Global Advisors (Trilogy).

The alliance between Orion and Trilogy continues to be a positive one, with Trilogy now managing over $4.9 billion in FUM from investors across Australia, New Zealand and South East Asia.

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During the year, RARE’s funds under management grew from $7.1 billion to $9.1 billion as at 30 June 2014

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Aubrey

Aubrey Capital Management is a global growth equity thematic manager based in Edinburgh, Scotland. Led by Andrew Dalrymple, the Aubrey team members are experienced global equity investors focused on concentrated portfolios of growth stocks. Aubrey is also the appointed sub manager of the GVI Global Industrial Fund.

During the year, Aubrey’s funds under management increased by 15% to $528 million and Aubrey successfully retained its recommended rating from research house Zenith.

Aubrey was also added to a number of approved product lists within the retail market which will lead to flows during the FY2015 and beyond. Aubrey continues to garner interest from institutional investors both locally and offshore.

$9.1 billion

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Octis Asset Management

Freehold Investment Management

Freehold Investment Management (FIM) is a business specialising in direct and indirect property. Treasury Group gained its exposure to FIM following the merger between FIM and Evergreen Capital Partners. FIM is at a relatively early stage of development and currently manages approximately $110 million across its domestic listed property and infrastructure funds.

Led by Jerome Ferracci, Octis Asset Management Pte Ltd is an Asian multi strategy hedge fund manager based in Singapore. The investment team aims to capture growth from Asian markets whilst limiting volatility and drawdowns.

Octis utilises a number of different strategies that includes; equities, futures, options, commodities and foreign exchange securities.

FIM successfully attained a recommended rating from Lonsec which has helped generate further interest from the retail/ wholesale market.

Octis manage a Cayman based fund and have recently launched an Australian managed investment scheme to tap into the family office and retail market.

Annual Report 2014

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Treasury Group Services

Via our wholly-owned subsidiary Treasury Group Investment Services Limited, we provide a full suite of business support services to our partner boutiques and selected external clients.

Services Offered Include:

distribution and sales;
acting as Responsible Entity for pooled investment funds;
risk management;
legal and regulatory compliance;
accounting and finance;
company secretarial and corporate governance oversight;
human resources management;
investment operations oversight;
business administration and office logistics; and
information technology and automation solutions.

These services are provided through our team of experienced and professional staff. The services provided by Treasury Group allow investment staff to focus on their area of specialisation – delivering strong investment returns on the funds they manage.

Treasury Group provides these services to clients via different pricing models, including fixed fee arrangements, variable hourly rates and commission or success-based fees. During their development phase, Treasury Group boutiques often benefit from the provision of services by Treasury Group at less than market-based rates. Pricing for mature boutiques and third party clients is based on market rates.

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Directors

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Directors

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Michael Fitzpatrick, (Chairman)

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Reubert Hayes, (Non-Executive Director)

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Peter Kennedy, (Non-Executive Director)

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Melda Donnelly, (Non-Executive Director)

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Andrew McGill, (Managing Director and Chief Executive Officer)

Annual Report 2014

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Directors’ Report

Your Directors submit their report for the year ended 30 June 2014.

Directors

The names and details of the Company’s Directors in office during the financial year and until the date of this report are listed below. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

M. Fitzpatrick, (Chairman) B. Eng, B (Oxon) Honours

Mr Fitzpatrick joined the Board on 5 October 2004. He was the founder and Managing Director of Hastings Funds Management Limited. Prior to establishing Hastings in 1994, he was a Director of Credit Suisse First Boston. He is also a Director of Rio Tinto Ltd, Rio Tinto plc, Chairman of the Australian Football League and former Chairman of the Australian Sports Commission.

Mr Fitzpatrick is also a member of the Audit Committee, Remuneration Committee and Nomination Committee.

A. McGill, (Managing Director, appointed 30 August 2013)

Mr McGill has more than 20 years financial markets experience, including investment and management experience within the alternative asset sector of the funds management industry. He joined Treasury Group as Chief Executive Officer in July 2011 and has overall responsibility for management of the business including the Company’s investment and partnering activities. Prior to joining Treasury Group, Mr McGill was a founding partner of Crescent Capital, an independent mid-market private equity firm, where he lead the successful development of that business from 2000 to 2010. Prior to establishing Crescent, he held senior roles within Macquarie Bank’s Corporate Finance and Direct Investment teams. Previous to that, he was a strategy consultant with LEK Partnership.

P. Kennedy, (Non-executive Director) B.Ec. L.L.M.

Mr Kennedy joined the Board on 4 June 2003, is the Managing Partner with Madgwicks lawyers and has over 30 years experience in commercial law. Mr Kennedy has also served as a Chairman of Australian Value Funds Management Limited (now called Prime Financial Group Ltd).

He is the Chairman of the Audit Committee and a member of the Remuneration Committee.

R. Hayes, (Non-executive Director) SF Fin, FAICD

Reubert Hayes joined the Board on 22 February 2007. Mr Hayes has over 40 years experience in investment management and stockbroking research, and was a founder and CEO of Ausbil Dexia Limited, a specialist wholesale boutique asset management operation. Mr Hayes was also a joint founder of Barclays Bank’s investment operations in Australia in 1984, and was CEO of that business for 12 years until 1996. Prior to this, Mr Hayes held senior investment roles with AMP and Westpac. Mr Hayes is a Senior Fellow of the Financial Services Institute of Australia and a Fellow of the Australian Institute of Company Directors.

He is the Chairman of the Remuneration Committee and sits on the Audit Committee.

M. Donnelly, (Non-executive Director) B.C.

Melda Donnelly joined the Board on 28 March 2012. Ms Donnelly is the Founder and former Chairman of the Centre for Investor Education (CIE), a specialist education and consultancy firm for Executives in Australian and superannuation funds, institutional investment bodies and the financial services markets. Ms Donnelly’s previous work experience includes CEO of the Queensland Investment Corporation, Deputy Managing Director of ANZ Funds Management and Managing Director of ANZ Trustees.

Ms Donnelly is a former Deputy Chairperson of the Victorian Funds Management Corporation and a current Non-executive Director of Ashmore Group plc and a current Non-executive Director of UniSuper Ltd. In addition, Ms Donnelly is a member of the Advisory Committee of the Oxford University Centre for Ageing.

Ms Donnelly is the Chairperson of the Nomination Committee and a member of the Audit Committee.

Company Secretaries

R. Ramswarup, BA (Justice Administration)

Ms Ramswarup commenced with Treasury Group Ltd in March 2008. She has worked in company secretarial roles at Wattyl and AMP and has secretariat experience in local government and professional services. Ms Ramswarup has completed the Graduate Diploma in Applied Corporate Governance and is a member of the Governance Institute of Australia.

J. Ferragina, BCom, M App Fin, CA, FFin, GAICD (appointed 31 July 2014)

Mr Ferragina is a Chartered Accountant and Fellow Member of the Taxation Institute of Australia. He has gained specialised experience in a range of funds management companies including Colonial First State Investment Managers and AMP Global Investors Ltd, which led him to a position as CFO and Company Secretary of Ronin Property Group, a separately listed company spun out of AMP. Prior to his appointment as CFO of Treasury Group Limited in October 2005, he was Head of Finance at DBRREEF (now Dexus).

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Interests in the shares and options of the Company and related bodies corporate

As at the date of this report, the interests of the Directors in the shares and options/performance rights of Treasury Group Ltd were:

Ltd were:
		Options/
		Performance
		rights over
	Ordinary	Ordinary
	Shares	Shares
M. Fitzpatrick	2,701,285	–
A. McGill	530,000	–
R. Hayes	–	–
P. Kennedy	213,487	–
M. Donnelly	20,000	–
Earnings Per Share		Cents
Basic earnings per share		56.6
Diluted earnings per share		55.0
	Cents per
Dividends	share	$
Final dividend declared:
– on ordinaryshares(fullyfranked)	27	6,398,324
Dividends paid in the year:
Interim for the year
– on ordinaryshares(fullyfranked) paid on 27 March 2014	23	5,306,274
Final for 2013 shown as recommended in the 2013 report
– on ordinaryshares(fullyfranked) paid on 25 September 2013	23	5,306,274

Corporate Information

Corporate Structure

Treasury Group Ltd is a company limited by shares and is incorporated and domiciled in Australia. Treasury Group Ltd has prepared a consolidated financial report incorporating the entities that it controlled and jointly controlled during the financial year. The Group’s corporate structure as at the date of this report is as follows:

	Treasury Group Investment Services Limited (100%) Treasury Octis Pty Limited (100%) Octis Asset Management Pte Ltd (20%) Global Value Investors (100%) Treasury Roc Pty Limited (100%) ROC Partners Pty Ltd (15.03%) AR Capital Management Pty Ltd (100%) Treasury Evergreen Pty Limited (100%) Freehold Investment Management (15%) See page 17 Investors Mutual Ltd (47.22%) IML Investment Partners Pty Ltd (40%) RARE Infrastructure Ltd (40%) RARE IP Trust (40%) Orion Asset Management (Aust) Pty Ltd (49.99%) Celeste Funds Management Limited (39.17%) Aubrey Capital Management Ltd (22.2%) See page 17
TREASURY GROUP LT~~D~~

Treasury Group Investment Services Limited (100%)
Treasury Octis Pty Limited (100%)
Octis Asset Management Pte Ltd (20%)
Global Value Investors (100%)
Treasury Roc Pty Limited (100%)
ROC Partners Pty Ltd (15.03%)
AR Capital Management Pty Ltd (100%)
Treasury Evergreen Pty Limited (100%)
Freehold Investment Management (15%)
See page 17
Investors Mutual Ltd (47.22%)
IML Investment Partners Pty Ltd (40%)
RARE Infrastructure Ltd (40%)
RARE IP Trust (40%)
Orion Asset Management (Aust) Pty Ltd (49.99%)
Celeste Funds Management Limited (39.17%)
Aubrey Capital Management Ltd (22.2%) See page 17

TREASURY GROUP LT~~D~~

Annual Report 2014

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Directors’ Report

continued

Operating and Financial Review

Review of Operations

Nature of operations and principal activities

The principal activities of the consolidated entity during the financial year were:

Provision of funds management services to:

Institutions;
Master funds and wraps;
Retail investors and
Private clients.

There have been no significant changes in the nature of those activities during the year.

Employees

The consolidated entity employed 17 full time equivalent employees as at 30 June 2014 (2013: 17). The consolidated entity includes Treasury Group Ltd (parent), Treasury Group Investment Services Ltd, Global Value Investors Ltd and AR Capital Management Pty Ltd.

Funds management/business performance

Treasury Group Ltd have experienced continued FUM growth driven by favourable market conditions, increased appetite from retail investors, strong performance from key boutique partners and the addition of a new boutique partner ROC Partners. FUM growth across the Group increased by 48% to $25.4bn ($9.5bn as TRG share). This growth in FUM is a reflection of a continued, stable and strong performance delivered by other Treasury Group’s partner boutiques as well as the addition of ROC Partners. The increased level of inflows from retail investors of RARE Infrastructure Ltd and Investors Mutual Ltd have contributed to the growth of FUM. The Group’s performance is strongly correlated with the level of listed equities markets as the fees and revenues earned by the boutique partners are based upon percentage of funds managed.

The Group’s results improved as a result of various strategies implemented during the year. The Executive management continues to review significant investment opportunities to diversify Treasury Group’s investment and product offerings, completion of new partner boutique such as ROC Partners, pursuing mergers and acquisitions at corporate level, proactive management of investments and interests, pursuing efficiency from support services and investing in core capabilities.

The Group’s results arose from four main business segments. The results from Australian equities increased by 6% which arose from the increased contribution of Investors Mutual Ltd, IML Investment Partners and Celeste Funds Management. The results from alternative equities increased by 47% mainly due to consistent inflows and strong performance of RARE Infrastructure Ltd. The Group’s outsourcing and responsible entity services decreased by 59% due to loss of mandate with Premium Investors Ltd (PRV) in the previous year. Lastly, the central administration segment improved by 19% due to continued control, efficiency improvements and expense management at the corporate level. Refer to Note 20 for further discussion on the segment information.

Below are the key business areas of the Group’s operations:

Australian Equities

Investors Mutual Ltd (IML) provides a funds management capability to both institutional and retail investors. The consolidated entity holds 47.22% of the issued capital of IML. Investors Mutual Limited is considered a jointly controlled entity of the Group.

IML Investment Partners Limited, a jointly controlled entity of Treasury Group Ltd undertakes a sub advisory role to exclusively manage funds for Investors Mutual Limited and its institutional clients. Treasury Group Ltd has a 40% interest in the sub advisory business with the investment team holding the remaining 60% of equity.

Celeste Funds Management Limited is an Australian equity manager with a small companies focus. Treasury Group Ltd acquired 39.17% equity with the majority of ownership being held by the investment team of Celeste Funds Management Limited. Celeste Funds Management Limited is considered a jointly controlled entity of the Group.

Alternative Equities

RARE Infrastructure Ltd and its subsidiaries (RARE Group), a boutique asset manager specialises in listed global infrastructure. Treasury Group Ltd owns 40% each of RARE and RARE IP Trust (RIP). RARE and RIP are considered as associates of the Group.

Octis Asset Management Pte Ltd is an Asian multi strategy equity manager based in Singapore. Treasury Group owns 20% equity in the Company.

16 17

ROC Partners is an Australian and Asian Private equity investment and advice business. It specialises in advice and private equity investment services for investors in Australia, US and Europe. Funds under advice include investments in primary funds, secondaries and co-investment opportunities across the Asia-Pacific Region. The consolidated entity holds 15% of the issued capital of ROC Partners. ROC Partners is considered a jointly controlled entity of the Group. Treasury Group owns 15.03% interest in the Company.

AR Capital Management Pty Ltd is an Australian equity absolute return manager. Treasury Group owns 100% of the issued capital of AR Capital Management Pty Ltd. This is currently being wound up.

International Equities

Orion Asset Management Services Pty Ltd, a wholly-owned controlled entity of Orion Asset Management (Aust) Pty Ltd, provides distribution services to Trilogy LLC. The consolidated entity holds 49.99% of the issued capital of Orion Asset Management (Aust) Pty Ltd. Orion Asset Management (Aust) Pty Ltd is considered a jointly controlled entity of the Group.

Global Value Investors Ltd invests in global industrial companies that exhibit recurring earnings, and a strong, stable and competitive business. Treasury Group Ltd owns 100% interest in the Company. The funds are managed by Aubrey Capital Management.

Aubrey Capital Management is a global growth equity thematic manager based in Edinburgh, Scotland. Treasury Group Ltd holds convertible preference shares that entitle Treasury Group Ltd to take 22.2% of the equity capital of Aubrey Capital Management. The convertible preference shares are treated as Available-For-Sale Assets by the Group in accordance with Accounting Standards. In addition, Treasury Group Ltd was issued two options which will allow Treasury Group Ltd to acquire a further 10% if certain conditions are met.

Property

Freehold Investment Management (FIM) is an investment manager established in 2009 specialising into direct property, Australian Real Estate Investment Trusts (A-REITs) and unlisted property funds. Treasury Group holds options in FIM which, upon conversion, will deliver an equity interest of 30%. These options are exercisable at the election of Treasury Group. In addition, the employees of FIM are entitled to equity-based incentives which are linked to profit targets and FUM. In the event these are met, Treasury Group’s holdings are diluted to 15%. The options are treated as available-For-Sale Assets by the Group in accordance with Accounting Standards.

Administration & Compliance Services

Treasury Group Investment Services Limited, a wholly-owned controlled entity of Treasury Group Ltd provides administrative, accounting, and compliance services to certain members of the Group. It is also the responsible entity for the majority of schemes in the Group.

Operations, acquisitions and disposal

On 31 October 2013, Treasury Group Ltd completed the sale of its loan assets and 43.96% equity holding in Treasury Asia Asset Management (TAAM) to Nikko Asset Management International (Nikko). TRG sold loans and equity holdings for the respective book values.

