2015 annual report - omf · trade and other receivables 8 2,398 1,563 total current assets 103,030...

2015 Annual Report

Contents

Results in Brief 03

2015 Key Points 04

Managing Director’s Report 05

Financial Statements 08

Notes to the Financial Statements 13

Statutory Information 30

Independent Auditor’s Report 31

Company Particulars 33

Results in Brief

2015$000

2014$000

2013$000

Revenue and other income 17,063 12,437 11,743

Profit before income tax expense 2,862 1,424 1,468

Profit attributable to owners of the Company 2,021 1,001 1,027

Total equity 10,323 9,341 9,091

2,500

2,000

1,500

1,000

500

0

Revenue and Other Income NZ $000s

2013 2014 2015

Capital and Reserves NZ$ 000s

2013 2014 2015

2013 2014 2015

Profit Attributable to Owners of the Company

20,000

17,500

15,000

12,500

10,000

5,000

7,500

2,500

0

12,500

10,000

7,500

5,000

2,500

0

03 / 35

2015 Key Points

3

Shareholder funds at year end — $10m

4

OMF — New focus, new image

5

Wellington team relocates to new office

Product suite expands to include online equities platform, OMF MarketTrader

6

2

Net profit after tax — $2m

Operating revenue — $17m

1

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Managing Director’s ReportThe 2015 financial year has been one of major development and innovation for OMF as we strive towards offering an evolving suite of platforms and services to meet the needs of our clients. The momentum that we gained in 2014 has continued throughout the year and I am pleased to report OMF’s financial performancefor the year ending 31 March 2015.

Total income was $17.1m from $12.5m with resulting Net Profit after Tax being $2.0m. This significant increase was a result of ongoing strategies contributing growth income, along with careful monitoring of expenses and capital expenditure. OMF’s balance sheet also showed strong growth with assets in excess of $100m and are well in excess of our regulatory requirements. Shareholder funds are $10.3m.Our after tax return on capital also showed significant improvement at 20%.

We have developed a robust business strategy to ensure that we capitalise on opportunities and meet our strategic priorities. The achievement of a number of business objectives over the 2015 financial year include:

In an unprecedented phase of global volatility, our 24 hour service has proved its worth with both day and night dealing desks providing a constant source of support and round the clock execution services. Additionally, our profile in the media has also risen as we become a respected and trusted commentator on market conditions.

1

The redesign of the OMF website to promote our platforms and services

2

The launch of OMF MarketTrader, OMF’s online equity trading platform

3

Significant progress towards OMFx24, a deliverable FX payments solution that allows clients to send/receive payments online

4

Innovative IT developments that allow clients the ability to register for a demo account, or sign up for new accounts online

6

Push on building the OMF brand in the market place

5

Organisation restructure and new appointments to allow enhancement to our client service ability

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OMF Business LinesThe recent investment in technology has resulted in a shift from the original phone based advisory and execution business model to a hybrid model, offering a phone based service and/or a fully integrated online solution across most of our business lines. The solution offers our clients complete control over their trading while still being able to access the high touch advisory service that they have come to expect from us.

Foreign Exchange The last 12 months saw OMF further diversify our product offering in the foreign exchange market following the launch of OMF cTrader in 2014. This offering continues to build momentum with a growing client base and turnover exceeding several billion dollars in its first full year.

We are excited to be able to deliver an online solution to our deliverable foreign clients and we expect to launch OMFx24 in the second half of 2015. OMFx24 is a sophisticated execution platform that will rival bank platforms when transacting overseas.

FuturesIt has been a period of ‘business as usual’ on the futures desk with the provision of a 24 hour execution and class advice service across the global commodity and futures markets.

We have continued to build our presence in the dairy market which has seen volumes increase exponentially in the last twelve months. Our intention is to focus more resources in this area as the NZX lists more exchange traded products. We have applied to the NZX to become Trading & Execution and Clearing members which will allow us to link directly to the Exchange and increase our profitability in this area.

Equities OMF MarketTrader has become a first class solution for the sophisticated trader, allowing clients to trade a full range of global equity products and access comprehensive reporting and professional research tools from some of the world’s most respected data providers.

Our experienced equities team have been providing value to our clients through extensive research and analysis to identify trading opportunities. We have constructed shadow portfolios to track the success of our recommendations with some very impressive results.

Wholesale Interbank BrokingThe commitment to servicing the wholesale interbank broking market from our Wellington office resulted in a significant investment in new premises, technology and staff. The new office provides the infrastructure to meet the needs of both clients and staff, and is vital to our growth strategy.

Carbon & Energy Our electricity business in both New Zealand and Australia continues to grow across exchange traded electricity futures and the local over–the–counter markets. We have also increased our presence in the financial transmission rights market both here and in Australia.

Our carbon market presence remains strong as the Emissions Trading Scheme enters its seventh year of operation. There are a number of regulatory changes happening in the New Zealand ETS which has seen our scheme move to a domestic–only market.

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Regulation and GovernanceThe markets we operate in are subject to significant regulatory oversight and we have invested heavily in training and education to ensure that we have a dealing desk that is manned by highly qualified and experienced dealers.

Recent changes to the way in which financial service providers distribute information regarding financial products to investors has resulted in a major overhaul to the way we provide advice to our clients and our compliance and management team have approached this with a meticulous and dedicated project group to ensure that we comply.

