Acorn Capital Investment Fund Limited

Transcription

1 ACN Annual Report for the period ending 30 June 2014

2 ACN Annual Report for the period ending 30 June 2014 Contents Page Corporate directory 1 Chairman's review 2 Investment Manager s review 3-4 Information about the Investment Manager 5 Corporate governance statement 6-10 Directors' report Auditor's independence declaration 21 Financial statements Directors' declaration 49 Independent auditor's report to the Owners of Acorn Capital Investment Fund Limited Additional information for listed companies 52-54

3 Corporate directory Corporate directory Directors Company secretary Principal registered office in Australia Investment Manager John Steven (Chairman and Non-Executive director) Judith Smith (Non-Executive director) David Trude (Non-Executive director) Robert Brown (Director) Barry Fairley (Director) Matthew Sheehan C/- Acorn Capital Limited, ACN ,Level 12, 90 Collins Street, Melbourne Victoria 3000 Acorn Capital Limited Share registry Computershare Investor Services Limited, Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Auditor Legal adviser Stock exchange Website Ernst & Young, Level 23, 8 Exhibition Street, Melbourne, Victoria, 3000 Minter Ellison Lawyers, Rialto Towers, 525 Collins Street, Melbourne, Victoria 3000 Australian Securities Exchange, ASX Code: ACQ 1

4 Chairman s review CHAIRMAN S REVIEW Dear Shareholders On behalf of the Board, I am delighted to welcome shareholders to Acorn Capital Investment Fund Limited (the Company) and provide the inaugural review of operations. The Company listed on the Australian Securities Exchange on 1 May 2014 after successfully raising net proceeds of $50 million through the issuance of 50.8 million ordinary shares in conjunction with a 1 for 1 free attaching option. The Company s investment operations are managed by Acorn Capital Limited (the Manager), which is a specialist microcap fund manager based in Melbourne with approximately $1.1 billion (as at 30 June 2014) in funds under management. The Company benefits from the Manager having an experienced research driven team with an established track record of investing in listed and unlisted microcap entities. Prior to the Company s listing, the Manager s investment strategy of investing in both listed and unlisted microcap companies was available exclusively to large institutional investors. This strategy was first deployed in February 2009, following over four years of research and development by the Manager. The Manager s philosophy is that superior portfolio returns can be generated by identifying pricing inefficiencies in listed microcap companies, which tend to be under-researched and that these returns can be further enhanced by supplementing the portfolio with unlisted companies that are perceived as relatively more attractive and undervalued (adjusted for risk). The Manager s strategy has generated portfolio returns in excess of the All Ordinaries Accumulation Index and the S&P/ Small Ordinaries Accumulation Index since its initial deployment in February As at 30 June 2014 the Company s portfolio was still in the process of being constructed, and thus was 53% invested. The portfolio comprised 61 microcap securities, including two unlisted opportunities. The pre-tax Net Tangible Assets of the Company as at 30 June 2014 was $ per share, while its post-tax NTA was $ per share (refer to note 19). From the commencement of investment operations on 1 May 2014, through to 30 June 2014, the Company s investment portfolio achieved a return of 1.49% versus the S&P/ Small Ordinaries Accumulation Index, which over the same period achieved a return of -1.03%. I would like to thank you for your support of the Company. Your Directors and the Manager are committed to making the Company a success. John Steven Chairman 5 September

5 % Developing companies Sector Exposure, % Acorn Capital Investment Fund Limited Investment Manager s review INVESTMENT MANAGER S REVIEW MARKET COMMENTARY The Company s primary objective over the long term is to achieve after-fee returns on a diversified portfolio of listed and unlisted microcaps that are higher than the returns on the S&P/ASX Small Ordinaries Accumulation Index. The Manager defines microcap companies as entities which, at the time of investment by the Manager, have an equity valuation less than that of the 250 th largest entity listed on the ASX (approximately $480 million as at 30 June 2014). Another objective of the Company is to provide investors access to an asset class comprising of Australian listed and unlisted microcap companies through a single entity. The constituents of ASX-listed microcap companies differ from those companies in the ASX 250 by both corporate stage of development and sector composition, as shown in Figures 1 and 2. The Company s investment universe tends to be at an earlier stage of corporate development when compared with the constituents of the ASX 250. Figure 1 illustrates the Manager s estimation that as at 30 June 2014, more than 50% of the companies within the listed microcap asset class were developing companies (i.e. companies whose revenues equate to 10% or less of their market capitalisations), exemplified by companies involved in mineral exploration, biotech research, property developers etc. This is a similar characteristic to companies that are in the venture capital / growth private equity stage of growth. Figure 2 also shows that the listed microcap sector differs from the constituents of the ASX 250 in that the former has a lower exposure to banks but a higher exposure to resources. Fig 1. Developing Companies Comparison Fig 2. Sector Exposure Comparison 60% 35% 50% 30% 40% 30% 25% 20% 15% 20% 10% 10% 5% 0% Microcaps Small Ords ASX100 0% Banks & Insurance & Media Materials-Resources & Energy Microcaps Top250 Source: Acorn Capital, as at 30 June 2014 Source: Acorn Capital, as at 30 June 2014 Whilst there is no current data on the size of the unlisted Microcap universe, the Manager believes that it is large. As a proxy for the size of the unlisted microcap universe as at 2007, there were over 13,000 non-controlled large proprietary or unlisted public companies in Australia, a figure that the Manager estimates to have grown to around 16,000 as at The exposure to the microcap asset class through the Company provides the individual investor with access to a large investment universe (by number of companies) through a diversified portfolio. RESEARCH-DRIVEN INVESTMENT PROCESS The Manager s investment approach is to: Identify the best investment opportunities within each industry sector based on relative value, remaining largely sector neutral; Exploit inefficiencies in the pricing of listed and unlisted microcap companies that arise from information gaps due to a lack of research; and Manage risk through holding a diversified portfolio. Reflecting this philosophy, the Manager s investment process is research-driven, focusing on bottom-up stock selection in a structured, methodical and thorough manner and draws on experienced sector specialists. In the period from the Company s listing 3