On 13 November 2013, Freehold Investment Management (FIM) and Evergreen Capital Partners (Evergreen) successfully completed a merger with FIM as the surviving entity. Under the new structure, Evergreen shareholders sold their shares in Evergreen in return for equity securities (options) in FIM. Following the transaction, FIM owns 100% of the issued capital in Evergreen. As a consequence of the merger, Treasury Group holds options in FIM which, upon conversion, will deliver an equity interest of 30%. These options are exercisable at the election of Treasury Group. In addition, the employees of FIM are entitled to equity-based incentives which are linked to profit targets and FUM. In the event these are met, Treasury Group’s holdings are diluted to 15%. On 16 May 2014, FIM undertook a capital raising limited to its existing shareholder base through the issuance of convertible preference shares which has a convertibility feature. On 30 May 2014, Treasury Group participated in this capital raising to the amount of $600,000. This is treated as loan to FIM fixed at 15% per annum for two years.

On 2 December 2013, the Board of Orion Asset Management restructured its Australian Equities fund management business. Orion ceased to provide funds management services to institutional clients and several members of Orion’s investment management team exited the business. Orion also ceased to manage the Orion Australian Share Fund for retail clients. On 30 April 2014, Treasury Group Ltd acquired a further 7% equity of ownership in Orion Asset Management (Aust) Pty Ltd as a result of the corporate restructuring that the Orion Group had undertaken. As a result, Treasury Group owns 49.99% of Orion Asset Management (Aust) Pty Ltd. Orion’s alliance with Trilogy Global Advisors has remained unchanged.

On 16 April 2014, Treasury Group Ltd announced the execution of an agreement to invest in ROC Partners, an Australian and Asian private equity investment and advice business. On 30 May 2015, Treasury Group Ltd completed the acquisition of 15.03% equity in ROC Partners for $556,000. In addition, TRG has provided a facility of $4,500,000 of which $2,450,000 was drawn down on 29 May 2014.

Annual Report 2014

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Directors’ Report

continued

Operating Results for the Year

The above events and transactions reflected in a consolidated profit for the year attributable to members of Treasury Group Ltd amounted to $13,061,814 (2013: $10,390,514). The net profit after tax of the group as reported in the current year has increased by 26% compared to the 30 June 2013 comparative result as shown in the table below reconciling the underlying profit as follows:

proft as follows:
	Consolidated
	2014 $ 2013 $
Net profit attributable to members of the parent Add/(Deduct): – Impairment of goodwill – Impairment of investment in subsidiary (AR Capital Management) – Impairment of investments accounted for under the equity method – Legal fees – Write off of deferred tax asset in subsidiary (Global Value Investors) – Tax adjustment to recognise tax losses previously unrecognised – Net settlement fee from PRV restructure – Employee and restructuring costs – Consulting fees	13,061,814 10,390,514 252,764 331,124 41,012 – – 800,000 159,928 278,643 520,000 – – (454,950) – (537,264) – 140,000 – 76,250
Underlying profit	14,035,518 11,024,317

Earnings Per Share

The earnings for the last financial year reflect the strong performance across the portfolio boutiques, increase in net margin due to favourable changes in portfolio mix and efficiency improvements and expense management at the corporate level.

	2014	2013
Basic earnings per share (cents)	56.6	45.0
Diluted earnings per share (cents)	55.0	45.0

Financial Position

Treasury Group Ltd has a strong balance sheet and sound capital structure. This is evident from the Company’s positive cash flow position and no existing borrowing facilities that were required to date to fund the growth activities of the Group. Consolidated cash balance as at 30 June 2014 is $12.9m. Net assets increased by 5% which is largely attributable to the current year’s profit after tax. Treasury Group carries no bank debt.

As at 30 June 2014, Treasury Group Ltd holds Available-For-Sale-Investments amounting to $8.2m which can be readily converted to cash should the need arise.

The value of Treasury Group’s investment in partner boutiques is carried at $29.2m which represents historical cost plus the share of undistributed earnings over time. A significant proportion of this carrying value is reflected in cash and liquid assets held at the boutique level.

Treasury Group Ltd has the capacity to pay dividends to its shareholders. During the year, Treasury Group Ltd paid 46 cents in dividends, an increase of 24% compared to the comparative period. A final dividend of 27 cents per share was declared on 5 August 2014.

Treasury Group Investment Services Limited, a wholly owned subsidiary of the Group, is required to retain Net Assets of $5m for regulatory capital requirements as a holder of an Australian Financial Services Licence with ASIC and operating as a Responsible Entity of Managed Investment Schemes.

Cash Flow from Operations

Net cash flow from operating activities increased by $1.3m to $12.2m or by 11% over the year. This increase arose from the consistent dividend and distribution payments from the equity accounted investments to Treasury Group Ltd.

18 19

Business Strategies and Prospects

Treasury Group continues to expand and diversify its portfolio by partnering with outstanding asset management professionals worldwide. On 5 August 2014, Treasury Group Ltd announced that it has entered into an agreement to merge with Northern Lights Capital Group (Northern Lights), a privately owned, US-based, multi-boutique funds management business with offices in the United States, United Kingdom and Europe (France).

It is expected that the merger will deliver significant strategic and financial benefits to Treasury Group and its shareholders. It provides exposure to Northern Lights boutiques which have experienced strong growth. It creates a diversified international portfolio of multi-asset management businesses and it executes key elements of Treasury Group’s strategy.

Material Business Risks

The material business risks faced by Treasury Group Ltd that are likely to have an impact on the financial prospects of the Company and how the Company manages these risks include:

Global market risks

The nature of the business of Treasury Group Ltd means that the Group is always exposed to market volatility and potential adverse market conditions. Major international listed equity markets continue to display volatility on both upside and downside with publicised global macro risks such as higher European growth and deflation, slower growth in China and monetary policies in the US and Japan. While these risks are external and beyond the control of the Group, a number of our boutique partners delivered exceptional performance including Investors Mutual Ltd, RARE Infrastructure Ltd and Celeste Funds Management Limited. Market risk is however at the core of the business.

Regulatory environment

The business of the Group operates in a highly regulated environment that is frequently subject to review and regular change. Treasury Group Ltd’s risk and compliance team are always working to ensure that the Group is compliant with the new financial and regulatory requirements. In 2013, Treasury Group worked with its Boutique partners to ensure compliance with the Future of Financial Advice Reforms Act. In 2014, Treasury Group has also worked with its Boutique partners to ensure compliance with the new Privacy Act amendments, the AML/CTF amendments and the Foreign Account Tax Compliance Act.

Significant Changes in the State of Affairs

On 7 August 2013, Mr. Andrew Howard was appointed as Chief Investment Officer of Treasury Group Ltd.

On 30 August 2013, Mr. Andrew McGill was appointed as Managing Director of Treasury Group Ltd.

On 2 December 2013, the Board of Orion Asset Management restructured its Australian Equities fund management business. Orion ceased to provide funds management services to institutional clients and several members of Orion’s investment management team exited the business. Orion also ceased to manage the Orion Australian Share Fund for retail clients. On 30 April 2014, Treasury Group Ltd acquired a further 7% equity of ownership in Orion Asset Management (Aust) Pty Ltd, as a result of the corporate restructuring that the Orion Group had undertaken. As a result, Treasury Group owns 49.99% of Orion Asset Management (Aust) Pty Ltd. Orion’s alliance with Trilogy Global Advisors has remained unchanged.

On 16 April 2014, Treasury Group Ltd announced the execution of an agreement to invest in ROC Partners, an Australian and Asia private equity investment and advice business. On 30 May 2015, Treasury Group Ltd completed the acquisition of 15.03% equity in ROC Partners for $556,000. In addition, TRG has provided a facility of $4,500,000 of which $2,450,000 was drawn down on 29 May 2014.

Other than the information provided above, there have been no other significant changes in the state of affairs of the Company during the financial year.

Annual Report 2014

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Directors’ Report

continued

Significant Events after the Balance Date

On 5 August 2014, the Directors of Treasury Group Ltd declared a final dividend on ordinary shares in respect of the 2014 financial year. The total amount of the dividend is $6,398,324 which represents a fully franked dividend of 27 cents per share. The dividend has not been provided for in the 30 June 2014 financial statements.

On 5 August 2014, Treasury Group Ltd and Northern Lights Capital Group (Northern Lights) agreed to a merger creating an international multi-boutique business with A$49.6bn FUM. Northern Lights is a privately owned international multi-boutique asset management group headquartered in the United States with 13 associated boutiques.

A new Australian Trust and trustee company has been established which will own interests in the combined 21 boutiques and give effect to the merger. The new Australian Trust will have its Board, management and operations integrated. Treasury Group will be entitled to 61% of the economic interest of the Trust and it will have majority board representation. The Trust will issue Treasury Group Class A Trust Units and Northern Lights will be issued Class B Trust Units with 39% interest.

Treasury Group will retain all existing franking credits and Treasury Group is expected to be able to continue to pay franked dividends to its shareholders in the future.

Treasury Group and Northern Lights will treat the Trust as a joint venture arrangement for accounting purposes. Upon completion of the transaction, Treasury Group will transfer all its underlying assets to the Trust. This transfer will be a deemed sale and a gain on the sale will be recognised at the time of completion. Assuming that TRG share price on completion date is similar to the share price on 5 August 2014, the gain on sale is A$159.3m¹ and the assets to be transferred to the Trust will be valued at A$223.1m¹.

Going forward post completion, TRG will recognise its investment in the merger trust as an investment in a joint venture. The accounting will follow the principles of equity accounting. TRG will reflect a share of profit from the trust and its share of the carrying value of the underlying assets of the trust.

The merger transaction is viewed to create diversified international portfolio of asset management businesses and it executes Treasury Group’s growth strategy.

1 Based on the TRG share price as at 4 August 2014.

Performance Rights

On 7 August 2013, Treasury Group Ltd granted additional 100,000 performance rights which have vesting date of 7 August 2016 (2013: 39,007 granted on 1 July 2012 and have vesting date of 1 July 2015) to officers and certain employees as part of their long term incentives. The performance rights on issue were valued based on the valuation made by RSM Bird Cameron using a hybrid monte-carlo/binomial option pricing model on the performance rights that were issued on 11 July 2011. The value of each right at issue was $1.64. Total value of the outstanding performance rights is $227,972 amortised over three years from the grant date.

The amount of performance rights amortisation expense for the period was $427,150 (2013:$373,479).

Of the 640,000 performance rights granted on 11 July 2011 to key management personnel, 96% vested on 12 July 2014. As a result, 614,400 Treasury Group Ltd shares were allocated to key management personnel. In addition, other employees were allocated 12,857 Treasury Group shares as a result of vesting of performance rights.

Indemnification and Insurance of Directors and Officers

The Company has entered into an agreement for the purpose of indemnifying Directors and Officers of the Company in certain circumstances against losses and liabilities incurred by the Directors or officers on behalf of the Company. The following liabilities, except for a liability for legal costs, are excluded from the above indemnity:

a. A liability owed to the Company or related body corporate;
b. A liability for pecuniary penalty order under section 1317G or a compensation order under section 1317H of the Corporations Act 2001;
c. A liability owed to someone other than the Company or a related body corporate and did not arise out of conduct in good faith;
d. Any other liability against which the Company is precluded by law from indemnifying the Director.

The insurance contract prohibits the disclosure of the insurance premium for insuring officers of the company against a liability which may be incurred in that person’s capacity as an officer of the Company.

20 21

Remuneration Report (Audited)

This report outlines the remuneration arrangements for Directors and Executives of Treasury Group Ltd in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by paragraphs Aus 29.4 to Aus 29.7.2 of AASB 124 Related Party Disclosures , which have been transferred to the Remuneration Report in accordance with Corporations Regulation 2M.6.04.

For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the parent company, and includes the three executives of the Parent.

The prescribed details for each person covered by this report are detailed below under the following headings:

Key management personnel
Remuneration policy
Relationship between the remuneration policy and company performance
Remuneration of key management personnel
Key terms of employment contracts

Key Management Personnel

The directors and other key management personnel of the consolidated entity during or since the end of the financial year were:

Non-executive Directors

M. Fitzpatrick Chairman, Non-executive Director P. Kennedy Non-executive Director R. Hayes Non-executive Director M. Donnelly Non-executive Director Executive Officers A. McGill Managing Director (appointed 30 August 2013) & Chief Executive Officer J. Ferragina Chief Financial Officer & Company Secretary

Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year.

Remuneration Philosophy

The performance of the Company depends upon the quality of its Directors and Executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and Executives.

To this end, the Company embodies the following principles in its remuneration framework:

Provide competitive rewards to attract high calibre executives;
Link executive rewards to shareholder value; and
Significant portion of Executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks.

Remuneration Committee

The Remuneration Committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for the Directors and the Executive Team. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team.

Remuneration Structure

In accordance with best practice corporate governance, the structure of Non-executive Director and Executive remuneration is separate and distinct.

Annual Report 2014

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Directors’ Report

continued

Non-executive Director Remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest caliber, whilst incurring a cost which is acceptable to shareholders.

Structure

In accordance with the ASX Listing Rules the aggregate remuneration of Non-executive Directors is determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The latest determination was at the General Meeting held on 15 November 2006 when shareholders approved an aggregate remuneration of $650,000 per year for services of Directors as directors of the Company and its subsidiaries.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. Non-executive Directors do not receive performance-based bonuses from Treasury Group Ltd.

Executive Remuneration

Objective

The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to:

Reward executives for company, business unit and individual performance targets set by reference to appropriate benchmarks;
Align the interests of executives with those of shareholders;
Link reward with the strategic goals and performance of the Company; and
Ensure total remuneration is competitive by market standards.

Structure

Remuneration consists of the following key elements:

Fixed Remuneration
Variable Remuneration
Short Term Incentive (STI); and
Long Term Incentive (LTI)

The proportion of fixed remuneration and variable remuneration is established by the Remuneration Committee.

Fixed Remuneration

Objective

The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.

Fixed remuneration is reviewed annually by the Remuneration Committee and the process consists of a review of performance, relevant comparative remuneration in the market and advice on policies and practices.

Variable Remuneration – Short Term Incentive (STI)

Objective

The objective of the STI plan is to link the achievement of the Company’s operational targets with the remuneration received by the Executives charged with meeting those targets. The STI is fully discretionary in the hands of the Remuneration Committee. The Remuneration Committee receives a recommendation from the Chief Executive Officer (CEO) on executive performance. The CEO bases his report on a number of tailored Key Performance Indicators (KPI) for each Executive. The total potential STI available is set at a level so as to provide sufficient incentive to the Executive to achieve the operational targets such that the cost to the Company is reasonable.

Structure

The Board sets annual KPIs for the CEO against which performance is measured. The KPIs are based on financial targets, growth and business development targets as well as operational management.

The focus of the KPIs is to drive decision making in a manner that increases returns to shareholders in the short and longer term. The financial targets and heavily weighted in the STI calculation. The board also considers the general value add to the business and the company’s stakeholders through areas such as investor relations, deal origination and strategy.

22 23

Following are the CEO’s KPIs for 2015:

Achievement of EPS growth targets
Completion of targeted deal opportunities
Achievement of strategic plan milestones
Qualitative assessment of management of staff
Qualitative assessment of effectiveness of communications with market
Discretionary element

Variable Remuneration – Long Term Incentive (LTI)

Objective

The objective of the LTI plan is to reward Executives in a manner which aligns this element of remuneration with the creation of shareholder wealth. The awarding of the LTIs is fully discretionary in the hands of the Remuneration Committee and granted under the same governance process as detailed for STI’s above.

Structure

LTI grants are delivered in the form of performance rights/options or shares and are subject to service conditions and performance target measures over a three-year period.

Performance rights

A long term incentive plan is currently being considered for the CEO and CFO following the expiry of performance rights on 12 July 2014. As part of the completion of the merger with Northern Lights which is estimated to be completed by the end of October, the Remuneration Committee will undertake a full review the remuneration structure of KMP of the combined group, including the CEO and CFO. It is expected that if a LTI scheme is included, it will consist of TRG performance rights. The vesting structure and competitor group against which performance is measured will reflect the post transaction structure of the group.

Between 2012 and 2013, the Company granted performance rights to other employees as part of their long term incentives. The performance rights have been split into two equal tranches and each tranche is subject to different total shareholder return (TSR) performance hurdles. TSR measures the return to a shareholder over the Performance period in terms of changes in the market value of the shares plus the value of any dividends paid on the shares. Each TSR hurdle compares the TSR performance of Treasury Group with the TSR performance of each of the entities in a comparator group described below: Tranche 1 – S & P ASX 300 comparator Group

50% of the performance rights are subject to the TSR hurdle that compares the TSR performance of Treasury Group at the end of the performance period with the growth in TSR over the same period of the S&P ASX 300 companies.

