Annual Financial Report 31 December 2014
CONTENTS Australia Pty Limited ABN 17 010 643 270 Directors report 1 2 Lead auditor s independence declaration 3 Independent auditor s report 4-5 Directors declaration 6 Statement of comprehensive income 7 Statement of financial position 8 Statement of changes in equity 9 Statement of cash flows 10 Notes to the financial statements 11-26
DIRECTORS REPORT A The directors present their report together with the financial report of Deutsche Managed Investments Limited ( the Company ) for the year ended 31 December 2014 and the independent auditor s report thereon. Directors The following persons held office as directors of the Company at any time during or since the end of the financial year: Mr. Kevin Kosovich appointed 20 March 2008 Mr. Andrew Fay appointed 10 July 2008 Mr. David Irving appointed 7 March 2013 Mr. Nicholas Vasudeva appointed 7 March 2013 Company Secretary T Unwin appointed 20 December 2013 Principal activities The Company is domiciled in Australia and is a public limited company incorporated in Australia. The registered office is: Level 16, Deutsche Bank Place Cnr Hunter & Phillip Streets SYDNEY NSW 2000 The company holds an Australian Financial Services Licence. The principal activity is the issuance of structured investment products to the retail market in Australia. Results and review of operations The profit after income tax attributable to the members of Deutsche Managed Investments Limited was $147,401 (2013: $140,154). Dividends No dividends have been paid or proposed since establishment. State of affairs In the opinion of the directors there were no significant changes in the state of affairs of the Company that occurred during the financial year not otherwise disclosed in the report or the financial statements. Likely developments The Company does not currently have any plans to change its operating activities, investments or financing arrangements. 1
STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2014 2014 2013 Note $ $ Interest income 5 931,410 1,080,768 Interest expense 5 (762,150) (886,863) Net interest income 169,260 193,905 Other income 5 101,104 107,036 Total income 270,364 300,941 Administrative and other expenses (59,793) (100,722) Profit before income tax 210,571 200,219 Income tax expense 6 (63,170) (60,065) Profit after tax 147,401 140,154 Other comprehensive income, net of tax - - Total comprehensive income 147,401 140,154 Attributable to: Equity holders of the parent 147,401 140,154 The above statement of comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 11 to 26. 7
STATEMENT OF FINANCIAL POSITION As at 31 December 2014 Note 2014 2013 $ $ Assets Cash and cash equivalents 64,339 61,395 Loans and advances 7 6,598,270 6,453,813 Financial assets at fair value through profit and loss 8 5,437,788 6,597,175 Total assets 12,100,397 13,112,383 Liabilities Financial liabilities at fair value through profit and loss 9 5,437,788 6,597,175 Total liabilities 5,437,788 6,597,175 Net assets 6,662,609 6,515,208 Equity Share capital 11 5,500,001 5,500,001 Retained profits 1,162,608 1,015,207 Total equity 6,662,609 6,515,208 The above statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 11 to 26. 8
STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2014 Share capital Retained profits Total equity $ $ $ Balance at 1 January 2013 5,500,001 875,053 6,375,054 Total comprehensive income for the year Total comprehensive income - 140,154 140,154 Transactions with owners, recorded directly in equity Issue of share capital Balance at 31 December 2013 5,500,001 1,015,207 6,515,208 Balance at 1 January 2014 5,500,001 1,015,207 6,515,208 Dividends paid - - - Total comprehensive income for the year Total comprehensive income - 147,401 147,401 Transactions with owners, recorded directly in equity Issue of share capital - - - Balance at 31 December 2014 5,500,001 1,162,608 6,662,609 The above statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 11 to 26. 9
STATEMENT OF CASH FLOWS For the year ended 31 December 2014 2014 2013 Note $ $ Cash flows from operating activities Commission and fees received 101,104 107,036 Payments to suppliers (59,793) (100,722) Interest received 168,571 197,943 Tax related payments to parent entity (63,170) (183,777) Net cash from operating activities 12 (ii) 146,712 20,480 Cash flows from investing activities Increase / (decrease) in funds on short-term deposit (143,768) 44,762 Withdrawal of deposits 1,159,387 8,114,729 Net cash from investing activities 1,015,619 8,159,491 Cash flows from financing activities (Repayment of) / receipts from borrowings with related parties - (62,204) Redemption of issuance (1,159,387) (8,114,729) Net cash used in financing activities (1,159,387) (8,176,933) Net increase in cash and cash equivalents 2,944 3,038 Cash and cash equivalents at 1 January 61,395 58,357 Cash and cash equivalents at 31 December 12 (i) 64,339 61,395 The above statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 11 to 26. 10