As always, we work closely with NZX and Financial Markets Authority to ensure we are responding to changes in the regulatory environment and we strive to maintain best practice at all times.

OutlookOMF is set to continue the aggressive investment in technology, staff and new markets. Our implementation of a deliverable, payments and hedging portal is imminent and we expect to provide further enhancements to our cTrader offering including CFD’s. Expansion in new regions is also on our growth agenda.

Over the last year and set to continue, OMF has invested considerable amounts of money, management time and legal consultants in managing the transition across the myriad of NZX, AML, and FMA regulations coming to the market. OMF prides itself in meeting these important regulatory hurdles and encourage the various regulators to look closely at non regulated entities to ensure a level playing field.

Our leadership team has grown to ensure that the demands of the business are met throughout this period. Each director brings energy and dedication to the strategic development of the OMF business. The key members of the leadership team are:

— Lance Jones – Chief Operating Officer — Nigel Brunel – Director, Financial Markets — Matthew Blackwell – Director, Business Development — Kenny Campbell – Managing Director, Wholesale Markets — Leo Clifford – Director, Wholesale Markets — Sam Twigg – Director, Wholesale Markets

OMF’s commitment to providing a world class service where the client is at the heart of everything we do is underpinned by our core values of trust, expertise and passion. The last financial year has allowed us to deliver on those values and exceed our client’s expectations across the business lines that we proudly offer and we look forward to maintaining those values in the year ahead.

I would like to thank all of the staff at OMF for their ongoing contribution, our clients for their loyal and ongoing support and assure our shareholders that we are working hard to deliver yet another successful and profitable 2016 financial year.

Brian WattManaging Director

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Financial Statements

Statement of Comprehensive Income

Statement of Changes in Equity

Balance Sheet

Cash Flow Statement

Notes to Financial Statements

Statement of Comprehensive Income For the year ended 31 March 2015

Note March 2015$000

March 2014$000

Revenue 3 17,069 12,453

Other loss 4 (6) (16)

Fees to auditors 5 (93) (82)

Directors’ fees (113) (103)

Donations (10) (4)

Operating lease expense (350) (276)

Depreciation, amortisation and impairment charges 6 (481) (513)

Employee benefit costs (8,978) (7,051)

Information and communications (1,628) (1,447)

System maintenance and support (598) (324)

Other expenses (1,950) (1,213)

Profit before income tax expense 2,862 1,424

Income tax expense 7 (841) (423)

Profit for the year attributable to owners of the Company 2,021 1,001

Other comprehensive income – –

Total comprehensive income attributable to owners of the Company 2,021 1,001

The accounting policies and notes on pages 16 to 32 form an integral part of these financial statements.

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For the year ended 31 March 2015 Statement of Changes in Equity

Note Share capital$000

Retained earnings

$000

Total equity$000

Balance as at 1 April 2013 4,723 4,368 9,091

Profit for the year 13 – 1,001 1,001

Other comprehensive income – – –

Total comprehensive income – 1,001 1,001

Transactions with ownersDividends 13 – (751) (751)

Balance as at 31 March 2014 4,723 4,618 9,341

Balance as at 1 April 2014 4,723 4,618 9,341

Profit for the year 13 – 2,021 2,021

Other comprehensive income – – –

Total comprehensive income – 2,021 2,021

Transactions with ownersShare issue 12 1,048 – 1,048

Dividends 13 – (2,087) (2,087)

Balance as at 31 March 2015 5,771 4,552 10,323


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As at 31 March 2015 Balance Sheet

Note March 2015$000

March 2014$000

Current AssetsProprietary cash and cash equivalents 6,719 7,217

Client funds held 93,554 64,205

Financial derivatives held at fair value 19 328 –

Emission units 31 165

Trade and other receivables 8 2,398 1,563

Total Current Assets 103,030 73,150

Non–Current AssetsProperty, plant and equipment 9 907 326

Intangible assets 9 985 377

Deferred tax assets 10 105 105

Trade and other receivables 8 – 270

Total Non–Current Assets 1,997 1,078

Total Assets 105,027 74,228

Less Current LiabilitiesTrade and other payables 11 1,497 935

Client accounts 93,112 63,516

Current tax liability 85 38

Financial derivatives held at fair value 19 – 99

Total Current Liabilities 94,694 64,588

Less Non–Current LiabilitiesTrade and other payables 11 10 299

Total Liabilities 94,704 64,887

Net Assets 10,323 9,341

EquityCapital and reserves attributable to owners of the CompanyShare capital 12 5,771 4,723

Retained earnings 13 4,552 4,618

Total Equity 10,323 9,341


The Board of Directors of OM Financial Limited authorised these financial statements for issue on 4 June 2015.

