You can find the exact details of the calculation that I used below. This is an estimate so it will not be exact.
Estimation of Performance Fees assessed 31 Dec 2015:
Based on a rise from the close of trade on 28th Aug to the close of trade 31 Dec: BFC $0.32 – $0.48
Same time period ASX All Ords: 5274.70 – 5344.60
Adj for All Ords Accumulation Index using figure of 2% (this is an approximation as this index historically outperforms the All Ords by 4% annually).
Market Cap at 31 Dec: 174.35M
174.35 * 0.175 * (50% – 3.33%) = $14.24M*
*This formula is directly derived from Page 13 of the BFC prospectus.
Performance fee that was incurred by BFC on 31st Dec is approximately $14.24M.
With regards to your question of how it affects profitability they must expense this on the income statement (they can also capitalise the expense which is a technical way to try to hide the cost and instead spread it out over a period of time).
Warren Buffett famously said the following quote: “If stock options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world do they go?”
In other words, when a performance fee actually is assessed (and not waived) it will be a cost to the bottom line of your business.
It does not matter whether it is paid in cash, shares or milky bars it will still be to the value of approximately $14.24M when marked to market (in this example before that assessment was waived). Changing the method of payment does not decrease its cost but can provide other benefits such as 'alignment of interests as they are now shareholders also' and a stronger cash flow statement as no cash changes hands.
The compensation to the Investment Manager needs to track the performance of the underlying assets and this can only be done if the Directors start giving proper guidance. The share price cannot run like it did on lack of guidance and trigger huge fees without disclosures of the underlying asset performance to offset.
The next performance fee will be valued from a BFC starting price of $0.3468. Just a basic calculation says if the share price goes back to 48c and the All Ords say earns another 3.33% (same figure used in estimates) the performance fee will be 174.35*0.175*(38.4%-3.33%) = $10.7M PLUS management fee of 1.2% which would be $2.09M, therefore total fees to investment manager of $12.79M.
EXCLUDING IPO costs the company made underlying net profit after tax of $1.9M for three months.....
You can probably see now why this stock is not going anywhere anytime soon and if it does the shorters will be back for another round come the full year unless the underlying assets can offset such a heavy fee.
BFC Price at posting:
39.5¢ Sentiment: None Disclosure: Not Held
(20min delay)