6 Performance (%) Acorn Capital Investment Fund Limited Investment Manager s review to 30 June 2014, the Manager has had direct contact with approximately 280 investee companies and potential investment targets (both listed and unlisted). Once the portfolio construction is complete, the Company will have a portfolio of investments that are expected to have average investment durations of 3-5 years. SUMMARY OF RESULTS Returns for the financial year ended 30 June 2014, presented in Table 1 and Figure 3, show that the Company produced a post operating costs, pre-fee performance of 1.49% compared to the Small Ordinaries Accumulation Index performance of -1.03%, which resulted in outperformance of 2.52% for its initial two months of operations. Table 1. Performance of ACQ and relevant Indices Figure 3. Performance of ACQ and relevant Indices To 30 June 2014 FY14 / Since inception 2 ACQ % Acorn Capital / SIRCA Microcap Acc.Index % S&P/ASX Small Ords Acc. Index ( Benchmark ) -1.03% Outperformance Relative to Benchmark +2.52% 1. Portfolio performance is post all operating expenses, excluding management fees, taxes and initial IPO and placement commissions. Performance has not been grossed up for franking credits received by shareholders. All figures are unaudited, unlisted valuations performed by Acorn Capital in accordance with ACQ Board approved policies 2. Inception is 1 May Acorn Capital / SIRCA Microcap Accumulation Index data is verified 3 months in arrears by SIRCA 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% FY14 / Since Inception ACQ Acorn Capital SIRCA Microcap Acc Index S&P/ASX Small Ords Acc Index PORTFOLIO COMPOSITION The Manager has deployed the Company s funds where opportunities presented themselves and was 53% invested as at 30 June The Company s investment portfolio is still in the process of being constructed by experienced sector specialists. Once completed, the investments will be diversified across all industries. SECTOR PERFORMANCE Sectors that performed well for the Company during the year were Materials-Resources, Information Technology and Energy, partially offset by shortfalls in Consumer Staples, Healthcare and Telecommunication Services. Investment positions that performed well for the Company for the same period were Ambassador Oil, Sundance Energy, Papillon Resources, Perseus Mining and icar Asia. Stock positions that underperformed for the Company over the period were eservglobal, Mint Wireless, Horizon Oil and Gage Roads Brewing Co. I would like to take this opportunity to thank you for your support. Barry Fairley Managing Director Acorn Capital Limited 4

7 Information about the investment Manager INFORMATION ABOUT THE INVESTMENT MANAGER The manager of the Company is Acorn Capital Limited. The Manager is a Melbourne based boutique investment manager that is majority-owned by its employees and was established in The Manager currently has 26 employees, of whom 22 are investment professionals with an average 19 years relevant financial experience. The Manager has a long track record of investing in microcap equities for institutional investors and had approximately $1.1 billion in funds under management as at 30 June The Manager s investment philosophy is based on the belief that there are pricing inefficiencies amongst microcap companies due to their being a large and diverse group with minimal external research readily available on such entities. 5