Director4 June 2015

Director4 June 2015

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Note March 2015$000

March 2014$000

Cash Flows from Operating ActivitiesCash was provided from:Net interest receipts 14 2,631 1,688

Commissions 14 13,858 10,353

Net client cash deposits/(withdrawals) 14 29,596 21,144

Interest received from clients 14 126 156

Cash was applied to:Payments to suppliers (4,441) (3,356)

Payments to employees (8,945) (6,966)

Net client bank/broker account (deposits)/withdrawals 14 (29,820) (21,494)

Net taxation paid (794) (535)

Net cash inflows from operating activities 2,211 990

Cash Flows from Investing ActivitiesCash was applied to:Fixed asset purchases (817) (82)

Intangible asset purchases – software (853) (373)

Net cash outflows from investing activities (1,670) (455)

Cash Flows from Financing ActivitiesCash was provided from:Share issue 1,048 –

Repayment of loan to Parent – 122

Cash was applied to:

Payment of dividend (2,087) (751)

Net cash outflows from financing activities (1,039) (629)

Net decrease in proprietary cash held (498) (94)

Opening proprietary cash brought forward 7,217 7,311

Closing proprietary cash carried forward 6,719 7,217

Reconciliation of Profit After Tax to Net Cash Flows from Operating Activities

March 2015$000

March 2014$000

Profit after tax for the year 2,021 1,001

Increase in trade and other payables 174 547

Decrease in broker accounts (224) (350)

Increase/(decrease) in net tax liabilities 47 (112)

Increase in accounts receivable (288) (609)

Non–cash itemsDepreciation, amortisation and impairment charges 481 513

Net cash inflows from operating activities 2,211 990

For the year ended 31 March 2015 Cash Flow Statement


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Reporting entityThe principal activity of OM Financial Limited (the Company) is to provide its clients access to global financial markets, in order to trade financial instruments that include: futures, options, foreign exchange, contracts for difference, various equity instruments (derivative contracts) and carbon units.

Clients deposit funds to enable the trade of contracts and to keep these contracts open. All client money is segregated into client bank and client fund accounts as required by “The Futures Industry (Client Funds) Regulations 1990” and in accordance with New Zealand Exchange regulations.

The Company also operates a wholesale inter–bank brokerage operation, where banks execute various financial instruments through our Wellington office, resulting in commission revenue. The Company invoices the trading banks for commission revenue on a monthly basis.

For the past few years the Company has successfully grown its carbon broking business, through which the Company helps participants in the carbon market transact carbon units, resulting in commission revenue.

The Company is 100% owned by its Parent, OM Holdings Limited. Both are limited liability companies incorporated and domiciled in New Zealand. The registered office address of both companies is Level 2, 187 Broadway, Newmarket, Auckland, New Zealand.

These financial statements were approved for issue by the Board of Directors on 4 June 2015. The entity’s owners and Board have the power to amend the financial statements after issue.

Basis of preparationThe financial statements represented here are for the reporting entity of OM Financial Limited.

OM Financial Limited is a Company registered under the Companies Act 1993. These financial statements have been prepared in accordance with the requirements of the Financial Conduct Act 2013, the Companies Act 1993 and New Zealand Generally Accepted Accounting Practice (NZGAAP). They comply with International Financial Reporting Standards (IFRS). They comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable New Zealand Financial Reporting Standards, as appropriate for profit–oriented entities. The Company is a profit–oriented entity.

These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets, which are stated at fair value. The functional currency of the Company is the New Zealand dollar. The presentation currency of these financial statements is the New Zealand dollar, rounded to the nearest thousand.

Changes in accounting policy and disclosures

Standards adopted in the current year:NZ IAS 32 Financial Instruments: Presentation was amended effective for periods beginning on or after 1 January 2014. The amendments include additional disclosure requirements for offsetting financial assets and financial liabilities. The Company has applied NZ IAS 32 retrospectively from 1 April 2014.

Standards not yet effective or early adopted:NZ IFRS 9 Financial Instruments: (effective retrospectively for annual periods beginning on or after 1 January 2018). NZ IFRS 9 introduces new requirements for classifying and measuring financial assets and liabilities and replaces the corresponding section of NZ IAS 39 Financial Instruments: Recognition and Measurement. The Company will apply NZ IFRS 9 retrospectively from 1 April 2018. The Company is currently in the process of assessing the impact on the Company’s financial statements.

General Information

1

Statement of Accounting Policies

2


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Critical accounting estimates and assumptionsThe preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Company’s accounting policies. The Company does not have any areas involving a high degree of judgement or complexity. The following estimates and assumptions are made:

Trade and other receivables:Estimations: All foreign currency receivables have been converted to New Zealand dollars, using the Reuters spot exchange rate captured the evening of 31 March each year end. The exchange rate exposure of these receivables is effectively managed at the time the revenue is recognised in the financial statements.

Assumptions: The Company assumes the trading bank receivables disclosed in note 8 will be paid. These relate to inter–bank deals the Company arranged and is due to receive commission income on. Confirmation between the banks and the Company prove the deal has taken place, so it is purely a matter of the banks paying outstanding invoices, and no impairment is provided.

Foreign currenciesProprietary monetary assets and liabilities in foreign currency at balance date are converted at rates of exchange ruling at that date. Proprietary foreign currency transactions are converted to New Zealand dollars using the exchange rates prevailing on the dates of the transaction.

Foreign exchange gains or losses, resulting from the settlement of such transactions and from the translation at year–end exchange rates of proprietary monetary assets and liabilities denominated in foreign currencies, are recognised in the Statement of Comprehensive Income as “other gains” or “other loss”.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of sales–related taxes. Revenue is derived whenever a client order is filled and the client enters into a contract (trade derivative contracts). This revenue is classified as commission. Revenue generated from the wholesale inter–bank business is recognised as commission. Revenue generated from facilitating client emission units trading, on a give–up basis and by OMF purchasing and on selling emission units and facing clients directly, are also recognised as commission.

Interest revenue is recognised using the effective interest rate method. Interest revenue is earned on proprietary balances and from the net of interest receipts/payments relating to client cash and trading activity. The netting of this interest is further explained in note 14.

