Atlantic Union Bankshares
Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2016 AUB GROUP 2016 ANNUAL REPORT 1 THE LEADING PROVIDER OF RISK MANAGEMENT, ADVICE AND SOLUTIONS FOR CLIENTS. CONTENTS Chairman’s Message CEO’s Message Social and Community Engagement Performance Highlights Board of Directors Financial Report Directors’ Report Auditor’s Independence Declaration Income Statement Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes In Equity Notes to the Financial Statements Directors Declaration Independent Auditor’s Report ASX Additional Information Dividend Details Corporate Information 2 3 4 5 6 8-27 28 29 30 31 32 33 35 96 98 99 100 101 AUB GROUP 2016 ANNUAL REPORT 1 CHAIRMAN’S MESSAGE AUB Group finished the year with a financial result that was less than we had hoped, but in the context of market headwinds the Group has maintained the trend of continuous growth. The achievement of 3.3% growth of underlying Net Profit After Tax, and a small increase in Earnings Per Share, was at the lower end of our expectations. The activities that represent the majority of our business being Australian Insurance Broking and Underwriting Agencies, suffered the triple effect of lower market premiums, increased competition and lower interest rates. In response to these difficult conditions, the majority of the individual businesses that make up these areas showed a resolve to adapt to the prevailing conditions. Despite the market conditions, the Group offset the market downturn and produced an Adjusted NPAT of $37.6 million. Having declared a final dividend of 28 cents per share, the total dividend for the year increased to 40 cents per share. We believe the tough experience of the last three years will evidence itself as improved performance and focus in the future. AUB Group is in a strong financial position, and our investment made to diversify our income base and strengthen our operations put the Group in good stead for future growth, even if the constrained premium climate continues longer than expected. Active management of our strategy and portfolio. The strategic steps to diversify AUB Group into Insurance Broking in New Zealand, along with an increased presence in the Risk Services field has proved its worth, with strong profit growth this financial year. Profit from our Risk Services businesses grew from $2.0 million to $7.2 million, demonstrating the benefits of the Group’s strategy to provide total risk management solutions to clients. Our investment into the New Zealand market is progressing ahead of expectations where profit contribution increased from $0.3 million to $2.9 million this year. Acquisitions in both areas took place throughout the year as the strategy gathered momentum. We continue to be optimistic about the opportunities for both these new areas. We believe our model which shares real long term ownership with the executives and founders of the business, sets us apart from many now entering the market. We will continue to concentrate our efforts on this diversified portfolio of business assets as it provides resilience and flexibility to enhance value for shareholders. Partnership as our foundation. The AUB Group model which sees us having less than 100% shareholdings in the businesses we own, has at its core the sense of partnership. Partnerships rely heavily on transparency, integrity and goodwill to be effective. We bring these qualities to each of the engagements we have with our companies. The partnership model by its nature requires respect and consideration of each partners’ view and opinion. While this can sometimes be time consuming as everyone gets comfortable with change, in our experience, this is a valuable contributor to getting the future of each business right. In the past we have been less involved in our partner businesses than we are today, and for some this has required adjustment. However, using the attributes of respectful partnership we are now engaged with our companies more than ever before, and we expect that this will bring benefit to all parties. 2 AUB GROUP 2016 ANNUAL REPORT Focus on the client. AUB Group focusses predominantly on the small and medium enterprise market, with a small number of specialists servicing the large corporate market. Regardless of the market or service, we have a fundamental belief that the client will be better served, and have a more valued outcome, by a person who has, or is employed by, an organisation where the shareholders of the business work in the business. The energy and commitment they bring to any service is that much more because of the shared ownership under the AUB Group model. We will continue to seek better client outcomes through our partnership model. Accelerating our culture through brand and people. To ensure our Group name remains relevant and agnostic to all segments and geographies that we serve, we completed a company name and brand change this year, changing from Austbrokers Holdings Limited to AUB Group Limited. We continue to build the capability of our leaders, and this year launched our AUB Group Academy. This leadership based program is aimed at building capability in the areas of strategic thinking, change management and leadership skills. As an organisation we are committed to creating opportunities for our people while at the same time enhancing our skills and capabilities as an organisation. Board Changes. The renewal of the AUB Group Board continued this year. We welcomed a new Director in Paul Lahiff, while Richard Longes retired after a decade on the Board. In addition, Stephen Rouvray retired from his role of CFO and Company Secretary in July. I thank Richard and Stephen for their outstanding service and wise counsel at an important time in AUB Group’s history. Pleasingly, the Board and Executive changes over the past few years have been transitioned seamlessly, allowing the business to continue to thrive and grow. Looking ahead, our primary focus will be on three key areas:  Growing revenue across all our business areas   Prudent management of our operating margin Leveraging our collective scale to benefit our business partners while minimising risk. These are levers we can control and will make us more resilient and flexible irrespective of any future market environment impacts. The financial year ahead is an interesting one. Premium rates in the insurance market appear to be stabilising, and our Risk Services division gains in reputation. Be assured we will focus on driving revenue, keeping costs modest and be careful with our capital management On behalf of the board, I would like to thank all AUB Group employees and our partner businesses for their effort to grow your business. David Clarke Chairman CEO’S MESSAGE The 2016 financial year showed positive underlying trends across AUB Group. The soft premium cycle in Australasia continued, with premium rates in commercial lines insurance continuing to fall over the year - impacting Broking and Underwriting Agencies' commission income. In addition, the reduction in interest rates created further headwinds for our insurance intermediary operations resulting in reduced interest income. Despite this, the Group demonstrated good growth with Adjusted NPAT up 3.3% after allowing for increased acquisition costs, resulting from our deployment of over $77 million committed to new investments. The focussed execution of our Group Strategy; ‘to be the leading provider of risk management, advice and solutions to clients’ continued to deliver growth (organically and via acquisition), resulting in continued diversification of our profit generation. Our commitment to supporting our client’s risk needs (principally SME and mid-market businesses) saw the improvement in underlying broking income drivers, including increased policy count, premium funding penetration and life insurance income. We continued disciplined execution of our two main drivers: Adherence to the proven and long standing Business model – the owner-driver partnership model, where we work with our partner businesses to drive mutual success. Examples this year have been the acquisition of 60% of the Allied Group in our Risk Services area, entering into partnership with KJ Risk in Australian broking (Austbrokers), and selling down equity to management in leading New Zealand broker, Runacres. Whilst we do not normally divest businesses, this year we divested our interests in 3 companies as a result of those businesses no longer meeting our longer term interests. We re-invested these proceeds in higher performing portfolios for shareholder benefit. Adherence to our Operating Model – providing relevant products and services, at cost, to partner businesses to help drive profitability in our investments. This in turn improves the dividend flow to the Group. During the year, the Group and our partners have benefitted from leveraging our scale in commercial agreements including increased usage of Premium Funding. In addition, we have driven efficiencies via outsourcing capabilities in ‘non-core’ activities such as telecoms and we increased collaboration between partner businesses such as claims management services between our Risk Services partners and Underwriting Agencies. Australian Broking (Austbrokers): Our partner businesses continued to focus on levers in their control relating to income and expense management, growing policy numbers, expanding premium funding penetration and growing life insurance income. Whilst the headwinds of premium rate and interest rate reductions resulted in a decline in commission/fee income, it was less than the decline experienced in the market. Additional fees were generated with the renewal of our premium funding contract, which will benefit from enhanced terms over the next 5.5 years. Acquisition activity was muted for the industry this year, however our model proved attractive with one stand alone and seven bolt-on acquisitions undertaken in the year. Divestment of our interest in Strathearn enabled a cash profit to be generated and the redeployment of capital into higher yielding assets. Our partnership with leading broking cluster group IBNA, under the AIMS banner, continued to provide product and service benefits to our partners and I thank the IBNA Board for the relationship. Underwriting Agencies (SURA): This year we appointed a new Managing Director, enabling his predecessor to focus on developing new facilities and underwriting opportunities for the Group. With a strong policy count, we continued to invest in the infrastructure platform for our Strata agency and expect margins to improve over the near term. Our focus on start-ups has traditionally delivered high return on capital employed, so in FY16 we invested in two new agencies yet to be launched to the market. While costs were expensed during FY16, this investment will support revenue growth and improve margins into FY17. Agency revenues were impacted by not only market declines, but also by strong competition in the key portfolios (Strata and Plant & Equipment) where average premiums declined 9% on prior year. Despite this, growth in policy count continued (up 7% in FY16) and profit commissions were strong, demonstrating good underlying health for this area. Finally, we divested a business (NewSurety) as it no longer aligned to the Group’s portfolio. This in turn reduces risk and volatility in the agency portfolio. Risk Services: Demonstrated significant growth with investments delivering to plan and strategic objectives. Acquisition activity continued with one standalone (Allied Health Group) and a bolt on acquisition (CIM) in the first half. Strong revenue increases were seen across all operating business driven by growth in injury management and rehabilitation services via increased panel appointments and provision of claims services to insurers and underwriting agencies. Expansion of our national footprint activities are progressing, generating incremental revenue in key states. Traction between our Risk Services capabilities and our broking entities has helped deepen client relationships by providing extended risk solutions. During the year we divested our interest in a small risk consulting business that no longer aligned to the Group’s model. New Zealand: Our NZ business is performing ahead of plan and exceeding strategic objectives. Activity of the past eighteen months has consolidated our position as the largest broking management group in New Zealand and the 3rd largest broking group in the country by GWP (now more than 15% market share). Acquisitions have been completed with both standalone and bolt-on businesses being acquired. The acquisition of leading broking house, Runacres, is performing well, and in line with our ‘skin in the game’ partner model, we have since sold down 10% equity to the Managing Director. Two smaller acquisitions (Hawkes Bay IB and Insurance Brokers Alliance) occurred and we have since announced the acquisition of 50% of Dawsons Insurance Brokers (Rotorua), with a strong pipeline of opportunities evident for FY17. Mark Searles Chief Executive Officer & Managing Director AUB GROUP 2016 ANNUAL REPORT 3 r SOCIAL AND COMMUNITY ENGAGEMENT For 30 years, above and beyond the good business sense of corporate social responsibility, AUB Group has focused on doing the right thing for our employees, our partners and our communities. AUB Group also makes a positive impact on the communities where our employees live and work. In 2015, AUB Group and its partner businesses together donated hundreds of thousands of dollars to community and charitable organisations across the country and overseas. Examples of organisations supported include the Sunrise Children’s Villages (through the Australian Cambodia Association); the Create Foundation, which supports and promotes the voices of over 40,000 children and young people in foster care; the Australian Surf Lifesaving Association and the Reach Foundation. The Group’s partner businesses also support a number of community events and organisations through fundraising, corporate donations and volunteering. 4AUSTBROKERS 2016 ANNUAL REPORT 4 AUB GROUP 2016 ANNUAL REPORT AUB GROUP 2016 ANNUAL REPORT 5 Reported NPAT growth PERFORMANCE HIGHLIGHTS GROWTH DRIVERS ACROSS ALL SEGMENTS to $42.0 million +20.4% +3.3% +7.6% +17.1% 39.7 cents in FY15 40CPS +1.1% Adjusted NPAT growth to $37.55 million Earnings per share growth to 66.6 cents Underlying corporate cost control Group revenue increase to $233.88 million FY16 dividend increased from AUSTRALIAN BROKING NEW ZEALAND BROKING Net profit before tax -4.4% in FY16 $47.95M Net profit before tax +883% in FY16 Policy count Premium funding Life insurance income +1.0% New investments +2.7% +7.0% $2.88M +3 UNDERWRITING RISK SERVICES Net profit before tax -21.4% in FY16 $10.35M Net profit before tax +250% in FY16 $7.16M Policy count +7.0% Insurer panels Profit commissions +24.5% New investments +3 +2 New investments +2 AUSTBROKERS 2016 ANNUAL REPORT 5 AUB GROUP 2016 ANNUAL REPORT 5 AUB GROUP 2016 ANNUAL REPORT 5 BOARD OF DIRECTORS DAVID CLARKE Chairman (commenced 26 November 2015) RICHARD LONGES Chairman (retired 26 November 2015) MARK SEARLES Chief Executive Officer & Managing Director RAY CARLESS Non-Executive Director ROBIN LOW Non-Executive Director PAUL LAHIFF Non-Executive Director . 6 AUB GROUP 2016 ANNUAL REPORT FINANCIAL REPORT DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 Plc, Head of Marketing at HSBC Plc. During the 1980s he held a number of senior roles in marketing led organisations, including five years at American Express Europe. R. J. Carless BEc, MAICD Ray Carless has over 35 years’ experience in the insurance industry based in Australia but with management responsibilities throughout the Pacific Rim. Until 2000 he was Managing Director of reinsurance brokers Benfield Greig in Australia, a position he had held for over 14 years, and he had also been a director of the worldwide holding company located in London for 10 years. He has been a director of a number of companies involved in the Australian insurance industry since 2000. Mr Carless is a member of the Audit and Risk Management, Nomination and Remuneration & People Committees. R. J. Low B Com, FCA, GAICD Robin Low was a partner at PricewaterhouseCoopers with over 29 years’ experience in financial services, particularly insurance, and in assurance and risk management. Robin is a member of the Audit and Assurance Standards Board and on the board of a number of not-for-profit organisations including Sydney Medical School Foundation, Public Education Foundation and Primary Ethics. Ms Low chairs the Audit and Risk Management Committee and is a member of the Nomination and Remuneration & People Committees. During the past three years Ms. Low served and continues to serve as a Director of CSG Limited, Appen Limited and IPH Limited. P. A. Lahiff BSc Agr, GAICD Paul joined the board of directors on 1 October 2015. Paul was previously Chief Executive of Mortgage Choice Limited (2003 - 2009) and prior to that was an Executive Director of Heritage Bank and Permanent Trustee and held senior roles in Westpac in Sydney and London. Paul is also Chairman of NPP Australia Limited and a director of Smartline Personal Mortgage Advisers, LIXI Australia and Retail Finance Intelligence. Paul holds a BSc from Sydney University and is a Fellow of the Australian Institute of Company Directors. Mr Lahiff is a member of the Audit and Risk Management, Nomination and Remuneration & People Committees. Company Secretary J. L Coss, BA, LLB, Dip CII, ANZIIF (Fellow) CIP, FGIA, FCIS, Adv Dip (Management) Justin joined AUB Group Ltd on 1 October 2015 and was appointed Company Secretary on 30 November 2015. A solicitor for over 20 years admitted to practice in New South Wales and England & Wales, he was previously General Counsel & Company Secretary of InterRISK Australia Pty Ltd and prior to that was in private practice with Allens Arthur Robinson. Justin is a member of the National Insurance Brokers Association Regulatory Affairs Committee and is a Director of the Association of Corporate Counsel Australia. Your Directors submit their report for the year ended 30 June 2016. DIRECTORS The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities D. C. Clarke LLB, (Non-Executive Chairman) David Clarke was Chief Executive Officer of Investec Bank (Australia) Limited from 2009 to 2013. Prior to joining Investec Bank, David was the CEO of Allco Finance Group and a Director of AMP Limited, following five years at Westpac Banking Corporation where he held a number of senior roles, including Chief Executive of the Wealth Management Business, BT Financial Group. David has 35 years’ experience in investment banking, funds management, property and retail banking. He was previously employed at Lend Lease Corporation Limited where he was an Executive Director and Chief Executive of MLC Limited. David is Chairman of The University of New South Wales Medicine Advisory Council, Deans Circle and Charter Hall Group. Mr Clarke was elected Group Chairman on 26 November 2015, is a member of the Audit Committee and Chairs the Nomination and Remuneration & People Committees. R. A. Longes BA, LLB, MBA Mr Longes retired as a Director and Group Chairman at the Company’s Annual General Meeting on 26 November 2015. Richard Longes was a lawyer and partner in Freehill Hollingdale & Page from 1974 – 1988. In 1988 he was a founding Partner of the corporate advisory firm Wentworth Associates and is now Chairman of Investec Australia Limited. Until his retirement, he was the Group Chairman, served on the Audit and Risk Management Committee and chaired the Nomination and Remuneration and People Committees of the Group. During the past three years Mr. Longes served as a Director of Boral Limited and Metcash Limited. He is also a Director of Pain Management Research Institute. M. P. L. Searles GAICD, DipM, Grad Dip Mktg (Chief Executive Officer and Managing Director) In addition to his role as Group CEO, Mark serves on the Boards of a number of Group companies including undertaking the role of Chairman of Austagencies, NZ Brokers Holdings and AIMS amongst others. Prior to joining AUB Group, he was previously General Manager, Broker & Agent and Chief Commercial Officer at CGU, a division of IAG. From 2005-09, Mr Searles was with Zurich Financial Services in the UK where he was Managing Director, Direct & Partnerships and Chief Marketing Officer. From 2001-05 he worked for Lloyds TSB Group holding the positions of Marketing and Group Brands Director and prior to that was Managing Director, CSL/ Goldfish/Goldfish Bank, the UK’s leading direct-to- customer financial services group. During the 1990s he held roles as Managing Director at MyBusiness Ltd, UK Managing Director/ Marketing Director the Sage Group 8 AUB GROUP 2016 ANNUAL REPORT Interests in the shares and options of the Company and related bodies corporate. As at the date of this report, the interests of the Directors in the shares and options of AUB Group Limited were: Number of Number of Options over Ordinary Ordinary Shares 126,404 74,049 19,973 10,143 8,710 5,000 Shares – 410,000 – – – – R. A. Longes M. P. L. Searles R. J. Carless D. C. Clarke R. J. Low P.A. Lahiff PRINCIPAL ACTIVITIES AUB Group Limited (AUB Group or Group) is the leading equity- based risk management, advice and solutions provider in Australasia. The Group has a unique ‘owner-driver’ business model; a clearly defined operating model and a focused strategy to be the leading provider of risk advice and solutions for clients, who are predominantly SME and mid-market businesses. The Group business model is to hold equity stakes in partner businesses and to provide a range of services to support ongoing growth of equity partners. These services include technology support via a centralised data centre capability; common platforms to enable efficiency and effectiveness; partnering, marketing, human resources and back office services. Additionally, the Group manages/co-manages networks of independent brokers (Cluster Groups) leveraging the benefits of its services where appropriate. The Group has business partnerships across Australia and New Zealand comprising 75 equity businesses. The group services more than 460,000 clients across 220 locations and represent in excess of $4.5 billion of Gross Written Premium via our equity partners and cluster Group management relationships. The Group and its partners employ in excess of 3,000 people. AUB Group primarily operates through two key segments: Insurance Intermediaries, where it has equity investments in businesses which provide insurance