ANNUAL REPORT 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND ARSN

Transcription

1 ANNUAL REPORT 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND ARSN

2 CONTENTS INTRODUCTION 2 BARMINCO 3-5 FINANCIAL REPORT 6 DIRECTORY 24 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 1

3 INTRODUCTION We are pleased to enclose the Annual Report for the Gresham Private Equity Co-Investment Fund ( the Fund ) for the financial year ended 30 June The Fund has invested in seven portfolio companies, of which six have now been realised, with Barminco as the Fund s remaining investment. While the performance of currently realised investments in the Fund is a significant disappointment to all, there is full commitment to maximising the total value of the Fund via it s investment in Barminco. The Fund s focus continues to be on developing Barminco for an exit in due course, and we have set out in the following pages a summary of its performance and key developments during FY2015. SUNRISE DAM, WESTERN AUSTRALIA GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 2

4 BARMINCO STRUCTURE ESTABLISHED 1989 HEADQUARTERS: HAZELMERE, WESTERN AUSTRALIA. OVER 2000 EMPLOYEES ACROSS AUSTRALIA & AFRICA LARGEST SINGLE COMPANY OWNED FLEET OF UNDERGROUND MECHANISED EQUIPMENT IN THE WORLD UNDERGROUND CONTRACT MINING DIAMOND DRILLING AUMS JOINT VENTURE Barminco is Australia s leading underground hard-rock miner, providing equipment, personnel and technical expertise to conduct development and production operations for mining companies. Barminco also provides underground diamond drilling services. BARMINCO FY2015 YEAR IN REVIEW The mining services industry continued to face challenging conditions throughout FY2015. Prices across most commodities have been at multi-year lows, impacting the profitability of existing mines and the pipeline of new projects. In this environment, underground hard-rock mining has been a relatively attractive part of the mining services sector, as it also allows the client to better manage ore grade and has higher barriers to entry. Price performance in gold, Barminco s key commodity exposure, has also been positive relative to other minerals (since the start of 2014, the A$ gold price has increased by 13% compared to a 47% fall in iron ore and 19% fall in thermal coal). These factors, combined with Barminco s strategy of pursuing profitable growth opportunities, has put it in a strong position to withstand the current downturn, and ensures it is well placed to benefit as conditions improve. FINANCIAL PERFORMANCE AND POSITION The Barminco Group (Barminco and its share of the African Underground Mining Services joint venture ( AUMS )) proportionate EBITDA in FY2015 was $124.6m (FY2014: $129.3m). Barminco (excluding AUMS) reported EBITDA of $95.1m for the period (FY2014: $106.5m). The fall in earnings was primarily driven by the full year impact of the Mount Lyell mine closure and delayed commencement of pipeline contracts. There were also operational issues at certain sites including seismic events and equipment availability, which the team has worked hard to address. While the result was disappointing, Barminco s performance continues to compare favourably to most ASX listed peers, which have reported significant reductions in profitability over the period, averaging more than 30%. AUMS performed very well for the year driven by a new management team and improved governance and reporting processes. AUMS achieved EBITDA in FY2015 of $59.1m (FY2014: $45.6m), outperforming budget, and enabling the payment of a cash distribution to the joint venture partners. AUMS is accounted for on an equity accounting basis and accordingly these earnings are not reflected in Barminco s reported EBITDA. OTHER FINANCIAL HIGHLIGHTS DURING THE PERIOD INCLUDE: maintenance of project margins and an improved return on capital employed, reflecting a strong focus on managing expenditure; a turnaround in performance of the diamond drilling division, which increased revenue materially; and completing an innovative capital management transaction to repurchase nearly US$100m of the company s Senior Notes. The repurchase was funded by utilising the value in the Notes cross-currency swap that had accrued as a result of favourable exchange rate movements. This transaction involved no cash outlay for Barminco and will generate annual cash interest savings of over $6m. In 2013 Barminco refinanced its capital structure with the issuance of US 5-year Senior Notes. The Notes were designed to provide the Company with stable and accommodating financing to execute its strategy. At 30 June 2015, Barminco also had cash of $105m (an increase of $9m on the previous year s closing balance) which can be used to fund growth capex and other strategic opportunities. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 3