Share capital and dividendsOrdinary shares are classified as equity. Dividend distribution to the Company’s shareholder is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Board.

Property, plant, equipment and depreciationProperty, plant and equipment have been valued at cost less accumulated depreciation and impairment. Depreciation on fixed assets is calculated on a diminishing value basis so as to write off the cost of each asset to its residual value over its expected useful life. Estimates of useful lives and residual values are made on a regular basis. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the Statement of Comprehensive Income. The following depreciation rates are used in the calculation of depreciation:

Plant and equipment 18% – 60% Leasehold improvements 9% – 39%


Continued

2


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Intangible assetsAcquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The diminishing rate on computer software is between 48% and 100%. Amortisation is calculated on a diminishing value basis so as to write off the cost of each asset over its expected useful life. Intangible assets have been valued at cost less accumulated amortisation and impairment.

Impairment of non–financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.

The recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

LeasesLeases in which the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception, at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges, so as to achieve a constant rate on the finance balance outstanding.

The corresponding rental obligations, net of finance charges, are included in other long–term payables. The interest element of the finance cost is charged to the Statement of Comprehensive Income over the lease period, so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

The property, plant and equipment acquired under a finance lease are depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight–line basis over the period of the lease.

Financial assets

Classification: The Company classifies its financial assets in the following categories: at fair value through profit or loss; and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of the Company’s financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss:Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short–term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

(b) Loans and receivables:Loans and receivables are non–derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the Balance Sheet date. These are classified as non–current assets.

Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Company commits to purchase or sell an asset.

Measurement:Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.

Financial assets carried at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the Statement of Comprehensive Income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Loans and receivables are carried at amortised cost, using the effective interest method. The carrying value of all classes of financial assets and liabilities is reasonably approximate to fair value.


Continued

2


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The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques.

The Company assesses at each Balance Sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of trade receivables is described in the trade receivables accounting policy.

Offsetting financial assets and financial liabilitiesFinancial assets and liabilities are offset and the net amount reported on the Balance Sheet when there is a legally enforceable right to set–off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

PayablesTrade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

Client trading accountsClient accounts are recognised initially at fair value and are subsequently adjusted for the daily mark–to–market of the underlying derivative contracts.

Client fundsClient funds represent client deposits received by the Company as a result of clients wanting to trade in derivative contracts and the fair value of any open derivative contracts at balance date.

Client derivative financial instrumentsThe Company enters into back–to–back derivative contracts with its clients and counterparties for every derivative contract the client undertakes. These instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets. All client derivatives are carried at fair value and reflected in the Client Trading Accounts and Client Funds Held amounts, disclosed on the face of the Balance Sheet. This reflects the Company’s back–to–back arrangement for each contract its clients enter into.

The Company recognises any cash flow implications from the transaction when the contracts are entered into. Financial instruments on the Balance Sheet include proprietary balances, client accounts, client funds held, accounts payable and other receivables.

Proprietary derivative financial instrumentsThe Company enters into foreign exchange swap contracts to effectively manage the foreign currency cash flow timing differences that arise from the clients’ trading. The cash flow of currency is significant; by proactively managing these flows, the Company is able to substantially reduce the costs that arise from facilitating clients’ open contracts.

The swaps are short term and the cost of entering into these contracts is effectively “swap interest”. Swap interest is netted against the interest revenue generated from clients holding derivative contracts open.

At balance date, the Company marks–to–market all foreign currency swaps under financial derivatives held at fair value.

Emission unitsEmission units are initially measured at cost. After initial recognition, the emission units are carried at fair value, with any changes taken to the Statement of Comprehensive Income. Fair value is determined by reference to observable market data.

Trade receivablesTrade and other receivables are recognised initially at fair value plus transaction costs and are subsequently measured at amortised cost, using the effective interest rate method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimate future cash flows, discounted at the effective rate. The amount of the provision is recognised in the Statement of Comprehensive Income.


Continued

2


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Proprietary cash and cash equivalentsCash and cash equivalents include cash on hand, deposits held on call with banks, other short–term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Balance Sheet.

Cash flow statementThe following definitions are used in the Cash Flow Statement:

— Cash is cash on hand and deposits held on call with banks, net of bank overdrafts. — Operating activities include all activities that are not investing or financing activities. — Investing activities relate to the acquisition, holding and disposal of fixed assets and investments. — Financing activities relate to changes in the Company’s capital/debt structure.

Employee benefitsProvision is made for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. The Company does not currently offer long service leave as all employees are entitled to five weeks annual leave.

Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values, using the remuneration rate expected to apply at the time of settlement. All the Company’s employee benefits are expected to be settled within 12 months. The Company does not currently offer any long–term or post–employment benefits.

Goods and services tax (GST)The Statement of Comprehensive Income, Cash Flow Statement and the Balance Sheet have been prepared so that all components are stated inclusive of GST. The Company performs financial services and cannot claim any GST input credits on expenses.

Income taxThe current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the Balance Sheet date. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities used for taxation purposes and their carrying amounts in the financial statements.

Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by balance date and are expected to apply when the related tax liability (asset) is settled (realised).

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available, against which the temporary differences can be utilised.

Changes in accounting policiesThere have been no significant changes in accounting policies during the year. Accounting policies have been applied on a basis consistent with the prior year.