For the year ended 31 December 2014tsche Securitisation Australia Pty Limited ABN 17 010 643 270 1 REPORTING ENTITY Deutsche Managed Investments Limited ( the Company ) is a company domiciled in Australia. The entity is a for-profit entity. 2 BASIS OF PREPARATION The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards ( AASBs ) adopted by the Australian Accounting Standards Board ( AASB ) and the Corporations Act 2001. The financial statements of the Company also comply with International Financial Reporting Standards ( IFRS ) and the interpretations adopted by the International Accounting Standards Board. The financial statements were approved by the Board of Directors on 23 March 2015. The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the periods presented unless otherwise stated. The financial statements are presented in Australian dollars, which is the Company s functional and presentation currency. The financial statements have been prepared on the basis of historical costs except that derivative financial instruments and financial instruments designated at fair value through profit and loss are stated at their fair value. The preparation of the financial statements in conformity with AASBs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgement or complexity, or areas where assumption and estimates are significant to the financial statement are the valuation of derivatives measured at fair value (refer to Note 8 & 9). The following standards, amendments to standards and interpretations are available for early adoption at 31 December 2014, but have not been applied in preparing the financial statements: Reference AASB 9 IFRS 15 Summary Includes new requirements for the classification and measurement of financial assets and financial liabilities, derecognition of financial assets and financial liabilities, impairment and hedge accounting to replace AASB 139 Financial Instruments: Recognition and Measurement. IFRS 15 establishes a framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS18 Revenue. Application date of standard Impact on Entity financial report 1 January 2018 The Entity is assessing the potential impact on its financial statements. 1 January 2017 The Entity is assessing the potential impact on its financial statements. 11
For the year ended 31 December 2014tsche 2 BASIS OF PREPARATION (CONT) The Entity has adopted the following new standards and amendments to standards as at 1 January 2014. The impact of the adoption as a result of the changes in accounting policies are summarised below: Reference Summary Impact on Entity financial report IAS 32 and IFRS 7 and AASB 2012-2 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS32) clarifies the meaning of currently has a legally enforceable right to set off. The amendments clarify that rights of set-off must not only be legally enforceable in the normal course of business, but must also be enforceable in the event of default and the event of bankruptcy or insolvency of all of the counterparties to the contract, including the reporting entity itself. In addition, these standards require additional disclosure requirements on offsetting financial assets and financial liabilities. The application of the standard did not result in material impact to the Entity s financial statements. 3 SIGNIFICANT ACCOUNTING POLICIES (a) Revenue recognition Revenues are recognised on an accrual basis net of the amount of goods and services tax ( GST ). (i) Net Interest Income Interest from interest-bearing assets is recognised on an accrual basis over the life of the asset based on the constant effective yield reflected in the terms of the contract and any related fees, premiums, discounts or debt issuance costs. (b) Financial instruments designated at fair value through profit and loss The deferred purchase agreements are designated at fair value through profit and loss as the assets or liabilities are managed, evaluated and reported on a fair value basis. They are initially recognised at fair value. Subsequent to initial recognition, it is stated at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the statement of comprehensive income as part of net trading income. The fair value is determined by use of a pricing model if a quoted market price is not available, on the basis that it is an offsetting risk position. If an active market does not exist, management establishes fair value by use of a valuation technique, such as a pricing model that incorporates market data and discounted cash flow techniques. (c) Financial liabilities designated at fair value through profit and loss The issuances are designated at fair value through profit and loss and are recognised initially at fair value. Subsequent to initial recognition, they are stated at fair value with the gain or loss on re-measurement to fair value recognised immediately in the statement of comprehensive income as net trading income. The fair value is determined by use of a pricing model if a quoted market price is not available, on the basis that it is an offsetting risk position. If an active market does not exist, management establishes fair value by use of a valuation technique, such as a pricing model that incorporates market data and discounted cash flow techniques. As the fair value option is applied to both financial assets and liabilities, embedded derivatives have not been bifurcated and separately accounted for. (d) Cash and cash equivalents Cash includes cash on hand and at bank and short-term deposits at call. 12