5 AUSTRALIAN OPERATIONS AFRICAN OPERATIONS LEGEND PROJECT TYPE MINING DIAMOND DRILLING MINE TYPE Au GOLD Cu COPPER Ni NICKEL Zn ZINC Sn TIN GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 4

6 OPERATIONAL HIGHLIGHTS Barminco recorded a number of operational achievements during FY2015, including: industry leading safety performance. Barminco achieved a Lost Time Injury Frequency Rate ( LTIFR ) of zero for FY2015, an excellent outcome in the industry and reflective of the commitment to safety at every level of the company. New safety initiatives significantly reduced critical risk areas such as truck fires, light vehicle collisions and explosives management breaches, and a companywide hand safety campaign materially reduced the incidence of hand injuries. Barminco is also continuing to develop innovations to improve safety performance such as an in-vehicle management system for measuring and changing driver behaviour, and trialling truck driver fatigue monitoring. the award of $700m in new contracts and contract extensions in Barminco s core Australian market. The company won new underground mining contracts at Sirius Nova nickel project ($130m), and MMG s Rosebery mine ($110m). Contract extensions were also secured at Western Areas Flying Fox and Spotted Quoll mines ($190m) and AngloGold Ashanti s Sunrise Dam ($270m). a range of initiatives designed to reduce costs and improve productivity, such as the introduction of Sandvik trucks, strategic procurement and rapid sourcing. THE YEAR AHEAD The industry environment is expected to remain very challenging, although the further depreciation of the Australian dollar will help support the profitability of local mines. There are also increasing opportunities in lower cost international markets, which Barminco is selectively pursuing. The new contract awards during FY2015 have provided Barminco with a solid base for FY2016. Barminco will continue its focus on driving profitable growth through additional operating efficiencies, and utilising enhanced marketed capabilities to build its workbook. SUNRISE DAM, WESTERN AUSTRALIA GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 5

7 FINANCIAL REPORT DIRECTORS REPORT The directors of Gresham Funds Management Limited (the Company ), the Responsible Entity of the Gresham Private Equity Co-Investment Fund (the Fund ), submit their report together with the financial report of the Fund for the financial year ended 30 June DIRECTORS The following persons held office as directors of the Company during the financial year and since the end of the financial year and up to the date of this report, unless noted otherwise: James P Graham AM (Chairman) Roger S Casey (Deputy Chairman) Terence J Bowen Antony G Breuer Tim J Bult Charles J Graham PRINCIPAL ACTIVITIES The Fund since inception has invested in seven entities in a wide range of sectors in Australia and New Zealand. Following the sale of six of these investments, the Fund s remaining investment is in Barminco, which is predominately engaged in underground hard rock contract mining principally in Australia and Africa. REVIEW OF OPERATIONS On 19 August 2014, in order to optimise the value of the Funds investment in Barminco, unitholders of the institutional Gresham Private Equity Funds No. 2a and No. 2b approved the extension of the life of the those Funds from 30 June 2015 to 30 June 2018, which automatically resulted in an extension of the life of the Fund for the same period. In addition, the Fund s investment in Silk Logistics Group was finalised during the year; and monies that were held in escrow pending completion arrangements regarding potential claims from the disposal of Tasmanian Walking Company were received. As at 30 June 2015, Unitholders had invested 95.0 cents per unit in the Fund and have received cash distributions of 31.2 cents per unit, resulting in a net cash investment in the Fund of 63.8 cents per unit. As at 30 June 2015, the net assets of the Fund had an assessed carrying value of 18.8 cents per unit, however the ultimate financial outcome will reflect the underlying business and market conditions at the time of investment realisations. For the financial year ended 30 June 2015, the net operating loss before financing costs attributable to Unitholders was $429,414 (2014: net operating profit before financing costs attributable to Unitholders $254,092), reflecting an overall net gain on the Fund s investments offset by management and operating expenses of the Fund. The valuation method used by the Manager in determining this result is in accordance with Australian and international standards for Private Equity. This method reflects the fact that portfolio companies are long-term, illiquid investments. The Manager s focus is on maximising the value of Barminco, the Fund s remaining individual investment. DISTRIBUTIONS No cash distributions have been paid by the Fund for the year ended 30 June 2015 (2014: $2,489,288). SIGNIFICANT CHANGES In the opinion of the directors, there were no significant changes in the state of affairs of the Fund that occurred during the financial year under review not otherwise disclosed in this report and financial statements. MATTERS SUBSEQUENT TO BALANCE DATE Except as disclosed in the financial report, no matters or circumstances have arisen since 30 June 2015 that have significantly affected or may significantly affect: a) the operations of the Fund in future financial years; or b) the results of those operations in future financial years; or c) the state of affairs of the Fund in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The Responsible Entity acknowledged that the extension to the life of the Fund noted above would have a direct cost in terms of the management fees and other expenses incurred over the period of extension. Accordingly, the Responsible Entity has agreed to reduce the basis of calculation of Management and Service fees from 1 July 2015 by 15%. Other than the above, there are no material changes proposed for the operation of the Fund. VALUE OF ASSETS The carrying value of the Fund s net assets attributable to Unitholders at 30 June 2015 was $19,214,739 (2014: $19,644,153 after cash distributions of $2,489,288) which is derived using the bases set out in Note 1 to the financial statements. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 6