Continued

2


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March 2015 $000

March 2014$000

Commission 14,292 10,604

Interest revenue

Proprietary 305 255

Futures 595 336

Foreign exchange 1,751 1,096

Other – 6

Net interest received from/(paid to) clients 126 156

Total revenue 17,069 12,453

March 2015$000

March 2014$000

Foreign exchange loss (6) (16)

Total other loss (6) (16)

March 2015$000

March 2014$000

Audit of the financial statementsAudit and review of financial statements 58 61

Other servicesNZXs capital adequacy calculation review 3 3

Client fund regulations inspections 18 12

IFRS advice – 6

Tax services (including FATCA and GST advice) 14 –

Total other services 35 21

Total fees paid to auditor 93 82

Revenue

3

Other Loss

4

Fees to Auditors

5


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Depreciation, Amortisation and Impairment Charges

6

March 2015 $000

March 2014$000

Income Tax ExpenseProfit before tax 2,862 1,424

Taxation thereon at 28% 801 399

Non–deductible expenditure 43 28

Prior period tax adjustment (3) (4)

Income tax recognised in the Statement of Comprehensive Income 841 423

Comprising:Current tax 841 436

Deferred tax – (13)

841 423

The amount of imputation credits that are available for subsequent reporting periods is $2.2m (2014: $2.2m). This represents the balance of the imputation credit account at the end of the reporting period, adjusted for imputation credits that will arise from the payment of the amount of the provision for income tax.

Income Tax Expense

7

March 2015 $000

March 2014$000

Depreciation:Plant and equipment 194 154

Leasehold improvements 37 8

Amortisation:Computer software 242 201

Impairment charges on fixed assets and intangibles 8 150

Total depreciation, amortisation and impairment charges 481 513


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Trade and other debtors past due March 2015: 1–30 days $1,439,000; 31–60 days $37,000; 61–90 days $52,000; over 90 days $54,000. (March 2014: 1–30 days $1,762,000; 31–60 days $37,000; 61–90 days $24,000; over 90 days $10,000). No trade and other receivables have been impaired at March 2015 (March 2014: $nil).

March 2015 $000

March 2014$000

Trade debtors – banks 689 546

Interest receivable 116 96

Prepayments 497 485

Employee Share Scheme Loans 100 137

Other receivables 996 569

Total trade and other receivables 2,398 1,833

March 2015 $000

March 2014$000

Split between: Current assets 2,398 1,563

Non–current assets – 270

2,398 1,833

Trade and Other Receivables

8


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Plant & Equipment

$000

Leasehold Improvments

$000

Total$000

Intangibles$000

As at 1 April 2013Cost or valuation 1,320 270 1,590 1,429

Accumulated depreciation and amortisation (972) (143) (1,115) (1,143)

Net book value 348 127 475 286

Year ended 31 March 2014Opening net book value 348 127 475 286

Additions 78 4 82 373

Disposals/impairment charges (12) (57) (69) (81)

Depreciation/amortisation cost (154) (8) (162) (201)

Closing net book value 260 66 326 377

As at 31 March 2014Cost or valuation 1,221 100 1,321 1,329

Accumulated depreciation and amortisation (961) (34) (995) (952)


Year ended 31 March 2015Opening net book value 260 66 326 377

Additions 415 402 817 853

Disposals/impairment charges (5) – (5) (3)

Depreciation/amortisation cost (194) (37) (231) (242)

Closing net book value 476 431 907 985

As at 31 March 2015Cost or valuation 1,541 503 2,044 2,173

Accumulated depreciation and amortisation (1,065) (72) (1,137) (1,138)


Property, Plant, Equipment and Intangibles

9


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March 2015 $000

March 2014$000

Trade creditors 1,120 820

Employee entitlements accrued 354 358

Lease incentive 33 56

Total trade and other payables 1,507 1,234

March 2015 $000

March 2014$000

Split between:Current liabilities 1,497 935

Non–current liabilities 10 299

1,507 1,234

March 2015 $000

March 2014$000

Issued and fully paid–up ordinary shares number3,302,860 (March 2014: 2,142,000) 5,771 4,723

Trade and Other Payables

11

Capital

12

March 2015 $000

March 2014$000

Balance at beginning of year 4,618 4,368

Net profit for the year 2,021 1,001

Dividends paid (2,087) (751)

Balance at end of year 4,552 4,618

Retained Earnings

13

A dividend of $0.15 per share (based on 3,002,600 shares) was declared and paid in July 2014, a dividend of $0.16 per share (based on 3,002,600 shares) was declared and paid in December 2014 and a dividend of $0.35 per share (based on 3,302,860 shares) was declared and paid in March 2015. (2014: $0.14 per share July 2013 and $0.21 per share in December 2013).

The deferred tax above is in relation to temporary differences on employee holiday pay accrual, ACC levy costs, fixed asset depreciation and write–offs that are current in nature.

March 2015 $000

March 2014$000

Balance at beginning of the year 105 92

Statement of Comprehensive Income charge – 13

Balance at the end of the year 105 105

Deferred Tax Asset

10

All ordinary shares rank equally with one vote attached to each share. The Company’s ordinary shares have no par value. In June 2014 860,600 ordinary shares were issued for no consideration and in December 2014 another 300,260 shares were issued at $3.49 per share. (March 2014: There were no changes to the number of shares issued).