For the year ended 31 December 2014tsche 3 SIGNIFICANT ACCOUNTING POLICIES (CONT) (e) Loans and advances Loans and advances include loans and deposits, call accounts with the parent entity, and amounts receivable from related parties. Loans and advances are recognised when cash is advanced to borrowers. They are initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method, less impairment losses. Interest income and loan origination fees are recognised using the effective interest method. (f) Borrowings Borrowings include amounts payable to parent and related entities. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. (g) Impairment of assets The carrying amounts of the Company s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the statement of comprehensive income, unless an asset has previously been re-valued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the statement of comprehensive income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. (h) Administrative and other expenses Deutsche Australia Limited provides general administrative support and assistance as well as the payment of various fees and expenses, including audit fees, on behalf of the Company. These transactions are on normal commercial terms. (i) Share capital Ordinary shares Ordinary shares are classified as equity. Dividends on ordinary share capital are recognised as distributions within equity. (j) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax ( GST ), except where the amount of GST incurred is not recoverable from the Australian Taxation Office ( ATO ). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statements of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. 13
For the year ended 31 December 2014sche 3 SIGNIFICANT ACCOUNTING POLICIES (CONT) (k) Taxation Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at balance sheet date. In determining the amount of current tax the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of the tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expenses in the period that such determination is made. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Tax consolidation The Company is a wholly-owned subsidiary in a tax-consolidated group with effect from 1 January 2003. The head entity within the tax-consolidated group is Deutsche Australia Limited. The current and deferred tax amounts arising from temporary differences of the members of the tax consolidated group are allocated among the entities in the group using a group allocation approach, under which the current and deferred tax amounts for the tax-consolidated group are allocated among each entity in the group. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are assumed by the head entity. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses assumed by the head entity from the subsidiaries in the tax-consolidated group are recognised as amounts receivable or payable to other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). The Company recognises deferred tax assets arising from unused tax losses to the extent that it is probable that future taxable profits of the Company will be available against which the asset can be utilised. In accordance with the standard Income Taxes ( AASB 112 ), the Company offsets its deferred tax assets against its deferred tax liabilities where the Company has a legally enforceable right to set off its current tax asset against its current tax liabilities and the deferred tax assets and deferred tax liabilities of the Company relate to income taxes levied by the same taxation authority. 14
For the year ended 31 December 2014che 3 SIGNIFICANT ACCOUNTING POLICIES (CONT) (k) Taxation (cont) Nature of tax funding and tax sharing arrangements The Company, in conjunction with other members of the tax-consolidated group, have entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity. Any tax-loss deferred tax asset assumed by the head entity results in the Company recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity receivables/(payables) are at call. The head entity recognises the assumed current tax amounts as current and deferred tax liabilities/(assets), adding to its own current tax amounts, since they are also due to or from the same taxation authority. The current tax liabilities/(assets) are equivalent to the tax balances generated by external transactions entered into by the taxconsolidated group. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity s obligation to make payments for tax liabilities to the relevant tax authorities. The Company, in conjunction with other members of the tax-consolidated group, have also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as breach of payment of any amounts under the tax sharing agreement is considered remote. 