and risk related services to clients. These include: • Networks of broking businesses operating in Australia and New Zealand, which provide risk and insurance broking services to, primarily, small to medium sized business clients; and • Underwriting agency businesses, which provide specialist insurance products for specialised market segments, that are available via insurance brokers, in and outside the Group’s broking network. DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 Risk Services, where it has equity investments in businesses which provide specialist risk solutions primarily in the people and workplace risk areas, and also the provision of ancillary risk assessment and related solutions in the Australian market. These services are provided to insurance companies and to commercial and government clients either directly or via insurance brokers. On 26 November 2015, the Group changed its name from Austbrokers Holdings Limited to AUB Group Limited in recognition of its expansion beyond Australian Broking. There has been no significant change in the nature of these activities during the year other than the continued expansion of all areas of the business in Australia and New Zealand including via acquisitions. The Group’s Insurance Intermediaries revenue is largely derived from commissions and fees earned on arranging insurance policies and for other related products and services. The amount of commissions earned is determined by the volume of premiums placed which in turn is affected by premium rates, sums insured and the general level of economic activity. Other revenue sources relate to interest earned on funds held to pay insurers which will be affected by the prevailing interest rate environment, income on insurance premium funding, which is affected by premium and interest rates and revenue derived from underwriters reflecting the profitability and/or growth in the business placed, which will fluctuate depending on results. The Risk Services businesses earn fees for services such as occupational health and safety consulting, injured worker rehabilitation services, investigations, registered training, risk advice and claims management to insurers and clients. Fees are negotiated with state based scheme agents and insurers, and in certain jurisdictions are gazetted. OPERATING AND FINANCIAL REVIEW Operating results for the year In the year ended 30 June 2016 (FY2016) net profit after tax (Reported NPAT) attributable to equity holders of the parent increased by 20.4% to $42.002 million (2015: $34.887 million). This includes the after tax profit on sale of AUB Group’s investment in Strathearn Insurance Group Pty Ltd (Strathearn) announced in December 2015, of $6.0 million, crystallising strong investment returns to shareholders. Reported NPAT includes fair value adjustments to the carrying value of associates, profits on sale and deconsolidation of controlled entities, contingent consideration adjustments and impairment charges. If these items, together with the amortisation of intangibles are excluded (as shown in the table below), the net profit after tax (Adjusted NPAT) was $37.553 million in 2016 up 3.3% on prior year (2015: $36.345 million), reflecting the underlying performance of the business. Adjusted NPAT is a key measure used by management and the board to assess and review business performance. AUB GROUP 2016 ANNUAL REPORT 9 DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 OPERATING AND FINANCIAL REVIEW (CONTINUED) RECONCILIATION OF ADJUSTED NPAT TO REPORTED NPAT (1) FY2016 FY2015 Variance Net Profit after tax attributable to equity holders of the parent Reconciling items net of tax and non controlling interest adjustments for: Adjustments to contingent consideration for acquisitions of controlled entities and associates 2 Add back offsetting impairment charge to the carrying value of associates & goodwill, related to above (as relevant) Net adjustment Add back adjustments to the carrying value of associate (impairment), not subject to contingent consideration 3 Less profit on sale or deconsolidation of controlled entities net of tax 4 Less profit on sale of associates net of tax 5 Adjustment to carrying value of entities (to fair value) on date they became controlled or deconsolidated 6 Net Profit from operations Add back amortisation of intangibles net of tax 7 Adjusted NPAT $ 000 $ 000 % 42,002 34,887 20.4% 343 (4,441) -107.7% 3,114 4,104 -24.1% 3,457 (337) 1,125.8% - - (191) (6,047) 1,500 (817) - -100.0% -76.6% N/A (5,725) (3,224) 77.6% 33,496 32,009 4,057 4,336 37,553 36,345 4.6% -6.4% 3.3% 1 The financial information in this table has been derived from the audited financial statements. The adjusted NPAT is non-IFRS financial information and as such has not been audited in accordance with Australian Accounting Standards. 2 The Group’s acquisition policy is to defer a component of the purchase price, which is determined by future financial results. An estimate of the contingent consideration is made at the time of acquisition and is reviewed and varied at balance date if estimates change, or payments are made. This adjustment can be a loss (if increased) or a profit (if reduced). Where an estimate or payment is reduced, an offsetting adjustment (impairment) is made to the carrying value. 3 In FY2015, one investment in an associate recorded an impairment, due to specific competitive circumstances in a niche segment of the market. 4 Profits on deconsolidation occur when interests in a controlled entity are sold and it becomes an associate. 5 During the period the Group sold its entire shareholdings in three associates and sold part of its shareholding in another, resulting in profits on sale. These may not occur in a future periods unless similar transactions occur. 6 The adjustments to carrying values of associates or controlled entities arise where the Group increases its equity in associates whereupon they became controlled entities or decreases its equity in a controlled entity and it becomes an associate (deconsolidated). As required by accounting standards the carrying values for the existing investments have been adjusted to fair value and the increase included in net profit. Such adjustments will only occur in future if further acquisitions or sales of this type are made. 7 Amortisation of intangibles expense decreased over last year due to some intangible assets now being fully amortised. The expense is a non-cash item. The 3.3% increase in Adjusted NPAT continues the trend of year on year growth since listing. This result demonstrates the strength of execution of the Group’s strategy which in turn has grown income, with strong and growing contributions from Risk Services and New Zealand, in the context of a challenging insurance market, where premium rates for commercial insurance have declined by approximately 5% on average, over the financial year. The Group has benefited from the acquisition of three standalone businesses utilising its ‘owner-driver’ model in Australia and New Zealand and a number of smaller acquisitions by business partners. There have been changes to estimates of deferred consideration amounts over the period, and where these have been reductions to the estimates, a corresponding decrease in the carrying value of the asset is recorded. There have been no other impairment charges in the current financial year. Results by operating segment Insurance intermediaries: Australian Broking - profit decreased by 4.4% to $47.955 million in FY2016, in the context of premium rate reductions of circa 5% on renewal business and reducing interest rates. The result has been impacted by the sale of the 50% interest in the Strathearn Insurance Group Pty Ltd (Strathearn) in December 2015 and includes the profit contribution from KJ Risk Insurance Brokers Pty Ltd acquired on 1 July 2015 and several smaller acquisitions by partner businesses. The result has benefited from additional fees in the current year on the renewal of the premium funding contract with Allianz, and will benefit from enhanced terms over the next 5 years. New Zealand Broking - profit increased to $2.880 million up significantly on prior year. This includes a full year contribution from Brokerweb Risk Services Ltd (BWRS) and NZ Brokers Management Ltd acquired in November 2015 and a six month contribution from the acquisition of Runacres & Associates Ltd net of interest and acquisition costs. Our associate BWRS acquired two businesses in the period. 10 AUB GROUP 2016 ANNUAL REPORT DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 OPERATING AND FINANCIAL REVIEW (CONTINUED) Results by operating segment (continued) Underwriting Agencies – profit of $10.347 million was down $2.815 million, impacted by a challenging competitive environment. Revenue was impacted by: reduced average premium rates; income from contract renewals in FY15 not being replicated in FY16; and the lost revenues from the divestment of an associate. This was partly offset by increased profit commissions and revenue from transition services in relation to the sale of an associate. Expenses increased over the year as a result of planned investment to support future growth. With market conditions deteriorating over the year, remedial actions were taken in the second half, which reduced costs (versus first half of FY2016). Furthermore, Underwriting Agencies incurred expenses in seeding two start-ups in the current year, which are due to be launched in FY17. Policy count continued to grow (up 7% in FY16) as did profit commissions, demonstrating the underlying health and prospects for the business. During the year, the Group divested its interest in NewSurety Pty Ltd (NewSurety), a specialty surety business that no longer aligned to strategy, reducing risk and volatility in the portfolio. While Underwriting Agencies will not receive future income from the divested NewSurety business in FY17, fees from the continuation of the transitional services will partially offset income reduction in FY17. Risk Services – profit increased to $7.158 million, up $5.118 million on prior year, from organic growth and the contribution from Allied Health Australia Pty Ltd acquired on 1 July 2015. The Risk Services businesses continue to grow through expanded insurer relationships, entering new states and through acquisitions. The implementation of the AUB Group strategy has led to the diversification of earnings, with Australian broking businesses now contributing 70% to profit before corporate expenses in FY2016, down from 88% in FY2012. Growth in underlying corporate expenses were restricted to 1.1% in the current year, before the impact of short term and long term incentive provisions. Total costs increased 7.5% after provisions for incentives, as little STI was paid in FY2015 year as minimum hurdle rates were not met in that year. A reconciliation of the operating results presented above to the Annual Report operating segments is set out below. RECONCILIATION OF OPERATING SEGMENTS Consolidated FY2016 Consolidated FY2015 Insurance Risk Insurance Risk Intermediary Services $000 $000 Total $000 Intermediary Services $000 $000 Total $000 Profit before tax and after non-controlling interests from: - Insurance Broking - Australia - Insurance Broking - New Zealand - Underwriting Agencies - Risk Services 47,955 2,880 10,347 - - - 47,955 50,147 2,880 293 10,347 13,162 - - - 50,147 293 13,162 - 7,158 7,158 - 2,040 2,040 Profit after tax and after non-controlling interests 61,182 7,158 68,340 63,602 2,040 65,642 Corporate income Corporate expenses Tax Adjusted NPAT 2,601 (17,168) - - 2,601 1,939 (17,168) (15,546) - - 1,939 (15,546) 46,615 7,158 53,773 49,995 2,040 52,035 (14,025) (2,195) (16,220) (15,085) (605) (15,690) 32,590 4,963 37,553 34,910 1,435 36,345 Less amortisation expense (net of tax) (3,797) (260) (4,057) (4,336) Less non-controlling interests in relation to adjustments1 Less tax expense in relation to adjustments2 (617) (1,366) - - (617) (1,366) (609) (482) (4,336) (609) (482) - - Profit after income tax and non-controlling interests (refer Annual Report note 23 Operating Segments) 26,810 4,703 31,513 29,483 1,435 30,918 1 Total shareholder returns includes all dividends and receipts on sale since inception, net of initial start-up costs, discounted at AUB Group cost of capital. 2 This includes adjustments to carrying value of associates, contingent consideration payments and profit on sale. AUB GROUP 2016 ANNUAL REPORT 11 DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 OPERATING AND FINANCIAL REVIEW (CONTINUED) Shareholder returns On a Reported NPAT basis, earnings per share increased by 17.1% over the prior year, and by 0.5% based on Adjusted NPAT. Compound average growth rate in earnings per share over the five years to 30 June 2016 on this adjusted basis was 6.2%. Dividends per share declared for FY2016 are 40.0 cents, an increase of 0.8% on prior year. The Company’s total shareholder return (comprising share price growth and dividends paid) reflects the performance, with a return of 17.3% for the five years to 30 June 2016 on an annualised basis. These longer term returns are above the returns for the ASX All Ordinaries and ASX Small Ordinaries Indices. FINANCIAL CONDITION Shareholders’ equity increased to $351.235 million from $311.326 million. The main reason for the increase was the profit for the year. The reduction in equity through dividends paid was partially offset by the increase in issued capital arising from dividends paid being reinvested as a result of the company’s dividend reinvestment plan and the issue of shares as a result of the exercise of employee share options. The Group continues to generate positive cash flow from operating activities of $34.038 million (2015: $41.520 million) excluding insurance trust account funds. After investing and financing activities cash held increased from $50.511 million to $70.933 million and includes cash realised from the sale of associates. Borrowings increased by $22.581 million to $88.646 million as a result of acquisitions by the Group and from the deconsolidation of a controlled entity. Borrowings of associates of $47.009 million (2015 $43.873 million) are not included in the Group balance sheet as these entities are not consolidated. The borrowings of associates relate largely to funding of acquisitions, premium funding and other financing activities. The Company’s banking facilities were increased during the financial year, with the limit now totaling $79.450 million and the tenure extended to 30 November 2018. Gearing increased to 20.2% in the year, as funds were drawn down to pay for the acquisition of Runacres & Associates in New Zealand. Net gearing (i.e. gearing ratio net of cash at Group) was 15.3% at year end. 12 AUB GROUP 2016 ANNUAL REPORT Dividends Cents $’000 Final dividend recommended: • on ordinary shares 28.0 17,877 Dividends paid in the year: • on ordinary shares - interim • on ordinary shares - final 12 27.7 7,601 17,245 24,846 BUSINESS STRATEGIES The Group’s strategic goal is ‘To be the leading provider of risk management advice and solutions to clients’. Our approach to achieving our strategic goal, balances the immediate needs and profitability of the business today, developing future growth areas, and ensuring the enduring sustainability of the business through:  Building our client base, by enhancing value and continuously improving and expanding our services; Building new risk-related revenue streams; and Evolving the total risk solutions customer value proposition across different geographies in support of a sustainable and profitable future.   Our strategy remains focused on supporting and growing our core client-facing partner businesses of insurance broking, underwriting agencies (insurance intermediaries) and risk services, organically and via acquisition. PROSPECTS FOR FUTURE FINANCIAL YEARS Insurance premium rates in Australia and New Zealand have been in decline for the last 24 months as a result of competition between insurers and a benign claims environment, consistent with previous cycles seen in the insurance market. The last six months has seen signs of a stabilisation of premium rates on renewal business. The Broking businesses continue to focus on the levers of profit they can control, including other sources of income such as premium funding, fee for service income, life insurance, services income and managing expenses, mitigating the impact on margins. Similarly, Underwriting Agencies will continue to focus on expense management and new business development and will launch two new underwriting agencies to the market in FY2017 to support revenue growth. Risk Services businesses are not impacted by the insurance premium market, and prospects for these businesses remain strong, as they expand into new states and increase their presence on key insurer workers compensation panels. PROSPECTS FOR FUTURE FINANCIAL YEARS (CONTINUED) Any future acquisitions will also underpin future growth. The Group continues to invest in corporate infrastructure for long term growth as we expand into new areas and geographies. In addition, achievement of growth targets will mean an increase in costs as a result of an increase in short term and long term incentives provisions, compared to FY2016, as only a proportion of STI will be paid in FY2016 and long term incentive awards did not meet required hurdle rates. In this context, organic growth, bolstered by acquisitions should again provide moderate growth in FY17. The extent of that growth will be impacted by the level of future acquisitions, premium rates and interest rates. Changes to premium rates (increases or decreases) will continue to impact insurance broking and underwriting agency businesses. Changes in interest rates will impact interest earnings on cash and trust accounts and interest expense on debt facilities. On a net basis and at current gearing rates, the Group generally benefits from increasing interest rates and is negatively impacted by decreasing interest rates. Profit commissions paid by underwriters, which depend on the growth and profitability of business written, were a significant contributor to the results in 2016 but cannot be reliably predicted for future years. KEY BUSINESS RISKS The Group is exposed to multiple risks relating to conduct of its various businesses. The following list of risks are not meant to represent an exhaustive list. Key risks that may impact the Group’s business strategy and prospects for the future financial year include:   Continued negative premium rate environment – insurance premiums rates are set by insurers independently of AUB Group. A continued negative premium rate environment would put further pressure on margins in the Insurance Intermediaries segment. To mitigate this our businesses and the Group focus on business drivers that can be controlled, as outlined above. Cyber risk - the Group provides data centre and system support services to many of our partners. These services are supported by the Group and external outsource providers. The Group constantly monitors cyber threats, security and system availability across the network we support. A group- wide cyber insurance policy is in force.    DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 Regulatory change - the Australian and New Zealand financial services market continues to undergo significant regulatory change. The impact on the general insurance broking sector has not been as significant as other sectors. The impact on changes to life insurance commission structures has been more significant, however this is not a material component of our business today. AUB Group constantly monitors changes in legislation and regulation and engages with government via regulatory bodies to ensure we remain vigilant to future changes and impact on our business. Dependence of key suppliers – AUB Group has a number of material outsourcing arrangements with external providers that support critical functions. These are largely in relation to technology and telephony services. AUB Group regularly monitors contracts, service level agreements and performance targets to ensure required deliverables and standards are met. Disruption to broker model via digital or direct models. To date, the SME segment has not been as impacted by alternative distribution models as the retail insurance lines, however the businesses are not immune from these risks. The Group continues to invest in technologies that support the broker’s role as risk adviser to their clients, which we believe is critical to their value proposition. In addition continued investment in connectivity with insurers, ensures that broker role can be delivered cost efficiently for clients. Other significant risks include refinancing risk, misconduct risk, loss of material binders in the underwriting agencies business and succession planning within our partner businesses. Management have controls and plans in place to manage and mitigate these risks. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the consolidated entity during the financial year, other than acquisitions disclosed above. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 25 August 2016 the Directors of AUB Group Limited declared a final fully franked dividend on ordinary shares of 28.0 cents per share in respect of the 2016 financial year. Based on the current number of ordinary shares on issue, the total amount of the dividend is $17.877 million. ENVIRONMENTAL REGULATION AND PERFORMANCE The Company is not subject to any particular or significant environmental regulation under laws of the Commonwealth or of a State or Territory or in New Zealand. AUB GROUP 2016 ANNUAL REPORT 13 DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 RISK MANAGEMENT The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board. As it is considered that all non-executive directors should be part of this process, they all serve on the Audit and Risk Management Committee. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with risks identified by the Board. These include the following:  Board approval of the strategic plan, which encompasses the Group’s vision, mission and strategy statements designed to meet stakeholders’ needs and manage business risk.   