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Net interest receiptsThe Company operates numerous multi–currency banks and broker accounts and uses foreign exchange swaps to manage its various cash flow commitments. The accounts will at times be in margin deficit and attract interest costs, and most swaps will result in interest cash outflows. The costs of funding client open positions and the revenue earned through client funds held with counterparties are difficult to separate. As a result, net interest received does contain a component of interest cost.

Interest received from/paid to clientsIn most cases, the Company pays clients interest on excess funds held in their accounts and charges interest on deficits. The clients operate multi–currency accounts that may, over the course of a month, have both positive and negative interest balances. It is not practical to separate these flows as interest is netted within each account through conversion to the client’s base currency. As a result, the interest paid to clients is net of client interest receipts generated by account deficits. The Company manages timing differences in foreign currencies through foreign currency swaps; the cost of doing these swaps is netted against income derived from the clients holding derivative contracts open.

Purchase/sale of emission units The net proceeds generated by the Company purchasing and on selling emission units is recognised within commissions.

Net cash movements between clients and the client fund accountsClients make deposits and withdrawals throughout the year to facilitate their trading. The Company deposits and withdraws client money to and from the banks and brokers it uses, in order to transact its clients’ trading. It is therefore more informative to net these amounts to show the net movement in client funds for the year.

Net Cash Flows within the Cash Flow Statement

14

Related Party Transactions

15OwnershipThe Company is a wholly owned subsidiary of OM Holdings Limited, the ultimate parent company. There was no money owing between the Company and its Parent as at 31 March 2015 (March 2014: $nil).

Transactions with related partiesOM Financial Limited entered into foreign currency, futures and option contracts, contracts for difference and carbon units on behalf of some related parties (shareholders of OM Holdings Limited). These transactions are entered into and settled under normal commercial terms. Cash held is treated as client cash and is not secured or guaranteed.

The related party trading account balances at 31 March 2015 totalled $117,656 (March 2014: $46,001). Revenue earned in respect of such transactions for the year ended 31 March 2015 was $142,227 (March 2014: $171,838). There were no bad debt expenses or provisions made in respect of related parties for the year ended 31 March 2015 (March 2014: $nil).

In June 2014 the Company issued 860,600 ordinary shares to its Parent for no consideration. This increased the number of ordinary shares from 2,142,000 to 3,002,600. In December 2014 another 300,260 shares were issued at $3.49 per share. The Company made the following dividend payments to the Parent; a dividend of $0.15 per share (based on 3,002,600 shares) was declared and paid in July 2014, a dividend of $0.16 per share (based on 3,002,600 shares) was declared and paid in December 2014 and a dividend of $0.35 per share (based on 3,302,860 shares) was declared and paid in March 2015.


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17

Financial Risk Management

Financial risk factorsThe Company is exposed to a variety of financial risks. These stem from its clients trading in derivative contracts, client cash deposits and the revenue the Company derives from client trading.

The Company’s overall risk management plan focuses on ensuring its clients have sufficient funds in their account to trade and sufficient funds to keep those trades open (open derivative contracts). This is managed through daily (and intra–day) margin calls; the client is called upon to bank funds if the market moves against their position. If the funds are not received in the time stipulated (normally 24 hours) the client’s position is closed.

As stated, client positions are generally back–to–back with the Company’s derivative contract providers, and reconciliations are performed daily (and intra–day) to ensure all client positions are covered by a corresponding counterparty deal to prevent the Company being exposed to any material client positions.

Market risk

Foreign exchange rate risk:Some of the revenue generated from clients is denominated in foreign currency. The Company may be exposed to adverse exchange rate movement resulting in financial loss. Positions are monitored throughout the day, and conservative intra–day/overnight limits exist. Any gains/losses resulting from market movements are recognised in the Statement of Comprehensive Income as “other gains” or “other loss”. Any sensitivity to movements in exchange rates is mitigated by these policies and procedures, and consequently any exchange rate changes are not expected to have any material impact.

Price and other market risk:The Company has a diverse range of derivative products available for its clients to trade (at their own risk). The Company has no fundamental exposure to price and other market risk, as clients choose to accept a live market quote prior to trading. If an error occurs and the position is not covered, or there is a delay in placing this cover, then the Company is exposed to a change in the market price of that derivative contract. The financial loss or gain resulting from the error or time delay is recognised in the Statement of Comprehensive Income.

Interest rate risk:The Company does not have any third–party borrowings so any interest rate risks impact on the Company’s revenue rather than expenses. The value of the Company’s assets and liabilities is not impacted by fluctuations in interest rates. The Company’s exposure at the balance date to interest rate risk on financial assets and liabilities, which are due within one year, are as follows:

Transactions with key managementKey management trading account balances at 31 March 2015 totalled $13,134 (March 2014: $16,511). Revenue earned by key management personnel in respect of such transactions for the year ended 31 March 2015 was $1,664 (March 2014: $2,324). There were no bad debt expenses or provisions made in respect of key management for the year ended 31 March 2015 (March 2014: $nil).

Key Management Personnel

16The compensation of the directors and senior managers, being the key management personnel of the Company, is set out below:

March 2015 $000

March 2014$000

Short–term employee benefits 893 663


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Continued

17

Sensitivity analysisProprietary cash is held in New Zealand dollars with trading banks; the interest rate applied to the Company’s cash is subject to change, as is the amount of proprietary cash held.