4 ACCOUNTING ESTIMATES AND JUDGEMENTS Revisions to accounting estimates are recognised in the period in which they relate to, for both current and future periods. Key sources of estimation uncertainty Determining fair values The determination of fair values for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy Note 3(b). For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The fair values of assets and liabilities designated at fair value through profit and loss are determined by using globally approved Deutsche Bank Group pricing models with reference to observable market data. The variants for the model such as volatilities and interest rate curves are sourced from market data. Fair values are validated by comparison to similar instruments where market observable prices exist. The Company has established internal control procedures over the valuation process to provide assurance over the appropriateness of the fair value applied. If fair value is determined by valuation models, the assumptions and techniques within the models are independently validated by a specialised group. Price and parameter inputs, assumptions and valuation adjustments are subject to verification and review processes. If the price and parameter inputs are observable, they are verified against independent sources. If prices and parameter inputs or assumptions are not observable, the appropriateness of fair value is subject to additional procedures to assess its reasonableness. Such procedures includes performing revaluations using independently generated models, assessing the valuations against appropriate proxy instruments, performing sensitivity analysis and extrapolation techniques, and considering other benchmarks. Refer to Notes 8 and 9 for fair values of financial assets and liabilities. 15
For the year ended 31 December 2014tsche 4 ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT) Critical accounting judgements in applying the Company s accounting policies Critical accounting judgements in applying the Company s accounting policies include the classification of financial assets and liabilities. The Company s accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances. In designating financial assets or liabilities at fair value through the profit or loss, the Company has determined that it has met one of the criteria for this designation as set out in accounting policy Note 3(b). 5 PROFIT BEFORE TAX Profit before income tax expense has been arrived at after crediting/(debiting) the following items: 2014 2013 $ $ Interest income - Loans and advances - parent entities 164,438 180,178 - Interest other 4,822 13,727 - Financial assets at fair value through profit and loss 762,150 886,863 931,410 1,080,768 Net trading income / (expense) - Financial assets at fair value related party (230,176) 973,297 - Financial liabilities at fair value 230,176 (973,297) - - Other income - Net fees and commissions 101,104 107,036 Interest expense - Financial liabilities at fair value through profit and loss (762,150) (886,863) The deferred purchase agreements and issuances are remeasured to their fair value resulting in offsetting trading income and expense of $(230,176) and $230,176 respectively (2013: $973,297 and ($973,297)). Interest is recognised separately in interest income or expense, respectively, in accordance with the Company s accounting policy. 6 TAXATION (a) Income tax expense 2014 2013 $ $ Current tax expense Current year 63,170 60,065 Total income tax expense in statement of comprehensive income 63,170 60,065 Numerical reconciliation between tax expense and pre-tax net profit Profit before tax 210,571 200,219 Income tax using the domestic corporation tax rate of 30% (2013: 30%) 63,171 60,065 Adjustment in respect of prior years (1) - Income tax expense on pre-tax net profit 63,170 60,065 16
For the year ended 31 December 2014sche 6 TAXATION (CONT) (a) Income tax expense (cont) Under the tax funding arrangement the Company and the head entity recognise an inter-entity payable/(receivable) equal in amount to the current tax liability/(asset) initially assumed by the Company and subsequently assumed by the head entity. The Company continues to recognise tax expense/(income) even though it has derecognised its current tax liability or asset in accordance with UIG 1052. 7 LOANS AND ADVANCES 2014 2013 $ $ Current Loan to parent entities 6,584,092 6,440,324 Accrued interest - Receivable from parent entities 14,178 13,489 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS 6,598,270 6,453,813 2014 2013 $ $ Current Deferred purchase agreements - related party 5,437,788 6,597,175 The Company has entered into a deferred purchase agreement with Deutsche Bank AG which has exposed the Company to the equity performance of a portfolio of companies. The deposit and related equity-linked certificates are managed and their performance monitored on a fair value basis (refer Note 9). 9 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS 2014 2013 $ $ Current Equity-linked certificates 5,437,788 6,597,175 The equity-linked certificates are issued to 3rd party retail investors. These certificates have been designated as financial liabilities at fair value through profit and loss. The certificates and deferred purchase agreements are managed and their performance monitored on a fair value basis (refer Note 8). 17