8 FINANCIAL REPORT (CONTINUED) DIRECTORS REPORT (CONTINUED) INDEMNIFICATION & INSURANCE OF OFFICERS AND AUDITOR During the financial year, no insurance premiums were paid out of the Fund in respect of any insurance cover relating to the Responsible Entity or the auditor. So long as the officers of the Responsible Entity act in accordance with the Fund s Constitution and the law, they will remain fully indemnified out of the assets of the Fund against any losses incurred whilst acting on behalf of the Fund. There is no indemnification of the auditor of the Fund out of the assets of the Fund. FEES PAID TO AND INTERESTS HELD IN THE FUND BY THE RESPONSIBLE ENTITY OR ITS ASSOCIATES Note 11 sets out the fees paid to and interests held in the Fund by the Responsible Entity or its associates. ENVIRONMENTAL REGULATION The activities of the Fund itself are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. AUDITOR S INDEPENDENCE DECLARATION A copy of the Auditor s Independence Declaration as required under Section 307 of the Corporations Act 2001 is set out on page 8. This report is made out in accordance with a resolution of the directors. James P Graham AM Chairman Sydney, 28 July 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 7

9 AUDITOR S INDEPENDENCE DECLARATION AUDITOR S INDEPENDENCE DECLARATION As lead auditor for the audit of Gresham Private Equity Co-Investment Fund for the year ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Gresham Private Equity Co-Investment Fund during the period. CJ Heath Partner PricewaterhouseCoopers Sydney 28 July 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 8

10 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 note $ $ INVESTMENT INCOME Interest 41,384 47,143 Other income 4 226, ,630 Net gain on investments at fair value through profit or loss 289,844 1,005,938 TOTAL INVESTMENT INCOME 557,435 1,396,711 Expenditure Administration and other expenses 39,009 38,814 Responsible Entity s remuneration ,840 1,103,805 TOTAL EXPENDITURE 986,849 1,142,619 Net operating profit/(loss) (429,414) 254,092 Financing costs/benefits attributable to Unitholders (Increase)/decrease in net assets attributable to Unitholders 5(c) 429,414 (254,092) TOTAL COMPREHENSIVE INCOME - - The above statement of comprehensive income should be read in conjunction with the accompanying notes. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 9

11 BALANCE SHEET AS AT 30 JUNE 2015 note $ $ CURRENT ASSETS Cash 6(b) 1,277,876 1,489,681 Receivables 56, ,252 TOTAL CURRENT ASSETS 1,334,088 1,750,933 NON-CURRENT ASSETS Financial assets held at fair value through profit or loss 7 18,215,042 18,215,042 TOTAL NON-CURRENT ASSETS 18,215,042 18,215,042 TOTAL ASSETS 19,549,130 19,965,975 CURRENT LIABILITIES Accounts payable 334, ,822 TOTAL CURRENT LIABILITIES 334, ,822 TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 334, ,822 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 5 19,214,739 19,644,153 TOTAL LIABILITIES 19,549,130 19,965,975 The above balance sheet should be read in conjunction with the accompanying notes. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 10