Interest revenue derived from client funds held is sensitive to the level of client deposit, which can be denominated in various currencies. The interest rate the Company receives on these various currency balances is subject to change. The Company actively manages the rates of interest it pays and charges its clients accordingly. Consequently, the Company’s net interest receipts on client funds are influenced mainly by the level of client deposits. There is some sensitivity to interest rates; however, this is lessened by the Company’s management of the interest rates it applies and passes on to its clients. At balance date, each 1% movement in interest rates would affect the Company’s net profit after tax and equity by approximately $414,274 per annum (2014: $234,475).

Credit risk The Company adopts prudent credit analysis in relation to its assets and the counterparties with whom it chooses to deal. Regular analysis of each counterparty’s financial position, its credit rating and the overall assets exposed to each counterparty, help to manage and minimise potential risks. Assets are spread between counterparties to limit concentration of assets held with any one entity. Of the total client funds held at 31 March 2015 $90.9m where held with counterparties with Standard & Poor’s credit ratings of between BBB– and AA–. One counterparty, which was unrated, held $2.7m of client funds at 31 March 2015 (31 March 2014: $62.4m where held with counterparties with Standard & Poor’s credit ratings of between BBB– and AA–. Two counterparties, which were unrated, held $1.8m of client funds).

Interest rate risk31 March 2015

Interest bearing

$000

Non interest bearing

$000

Total$000

AssetsProprietary cash and cash equivalents 6,719 – 6,719

Client funds held 93,554 – 93,554

Financial derivatives held at fair value – 328 328

Trade and other receivables – 1,901 1,901

100,273 2,229 102,502

LiabilitiesClient accounts 42,735 50,377 93,112

Trade and other payables – 1,120 1,120

42,735 51,497 94,242

57,538 (49,268) 8,270

Interest rate risk31 March 2014

Interest bearing

$000

Non interest bearing

$000

Total$000

AssetsProprietary cash and cash equivalents 7,217 – 7,217

Client funds held 64,205 – 64,205

Trade and other receivables – 1,348 1,348

71,422 1,348 72,770

LiabilitiesClient accounts 38,856 24,660 63,516

Trade and other payables – 820 820


38,856 25,579 64,435

32,566 (24,231) 8,335


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Continued

The credit risk imposed on the Company by its clients is limited mainly to overdrawn client accounts. These are reported as the carrying amount, net of any provisions for doubtful debts under current assets on the face of the Balance Sheet. Overdrawn client accounts can result from highly volatile markets, ineffective margin call processes or non–compliance with the Company’s internal control policies.

The Company has no provisions for impairment of debt as at 31 March 2015 (March 2014: $nil). The Company does not extend credit to any client. This is managed through the margin call process. If a client’s margin call is not met, their positions are closed. Any resulting loss is normally covered by the initial margin and/or any variation margin payments already received from the client.

Liquidity risk The Company adopts prudent liquidity risk management by maintaining surplus cash, well above regulatory requirements, having robust trading limits with all counterparties and ensuring it has the legal right to close client positions through its margin call policies and the terms and conditions agreed by the client when the account is opened.

Most cash held is on call; however, the Company has some banking arrangements that require it to maintain proprietary funds with banks, currently $3.5m (March 2014: $3.5m). These funds are placed in term deposit accounts that historically have a term of three months. The term deposit accounts secure its foreign exchange dealing lines and constitute a security interest.

As at 31 March 2015 the Company had 13 open foreign exchange swaps all with a maturity of 16 April 2015 and a net notional value of $9.3m. The fair value of the open swaps is $278,777. (March 2014: 11 open foreign exchange swaps all with a maturity of 15 April 2014 and a net notional value of $14.3m. The fair value of the open swaps was $352).

Fair value estimationThe Company is required to disclose a hierarchy of fair value measurements depending on the availability of revaluation prices for financial instruments that are measured in the Balance Sheet at fair value. The hierarchy is split into the following three levels:

Level 1 — Quoted prices (unadjusted) in active markets for the identical asset or liability.

Level 2 — Inputs other than quoted prices that are observable for the asset or liability, either directly or derived from Level 1 prices.

Level 3 — Inputs for the asset or liability that are not based on observable market data.

Included in client funds held, overdrawn client accounts and client accounts are fair value estimations. The Company enters into back–to–back derivative contracts with its clients and counterparties for every derivative contract the client undertakes. At balance date, these instruments are measured at their fair value using quoted market prices in active liquid markets. Therefore these balances are categorised as Level 1 instruments.

The foreign currency swaps the Company enters into in order to manage timing difference in foreign currency cash flows (resulting from client trading activity) are measured at their fair value on balance date. Fair values are obtained from value based on inputs that are observable in the market and are classified as Level 2 instruments. The quoted market price used for these financial instruments is the current bid.

There have been no transfers between the fair value hierarchies. The Directors consider the carrying value of the proprietary cash, trade and other receivables, and trade and other payables approximate their respective fair values. These items are either short–term in nature, or reprice frequently, and are of a high credit rating.

Capital managementThe capital of the Company is defined as share capital and retained earnings. The capital of the Company is monitored to ensure equity holding objectives are met. The main objective is to ensure capital adequacy requirements imposed by regulations are achieved and that a prudent level of capital is maintained in relation to the level of client funds held. The New Zealand Exchange (NZX) regulates capital requirements depending on the level of exposure to derivative products of its client and any proprietary positions. The capital adequacy calculations are performed daily and reported to the NZX at the end of each month. The Company maintained capital in excess of NZX requirements throughout the year. At balance date, the Company had excess capital of $5.9m over and above NZX requirements (March 2014: $4.8m).