Tranche 2 – selected comparator group

50% of the performance rights will be subject to a TSR hurdle that compares the TSR performance of Treasury Group at the end of the performance period with the growth in TSR over the same period of a selected comparator group of companies. Each company in the comparator group is weighted equally. The comparator group comprises:

BT Investment Management Ltd
Perpetual Limited
K2 Asset Management Holdings Limited
Hunter Hall International Limited
Platinum Asset Management Limited
Magellan Financial Group
IOOF Holdings Limited

The percentage of performance rights which vest (if any) will be determined by the Board in reference to the percentile ranking achieved by the company over the performance period compared to the comparator group applying under the relevant TSR hurdle for the tranche:

TSR growth – percentile ranking


TSR growth – percentile ranking	Performance rights that vest (%)
75th percentile or above	100%
Between 50th and 75th percentile	Progressive pro rata vesting from 50% at 2% for every one
	percentile increase above the 50th percentile
50th percentile	50%
Below 50th percentile	Nil

Upon vesting of the performance rights a share is allocated for each performance right. The shares will rank equally and have the same voting rights and dividend eligibility as other ordinary shares in the company.

Annual Report 2014

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Directors’ Report

continued

Lapse of Performance Rights

Performance rights lapse to the extent that performance conditions are not satisfied. These include:

Cessation of employment before the end of the vesting period
Contravention of dealing restrictions
Acting dishonestly or fraudulently

Change of Control

Generally in the event of a change of control whether through takeover, scheme of arrangement or any other transaction that the Board determines is likely to result in a change of control, the performance rights may vest at the Board’s discretion.

Relationship Between The Remuneration Policy and Company Performance

The table below set out summary information about the Group’s earnings and movements in shareholder wealth for the five years to 30 June 2014. Bonuses are paid on individual and Company performance. The Remuneration Committee has ultimate discretion in determining the amount of bonus pool:

ultimate discretion in determining the amount of bonus pool:
2014	2013	2012	2011	2010
$	$	$	$	$
Revenue 2,323,656	4,303,143	3,944,594	4,492,981	5,601,816
Net profit before tax 15,187,652	10,803,395	6,415,796	9,889,480	11,491,620
Net profit after tax 13,061,814	10,390,514	6,751,757	10,005,104	11,676,131
Share price at start of year ($) 7.07	4.09	3.96	5.06	4.11
Share price at end of year ($) 9.57	7.07	4.09	3.96	5.06
Interim dividend (cps)¹ 23	17	14	14	12
Final dividend (cps)¹ 27²	23	20	20	14
EPS 56.6	45.0	29.3	43.4	50.6
Diluted EPS 55.0	45.0	29.3	43.4	50.6
KMP bonuses ($) 629,500	539,200	502,166	992,443	1,421,527

1 Franked to 100% at 30% corporate income tax rate.
2 Declared on 5 August 2014 and has not been provided for in the 30 June 2014 financial statements.

24 25

Remuneration of Key Management Personnel

Details of the nature and amount of each element of the remuneration of each Director of the Company and each of the key management personnel of the Company and the consolidated entity for the financial year are as follows:

	Short term Post employment Share based payments Other Total Performance related
	Salary & fees $ Cash Bonus $ Super- annuation $ Shares $ Options/ Performance rights¹ $ Others $ $
Non-executive Directors M. Fitzpatrick – Chairman
2014 114,679 – 10,608 – – – 125,287 –
2013 114,679 – 10,321 – – – 125,000 – P. Kennedy – Non-executive Director
2014 120,000 – – – – – 120,000 –
2013 120,000 – – – – – 120,000 – R. Hayes – Non-executive Director
2014 68,807 – 6,365 – – – 75,172 –
2013 80,275 – 7,225 – – – 87,500 – M. Donnelly – Non-executive Director
2014 68,632 – 6,348 – – – 74,980 –
2013 55,046 – 4,954 – – – 60,000 – Executives Officers A. McGill – Managing Director (appointed 30 August 2013) & Chief Executive Officer
2014 425,575 373,500 17,775 – 273,333 – 1,090,183 34%
2013 406,850 360,000 16,470 – 273,333 – 1,056,653 34% J. Ferragina – Chief Financial Officer
2014 302,225 256,000 17,775 – 76,533 – 652,533 39%
2013 303,530 179,200 16,470 – 76,533 – 575,733 31% Total remuneration: Key Management Personnel
2014 1,099,918 629,500 58,871 – 349,866 – 2,138,155 27%
2013 1,080,380 539,200 55,440 – 349,866 – 2,024,886 27%

1 Refer to Note 22 for the vesting conditions of options and performance rights granted to Executives.

The value of performance rights granted to key management personnel as part of their remuneration were valued based on the valuation made by RSM Bird Cameron using a hybrid monte-carlo/binomial option pricing model on the performance rights that were issued on 11 July 2011. The amounts disclosed as part of remuneration for the financial year have been determined by allocating the grant date value on a straight line basis over the period from grant date to vesting date. Of the 640,000 performance rights granted on 11 July 2011 to key management personnel, 96% vested on 12 July 2014. As a result, 614,400 Treasury Group Ltd shares were allocated to key management personnel.

The relative proportions of those elements of remuneration of key management personnel that are linked to performance:

Executives	Maximum potential of bonus based on fixed remuneration Actual bonus based on fixed remuneration linked toperformance2
	2014 2013 2014 2013
A. McGill J. Ferragina	100% 100% 83% 80% 80% 80% 80% 56%

2 KMP bonuses are paid in two instalments being 50% on August and 50% on June the following year. Only the 50% payable on August is provided for as at 30 June 2014.

No key management personnel appointed during the period received a payment as part of his consideration for agreeing to hold the position.

Annual Report 2014

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Directors’ Report

continued

Bonuses and Share-Based Payments Granted As A Compensation for The Current Financial Year

Cash Bonuses

No other cash bonuses were granted during 2014.

Employee Share Option Plan

A Long Term Incentive Plan has been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests.

Each employee performance rights converts into one ordinary share of Treasury Group Ltd on vesting date. No amounts are paid or payable by the recipient of the performance rights on vesting date. The performance rights carry neither rights to dividends nor voting rights.

The number of performance rights granted is calculated in accordance with the performance-based formula approved by the Remuneration Committee.

The performance rights vest after three years from grant date.

Details of share-based payments/performance rights granted as compensation to key management personnel during the current financial year:

the current fnancial year:
	Duringthe financialyear
	Option series Numbers granted Numbers vested % of grant vested % of grant forfeited % of compensation for the year consisting of performance rights
Executive Officers A. McGill J. Ferragina	– – – – – – – – – – – –

At the date of this report, the performance rights of the following key management personnel that were granted to them as part of their compensation have vested. The performance rights that have vested have been converted into one ordinary share of Treasury Group Ltd in accordance with the LTI plan rules.

			No. of
			ordinary
			shares of
		Performance	Treasury
	Performance	rights that	Group Ltd		Value
	rights	vest	issued	Value vested	unvested
Executive Officers
A.McGill	500,000	96%	480,000	4,660,800	194,200
J. Ferragina	140,000	96%	134,400	1,305,024	54,376

The following table summarises the value of performance rights granted, vested or lapsed as at the date of this report, in relation to performance rights granted to key management personnel as part of their remuneration:

	Value of	Value of	Value of
	performance	shares vested	performance
	rights	through	rights lapsed
	granted at the	performance	at the date of
	grant date¹	rights²	lapsed
Executive Officers
A.McGill	–	4,660,800	194,200
J. Ferragina	–	1,305,024	54,376

1 The value of performance rights granted to key management personnel as part of their remuneration is calculated as at the grant date using a hybrid monte-carlo/binomial option pricing model prepared by RSM Bird Cameron. The amounts disclosed as part of remuneration for the financial year have been determined by allocating the grant date value on a straight line basis over the period from grant date to vesting date.

2 The value of performance rights vested during the date of this report is calculated as at the vesting date.

26 27

Key Terms of Employment Contracts

The Chief Executive Officer, Mr Andrew McGill, is employed under contract. His employment contract commenced on 12 July 2011 with a base salary package of $450,000 (gross including superannuation) and has no predetermined termination date. Under the terms of the contract, Mr McGill or Treasury Group may terminate the contract giving six months written notice with no termination benefits.

As a long term incentive, Mr McGill was awarded 500,000 performance rights on 12 July 2011 with each right at the time of grant representing one Treasury Group Ltd share if it vests. The performance rights have been split in two equal tranches and each tranche is subject to different total shareholder return (TSR) performance hurdles over a three-year period. Vesting conditions are subject to performance hurdles which are discussed earlier in this report. On 12 July 2014, these performance rights have vested at 96%. Accordingly, Mr. McGill was allocated 480,000 Treasury Group shares. Mr McGill is also eligible for a short term incentive based on a number of clearly defined Key Performance Indicators. The short term incentive is for up to 100% of base salary and paid in two equal instalments over a two year period.

The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr McGill is only entitled to that portion of remuneration which is fixed, and only up to the date of termination. On termination with cause, any unvested performance rights will immediately be forfeited.

Where employment is terminated with notice, no further payments will be paid by the Company except unpaid salary accrued to the date of termination and accrued annual leave. Where employment is terminated with notice, deferred short term incentives will also be paid. However, the Board retains the discretion to determine that some or all unvested performance rights vest or lapse with effect from or after the cessation date.

The Chief Financial Officer, Mr Ferragina, is employed under contract. The current employment contract has no predetermined termination date. Under the terms of the contract Mr Ferragina may terminate the contract by giving three months written notice with no termination benefits.

As a long term incentive, Mr Ferragina was awarded 140,000 performance rights on 12 July 2011 with each right at the time of grant representing one Treasury Group Ltd share if it vests. The performance rights have been split in two equal tranches and each tranche is subject to different total shareholder return (TSR) performance hurdles over a three-year period. Vesting conditions are subject to the same performance hurdles as discussed earlier in this report. On 12 July 2014, these performance rights have vested at 96%. Accordingly, Mr. Ferragina was allocated 134,400 Treasury Group shares.

Key Management Personnel Equity Holdings

Fully paid ordinary shares of Treasury Group Ltd

					Balance
					held
			Received on		nominally
			vesting of		(As at the
	Balance	Granted as	performance	Net change	date of this
30 June 2014	1 July 2013	remuneration	rights/options	other #	report)
Non-executive Directors
M. Fitzpatrick	2,701,285	–	–	–	2,701,285
P. Kennedy	213,487	–	–	–	213,487
R. Hayes	–	–	–	–	–
M. Donnelly	–	–	–	20,000	20,000
Executives
A. McGill	50,000	–	480,000	480,000	530,000
J. Ferragina	22,404	–	134,400	118,996	141,400

Annual Report 2014

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Directors’ Report

continued

Key Management Personnel Equity Holdings

Fully paid ordinary shares of Treasury Group Ltd

			Received on
			vesting of		Balance
	Balance	Granted as	performance	Net change	held
30 June 2013	1 July 2012	remuneration	rights/options	other #	nominally
Directors
M. Fitzpatrick	2,701,285	–	–	–	2,701,285
P. Kennedy	211,200	–	–	2,287	213,487
R. Hayes	–	–	–	–	–
M. Donnelly	–	–	–	–	–
Executives
A. McGill	50,000	–	–	–	50,000
J. Ferragina	22,404	–	–	–	22,404

Performance rights of Treasury Group Ltd

			Received on						Performance
			vesting of			Balance	Vested		rights vested
	Balance	Granted as	performance	Net change	Balance	Vested	but not	Vested and	as at the date
	at 1 July	compensation	rights/options	other #	At 30 June	at 30 June	exercisable	exercisable	of this report
30 June 2014	No.	No.	No.	No.	No.	No.	No.	No.	No.
A. McGill	500,000	–	–	–	500,000	–	–	480,000	480,000
J. Ferragina	140,000	–	–	–	140,000	–	–	134,400	134,400
30 June 2013
A. McGill	500,000	–	–	–	500,000	–	–	–	–
J. Ferragina	140,000	–	–	–	140,000	–	–	–	–

Directors’ Meetings

The number of meetings of Directors (including meetings of Committees of Directors) held during the year and the number of meetings attended by each Director were as follows:

	Directors Meetings Audit Committee Meetings Remuneration Committee Meetings Nomination Committee Meeting
	Meetings eligible to attend Meetings Attended Meetings eligible to attend Meetings Attended Meetings eligible to attend Meetings Attended Meeting eligible to attend Meeting Attended
M. Fitzpatrick A. McGill* P. Kennedy R. Hayes M. Donnelly	11 11 4 4 3 3 1 1 8 8 11 11 4 4 3 3 11 11 4 4 3 3 11 11 3 3 0 0 1 1

Mr McGill was not a Director for the full year.

28 29

Committee Membership

As at the date of this report, the Company had an Audit Committee, a Remuneration Committee and a Nomination Committee of the Board of Directors.

Members acting on the Committees of the Board during the year were:

Audit	Remuneration	Nomination
P. Kennedy (Chairman)	R. Hayes (Chairman)	M. Donnelly (Chairperson)
M. Fitzpatrick	M. Fitzpatrick	M. Fitzpatrick
R. Hayes	P. Kennedy
M. Donnelly

Tax Consolidation

Effective 1 July 2003, for the purposes of income taxation, Treasury Group Ltd and its 100% owned entities have formed a tax consolidated group.

Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Treasury Group Ltd support the Principles of Corporate Governance. The Company’s Corporate Governance Statement is contained in the following section of this annual report.

Environmental Regulation and Performance

The Group’s operations are not presently subject to significant environmental regulation under the law of the Commonwealth and State.

Non-Audit Services

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.

Auditor Independence

The Directors received an independence declaration from the auditors of Treasury Group Ltd. A copy of the declaration is set out on page 30.

Signed in accordance with a resolution of the Directors.

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M. Fitzpatrick Chairman 20 August 2014

Annual Report 2014

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Auditor’s Independence Declaration

To the Directors of Treasury Group Ltd

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30 31

Corporate Governance Statement

The ASX Corporate Governance Council has published Corporate Governance Principles and Recommendations (“ASX Principles”) on what it considers to be best practice in conducting the business of a listed company. The ASX Listing Rules require companies to disclose their compliance with the guidelines on an “if not, why not” basis in their annual report to shareholders.

The Guidelines are set out recommended practice in the form of eight principles

Lay solid foundations for management and oversight
Structure the Board to add value
Promote ethical and responsible decision making
Safeguard integrity in financial reporting
Make timely and balanced disclosure
Respect the rights of shareholders
Recognise and manage risk
Remunerate fairly and responsibly

Treasury Group Ltd’s (the Company) adherence to each of these principles, together with details of the policies adopted by the Board to ensure compliance is described on a principle by principle basis below.

In accordance with the ASX Principles the Company has posted copies of its governance policies, charters and procedures on its website www.treasurygroup.com

Principle 1: Lay Solid Foundations for Management and Oversight

The Board’s role is to govern the Company rather than to manage it. The Board recognises the importance of clearly delineating between its roles and the roles of management, and has adopted a formal statement of matters reserved to itself and a list of delegations to management. It is the responsibility of the Board to oversee the activities of management in carrying out these delegated duties.

In carrying out its governance role, the main task of the Board is to drive the performance of the Company. The Board must also ensure that the Company complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. The Board is accountable to shareholders for the successful operations of the Company.

Full details of the Board’s role and responsibilities are contained in the Board Charter, a copy of which is contained in the Corporate Governance section on the Company’s website.

Role of Senior Executives

It is the role of senior executives to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of senior executives in carrying out these delegated duties. The Board conducts an annual review of the performance of senior executives against pre-determined qualitative and quantitative key performance indicators. Senior executives undergo an induction programme to gain an understanding of the Company’s financial position, its strategies, operations and risk management policies as well as the rights, duties, responsibilities and roles of the Board and senior executives.

Principle 2: Structure the Board to Add Value

The Board considers independent decision-making as critical to effective governance, and the Company recognises the importance of independent directors and the external perspective and advice that they can offer. The names of the Directors and their qualifications and experience are included in the profiles in the Directors Report, along with the term of office held by each of the Directors.