8 Corporate Governance Statement CORPORATE GOVERNANCE STATEMENT Acorn Capital Investment Fund Limited (the Company) is a listed investment company whose shares and options are traded on the Australian Securities Exchange (ASX). The Company has no employees and its day-to-day functions and investment activities are managed by Acorn Capital Limited (Manager) in accordance with the Management Agreement dated 11 March 2014 (Management Agreement). The Board is committed to operating effectively and in the best interests of shareholders. This Corporate Governance Statement reports against the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations with 2010 Amendments (2 nd Edition) (ASX Recommendations). To the extent they are relevant to the Company, the ASX Recommendations have been adopted by the Company. Where, after due consideration, the Company s corporate governance practices depart from an ASX Recommendation, this Corporate Governance Statement sets out the reasons for the departure. The Company was formed on 10 February 2014 and its shares and options commenced trading on ASX on 1 May Consequently, the Company had limited operations during the relevant reporting period and as a result, in many circumstances, the reporting against the ASX Recommendations that occurs in this Corporate Governance Statement consists of statements of intent for the future. Principle 1: Lay solid foundations for management and oversight The Board is to act in the best interest of the Company as a whole and is accountable to shareholders for the overall direction, management and corporate governance of the Company. The Board has adopted a Charter that details the roles and responsibilities of the Board. The Board Charter can be found on the Company s website (see the tab ACIF (ASX:ACQ) at ). The principal responsibilities of the Board include: - overseeing the Company, including its control and accountability systems; - approving the Manager s investment strategy and delegating to the Manager the authorities provided in the Management Agreement; - monitoring the performance of the Manager and its compliance with its obligations under the Management Agreement; - reporting to shareholders; - determining and financing dividend payments based on the Manager s recommendations; - approving and monitoring financial and other reporting; - reviewing and ratifying systems of risk management, internal compliance and control, and legal compliance to ensure appropriate compliance frameworks and controls are in place; - reviewing and overseeing the implementation of the code of conduct for directors; - approving charters of board committees; - monitoring and ensuring compliance with legal and regulatory requirements and ethical standards and policies; and - monitoring and ensuring compliance with best practice corporate governance requirements. The investment function and day-to-day management of the Company has been outsourced to the Manager, under the terms of the Management Agreement. Consequently, there is no delegation of functions to senior management or a process to evaluate the performance of senior executives. The Manager is permitted to undertake investments on behalf of the Company without the prior approval of the Board. However, if the proposed investment is not in accordance with the investment objectives, strategy and guidelines, or if a proposed unlisted investment is one that has previously been undertaken by other clients of the Manager, Board approval is required. Principle 2: Structure the Board to add value The Board currently comprises five Directors, three of whom the Board has determined are independent: John Steven, Judith Smith and David Trude. John Steven is the Chairman and is an independent Director. Details of the background, length of tenure, experience, skills and expertise of each Director (as well as the period that each Director has held office and their independent status) are set out in the Directors Report on pages The Company has no executives and hence no Chief Executive Officer. Under the Board Charter, the Board must maintain a majority of Non-Executive Directors and have a Non-Executive independent Chairman. The Board Charter sets out the guidelines for determining Director independence, and provides that an independent Non-Executive Director is one who: - is independent of the Manager; - is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to 6

9 Corporate Governance Statement materially interfere with, the independent exercise of their unfettered and independent judgment; and - otherwise meets the criteria for independence set out in the ASX Recommendations. The Board regularly assesses whether each Non-Executive Director is independent and each Non-Executive Director provides to the Board all information relevant to his or her assessment. Pursuant to the Board Charter, the Directors have access to any information they consider necessary to fulfil their responsibilities and to exercise independent judgment when making decisions. Directors may also seek any independent professional advice they consider necessary to fulfil their responsibilities and to exercise independent judgment when making decisions. The Chairman of the Board determines whether the Company will pay a Director s costs of seeking independent professional advice. To assist it in discharging its duties, the Board has established a combined Nomination and Remuneration Committee (the N&R Committee). The N&R Committee Charter, being the charter under which the N&R Committee operates, can be found on the Company s website (see the tab ACIF (ASX:ACQ) at ). The membership of the N&R Committee comprises the three independent Non-Executive Directors. The current members are John Steven, Judith Smith and David Trude. No meetings of the N&R Committee were held in the relevant period. The N&R Committee has access to the Manager and may seek advice from appropriate external advisers. The Nomination and Remuneration Committee Charter sets out the role of the N&R Committee and its responsibilities, composition and membership requirements. The N&R Committee is responsible for: - identifying and recommending to the Board, nominees for membership of the Board; - identifying and assessing the necessary and desirable competencies and characteristics for board membership and regularly assessing the extent to which those competencies and characteristics are represented on the Board; - establishing processes for identifying suitable candidates for appointment to the Board to ensure an appropriate mix of expertise, experience and succession; - preparing, reviewing and updating on a regular basis, director s education and skills enhancement program; - ensuring succession plans for the Board are in place, where a report on such plans will be prepared and submitted to the Board at least once per year; and - recommending the removal of directors. The Board actively seeks to ensure that it has an appropriate mix of diversity (including gender diversity), skills, experience and expertise to enable it to discharge its responsibilities effectively, including experience and expertise in the areas of management and strategy, finance, banking, regulatory, accounting, mergers and acquisitions and law. The Board is committed to a performance culture and to ensuring that processes are in place to evaluate the performance of the Board and its Committees. Accordingly, the N&R Committee will annually review the Board s role, the processes of the Board and each Committee, as well as the performance of the Board and each Director and will also develop continuing education programmes for Directors. Having been formed on 10 February 2014 and listing on 1 May 2014, the Company is not yet in a position to effectively evaluate the performance of the Board, its Committees and individual Directors. This will occur over the course of the year. Given that the day-to-day functions and investment activities of the Company are managed by the Manager, the Board considers it appropriate to also regularly review the performance of the Manager against measurable and qualitative indicators as reflected in the Management Agreement and the terms of the Manager's delegated authority to ensure it is performing its role to the required standard. Principle 3: Promote ethical and responsible decision-making A Code of Conduct for Directors has been adopted and can be found on the Company s website (see the tab ACIF (ASX:ACQ) at ). The Company requires all of its Directors to comply with the standards of behaviour and business ethics in accordance with the law and the code of conduct. These include acting honestly and with integrity and fairness in all dealings with others and each other, managing conflicts of interest, complying with the laws that govern the Company s business and its operations and acting ethically in their approach to business decisions. Furthermore, the Company will also obtain assurances from the Manager that it has adopted an appropriate code of conduct which applies to its employees and directors. The Company has established a Diversity Policy, a copy of which can be found on the Company s website (see the tab ACIF (ASX:ACQ) at ). Under this policy, the Company affirms its commitment to achieving the goals of providing access to equal opportunities at work based on merit and fostering a corporate culture that embraces and values diversity. The Board will establish measurable objectives for achieving gender diversity and annually review 7