17


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Financial Instruments by Category

1831 March 2015 Loans and

receivables $000

Assets held for trading at

fair value$000

Total$000

AssetsProprietary cash 6,719 – 6,719

Client funds held – 93,554 93,554


Trade and other receivables 1,901 – 1,901

8,620 93,882 102,502

31 March 2015 Liabilities at amortised cost

$000

Liabilities at fair value

$000

Total$000

LiabilitiesTrade and other payables 1,120 – 1,120

Client accounts – 93,112 93,112

1,120 93,112 94,232

31 March 2014 Loans and receivables

$000

Assets held for trading at

fair value$000

Total$000

AssetsProprietary cash 7,217 – 7,217

Client funds held – 64,205 64,205

Trade and other receivables 1,348 – 1,348

8,565 64,205 72,770

31 March 2014 Liabilities at amortised cost

$000

Liabilities at fair value

$000

Total$000

Liabilities Trade and other payables 820 – 820

Client accounts – 63,516 63,516


820 63,615 64,435


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Offsetting Financial Assets and Financial Liabilities

19


31 March 2015 Grossamounts

$000

Gross amountsoffset on the

balance sheet$000

Net amountspresented on the

balance sheet$000

Amounts subject to enforceablemaster nettingarrangements

$000

Netamount

$000

Financial assetsFinancial derivatives 625 (297) 328 – 328

625 (297) 328 – 328

Financial liabilitiesFinancial derivatives 297 (297) – – –

297 (297) – – –

31 March 2014 Grossamounts

$000

Gross amountsoffset on the

balance sheet$000

Net amountspresented on the

balance sheet$000

Amounts subject to enforceablemaster nettingarrangements

$000

Netamount

$000

Financial assetsFinancial derivatives 122 (122) – – –

122 (122) – – –

Financial liabilitiesFinancial derivatives 221 (122) 99 – 99

221 (122) 99 – 99

The following table provides information on the impact of balances subject to enforceable master netting arrangements. Other than as presented in the table below, the Company does not have any material financial assets or liabilities which are subject to enforceable master netting arrangements or similar arrangements.

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Commitments and Contingencies

20At balance date the Company had the following operating lease commitments:

At balance date the Company had the following capital commitments, in relation to contracts signed for assets to be purchased in 2015:

Events Subsequentto Balance Date

21There were no material events subsequent to balance date.

There were no material contingent liabilities as at 31 March 2015 (March 2014: $nil). The operating lease commitments are determined by the term and renewal options contained in the terms of the lease. There are no materially adverse clauses or restrictions.

Periodically, the Company is party to litigation including liability claims. To date, such claims have been settled for relatively small monetary amounts, which have either been expensed or covered by insurance.

March 2015 $000

March 2014$000

0–1 year 296 321

1–5 years 1,476 744

1,772 1,065

March 2015 $000

March 2014$000

0–1 year 235 517

1–5 years 235 405

470 922


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Statutory Information

Pursuant to Section 211 (3) of the Companies Act 1993 the Shareholders have agreed to limit the annual report to the following:

— Completed and signed financial statements. — Audit report.

On behalf of the Board of Directors:

Director4 June 2015

Director4 June 2015

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Independent Auditors’ Reportto the shareholder of OM Financial Limited

Report on the Financial StatementsWe have audited the financial statements of OM Financial Limited (the “Company”) on pages 12 to 32, which comprise the balance sheet as at 31 March 2015, the statement of comprehensive income, the statement of changes in equity and the cash flow statement for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Financial StatementsThe Directors are responsible for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We are independent of the Company. Our firm carries out other services for the Company in the areas of other assurance and tax related services. The provision of these other services has not impaired our independence.

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz

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Independent Auditors’ Report OM Financial Limited

OpinionIn our opinion, the financial statements on pages 12 to 32 present fairly, in all material respects, the financial position of the Company as at 31 March 2015, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.

Restriction on Use of our ReportThis report is made solely to the Company’s shareholder, in accordance with the Companies Act 1993. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholder, for our audit work, for this report or for the opinions we have formed.

Chartered Accountants 4 June 2015

Auckland

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Company ParticularsRegistered OfficeLevel 2187 Broadway NewmarketAuckland

DirectorsCD Churchouse (Chairman)BJ WattJJM Stephan

SolicitorsMinter Ellison Rudd WattsAuckland

AuditorsPricewaterhouseCoopers New ZealandAuckland

BankersBank of New ZealandWestpac New Zealand Limited

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OMF is a proud, NZ owned and operated, full service brokerage firm with a strong and established reputation in the financial markets. We have been trading the financial markets since 1987, offering a full range of products available in the foreign exchange, equities, options, futures, CFDs, carbon, dairy & power markets. Operating in these highly competitive and regulated markets requires experience, integrity and superior levels of service.

OMF is guided by three core values: trust, expertise and passion.

ContactAucklandLevel 2187 Broadway NewmarketP +64 9 520 9310 T 0800 863 325

WellingtonLevel 8 ASB Bank Tower 2 Hunter StreetP +64 4 499 0028 T 0800 663 935

2015 annual report - omf · trade and other receivables 8 2,398 1,563 total current assets 103,030...

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