Implementation of Board approved operating plans and budgets and monitoring of progress against these budgets, including the establishment and monitoring of key performance indicators of both a financial and non-financial nature. The allocation of specific responsibility to the Audit and Risk Management Committee to review, monitor and report on risk. Key risks that may impact the Group’s business strategy and prospects for the future financial year have been included in the Operating and Financial Review. SHARE OPTIONS All options are granted over shares in the ultimate controlling entity AUB Group Limited. Unissued shares As at the date of this report, there were 567,756 unissued ordinary shares under options. Refer to note 16 of the financial statements for further details of the options outstanding. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate. Options The fourth tranche options vested on 29 September 2011 and no further options vested on the retest date of September 2012. All options must be exercised no later than 29 September 2015. During the year 11,099 options were exercised leaving no unexercised options at reporting date. The exercise price for each option was zero. The fifth and sixth tranche of options have either vested or lapsed prior to FY2016. Accordingly these plans are now closed and are of no further effect. 14 AUB GROUP 2016 ANNUAL REPORT The earliest vesting date for the seventh tranche of 21,430 options was 31 October 2014. All remaining options lapsed during the year leaving no unexercised options at reporting date. For all options issued as part of the seventh tranche and thereafter, if options are exercised within two years of the date the options vest the shares cannot be disposed of before the expiry of the two year period from the date the options vested, except if employment is terminated. The earliest vesting date for the eighth tranche of 32,203 options is 31 October 2015. Last year 5,713 options lapsed leaving 26,490 outstanding at reporting date. All options must be exercised no later than 5 October 2019. The exercise price for each option was zero for all of the options. The earliest vesting date for the ninth tranche of 37,499 options is 30 October 2016. Last year 9,235 options lapsed, leaving 28,264 outstanding at reporting date. All options must be exercised no later than 5 October 2020. The exercise price for each option was zero for all of the options. The earliest vesting date for the tenth tranche of 43,456 options is 31 October 2017. Last year 10,345 options lapsed, leaving 33,111 outstanding at reporting date. All options must be exercised no later than 31 October 2021. The exercise price for each option was zero for all of the options. The earliest vesting date for the eleventh tranche of 69,891 options is 31 October 2018. All options are outstanding at reporting date. All options must be exercised no later than 31 October 2021. The exercise price for each option was zero for all of the options. A grant of 233,000 options was made to the CEO on 15 January 2013 with an earliest vesting date of 1 January 2016. During the year, 73,000 were exercised, leaving 160,000 options outstanding at the reporting date. All options must be exercised no later than 1 January 2020. The exercise price for each option was zero for all of the options. A further grant of 250,000 options was made to the CEO on 7 April 2016 with an earliest vesting date of 1 January 2019. All options must be exercised no later than 1 January 2023. The exercise price for each option was zero for all of the options. Shares issued as a result of the exercise of options During the financial year, employees exercised options to acquire 84,099 fully paid shares in AUB Group Limited for no consideration. Consequently 84,099 ordinary shares were issued during the financial year under the Senior Executive Option Plan. DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During or since the end of the financial year, the Company has paid premiums in respect of a contract insuring all the Directors and Officers of AUB Group Limited against liabilities, past, present and future. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. The latest determination was approved by shareholders at the 2013 Annual General Meeting to increase the aggregate remuneration to $750,000 per year. In accordance with normal commercial practice, the disclosure of the total amount of premiums under and the nature of the liabilities covered by the insurance contract is prohibited by a confidentiality clause in the contract. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is paid to Non-Executive Directors is generally reviewed every second year. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement, against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. REMUNERATION REPORT This remuneration report has been subject to audit and outlines the remuneration arrangements in place for Directors and Executives of AUB Group Limited (the Company). Remuneration philosophy The performance of the Company depends upon the quality of its Directors and Executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and Executives.  To this end, the Company embodies the following principles in its remuneration framework:  Provide competitive rewards to attract high calibre executives;  Link executive rewards to shareholder value;  Have a significant portion of executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks; and  Establish appropriate, demanding performance hurdles for variable executive remuneration. Remuneration and People Committee The Remuneration and People Committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for the Directors, the Chief Executive Officer (CEO) and Senior Management Team. Non-Executive Director remuneration Objective The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The Board considers advice from external consultants as well as the fees paid to Non-Executive Directors of comparable companies when undertaking the review process. Advice was previously obtained in 2013 from an external remuneration consultant to ensure that fees charged at that time were in line with the current market. As a result of their recommendations, fees were increased from 1 April 2013. Notwithstanding that fees are normally reviewed every second year, fees were not reviewed in 2015. The Board carried out a review in 2016 and taking into account that a review had not been undertaken for three years, determined that a 5% increase in the fees payable to Non-Executive Directors was reasonable and would take effect from 1 July 2016. Each Non-Executive Director receives a fee for serving as a Director of the Company which includes a fee for each Board committee on which the Director sits. Both the Chairman of the Board and the Chairman of the Audit and Risk Management Committee receive an additional fee recognising the additional workload that these positions entail. Non-Executive Directors do not receive retirement benefits, nor do they participate in any incentive programs. From 1 April 2013 to 30 June 2016 each Non-Executive Director has received an annual fee of $100,000 with the Chairman of the Audit and Risk Management Committee receiving an additional annual fee of $20,000 and the Chairman of the Board receiving an additional annual fee of $70,000. The remuneration of Non-Executive Directors for the year ended 30 June 2016 is detailed in Table 2 of this report. Non-Executive Directors have been encouraged by the Board to hold shares in the Company. It is considered good governance for Non-Executive Directors to have a stake in the companies on whose Boards they sit. The shares held in the company by each Director are detailed in Table 1 of this report. Senior Manager and Executive Director remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to: AUB GROUP 2016 ANNUAL REPORT 15 DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 REMUNERATION REPORT (CONTINUED) Senior Manager and Executive Director remuneration (continued)  Reward executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks;  Align the interest of executives with those of shareholders;  Link rewards with the strategic goals and performance of the Company; and  Ensure total remuneration is competitive by market standards. Structure It is the Remuneration & People Committee’s practice that a fixed term employment contract is entered into with the Chief Executive Officer. Remuneration consists of the following key elements:  Fixed Remuneration  Variable Remuneration – Short Term Incentive (STI)  Variable Remuneration – Long Term Incentive (LTI) The CEO’s target remuneration mix comprises 46% fixed remuneration, 16% target STI opportunity and 38% LTI. Senior executives target remuneration mix ranges from 60- 70% fixed remuneration, 20-25% target STI opportunity and 10-15% LTI. It is the Company’s practice to have fixed remuneration at market median and total remuneration at the upper quartile. To ensure the Remuneration & People Committee is fully informed when making remuneration decisions it seeks external remuneration advice. This process is normally carried out every second year. A formal appointment process was undertaken in 2014 and PricewaterhouseCoopers (PwC) was appointed to advise on senior executive remuneration. In order to ensure that the Remuneration and People Committee is provided with advice, and as required, recommendations, free from undue influence by members of the Key Management Personnel (KMP) group to whom recommendations may relate, the engagement of PwC by the Committee was based on an agreed set of protocols that would be followed by the Committee, PwC and members of the KMP. PwC provided advice in the form of a written report providing insights on remuneration trends and shareholder views and market data in relation to CEO and executive remuneration. No specific remuneration recommendations were provided. Fixed Remuneration Objective Fixed remuneration is reviewed annually by the Remuneration & People Committee. The process consists of a review of company-wide, business unit and individual 16 AUB GROUP 2016 ANNUAL REPORT performance, relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. As noted above, the Committee has access to external advice independent to management which was obtained as part of the 2014 review. Structure Senior executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group. The fixed remuneration component of the 9 key management personnel of the Group is detailed in Table 2. Variable remuneration – short term incentive (STI) Objective The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI is available at a set level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances. Structure The Group sets financial targets and each executive has set personal objectives against which their performance is evaluated. On an annual basis, a rating is determined for each executive based on an evaluation of each executive’s performance against predetermined objectives. This rating is then applied to an allocated STI opportunity determined as a percentage of fixed remuneration. This amount is then scaled up or down to reflect the Group’s performance against its financial target for growth in Adjusted NPAT over the prior year to a maximum of two times. The financial targets for growth are reviewed annually to ensure they align with current expectations. As a result, the level of incentive reflects the performance of the Company and the executive, therefore ensuring it is aligned with shareholders’ interests. An incentive pool is set aside annually based on company performance and amounts are allocated to individual executives as set out above. This process usually occurs within three months of the reporting date. The aggregate of annual STI payments available for executives across the Group is subject to the approval of the Remuneration and People Committee. Payments made are delivered as a cash bonus in the following reporting period. For the 2015 financial year, the STI cash bonus of $200,000 provided in the financial statements was paid in the 2016 financial year. The Remuneration and People Committee considered the STI payments for the 2016 financial year and has allocated a pool in the sum of REMUNERATION REPORT (CONTINUED) Variable remuneration – short term incentive (STI) (continued) $1,417,233 for STI cash bonuses for staff and senior management for the 2016 financial year. This amount has been provided for in the 2016 financial year based on the growth in the adjusted NPAT for the year over the prior year. Variable remuneration – long term incentive (LTI) Objective The objective of the LTI plan is to reward senior executives in a manner that aligns this element of remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Group’s performance against the relevant long term performance hurdle. Structure LTI grants to executives are delivered in the form of options. The following were selected as the measures for the LTI plan in 2016: a) total shareholder return (TSR) measured against the S&P/ASX Small Ordinaries Index (the Target Group); and b) consolidated net profit after tax of the Company for that financial year excluding fair value adjustment to carrying values of associates, profit on sale of entities or assets or deconsolidation of controlled entities, contingent consideration adjustments, impairment charges and amortisation of intangibles, provided that the Board has the discretion to adjust the Adjusted NPAT to take into account abnormal or non- security events (Adjusted EPS Growth). It is believed the differing measures of TSR and Adjusted EPS provide improved alignment between comparative shareholder return and reward for executives. Option exercise conditions Exercise conditions: a) subject to satisfaction of the performance based conditions referred to in paragraphs below, options are tested on the date on which the Company’s audited financial statements for the third financial year ending after the grant are lodged with the Australian Securities Exchange (the First Test Date) and on the date on which the Company’s audited financial statements for the fourth financial year ending after the grant are lodged with the Australian Securities Exchange four years (the Second Test Date); DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 b) Options granted in FY2016 are comprised of 60% EPS options and 40% TSR options and will vest and may be exercised at the First Test Date, subject to the Participant being an employee of the Company or a subsidiary of the Company at the time of exercise, (except where his or her employment has been terminated by the Company without cause or has terminated as a result of the Participant being unable to perform his or her duties due to illness, injury, incapacity or death) and the performance hurdles as follows: The EPS options – Adjusted EPS Growth (i) less than 4% per annum, 0% of the EPS options will become exercisable; (ii) equal to 4% per annum, 25% of the EPS options will become exercisable; (iii) between 4% and 7%, the percentage of options that are exercisable will be determined on a straight line basis; (iv) equal to 7% per annum, 50% of the EPS options will become exercisable; (v) between 7% and 10%, the percentage of options that are exercisable will be determined on a straight line basis; (vi) equal to 10% per annum, 100% of the EPS options will become exercisable; The TSR options - TSR (i) less than the Target Group, 0% of the TSR options will become exercisable; (ii) equal to the Target Group, 50% of the TSR options will become exercisable; (iii) greater than the Target Group, the percentage of options that are exercisable will be determined on a straight line basis; (iv) greater than 150% of the Target Group, 100% of the TSR options will become exercisable. c) For options granted in FY2015 or earlier, if the First Test Compound EPS Growth is: (i) equal to 8.5%, 20% of the options will become exercisable; (ii) equal to 10%, 50% of the options will become exercisable; AUB GROUP 2016 ANNUAL REPORT 17 Company performance and the link to remuneration Long term incentives are based on Adjusted EPS Growth and Total Shareholder Returns. Adjusted EPS Growth was 0.5% over FY2015. Compound average growth rate in earnings per share over the five years to June 2016 on this basis was 6.2%. Total annualised shareholder return over the one year to 30 June 2016 was 16.6%. However the three year return to 30 June 2016 was 1.06%, confirming the alignment of executive remuneration to shareholder returns. The share price increased over the financial year from $9.00 to $10.10 at 30 June 2016. Dividends per share for the financial year totalled 40 cents compared to 39.7 cents in 2015. It is expected that none of the grants made in 2012, 2013 and 2014 will vest based on performance to 30 June 2016. DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 REMUNERATION REPORT (CONTINUED) Option exercise conditions (continued) (iii) between 10% and 15%, the percentage of options that are exercisable will be determined on a straight line basis; (iv) 15% or more, 100% of the options will become exercisable. d) If all of the options do not become exercisable on the First Test Date and the performance criteria on the second test date are higher than on the First Test Date an additional number of options will become exercisable as is equal to the difference between the number of options which became exercisable on the First Test Date and the number of options which would have become exercisable on the First Test Date using the performance criteria at as the Second Test Date; e) Any options which have not become exercisable by the Second Test date lapse and are of no further force or effect. f) Options granted in the 2010–2016 financial years have further restrictions on their disposal or the disposal of any shares acquired on their exercise for a further two years from vesting of these options. g) Option exercise conditions for options granted in the 2014 and 2015 financial years were modified so that between 8.5% and 10% Adjusted EPS Growth the percentage of options that are exercisable will be determined on a straight line basis. h) The exercise conditions for 200,000 of the options granted to the CEO on 1 January 2013 (of which 160,000 remain unvested) are the same as set out above for FY 2015 except that 20% vest below 8.5% and between 8.5% and 10% Adjusted EPS growth the options that are exercisable will be determined on a straight line basis. The further 33,000 options granted to the CEO on 1 January 2013 have no performance hurdles and vested at 1 January 2016. i) The exercise conditions for the 250,000 options granted to the CEO in 2016 are the same as set out above in paras (a)-(f) for FY2016. 18 AUB GROUP 2016 ANNUAL REPORT DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 Details of Key Management Personnel (KMP) The following persons were the executives with the greatest authority for the planning, directing and controlling the activities of the consolidated entity during the financial year. M. P. L. Searles Director and Chief Executive Officer J. S. Blackledge Chief Financial Officer (appointed 1 July 2015) S. S. Rouvray Chief Financial Officer and Company Secretary (ceased 1 July 2015) F. Gualtieri National Manager – Group Services and Support (ceased 1 July 2015) F. Pasquini Chief Distribution Officer S. Vohra Chief Operating Officer K. R. McIvor Managing Director – New Zealand and Head of Group Development T. M. Stevens Chief Information Officer (ceased 20 May 2016) N. F. Thomas General Manager – Broker Network Development Employment contracts The CEO, Mr. Searles is employed under contract terminating on 31 December 2018. • From 1 July 2015, Mr. Searles received fixed remuneration of $630,000 per annum. • Mr. Searles was granted 233,000 options on 1 January 2013 to subscribe for ordinary shares under the Senior Executive Option Plan comprised as follows: (i) 200,000 options are subject to performance conditions. 40,000 of these options vested under this grant on 1 January 2016 and, subject to performance hurdles, further options may vest on 1 January 2018. (ii) 33,000 options are not subject to any performance hurdles other than Mr. Searles being an employee of a group. These options vested 1 January 2016. • Mr Searles was granted 250,000 additional options on 7 April 2016 to subscribe for ordinary shares under the Senior Executive Option Plan. The options are subject to performance conditions tested at 30 June 2018 and vest on 1 January 2019. Unvested options are retested at 30 June 2019 and may vest at 1 January 2020 subject to performance hurdles being met. • Mr. Searles or the company may terminate this contract by giving twelve months written notice. If Mr. Searles terminates the contract prior to 31 December 2018, any unvested options held will be forfeited. • The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr Searles is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited. Other Key Management Personnel (KMP) have letters of offer of employment or employment contracts with no fixed term, and varying periods up to six months for either party to terminate. Details of remuneration are contained in Table 2. AUB GROUP 2016 ANNUAL REPORT 19 DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 REMUNERATION REPORT (CONTINUED) Table 1: Shareholdings of Key Management Personnel Shares held in AUB Group Limited at 30 June 2016 Jul-15 during year during year Jun-16 Balance at 01- Shares acquired Shares disposed Balance at 30- Directors R. A. Longes (retired 26 November 2015) R. J. Carless D. C. Clarke R. J. Low P. A. Lahiff (appointed 1 October 2015) M. P. L. Searles Executives S. S. Rouvray (ceased 1 July 2015) J. S. Blackledge F. Gualtieri (ceased 1 July 2015) F. Pasquini K. R. McIvor S. Vohra T. M. Stevens (ceased 20 May 2016) N. F. Thomas Total 122,473 19,973 7,500 8,320 – – 384,528 – 11,076 70,186 – – 989 3,931 126,404 - 2,643 390 5,000 74,049 – – – 6,853 – – – – – – – – – – – 11,076 – – – – – – 19,973 10,143 8,710 5,000 74,049 384,528 – – 77,039 – – – 989 625,045 92,866 137,480 580,431 R.A. Longes was deemed to have disposed of his total shareholding following his retirement from the board of directors on 26 November 2015. Shares held in AUB Group Limited at 30 June 2015 Jul-14 during year during year Jun-15 Balance at 01- Shares acquired Shares disposed Balance at 30- Directors R. A. Longes D. J. Harricks (retired 27 November 2014) R. J. Carless D. C. Clarke R. J. Low M. P. L. Searles Executives S. S. Rouvray F. Gualtieri F. Pasquini K. R. McIvor S. Vohra T. M. Stevens N. F. Thomas Total 117,540 27,000 17,973 2,500 – – 320,169 37,210 43,147 – – – – 4,933 – 2,000 5,000 8,320 – 64,359 3,866 33,039 – – – 989 – – – – – – – 30,000 6,000 – – – – 122,473 27,000 19,973 7,500 8,320 – 384,528 11,076 70,186 – – – 989 565,539 122,506 36,000 652,045 All equity transactions with KMP's other than those arising from the exercise of options granted as part of their remuneration, have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm’s length. 