10 Corporate Governance Statement and assess both the measurable objectives for achieving gender diversity and the Company s progress in achieving them. Having been formed on 10 February 2014 and listing on 1 May 2014, the Company is not yet in a position to report on its progress against its gender diversity objectives. The Company s Board currently consists of five Directors, including one woman (Judith Smith). The Company has no employees and is managed by the Manager. The Manager has 26 employees, of whom 7 are women. None of the Manager s board of directors is a woman. Given the Manager s size, it does not differentiate between employees and senior executives. Principle 4: Safeguard integrity in financial reporting The Board has established an Audit Committee to assist the Board implement controls designed to safeguard the Company s interests and the integrity of its reporting. The Audit Committee Charter, being the charter under which the Audit Committee operates can be found on the Company s website (see the tab ACIF (ASX:ACQ) at ). The membership of the Audit Committee comprises the three independent Non-Executive Directors. The chairman will be an independent Non-Executive Director and will not be the chairman of the Board. The current members of the Audit Committee are John Steven, Judith Smith and David Trude. Their qualifications can be found on pages 14 and 15 of the Directors Report. No meetings of the Audit Committee were held during the relevant period. The objectives of the Audit Committee are to: - help the Board achieve its objective in relation to financial reporting, the application of accounting policies, legal and regulatory compliance and internal control and risk management systems; - maintain and improve the quality, credibility and objectivity of the financial accountability process; - promote a culture of compliance; - ensure effective communications between the Board and compliance representatives of the Manager; - provide a forum for communication between the Board and senior financial and compliance representatives of the Manager; - ensure effective internal and external audit functions and communications between the Board and the external and internal auditors; and - ensure compliance strategies and compliance functions are effective. The responsibilities of the Audit Committee include: - external financial reporting; - risk management and internal compliance and control systems; - assessing and monitoring key financial risk; - assessing and monitoring legal and regulatory risk; - disclosure and reporting; - internal and external audit. The Company s independent external auditor is Ernst & Young. The Audit Committee is responsible for recommending to the Board the appointment and removal of the external auditor. The independence and effectiveness of the external auditor will be reviewed regularly. The Committee is also responsible for ensuring that the external audit engagement partners are rotated in accordance with relevant statutory and best practice requirements. Principle 5: Make timely and balanced disclosure The Company is committed to complying with its continuous disclosure obligations under the Corporations Act 2001 and the ASX Listing Rules and releasing relevant information in a timely and direct manner and to promoting investor confidence in the Company and its securities. The Board has adopted a Continuous Disclosure Policy, the objectives of which are to: - ensure the Company immediately discloses all price-sensitive information to ASX in accordance with the ASX Listing Rules and the Corporations Act; 8