The Board is made up primarily of Non-executive Directors with a majority of independent directors as recommended by the ASX Principles. Mr Kennedy, Mr Hayes and Ms Donnelly are Non-executive Directors, and meet the ASX Principles’ criteria for independence.

Mr Fitzpatrick is a Non-executive Director and Chairman of the Company, but is a major shareholder of the Company and as such he does not meet the ASX Principles’ criteria for independence. However, his experience and knowledge of the Company make his contribution to the Board such that it is appropriate for him to remain as Chairman of the Board. The Board size is considered appropriate for the size of the Company’s operations.

The Company’s Managing Director and Chief Executive Officer is Mr Andrew McGill. The Company’s Chairman and CEO have separate roles. The division of responsibilities between the Chairman and the CEO are set out in the Board charter. All Directors bring an independent judgment to bear in Board deliberations.

The Board established a Nomination Committee in 2004, to help achieve a structured Board that adds value to the Company by ensuring an appropriate mix of skills are present in Directors on the Board at all times.

Annual Report 2014

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Corporate Governance Statement

continued

During the financial year, the members of the Nomination Committee were Ms Donnelly (Chairperson) and Mr Fitzpatrick. Mr Hayes resigned as a member of the Nomination Committee during the year. Whilst the ASX principles recommend three members for a Nomination Committee given the size of the Company and the Board, the Board has decided that two committee members is sufficient.

The Nomination Committee’s charter and a description of the process for selection and appointment of new directors are available on the Company’s website.

The Board Charter provides for the undertaking of annual Board and Committee performance evaluation. The objective of this evaluation is to provide best practice Corporate Governance to the Company. During the reporting period the Chairman met with individual Directors to discuss their performance.

The Nomination Committee is responsible for making recommendations for the appointment and removal of Directors. During the reporting period the Committee recommended Mr McGill be appointed to the Board as Managing Director & CEO.

In order to achieve continuing improvement in Board performance, all Directors are able to undergo continual professional development. Specifically, Directors are provided with the resources and training to address skills gaps where they are identified.

New Directors undergo an induction process in which they are given a full briefing on the Company. Where possible, this includes meetings with key executives, tours of the premises, an induction package and presentations. Information conveyed to new directors includes:

details of the role and responsibilities of a director;
formal policies on director appointment as well as conduct and contribution expectations;
details of all relevant legal requirements;
access to a copy of the Board and Committee Charters;
guidelines on how the Board processes function;
details of past, recent and likely future developments relating to the Board;
background information on and contact information for key people in the organisation;
an analysis of the Company;
a synopsis of the current strategic direction of the Company including a copy of the current strategic plan and annual budget; and
a copy of the Constitution of the Company.

Each Director has the right of access to all Company information and to the Company’s executives. The Board collectively and each Director, subject to informing the Chairman, has the right to seek independent professional advice from a suitably qualified advisor, at the Company’s expense, up to specified limits, to assist them to carry out their responsibilities. Where appropriate, a copy of this advice is to be made available to all other members of the Board.

Principle 3: Promote Ethical and Responsible Decision-Making

To ensure that the Company maintains the highest standards of integrity, honesty and fairness in its dealings with all stakeholders, the Board has established a formal Code of Conduct for management and employees and also a Code of Ethical Conduct for the Board. These Codes act as a guide for compliance with legal and other obligations that the Company has to stakeholders which include customers, clients, government authorities, creditors, employees and the community as whole. These Codes govern all the Company’s commercial operations and the conduct of the Board, employees, consultants, contactors, advisors and all other people when they represent the Company.

These Codes also outline the responsibility and accountability of individuals for reporting and investigating unethical practices and can be viewed in the Corporate Governance section on the Company’s website.

The Company has a Securities Trading Policy under which Directors and employees and their associates may only trade in the Company’s securities during specific period trading windows. This policy can be viewed in the Corporate Governance section of the Company’s website.

The Board has a Diversity Policy. The Board’s measurable objectives for achieving gender diversity are:

a minimum of one female Director;
at least 20% of senior executives to be female; and
at least 35% of managers to be female.

32 33

Currently the proportion of women at different levels within the organisation is as follows:

	Total	Female	%
Board	5	1	20%
Senior Executives	3	0	–
Managers	6	3	50%
Employees	7	3	43%

The representation of women across the organisation as a whole is 33%.

Principle 4: Safeguard Integrity in Financial Reporting

The Board established an Audit Committee in 2004. The Audit Committee has a formal charter, which can be found in the Corporate Governance section of the Company’s website.

The Audit Committee comprises of four non-executive directors, three of whom are independent, and the Committee is also chaired by an independent director. During the year under review, the members of the Audit Committee were Mr Kennedy (Chairman), Mr Fitzpatrick, Mr Hayes and Ms Donnelly (appointed 21 August 2014). Whilst Mr Fitzpatrick is not independent, the Company believes that the Committee structure is adequate to perform its duties independently. All members can critically evaluate financial statements and are financially literate. Mr Kennedy, the Chairman, has a commerce background with experience in financial and accounting matters. Details of members’ qualifications may be found in the director profiles in the Directors’ Report.

The Audit Committee held four meetings for the year and details of attendance of the members of the Audit Committee are contained in the Directors’ Report.

Information on procedures for the selection and appointment of the external auditor and for the rotation of external audit engagement partners may be found in the Corporate Governance section of the Company’s website.

Principle 5: Make Timely and Balanced Disclosure

The Board has established a Continuous Disclosure Policy for ensuring compliance with the ASX Listing Rule disclosure requirements. This policy is located in the Corporate Governance section of the Company’s website.

The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules , the Company immediately notifies the ASX of information:

concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and
that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company’s securities.

Upon confirmation of receipt from the ASX, the Company posts all information disclosed in accordance with this policy on the Company’s website in an area accessible by the public.

To enhance clarity and balance of reporting and to enable investors to make an informed assessment of the Company’s performance, financial results are accompanied by a commentary.

Details of payments to executives for the 2013/14 financial year are disclosed in the Directors’ Report. Core entitlements of any new executives will be disclosed at the time when they are agreed as well as at the time the actual payment is made.

Principle 6: Respect the Rights of Shareholders

The Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to:

communicating effectively with shareholders through releases to the market via ASX, the Company’s website, information mailed to shareholders and the general meetings of the Company;
giving shareholders ready access to balanced and understandable information about the Company and corporate proposals;
making it easy for shareholders to participate in general meetings of the Company; and
requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

The Shareholder Communications Policy is published on the Company’s website in its Corporate Governance section.

Annual Report 2014

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Corporate Governance Statement

continued

Principle 7: Recognise and Manage Risk

The Board’s Charter clearly establishes that it is responsible for ensuring that there is a sound system for overseeing and managing risk. The Audit Committee is also responsible for establishing policies on risk oversight and management. A summary of the Company’s Risk Management and internal compliance and control system is available on the Company’s website in its Corporate Governance section.

Due to the size and scale of operations of the Company, there is no separate internal audit function or Risk Management Committee.

In accordance with Recommendation 7.3 of the ASX Principles , the CEO and CFO have stated in writing to the Board: “That

the statement given in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and
the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects in relation to financial reporting risks.”

The Company’s Risk and Compliance Services team has designed and implemented a risk management and internal control system to manage Treasury Group’s material business risks. Risk is managed on an enterprise wide basis, with risks being reviewed across the whole group of companies, as well as risks arising from key stakeholder relationships and external events.

The Company has an on-line governance, risk and compliance software system which allows material business risks to be linked to mitigating controls so that the performance of Treasury Group’s enterprise risk and compliance programs can be monitored continuously.

Management provides monthly board reports on the effectiveness of managing the Company’s business risks.

Principle 8: Remunerate Fairly and Responsibly

The Board has established a Remuneration Committee to assist the Board in making appropriate decisions about incentive schemes and superannuation arrangements. The role of the Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees.

Mr Kennedy, Mr Fitzpatrick and Mr Hayes are the current members of the Remuneration Committee. Mr Hayes, the Chairman of the Remuneration Committee is an Independent Director. Ms Donnelly was a member of the Remuneration Committee from 17 July 2013 until her resignation from the Committee on 21 August 2013.

The Remuneration Committee has a formal charter which is available on the website of the Company in the Corporate Governance Section.

The Board have endorsed the following Senior Executive Remuneration Policy and the Non-executive Director Remuneration Policy.

Senior Executive Remuneration Policy

The Company is committed to remunerating its senior executives in a manner that is market-competitive and consistent with best practice as well as supporting the interests of shareholders. Consequently, under the Senior Executive Remuneration Policy the remuneration of senior executives may be comprised of the following:

fixed salary that is determined from a review of the market and reflects core performance requirements and expectations;
– a performance bonus designed to reward actual achievement by the individual of performance objectives and for materially improved Company performance;
participation in Treasury Group Long Term Incentive Plan (LTI Plan) and
statutory superannuation.

By remunerating Senior Executives through performance and long-term incentive plans in addition to their fixed remuneration, the Company aims to align the interests of senior executives with those of shareholders and enhance Company performance. The amount of remuneration, including both monetary and non-monetary components, for each of the Key Management Personnel during the year (discounting accumulated entitlements) is detailed in the Directors’ Report.

The value of shares, performance rights and options granted to Senior Executives has been calculated using the Binomial method.

34 35

The objective behind using this remuneration structure is to drive improved Company performance and thereby increase shareholder value as well as aligning the interests of executives and shareholders.

The Board may use its discretion with respect to the payment of bonuses, stock options and other incentive payments. This discretion is exercised on the following basis:

Retentions and motivation of key executives;
Attraction of quality management to the Company; and
Performance incentives which allow executives to share the rewards of the success of the Company.

The Treasury Group LTI Plan had been approved by shareholders in which executives may participate. The number of shares and performance rights issued under the plan are reasonable in relation to the existing capitalisation of the Company and all payments under the plan are made in accordance with thresholds set in plans approved by shareholders.

Non-executive Director Remuneration Policy

Non-executive Directors are paid their fees out of the maximum aggregate amount approved by shareholders for the remuneration of Non-executive Directors. Non-executive Directors do not receive performance based bonuses and do not participate in the option scheme of the Company. Non-executive Directors are entitled to statutory superannuation.

The payment to Directors is based on a workload criterion. Consequently, all Non-executive Directors, except the Chairman receive a fixed amount plus a load for Committee Membership and Committee chairing. The Chairman receives an extra loading given the duties and extra time associated with the position.

Current Director Remuneration

The aggregate amount of remuneration paid to Non-executive Directors is approved by shareholders and is currently $650,000.

Further information in relation to the remuneration of Directors can be found in the Directors’ Report.

Annual Report 2014

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Income Statement

for the year ended 30 June 2014

Notes	Consolidated
	2014 $ 2013 $
Revenues 5(a) Gain/(loss) on investments 5(b) Salaries and employee benefits expenses 5(c) Other expenses 5(c) Share of net profits of equity accounted investments 12(e)	2,323,656 4,303,143 845,156 (403,703) (4,466,383) (4,517,723) (3,286,577) (3,628,471) 19,771,800 15,050,149
Profit before income tax Income tax expense 6(c)	15,187,652 10,803,395 (2,109,758) (399,156)
Profit for the year	13,077,894 10,404,239
Attributable to: Non-controlling interest	16,080 13,725
Members of the parent 19(e)	13,061,814 10,390,514
Earnings per share (cents per share) – basic for proft for the year attributable to ordinary equity holders of the parent 24 – diluted for proft for the year attributable to ordinary equity holders of the parent 24 Franked dividends paid per share (cents per share) for the financial year 7(b)	56.6 45.0 56.6 45.0 46 37

The above income statement should be read in conjunction with the accompanying notes.

36 37

Statement of Comprehensive Income

for the year ended 30 June 2014

	Consolidated
	2014 $ 2013 $
Profit for the year Other Comprehensive Income Items that may be reclassified to profit and loss Net unrealised (losses)/gains on available-for-sale investments taken to equity Income tax relating to items reclassified Share of after-tax gain on available-for-sale investments of an associate	13,077,894 10,404,239 (213,894) 1,301,512 64,169 (390,452) (13,250) 8,445
Other comprehensive (loss)/income for the year (net of tax)	(162,975) 919,505
Total comprehensive income for the year	12,914,919 11,323,744
Attributable to: Non-controlling interest Members of the parent	16,080 13,725 12,898,839 11,310,019

The above statement of comprehensive income should be read in conjunction with the accompanying notes.

Annual Report 2014

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Statement of Financial Position

as at 30 June 2014

Notes	Consolidated
	2014 $ 2013 $
Current assets Cash and cash equivalents 8(a) Trade and other receivables 9 Other assets	12,860,219 12,116,947 11,117,179 7,578,686 1,093,163 175,232
Total current assets	25,070,561 19,870,865
Non-current assets Trade and other receivables 9 Available-for-sale investments 10 Loans and other receivables 11 Deferred tax 6(d) Investments accounted for using the equity method 12(b) Plant and equipment 13 Intangibles 14 Goodwill 15	833,073 723,958 11,005,105 9,893,255 4,797,624 3,629,539 781,881 2,760,114 29,242,193 30,633,054 61,447 70,270 12,540 18,440 – 252,764
Total non-current assets	46,733,863 47,981,394
Total assets	71,804,424 67,852,259
Current liabilities Trade and other payables 16 Provisions 17 Financial liability 18	7,671,969 5,861,982 221,903 213,202 – 600,000
Total current liabilities	7,893,872 6,675,184
Non-current liabilities Provisions 17	135,882 99,650
Total non-current liabilities	135,882 99,650
Total liabilities	8,029,754 6,774,834
Net assets	63,774,670 61,077,425
Equity Equity attributable to equity holders of the parent Contributed equity 19(a) Reserves 19(f) Retained profits 19(e) Non-controlling interest	29,594,265 29,594,265 4,088,120 3,823,945 30,092,285 27,643,019 – 16,196
Total equity	63,774,670 61,077,425

The above statement of financial position should be read in conjunction with the accompanying notes.

38 39

Statement of Changes in Equity

for the year ended 30 June 2014

Note	Consolidated
	Ordinary shares $ Share options reserve $ Net unrealised gains reserve $ Retained earnings $ Non- controlling interest $ Total $
As at 1 July 2013 Total comprehensive income for the year Share-based payments Share bought back for non-controlling interest Dividends paid 7(b)	29,594,265 3,447,286 376,659 27,643,019 16,196 61,077,425 – – (162,975) 13,061,814 16,080 12,914,919 – 427,150 – – – 427,150 – – – – (32,276) (32,276) – – – (10,612,548) – (10,612,548)
At 30 June 2014	29,594,265 3,874,436 213,684 30,092,285 – 63,774,670

The above statement of changes in equity should be read in conjunction with the accompanying notes.

Note	Consolidated
	Ordinary shares $ Share options reserve $ Net unrealised gains reserve $ Retained earnings $ Non- controlling interest $ Total $
As at 1 July 2012 Total comprehensive income for the year Share-based payments Dividends paid 7(b)	29,594,265 3,073,807 (542,846) 25,788,684 2,471 57,916,381 – – 919,505 10,390,514 13,725 11,323,744 – 373,479 – – – 373,479 – – – (8,536,179) – (8,536,179)
At 30 June 2013	29,594,265 3,447,286 376,659 27,643,019 16,196 61,077,425

The above statement of changes in equity should be read in conjunction with the accompanying notes.

Annual Report 2014

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Statement of Cash Flows

for the year ended 30 June 2014

Notes	Consolidated
	2014 $ 2013 $
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends and distributions received Interest received	20,675,949 20,005,673 (27,016,738) (23,173,780) 17,885,459 13,507,057 615,407 570,870
Net cash flows from operating activities 8(b)	12,160,077 10,909,820
Cash flows from investing activities Proceeds from disposal of available-for-sale investments Purchase of available-for-sale investments Repayment of loans by associates Advances to associates Advances to other related party Proceeds from disposal of investment accounted for under the equity method Purchase of investment accounted for under the equity method Purchase of plant and equipment Purchase of intangible assets	3,281,492 7,562,073 (2,300,000) (6,121,318) 1,889,028 343,750 (2,450,000) – (600,000) – 235,960 – (811,420) (225,395) (15,224) (10,609) (1,817) –
Net cash flows (used in)/from investing activities	(771,981) 1,548,501
Cash flows from financing activities Shares bought back for non-controlling interest Equity dividends paid on ordinary shares	(32,276) – (10,612,548) (8,536,179)
Net cash flows (used in) financing activities	(10,644,824) (8,536,179)
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year	743,272 3,922,142 12,116,947 8,194,805
Cash and cash equivalents at end of year 8(a)	12,860,219 12,116,947

The above statement of cash flows should be read in conjunction with the accompanying notes.