12 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE $ $ total equity at the beginning of the financial year - - Net profit for the year - - Other comprehensive income - - total equity at the end of the financial year - - Under Australian Accounting Standards, net assets attributable to Unitholders are classified as a liability rather than equity. As a result, there was no equity at the start or end of the period. The above statement of changes in equity should be read in conjunction with the accompanying notes. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 11

13 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2015 note $ $ CASH FLOWS FROM OPERATING ACTIVITIES Interest received 34,859 50,368 Disposals of financial assets held at fair value through profit or loss 491,381 1,915,367 Other income received 261, ,696 GST recovered 42,991 19,875 Payment of Responsible Entity s remuneration and other expenses (1,042,465) (1,704,595) NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 6(a) (211,805) 665,711 CASH FLOWS FROM FINANCING ACTIVITIES Distributions paid - (2,489,288) NET CASH OUTFLOW FROM FINANCING ACTIVITIES - (2,489,288) NET DECREASE IN CASH HELD (211,805) (1,823,577) Cash at the beginning of the financial year 1,489,681 3,313,258 CASH AT THE END OF THE FINANCIAL YEAR 6(b) 1,277,876 1,489,681 The above statement of cash flows should be read in conjunction with the accompanying notes. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 12

14 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION This general purpose financial report for the financial year ended 30 June 2015 for the Gresham Private Equity Co-Investment Fund as an individual entity, has been prepared in accordance with the Fund s Constitution. The Constitution requires the financial report to be prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group (UIG) Consensus Views and the Corporations Act The financial statements of the Fund also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments held at fair value with changes in fair value recognised through the statement of comprehensive income. USE OF ESTIMATES AND JUDGEMENTS The preparation of financial statements in accordance with Australian Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Critical accounting judgments made in applying the Fund s accounting policies pertains to the determination of the fair value of financial instruments. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future years affected. It is possible that outcomes in future periods which are different from the assumptions used could require a material adjustment to the carrying amount of the financial instruments affected. DETERMINATION OF FAIR VALUE The Fund s accounting policies and disclosures require the determination of fair value for all of the Fund s financial assets held at fair value through profit and loss. The fair value for such assets has been determined for measurement and disclosure purposes based on the discounted cash flow method. The effect of changes to the key assumptions and inputs is discussed in Note 10 Financial Instruments. The principal accounting policies applied in the preparation of these financial statements are set out below. The accounting policies adopted are consistent with the prior year unless otherwise stated. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 13