For the year ended 31 December 2014sche 10 FINANCIAL INSTRUMENTS Risk Management The wide variety of businesses requires the Company to identify, measure, aggregate and manage risks effectively, and to allocate capital among the businesses appropriately. Risk is managed through a framework of risk principles, organisational structures and risk measurement and monitoring processes that are closely aligned with the activities of group divisions. The Company adopts the risk management policies of the Deutsche Bank Group. The Company is part of the Australian and New Zealand Region. The Australian and New Zealand Regional Risk Committee ( RRC ) is a permanent sub-committee of the Group Risk Committee and is responsible for reviewing risk positions across business divisions. The RRC comprises representatives from both risk and capital management and the business lines. The integrated framework of risk principles is responsible for identifying, assessing, managing and reporting credit, market, liquidity, operational and business risks. The risk management function works in conjunction with the risk control function to ensure that appropriate risk management practices are consistent with suitable risk limit structures. The controlling, audit and legal departments support the risk management function. They operate independently both of the group division and of the risk management function. These functions ensure that dealers, trading heads and executive management are well informed on all aspects of transactions that incur market risk. An extensive risk limit structure has been developed to provide suitable constraints for trading activities to allow revenue budgets to be met along with a prudent approach to risk taking. The market risk limit structure addresses value-at-risk exposures (i.e. expected capital risk due to trading activities), operational risks as addressed by front office risk management function and possible liquidity risks. These limits cover four asset classes: foreign exchange, interest rates, commodities and equities along with their related derivative products and are determined by global business heads in conjunction with local trading heads and the local management. (a) Credit risk Credit risk is the risk that the Company will incur a loss as a result that a counterparty fails to meet its obligations to the entity when due. The credit risk exposure of the entity is to Deutsche Bank AG, its ultimate holding company. Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor (referred to collectively as counterparties ). The Group distinguishes among three kinds of credit risk: Default risk is the risk that counterparties fail to meet contractual payment obligations. Settlement risk is the risk that the settlement or clearance of transactions will fail. It arises whenever the exchange of cash, securities and/or other assets is not simultaneous. Country risk is the risk of suffering a loss, in any given country, due to any of the following reasons: a possible deterioration of economic conditions, political and social upheaval, nationalisation and expropriation of assets, government repudiation of indebtedness, exchange controls and disruptive currency depreciation or devaluation. Country risk includes transfer risk which arises when debtors are unable to meet their obligations owing to an inability to transfer assets to non-residents due to direct sovereign intervention. 18
For the year ended 31 December 2014che 10 FINANCIAL INSTRUMENTS DISCLOSURE (CONT) (a) Credit risk (cont) Credit risk is managed in a coordinated manner at all relevant levels within the Group. This also holds true for complex products which are typically managed within a framework established for trading exposures. The following principles underpin the approach to credit risk management: In all group divisions consistent standards are applied in the respective credit decision processes. The approval of credit limits for counterparties and the management of individual credit exposures must fit within portfolio guidelines and credit strategies. Every extension of credit or material change to a credit facility (such as its tenor, collateral structure or major covenants) to any counterparty requires credit approval at the appropriate authority level. Credit approval authorities are assigned to individuals according to their qualifications, experience and training, and are reviewed periodically. The credit risk of financial assets of the Company that have been recognised on the statement of financial position is the carrying amount, net of any provision for impairment. Exposures are the subject of an active and ongoing review process and monitoring as dictated by the exposure and the extent of the underlying credit risk. Where necessary, adequate and appropriate security is obtained for the exposure. Exposure to credit risk The table below shows the maximum exposure to the credit risk for the components of the statement of financial position. Credit risk from derivatives is limited to those with positive fair value, as recorded in the statement of financial position. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements: 2014 2013 Note $ $ Cash and cash equivalents 64,339 61,395 Loans and advances 7 6,598,270 6,453,813 Financial assets at fair value through profit and loss 8 5,437,788 6,597,175 12,100,397 13,112,383 Risk concentration of exposure to credit risk by asset class Concentration of credit risk is managed by asset class. The credit risk concentrations of the Company are solely within the financial, investment and insurance industry. Credit quality by asset class As at 31 December 2014 and 31 December 2013, there are no financial assets past due but not impaired, nor impaired financial assets. There is no collateral held on the assets above. (b) Market risk Market risk is the risk that the fair value of future cash flows of the financial instruments held by the Company will fluctuate due to changes in equity prices, credit spreads or interest rates. Changes to the fair value as a result of financial assets at fair value through profit and loss have offsetting impact from the changes in fair value of financial liabilities at fair value through profit and loss. As a result, any reasonable change in interest rates or equity prices would not affect the profit and loss and equity of the Company. 19
For the year ended 31 December 2014che 10 FINANCIAL INSTRUMENTS (CONT) Exposures to market risk Interest rate risk arises primarily from the market rate movements of the Company s loans and other receivables to a related party. As at 31 December 2014, if interest rates moves upwards, with all other variables held constant, a movement of 80 basis points will result in a positive impact on the profit and loss of $50,330 (2013: $51,624). (c) Liquidity risk Liquidity risk is the risk of failure to meet on-balance sheet and off-balance sheet payment obligations. The liquidity risk management framework is designed to identify and manage drivers of liquidity risk. Group Treasury is responsible for the identification, the measurement, the monitoring and the management of the Group s liquidity risk. It has the authority to issue internal guidelines and execute all measures required to keep the Bank s liquidity risk profile within the defined risk tolerance. The Company is covered by the Deutsche Australia Limited declaration of backing. The table below summarises the maturity profile of the Company s financial liabilities at balance sheet date based on contractual undiscounted repayment obligations. Note Total / Carrying At Call amount $ $ 31 December 2014 Financial liabilities Financial liabiltities at fair value through profit and loss* 9 5,437,788 5,437,788 5,437,788 5,437,788 31 December 2013 Financial liabilities Financial liabiltities at fair value through profit and loss* 9 6,597,175 6,597,175 6,597,175 6,597,175 * Financial liabilities at fair value through profit or loss have long term contractual maturities, but are actively traded and therefore are liquid immediately. (d) Fair values of financial assets and liabilities Monetary financial assets and liabilities are determined by valuing them at the present value of contractual future cash flows discounted at applicable market yields. The carrying amounts of cash, amounts payable or receivable with financial institutions approximate their fair values. Non monetary items and other items are deemed to be recorded at their fair value as they are either considered to be held short term or are tested for impairment. The carrying value of the Company s financial assets at 31 December 2014 and 31 December 2013 approximates their fair value. The following table shows an analysis of financial assets and liabilities recorded at fair value, between those fair value based on quoted market prices, those involving valuation techniques where all the model inputs are observable in the market and those where the valuation techniques involves the use of non-market observable inputs. 20
For the year ended 31 December 2014he 10 FINANCIAL INSTRUMENTS DISCLOSURE (CONT) (d) Fair values of financial assets and liabilities (cont) Fair value hierarchy Financial assets and liabilities carried at fair value are categorised under a three-level hierarchy as follows, depending on the fair value measurements applied: Level 1: The fair value of instruments that are quoted in active markets are determined using quoted prices where they represent those at which regularly and recently occurring transactions take place. Level 2: Instruments classified in this category are measured using valuation techniques with observable parameters. Level 3: Instruments classified in this category have a parameter input or inputs which are unobservable and which have a more than insignificant impact on either the fair value of the instrument or the profit or loss of the instrument. Level 1 - Published prices in active markets Level 2 - Valuation techniques with observable parameters Level 3 - Valuation techniques with unobservable parameters Total 31 December 2014 $ $ $ $ Financial Assets Financial assets at fair value through profit and loss - 763,468 4,674,320 5,437,788 Financial Liabilities Financial liabilities at fair value through profit and loss - 763,468 4,674,320 5,437,788 Level 1 - Published prices in active markets Level 2 - Valuation techniques with observable parameters Level 3 - Valuation techniques with unobservable parameters Total 31 December 2013 $ $ $ $ Financial Assets Financial assets at fair value through profit and loss - 4,245,379 2,351,796 6,597,175 Financial Liabilities Financial liabilities at fair value through profit and loss - 4,245,379 2,351,796 6,597,175 21