40 41

Notes to the Financial Statements

for the year ended 30 June 2014

1. Corporate Information

The financial report of Treasury Group Ltd (the ‘Company’ or the ‘Group’) for the year ended 30 June 2014 was authorised for issue in accordance with a resolution of the Directors on 20 August 2014.

Treasury Group Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX).

The nature of operations and principal activities of the Group are disclosed in the Directors’ Report.

2. Summary of Significant Accounting Policies

a. Basis of Preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 , Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for financial assets held at fair value through profit and loss, and available-for-sale investments, which have been measured at fair value.

The financial report is presented in Australian dollars.

Treasury Group Ltd is a for-profit entity.

b. Compliance with IFRS

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

The following new and revised Standards and Interpretations have been adopted in the current year and have affected the amounts reported in these financial statements.

Standards affecting presentation and disclosure

Standard/Interpretation	Summary
AASB 2011-4 ‘Amendments	This standard removes the individual key management personnel disclosure requirements
to Australian Accounting	in AASB 124 ‘Related Party Disclosures’.
Standards to Remove Individual Key Management Personnel Disclosure	As a result the Group only discloses the key management personnel compensation and for each of the categories required in AASB 124.
Requirements’	In the current year the individual key management personnel disclosure previously
	required by AASB 124 is now disclosed in the remuneration report due to an amendment
	to Corporations Regulations 2001 issued in June 2013.
AASB 10 ‘Consolidated	AASB 10 replaces the parts of AASB 127 Consolidated and Separate Financial
Financial Statements’ and	Statements’ that deal with consolidated financial statements and Interpretation 112
AASB 2011-7 ‘Amendments to	‘Consolidation – Special Purpose Entities’. AASB 10 changes the definition of control
Australian Accounting	such that an investor controls an investee when a) it has power over an investee, b) it is
Standards arising from the	exposed, or has rights, to variable returns from its involvement with the investee, and c)
consolidation and Joint	has the ability to use its power to affect its returns. All three of these criteria must be met
Arrangements standards’	for an investor to have control over an investee. Previously, control was defined as the
	power to govern the financial and operating policies of an entity so as to obtain benefits
	from its activities. Additional guidance has been included in AASB 10 to explain when
	an investor has control over an investee. Some guidance included in AASB 10 that deals
	with whether or not an investor that owns less than 50 per cent of the voting rights in an
	investee has control over the investee is relevant to the Group.
	The Directors of the Company made an assessment as the date of the initial application
	of AASB 10 (i.e. 1 July 2013) as to whether or not the Group has control over associates
	accounted for under the new standard. The outcome of this assessment was that there
	was no change in control as a result of the application of AASB 10.

Annual Report 2014

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Notes to the Financial Statements

continued

2. Summary of Significant Accounting Policies (Cont.)

Standard/Interpretation Summary

AASB 11 ‘Joint Arrangements’ AASB 11 replaces AASB 131 ‘Interests in Joint Ventures’, and the guidance contained and AASB 2011-7 in a related interpretation, Interpretation 113 ‘Jointly Controlled Entities – Non-Monetary ‘Amendments to Australian Contributions by Venturers’, has been incorporated in AASB 128 (as revised in 2011). Accounting Standards arising AASB 11 deals with how a joint arrangement of which two or more parties have joint from the consolidation and control should be classified and accounted for. Under AASB 11, there are only two Joint Arrangements standards’ types of joint arrangements – joint operations and joint ventures. The classification of joint arrangements under AASB 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. Previously, AASB 131 contemplated three types of joint arrangements – jointly controlled entities, jointly controlled operations and jointly controlled assets. The classification of joint arrangements under AASB 131 was primarily determined based on the legal form of the arrangement (e.g. a joint arrangement that was established through a separate entity was accounted for as a jointly controlled entity).

The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures are accounted for using the equity method (proportionate consolidation is no longer allowed). Investments in joint operations are accounted for such that each joint operator recognises its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expenses incurred jointly). Each joint operator accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the joint operation in accordance with the applicable Standards.

The Directors of the Company have reviewed and assessed the Group’s investments for compliance with AASB 11 and noted no impact on the financial reporting of currently held investments.

AASB 12 ‘Disclosure of AASB 12 is a new disclosure standard and is applicable to entities that have interests in Interests in Other Entities’ and subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. AASB 2011-7 ‘Amendments to In general, the application of AASB 12 has resulted in more extensive disclosures in the Australian Accounting consolidated financial statements. The Directors have assessed the implementation of this Standards arising from requirement and accordingly, new disclosures on material associates have been included the consolidation and Joint in the consolidated financial statements. Arrangements standards’

42 43

Standard/Interpretation	Summary
AASB 13 ‘Fair Value	The Group has applied AASB 13 for the first time in the current year. AASB 13 establishes
Measurement’ and AASB	a single source of guidance for fair value measurements and disclosures about fair value
2011-8 ‘Amendments to	measurements. The scope of AASB 13 is broad; the fair value measurement requirements
Australian Accounting	of AASB 13 apply to both financial instrument items and non-financial instrument items
Standards arising from	for which other AASBs require or permit fair value measurements and disclosures about
AASB 13’	fair value measurements, except for share-based payment transactions that are within the
	scope of AASB 2 ‘Share-based Payment’, leasing transactions that are within the scope of
	AASB 117 ‘Leases’, and measurements that have some similarities to fair value but are not
	fair value (e.g. net realisable value for the purposes of measuring inventories or value in
	use for impairment assessment purposes).
	AASB 13 defines fair value as the price that would be received to sell an asset or paid to
	transfer a liability in an orderly transaction in the principal (or most advantageous) market
	at the measurement date under current market conditions. Fair value under AASB 13 is an
	exit price regardless of whether that price is directly observable or estimated using another
	valuation technique. Also, AASB 13 includes extensive disclosure requirements. AASB
	13 requires prospective application from 1 January 2013. In addition, specific transitional
	provisions were given to entities such that they need not apply the disclosure requirements
	set out in the Standard in comparative information provided for periods before the initial
	application of the Standard. In accordance with these transitional provisions, the Group
	has made any new disclosures required by AASB 13 for the 2013 comparative period.
AASB 119 ‘Employee Benefits’	In the current year, the Group has applied AASB 119 (as revised in 2011) ‘Employee
(2011) and AASB 2011-10	Benefits’ and the related consequential amendments for the first time. AASB 119
‘Amendments to Australian	(as revised in 2011) changes the accounting for defined benefit plans and
Accounting Standards arising	termination benefits.
from AASB 119 (2011)’	The most significant change relates to the accounting for changes in defined benefit
	obligations and plan assets. The amendments require the recognition of changes in
	defined benefit obligations and in the fair value of plan assets when they occur, and
	hence eliminate the ‘corridor approach’ permitted under the previous version of AASB 119
	and accelerate the recognition of past service costs. All actuarial gains and losses are
	recognised immediately through other comprehensive income in order for the net pension
	asset or liability recognised in the consolidated statement of financial position to reflect the
	full value of the plan deficit or surplus. Furthermore, the interest cost and expected return
	on plan assets used in the previous version of AASB 119 are replaced with a ‘net interest’
	amount under AASB 19 (as revised in 2011), which is calculated by applying the discount
	rate to the net defined benefit liability or asset.
	These changes have had no impact on the financial reporting of Treasury Group.
AASB 2012-2 ‘Amendments to	The Group has applied the amendments to AASB 7 “Disclosures – Offsetting Financial
Australian Accounting	Assets and Financial Liabilities’ for the first time in the current year. The amendments
Standards – Disclosures –	to AASB 7 require entities to disclose information about rights of offset and related
Offsetting Financial Assets	arrangements (such as collateral posting requirements) for financial instruments under
and Financial Liabilities’	an enforceable master netting agreement or similar arrangement. The amendments have
	been applied retrospectively. As the Group does not have any offsetting arrangements in
	place, the application of the amendments has had no material impact on the disclosures
	or on the amounts recognised in the consolidated financial statements.

Annual Report 2014

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Notes to the Financial Statements

continued

2. Summary of Significant Accounting Policies (Cont.)

Standards and Interpretations affecting the reported results or financial position

There are no new and revised Standards and Interpretations adopted in these financial statements which affected the reporting results or financial position.

Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

may affect the accounting for future transactions or arrangements.
	Effective for annual	Expected to be initially
	reporting periods	applied in the financial
Standard/Interpretation	beginning on or after	year ending
AASB 9 ‘Financial Instruments’, and the relevant amending standards	1 January 2018	30 June 2019
AASB 1031 ‘Materiality’ (2013)	1 January 2014	30 June 2015
AASB 2012-‘Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities’	1 January 2014	30 June 2015
AASB 2013-3 ‘Amendments to AASB 135 – Recoverable Amount Disclosures for Non-Financial Assets’	1 January 2014	30 June 2015
AASB 2013-‘5 ‘Amendments to Australian Accounting Standards – Investment Entities’	1 January 2014	30 June 2015
AASB 2013-9 ‘Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments ’	1 January 2014	30 June 2015

At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in issue but not yet effective, although Australian equivalent Standards and Interpretation have not yet been issued.

	Effective for annual	Expected to be initially
	reporting periods	applied in the financial
Standard/Interpretation	beginning on or after	year ending
Narrow-scope amendments to IAS 19 Employee Benefits
entitled Defined Benefit Plans: Employee Contributions	1 July 2014	30 June 2015
(Amendments to IAS 19)
Annual Improvements to IFRS’s 2010-2012 Cycle	1 July 2014	30 June 2015
Annual Improvements to IFRS’s 2011-2013 Cycle	1 July 2014	30 June 2015
IFRS 14 Regulatory Deferral Accounts	1 January 2016	30 June 2017
IFRS 15 Revenue from contracts with Customers	1 January 2017	30 June 2018

44 45

c. Revenue Recognition

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Service fees

Fees charged for providing administrative services to related companies are recognised as revenue as services are provided.

Management fees

Management fees on asset management activities are accrued as services are provided.

Interest income

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Dividends and distributions

Revenue is recognised when the Group’s right to receive the payment is established.

d. Basis of Consolidation

The consolidated financial statements comprise Treasury Group Ltd and its subsidiaries as at 30 June each year (the Group). Control is achieved when the Company :

has power over the investee
is exposed, or has rights, to variable returns from its involvement with the investee, and
has the ability to use its power to affect its returns.

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

e. Cash and Cash Equivalents

Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above.

f. Trade and Other Receivables

Trade receivables, which are generally on 30 day terms, are recognised at fair value and subsequently valued at amortised cost using the effective interest method, less any allowance for uncollectible amounts. Cash flows relating to short term receivables are not discounted as any discount would be immaterial.

Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt. Financial difficulties of the debtor or default payments are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate.

The Group did not have any impaired trade receivables (2013: Nil).

g. Impairment of Available-for-Sale Financial Assets

The Group assesses at each balance date whether a financial asset or group of financial assets is impaired. If there is objective evidence that an available-forsale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in the Income Statement, is transferred from equity to the Income Statement. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit. The Group would consider that there was objective evidence of impairment if there was a significant or prolonged decline in market value to below cost.

Interests in associates are equity accounted and are not part of the consolidated Group (see Notes (g) and (h)).

Annual Report 2014

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Notes to the Financial Statements

continued

2. Summary of Significant Accounting Policies (Cont.)

h. Investments in Associates

The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. The associates are entities in which the Group has significant influence and which are neither a subsidiary nor a joint venture.

Under the Accounting Standards, significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control of those policies.

The Group generally deems they have significant influence if they have the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Under the equity method, the investments in the associates are carried in the Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets of the associates.

Goodwill acquired in a business combination represents payment made by the acquirer in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognised. It is initially measured as cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Goodwill relating to the associates is included in the carrying amount of the investments and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associates.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Income Statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates in the consolidated financial statements reduce the carrying amount of the investment.

The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

i. Investments in Joint Ventures

Investments in which the Group has joint control are accounted for under the equity method in the consolidated financial statements similar to investments in associates as described in Note 2(h).

j. Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cashgenerating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The Group’s policy for goodwill arising on the acquisition of an associate is described at Note (h).

46 47

k. Plant and Equipment

Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Major depreciation methods and periods are:

2014 & 2013

Furniture & fittings:	5 – 10 years	diminishing value
Office equipment:	3 – 10 years	diminishing value
Leasehold improvements:	1 – 6 years	straight line

The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

Disposal

An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

l. Intangibles

Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.

Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end.

m. Financial Assets

Financial assets are classified into the following categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity investments, available-forsale (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that required delivery of assets within the time frame established by regulation or convention in the marketplace.

All regular way purchases of sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or been transferred.

i. Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit and loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Derivatives are also classified as held for trading unless they are designed as effective hedging instruments. Gains or losses on financial assets held for trading are recognised in profit or loss and the related assets are classified as current assets in the Statement of Financial Position.

The fair value of financial assets at fair value through profit or loss is determined by reference to quoted market bid prices at the close of business on that balance date.

ii. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains or losses are recognised in profit or loss when the loan and receivables are derecognised or impaired, as well as through the amortisation process.

For loans and receivables carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

iii. Available-for-sale investments

Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three other categories. After initial recognition, available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on that balance date.

When financial assets are recognised initially they are measured at fair value, plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

Annual Report 2014

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Notes to the Financial Statements

continued

2. Summary of Significant Accounting Policies (Cont.)

n. Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income).

Current income tax expense charged to the profit or loss is the tax payable on taxable income measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.

Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

The group has applied the Stand-Alone Taxpayer approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidation group. The tax funding agreement provides each member of the tax consolidated group to pay a tax equivalent amount to or from the parent in accordance with their current tax liability or current tax asset. Such amounts are reflected in amounts receivable from or payable to the parent company in their accounts and are settled as soon as practicable after lodgment of the consolidated return and payment of the tax liability.

The deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112.

Tax Consolidation

Effective 1 July 2003, for the purposes of income taxation, Treasury Group Ltd and its 100% owned entities have formed a tax consolidated group. Treasury Group Ltd is the head entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned entities on a pro-rata basis. Under a tax funding agreement, each member of the tax consolidated group is responsible for funding their share of any tax liability. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

o. Other Taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and
receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

48 49

p. Impairment of Non-financial Assets Other Than Goodwill

Amortising intangible assets and property, plant and equipment are tested for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

q. Trade and Other Payables

Trade payables and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of the goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

r. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

s. Employee Leave Benefits

Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration date expected to apply at the time of settlement.

Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.

t. Contributed Equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

u. Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Operating leases

Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.

v. Earnings Per Share

Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:

costs of servicing equity (other than dividends), if any;
– the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses;
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; and
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element, if any.

i. Short term and long term employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave, when it is probable that settlement will be required and they are capable of being measure reliably.

Annual Report 2014

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Notes to the Financial Statements

continued

2. Summary of Significant Accounting Policies (Cont.)

w. Share-based Payments

Equity-settled transactions:

The Group provides benefits to employees (including Senior Executives and Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

During the year, there were two plans in place to provide these benefits:

i. The Treasury Group LTI Plan had been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests.
ii. The Employee Share Plan, which provides the opportunity to the employees (including Directors) of the Group to purchase shares in the parent company at a discount.

The cost of the equity-settled Treasury Group LTI Plan is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Binomial model.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Treasury Group Ltd (market conditions), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-based transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The Income Statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No cumulative expense is recognised for awards that do not ultimately vest due to the non-fulfilment of a nonmarket condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award as described in the previous paragraph.

The dilutive effect, if any, of outstanding options and performance rights are reflected as additional share dilution in the computation of earnings per share.

x. Foreign Currency Translation

i. Functional and presentation currency

Both the functional and presentation currency of Treasury Group Ltd and its subsidiaries are Australian dollars ($).

ii. Transactions & balances

Transactions in foreign currencies are initially recorded in the functional currency by applying an average spot exchange rate for the period. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date.