11 - ensure the Company s officers are aware of its continuous disclosure obligations; and Acorn Capital Investment Fund Limited Corporate Governance Statement - establish procedures for the collection, assessment and (if necessary) release of potentially price-sensitive information as well as responding to any queries from ASX. The Continuous Disclosure Policy, which can be found on the Company s website, also sets out the procedures which must be followed in relation to releasing announcements to the market and discussions with analysts, the media or shareholders. As the Company does not have senior executives, under the Management Agreement between the Company and the Manager, the Manager has agreed to assist the Company to comply with its continuous disclosure obligations under ASX Listing Rule 3.1 and section 674 of the Corporations Act 2001 by providing information and drafting ASX announcements for approval by the Board or its delegate. The Company has also established as a delegate of the board a Disclosure Committee to assist with this process. Principal 6: Respect the rights of securityholders The Board has adopted the Security holder Communications Policy, a copy of which can be found of the Company s website (see the tab ACIF (ASX:ACQ) at ). The purpose of the Security holder Communications Policy is to promote effective communication with shareholders and encourage effective participations at general meetings of the Company. The Company s primary portals are its website, Annual Report, Annual General Meeting, Half-Yearly and Full-Yearly Report, Monthly Net Tangible Asset reports and other periodic correspondence regarding matters affecting security holders. All shareholders have the opportunity to attend the Annual General Meeting and ask questions of the Board on, amongst other things, the management of the Company. Principle 7: Recognise and manage risk The Board, through the Audit Committee, is responsible for ensuring: - the oversight and management of material business risks to the Company; - that there are effective systems in place to identify, assess, monitor and manage the risks of the Company and to identify material changes to the Company s risk profile; - that there are arrangements in place to adequately monitor compliance with laws and regulations applicable to the Company. The Manager has implemented a risk management framework based on its Risk Management and Compliance Manual. This Manual identifies the key risks confronted by the Manager and the procedures required to offset them. Key risks identified include: - operational and investment risk; and - liquidity risk. In respect of the year ended 30 June 2014, the Chief Executive Officer and Chief Financial Officer of the Manager have reported to the Board and provided the Board with declarations that: - in their opinion, the financial records of the Company have been properly maintained; - in their opinion, the Company s financial statements and associated notes comply with the Accounting Standards; - the Company s financial statements and associated notes give a true and fair view of the financial position (as at 30 June 2014) and performance of the Company for the year ended 30 June 214; and - their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively in relation to financial reporting risks and material business risks. Principle 8: Remunerate fairly and responsibly The Company has no employees other than Non-Executive Directors and therefore does not have a remuneration policy for employees. Details of the Non-Executive Directors Remuneration arrangements can be found on page 18 of this Annual Report. Remuneration of the Directors is not linked to the performance of the Company and the Company does not operate any schemes for the payment of retirement benefits to Non-Executive Directors. As such, the Company does not 9

12 Corporate Governance Statement have or require a share trading policy which includes a prohibition on entering into transactions which limit the economic risk of participating in unvested entitlements under an equity-based scheme. In addition to the functions discussed in Principle 2, the N&R Committee is responsible for: - reviewing the remuneration of non-executive directors for serving on the Board and any committee; - recommending to the Board the remuneration, retirement and termination policies for non-executive directors having regard to market trends and shareholder interests; and - reviewing any insurance premiums or indemnities for the benefit of directors. The management of the Company is performed by the Manager and it is entitled to be paid management and performance fees. Details of these fees are set out in the Company s prospectus on page 54. The fees paid to the Manager for the period ended 30 June 2014 are set out in the Financial Statements of the Company on page 46/note16(d). 10

13 ACN Directors' report and financial statements for the reporting period ended 30 June

14 Directors' report Directors' report The Directors of Acorn Capital Investment Fund Limited (the Company), present their report together with the financial statements of the Company for the period from 1 May 2014 to 30 June 2014 ('the reporting period'). Acorn Capital Investment Fund Limited is a company limited by shares and is incorporated in Australia. The Company is a newly incorporated Australian public company that was registered on 10 February 2014 and commenced operations and became listed on the Australian Securities Exchange on 1 May The Board has concluded that the Company is an investment entity under AASB 10. The Company s prospectus details its objective of investing in a diversified portfolio of Microcap Companies for the purpose of achieving long term capital growth. All investments are reported at fair value pursuant to Australian accounting standards in the Company s annual report. Directors The following persons were directors of the Company during the reporting period and up to the date of this report: John Steven (Chairman and Non-Executive director) Judith Smith (Non-Executive director) David Trude (Non-Executive director) Robert Brown (Director) Barry Fairley (Director) Principal activities The principal activity of the Company is to invest predominantly in a portfolio of listed and unlisted microcap companies. The investment manager is Acorn Capital Limited (the Manager), an established boutique asset manager with a long track record of successfully investing in microcap companies. Review and results of operations During the reporting period, the Company continued to invest funds in accordance with its governing documents. The most appropriate measure of the Company's financial performance is total comprehensive income. Total comprehensive income/(loss) for the reporting period ended 30 June 2014 was $464,203. Total comprehensive income includes the profit/(loss) after tax and both realised and unrealised gains/(losses) on the Company's investments. The Company's profit/(loss) before income tax for the reporting period was $663,147. The profit/(loss) after income tax for the reporting period was $464,203. Basic earnings per share after income tax were 0.91 cents for the reporting period. $'000 Profit/(loss) before income tax expense 663 Income tax expense 199 Profit/(loss) after income tax attributable to the owners of the Company 464 Equity 49,730 12