15 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUATION OF FINANCIAL ASSETS AND LIABILITIES HELD AT FAIR VALUE The Fund has designated all of its investments as at fair value through profit or loss. Individual investments may take the form of a combination of equities and loans and are managed as a single investment. These investments are initially recognised on the date the Fund becomes party to the contractual agreement at fair value, typically represented by cost. Investments are valued at their net fair value as at reporting date. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the statement of comprehensive income in the period in which they arise. Investments are valued in line with industry practice using appropriate valuation techniques as reasonably determined by the Responsible Entity and which reflect market conditions as at the reporting date. However, given the financial markets volatility and economic conditions, future valuations may be volatile. CASH Cash includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with maturities of three months or less, net of bank overdrafts, if any. Payments and receipts relating to the purchase and sale of investments are classified as cash flows from operating activities, as movements in the fair value of these investments represent the Fund s main income generating activity. INVESTMENT INCOME AND EXPENSES Interest income and expenses are recognised in the statement of comprehensive income for all debt instruments using the effective interest method. Dividends from companies are recorded as income when the Fund s right to receive payment is established. Other investment income and expenses are brought to account on an accruals basis. DISTRIBUTION EXPENSE AND CHANGES IN NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS The Fund makes distributions in accordance with the Fund s Constitution. The taxable and tax free component of distributions is recognised in the statement of comprehensive income as a distribution expense within financing costs. The difference between the distributions made and the taxable and tax free component of these distributions is recognised as a return of capital within net assets attributable to Unitholders. Income and expenses that are respectively not taxable or not deductible and do not form part of the taxable component of distributions are recognised in the statement of comprehensive income as changes in net assets attributable to Unitholders within financing costs. RESPONSIBLE ENTITY S REMUNERATION Responsible Entity s remuneration has been calculated in accordance with the Fund s Constitution, noting that the Responsible Entity has voluntarily reduced the basis of calculation of Management Fees and Service Fees by 15% effective from 1 July COMPARITIVE PERIOD Comparative information is reclassified where appropriate to enhance comparability. RECEIVABLES Receivables may include amounts for dividends, interest and securities sold where settlement has not yet occurred. Amounts are generally received within 30 days of being recorded as receivables, with the exception of interest on certain non-current investments. ACCOUNTS PAYABLE Accounts payable represent liabilities for amounts owing by the Fund that are unpaid at year end. GOODS AND SERVICES TAX (GST) The Fund qualifies for Reduced Input Tax Credits. Investment management fees and other expenses have been recognised in the statement of comprehensive income inclusive of the amount of GST not recoverable from the Australian Taxation Office (ATO). The net amount of GST recoverable from the ATO is included in receivables in the balance sheet. Accounts payable are inclusive of GST. Cash flows relating to GST are included in the statement of cash flows on a gross basis. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2015 reporting periods. The directors assessment of the impact of these new standards (to the extent relevant to the Fund) and interpretations is set out below: AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2018 but is available for early adoption. When adopted, there will be no impact from the new classification, measurement and derecognition rules on the Fund s financial assets and financial liabilities. The Fund has not yet decided when to adopt AASB 9. AASB 15 Revenue from Contracts with Customers addresses the recognition of revenue from contracts and is effective from 1 January It replaces AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The Fund does not expect changes from the way it currently recognises revenue from contracts. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 14

16 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 101 is effective from 1 January In January 2015, the AASB made various amendments to AASB 101 as part of the Disclosure Initiative which explores how financial statement disclosures can be improved. The amendments clarify guidance in AASB 101 on materiality and aggregation, presentation of subtotals, structure of financial statements and disclosure of accounting policies. These amendments do not require specific changes. However, they clarify a number of presentation issues and highlight that preparers are permitted to tailor the format and presentation of the financial statements to their circumstances and the needs of users. The Fund does not expect major changes from the way it currently presents the financial information. FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Australian dollars, which is the Fund s functional and presentation currency. ISSUE DATE The financial statements were authorised for issue by the directors on 28 July The directors of the Responsible Entity have the power to amend and reissue the financial statements. NOTE 2. TAXATION Under current legislation, the Fund would not be liable to income tax to the extent that the income of the Fund is distributed in full to Unitholders. NOTE 3. LIFE OF FUND The Fund was registered on 29 June 2004 under a Constitution dated 28 June 2004 and was due to terminate on 30 June As explained in the Fund s annual report for the year ended 30 June 2014, the manager of the contractually linked institutional Gresham Private Equity Funds No. 2a and No. 2b ( the institutional funds ) recommended that in order to optimise the value of the investment in Barminco, the institutional funds unitholders extend the life of these funds from 30 June 2015 to 30 June 2018, which would automatically result in an extension of the life of the Fund for the same period. On 19 August 2014, the institutional unitholders approved the extension, and hence the Fund s life has also been extended to 30 June GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 15