For the year ended 31 December 2014tsche 10 FINANCIAL INSTRUMENTS DISCLOSURE (CONT) (d) Fair values of financial assets and liabilities (cont) Level 3 movement summary The following table shows a reconciliation from the beginning balances to the ending balances for fair value movements in Level 3 of the fair value hierarchy: Level 3 Financial Assets Movement Summary 2014 2013 $ $ Opening balance - 1 January 2,351,796 2,435,418 Deferred purchased agreements - transferred out (2,351,796) (2,435,418) Total Gains and losses recognised in profit or loss (315,148) (808,264) Deferred purchase agreements - transferred in 4,989,468 3,160,060 Closing balance - 31 December 4,674,320 2,351,796 Level 3 Financial Liabilities Movement Summary Opening balance - 1 January 2,351,796 2,435,418 Equity linked certificates - transferred out (2,351,796) (2,435,418) Total Gains and losses recognised in profit or loss (315,148) (808,264) Equity linked certificates - transferred in 4,989,468 3,160,060 Closing balance - 31 December 4,674,320 2,351,796 The Company recognises transfers between the levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. Positions are transferred in to Level 3 when their unobservable inputs result in a 5% or greater change in present value. Unobservable inputs are flexed quarterly on each position to assess where they are recognised in the fair value hierarchy. Positions are shown as transferred out when they mature. The table below sets out information about significant unobservable inputs used at year end in measuring financial instruments categorised as Level 3 in the fair value hierarchy: Type of Financial Instrument Fair Value as at 31 December 2014 Fair Value as at 31 December 2013 Valuation technique Significant unobservable input Range of estimates for unobservable input Deferred purchase agreements 4,674,320 2,351,796 Option model Correlation +/- 15 percentage points Equity Linked Certficiates 4,674,320 2,351,796 Option model Correlation +/- 15 percentage points 22
For the year ended 31 December 2014tsche 10 FINANCIAL INSTRUMENTS DISCLOSURE (CONT) (d) Fair values of financial assets and liabilities (cont) Sensitivity Analysis of Level 3 financial assets and liabilities Where the value of trading securities is dependent on unobservable parameter inputs, the precise level for these parameters at the balance sheet date might be drawn from a range of reasonably possible alternatives. In preparing the financial statements, appropriate levels for these unobservable input parameters are chosen so that they are consistent with prevailing market evidence and in line with the Company s approach to valuation control. If the Company was to have marked the financial instruments concerned using parameter values drawn from the extremes of the ranges of reasonably possible alternatives then as of 31 December 2014, it would have increased equity by $108,587 after tax (2013: an increase of $228,294) and an equal change in the opposite direction would have decreased equity by $108,587 after tax (2013: a decrease of $228,294). For such investments classified at fair value through profit or loss, the gross impact on profit or loss (and equity) would be an increase and decrease of $108,587 after tax (2013: $228,294). The disclosure above is intended to illustrate the potential impact of the relative uncertainty in the fair value of trading securities for which valuation is dependent on unobservable input parameters. However, it is unlikely in practice that all unobservable parameters would be simultaneously at the extremes of their ranges of reasonably possible alternatives. Hence, the estimates disclosed above are likely to be greater than the true uncertainty in fair value at the balance sheet date. Furthermore, the disclosure is not predictive or indicative of future movements in fair value. Fair Value of Financial Assets and Liabilities not carried at fair value The following table analyses the fair values of financial instruments not measured at fair value by the fair value hierarchy into which each fair value measurement is categorised: Level 1 - Published prices in active markets Level 2 - Valuation techniques with observable parameters Level 3 - Valuation techniques with unobservable parameters Total Fair Values Total Carrying Amount 31 December 2014 $ $ $ $ $ Assets Cash and cash equivalents 64,339 - - 64,339 64,339 Loans and advances - 6,598,270-6,598,270 6,598,270 64,339 6,598,270-6,662,609 6,662,609 31 December 2013 Level 1 - Published prices in active markets Level 2 - Valuation techniques with observable parameters Level 3 - Valuation techniques with unobservable parameters Total Carrying Amount Total Fair Values $ $ $ $ $ Assets Cash and cash equivalents 61,395 - - 61,395 61,395 Loans and advances - 6,453,813-6,453,813 6,453,813 61,395 6,453,813-6,515,208 6,515,208 23