20 AUB GROUP 2016 ANNUAL REPORT REMUNERATION REPORT (CONTINUED) Table 2: Compensation of Directors and other Key Management Personnel for the year-ended 30 June 2016 (Consolidated) DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 Post Share- emplo- based Short-term yment payment *Cash Non Salary & short term monetary Super- **Equity Total perform- ance fees incentive benefits annuation options Total related $ $ $ $ $ $ $ 30-Jun-16 Directors D. C. Clarke Chairman (appointed Chairman 26 November 2015) 129,541 R. A. Longes Chairman (retired 26 November 2015) 62,860 – – – 12,306 – 5,972 – – 141,847 68,832 – – M. P. L. Searles* Chief Executive R. J. Carless Non-executive Director P. A. Lahiff Non-executive Director (appointed 1 October 2015) 68,493 R. J. Low Non-executive Director Executives S. S. Rouvray 109,589 Chief Financial Officer / Company Secretary (retired 1 July 2015) – J. S. Blackledge 569,428 18,750 28,497 35,000 164,792 816,467 22.48% 70,000 – – – – – 30,000 – 6,507 – 10,411 – – – – – – 100,000 75,000 120,000 – – – – – Chief Financial Officer (appointed 1 July 2015) 315,843 – 1,584 29,995 10,182 357,604 2.85% F. Gualtieri National Manager - Group Services and Support (ceased 1 July 2015) F. Pasquini Chief Distribution Officer K. R. McIvor – – – – – – – 269,017 12,500 42,403 22,500 9,833 356,253 6.27% MD New Zealand and Head of Group Development 165,900 12,500 792 7,153 – 186,345 6.71% S. Vohra Chief Operating Officer T. M. Stevens 305,239 12,500 1,583 28,963 9,841 358,126 6.24% Chief Information Officer (ceased 20 May 2016) 218,094 12,500 55,597 20,781 9,523 316,495 6.96% N. F. Thomas General Manager – Broker Network Development 262,033 7,500 37,804 24,893 9,523 341,753 4.98% 2,546,037 76,250 168,260 234,481 213,694 3,238,722 *Short term incentives (STI) were paid during the year in respect of the group’s performance for 30 th June 2015. Any amount payable in respect of the 2016 performance will be paid during 2017 and will be included in the 2017 remuneration report. An estimate of the amounts ex pected to be paid in respect of 30 June 2016 entitlements have been provided for in the 30 June 2016 Financial Statements. ** Share based payments are calculated on the accrued costs to the company recognising that options issued during the period will vest over three years after taking into account a 50% probability that the group will achieve the performance hurdles required for those options to vest. AUB GROUP 2016 ANNUAL REPORT 21 DIRECTORS’ REPORT YEAR ENDED 30JUNE 2016 REMUNERATION REPORT (CONTINUED) Table 3: Compensation of Directors and other Key Management Personnel for the year-ended 30 June 2015 (Consolidated) Post emplo- Share- based Short-term yment payment Cash Non Salary & short term monetary Super- Equity Total perform- ance fees incentive benefits annuation options Total related 30-Jun-15 Directors R. A. Longes Chairman M. P. L. Searles Chief Executive R. J. Carless Non-Executive Director D. J. Harricks Non-Executive Director (retired 27 November 2014) R. J. Low Non-Executive Director (appointed 3 February 2014) D. C. Clarke Non-Executive Director $ 155,251 $ – $ $ – 14,749 546,338 155,908 35,750 34,961 $ 170,000 $ – 772,957 20.17% $ – – – 65,000 13,261 102,293 – – – – – 35,000 100,000 – 35,000 – 48,261 – 9,718 – 112,011 – 16,507 – 100,000 – – – – (appointed 3 February 2014) 83,493 Executives S. S. Rouvray Chief Financial Officer/ Company Secretary 274,284 90,087 36,267 34,709 – 435,347 20.69% F. Gualtieri National Manager – Group Services and Support F. Pasquini 190,516 61,365 58,802 26,444 41,429 378,556 27.15% Chief Distribution Officer 264,707 65,093 33,956 34,799 50,809 449,364 25.79% K. R. McIvor Chief Broking Officer S. Vohra 333,601 67,273 13,678 25,782 52,599 492,933 24.32% Chief Operating Officer 302,956 72,753 1,583 25,179 50,854 453,325 27.27% T. M. Stevens Chief Information Officer (appointed 1 July 2014) N. F. Thomas General Manager 230,844 60,149 65,067 27,536 47,718 431,314 25.01% Broker Network Development 66,437 – 10,905 6,312 – 83,654 0.00% 2,628,981 572,628 256,008 326,696 243,409 4,027,722 Compensation payments for N. F. Thomas only relate to the period from when he was appointed KMP on 16 March 2015 22 AUB GROUP 2016 ANNUAL REPORT REMUNERATION REPORT (CONTINUED) Table 4: Value of options granted as part of remuneration to Key Management Personnel (Consolidated) DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 *Value of options granted Value of options Percentage of Value of remuneration exercised options consisting of during the during the lapsed during options for the year the year % 30 June 2016 Directors year $ year $ M. P. L. Searles 1,845,000 538,901 $ – 34,370 – 145,109 18,451 – 104,574 – – – 61,090 – 58,999 59,043 – 57,135 57,135 – – – 28,920 – – – – Shares issued on exercise of options Options fully vested Shares issued No. Paid per during the share $ year No. 22.48% 73,000 0.00 0.00% 2.85% 0.00% 6.27% 6.24% 0.00% 6.96% 4.98% – – – – – – 6,853 0.00 – – – – – – – – – – – – – – – – – 2,138,402 567,821 302,504 79,853 Shares issued on exercise of options *Value of options granted Value of options Percentage of Value of remuneration exercised options consisting of during the during the lapsed during options for year year the year $ the year $ – $ – Shares issued No. % 0.00% – $ – – 41,429 50,809 50,854 52,599 47,718 – 103,610 16,784 0.00% 64,359 24,277 53,415 9,154 8,966 – – – – – – – – 10.94% 11.31% 11.22% 10.67% 11.06% 0.00% 3,866 32,415 – – – – Options fully vested Paid per during the share $ – 3.74 0.00 3.71 – – – – year No. – 7,109 3,866 3,815 – – – – 243,409 181,302 34,904 100,640 14,790 *Gross value of options granted during the period which will vest over three years if all performance hurdles required for options to vest, are met. Shares issued on exercise of options during 2016 and 2015 were fully paid. AUB GROUP 2016 ANNUAL REPORT 23 Executives S. S. Rouvray J. S. Blackledge F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas Total 30 June 2015 Directors M. P. L. Searles Executives S. S. Rouvray F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas Total DIRECTORS’ REPORT YEAR ENDED 30JUNE 2016 REMUNERATION REPORT (CONTINUED) Table 5: Number of options granted as part of remuneration Fair value per option at grant date Exercise price per option Year ended 30 June 2016 Executives ($) (note ($) (note exercise exercise First Last Granted no. Grant date 16) 16) Expiry date date date M. P. L. Searles 250,000 7-Apr-16 S. S. Rouvray – – J. S. Blackledge 8,357 23-Nov-15 F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas – – 8,071 23-Nov-15 8,077 23-Nov-15 – – 7,816 23-Nov-15 7,816 23-Nov-15 Total 290,137 7.91 – 7.31 – 7.31 7.31 0 7.31 7.31 0.00 1-Jan-23 1-Jan-19 1-Jan-23 – – – – 0.00 23-Nov-22 23-Nov-18 23-Nov-22 – – – – 0.00 23-Nov-22 23-Nov-18 23-Nov-22 0.00 23-Nov-22 23-Nov-18 23-Nov-22 – – – – 0.00 23-Nov-22 23-Nov-18 23-Nov-22 0.00 23-Nov-22 23-Nov-18 23-Nov-22 Where options are exercised within two years after the date the options vest, any shares acquired on exercising of those options cannot be disposed of prior to the expiry of the two year period from the date the options vested, excep t if employment is terminated. Fair value per option Exercise at grant price per date option Granted no. Grant date ($) (note 16) ($) (note 16) Expiry date date date First Last exercise exercise – – – – 4,558 31-Oct-14 5,590 31-Oct-14 5,595 31-Oct-14 – – 9.0892 9.0892 9.0892 9.0892 9.0892 9.0892 – – – – – – – – 0.00 31-Oct-21 31-Oct-17 31-Oct-21 0.00 0.00 0.00 0.00 0.00 31-Oct-21 31-Oct-17 31-Oct-21 31-Oct-21 31-Oct-17 31-Oct-21 31-Oct-21 31-Oct-17 31-Oct-21 31-Oct-21 31-Oct-17 31-Oct-21 31-Oct-21 31-Oct-17 31-Oct-21 K. R. McIvor 5,787 31-Oct-14 T. M. Stevens 5,250 31-Oct-14 N. F. Thomas** 4,396 31-Oct-14 Total 31,176 Where options are exercised within two years after the date the options vest, any shares acquired on exercising of those options cannot be disposed of prior to the expiry of the two year period from the date the options vested, excep t if employment is terminated. **Options allocated to N. F. Thomas were issued before he was appointed as a KMP on 16 March 2015. 24 AUB GROUP 2016 ANNUAL REPORT Year ended 30 June 2015 Executives M. P. L. Searles S. S. Rouvray F. Gualtieri F. Pasquini S. Vohra DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 REMUNERATION REPORT (CONTINUED) Table 6: Option holdings of Key Management Personnel Balance at beginning of Total options at year end Options Balance at Not Options held at 30 period 01- Granted as Options lapsed/ end of period Vested/ vested/not June 2016 Director Jul-15 remuneration exercised forfeited 30-Jun-16 exercisable exercisable M. P. L. Searles 233,000 250,000 73,000 – 410,000 Executives S. S. Rouvray J. S. Blackledge F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas 5,473 – 17,317 25,877 10,589 10,953 14,910 8,319 – 8,357 – 8,071 8,077 – 7,816 7,816 – – – 6,853 – – – – 5,473 17,317 2,938 – 10,953 – – – 8,357 – 24,157 18,666 – 22,726 16,135 Total 326,438 290,137 79,853 36,681 500,041 The outstanding options have an exercise price of $NIL. During the current year a total of 319,891 zero priced options were issued (290,137 to KMP). F. Gualtieri ceased to be a KMP on 1 July 2015. All unvested options lapsed on that date. S. S. Rouvray ceased to be a KMP on 1 July 2015. All unvested options lapsed on that date. T. M. Stevens ceased to be a KMP on 20 May 2016. All options issued with an exercise price of $NIL and the expiry date of the options is 4 years after the vesting date. – – – – – – – – – – 410,000 – 8,357 – 24,157 18,666 – 22,726 16,135 500,041 Balance at beginning of Balance at Options end of Options held at period 01- Granted as Options lapsed/ period 30- Vested/ Not vested/not 30 June 2015 Jul-14 remuneration exercised forfeited Jun-15 exercisable exercisable Total options at year end Director M. P. L. Searles 233,000 Executives S. S. Rouvray F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas 73,149 18,434 54,474 4,994 5,166 9,660 3,923 – – 4,558 5,590 5,595 5,787 5,250 4,396 – – 233,000 64,359 3,866 32,415 – – – – 3,317 1,809 1,772 – – – – 5,473 17,317 25,877 10,589 10,953 14,910 8,319 – – – 6,853 – – – – 233,000 5,473 17,317 19,024 10,589 10,953 14,910 8,319 Total 402,800 31,176 100,640 6,898 326,438 6,853 319,585 The outstanding options have an exercise price of $NIL. During the year ended 30 June 2015 a total of 43,456 zero priced options were issued (31,176 to KMP). N. F. Thomas became a KMP on 16 March 2015 and options issued before that date are shown above. AUB GROUP 2016 ANNUAL REPORT 25 DIRECTORS’ REPORT YEAR ENDED 30JUNE 2016 REMUNERATION REPORT (CONTINUED) Table 7: The following options were granted, vested or lapsed during the year. Granted during Fair value of options Number Number at grant lapsed during vested M. P.L. Searles S. S. Rouvray J. S. Blackledge F. Gualtieri F. Pasquini S. Vohra K. R. McIvor T. M. Stevens N. F. Thomas 2012 2015 2011 2015 2011 2012 2013 2014 2008 2011 2015 2015 2013 2014 2015 2015 Grant year current year Award date vesting date – 31-Dec-13 1-Jan-16 250,000 7-Apr-16 1-Jan-19 – 31-Oct-11 31-Oct-14 8,357 23-Nov-15 23-Nov-18 31-Oct-11 31-Oct-14 31-Oct-12 31-Oct-15 date $7.38 $7.91 $6.28 $7.31 $6.28 $7.71 – – – – – – 8,071 8,077 – – 7,816 7,816 290,137 30-Oct-13 30-Oct-16 $10.06 31-Oct-14 31-Oct-17 29-Sep-08 29-Sep-11 31-Oct-11 31-Oct-14 23-Nov-15 23-Nov-18 23-Nov-15 23-Nov-18 $9.09 $4.22 $6.28 $7.31 $7.31 30-Oct-13 30-Oct-16 $10.06 31-Oct-14 31-Oct-17 23-Nov-15 23-Nov-18 23-Nov-15 23-Nov-18 $9.09 $7.31 $7.31 year during year – – 5,473 – 2,977 5,713 4,069 4,558 – 2,938 – – 5,166 5,787 – – 73,000 – – – – – – – – – – – – – – – 36,681 73,000 All options were issued with an exercise price of $NIL and the expiry date of the options is 4 years after the vesting date. There are no loans outstanding owing by Key Management Personnel at 30 June 2016 (2015: NIL). DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) held during the year and the numbers of meetings attended by each Director were as follows: No. of meetings held: No. of meetings attended: R. A. Longes M. P. L. Searles R J Carless D. C. Clarke R. J. Low P. A. Lahiff Meetings of Committees Directors’ Audit & Risk Remuneration Meetings Management Nomination & People 8 3 8 8 8 8 7 8 3 - 8 8 8 6 1 1 - 1 1 1 - 4 2 - 4 4 4 1 Mr. Searles was not a member of any Committee. All other Directors were eligible to attend all meetings held except Mr . Lahiff who was appointed on 1 October 2015 and Mr. Longes who retired on 26 November 2015 and attended all meetings held during the year in the period in which he was a Director. 26 AUB GROUP 2016 ANNUAL REPORT DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2016 DIRECTORS’ MEETINGS (CONTINUED) YEAR ENDED 30 JUNE 2016 Committee membership As at the date of this report, the Company had an Audit and Risk Management Committee, Remuneration and People Committee and a Nomination Committee of the Board of Directors. Members acting on the committees of the Board during the year were: Audit Remuneration Nomination R. J. Low (Chairman) R. A. Longes (ret 26/11/15) R. A. Longes (ret 26/11/15) R. J. Carless R. J. Carless R. J. Carless R. A. Longes (ret 26/11/15) D. C. Clarke (Chairman) D. C. Clarke (Chairman) D. C. Clarke R. J. Low R. J. Low P. A. Lahiff (app 01/10/2015) P. A. Lahiff (app 01/10/2015) P. A. Lahiff (app 01/10/2015) ROUNDING The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 2016/191. The Company is an entity to which the Class Order applies. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The Directors received an independence declaration from the auditors of AUB Group Limited. Refer to page 28 of the Directors’ Report. Non-audit services were provided in relation to taxation matters to the AUB Group by the entity’s auditor, Ernst & Young in the financial year ended 30 June 2016. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each of the non-audit services provided means that auditor independence was not compromised. The amounts received or due to be received are detailed in Note 25 of the Financial Report. Signed in accordance with a resolution of the Directors D.C. Clarke Chairman Sydney, 25 August 2016 M.P.L. Searles Chief Executive Officer and Managing Director AUB GROUP 2016 ANNUAL REPORT 27 AUDITOR’S INDENDENCE DECLARATION Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au As lead auditor for the audit of AUB Group Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) b) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of AUB Group Limited and the entities it controlled during the financial year. Ernst & Young David Jewell Partner Sydney, 25 August 2016 28 AUB GROUP 2016 ANNUAL REPORT Revenue Other income Share of profit of associates Expenses Finance costs Income arising from adjustments to carrying values of associates, sale of interests in controlled entities and broking portfolios – Adjustments to carrying value of associates and estimates for contingent consideration – Profit from sale of interests in controlled entities and associates Profit before income tax Income tax expense Net Profit after tax for the period Net Profit after tax for the period attributable to: Equity holders of the parent Non-controlling interests INCOME STATEMENT YEAR ENDED 30 JUNE 2016 Notes 4 (i) 4 (ii) 4 (iii) 4 (iv) 4 (v) 4(vi) 4(vii) 5 Consolidated 2016 $’000 2015 $’000 202,977 191,339 7,629 23,272 5,313 20,695 (178,064) (163,240) (5,389) 50,425 (4,310) 49,797 1,730 8,759 60,914 12,127 1,881 2,088 53,766 10,909 48,787 42,857 42,002 6,785 34,887 7,970 48,787 42,857 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 8 8 66.6 66.5 56.9 56.7 AUB GROUP 2016 ANNUAL REPORT 29 STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2016 Net Profit after tax for the period Other comprehensive income Net movement in foreign currency translation reserve Income tax benefit relating to currency translation Other comprehensive income after income tax for the period Total comprehensive income after tax for the period Total comprehensive income after tax for the period attributable to: Equity holders of the parent Non-controlling interests Consolidated 2016 $'000 2015 $'000 48,787 42,857 575 (13) 562 (192) 13 (179) 49,349 42,678 42,429 6,920 49,349 34,708 7,970 42,678 30 AUB GROUP 2016 ANNUAL REPORT STATEMENT OF FINANCIAL POSITION YEAR ENDED 30 JUNE 2016 Consolidated 2016 $’000 2015 $’000 Notes 6 6 9 10 9 10 11 13 14 5 17 5 18 19 17 18 5 19 20 21 21 21 21 70,933 87,513 165,801 670 50,511 105,498 165,053 150 324,917 321,212 163 40 143 72 133,894 141,661 9,806 6,507 246,746 199,836 5,535 396,184 721,101 5,574 353,793 675,005 239,510 252,380 5,593 12,415 4,461 5,975 10,055 8,624 261,979 277,034 11,452 2,730 9,520 84,185 107,887 369,866 351,235 141,708 146,533 5,384 248 370 19,280 2,735 7,189 57,441 86,645 363,679 311,326 128,890 128,165 5,707 (179) 540 294,243 263,123 56,992 48,203 351,235 311,326 AUB GROUP 2016 ANNUAL REPORT 31 Assets Current Assets Cash and cash equivalents Cash and cash equivalents – Trust Trade and other receivables Other financial assets Total Current Assets Non-current Assets Trade and other receivables Other financial assets Investment in associates Property, plant and equipment Intangible assets and goodwill Deferred income tax asset Total non-current Assets Total Assets Liabilities Current Liabilities Trade and other payables Income tax payable Provisions Interest bearing loans and borrowings Total Current Liabilities Non-current Liabilities Trade and other payables Provisions Deferred tax liabilities Interest bearing loans and borrowings Total Non-current Liabilities Total Liabilities Net Assets Equity Issued capital Retained earnings Share based payments reserve Foreign currency translation reserve Asset revaluation reserve Equity attributable to equity holders of the parent Non-controlling interests Total Equity STATEMENT OF CASH FLOWS YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Receipts from customers Dividends received from others Dividends/trust distributions received from associates Interest received Management fees received from associates/related entities Notes 2016 $’000 Consolidated 2015 $ 000 191,629 182,458 2 20,454 3,619 11,099 15 18,464 3,623 10,136 Payments to suppliers and employees (175,886) (155,941) Income tax (paid) Interest paid Net cash from operating activities before customer trust account movements Net (decrease)/increase in cash held in customer trust accounts Net cash flows from operating activities Cash flows from investing activities Proceeds from reduction in interests in controlled entities Payment for increase in interests in controlled entities 6 7(a),(b) 7(a) (Payments) for/proceeds from new consolidated entities, net of cash acquired 7(c),(d) Cash outflow from sale/deconsolidation of controlled entities Payment for new/additional interests in associates 7(e) 11 Payment for new broking portfolios purchased by members of the economic entity Proceeds from sale of broking portfolios by member of the economic entity Proceeds from sale of associates (net of sale expenses) Proceeds from sale of other financial assets Proceeds from new shares issued to non-controlling interests (Payment for)/proceeds from purchases/sale of other financial assets Proceeds from sale of plant and equipment Payment for plant and equipment and capitalised projects Advances of mortgages to associates/related entities Proceeds from mortgage repayments from associates/related entities (12,700) (4,179) 34,038 (9,292) 24,746 2,425 (291) (40,007) (10,539) (2,971) (1,836) - 30,432 14 2,714 - 195 (5,032) (2,316) 1,815 (13,366) (3,869) 41,520 2,815 44,335 2,714 (990) (17,605) (7,008) (16,423) (1,631) 124 - - 788 (34) 556 (2,695) (84) 213 Net cash flows (used in) investing activities (25,397) (42,075) Cash flows from financing activities Dividends paid to shareholders Dividends paid to shareholders of non-controlling interests Proceeds from issue of share capital Payment for contingent consideration on prior year acquisitions Increase in/(repayment) of borrowings and lease liabilities Advances to related entities Net cash flows from financing activities Net increase in cash and cash equivalents (12,028) (4,399) - (4,330) 23,387 458 3,088 2,437 (9,972) (6,500) 7,192 (4,967) 16,797 (958) 1,592 3,852 Cash and cash equivalents at beginning of the period 156,009 152,157 Cash and cash equivalents at end of period 6 158,446 156,009 32 AUB GROUP 2016 ANNUAL REPORT 7(a)) - 1,800 - 1,800 835 2,635 STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2016 Attributable to equity holders of the parent Foreign Asset currency Share based Non- Issued Retained revaluation translation payment controlling Total capital earnings reserve reserve reserve Total interest equity $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 128,890 128,165 540 (179) 5,707 263,123 48,203 311,326 - - - 42,002 - 42,002 - 427 427 - - - 42,002 6,785 48,787 427 135 562 42,429 6,920 49,349 Consolidated At 1 July 2015 Profit for the year Other comprehensive income Total comprehensive income for the year Adjustment relating to an increase in voting shares in controlled entities (see note Non controlling interests relating to new acquisitions (see note 7(c)) Adjustment resulting from the deconsolidation of controlled entity (see note 7(e)) Transfer from asset revaluation reserve Cost of share-based payment Movement in tax benefit related to employee share trust transactions On 30 October 2015 and 29 April 2016, 1,505,688 shares were issued as a result of a Dividend Reinvestment Plan - - - - - (see note 20) 12,852 Allotted 11,099 shares at an issue price of $NIL (see note 20) Allotted 73,000 shares at an issue price of $NIL (see note 20) - - Share issue expenses (34) - - - - - - - - - - - - - - (758) 170 (170) - - - - - - - - - - - - - - - - - - 11,999 11,999 (758) (6,566) (7,324) - - - - (312) (312) (11) (11) - - - - (312) (11) - 12,852 - 12,852 - - - - - - (34) - - - - - (34) (24,846) (4,399) (29,245) Equity dividends - (24,846) At 30 June 2016 141,708 146,533 370 248 5,384 294,243 56,992 351,235 AUB GROUP 2016 ANNUAL REPORT 33 STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2016 Attributable to equity holders of the parent Foreign Asset currency Share based Non- Issued Retained revaluation translation payment controlling Total capital earnings reserve reserve reserve $'000 $'000 108,339 114,836 $'000 1,000 $'000 $'000 Total $'000 interest equity $'000 $'000 - - (179) (179) 5,296 229,471 40,108 269,579 - - - 34,887 7,970 42,857 (179) - (179) 34,708 7,970 42,678 - - - 34,887 - 34,887 Consolidated At 1 July 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Adjustment resulting from the consolidated entity disposing of interests in controlled entities (see note 7 (e)) - 108 Adjustment relating to an increase in the voting shares in controlled entities. (see note 7(b) - 1,205 Non controlling interests relating to new acquisitions (see note 7(d) Transfer from asset revaluation reserve Cost of share-based payment Movement in tax benefit related to employee share trust transactions Allotted 132,800 and 27,834 respectively, as a result of employees exercising options - - - - (see note 20) 558 460 (460) - - - - - - - - - - - - - - - - - - On 15 October and 24 October 2014 and 30 April 2015, 696,147, 928,220 and 516,092 shares were issued respectively as a result of a Dividend Reinvestment Plan (see note 20) Share issue expenses Equity dividends At 30 June 2015 34 AUB GROUP 2016 ANNUAL REPORT - - - - - - - - - - - 108 (12,520) (12,412) - - - 1,205 89 1,294 - - 19,056 19,056 - - - - 451 (40) 451 451 (40) (40) - 558 - 558 - - - 20,183 (190) - - 20,183 (190) (23,331) (6,500) (29,831) 20,183 (190) - (23,331) 128,890 128,165 540 (179) 5,707 263,123 48,203 311,326 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 Information from the financial statements of controlled entities is included from the date the parent entity obtains control until such time as control ceases. Where there is a loss of control of a controlled entity, the consolidated financial statements include the results for the part of the reporting period during which the parent entity had control. The financial information in respect of controlled entities is prepared for the same reporting period as the parent company using consistent accounting policies. Adjustments are made to bring into line dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in the consolidated accounts. Unrealised losses are eliminated unless costs cannot be recovered. Non controlling interests represent the portion of profit or loss and net assets in subsidiaries which are not 100% owned by AUB Group. These are presented separately in the income statement and within equity in the consolidated Statement of Financial Position. When the Group acquires a non controlling interest in a subsidiary, the transaction is accounted for as a transaction between owners in their capacities as owners and the difference between purchase price and recorded value of non controlling interest is accounted for as an equity transaction. Transactions with owners in their capacity as owners A change in ownership interest without loss of control is accounted for as an equity transaction. The difference between the consideration transferred and the book value of the share of the non controlling interest acquired or disposed is recognised directly in equity attributable to the parent entity. Where the parent entity loses control over a controlled entity, it derecognises the assets including goodwill, liabilities and non controlling interests in the controlled entity together with any cumulated translation differences previously recognised in equity. The Group recognises the fair value of the consideration received and the fair value of the investment retained together with any gain or loss in the Income Statement. 