17 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 4. OTHER INCOME note $ $ Transaction and advisory fees 201, ,542 Other income 24, , , ,630 NOTE 5. NET ASSETS ATTRIBUTABLE TO UNITHOLDERS Net assets attributable to Unitholders comprises: Ordinary units 5(a) 67,790,563 67,790,563 Sponsor units 5(b) Cumulative changes in net assets attributable to Unitholders transferred from the statement of comprehensive income 5(c) (48,576,324) (48,146,910) 19,214,739 19,644,153 Movements in the components of net assets attributable to Unitholders are as follows: number number $ $ a) Ordinary units (refer below) opening balance - 1 july 102,020, ,020,000 67,790,563 70,279,851 Nil (2014: 2.44) cents per unit return (2,489,288) closing balance - 30 june 102,020, ,020,000 67,790,563 67,790,563 As stipulated in the Fund s Constitution, each ordinary unit represents a right to an individual share in the Fund and does not extend to a right to the underlying assets of the Fund. Calls are made in accordance with the Fund s Constitution. b) Sponsor units (refer below) 500, , As stipulated in the Fund s Constitution, sponsor units, which are held by the Manager of the Fund, Gresham Private Equity Limited, a related body corporate of the Responsible Entity, carry an entitlement to a share of any sponsor s unit distributions of the Fund. The sponsor s unit distributions are payable out of the proceeds of realised investments of the Fund. The distribution is calculated each time an investment is realised by the Fund. Ordinary Unitholders are entitled to a return equal to the Relevant Outflows of the Fund plus a preferred 8% per annum in respect of the Relevant Inflows and Relevant Outflows before any sponsor s unit distribution becomes payable. Subject to this priority return for ordinary Unitholders, the sponsor s unit distribution (if any) payable when investments are realised will generally be 20% of the profit, net of certain expenses, achieved. If the Fund s assets were realised at their estimated fair value at reporting date, the resultant sponsor s unit distribution entitlement would be $nil (2014: $nil). GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 16

18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 5. NET ASSETS ATTRIBUTABLE TO UNITHOLDERS (CONTINUED) c) Cumulative changes in net assets attributable to Unitholders transferred from the statement of comprehensive income $ $ opening balance - 1 july (48,146,910) (48,401,002) Movement in net assets attributable to Unitholders transferred from the statement of comprehensive income (429,414) 254,092 closing balance - 30 june (48,576,324) (48,146,910) NOTE 6. RECONCILIATION OF NET PROFIT/(LOSS) TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES a) Reconciliation of net profit/(loss) to net cash inflow/(outflow) from operating activities Net profit for the year - - Net operating profit/(loss) (429,414) 254,092 Change in operating assets and liabilities: Decrease in investments - 1,110,966 (Increase)/decrease in receivables 205,040 (200,959) Increase/(decrease) in accounts payable and provisions 12,569 (498,388) net cash inflow/(outflow) from operating activities (211,805) 665,711 b) Components of cash Cash as at the end of the financial year as shown in the statement of cash flows is equal to the cash position as shown on the balance sheet. NOTE 7. FINANCIAL ASSETS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS Investments 18,215,042 18,215,042 An overview of the risk exposures relating to financial assets at fair value through profit or loss is included in Note 10. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 17

19 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 8. BORROWING/FINANCING FACILITIES The Fund did not have during the year and does not have any borrowing or financing facilities in place at the date of this report. NOTE 9. REDEMPTION ARRANGEMENT The Responsible Entity has no obligation in the Constitution to repurchase units or redeem units issued under the Fund s Constitution. NOTE 10. FINANCIAL INSTRUMENTS The Fund s activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Fund s overall risk management programme which is carried out by the Manager focuses on ensuring compliance with the Constitution and seeks to maximise the returns derived for the level of risk to which the Fund is exposed. PRICE RISK Investments are valued in line with industry practice using appropriate valuation techniques as reasonably determined by the Manager. When applying a discounted cash flow technique, future earnings are discounted using the weighted average cost of capital ( WACC ) and a terminal growth rate is applied. The determination of the values of the relevant inputs to be applied is a matter of professional judgement. The key inputs relate to earnings, weighted average cost of capital and terminal growth rate. The impact on the value of the Fund s investments if these key inputs were 5% higher or 5% lower is as follows: earnings wacc terminal growth rate +5% -5% +5% -5% +5% -5% 30 june 2015 $2.7m $(2.7)m $(3.2)m $3.6m $0.3m $(0.3)m 30 june 2014 $3.1m $(3.1)m $(3.7)m $4.1m $0.4m $(0.4)m The Manager mitigated price risk in the investment strategy by limiting the Fund s exposure to an investment in a single entity to 20% of committed capital, such limit being able to be increased with the approval of the Policy Committee on a case by case basis, and by careful selection of prospective investment opportunities. LIQUIDITY RISK Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. The Fund manages its net assets attributable to Unitholders as capital, notwithstanding net assets attributable to Unitholders are classified as a liability. Settlement of this liability is dependent on realisation of assets, with the net proceeds from such realisations being distributed to Unitholders as soon as practicable in accordance with the Constitution. FOREIGN CURRENCY EXCHANGE RATE RISK Foreign currency exchange rate risk is the risk that the Fund s assets will fluctuate due to changes in exchange rates. The Fund does not have any significant exposure to foreign currency risk. INTEREST RATE RISK Interest rate risk includes cash flow interest rate risk on financial instruments with variable interest rates as well as interest rate risk on the value of financial instruments with fixed interest rates that will fluctuate due to changes in market interest rates. The Fund does not have any significant exposure to interest rate risk. CREDIT RISK Credit risk is the risk that a counter party will fail to perform obligations under a contract. The Fund does not have any significant exposure to credit risk. NET FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES AND FAIR VALUE HIERARCHY The carrying value of the Fund s financial assets and liabilities included in the balance sheet approximate their fair value. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 18