Non-monetary items are measured in terms of historical cost in a foreign currency and are translated using the exchange rate at the date the fair value was determined.

y. Comparatives

Where necessary, comparative information has been immaterially reclassified and repositioned for consistency with current year disclosures.

50 51

3. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments comprise of cash, short-term deposits, available-for-sale investments, investments at fair value through profit and loss, receivables and payables.

Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument is disclosed in Note 2 to the financial statements.

Risk Exposures and Responses

Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and short term investments. At balance date, the Group had the following mix of financial assets exposed to Australian variable interest rate risk:

	Consolidated
	2014 $ 2013 $
Financial Assets Cash at bank and on hand	12,860,219 12,116,947
	12,860,219 12,116,947

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance date.

If interest rates had moved during the year as illustrated in the table below (using an average cash balance), with all other variables held constant, post tax profit and reserves would have been affected as follows:

variables held constant, post tax proft and reserves would have been affected as follows:
	Post Tax Profit Higher/(Lower)
	2014 $ 2013 $
Consolidated +0.75% [2013:0.75%]/(75 basis points), [2013:75 basis points] -0.75% [2013:0.75%]/(75 basis points), [2013:75 basis points]	69,762 48,571 (69,762) (48,571)

The movements in profit are due to higher/lower interest income from cash and short term deposit balances. The Group’s profit and reserves do not have any significant sensitivity to fixed interest rate risk as the loans made by Treasury Group Ltd to its related parties, which are the only assets or liabilities exposed to fixed interest rate risk, are carried at amortised cost.

Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, investments at fair value through profit and loss, and loans receivable from related entities. The Group’s exposure to credit risk arises from potential default of the counterparty, with the maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

The Group does not hold any credit derivatives to offset its credit exposure.

The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables.

Receivables balances and loans made to related entities are monitored on an ongoing basis at Board level and remain within approved levels, with the result that the Group’s exposure to bad debts is not significant.

It is a core part of Treasury Group Ltd’s policy to extend loans to new companies in the Group to provide them financing until they reach profitability. As with all new start-ups there is a risk that a new venture will fail, in which case Treasury Group Ltd would have to write the loan off. All loans made to new ventures are monitored on an ongoing basis at Board level to minimise the risk of a write off occurring. The maximum exposure to credit risk is the carrying value of the loans.

Annual Report 2014

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Notes to the Financial Statements

continued

3. Financial Risk Management Objectives and Policies (Cont.)

Liquidity risk

The Group does not have any external financing liabilities and has significant cash balances. As such management is of the opinion that it does not face significant liquidity risks. Management prepares cash flow forecasts on a monthly basis to ensure that it has sufficient liquid assets to meet its liabilities.

The Group’s objective is to maintain financial flexibility and only invests surplus funds in cash and short-term deposits. Both in the current and proceeding year all of the Group’s financial liabilities are due within 6 months or less.

Price risk

Equity security price risk arises from investments in unlisted managed trusts. The investments are made by members of the Group for the purpose of seeding new products.

A simple analysis has been conducted to provide some perspective when considering the determination of a reasonably possible change.

As at year end, the Group had the following exposure to equity security price risks:

	Consolidated
	2014 $ 2013 $
Available-for-sale investments –Units in managed investment trusts –Unlisted shares in other corporations	8,174,164 8,568,200 900 1,100
	8,175,064 8,569,300

As at year end, if the price for the Group’s investments had moved, as illustrated in the table below, with all other variables held constant, post tax profit and reserves would have been affected as follows:

	Reserves Higher/(Lower)
	2014 $ 2013 $
Consolidated MSCI World index +10% MSCI World index -10%	572,254 599,851 (572,254) (599,851)

For the investments that are classified as available-for-sale, movements in market value are captured in an Unrealised Gains Reserve and do not impact reported profit unless they are deemed to be impaired at reporting date.

As at 30 June 2014, the Group has no investments at fair value through profit or loss and only available for sale investments with any potential gains or losses being taken to equity.

Foreign Currency Risk

Investments in foreign currency funds are individually approved by the Board. The Group has not hedged its foreign currency exposure.

A simple analysis has been conducted to provide some perspective when considering the determination of a reasonably possible change.

The Group does not have any significant transactional currency exposures.

52 53

At year end, the Group had the following exposure to foreign currency:

	Consolidated
	2014 $ 2013 $
Available-for-sale investments – British Pound	1,393,261 1,323,955
	1,393,261 1,323,955

As at year end, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

As at year end, had the Australian Dollar moved, as illustrated in the table below, with all other tax proft and equity would have been affected as follows:	variables held constant, post
	EquityHigher/(Lower)
	2014 $ 2013 $
Consolidated AUD/GBP +10% AUD/GBP -10%	97,528 92,677 (97,528) (92,677)

Fair value measurements recognised in the Statement of Financial Position

Some of the Group’s available-for-sale assets are measured at fair value at the end of each reporting period. The following table gives an information about how the fair values of these available-for-sale assets of the Group is determined (in particular, the valuation techniques and inputs used):

Financial assets/financial liabilities	Fair values at Fair value Hierarchy Valuation techniques and key inputs Significant unobservable inputs Relationship of unobservable input 2014 2013
1. Investments in unlisted unit trusts	8,175,064 8,569,300 Level 2 The fair value of the unlisted available-for- sale investments is based on the current unit price of the investments which is determined by the value of the underlying investments of the unit trust. Not required Not required
2. Investment in Freehold Investment Management - Options 1,436,780 – Level 3 Cost Unlisted equity instrument where value cannot be reliably measured. Start up investment and impairment assessment undertaken by management against initial acquisition milestones. Milestones include future FUM inflows, stability of management team, business costs and discount rates. Not required
3. Investments in Aubrey Capital Management -convertible preference shares 1,393,261 1,323,955 Level 3 Discounted cash flow. Future cash flows are determined based on current Funds Under Management of the business using various growth rates discounted at 18%. 18% discount rate Long term revenue growth rates, taking into account management’s experience and knowledge of market conditions of the specific industries. The higher the discount rate, the lower the fair value. The higher the growth rate, the higher the fair value.

The fair values of the available-for-sale assets included in the level 2 and 3 categories have been determined in accordance with generally accepted pricing models based a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

Annual Report 2014

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Notes to the Financial Statements

continued

3. Financial Risk Management Objectives and Policies (Cont.)

Fair value measurements recognised in the Statement of Financial Position

The available-for-sale investments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as market prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between any levels.

Significant assumptions in determining fair value of financial assets and liabilities

The fair value of the options is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates. In determining the fair value, a revenue growth derived from FUM growth factors ranging from 3-10% has been used with appropriate probabilities assigned to each. In addition, expense growth of 3-10% has been used and a discount factor of 20% has been applied. If these revenue and expense inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the carrying amount of the options would decrease/increase by $121,765.

The fair value of the convertible preference shares is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates. In determining the fair value, a revenue growth derived from FUM growth factors ranging from 0-50% has been used with appropriate probabilities assigned to each. In addition expense growth of 5% has been used and a discount factor of 18% has been applied. If these revenue and expense inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the carrying amount of the shares would decrease/increase by $139,326.

Reconciliation of Level 3 fair value measurements of financial assets

amount of the shares would decrease/increase by $139,326. Reconciliation of Level 3 fair value measurements of fnancial assets
	30 June 2014
	Available for sale
	Level 3
Opening balance	1,323,955
Revaluation of Aubrey and acquisition of FIM	1,506,086
Total	2,830,041
	30 June 2013
	Available for sale
	Level 3
Opening balance	862,808
Revaluation and additional acquisition of Aubrey	461,147
Total	1,323,955

54 55

4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions. Significant judgments, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

i. Significant Accounting Judgments

Taxation

Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the Statement of Financial Position.

Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future income, operating costs, dividends and other capital management transactions. Judgments are also required about the application of income tax legislation. These judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the Statement of Financial Position and the amount of other tax losses and temporary differences not yet recognised.

In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement.

Deferred tax assets

Deferred tax assets are recognised for deductible temporary differences to the extent that management considers that it is probable that future taxable profits will be available to utilise those temporary differences.

Classification of and valuation of investments

The Group classified investments in unit trusts as ‘available-for-sale’ investments and movements in fair value are recognised in unrealised reserves except the impairments are recognised in profit and loss. The fair value of the investments has been determined by reference to the published unit price.

The fair value of convertible securities has been determined based on Directors’ valuation.

Impairment of non-financial assets

The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include performance, technological, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. This involves value in use calculations, which incorporate a number of key estimates and assumptions.

ii. Significant Accounting Estimates and Assumptions

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using hybrid montecarlo/binomial option pricing model with the assumptions detailed in Note 22. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

Long service leave provision

The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inflation have been taken into account

Valuation and Impairment of Non Current Loans and Receivables

The Group carries loans and receivables at amortised cost with impairments for these loans and receivables recognised in profit and loss. Determining whether non current loans and receivables are impaired requires an estimation of the future cash flows expected from the loans and applying a suitable discount rate in order to calculate present value. The carrying amount of non current loans and receivables at the balance date was $4,797,624 (2013: $3,629,539). There was no impairment charge during the year (2013: nil).

Goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

The carrying amount of goodwill at 30 June 2014 was nil (2013: $252,764). An impairment charge of $252,764 (2013: $331,124) was recognised during the year.

Annual Report 2014

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Notes to the Financial Statements

continued

5. Revenue and Expenses

5. Revenue and Expenses
Notes	Consolidated
	2014 $ 2013 $
a. Revenues from continuing operations Fee income Fund management fees Service fees –associates –other	423,461 1,385,405 1,229,355 1,713,743 – 202,028
Total fee income	1,652,816 3,301,176
Dividends and distributions Unit trust distribution	147,947 395,048
Total dividends and distributions	147,947 395,048
Interest Related parties –associates Other persons/corporations	323,329 299,155 199,564 285,325
Total interest	522,893 584,480
Other Income Other income	– 22,439
Total revenues	2,323,656 4,303,143
b. Gains on investments Net gains on disposal of available-for-sale investments Impairment of investment in subsidiary (AR Capital Management) Impairment of investment accounted for under the equity method	886,168 396,297 (41,012) – – (800,000)
Total gains/(losses) on investments	845,156 (403,703)

56 57

Notes	Consolidated
	2014 $ 2013 $
c. Expenses Salaries and employee benefits Salaries and employee benefits Share-based payment expense arising from equity-settled share-based payment transactions	4,039,233 4,144,244 427,150 373,479
	4,466,383 4,517,723
Depreciation and amortisation Furniture & fittings 13 (a) Office equipment 13 (a) Leasehold improvements 13 (a) Software 14 (a)	1,747 2,231 20,916 27,515 1,384 2,305 7,717 15,917
Total depreciation and amortisation of non-current assets	31,764 47,968
Other expenses Accounting & audit fees Operating lease rental – minimum lease payments Marketing & communication expenses Travel & accommodation costs Payroll tax Legal & compliance fees Consulting fee & IT charges Insurance charges Directors’ fees (non-executives) Share registry & ASX fees Subscriptions and training expenses Impairment of goodwill 15 (a) Other expenses	259,657 170,602 375,529 410,295 138,845 249,728 242,191 210,392 122,514 164,803 165,742 235,700 791,152 651,431 151,283 266,528 375,439 392,500 116,567 103,258 142,812 210,296 252,764 331,124 120,318 183,846
	3,254,813 3,580,503
Total other expenses	3,286,577 3,628,471

Annual Report 2014

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Notes to the Financial Statements

continued

6. Income Tax

6. Income Tax
	Consolidated
	2014 $ 2013 $
a. Income tax benefit The major components of income tax benefit are: Income Statement Current income tax Adjustments in respect of current income tax charge of previous years Deferred income tax Relating to origination and reversal of temporary differences Relating to utilisation of tax losses Write off of deferred tax asset in subsidiary (Global Value Investors) Benefit from previously unrecognised difference/tax loss Tax adjustment to recognise tax losses previously unrecognised	(375,936) (110,506) (106,134) (116,588) (1,169,352) (627,012) (520,000) – 61,664 – – 454,950
Income tax (expense) reported in the Income Statement	(2,109,758) (399,156)
b. Amounts charged directly to other comprehensive income Deferred income tax related to income charged or credited directly to other comprehensive income Unrealised loss/(gain) on available-for-sale investments	173,668 (112,737)
Income tax benefit/(payable) reported in other comprehensive income	173,668 (112,737)
c. Reconciliation between aggregate tax benefit recognised in the income statement and tax expense calculated per the statutory income tax rate A reconciliation between tax benefit and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting (profit) before income tax:	(15,187,652) (10,803,395)
At the Group’s statutory income tax rate of 30% (2013: 30%) Share-based payments Reversal of share in net profit of associates Distributions received Expenditure not allowable for income tax purposes Adjustments in respect of current income tax charge of previous years Dividend difference Others Tax adjustment to recognise tax losses previously unrecognised	(4,556,295) (3,241,019) (128,145) (112,044) 5,931,540 4,515,045 (3,133,729) (1,583,400) (7,913) (8,682) (375,936) (110,506) – (313,500) 160,720 – – 454,950
Aggregate income tax (expense)	(2,109,758) (399,156)

58 59

	Statement of Financial Position Income Statement
	2014 $ 2013 $ 2014 $ 2013 $
d. Recognised deferred tax assets and liabilities Deferred income tax at 30 June relates to the following: Consolidated Deferred tax assets Tax losses 634,390 2,099,432 (1,127,091) (412,076) Tax losses of acquired subsidiaries – 562,261 (562,261) – Revaluation of available-for-sale investments at fair value charged to equity 105,752 – 3,793 – Impairment of investment in ARCM 217,017 108,360 108,657 – Impairment of investment accounted for under the equity method – 240,000 (240,000) 240,000 Accruals and provisions 375,751 414,827 (29,696) 54,954 Deductible capital expenditures 87,919 – 45,265 – 1,420,829 3,424,880 Deferred tax liabilities Revaluation of convertible notes to fair value (551,230) (551,230) – – Revaluation of available-for-sale investments at fair value charged to equity (76,730) (112,737) 11,990 – Receivables (10,988) (799) (6,143) 534 (638,948) (664,766)
Deferred tax 781,881 2,760,114 (1,795,486) (116,588)

e. Tax consolidation

Effective 1 July 2003, for the purposes of income taxation, Treasury Group Ltd and its 100% owned entities have formed a tax consolidated group. Treasury Group Ltd is the head entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax sharing arrangement in order to allocate income tax expense to the whollyowned entities on a pro-rata basis. Under a tax funding agreement, each member of the tax consolidated group is responsible for funding their share of any tax liability. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

Tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group allocate current taxes to members of the tax consolidated group in accordance with their accounting profit for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations are made at the end of each half year.

The allocation of taxes is recognised as an increase/decrease in the subsidiaries’ inter-company accounts with the tax consolidated group head company, Treasury Group Ltd. The Group has applied the group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group.

Annual Report 2014

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Notes to the Financial Statements

continued

7. Dividends Paid and Proposed

7. Dividends Paid and Proposed
	TreasuryGroupLtd
	2014 $ 2013 $
a. Dividends proposed and not recognised as a liability* Final fully franked dividend 27 cents per share (2013: 23 cents per share)	6,398,324 5,306,274
b. Dividends paid during the year Current year interim Fully franked dividend (23 cents per share) (2013: 17 cents per share) Previous year final Fully franked dividend (23 cents per share) (2013: 20 cents per share)	5,306,274 3,922,028 5,306,274 4,614,151
Total paid during the year (46 cents per share) (2013: 37 cents per share)	10,612,548 8,536,179
* Calculation based on the ordinary shares on issue as at 28 August 2014 c. Franking credit balance The amount of franking credits available for the subsequent financial year are: –franking account balance as at the end of the financial year at 30% (2013: 30%) 9,597,667 9,378,174 –franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date 607,114 915,732
10,204,781 10,293,906 The amounts of franking credits available for future reporting periods: –impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the year (2,742,139) (2,274,117)
Franking credits carried forward after payment of final dividend 7,462,642 8,019,789

The tax rate at which paid dividends have been franked is 30% (2013: 30%). Dividends proposed will be franked at the rate of 30% (2013: 30%).