For the year ended 31 December 2014tsche 11 SHARE CAPITAL 2014 2013 $ $ Issued and paid up share capital 5,500,001 ordinary shares, fully paid (2013: 5,500,001) 5,500,001 5,500,001 In the event of winding up, the Company s ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholder meetings. 12 NOTES TO THE STATEMENT OF CASH FLOWS (i) Reconciliation of cash and cash equivalents For the purposes of the statement of cash flows, cash includes cash on hand and at bank and short-term deposits at call. Cash as at the end of the financial period as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: 2014 2013 $ $ Cash and cash equivalents - on hand 64,339 61,395 (ii) Reconciliation of profit after income tax to net cash provided by operating activities 2014 2013 $ $ Cash flows from operating activities Profit after income tax 147,401 140,154 Changes in assets and liabilities (Increase)/Decrease in loans and advances (690) 4,038 (Decrease) in other borrowings and financial liabilities - (123,712) Net cash from operating activities 146,712 20,480 13 AUDITOR REMUNERATION Fees for services rendered to the Company by the auditors consist of fees for the audit of financial statements of $8,496 (2013: $9,255) and other assurance services of $5,580 (2013: $5,580). The fees are paid by Deutsche Group Services Pty Limited. 24
For the year ended 31 December 2014tsche 14 RELATED PARTIES Key Management Personnel Disclosures Directors The key management personnel compensations are directly borne by Deutsche Australia Limited. 2014 2013 $ $ Short-term employee benefits 793,503 732,824 Post-employment benefits 23,246 24,131 Long-term benefits 208,727 177,681 Termination benefits - 115,615 Equity compensation benefits 361,042 318,009 1,386,518 1,368,260 Post-employment benefits relate to superannuation. All transactions with key management personnel are in the ordinary course of business and on usual commercial terms. Apart from the details disclosed in this note, no key management personnel has entered into a material contract with the Company since the end of the previous financial year and there were no material contracts involving key management personnel interests existing at year-end. Non-Key Management Personnel Disclosures Parent entities The parent entity of the Company is Deutsche Australia Limited, a company domiciled in Australia. The ultimate parent entity is Deutsche Bank AG which is domiciled in Germany. Transactions with related entities Balances with parent entities are disclosed in notes 7 and 8. These transactions are in the ordinary course of business and on usual commercial terms. Deutsche Group Services Pty Limited pays certain costs and expenses incurred by the Company. 15 COMMITMENTS AND CONTINGENCIES There were no commitments or contingencies for the Company as at 31 December 2014 (2013: nil). 25
For the year ended 31 December 2014tsche 16 CAPITAL MANAGEMENT The Capital and Risk Committee and the Risk Executive Committee of the Group have been established to integrate further risk and capital management activities: The Capital and Risk Committee is responsible for the risk profile and capital planning, capital capacity monitoring and optimisation of funding. The Risk Executive Committee is responsible for management and control of the aforementioned risks across the consolidated Group. Dedicated risk and capital management units are established with the mandate to: ensure that the business conducted within each division is consistent with the risk benchmarks that the Capital and Risk Committee have set; formulate and implement risk and capital management policies, procedures and methodologies that are appropriate to the businesses within each division; approve credit risk, market risk and liquidity risk limits; conduct periodic portfolio reviews to ensure that the portfolio of risks is within acceptable parameters; and develop and implement risk and capital management infrastructures and systems that are appropriate for each division. The capital managed at the Company level consist of ordinary share capital as disclosed in the statement of financial position. The capital management processes are formulated to ensure compliance with local regulatory requirements. These regulatory requirements include the following: the licensing requirements to be met as a holder of the Australian Financial Services Licence. No changes were made to these objectives, policies and processes during and from the previous financial year. The Company is in compliance with all licensing requirements at balance sheet date. 17 EVENTS SUBSEQUENT TO REPORTING DATE No transaction or event of a material and/or unusual nature has arisen in the interval between the end of the last financial year and the date of this report likely, in the opinion of the directors of the Company, to significantly affect the operations of the Company, the results of the operations or the state of affairs of the Company in future financial years. 26