20 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 10. FINANCIAL INSTRUMENTS (CONTINUED) NET FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES AND FAIR VALUE HIERARCHY (CONTINUED) The Fund classifies fair value measurements using a fair value hierarchy that, in descending order, reflects the subjectivity of the inputs used in making the measurements. The fair value hierarchy has the following levels: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The determination of what constitutes observable requires significant judgement by the Responsible Entity. The Responsible Entity considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The level that is applied in the fair value hierarchy is determined by reference to the lowest level category that describes the basis of valuation for each asset that is being fair valued. The Responsible Entity has determined that all of the Fund s financial assets held at fair value through the profit or loss are classified at level 3. When applying a discounted cash flow technique, future earnings are discounted using the weighted average cost of capital ( WACC ) and a terminal growth rate is applied. The determination of the values of the relevant inputs to be applied is a matter of professional judgement. The key inputs relate to earnings, weighted average cost of capital and terminal growth rate. The effect of changes to key inputs of the valuation is disclosed in the price risk section of this Note 10. There have been no transfers in or out or between levels for the years ended 30 June 2015 and 30 June The following table presents the movement in level 3 instruments: $ $ opening balance - 1 july 18,225,042 19,326,008 Additions - - Disposals (289,844) (2,106,904) Net gain recognised in profit or loss 289,844 1,005,938 Closing balance 30 June 18,225,042 18,225,042 All net gains in the table above are included in the statement of comprehensive income for the financial assets and liabilities held at the end of the year. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 19

21 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 11. RELATED PARTIES RESPONSIBLE ENTITY The Responsible Entity of the Fund is Gresham Funds Management Limited, which is incorporated and domiciled in Australia. The registered office and principal place of business is: Level 17, 167 Macquarie Street, Sydney NSW 2000 KEY MANAGEMENT PERSONNEL Key management personnel, who comprise the directors of the Responsible Entity during the financial year, were as follows: James P Graham AM (Chairman) Roger S Casey (Deputy Chairman) Terence J Bowen Antony G Breuer Tim J Bult Charles J Graham TRANSACTION WITH RELATED PARTIES Responsible Entity s remuneration and non recoverable GST paid or payable in accordance with the Constitution: $ $ Management fees 585, ,775 Service fees 262, ,259 Share of transaction and advisory fees 100, , ,840 1,103,805 No payments are made by the Fund to key management personnel. BALANCES WITH RELATED PARTIES The aggregate amounts payable to related parties by the Fund at balance date comprise: responsible entity 306, ,252 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 20