60 61

8. Cash and Cash Equivalents

8. Cash and Cash Equivalents
	Consolidated
	2014 $ 2013 $
a. Reconciliation of cash and cash equivalents Cash balance comprises: –cash at bank and on hand	12,860,219 12,116,947
Closing cash balance	12,860,219 12,116,947
b. Reconciliation Profit for the year Adjustments for Share of associates’ net profits Dividend and distribution received from associates Impairment of investment in subsidiary Impairment of investment accounted for under equity method (Gain) on disposal of available-for-sale investment Depreciation and amortisation of non-current assets Impairment of goodwill Non-cash distributions and dividends Non-cash interest Share-based payments Foreign exchange loss Others Changes in assets and liabilities (Increase) in trade and other receivables (Increase)/decrease in other assets Decrease in deferred tax assets Increase in trade and other payables Increase in current provisions Increase in non-current provisions	13,077,894 10,404,239 (19,771,800) (15,050,149) 19,805,351 13,547,967 41,012 – – 800,000 (886,168) (396,297) 31,764 47,968 252,764 331,124 (147,946) (395,048) (28,874) (54,117) 427,150 373,479 5,900 11,609 85,416 (45,146) (3,538,493) (2,929,864) (1,027,046) 684,698 1,978,233 448,519 1,809,987 3,038,311 8,701 70,071 36,232 22,456
Net cash flow from operating activities	12,160,077 10,909,820

At reporting date, Treasury Group Ltd did not have any financing facilities available.

Annual Report 2014

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Notes to the Financial Statements

continued

9. Trade and Other Receivables

Note	Consolidated
	2014 $ 2013 $
Current Trade receivables Sundry receivables Other receivables Related party receivables –Associates —Dividend 27 —Distribution —Other	6,500,907 4,835,029 3,988 2,664 161,265 79,091 1,416,600 2,136,708 2,640,000 – 394,419 525,194
	11,117,179 7,578,686

a. Allowance for impairment loss

Trade receivables are non-interest bearing and generally on 30 day terms. An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. No allowance for impairment losses has been made.

been made.
			31-60 days	61-90 days	+91 days
	Total	0-30 days	PDNI*	PDNI*	PDNI*
	$	$	$	$	$
2014	11,117,179	10,550,171	40,252	17,100	509,656
2013	7,578,686	6,995,367	72,124	90,804	420,391

Past due not impaired (‘PDNI’)

Receivables past due but not impaired is $567,008 (2013:$583,319). All overdue amounts as at 30 June 2013 have been received in full. Management is satisfied that payment will be received in full.

b. Related party receivables

For terms and conditions of related party receivables refer to Note 27.

c. Fair value and credit risk

Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value.

The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security with the exception of the receivable from disposal of subsidiary, which was secured by the shares of the subsidiary disposed. It is not the Group’s policy to transfer (on-sell) receivables to special purpose entities.

Trade receivables represent the Group’s outstanding invoices for management fees. As the fees are receivable from large investment and superannuation funds, management regards the credit risk as very low.

	Consolidated
	2014 $ 2013 $
Non-current Security deposits	833,073 723,958
	833,073 723,958

The amount receivable is in Australian Dollars, non-interest bearing and is not considered past due or impaired.

62 63

10. Available-for-Sale Investments

10. Available-for-Sale Investments
	Consolidated
	2014 $ 2013 $
Non-current –Investment in Octis Asia Pacific Fund Limited –Investment in Octis Opportunities Fund –Investment in Aubrey Conviction Fund –Aubrey Capital Management –Investment in Freehold Investment Management** –Unlisted shares in other corporations	3,035,532 5,921,032 3,030,546 – 2,108,086 2,647,168 1,393,261 1,323,955 1,436,780 – 900 1,100
	11,005,105 9,893,255

These investments represent seed capital to assist in the growth and marketing of these products.

Units in funds are readily saleable with no fixed terms.

The fair value of the unlisted available for sale investments is based on the current unit price of the investments which is determined by the Value of the underlying investments of the unit trust.

** Whilst classified as an available-for-sale to satisfy the definition under the accounting standards, the Board views this as a long term holding investment. The acquisition price of these securities was $1,314,073. The change in fair value reflects movements in fair value between reporting periods, including foreign exchange rates.
*** Whilst classified as an available-for-sale to satisfy the definition under the accounting standards, the Board views this as a long term investment. The valuation of this investment was based on the net present value of the discounted cash flows of FIM.

11. Loans and Other Receivables

11. Loans and Other Receivables
Notes	Consolidated
	2014 $ 2013 $
Loans receivables due from: Associates 27 Advances to other related party	4,197,624 3,629,539 600,000 –
	4,797,624 3,629,539

All amounts are receivable in Australian Dollars and are not considered past due or impaired.

a. Loans

On 31 October 2013, Nikko bought from Treasury Group Ltd all loans and receivables due from TAAM.

On 29 May 2014, Treasury Group Ltd initially funded the $4,500,000 working capital facility to ROC Partners by $2,450,000. The balance of the loan receivable from associates as at 30 June 2014 represents the subordinated loan to RARE and loan to ROC Partners.

The loan to RARE is subordinated to all other creditors as a condition of their Australian Financial Services Licence as agreed with the Australian Securities and Investments Commission (ASIC).

Interest rates on the loans vary between 7.5% to 8%.

The advances to other related party is fixed at 15% per annum and has a maturity date of 16 May 2016.

Annual Report 2014

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Notes to the Financial Statements

continued

12. Investments Accounted for using the Equity Method

12. Investments Accounted for using the Equity Method
Notes	Consolidated
	2014 $ 2013 $
Investments in associates 12(b)	29,242,193 30,633,054
	29,242,193 30,633,054

a. Interests in associates

a. Interests in associates
Name Balance date	Ownership interest held by consolidated entity
	2014 % 2013 %
Investors Mutual Ltd – ordinary shares 30 June Orion Asset Management (Aust) Pty Ltd – ordinary shares 30 June Treasury Asia Asset Management Ltd – ordinary shares 30 June RARE IP Trust – units 30 June RARE Infrastructure Ltd – ordinary shares 30 June IML Investment Partners Ltd – ordinary shares 30 June Celeste Funds Management Ltd – ordinary shares 30 June Evergreen Capital Partners Pty Ltd – ordinary shares 30 June Octis Asset Management Pte Ltd – ordinary shares 30 June ROC Partners Pty Limited – ordinary shares 30 June	47.22 47.22 49.99 41.99 – 43.96 40.00 40.00 40.00 40.00 40.00 40.00 39.17 39.17 – 30.00 20.00 20.00 15.03 –

i. Principal activity

a. Investors Mutual Ltd provides a funds management capability to both institutional and retail investors.
b. Orion Asset Management (Aust) Pty Ltd is the parent company of Orion Asset Management Ltd, a wholesale fund management company in Australia.
c. Treasury Asia Asset Management Ltd is a boutique asset manager specialising in the Asia Pacific Region. This was sold on 31 October 2013.
d. RARE IP Trust and RARE Group [RARE Infrastructure Ltd, RARE North America, RARE Infrastructure Sovereign Enterprise, RARE Infrastructure (Europe) Ltd, RARE Infrastructure (UK) Ltd, RARE Infrastructure (USA) Inc.] are funds management businesses specialising in listed global infrastructure assets.
e. IML Investment Partners Ltd provides investment sub advisory services to Investors Mutual Ltd.
f. Celeste Funds Management Limited is an Australian equity manager with a smaller companies focus.
g. Evergreen Capital Partners Pty Ltd is an Australian equity absolute return manager which focuses on management of ASX listed equities via an absolute return style. Evergreen merged with FIM on 13 November 2013.
h. Octis Asset Management Pte Ltd is an Asian multi strategy equity manager based in Singapore.
i. ROC Partners Pty Limited is an Australian and Asian private equity investment and advice business.

These entities, except Octis Asset Management Pte Ltd, are incorporated and domiciled in Australia.

64 65

	Consolidated
	2014 $ 2013 $
b. Carrying amount of investments accounted for using the equity method Balance at the beginning of the year –acquisition of associate –disposal of associate –share of associates’ net profits for the year –trust distribution received from an associate –dividends received from associates –share of unrealised gains reserve of associate –impairment of investment in associates	30,633,054 29,697,032 811,420 225,395 (2,155,480) – 19,771,800 15,050,149 (10,445,762) (5,278,000) (9,359,589) (8,269,967) (13,250) 8,445 – (800,000)
Balance at the end of the year	29,242,193 30,633,054
c. Share of associates’ balance sheet Current assets Non-current assets Current liabilities Non-current liabilities	32,524,868 30,510,221 1,596,128 977,788 (16,440,196) (14,099,555) (1,638,890) (1,598,177)
Net assets	16,041,910 15,790,277
d. Share of associates’ revenues Revenues	43,405,089 36,367,614
e. Share of associates’ net income Profit before income tax Income tax expense	24,842,644 19,173,361 (5,070,844) (4,123,212)
Profit after income tax	19,771,800 15,050,149

On 31 October 2013, Treasury Group Ltd sold its equity ownership in Treasury Asia Asset Management Ltd to Nikko. On 13 November 2013, Evergreen was merged with FIM. As a result, the equity accounted investment in Evergreen was treated as if it was disposed of during the year and subsequently recognised as FIM available-for-sale investment.

f. Details of each of the Group’s material associates at the end of the reporting period are as follows:

f. Details of each of the Group’s material associates at the end of the reporting period are	as follows:
Name of Associate Principal Activity Place of incorporation and operation	Proportion of ownership interest and voting power held bythe Group
	2014 2013
IML Funds Management Australia IML Investment Partners Ltd Funds Management Australia RARE Infrastructure Ltd Funds Management Australia RARE IP Trust Funds Management Australia	47.22% 47.22% 40.00% 40.00% 40.00% 40.00% 40.00% 40.00%

All of the above associates are accounted for using the equity method in the consolidated financial statements.

Annual Report 2014

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Notes to the Financial Statements

continued

12. Investments Accounted for using the Equity Method (Cont.)

Summarised financial information in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amount shows in associate’s financial statements in accordance with the Accounting Standards.

Accounting Standards.
	Investors
	Mutual	RARE
	Group	Group
2014
Current assets	31,284,143	32,963,030
Non-current assets	348,863	1,124,406
Current liabilities	9,858,359	20,785,135
Non-current liabilities	–	1,741,649
Net assets	21,774,648	11,560,651
Goodwill	4,851,599	2,602,810
Carrying Amount of the Group’s interest	14,823,379	7,141,408
Year ended 30 June 2014
Revenue	34,747,017	55,184,330
Profit for the year	13,077,054	31,847,660
Other comprehensive income for the year	(28,060)	–
Total comprehensive income for the year	13,048,994	31,847,660
Dividends/distributions received during the year	5,958,461	8,777,359
	Investors
	Mutual	RARE
	Group	Group
2013
Current assets	30,695,892	21,666,023
Non-current assets	365,696	1,442,922
Current liabilities	12,320,392	13,532,458
Non-current liabilities	–	2,120,874
Net assets	18,741,196	7,455,613
Goodwill	5,361,563	2,661,695
Carrying amount of the Group’s interest	14,153,179	5,643,941
Year ended 30 June 2013
Revenue	28,387,933	37,717,034
Profit for the year	10,559,178	20,384,430
Other comprehensive income for the year	–	–
Total comprehensive income for the year	10,559,178	20,384,430
Dividends received from the associate during the year	4,551,708	6,118,000

66 67

g. Following is an aggregate of other associates which are not deemed material:

g. Following is an aggregate of other associates which are not deemed material:
30/06/2014	30/06/2013
Current assets 16,632,990	19,179,857
Non-current assets 4,944,506	595,645
Current liabilities 10,405,476	7,601,894
Non-current liabilities 5,964,806	1,729,106
Net assets 5,207,214	10,444,591
Year ended	Year ended
30/06/2014	30/06/2013
Revenue 15,632,144	21,600,696
Profit for the year 3,962,866	5,212,092
Dividends received during the year 3,149,639	2,158,260

13. Plant and Equipment

13. Plant and Equipment
Notes	Consolidated
	2014 $ 2013 $
Furniture & fittings At cost Accumulated depreciation	12,082 12,082 (5,192) (3,445)
13(a)	6,890 8,637
Office equipment At cost Accumulated depreciation	434,827 419,603 (388,473) (367,557)
13(a)	46,354 52,046
Leasehold improvements At cost Accumulated depreciation	12,089 12,089 (3,886) (2,502)
13(a)	8,203 9,587
Total	61,447 70,270
a. Reconciliations Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current financial year. Furniture & fittings Opening balance Depreciation expense	8,637 10,868 (1,747) (2,231)
Closingbalance	6,890 8,637
Office equipment Opening balance Additions Depreciation expense	52,046 75,081 15,224 4,480 (20,916) (27,515)
Closingbalance	46,354 52,046
Leasehold improvements Opening balance Additions Depreciation expense	9,587 5,763 – 6,129 (1,384) (2,305)
Closingbalance	8,203 9,587

Annual Report 2014

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Notes to the Financial Statements

continued

14. Intangibles

14. Intangibles
Note	Consolidated
	2014 $ 2013 $
Software At cost Accumulated amortisation	114,944 121,779 (102,404) (103,339)
14 (a)	12,540 18,440
a. Reconciliations Reconciliations of the carrying amounts of intangibles at the beginning and end of the current financial year. Software Opening balance Additions Amortisation expense	18,440 34,357 1,817 – (7,717) (15,917)
Closing balance	12,540 18,440
15. Goodwill Cost Accumulated impairment losses	252,764 583,888 (252,764) (331,124)
	– 252,764
The goodwill relates to AR Capital Management. No goodwill is refected in the Statement of Financial Position. 16. Trade and Other Payables (Current) Trade payables 643,184 946,759 Other payables 937,255 941,552 Related party payables: –associates 6,091,530 3,973,671
7,671,969 5,861,982

a. Fair value

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

b. Related party payables

For terms and conditions relating to related party payables please refer to Note 27.

c. Interest rate and liquidity risk

Trade and other payables are non-interest bearing. Liquidity risk exposure is not regarded as significant. Trade, other and related party payables are all due within less than 90 days.

68 69

17. Employee Provisions

17. Employee Provisions
Note	Consolidated
	2014 $ 2013 $
Current Provision for annual leave, beginning balance Provisions during the year Annual leave taken	213,202 143,131 113,407 127,986 (104,706) (57,915)
Provision for annual leave, closing balance	221,903 213,202
Non-Current Provision for long service leave, beginning balance Provisions during the year	99,650 77,194 36,232 22,456
Provision for long service leave, closing balance	135,882 99,650
18. Financial Liability Current	– 600,000

As a result of the merger between Freehold Investment Management and Evergreen Capital Partners, the contingent liability of $600,000 to Evergreen was extinguished as at 31 December 2013.

19. Contributed Equity and Reserves

19. Contributed Equity and Reserves
	2014	2013
	$	$
a. Ordinary shares
Issued and fully paid	29,594,265	29,594,265

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of its issued shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends.

b. Movements in ordinary shares on issue

b. Movements in ordinary shares on issue
	TreasuryGroupLtd
	2014 2013
	Number of shares $ Number of shares $
Balance at beginning of the financial year Balance at end of the financial year	23,070,755 29,594,265 23,070,755 29,594,265 23,070,755 29,594,265 23,070,755 29,594,265

c. Capital management

The Company’s capital management policies focus on ordinary share capital. When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits to other stakeholders.

Management periodically reviews the capital structure to take advantage of favourable costs of capital or high returns on assets.

During the year ended 30 June 2014, management paid dividends of $10,612,548 (2013: $8,536,179). The Directors anticipate maintaining a dividend payout ratio over a medium term period of at least 60-80% of underlying profit in a normal year subject to future acquisitions.

The Group does not have any external borrowings.

Annual Report 2014

continued

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Notes to the Financial Statements

19. Contributed Equity and Reserves (Cont.)

d. Long term incentives- performance rights

The amount of performance rights amortisation expense for the period was $427,150 (2013: $373,479).