15 Directors' report Directors' report Net Tangible Assets Backing (NTA) per share As at 30 June 2014 (non-ifrs) For monthly NTA For Financial Reporting Reporting $/share $/share NTA per share before income tax ($/share) NTA after income tax excluding tax on unrealised gains ($/share) NTA per share after income tax ($/share) The NTA per ordinary share for monthly NTA reporting as required by ASX Listing Rule 4.12 is calculated in accordance with the ASX Listing Rule Refer to Note 20 for details on the Net Assets used to calculate the NTA per ordinary share. Dividends No dividend was declared or paid during the reporting period. Significant changes in state of affairs The Company is a newly incorporated Australian public company which became listed on the Australian Securities Exchange on 1 May There were no significant changes in the state of affairs during the reporting period since it became listed. Events occurring after the reporting period No matters or circumstances have arisen since 30 June 2014 that have significantly affected, or may significantly affect: (a) (b) (c) the Company's operations in future reporting periods; or the results of those operations in future reporting period; or the Company's state of affairs in future reporting periods. Business strategies, prospects and likely developments The Chairman s Letter sets out information on the Company s business strategies. The results of the Company's operations may be affected by a number of factors, including the performance of investment markets in which the Company invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Information in the Chairman s Letter and this Directors Report is provided to enable shareholders to make an informed assessment about the business strategies and prospects for future financial years of the Company. Information that could give rise to likely material detriment to the Company, for example, information that is commercially sensitive, confidential or could give a third party a commercial advantage has not been included. Other than the information set out in the Chairman s Letter and this Directors Report, information about other likely developments in the Company s operations and the expected results of these operations in future financial years has not been included. Environmental regulations The operations of the Company are not subject to any particular environmental regulations under a Commonwealth, State or Territory Law. Information on directors The following persons were Directors of the Company during the financial year and up to the date of this report: Name Title Appointment date John Steven Chairman and Independent Non-Executive director 6 March 2014 Judith Smith Independent Non-Executive director 6 March 2014 David Trude Independent Non-Executive director 6 March 2014 Robert Brown Director 6 March 2014 Barry Fairley Director 6 March

16 Directors' report Directors' report John Steven (Chairman and Independent Non- Executive director) John Steven is the head of the National Corporate Division and a member of the National Board of Minter Ellison. He practises in the corporate and capital markets area, particularly public and private mergers and acquisitions, capital raisings and joint ventures. He also has an extensive general corporate practice. John holds a Bachelor of Laws (with Honours), a Bachelor of Economics and a Diploma of Commercial Law from Monash University. Other current directorships John is currently Chairman of the Advisory Committee of the private investment funds on behalf of commercial and State government investors (appointed February 2009) and Member of St Catherine s School Council (appointed May 2002). Former directorships in the last 3 years Nil Special responsibilities John is the Chairman of the Board. John is also is a member of the Audit Committee and the Nomination and Remuneration Committee. Interests in shares of the Company Details of John s interests in the Company are included later in this report. Interests in contracts Details of John s interests in contracts of the Company are included later in this report. Judith Smith (Independent Non-Executive director) Judith was formerly the Head of Private Equity at IFM Investors and Chair of the IFM Risk Committee. Judith was also a member of the IFM Investments Committee, a role she has retained following her retirement from the firm. Prior to her role at IFM, Judith held various investment management roles including more than a decade at National Mutual Funds Management (NMFM). At NMFM, she managed Australian equity research and strategy, as well as Australian equity portfolios. Judith holds a Master of Applied Finance from the University of Melbourne and a Bachelor of Economics (with Honours) from Monash University. She is a Fellow of the Financial Services Institute of Australasia and Graduate member of the Australian Institute of Company Directors. Other current directorships Judith is currently a Director of the Australian Renewable Energy Authority (appointed July 2012). Former directorships in the last 3 years Judith was a Director of Australian Private Equity and Venture Capital Association Limited (November 2005 to November 2012). Special responsibilities Judith is a member of the Audit Committee and the Nomination and Remuneration Committee. Interests in shares of the Company Details of Judith s interests in the Company are included later in this report. Interests in contracts Details of Judith s interests in contracts of the Company are included later in this report. David Trude (Independent Non-Executive director) David is a senior corporate banking executive with 40 years experience in a variety of financial services roles in the banking and securities industries. He is the Chairman of Baillieu Holst (formerly E.L.&C. Baillieu), a position he has held since 2010 and has been a member of its Board since David was formerly Managing Director, Australian Chief Executive Officer/Country Manager of Credit Suisse, where he is currently a Consultant. David holds a Bachelor of Commerce from the University of Queensland and is a Master Stockbroker Member of the Stockbroker Association of Australia and Member of the Australian Institute of Company Directors. Other current directorships David is currently Chairman of Baillieu Holst Limited (appointed October 2006), Chairman of Hansen Technologies Limited (appointed May 2011), Director of CHI-X Australia Pty Limited (appointed September 2011), East West Line Parks Limited (appointed May 2010),and Waterford Retirement Village Pty Limited (appointed June 1999). 14