22 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED) NOTE 11. RELATED PARTIES (CONTINUED) UNITS HELD BY RELATED PARTIES The number of units held in the Fund by a related body corporate of the Responsible Entity as at the date of this report is as follows: number number sponsor units 500, ,000 NOTE 12. AUDITOR S REMUNERATION $ $ Auditing the financial statements 21,560 22,770 Taxation services 11,055 10,885 32,615 33,655 In addition, the auditor s remuneration in relation to the Fund s half-year audit review, Compliance Plan audit and other expenses totalling $40,600 (2014: $41,100) have been borne by the Responsible Entity. NOTE 13. CAPITAL COMMITMENTS As at 30 June 2015, the Fund had no capital commitments (30 June 2014: $nil). NOTE 14. CONTINGENT ASSETS AND LIABILITIES As at 30 June 2015, contingent assets of $34,000 (30 June 2014: $316,000) may be recoverable in relation to completion arrangements regarding potential claims under warranties, indemnities and other obligations arising from the Fund s investments. Other than the above, there are no other contingent assets or liabilities relating to the Fund as at 30 June 2015 (30 June 2014: $nil). NOTE 15. EVENTS OCCURRING AFTER THE REPORTING DATE No significant events have occurred since balance date which could impact on the financial position of the Fund disclosed in the balance sheet as at 30 June 2015 or on the results and cash flows of the Fund for the year ended on that date. GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 21

23 DIRECTORS DECLARATION In the directors opinion: (a) the financial statements and notes set out on pages 9 to 21 are in accordance with the Corporations Act 2001, including: (i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Fund s financial position as at 30 June 2015 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they become due and payable. The summary of significant accounting policies confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. This declaration is made in accordance with a resolution of the directors. James P Graham AM Director Sydney, 28 July 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 22

24 INDEPENDENT AUDITOR S REPORT INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS OF GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND REPORT ON THE FINANCIAL REPORT We have audited the accompanying financial report of Gresham Private Equity Co-Investment Fund (the Fund), which comprises the balance sheet as at 30 June 2015, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors declaration. DIRECTORS RESPONSIBILITY FOR THE FINANCIAL REPORT The directors of Gresham Funds Management Limited (the responsible entity) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AUDITOR S OPINION In our opinion: (a) the financial report of Gresham Private Equity Co- Investment Fund: (i) gives a true and fair view of the Fund s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complies with Australian Accounting Standards (including the Australian Accounting Interpretations). (b) the Fund s financial report also complies with International Financial Reporting Standards as disclosed in Note 1. PricewaterhouseCoopers C J Heath, Partner Sydney, 28 July 2015 GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 23

25 DIRECTORY RESPONSIBLE ENTITY GRESHAM FUNDS MANAGEMENT LIMITED ABN AFSL Registered Office: Level 17, 167 Macquarie Street Sydney NSW 2000 Australia Telephone: Facsimile: MANAGER GRESHAM PRIVATE EQUITY LIMITED ABN AFSL Registered Office: Level 17, 167 Macquarie Street Sydney NSW 2000 Australia Telephone: Facsimile: DIRECTORS OF RESPONSIBLE ENTITY James P Graham AM (Chairman) Roger S Casey (Deputy Chairman) Terence J Bowen Antony G Breuer Timothy J Bult Charles J M Graham REGISTRY COMPUTERSHARE INVESTOR SERVICES PTY LTD Level 3, 60 Carrington Street Sydney NSW 2000 Australia Within Australia: Outside Australia: Facsimile: SPONSORING BROKERS JBWERE Level 42, Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Australia MORGANS Level 29, Riverside Centre 123 Eagle Street Brisbane QLD 4000 Australia MACQUARIE EQUITIES 1 Martin Place Sydney NSW 2000 Australia ORD MINNETT Level 8, NAB House 255 George Street Sydney NSW 2000 Australia SOLICITORS HERBERT SMITH FREEHILLS ANZ Tower 161 Castlereagh Street Sydney NSW 2000 Australia TAX ADVISOR PRICEWATERHOUSECOOPERS Darling Park Tower Sussex Street Sydney NSW 2000 Australia AUDITOR PRICEWATERHOUSECOOPERS Darling Park Tower Sussex Street Sydney NSW 2000 Australia CUSTODIAN PERPETUAL CORPORATE TRUST LIMITED Level 12, 123 Pitt Street Sydney NSW 2000 Australia GRESHAM PRIVATE EQUITY CO-INVESTMENT FUND 24

26 RESPONSIBLE ENTITY GRESHAM FUNDS MANAGEMENT LIMTED ABN AFSL