1. CORPORATE INFORMATION The financial report of AUB Group Limited for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 25 August 2016. On 26 November 2015, Austbrokers Holdings Limited changed its name to AUB Group Limited. AUB Group Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The principal activities during the year of entities within the consolidated group were the provision of insurance broking services, distribution of ancillary products, risk services and conducting underwriting agency businesses. 2.1 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES The accounting policies and methods of computation are the same as those adopted in prior years. 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation of the financial report The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except where otherwise stated. The financial report is presented in Australian dollars ($) and all values are rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 2016/191. The Company is an entity to which the class order applies. Certain previous period comparative information has been revised in this financial report to conform with the current period's presentation. (b) Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board. (c) Basis of consolidation The consolidated financial statements are those of the consolidated entity, comprising AUB Group Limited (the parent company) and all entities that AUB Group Limited (the Group) controlled from time to time during the year and at the reporting date. AUB GROUP 2016 ANNUAL REPORT 35 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:  costs of servicing equity (other than dividends) and preference share dividends;  the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and  other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (e) Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. (i) Significant accounting judgements Deferred tax assets are recognised for deductible temporary differences as management considers that it is 36 AUB GROUP 2016 ANNUAL REPORT probable that future tax profits will be available to utilise those temporary differences. (ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill / intangibles and investments in associates The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill is allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill are discussed in note 15. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the options at the date at which they are granted. Other than for zero priced options, the fair value is determined by an external valuer using a binomial model. The fair value of the zero priced options issued before 1 January 2013 was based on the volume weighted average share price for the 5 day period prior to the options being granted. From 1 January 2013, the fair value of the zero priced options has been based on the dividend yield method taking into account the vesting period, expected dividend payout and the share price at the date the options were granted. Net assets acquired in a business combination The Group measures the net assets acquired in a business combination at their fair value at the date of acquisition. Fair value is estimated with reference to market transactions for similar assets or Discounted Cash Flow (DCF) analysis. Estimation of useful lives of assets The estimation of useful lives of assets has been based on historical experience as well as lease terms for office fitouts. In addition, the condition of the asset is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary. Fair value of assets acquired The Group measures the net assets acquired in business combinations at their fair value at the date of acquisition. If new information becomes available within one year of acquisition about the facts and circumstances that existed at the date of acquisition, then any revisions to the fair value previously recognised, will be retrospectively adjusted. NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Cash and cash equivalents Cash and cash equivalents, and cash and cash equivalents - trusts (trust cash), in the Statement of Financial Position comprise cash at bank, in hand and short-term deposits with an original maturity of three months or less. Trust cash relates to cash held for insurance premiums received from policyholders which will ultimately be paid to underwriters. Trust cash cannot be used to meet business obligations/operating expenses other than payments to underwriters and/or refunds to policyholders. For the purposes of the Statement of Cash Flows, cash and cash equivalents as defined above are shown net of outstanding bank overdrafts. (g) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Commission, brokerage and fees Commission, brokerage and fees are recognised when it is probable that the Group will be compensated for services rendered and the amount of consideration for such services can be reliably measured. This is deemed to be the invoice date. An allowance is made for anticipated lapses and cancellations. Interest Revenue is recognised as interest accrues using the effective interest method. Dividends and Distributions from trusts Revenue is recognised when the shareholder's right to receive the payment is established. Management fees Revenue is recognised when the service has been performed and the right to receive the payment is established. Other Income "Other income" revenue is recognised when the service has been performed and the right to receive the payment is established. (h) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement. This requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases where the lessor retains substantially all the risks and benefits of ownership are classified as operating leases. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Operating lease payments are recognised as an expense in the Income statement on a straight-line basis over the lease term. Lease incentives are recognised in the income statement as an integral part of the total lease expense. (i) Trade and other receivables Trade and other receivables which generally have 30 day credit terms, are recognised and carried at original amount less an allowance for lapses and cancellations. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off when identified. Receivables include amounts due from policyholders in respect of insurances arranged by controlled entities. Insurance brokers have credit terms of 90 days from policy inception to pay funds received from policyholders to insurers. Insurance policies that are not paid in 90 days of inception of the insurance are, in absence from approval from insurer of an extended term to pay, cancelled from inception date. The Group's exposure in relation to these receivables is limited to commissions and fees charged. (j) Investment in associates The Group's investments in its associates are accounted for under the equity method of accounting in the Consolidated Financial Statements. These are entities in which the Group has significant influence and which are not controlled entities. The Group deems they have significant influence if they have more than 20% of the voting rights. AUB GROUP 2016 ANNUAL REPORT 37 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Investment in associates (continued) The financial statements of the associates are used by the Group to apply the equity method. The reporting dates of the associates and AUB Group are identical and adjustments are made to bring into line dissimilar accounting policies used by associates. The investment in associates is carried in the consolidated Statement of Financial Position at cost plus post-acquisition changes in the Group's share of net assets of the associates, less dividends and any impairment in value. The consolidated income statement reflects the Group's share of the results of operations of the associates. Where there has been a change recognised directly in the associate's equity, the Group recognises its share of any changes and discloses this, when applicable, in the Statement of Comprehensive Income. (k) Interest-bearing loans and borrowing All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing process. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Borrowing costs Borrowing costs are recognised as an expense when incurred. (l) Trade and other payables Liabilities for trade creditors and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity. Payables to related parties are carried at the principal amount. Interest, when charged, is recognised as an expense on an accrual basis. Payables are normally settled on 90 day terms. Trade and other payables include amounts payable to insurers in respect of insurances arranged by controlled entities. Insurance brokers have credit terms of 90 days from policy inception to pay funds received from policyholders to insurers. Insurance policies that are not paid in 90 days of inception of the insurance are, in absence from approval from insurer of an extended term to pay, cancelled from inception date. (m) Business combinations The acquisition method of accounting is used to account for all business combinations. Cost is measured as the fair value of the assets given, shares issued or liabilities assumed at the date of exchange. All acquisition costs including stamp duty and legal fees are charged against profits as incurred. Change in the ownership interest in a controlled entity (without loss of control) is accounted for as a transaction with owners in their capacity as owners and these transactions will not give rise to a gain or loss in the Income Statement. Where there is a change in ownership and the Group loses control, the gain or loss will be recognised in the Income Statement and the carrying value of non-controlling interests is reset to fair value. In the year a new business is acquired, an estimate is made of the fair value of the future contingent consideration. Any variation to this amount in future periods (either up or down) is recognised through the Income Statement. Over accruals are recognised as income in the year the amount is reversed and any under accruals are charged as an expense against profits. The contingent consideration is carried in the Statement of Financial Position at net present value. The interest expense in the income statement relating to the unwinding of this discounting is offset by a reduction in deferred tax which was raised at the time the net present value adjustment was recognised. All identifiable assets acquired and liabilities and contingent liabilities assumed in the business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non controlling interests. (i) Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer's interest in the fair value of the identifiable net assets acquired at the date of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not amortised. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination's synergies. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation of that unit is disposed, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. 38 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (m) Business combinations (continued) Impairment losses recognised for goodwill are not subsequently reversed. (ii) Intangible assets - Insurance Broking Register Identifiable intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment costs. Internally generated intangible assets are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of these intangible assets are assessed to be finite. Intangible assets with finite lives are amortised over the useful life, currently estimated to be 10 years for broking portfolios/client relationships and 15 years for financial services businesses (life risk), and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an identifiable intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on identifiable intangible assets with finite lives is recognised in the expense category of the income statement consistent with the function of the intangible asset. Gains or losses arising from derecognition of an identifiable intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. (iii) Revaluation When a business combination occurs, the acquiree's identifiable assets and liabilities are notionally restated to their fair value at the date of the exchange transaction to determine the amount of any goodwill associated with the transaction. Any adjustment to those fair values relating to previously held interests of the acquiree is accounted for as an adjustment to fair value and the movement is reflected in the income statement as either a profit or loss. Prior to 1 July 2009, adjustments to fair value were accounted for as a revaluation. This revaluation which related to broking registers was credited to the asset revaluation reserve and included in the equity section of the Statement of Financial Position. For revaluations that occurred prior to 1 July 2009, an annual transfer from the asset revaluation reserve to retained earnings is made for the difference between amortisation based on the revalued carrying amounts of the broking register and amortisation based on the broking registers' original costs. Upon disposal, any revaluation reserve relating to the particular broking register being sold is transferred to retained earnings. (n) Investments and other financial assets Loans and Receivables Loans and receivables, including mortgages, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. (o) Derecognition of financial assets and financial liabilities (i) Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:    the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset and has neither transferred or retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay. AUB GROUP 2016 ANNUAL REPORT 39 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (o) Derecognition of financial assets and financial liabilities (continued) When continuing involvement takes the form of a written and/or purchased option on the transferred asset, the extent of the Group's continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option on an asset measured at fair value, the extent of the Group's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. (ii) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. (p) Impairment of financial assets (i) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 40 AUB GROUP 2016 ANNUAL REPORT If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (ii) Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. (q) Impairment of non financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash- generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). Other than for goodwill and insurance broking register, an assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Impairment of non financial assets (continued) its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (r) Provisions and employee benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Employee benefits Liabilities for employee entitlements to annual leave and other current entitlements are accrued at amounts calculated on the basis of current wage and salary rates, including package costs and on-costs. Liabilities for non accumulating sick leave are recognised when the leave is taken and are measured at the rate paid or payable. Liabilities for employee entitlements to long service leave, which are not expected to be settled within twelve months after balance date, are accrued at the present value of the future amounts to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary level, experience of employee departures and periods of service. The discount factor applied to all such future payments is determined using the corporate bond rates attaching as at the reporting date, with terms to maturity that match, as closely as possible, the estimated future cash outflows. Any contributions made to the accumulation superannuation funds by entities within the Group are charged against profits when due. (s) Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of the entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currencies at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for payments during the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year. The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates on the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve, in equity. If the foreign operation is not a wholly owned controlled entity then the relevant proportion of the translation difference is allocated to non controlling interests. (t) Issued capital Ordinary share capital is recognised at the fair value of the consideration received by the company, net of issue costs. Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. (u) Share-based payment transactions The Group provides benefits to employees (including executive directors) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions'). An Employee Share Options Plan (ESOP) is in place which provides benefits to executive directors and senior executives. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. Details of methodology to value of zero priced options is included in note 16. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of AUB Group Limited (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these AUB GROUP 2016 ANNUAL REPORT 41 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (u) Share-based payment transaction (continued) conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards that are cancelled or where vesting is only conditional upon a market condition. In the event options are cancelled, or cancelled and reissued, the unexpensed cost for these is brought forward and recognised immediately in addition to the expense for any reissued/new options. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share- based payment arrangement, or is otherwise beneficial to the employee as measured, at the date of modification. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 8). (v) Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the year end date as presented in the Statement of Financial Position. Deferred income tax is provided on all temporary differences at the date of the Statement of Financial Position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:  when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the taxable temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. No deferred tax liability has been recognised in respect of any potential profit on the disposal of an associate or controlled entity by the Group as there is no intention of disposing of these assets in the foreseeable future. Any tax liability will be recognised when the asset is disposed. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:  when the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the deductible temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each year end date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the year end date as presented in the Statement of Financial Position. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (w) Other taxes Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except:  when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and  receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising 42 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (w) Other taxes (continued) from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (x) Plant and equipment Plant and equipment, is stated at cost less depreciation and any impairment in value. Depreciation is calculated on a straight-line over the estimated useful life of the asset as follows:  Motor vehicles 5 to 8 years.  Plant and equipment 5 to 10 years. Impairment The carrying value of plant and equipment is reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate the carrying value may be impaired. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the asset or cash generating unit is written down to their recoverable amount. Derecognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. (y) Make good provision A provision has been made for the present value of anticipated costs of future restoration of leased premises. The provision includes future cost estimates associated with dismantling existing fitouts, repainting of premises and carpet replacement where necessary. The calculation of this provision requires assumptions such as engineering cost estimates and future labour costs. These uncertainties may result in future expenditure differing from the amounts currently provided. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimates of future costs are recognised in the Statement of Financial Position by adjusting both the expense or asset and the provision. The related carrying amounts are disclosed in note 18. (z) Operating Segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by members of the senior executive management team who are the entity's chief operating decision makers (CODM) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the aggregation criteria is still reported separately where information about the segment would be useful for the users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category. The company's corporate structure includes equity investments in insurance intermediary entities. The activities of an Insurance intermediary involves providing insurance products, advice and services to clients which range from individuals to small, medium and large enterprises. Within the AUB Group, the intermediaries are made up of insurance brokers, underwriting agencies and other providers of insurance related services. The activities of these businesses are similar in nature, regardless of whether it is a general insurance risk business or life insurance risk business. The only significant difference between the operations is that the underwriting agencies distribute through other intermediaries (brokers) to the final customer. All businesses within the network deal with the same underwriters, earn income based on a commission and/or fee structure and the underwriting agencies are licenced under the same regulatory framework as insurance brokers. The New Zealand broking market, whilst operating under a separate statutory regime and geographic region, operates in a similar manner to brokers in Australia and therefore is not considered a separate operating segment. Discrete financial information about each of these segments is reported to management on a regular basis and the operating results are monitored separately for the purposes of resource allocation and performance assessment. AUB Group have defined these operations as being a separate segment, “Insurance Intermediary Business”. Although Risk Services entities within the group supply insurance related services to the same underwriters that support our brokers and underwriting agencies, they do not earn commission in the same way but rather tender for business and are paid on a fee for service basis based on the tasks they perform. Risk Services businesses also differ from Insurance Intermediary segment in that they do not require an AFSL to operate and are governed by different legislation and therefore are considered a separate segment, "Risk Services". AUB GROUP 2016 ANNUAL REPORT 43 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS Certain Australian and International Accounting Standards and interpretations have recently been issued or amended but are not yet effective and have not been adopted by the group for the year end reporting period 30 June 2016. The directors have assessed the impact of these new or amended standards and interpretations (to the extent relevant to the Group) as follows: Reference Title Summary standard Impact on financial report Application date of Application date for Group AASB 15 Revenue from AASB 15 revenue from Contracts with customers 1 January The Group is still assessing the 1 July 2018 Contracts with replaces the existing revenue recognition standards 2018 impact of the changes required Customers AASB 111 Construction Contracts, AASB 118 under AASB 15 but it is not Revenue and related Interpretations (Interpretation expected that it will have a material 13 Customer Loyalty Programmes, Interpretation 15 impact on the financial report. Agreements for the Construction of Real-estate, Interpretation 18 Transfers of Assets from customers. AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments). The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application is permitted. AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15. AASB 2016-3 Amendments to Australian Accounting Standards - Clarification to AASB 15 and to clarify the requirements on identifying performance obligations principal versus agent consideration and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15. 44 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) Reference Title Summary standard Impact on financial report Application date of Application date for Group AABB 16 Amendments This Standard sets out the principles for the 1 January Assets and liabilities arising from a lease 1 July to IFRS 16 recognition, measurement, presentation and 2019 are initially measured on a present value 2019 "Leases" disclosure of leases. The objective is to ensure basis. The measurement includes non- that lessees and lessors provide relevant cancellable lease payments (including information in a manner that faithfully represents inflation-linked payments), and also those transactions. This information gives a basis includes payments to be made in for users of financial statements to assess the optional periods if the lessee is effect that leases have on the financial position, reasonably certain to exercise an option financial performance and cash flows of an entity. to extend the lease, or not to exercise an The new standard will be effective on or after 1 option to terminate the lease. AASB 16 January 2019. Early application is permitted. contains disclosure requirements for The new standard will be effective on or after 1 lessees. January 2019. Early application is permitted. A Lessees will need to apply judgement in lessee is required to recognise a right-of-use deciding upon the information to asset representing its right to use the underlying disclose to meet the objective of leased asset and a lease liability representing its providing a basis for users of financial obligations to make lease payments. A lessee statements to assess the effect that measures right-of-use assets similarly to other leases have on the financial position, non-financial assets (such as property, plant and financial performance and cash flows of equipment) and lease liabilities similarly to other the lessee. It is expected that the financial liabilities. As a consequence, a lessee impact on the financial statements will recognises depreciation of the right-of-use asset result in an increase in fixed assets and and interest on the lease liability, and also a corresponding increase in lease classifies cash repayments of the lease liability liabilities. into a principal portion and an interest portion and presents them in the statement of cash flows applying AASB 107 Statement of Cash Flows. AASB 9 Financial AASB 9 (December 2014) is a new standard that 1 January The Group is still assessing the impact 1 July Instruments replaces AASB 139. This new standard 2018 of the changes required under AASB 9. 2018 supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward looking "expected loss" impairment model and a substantially reformed approach to hedge accounting. AUB GROUP 2016 ANNUAL REPORT 45 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 4. REVENUE AND EXPENSES (i) Revenue Commission, brokerage and fee income Management fees from related entities Revenue (ii) Other income Dividends from other persons/corporations Interest from related persons/corporations Interest from other persons/corporations Other income Total other income (iii) Share of profit of associates Share of net profits of associates accounted for using the equity method before amortisation (net of income tax expense) Amortisation of intangibles – associates Total share of profit of associates (iv) Expenses Amortisation of intangibles – controlled entities Amortisation of capitalised project costs Salaries and wages Share-based payments (credit) Audit fees Travel/telephone/motor/stationery Depreciation of property, plant and equipment Rent (operating leases) Commission expense Business technology and software costs Insurance Other expenses Total other expenses (v) Finance costs Borrowing costs Total finance costs (vi) Adjustments to carrying value of associates and contingent consideration payments Adjustments to carrying value of entities (to fair value) on the date they became controlled or deconsolidated (see notes 7(d), (e)) Adjustment to contingent consideration on acquisition of controlled entities and associates (see notes 11 ,15) Impairment charge relating to the carrying value of associates and goodwill (see notes 11,15) Total adjustments to carrying value of associates (vii) Profit from sale of interests in controlled entities and associates Losses from sale of interests in controlled entities and associates Profit from sale of interests in controlled entities and associates (see note 11) Total profit from sale of interests in controlled entities, associates and contingent adjustments 46 AUB GROUP 2016 ANNUAL REPORT Consolidated 2015 $’000 181,203 10,136 191,339 15 18 3,605 1,675 5,313 23,568 (2,873) 20,695 4,043 - 2016 $’000 191,878 11,099 202,977 2 54 3,565 4,008 7,629 26,536 (3,264) 23,272 3,323 405 113,866 101,865 (313) 1,488 8,079 2,532 9,729 12,358 4,640 4,676 17,281 178,064 5,389 5,389 5,724 277 (4,271) 1,730 (649) 9,408 8,759 451 1,585 7,889 2,119 9,790 11,650 4,438 4,647 14,763 163,240 4,310 4,310 3,029 4,456 (5,604) 1,881 - 2,088 2,088 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 5. INCOME TAX Major components of income tax expense Income statement Current income tax Current income tax charge Adjustment for prior years Deferred tax expense Origination and reversal of temporary differences Total income tax expense in income statement A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the company's applicable income tax rate is as follows: Profit before income tax At the Company’s statutory income tax rate of 30% (2015: 30%) Rebateable dividends Equity accounted income from associates Non-taxable gains/losses on sale (Over)/under provision prior year Income taxed at different tax rates on overseas operations Tax on distributions from associates operating as trusts Adjustments to contingent consideration on acquisition of controlled entities and associates Fair value adjustment to the carrying value of a controlled entity on the date it became an associate Fair value adjustment to the carrying value of an associate on the date it became a controlled entity Impairment charge relating to the carrying value of associates and controlled entities Non deductible expenses/other Income tax expense reported in the consolidated income statement Income tax payable Consolidated 2016 $’000 2015 $’000 13,485 (315) 12,808 (188) (1,043) (1,711) 12,127 10,909 60,914 18,274 (1) 53,766 16,130 (5) (5,169) (4,537) (305) (315) (21) (138) (52) (188) (7) (95) (97) (1,337) (1,894) - - (1,104) 1,281 512 1,681 423 12,127 10,909 5,593 5,975 AUB GROUP 2016 ANNUAL REPORT 47 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 5. INCOME TAX (CONTINUED) Consolidated Consolidated Statement of Financial Position 2015 2016 $’000 $’000 Income statement 2016 $’000 2015 $’000 1,821 8,685 (986) 9,520 5,535 5,535 1,917 6,485 (1,213) 7,189 5,574 5,574 (96) - (99) – (986) (1,213) 39 (399) (1,043) (1,711) Deferred income tax Deferred income tax at 30 June relates to the following: Deferred tax liability Income accrued not assessable Unamortised value of broker register Tax credit on insurance broking register amortisation expense Deferred income tax liabilities Deferred tax asset Provisions and accruals not claimed for tax purposes Deferred income tax assets Deferred tax (income)/expense Tax consolidation For the purposes of income taxation, AUB Group Limited entered into a Consolidated Tax Group with its 100% owned controlled entities. Tax consolidation results in the 100% owned members being treated as part of the Head Company for tax purposes rather than as a separate taxpayers. The Income Tax Assessment Act (1997) provides that the Consolidated Tax Group is to be treated as a single entity for Australian tax purposes with the Head Company responsible for the tax payable. AUB Group Limited formally notified the Australian Taxation Office of its adoption of the tax consolidation regime by lodging notice with the Australian Taxation Office. The Consolidated Tax Group was formalised by entering into tax sharing and tax funding agreements in order to allocate income tax payable to group members. Each member of the group calculates tax expense on an entity basis. The agreement also provides that AUB Group Limited carries forward tax funding assets or tax funding liabilities for which an intercompany loan is recognised between the parties. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit for the perio d, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made at the end of each quarter. 48 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 6. CASH AND CASH EQUIVALENTS (a) Reconciliation of profit after tax to net cash flows from operations Profit after tax for the period Equity accounted (profits) after income tax Dividends/trust distributions received from associates Amortisation of intangibles Losses from sale of interests in controlled entities and associates Profit from sale of interests in controlled entities and associates Adjustment to contingent consideration on acquisition of controlled entities and associates Adjustments to carrying value of entities (to fair value) on the date they became controlled or deconsolidated Impairment charge relating to the carrying value of associates and goodwill Depreciation of fixed assets Amortisation of capitalised project costs Share options expensed Changes in assets and liabilities (Increase) in trade and other receivables (Decrease)/increase in trade and other payables Decrease in trust receivables (Decrease) in trust payables Increase/(decrease) in provisions (Increase)/decrease in deferred tax asset (Decrease) in deferred tax liability (Decrease) in provision for tax Net cash flows from operating activities Cash and cash equivalents Cash and cash equivalents – trust Total cash and cash equivalents Consolidated 2016 $’000 2015 $’000 48,787 42,857 (23,272) (20,695) 20,454 3,324 649 (9,408) (277) 18,464 4,043 - (2,088) (4,456) (5,724) (3,029) 4,271 2,532 405 (313) (1,964) (5,186) 203 5,604 2,119 - 451 (4,935) 1,441 20,251 (11,792) (12,917) 2,630 (27) (732) 186 24,746 70,933 87,513 (318) 1,178 (2,090) (1,545) 44,335 50,511 105,498 158,446 156,009 Due to acquisitions/disposal of consolidated entities during the year, some changes in assets and liabilities shown above will not agree to the movements in the Statement of Financial Position. Non cash financing activity transactions include transactions resulting from the dividend reinvestment plan. Trust cash (other than undrawn income) cannot be used to meet business obligations/operating expenses other than payments to underwriters and/or refunds to policy holder. AUB GROUP 2016 ANNUAL REPORT 49 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS The business combinations referred to in note 7(a) - 7(e) relate to insurance broking and underwriting agency businesses except for 7 (c), Allied Health Australia Pty Ltd and CIM Pty Ltd, which relates to risk services businesses. A major strategy of the group is to acquire part ownership in insurance broking, underwriting agency and risk services businesses or portfolios. The terms of these acquisitions vary in line with negotiations with individual vendors but are structured to achieve the Group's benchmarks for return on investment. Where acquisitions include an element of purchase price contingent on business performance, management has estimated the fair value of this contingent consideration based on a probability weighted bes t estimate of future outcomes for income or profit, on which the purchase price is determined, discounted to present value. Historical trends and any relevant external factors are taken into account in determining the likely outcome. An increase or decrease in the weighted best estimate of future outcomes will result in an increase or decrease in contingent liabilities respectively. For business combinations referred to in notes 7(c) and 7(d) goodwill represents the excess of the purchase consideration over the fair value of identifiable net assets acquired at the time of acquisition of the business. As at acquisition date, a ny goodwill relates to benefits from the combination of synergies as well as the entity's ability to generate future profits. The Group measures the net assets acquired in business combinations at their fair value at the date of acquisition. If new information becomes available within one year of acquisition about the facts and circumstances that existed at the date of acquisition, then any revisions to the fair value previously recognised, will be retrospectively adjusted. 50 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS (CONTINUED) (a) Equity transactions between owners–current year Effective 1 July 2015, a controlled entity acquired all of the voting shares it did not hold in Interfin Pty Ltd (Interfin) by issuing shares in AB Phillips and Associates Pty Ltd (AB Phillips) to the value of $336,846. This resulted in AUB Group diluting its shareholding in AB Phillips from 58% to 56.9%. Effective 1 February 2016, a controlled entity acquired a portfolio for a consideration $1,300,000 by issuing $500,000 of voting shares plus a cash payment of $800,000. This transaction resulted in AUB Group diluting its shareholding in AB Phillips from 56.9% to 55.4%. Effective 1 July 2015, the consolidated entity diluted its voting shares in Austbrokers SPT Unit Trust (SPT) from 70% to 60% after SPT issued $600,615 in additional units in the trust. As part of the transaction AUB Group Limited also disposed of 206,243 units in SPT for $383,643. Effective 28 October 2015, the consolidated entity acquired an additional 1.8% of the voting shares in InterRISK Australia Pty Ltd (InterRISK) for $287,530 increasing its equity ownership from 77.1% to 78.9%. Effective 1 November 2015, the consolidated entity sold 10% of the voting shares in Austbrokers Canberra Pty Ltd (Canberra) for $1,500,000 decreasing its equity ownership from 85% to 75%. Carrying value of assets attributable to Interfin, InterRISK, AB Phillips, and Canberra on the date of change in voting shares were; Cash Receivables Property plant and equipment Intangibles Total assets Payables and provisions Borrowings Tax liabilities Total liabilities Net assets Non-controlling interest in net assets Net assets attributable to AUB Group Cash (received) on sale of shares/units in trust (Proceeds) from additional units in trust/shares issued Cash paid Capital gains tax on sale of units Adjustment to non-controlling interest Transfer to retained earnings on acquisition/dilution in voting shares Carrying value Carrying value of assets of assets attributable to attributable to InterRISK and Canberra, SPT Interfin and AB Phillips $’000 16,207 17,135 298 25,161 58,801 $’000 18,947 16,249 979 13,664 49,839 32,289 31,743 - 17 3,805 988 32,306 36,536 26,495 (1,725) 24,770 - - 291 - (499) 208 13,303 - 13,303 (1,883) (1,101) - 59 1,333 1,592 AUB GROUP 2016 ANNUAL REPORT 51 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS (CONTINUED) (b) Equity transactions between owners–previous period Effective 1 August 2014, the Consolidated entity acquired an additional 10% of the voting shares in Austbrokers Premier Pty Ltd (Premier) for $625,000 increasing its equity ownership to 90%. Effective 1 July 2014, the Consolidated entity acquired an additional 9.1% of the voting shares in Sura Hospitality Pty Ltd (Hospitality) as trustee for G.U.S. Trust for $364,368 increasing its equity ownership to 100%. Effective 1 January 2015, the Consolidated entity disposed of 20% of the voting shares in Austbrokers Citystate Pty Ltd (Citystate) for $1,308,603, decreasing its equity from 90% to 70%. Effective 1 February 2015, the Consolidated entity disposed of 8% of the voting shares i n Aprikeesh Pty Ltd (Aprikeesh) for $1,406,741, decreasing its equity from 66% to 58%. Carrying value of assets attributable to Premier, Hospitality, Citystate and Aprikeesh on the date of change in voting shares were; Cash Receivables Property plant and equipment Intangibles Total assets Payables and provisions Tax liabilities Total liabilities Net assets Cash paid/(received) Adjustment to non-controlling interests Tax expense on disposal of shares Transfer to retained earnings on acquisition of voting shares in Premier and Hospitality and disposal of voting shares in Citystate and Aprikeesh Carrying Carrying value value of of assets assets disposed in acquired in Citystate and Premier and Aprikeesh Hospitality $’000 9,004 5,467 306 $’000 1,183 7,180 111 3,065 5,591 17,842 14,065 12,460 8,401 458 88 12,918 8,489 4,924 5,576 (2,714) 588 430 990 (499) - (1,696) 491 52 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS (CONTINUED) (c) Acquisition of new controlled entities– current year On 1 July 2015, the Group acquired 60% of the voting shares in Allied Health Australia Pty Ltd (Allied) for $13,966,080 which included the fair value of the deferred consideration payment of $4,490,984 payable no later than 24 months after the date of acquisition. The maximum amount of the contingent consideration payable is $12,245,000. On 1 July 2015, a controlled entity incorporated a new entity, Expert Strata Pty Ltd with issued capital of $200,000. The gr oup acquired 55% of the voting shares of this entity contributing $110,000 of issued capital and non-controlling interests contributing $90,000. On 15 July 2015, a controlled entity acquired 100% of the voting shares in Financial Affairs Pty Limited (Financial Affairs) for $4,256,340 which included a fixed deferred consideration payment of $816,340. On 1 December 2015, Forean Group Holdings purchased the assets of Rebem Pty Ltd through a newly incorporated 100% owned subsidiary, CIM Group Holdings Pty Ltd (CIM) for $2,453,244 including a contingent consideration of $698,612. There is no cap on the contingent amount payable. Effective 1 January 2016, an 80% controlled entity in New Zealand acquired 100% of the voting shares in Runacres and Associates Ltd (Runacres) for $34,488,000. On 31 December 2015, an 80% controlled entity in New Zealand issued additional voting shares totalling $13,120,800 including a contribution from non-controlling interests of $2,624,160. Portfolio acquisitions of $1.836 million that occurred during the year are not separately disclosed. Fair values of the identifiable assets and liabilities of Allied, Financial affairs and CIM as at the date of acquisition were: Fair values of the identifiable assets and liabilities of Runacres as at the date of acquisition were: Fair value recognised on Fair value recognised on acquisition acquisition of Runacres of Allied, Financial Affairs and CIM Cash Receivables Intangibles Plant and equipment Total assets Payables and borrowings Borrowings Deferred tax liability Provisions Total liabilities Net assets Net assets acquired Purchase price – cash paid Purchase price – deferred payment/contingent consideration Total purchase price of acquisition Goodwill arising on acquisition relating to the Group Goodwill arising on acquisition relating to the non-controlling interests Total goodwill arising on acquisition Cash inflow on acquisition is as follows; Net cash acquired with the controlled entity Cash paid Net cash (outflow) $’000 8,330 10,199 11,235 594 30,358 12,685 - 3,146 39 15,870 14,488 14,488 34,488 - 34,488 20,000 - 20,000 8,330 (34,488) (26,158) $’000 821 1,740 1,277 438 4,276 1,375 344 383 631 2,733 1,543 1,310 14,670 6,006 20,676 19,366 9,077 28,443 821 (14,670) (13,849) The acquisition of 60% of Allied was effective on 1 July 2015. The acquisition contributed $1,023,494 to net profit after tax and $15,609,210 to revenue. The acquisition of 100% of Financial Affairs was effective on 15 July 2015. The acquisition contributed $291,505 to net profit after tax and $1,705,513 to revenue. Had the acquisition taken place at the beginning of the period, the profit after tax contribution would have been $291,505 and $1,719,602 to revenue. The acquisition of 100% of CIM was effective on 1 December 2015. The acquisition contributed $120,700 to net profit after tax and $1,494,313 to revenue. Had the acquisition taken place at the beginning of the period, the profit after tax contribution would have been $264,034 and $2,625,099 to revenue. The acquisition of 100% of Runacres was effective on 1 January 2016. The acquisition contributed $1,131,000 to net profit after tax and $4,086,000 to revenue. Had the acquisition taken place at the beginning of the period, the profit after tax contribution would have been $2,250,000 and $5,250,000 to revenue. AUB GROUP 2016 ANNUAL REPORT 53 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS (CONTINUED) (d) Acquisition of new controlled entities– previous period On 1 July 2014, a controlled entity acquired 75% of the voting shares in Asia Mideast Insurance and Reinsurance Pty Ltd (AMIR ) for $2,301,750 which included a deferred consideration payment of $337,500, payable 12 months after the date of acquisition. Effective 1 November 2014, the company incorporated a new controlled entity in New Zealand, NZ Brokers Holdings Ltd (NZBH) with a share capital of $3,953,063 in which it has 80% interest in the voting shares. The carrying value of the investment in this company is $3,164,851. The amount received from non-controlling interests amounted to $788,212. Effective 1 November 2014, NZ Brokers Holdings Ltd acquired 100% of the voting shares of Brokerweb Management Ltd (BWM) for $7,675,596 including a contingent consideration payment of $1,567,116. The maximum amount of the contingent consideration is unlimited. On 31 December 2014, the company owned 50% of the voting shares of Citycover (Aust) Pty Ltd (Citycover). On that date it acquired a further 22.5% interest for $2,300,000. A further 2.5% was acquired on 1 January 2015 for $255,556. On 31 December 2014 Citycover ceased to be an associate and became a controlled entity. Effective 1 February 2015, the company acquired 60% of the voting shares of Forean Group Holdings Ltd (Forean) for $22,476,732 including a contingent consideration payment of $8,550,580. The range of possible contingent consideration payments fall within $NIL and $9,900,000. Fair values of the identifiable assets and liabilities of acquisitions as at the date of acquisition were: Fair value recognised on acquisition Cash Receivables Plant and equipment Deferred tax asset Intangibles Total assets Payables and borrowings Deferred tax liability Provision for taxation Provisions Total liabilities Net assets Net assets acquired Purchase price – cash paid Purchase price – deferred payment Fair value adjustment on existing holding at the date of acquisition (see note 4(vi)) Carrying value of existing share in associate before acquisition Total carrying value after acquisition Goodwill arising on acquisition relating to the group Goodwill arising on acquisition relating to the non-controlling interests Total goodwill arising on acquisition Cash inflow on acquisition is as follows; Net cash acquired with the controlled entity Cash paid Net cash in(outflow)/flow 6,250 1,264 AMIR $’000 3,020 3,511 27 - - 6,558 5,733 133 37 347 308 231 1,964 338 - - 2,302 2,071 690 2,761 3,020 1,964 1,056 BWM Citycover Forean $’000 866 733 233 - - 1,832 814 - 450 - 568 568 6,109 1,567 - - 7,676 7,108 - 7,108 866 6,109 $’000 2,143 1,574 190 122 3,299 7,328 4,401 989 266 138 5,794 1,534 1,151 2,556 - 3,680 1,431 7,667 6,517 2,322 8,839 2,143 2,556 $’000 921 2,088 1,094 320 - 4,423 2,666 - - 258 2,924 1,499 899 13,926 8,550 - - 22,476 21,577 14,385 35,962 921 13,926 (5,243) (413) (13,005) The acquisition of AMIR contributed a profit $16,314 to net profit after tax and $1,136,974 to revenue. The acquisition of NZBH contributed a loss (after expensing acquisition costs), of $728,804 to net profit after tax and $30,859 to revenue. The acquisition of an additional 22.5% of Citycover was effective on 31 December 2014. The acquisition did not make a contribution to the current period result other than its 50% contribution as an equity accounted associate. BWM contributed a profit of $276,972 to net profit after tax and $1,807,914 to revenue. The acquisition of Citycover contributed a profit of $327,505 to net profit after tax and $2,471,121 to revenue. The acquisition of Forean contributed a profit of $824,866 to net profit after tax and $7,661,962 to revenue. 54 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 7. BUSINESS COMBINATIONS (CONTINUED) (d) Acquisition of new controlled entities– previous period (continued) If the acquisitions of BWM, Citycover and Forean occurred on 1 July 2014, the contribution to revenue and the net profit after tax attributable to the owners of the group would have been $2,419,872 and $24,913,914 respectively. The fair value of the identifiable net assets acquired of the entities above (excluding Citycover) were approximately equivalent to the carrying values of assets acquired at the date of acquisition. The fair value of the assets acquired for Citycover were approximately equivalent to the carrying values of assets except for the identifiable intangibles and associated deferred tax. (e) Deconsolidation of controlled entities on loss of control - current year On 1 July 2015, the Group disposed 5% of the voting shares in AEI Transport Pty Ltd and its controlled entities (AEIT) for $990,662, reducing its equity from 55% to 50% and therefore it is no longer consolidated from that date. Deconsolidation of controlled entities on loss of control - previous year On 1 April 2015, the Group disposed of 10% of the voting shares in Adroit Holdings Pty Ltd (Adroit) for $2,477,675 reducing its equity from 60% to 50% and therefore no longer consolidated from that date. On 27 April 2015, the Group disposed of all of its units in Ballina Insurance Brokers Unit Trust (Ballina) for $1,324,197, a trust 80% owned by North Coast Insurance Brokers Pty Ltd, a 70% owned controlled entity. Carrying value of assets and liabilities Assets Cash Receivables Plant and equipment Other assets Intangibles Total assets Liabilities Payables Borrowings Tax liabilities Total liabilities Net assets Carrying value of controlled entity transferred to shares in associates Fair value adjustment on the date the controlled entity became an associate Fair value of associate on the date the Group lost controlling interest Sale proceeds Less: carrying value of controlled entities on consolidation Reversal of previous period transaction between owners transferred to retained earnings on sale of voting shares in controlled entity Profit on sale of voting shares in controlled entity Fair value adjustment on the date the controlled entity became an associate (see note 4(vi)) Profit on deconsolidation of controlled entities before tax and non-controlling interests Tax expense Total fair value adjustment and profit on deconsolidation of controlled entity - after tax Non-controlling interests Profit after tax and non controlling interests Cash outflow on disposal is as follows; 2016 $’000 AEIT 11,530 13,577 58 93 11,143 36,401 22,725 2,000 171 24,896 11,505 3,593 6,313 9,906 991 (605) 758 1,144 6,313 7,457 (952) 6,505 - 6,505 2015 $’000 Adroit and Ballina 10,810 9,848 2,203 40 28,158 51,059 19,087 3,840 1,626 24,553 26,506 11,492 896 12,388 3,802 (2,626) (108) 1,068 896 1,964 (641) 1,323 (571) 752 Net cash reduction on deconsolidation of controlled entity acquired with the controlled entity Cash received on sale Net cash (outflow) on deconsolidation of controlled entity (11,530) 991 (10,539) (10,810) 3,802 (7,008) Adroit contributed $975,725 to profit after tax and non controlling interests up to the date it became an associate on 1 April 2015. Ballina contributed $110,241 to profit after tax and non controlling interests up to date of disposal. AUB GROUP 2016 ANNUAL REPORT 55 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 8. EARNINGS PER SHARE (EPS) / DIVIDENDS PAID AND PROPOSED Earnings Per Share (EPS) (a) Earnings used in calculating EPS Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. (b) Changes in weighted average number of shares There have been no significant transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements. (c) Information on the classification of securities Options granted to employees as described in note 16 are considered to be potential ordinary shares and have been included in the determination of the diluted earnings per share to the extent they are dilutive. These options have not been included in the determination of the basic earnings per share. The amount of the dilution of these options is the average market price of ordinary shares during the year minus the exercise price. The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Weighted average number of shares under option adjusted for shares that would have been issued at average market price Weighted average number of ordinary shares adjusted for the effect of dilution Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2016 $’000 2015 $’000 42,002 34,887 2016 2015 Thousands Thousands shares 63,041 shares 61,295 160 202 63,201 61,497 66.6 66.5 56.9 56.7 56 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 8. EARNINGS PER SHARE (EPS) / DIVIDENDS PAID AND PROPOSED (CONTINUED) (d) Equity dividends on ordinary shares: Dividends paid and proposed Final franked dividend for financial year ended 30 June 2014: 26.5 cents Interim franked dividend for financial year ended 30 June 2015: 12.0 cents Final franked dividend for financial year ended 30 June 2015: 27.7 cents Interim franked dividend for financial year ended 30 June 2016: 12.0 cents Total dividends paid in current year Consolidated 2015 $’000 15,923 7,408 – - 23,331 2016 $’000 – – 17,245 7,601 24,846 In addition to the above, dividends paid to non controlling interests totalled $4,399,000 (2015: $6,500,000) Dividends proposed and not recognised as a liability Final franked dividend for financial year ended 30 June 2015: 27.7 Cents – 17,245 Final franked dividend for financial year ended 30 June 2016: 28.0 Cents Dividends paid per share (cents per share) Dividends proposed per share (cents per share) not recognised at balance date (e) Franking credit balance The amount of franking credits available for the subsequent financial year are: 17,877 17,877 39.7 28.0 – 17,245 38.5 27.7 – franking account balance as at the end of the financial year at 30% (2015: 30%) 32,255 31,481 – franking credits that will arise from the payment of income tax payable as at the end of the financial year The amount of franking credits available for future reporting periods – impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the year The amount of franking credits available for future reporting periods after payment of dividend 1,966 34,221 (7,662) 26,559 2,635 34,116 (7,391) 26,725 AUB GROUP 2016 ANNUAL REPORT 57 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 9. TRADE AND OTHER RECEIVABLES Trade receivables Amount due from customers on broking/underwriting agency operations Amount due from clients in respect of premium funding operations Other receivables – related entities Total receivables (current) Trade receivables Total receivables (non-current) 10. OTHER FINANCIAL ASSETS Mortgages – related entities (amortised cost) Other Total other financial assets (current) The mortgages are secured by registered fixed and floating charges over assets in the business, securities and supplemented with cross guarantees and indemnities where necessary. Other Total other financial assets (non-current) 11. INVESTMENT IN ASSOCIATES Investment in associates Investments at equity accounted amount: Associated entities – unlisted shares 58 AUB GROUP 2016 ANNUAL REPORT Consolidated 2016 $’000 2015 $’000 29,961 22,031 126,788 139,946 6,366 2,686 - 3,076 165,801 165,053 163 163 629 41 670 40 40 143 143 128 22 150 72 72 Consolidated 2016 $’000 2015 $’000 133,894 141,661 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 11. INVESTMENT IN ASSOCIATES (CONTINUED) Austral Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd A & I Member Services Pty Ltd Androit Holdings Pty Ltd Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd Adroit Holdings Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd A & I Member Services Pty Ltd Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd Brokerweb Risk Services Ltd* Brett Grant and Associates Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* A & I Member Services Pty Ltd Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Austbrokers Dalby Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers RIS Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd Brokerweb Risk Services Ltd* JMD Ross Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd Adroit Holdings Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Austbrokers ABS Aviation Pty Ltd Brett Grant and Associates Pty Ltd Brokerweb Risk Services Ltd* Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Markey Group Pty Ltd A & I Member Services Pty Ltd Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd JMD Ross Insurance Brokers Pty Ltd Bruce Park Pty Ltd Brokerweb Risk Services Ltd* Austbrokers Dalby Insurance Brokers Pty Ltd Global Assured Finance Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd Markey Group Pty Ltd Brett Grant and Associates Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd KJ Risk Insurance Brokers Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd A & I Member Services Pty Ltd Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Global Assured Finance Pty Ltd Brokerweb Risk Services Ltd* MGA Management Services Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Adroit Holdings Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd KJ Risk Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Austbrokers RIS Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd Brokerweb Risk Services Ltd* Northlake Holdings Pty Ltd MGA Management Services Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd Austbrokers ABS Aviation Pty Ltd Brett Grant and Associates Pty Ltd Brokerweb Risk Services Ltd* Austbrokers Dalby Insurance Brokers Pty Ltd Peter L Brown & Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Bruce Park Pty Ltd Brokerweb Risk Services Ltd* Austbrokers Dalby Insurance Brokers Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Brett Grant and Associates Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Rivers Insurance Brokers Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Strathearn Insurance Group Pty Ltd (sold December 2015) Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd The Procare Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Supabrook Pty Ltd Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* SRG Group Pty Ltd Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd JMD Ross Insurance Brokers Pty Ltd Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd Bruce Park Pty Ltd Strathearn Insurance Group Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Markey Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd Supabrook Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd SRG Group Pty Ltd Brokerweb Risk Services Ltd* Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Strathearn Insurance Group Pty Ltd Austbrokers RIS Pty Ltd Global Assured Finance Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd KJ Risk Insurance Brokers Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust Western United Financial Services Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd MGA Management Services Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Coffs Harbour Insurance Brokers Unit Trust Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities WRI Insurance Brokers Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Aust Re Brokers Pty Ltd Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Markey Group Pty Ltd Supabrook Pty Ltd Austbrokers ABS Aviation Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Tasman Underwriting Pty Ltd Northlake Holdings Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Peter L Brown & Associates Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** Northlake Holdings Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Northern Tablelands Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Peter L Brown & Associates Pty Ltd Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd The Procare Group Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Aust Re Brokers Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd Tasman Underwriting Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Longitude Insurance Pty Ltd*** Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd Rivers Insurance Brokers Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Millennium Underwriting Agency Pty Ltd** MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Newsurety Pty Ltd (sold February 2016) Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Strathearn Insurance Group Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd Aust Re Brokers Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Supabrook Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd SRG Group Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Risk Strategies Pty Ltd (sold February 2016) Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd SRG Group Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd MGA Management Services Pty Ltd WRI Insurance Brokers Pty Ltd Brokerweb Risk Services Ltd* Nexus (Aust) Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust A & I Member Services Pty Ltd Longitude Insurance Pty Ltd*** Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd Western United Financial Services Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Blumberg Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Adroit Holdings Pty Ltd Newsurety Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* WRI Insurance Brokers Pty Ltd Western United Financial Services Pty Ltd Bluestone Insurance Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Austbrokers RIS Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd R.G Financial Services Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust WRI Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Austbrokers ABS Aviation Pty Ltd Risk Strategies Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Austcan Risk Services (UK) Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Bruce Park Pty Ltd Nexus (Aust) Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd HQ Insurance Pty Ltd Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Austbrokers AEI Transport Pty Ltd and controlled entities Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust A & I Member Services Pty Ltd Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Coffs Harbour Insurance Brokers Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd Blumberg Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust A & I Member Services Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust Adroit Holdings Pty Ltd Risk Strategies Pty Ltd The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Aust Re Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) KJ Risk Insurance Brokers Pty Ltd Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Bluestone Insurance Pty Ltd Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust Adroit Holdings Pty Ltd The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Nexus (Aust) Pty Ltd Markey Group Pty Ltd Tasman Underwriting Pty Ltd Aust Re Brokers Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Austbrokers Dalby Insurance Brokers Pty Ltd R.G Financial Services WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Austbrokers RIS Pty Ltd Rivers Insurance Brokers Pty Ltd Nexus (Aust) Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Blumberg