At the end of the year, there were no unissued ordinary shares in respect of which performance rights were outstanding to employees of the Group.

were allocated 12,857 Treasury Group shares as a result of vesting of performance rights.
	Consolidated
	2014 $ 2013 $
e. Retained profits Balance at the beginning of the year Profit for the year Dividends	27,643,019 25,788,684 13,061,814 10,390,514 (10,612,548) (8,536,179)
Balance at end of year	30,092,285 27,643,019

	Consolidated
	2014 $ 2013 $
f. Reserves Net unrealised gains reserve Balance at the beginning of the year Net unrealised (losses)/gains on available for sale investments taken to equity Income tax relating to items not reclassified Share of after-tax gain on available for sale investments of associates	376,659 (542,846) (213,894) 1,301,512 64,169 (390,452) (13,250) 8,445
Balance at end of year	213,684 376,659
Share options reserve
Balance at end of year	3,874,436 3,447,286
Total Reserves	4,088,120 3,823,945

Net unrealised gains reserve

The reserve records after tax fair value changes on available-for-sale investments.

Share Options reserve

This reserve is used to record the value of equity benefits provided to employees and Directors as part of their remuneration. Refer to Note 22 for further details of these plans.

70 71

20. Segment Information

Information reported to the Group’s Board of Directors for the purposes of resource allocation and assessment of performance is specifically focused on the profit after tax earned by each business within the Group. Therefore the Group’s reportable segments under AASB 8 are included in the table below.

Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the Group’s accounting policies.

The following is an analysis of the Group’s results by reportable operating segment:

same as the Group’s accounting policies. The following is an analysis of the Group’s results by reportable operating segment:
	Consolidated
	2014 $ 2013 $
Segment profit after tax for the year –Outsourcing and responsible entity services – Australian equities – Alternative investments – Central administration costs and directors’ salaries	338,150 830,764 7,478,915 7,069,305 11,841,348 8,056,603 19,658,413 15,956,672 (6,580,519) (5,552,433)
Total per Income Statement	13,077,894 10,404,239
Segment net assets for the year – Outsourcing and responsible entity services – Australian equities – Alternative investments – Central administration	5,625,758 5,960,548 21,233,035 22,103,482 23,362,365 18,446,603 50,221,158 46,510,633 13,553,512 14,566,792
Total per Statement of Financial Position	63,774,670 61,077,425

Other than Australia, no country represents more than 10% of revenue for Treasury Group Ltd and its associates. No individual customer represents more than 10% of revenue for Treasury Group Ltd and its associates.

Annual Report 2014

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Notes to the Financial Statements

continued

21. Commitments and Contingencies

Operating lease commitments

The Group has entered into commercial property leases to meet its office accommodation requirements. These noncancellable leases have remaining term of three years as at 30 June 2014. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions.

Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:

revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as	follows:
	Consolidated
	2014 $ 2013 $
Future minimum rentals: Minimum lease payments – not later than one year – later than one year and not later than five years	329,389 316,720 576,950 906,339
Aggregate lease expenditure contracted for at reporting date	906,339 1,223,059
Amounts not provided for: – rental commitments	906,339 1,223,059
Total not provided for	906,339 1,223,059
Aggregate lease expenditure contracted for at reporting date	906,339 1,223,059

22. Employee Benefits and Superannuation Commitments

The Treasury Group LTI Plan

The Treasury Group LTI Plan has been established where Treasury Group Ltd, at the discretion of the Board of Directors, awards performance rights to Directors, executives and certain members of staff of the Group. Each performance right at the time of grant represents one Treasury Group Ltd share if it vests.

The amount of performance rights amortisation expense for the period was $427,150 (2013: $373,479).

Employee Share Plan

The Employee Share Plan has been established whereby Treasury Group Ltd, at the discretion of the Board of Directors, provides the opportunity to employees and Directors to purchase shares in Treasury Group Ltd at market value less a discount of 5% to 20%. These shares are purchased via a salary sacrifice arrangement. The shares are held in trust at the employees’ request for a period between 2 and 10 years. Employees have to be employed by the consolidated group while taking part in the plan. There are 17 employees eligible to participate in the plan. Shares acquired under the Employee Share Plan vest immediately. There were no shares purchased during the year (2013: 4,360 at weighted average cost of $4.91). The balance as at 30 June 2014 was 3,099 shares (2013: 46,751). There were no shares that vested during the year (2013: 4,360) and 43,652 shares were sold (2013: 3,345). The weighted average cost of the shares remaining is $12.0 (2013: $7.37) per share.

72 73

23. Subsequent Events

A new Australian Trust and trustee company has been established which will own interests in the combined 21 boutiques and give effect to the merger.

The new Australian Trust will have its Board, management and operations integrated. Treasury Group will be entitled to 61% of the economic interest of the Trust and it will have majority board representation. The Trust will issue Treasury Group Class A Trust Units and Northern Lights will be issued Class B Trust Units with 39% interest.

Treasury Group will retain all existing franking credits and Treasury Group is expected to be able to continue to pay franked dividends to its shareholders in the future.

The merger transaction is viewed to create diversified international portfolio of asset management businesses and it executes Treasury Group’s growth strategy.

1 Based on the TRG share price as at 4 August 2014.

24. Earnings Per Share

24. Earnings Per Share
	Consolidated
	2014 $ 2013 $
Net profit attributable to ordinary equity holders of the parent	13,061,814 10,390,514 Number of shares
Weighted average number of ordinary shares used in calculating basic earnings per share: Effect of dilutive securities: Dilutive effect of potential ordinary shares – share options and performance rights	23,070,755 23,070,755 – –
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share	23,070,755 23,070,755
Earnings per share (cents per share) basic for profit for the year attributable to ordinary equity holders of the parent diluted for profit for the year attributable to ordinary equity holders of the parent	56.6 45.0 56.6 45.0

Performance rights do not have a diluted effect on the Earnings per Share calculation as the vesting conditions of these rights have not been met as at 30 June 2014. Had the performance rights that had vest on 12 July 2014 actually vested on 30 June 2014, the diluted effect of these performance rights on the Earnings per Share calculation would have been 55.0.

Annual Report 2014

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Notes to the Financial Statements

continued

25. Key Management Personnel Disclosures

a. Details of Key Management Personnel

(i) Non-executive Directors

M. Fitzpatrick Chairman (Non-Executive) P. Kennedy Director (Non-Executive) R. Hayes Director (Non-Executive) M. Donnelly Director (Non-Executive)

(ii) Executives

A. McGill Managing Director (appointed 30 August 2013) & Chief Executive Officer

J. Ferragina Chief Financial Officer & Company Secretary

b. Compensation for Key Management Personnel

b. Compensation for Key Management Personnel
	Consolidated
	2014 $ 2013 $
Short-term Post employment Share-based payments	1,729,418 1,619,580 58,871 55,440 349,866 349,866
Total remuneration	2,138,155 2,024,886

KMP bonuses are paid in two instalments being 50% on August and 50% on June the following year. Only the 50% payable on August is provided for as at 30 June 2014.

c. Transactions with director-related entity

Details of the transactions with Director-related entities are set out in Note 27. All transactions were conducted on commercial terms.

d. Loans to key management employees

No loans have been advanced to key management employees at any stage during the financial year ended 30 June 2014 (2013: $Nil).

26. Auditor’s Remuneration

26. Auditor’s Remuneration
	Consolidated
	2014 $ 2013 $
Auditor of Parent entity(Deloitte Touche Tohmatsu) Amounts received or due and receivable by Deloitte Touche Tohmatsu: – an audit or review of the financial report of the entity and any other entity in the consolidated group and associates – corporate advisory services to the entity and any other entity in the consolidated group – tax advisory services to the entity and any other entity in the consolidated group – tax compliance services to the entity and any other entity in the consolidated group – other services to the entity and any other entity in the consolidated group	224,466 197,587 58,800 – 442,982 6,575 65,545 14,590 74,440 58,394
Total	866,233 277,146

74 75

27. Related Party Disclosures

The consolidated financial statements include the financial statements of Treasury Group Ltd and the controlled entities in the following list:

the following list:
	Percentage of equity interest held bythe consolidated entity
	2014 2013
Companies Treasury Capital Management Pty Ltd Treasury Group Investment Services Limited Treasury Group Nominees Pty Ltd Global Value Investors Ltd Treasury Evergreen Pty Limited AR Capital Management Pty Ltd	100 100 100 100 100 100 100 100 100 100 100 77.8

All subsidiaries are incorporated in Australia.

Transactions with related parties

Service fees

During the year, Treasury Group Ltd and its wholly-owned entity, Treasury Group Investment Services Limited provided administrative services to associates. Dealings were on commercial terms and conditions. Details of service fees and receivables at reporting date are disclosed in Note 5 and Note 10 to the financial report respectively.

Dividend and distribution

Dividends and distributions received and receivable at reporting date are disclosed in Note 5 and Note 9 to the financial report respectively.

Loans

Loans advanced by Treasury Group Ltd to associates are with a fixed repayment date once repayment clause has been triggered. Interest on the loans is capitalised at commercial rates until repayment clauses have been triggered.

During the year, Treasury Group Ltd provided additional loans to associates for $2,450,000 (2013: $Nil) and received $1,889,028 (2013: $343,750) in repayments. Details of interest income and the amount remaining outstanding at year-end are disclosed in Note 5 and Note 11 to the financial report respectively.

Annual Report 2014

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Notes to the Financial Statements

continued

28. Parent Entity Disclosure

The accounting policies of the parent are consistent with the consolidated entity.

i. Financial Performance

28. Parent Entity Disclosure The accounting policies of the parent are consistent with the consolidated entity. i. Financial Performance
	2014	2013
	$	$
Profit for the year	14,203,006	8,352,207
Other comprehensive income for the year (net of tax)	(293,944)	859,334
Total comprehensive income	13,909,062	9,211,541
ii. Financial Position
Assets
Current assets	13,316,626	9,258,596
Non-current assets	37,736,719	38,538,683
Total assets	51,053,345	47,797,279
Liabilities
Current liabilities	1,224,158	1,417,581
Non-current liabilities	135,882	67,733
Total liabilities	1,360,040	1,485,314
Equity
Issued capital	29,594,265	29,594,265
Retained earnings	16,283,472	13,035,337
Reserves
Share options	3,874,436	3,447,286
Net unrealised gains/(losses) reserve	(58,868)	235,077
Total equity	49,693,305	46,311,965

76 77

Director’s Declaration

In accordance with a resolution of the Directors of Treasury Group Ltd, I state that:

In the opinion of the Directors:
a. the financial statements and notes are in accordance with the Corporations Act 2001, including:
- i. giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date;
- ii. complying with Accounting Standards and Corporations Regulations 2001; and
- iii. complying with International Financial Reporting Standards, as stated in Note 2 to the financial statements
b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2014.

On behalf of the Board

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M. Fitzpatrick Chairman 20 August 2014

Annual Report 2014

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Independent Audit Report

36 76

78 79

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21 28
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Annual Report 2014

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ASX Additional Information

Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows.

a. Distribution of equity securities (as at 6 August 2014)

The number of shareholders by size of holding, in each class of share are:

a. Distribution of equity securities (as at 6 August 2014) The number of shareholders by size of holding, in each class of share are:
	Ordinaryshares
	Number of holders Number of shares
1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over	1,196 672,621 1,407 3,445,565 239 1,716,414 137 3,404,955 22 14,457,943
	3,001 23,697,498
The number of shareholders holdingless than a marketableparcel of shares are:	48 519

b. Twenty largest shareholders (as at 6 August 2014)

The names of the twenty largest holders of quoted shares are:

b. Twenty largest shareholders (as at 6 August 2014) The names of the twenty largest holders of quoted shares are:
	Listed ordinaryshares
	Number of shares Percentage of ordinary shares
1 RBC Investor Services Australia Nominees Pty Limited (Perpetual) 2 Squitchy Lane Holdings Pty Ltd 3 BNP Paribas Noms Pty Ltd 4 Citicorp Nominees Pty Ltd 5 UBS Wealth Management Australia Nominees Pty Ltd 6 JP Morgan Nominees Australia Limited 7 Mr Timothy Gerard Ryan 8 Kattag Holdings Pty Ltd 9 Mini-Me Ventures Pty Ltd 10 National Nominees Limited 11 Mr Michael Brendan Patrick De Tocqueville 12 HSBC Custody Nominees (Australia) Limited 13 Banson Nominees Pty Ltd 14 HFM Investments Pty Ltd 15 Top Pocket Pty Ltd 16 RBC Investor Services Australia Nominees Pty Ltd 17 Penswood Pty Ltd 18 Bond Street Custodians Limited 19 29thMarsupial Pty Ltd 20 Mardom PtyLtd	2,806,036 11.84 2,401,500 10.13 1,683,469 6.91 993,809 4.19 844,218 3.56 729,038 3.08 703,927 2.97 554,000 2.34 480,000 2.03 473,466 2.00 425,000 1.79 395,948 1.67 370,313 1.56 250,000 1.05 250,000 1.05 201,938 0.85 199,000 0.84 197,031 0.83 172,050 0.73 141,400 0.59
	14,227,143 60.03

c. Substantial shareholders

The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are:

Corporations Act 2001 are:
	Number of
	Shares
Perpetual Limited	2,806,036
Michael Fitzpatrick	2,701,285

d. Voting rights

All ordinary shares (whether fully paid or not) carry one vote per share without restriction.

80 81

Corporate Directory

ABN 39 006 708 792

Directors

M. Fitzpatrick (Chairman)

A. McGill (Managing Director, appointed 30 August 2013) & Chief Executive Officer

P. Kennedy

R. Hayes M. Donnelly

Chief Financial Officer

J. Ferragina

Company Secretaries

R. Ramswarup

J. Ferragina (Appointed 31 July 2014)

Registered Office

Level 14 39 Martin Place Sydney, NSW, 2000 Phone (02) 8243 - 0400 Facsimile (02) 8243 - 0410

Bankers

Westpac Banking Corporation

Share Register

Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford, Victoria, 3067 Phone (03) 9415 - 5000

Auditors

Deloitte Touche Tohmatsu

AI assistant

PACIFIC CURRENT GROUP LIMITED — Annual Report 2014

65526_rns_2014-09-14_b17b7280-e4a8-46bb-9110-c9b2fbc76c5c.pdf

Contents

Results at a Glance

Key Financial Highlights during the year:

$14.0m

About us

Our offering can include some, or all of the following:

Chairman’s Report

Financial Result

Funds Under Management

Dividend

Market Conditions

Social Responsibility

Outlook

CEO’s Report

Business Performance

Operational and Financial Performance

Market Environment

Proposed Merger with Northern Lights Capital Group

Strategy

Financial Performance

Conclusion

Review of Boutiques

Celeste

RARE

Investors Mutual

Orion Asset Management

Aubrey

$9.1 billion

Octis Asset Management

Freehold Investment Management

Treasury Group Services

Services Offered Include:

Directors

Directors

Directors’ Report

Directors

Names, qualifications, experience and special responsibilities

M. Fitzpatrick, (Chairman) B. Eng, B (Oxon) Honours

A. McGill, (Managing Director, appointed 30 August 2013)

P. Kennedy, (Non-executive Director) B.Ec. L.L.M.

R. Hayes, (Non-executive Director) SF Fin, FAICD

M. Donnelly, (Non-executive Director) B.C.

Company Secretaries

R. Ramswarup, BA (Justice Administration)

J. Ferragina, BCom, M App Fin, CA, FFin, GAICD (appointed 31 July 2014)

Interests in the shares and options of the Company and related bodies corporate

Corporate Information

Corporate Structure

Directors’ Report

Operating and Financial Review

Review of Operations

Nature of operations and principal activities

Employees

Funds management/business performance

Australian Equities

Alternative Equities

International Equities

Property

Administration & Compliance Services

Operations, acquisitions and disposal

Directors’ Report

Operating Results for the Year

Earnings Per Share

Financial Position

Cash Flow from Operations

Business Strategies and Prospects

Material Business Risks

Global market risks

Regulatory environment

Significant Changes in the State of Affairs

Directors’ Report

Significant Events after the Balance Date

Performance Rights

Indemnification and Insurance of Directors and Officers

Remuneration Report (Audited)

Key Management Personnel

Non-executive Directors

PACIFIC CURRENT GROUP LIMITED Annual Report 2014