17 Directors' report Directors' report Former directorships in the last 3 years Nil Special responsibilities David is a member of Audit Committee and Nomination and Remuneration Committee. Interests in shares of the Company Details of David s interests in the Company are included later in this report. Interests in contracts Details of David s interests in contracts of the Company are included later in this report. Robert Brown (Director) Robert Brown is an independent director of the Manager and is Chairman of its subsidiary Australian Microcap Investments Pty Ltd. He is an emeritus professor of finance in the Department of Finance, University of Melbourne, where his research has focused on security market behaviour. He holds a Bachelor of Economics (Honours) and Master of Economics from the University of Sydney and a Graduate Diploma in Accounting from Victoria College. He is a fellow of CPA Australia, a senior fellow of the Australasian Institute of Financial Services and a graduate of the Australian Institute of Company Directors. Other current directorships Robert is currently a Director of the Manager, Acorn Capital Limited (appointed November 1998) and its wholly owned subsidiary Australian Microcap Investments Pty Limited (appointed December 2008). Former directorships in the last 3 years Nil Special responsibilities Nil Interests in shares of the Company Details of Robert s interests in the Company are included later in this report. Interests in contracts Details of Robert s interests in contracts of the Company are included later in this report. Barry Fairley (Director) Barry Fairley is the Managing Director of the Manager. In this capacity he is responsible for the strategic direction and management of the Manager. Barry founded the Manager in 1998 and has more than 40 years of investment experience. Prior to forming the Manager, Barry was the Managing Director at Triako Resources Limited. During his 15 years at Triako Resources, Barry was responsible for the company s strategic direction and management, including the acquisition and financing of major projects. Barry also served as a Partner/Director at McIntosh Securities Limited. Barry began his career at Colonial Mutual Life where he was a Financial Analyst. Barry holds a Diploma in Mining Engineering and is a Senior Associate of the Financial Services Institute of Australasia. Other current directorships Barry is currently a director of the Manager, Acorn Capital Limited (appointed May 1998) as well as its wholly-owned subsidiary, Australian Microcap Investments Pty Limited (appointed September 2007). Former directorships in the last 3 years Nil Special responsibilities Nil Interests in shares of the Company Details of Barry s interests in the Company are included later in this report. Interests in contracts Details of Barry s interests in contracts of the Company are included later in this report. 15

18 Directors' report Directors' report Company secretary Matthew Sheehan Matthew Sheehan is an Investment Director with the Manager, responsible for the origination, assessment and ongoing management of unlisted investments, with a particular focus on the structuring and documentation of unlisted investments. He is also the Legal Counsel and Company Secretary of the Manager. Matthew began his career as a private practice lawyer and worked at firms in Melbourne, New York and London. Prior to joining the Manager in April 2009, Matthew worked at Macquarie Group as the General Counsel and Company Secretary of Macquarie Communications Infrastructure Group and Macquarie Specialised Asset Management Limited. Matthew holds a Bachelor of Economics (Honours) from Monash University and Bachelor of Laws (Honours) and Masters of Applied Finance from the University of Melbourne. Meeting of directors The numbers of meetings of the Company's Board of Directors held during the reporting period ended 30 June 2014, and the numbers of meetings attended by each director were: Board Meetings A B John Steven 5 5 Judith Smith 5 5 David Trude 5 5 Robert Brown 5 5 Barry Fairley 4 5 A = Number of meetings attended B = Number of meetings held during the time the director held office during the reporting period No board committee meetings were held during the reporting period ended 30 June Indemnification and insurance of officers and auditors The Company maintains directors deeds of indemnity, insurance and access for each director. During the reporting period, the Company paid insurance premiums for liability incurred by a person as a director while acting in that capacity, except where the liability arises out of conduct involving lack of good faith. Due to confidentiality obligations and undertakings of the insurance policy, no further details in respect of the premium or the policy can be disclosed. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Company are important. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services have been reviewed by the Manager to ensure they do not impact the impartiality and objectivity of the auditor, and; none of the services undermine the general principles relating to auditor independence as set out in APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or a decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Details of the amounts paid or payable to the auditor (Ernst & Young) for audit and non-audit services provided during the reporting 16

19 Directors' report Directors' report period are set out below. $'000 Non-audit services Review of pro-forma financial information for inclusion in the Prospectus prior to the Company being listed 43 Audit services Audit and review of financial statements and other audit work under the Corporations Act Total remuneration for non-audit and audit services 70 Fees paid to and interests held in the Company by the Manager or its associates Fees paid to the Manager out of Company property during the reporting period are disclosed in note 16 of the financial statements. No fees were paid out of Company property to the directors of the Manager during the reporting period. The number of interests in the Company held by the Manager or its associates as at the end of the reporting period are disclosed in note 16 of the financial statements. Interests in the Company The movements in units on issue in the Company during the reporting period are disclosed in note 12 of the financial statements. The value of the Company's assets and liabilities is disclosed in the statement of financial position and derived using the basis set out in note 2 of the financial statements. The Company does not provide Shares or Options to the Directors as remuneration, however, the Directors have purchased interests in the Company and hold the following interests in the Company at the date of this report (5 September 2014): Name Ordinary Shares Options John Steven Nil Nil Judith Smith 25,000 25,000 David Trude 30,000 30,000 Robert Brown 10,000, 10,000 Barry Fairley 325, ,000 Comparative information There is no comparative information for the Company since these financial statements are its first annual financial statements. Rounding of amounts The Company is of a kind referred to in Class Order 98/0100 (as amended) issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the Directors' Report. Amounts in the Directors' Report have been rounded to the nearest thousand dollars in accordance with that Class Order unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page

20 Directors' report Directors' report Remuneration report (Audited) There is no remuneration paid to executives by the Company as their services are provided pursuant to an agreement with the Manager as disclosed below. The Company has no employees other than Non-Executive Directors and therefore does not have a remuneration policy for employees. Accordingly, this remuneration report outlines the remuneration policy and arrangements that are in place for Directors of the Company only. Barry Fairley is a Director of the Company and the Manager. He is remunerated by the Manager and will not receive Directors fees or any other direct form of remuneration from the Company for his services. Robert Brown is a Director of the Company and the Manager. He is remunerated by the Manager and will not receive Directors fees or any other direct form of remuneration from the Company for his services. Name Position Appointment Date Short-term employee benefits Cash salary and fees Postemployment benefits Superannuation $ $ $ John Steven Non-Executive Chairman 6 th March ,918 2,082 24,000 Judith Smith Non-Executive Director 6 th March ,511 1,379 15,890 David Trude Non-Executive Director 6 th March ,511 1,379 15,890 Barry Fairley Director 6 th March Robert Brown Director 6 th March Total 50,940 4,840 55,780 Total Remuneration policy The Board of Directors policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required, subject to the Board s approval. Relationship between remuneration policy and the Company performance Remuneration of the directors is not linked to the performance of the Company. Remuneration arrangements Following their appointment, it is proposed (inclusive of superannuation) that the Independent Directors will receive the following amounts for the first full year: John Steven $60,000 Judith Smith $40,000 David Trude $40,000 Barry Fairley is a Director of the Company and the Manager. He is remunerated by the Manager and will not receive Directors fees or any other direct form of remuneration from the Company for his services. Robert Brown is a Director of the Company and the Manager. He is remunerated by the Manager and will not receive Directors fees or any other direct form of remuneration from the Company for his services. 18

21 Directors' report Directors' report Remuneration report (Audited) Management agreement The Company and the Manager have entered into the Management Agreement whereby, subject to the provisions set out below, the Company has exclusively appointed the Manager to invest and manage all of the assets of the Company (including any controlled entity of the Company) from time to time, for and on behalf of the Company, for an initial term of 5 years commencing on 1 May At any time after the date on which the Company s securities first commence trading on ASX, the Manager may request that the Company call and arrange to hold a meeting of the Company s shareholders to consider and, if appropriate, approve a resolution renewing the term of the Management Agreement for a further period of 5 years, with such 5 year period to commence on the date of the resolution (such resolution being the Renewal Resolution). If the Renewal Resolution is approved by the Company s shareholders, the term of the Management Agreement will be automatically renewed such that the Management Agreement will continue until the date that is 5 years after the date of the relevant approved Renewal Resolution. Once a Renewal Resolution has been passed the Manager is not entitled to any further renewal of the term. After the end of the Term (defined in the Management Agreement as the initial 5 year term or any renewed term), the Management Agreement will continue until terminated in accordance with the Management Agreement. Remuneration details for the reporting period ended 30 June 2014 The directors do not receive any benefits or remuneration other than directors' fees and statutory superannuation. Details of the remuneration of the directors, the key management personnel of the Company (as defined in AASB 124 Related Party Disclosures) are set out in the following tables: Name Short-term employee benefits Cash salary and fees Postemployment benefits Superannuation $ $ $ John Steven 21,918 2,082 24,000 Judith Smith 14,511 1,379 15,890 David Trude 14,511 1,379 15,890 Total 50,940 4,840 55,780 Total Annual entitlement Name Total $ John Steven 60,000 Judith Smith 40,000 David Trude 40,000 Total 160,000 19