Pty Ltd Global Assured Finance Pty Ltd Millennium Underwriting Agency Pty Ltd** Tasman Underwriting Pty Ltd Bruce Park Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brett Grant and Associates Pty Ltd SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Austcan Risk Services (UK) Ltd Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Rivers Insurance Brokers Pty Ltd Nexus (Aust) Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Austbrokers ABS Aviation Pty Ltd Strathearn Insurance Group Pty Ltd Blumberg Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Bruce Park Pty Ltd Supabrook Pty Ltd Bluestone Insurance Pty Ltd KJ Risk Insurance Brokers Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Millennium Underwriting Agency Pty Ltd** Brett Grant and Associates Pty Ltd SRG Group Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) MGA Management Services Pty Ltd Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust HQ Insurance Pty Ltd Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Strathearn Insurance Group Pty Ltd Blumberg Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Bruce Park Pty Ltd Supabrook Pty Ltd Bluestone Insurance Pty Ltd KJ Risk Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** Brett Grant and Associates Pty Ltd R.G Financial Services SRG Group Pty Ltd MGA Management Services Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Nexus (Aust) Pty Ltd Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Supabrook Pty Ltd Bluestone Insurance Pty Ltd KJ Risk Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** Brett Grant and Associates Pty Ltd SRG Group Pty Ltd R.G Financial Services MGA Management Services Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brokerweb Risk Services Ltd* Austcan Risk Services (UK) Ltd Western United Financial Services Pty Ltd Northern Tablelands Insurance Brokers Pty Ltd Longitude Insurance Pty Ltd*** Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Austbrokers Dalby Insurance Brokers Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Rivers Insurance Brokers Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Strathearn Insurance Group Pty Ltd Blumberg Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** SRG Group Pty Ltd R.G Financial Services MGA Management Services Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Brokerweb Risk Services Ltd* Western United Financial Services Pty Ltd Austcan Risk Services (UK) Ltd Northern Tablelands Insurance Brokers Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Austbrokers Dalby Insurance Brokers Pty Ltd HQ Insurance Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Newsurety Pty Ltd Longitude Insurance Pty Ltd*** Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Rivers Insurance Brokers Pty Ltd Nexus (Aust) Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Supabrook Pty Ltd Bluestone Insurance Pty Ltd KJ Risk Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** SRG Group Pty Ltd MGA Management Services Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Western United Financial Services Pty Ltd Austcan Risk Services (UK) Ltd Northern Tablelands Insurance Brokers Pty Ltd Sura Travel Pty Ltd (Formerly Sura Accident And Health Pty Ltd) Austbrokers Dalby Insurance Brokers Pty Ltd HQ Insurance Pty Ltd WRI Insurance Brokers Pty Ltd Northlake Holdings Pty Ltd Longitude Insurance Pty Ltd*** Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust Peter L Brown & Associates Pty Ltd Sura Professional Risks Pty Ltd (Formerly Mint Plus Pty Ltd) Newsurety Pty Ltd Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust The Procare Group Pty Ltd Risk Strategies Pty Ltd JMD Ross Insurance Brokers Pty Ltd Coffs Harbour Insurance Brokers Unit Trust Rivers Insurance Brokers Pty Ltd Nexus (Aust) Pty Ltd Markey Group Pty Ltd Aust Re Brokers Pty Ltd Blumberg Pty Ltd Strathearn Insurance Group Pty Ltd Global Assured Finance Pty Ltd Tasman Underwriting Pty Ltd Supabrook Pty Ltd KJ Risk Insurance Brokers Pty Ltd Millennium Underwriting Agency Pty Ltd** SRG Group Pty Ltd R.G Financial Services MGA Management Services Pty Ltd Cinesura Entertainment Pty Ltd (Formerly One Liability Underwriting Pty Ltd) Equity percentage owned 2015 2016 % 50 50 50 50 % 50 55 55 50 49.9 49.9 50 49.9 49.9 40 50 49.9 49.9 49.9 49.9 49.9 49.0 49.9 49.9 50 49.9 49.9 49.9 – 49.9 50 50 49.9 49.9 40 50 49.9 49.9 49.9 49.9 49.9 – 49.9 49.9 50 49.9 49.9 49.9 49.9 49.9 50 49.9 49.9 50 49.9 49.9 37.5 50 50 50 50 50 50 49.9 49.9 37.5 50 50 50 50 50 56.1 56.1 – 50 – 50 50 50 50 30 50 50 50 50 50 50 – – Equity accounted amount 2016 $’000 2,787 9.597 – 2015 $’000 2,916 – – 13,333 13,375 2,653 253 1,523 1,661 2,610 179 1,425 1,667 16,499 15,743 3,029 2,879 15,350 15,870 874 877 803 880 3,742 3,855 – 1,752 – – 12,199 10,485 117 5,554 562 94 5,506 490 11,337 10,528 3,074 2,917 – 21,215 785 2,137 1,985 3,052 2,214 155 140 943 498 446 71 – 794 – 696 – 939 2,097 1,895 2,898 2,064 317 187 647 520 481 – – 898 224 469 1,054 11,157 11,887 103 – 5 63 102 – – – 40.4 40.4 1,877 1,535 133,894 141,661 AUB GROUP 2016 ANNUAL REPORT 59 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 11. INVESTMENT IN ASSOCIATES (CONTINUED) * The Group has an 80% interest in the controlled entity which has a 50% interest in Brokerweb Risk Services Ltd. ** The controlled entity owns 18.4% of Millennium Underwriting Agency Pty Ltd. The consolidated entity has a further 31.6% interest indirectly through an associate. *** A controlled entity owns 37.5% of Longitude Insurance Pty Ltd. The consolidated entity has a further 18.58% interest indirectly through an associate. During the current year, the following transactions occurred;  On 1 July 2015, the consolidated entity acquired 49% of the voting shares of K J Risk Pty Ltd for $1,748,134.  On 1 July 2015, the Group disposed 5% of the voting shares in AEI Transport Pty Ltd and its controlled entities for $ 990,622 reducing its equity from 55% to 50%. On that date AEI Transport Pty Ltd ceased to be a controlled entity and became an associate.  On 1 July 2015, a controlled entity acquired 50% of the voting shares in a newly incorporated entity, Austbrokers RG Financial Services Pty Ltd for $100.  On 1 January 2015, the consolidated entity acquired an associate, Austcan Risk Services (UK) Ltd for $30. During the current period, further adjustments to contingent considerations in respect of associates resulted in a reduction to the estimates previously recognised by the Consolidated Group by $2,231,640. As the revised contingent consideration estimates were below the original estimated contingent consideration payments, a corresponding and offsetting impairment charge of $2,231,64 0 was recognised against the carrying value of that associate (see note 4(vi)). During the current period, further adjustments to contingent considerations in respect of an associate resulted in an increas e to the estimates previously recognised by the Consolidated Group by $881,000. In the previous year the estimate was reduced by $687,000 with a corresponding impairment charge recognised in the profit and loss. During the current year the contingent consideration was increased by $881,000 to reflect the estimated final payment. A $687,000 impairment charge booked in the previous year has been reversed and a further $195,000 has been charged agai nst profits in the current year (see note 4(vi)). During the year the consolidated entity disposed of the following associates;  On 1 December 2015, the consolidated entity disposed of all the voting shares in Strathearn Insurance Group Pty Ltd.  On 1 February 2016, the consolidated entity disposed of all the voting shares in Risk Strategies Pty Ltd.  Between 30 September 2015 and 1 March 2016, a controlled entity disposed all of the voting shares owned in NewSurety Pty Ltd. The total sales proceeds (before disposal costs) in respect of the sale of the associates above were $30,648,882. During the previous year, the following transactions occurred;  On 1 July 2014, the consolidated entity acquired 50% of the voting shares of Nexus (Aust) Pty Ltd for $12,253,179 which includes an amount of $6,653,179 that represents the contingent consideration amount payable in the next 2 years.  On 1 September 2014, the consolidated entity acquired 50% of the voting shares of Risk Strategies Pty Ltd for $1,083,386 which includes an amount of $383,386 which represents the contingent consideration payable in 12 months. On 1 July 2014, a controlled entity acquired 50% of the voting shares of Bluestone Insurance Pty Ltd and Blumberg Pty Ltd for $50 and $103,000 respectively.  On 1 November 2014, a controlled entity in New Zealand acquired 50% of the voting shares of Brokerweb Risk Services Ltd for $16,801,889 which includes an amount of $6,780,164 which represents the contingent consideration payable in the next 2 years.  On 31 December 2014, the company owned 50% of the voting shares of Citycover (Aust) Pty Ltd (Citycover). On that date it acquired a further 22.5% interest for $2,300,000. Citycover ceased to be an associate and became a controlled entity.  On 1 April 2015, the company reduced its interest in the voting shares of Adroit Hol dings Pty Ltd from 60% to 50%. On that date Adroit Holdings Pty Ltd ceased to be a controlled entity and became an associate. NRIG Pty Ltd an associate owned by Adroit Holdings Limited also ceased to be a direct associate of the consolidated group on that date . 60 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 11. INVESTMENT IN ASSOCIATES (CONTINUED) Other information in respect of associated entities which carry on business directly or through controlled entities. (a) (b) (c) (d) (e) (f) (g) (h) The principal activity of each associate is insurance broking, except for associates owned by Austagencies Pty Ltd, which are underwriting agents and The Procare Group Pty Ltd which offer risk related services. The proportion of voting power held by the controlling entity in respect of each associate is 50% except for Coffs Harbour Unit Trust, Longitude Insurance Pty Ltd where voting power is 37.5%, Millennium Underwriting where the voting power is 18.4%, HQ Insurance Brokers Pty Ltd where the voting power is 40.4% and Austcan risk Services (UK) Ltd where the voting power is 30%. The reporting date of each associate is 30 June 2016 (prior year reporting date 30 June 2015). There have been no significant subsequent events affecting the associates' profits for the year. Other than disclosed in note 15, there were no other impairments of investment in associates for the year. All associates, including unit trusts, were incorporated or established in Australia except for Brokerweb Risk Services Ltd which is incorporated in New Zealand and Austcan Risk Services (UK) Limited which is incorporated in the United Kingdom. The entity's share of the associate's commitments and contingent liabilities are disclosed in note 22. The entity's share of associates' profits/(losses) Revenue Operating profits before income tax Amortisation of intangibles Net profit before income tax Income tax expense attributable to operating profits Share of associates’ net profits (i) The entity’s share of the assets and liabilities of associates: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Consolidated 2016 $’000 2015 $’000 108,473 97,710 34,060 (3,264) 30,796 (7,524) 23,272 29,240 (2,873) 26,367 (5,672) 20,695 220,047 206,047 54,212 47,928 (210,656) (199,556) (10,122) 53,481 (8,387) 46,032 AUB GROUP 2016 ANNUAL REPORT 61 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 12. SHARES IN CONTROLLED ENTITIES All controlled entities are incorporated in Australia except for AUB Group NZ Ltd and its controlled entity which are incorporated in New Zealand, and comprise: Equity Interest Held Name and Interests in controlled entities: Austbrokers Pty Ltd and its controlled entities – Austbrokers Investments Pty Ltd – Austbrokers Trade Credit Pty Ltd – Austbrokers SPT Pty Limited as trustee for Austbrokers SPT Unit Trust – Finsura Holdings Pty Ltd And Its Controlled Entities – Finsura Insurance Broking (Australia) Pty Ltd – Finsura Financial Services Pty Limited – Finsura Investment Management Services Pty Limited – Finsura Insurance Broking Unit Trust – RI Hornsby Pty Limited Allied Health Australia Pty Ltd AUB Group Services Pty Ltd (formerly Austbrokers Services Pty Ltd) AUB Group Business Centre Pty Ltd (formerly Austbrokers Business Centre Pty Ltd) Kyros Cook & Associates Pty Ltd Adept Insurance Brokers Pty Ltd and its controlled entity – Geary Smith Pty Limited AB Phillips Group Pty Ltd (previously Aprikees Pty Ltd) and its controlled entities – AB Phillips Pty Ltd – Austbrokers Compensation Services Pty Ltd – Interfin Pty Ltd – Financial Affairs Pty Ltd AEI Holdings Pty Ltd/AEI Insurance (Brokers) Pty Ltd Austbrokers Financial Solutions (Syd) Pty Ltd and its controlled entities – SPT Financial Services Pty Ltd – Austbrokers Financial Solutions (ACT) Pty Ltd Austbrokers C.E. McDonald Pty Ltd and its controlled entity – Traders Voice Services Pty Ltd Austbrokers Central Coast Pty Ltd and its controlled entity – Austbrokers Central Coast Financial Services Pty Ltd Austbrokers City State Pty Ltd Austbrokers Premier Pty Ltd Austbrokers Southern Pty Ltd Austbrokers Canberra Pty Ltd 2016 % 100 100 75 60 70 70 70 70 70 70 60 100 100 100 100 100 56 56 56 56 100 100 75 52 75 100 100 80 80 70 90 80 75 2015 % 100 100 75 70 70 70 70 70 70 70 - 100 100 100 100 100 58 58 48 46 - 100 75 52 75 100 100 80 80 70 90 80 85 Australian Bus And Coach Underwriting Agency Pty Ltd 100 100 62 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 12. SHARES IN CONTROLLED ENTITIES (CONTINUED) Equity Interest Held 2016 2015 Austbrokers AEI Transport Pty Ltd and controlled entities (deconsolidated on 1 July 2015) – Carriers Insurance Brokers Pty Ltd – Austbrokers AEI Pty Ltd – Chegwyn Insurance Brokers Pty Ltd Austbrokers Sydney Pty Ltd and its controlled entities – Austbrokers FWR Pty Ltd – Austbrokers Professional Services Pty Ltd Austbrokers RWA Pty Ltd and its controlled entities – Austbrokers RWA Financial Services Pty Ltd – CTRL Pty Ltd AHL Insurance Brokers Pty Ltd (sold on 29 February 2016) AHL Insurance Brokers (Aust) Pty Ltd Austagencies Pty Ltd and its Controlled Entities – Sura Plant & Equipment Pty Ltd (formerly CEMAC Pty Ltd) – Sura Film & Entertainment Pty Ltd (formerly Cinesure Pty Ltd) – Latitude Underwriting Agency Pty Ltd – Dolphin Insurance Pty Ltd – Sura Hospitality Pty Ltd as trustee for G.U.S Trust – All-Trans Underwriting Pty Ltd – Sura Pty Ltd (previously Celestial Underwriting Agency Pty Ltd) – Trinity Pacific Underwriting Agency Pty Ltd – 5 Star Underwriting Agency Pty Ltd – Film Insurance Underwriting Agency Pty Ltd – Lawsons Underwriting Agency Ltd – Sura Labour Hire Pty Ltd – Expert Strata Pty Ltd – Sura Construction Pty Ltd – Sura Engineering Pty Ltd Asia Mideast Insurance and Reinsurance Pty Ltd Citycover (Aust) Pty Ltd Comsure Insurance Brokers Pty Ltd and controlled entity – Comsure Financial Solutions Pty Ltd % 50 40 30 30 100 100 80 60 30 60 - 100 100 100 100 100 100 100 100 100 100 100 100 90 90 55 51 51 75 75 80 60 % 55 44 35.6 35.6 100 100 80 60 30 60 100 100 100 100 100 100 100 100 100 100 100 100 100 90 90 - 51 51 75 75 80 60 AUB GROUP 2016 ANNUAL REPORT 63 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 12. SHARES IN CONTROLLED ENTITIES (CONTINUED) Forean Group Holdings Pty Ltd and its controlled entities – Altius Group Pty Ltd – Rehabilitation Services Pty Ltd – Occheath Network Pty Ltd – Psych Health Intervention Pty Ltd – Altius Group Services Pty Ltd – CIM Group Holdings Pty Ltd AUB Group NZ Ltd (formerly NZ Broker Holdings Ltd) – NZ Brokers Management Ltd – Runacres and Associate Ltd Austbrokers Coast to Coast Pty Ltd (formerly Power Insurance Brokers Pty Ltd) Insurics Pty Ltd InterRISK Australia Pty Ltd and its controlled entities – InterRISK Queensland Pty Ltd – Atlas Insurance Brokers Pty Ltd Shield Underwriting Holdings Pty Ltd McNaughton Gardiner Insurance Brokers Pty Ltd and its controlled entity – McNaughton Gardiner Financial Services Pty Ltd North Coast Insurance Brokers Pty Ltd and its controlled entities – NCFS Unit Trust Austbrokers Terrace Insurance Brokers Pty Ltd and controlled entity – Austbrokers Financial Solutions (SA) Pty Limited AUB International Pty Ltd Austbrokers employee share acquisition schemes trust Equity Interest Held 2016 2015 % 60 60 60 60 60 60 60 80 80 80 75 100 77.1 37 27 100 70 70 70 70 70.8 47 100 100 % 60 60 60 60 60 60 - 80 80 - 75 100 77.1 37 27 100 70 70 70 70 70.8 47 - 100     See note 7 - Business Combinations, for details of increases and decreases in voting shares in controlled entities and acquisition of new controlled entities during the current and previous year. During the current year AUB Group Limited incorporated a new controlled entity AUB International Pty Ltd for $1. During the previous year a controlled entity incorporated a new controlled entity Sura Labour Hire Pty Ltd for $100. During the current period, further adjustments to contingent considerations in respect of controlled entities resulted in a reduction to the estimates previously recognised by the Consolidated Group by $2,039,518. As the revised contingent consideration estimates were below the original estimated contingent consideration payments, a corresponding and offsetting impairment charge of $2,039,518 was recognised against the carrying value of those associates (see note 4(vi)).  During the current period, further adjustments to contingent considerations in respect of controlled entities resulted in increases to the estimates previously recognised by the Consolidated Group by $3,799,302. This amount was charged against profits in the current year (see note 4(vi)). 64 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 13. PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment Year ended 30 June 2016 Plant and Motor Property equipment vehicles $’000 $’000 $’000 Balance at the beginning of the year 730 16,690 Acquisition of controlled entities Disposal of controlled entities Translation movements Additions during the year Disposals during the year Property, plant and equipment at cost Depreciation - - - 73 - 803 1,249 (214) 7 4,408 (3,047) 19,093 Balance at the beginning of the year 114 11,593 Acquisition of controlled entities Disposal of controlled entities Disposals during the year Translation movements Depreciation during year Accumulated depreciation Summary Net carrying amount at beginning of year Net carrying amount at end of year Year ended 30 June 2015 Balance at the beginning of the year Acquisition of controlled entities Disposal of controlled entities Additions during the year Disposals during the year Property, plant and equipment at cost Depreciation - - - - 10 124 616 679 730 - - - - 730 684 (156) 39 2,152 11,307 5,097 7,786 18,946 2,284 (4,654) 1,216 (1,102) 16,690 Balance at the beginning of the year 104 12,465 Acquisition of controlled entities Disposal of controlled entities Disposals during the year Depreciation during year Accumulated depreciation Summary Net carrying amount at beginning of year Net carrying amount at end of year - - - 10 114 626 616 963 (2,649) (898) 1,712 11,593 6,481 5,097 Consolidated Total $’000 18,821 2,098 (214) 20 5,031 (3,397) 22,359 12,314 1,066 (156) 1,401 849 - 13 550 (350) 2,463 607 382 - (3,005) (198) (3,203) 6 325 1,122 794 1,341 1,706 279 (418) 468 (634) 1,401 656 56 (220) (282) 397 607 1,050 794 45 2,487 12,553 6,507 9,806 21,382 2,563 (5,072) 1,684 (1,736) 18,821 13,225 1,019 (2,869) (1,180) 2,119 12,314 8,157 6,507 AUB GROUP 2016 ANNUAL REPORT 65 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 14. INTANGIBLE ASSETS AND GOODWILL Capitalised project costs Goodwill Insurance broking registers $’000 $’000 $’000 Consolidated Total $’000 225,987 63,343 (2,038) 475 (13,608) 274,159 26,151 (2,466) 3,728 27,413 199,836 246,746 198,170 59,525 1,011 (2,273) (448) (29,998) 225,987 23,950 (1,842) 4,043 26,151 174,220 199,836 43,725 12,693 - - (3,036) 53,382 26,151 (2,466) 3,323 27,008 17,574 26,374 46,911 3,553 - - - (6,739) 43,725 23,950 (1,842) 4,043 26,151 22,961 17,574 1,011 181,251 - - - - 50,650 (2,038) 475 (10,572) 1,011 219,766 – – 405 405 1,011 606 - - 1,011 - - - 1,011 - - - - - – - – – 181,251 219,766 151,259 55,972 - (2,273) (448) (23,259) 181,251 - - - - 151,259 181,251 Year ended 30 June 2016 Balance at the beginning of the year Additional businesses and portfolios acquired Impairment charge Translation of foreign exchange rate movements Deconsolidation of controlled entity Total intangibles Amortisation Balance at the beginning of the year Deconsolidation of controlled entity Amortisation current year Accumulated amortisation Summary Net carrying amount at beginning of year Net carrying amount at end of year Year ended 30 June 2015 Balance at the beginning of the year Additional businesses and portfolios acquired Capitalised project costs Impairment charge Translation of foreign exchange rate movements Deconsolidation of controlled entity Total intangibles Amortisation Balance at the beginning of the year Deconsolidation of controlled entity Amortisation current year Accumulated amortisation Summary Net carrying amount at beginning of year Net carrying amount at end of year 1,011 66 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 14. INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Goodwill represents the excess of the purchase consideration over the fair value of identifiable net assets acquired at the time of acquisition of the business. As at acquisition date, any goodwill relates to benefits from the combination of synergies as well as the entity's ability to generate future profits. The balance of the Insurance broking register will be amortised over the remaining period ranging from 1 to 10 years (15 years for financial services business) depending on original acquisition date. Individual intangible assets material to the Group are attributable to the following controlled entities. (i) Goodwill Consolidated 2016 $’000 2015 $’000 Interrisk Australia Pty Ltd and its controlled entity 18,995 20,352 Austbrokers Sydney Pty Ltd and its controlled entities 14,355 23,882 Forean Holdings and its controlled entities 38,349 35,962 Austagencies and its controlled entities 33,828 34,521 AUB Group NZ Limited and its controlled entities 27,134 6,659 Citycover Australia Pty Ltd Allied Health Pty Ltd 8,689 8,689 22,693 - (ii) Insurance Broking Registers AUB Group NZ Limited Interrisk Australia Pty Ltd and its controlled entity Austbrokers Sydney Pty Ltd and its controlled entities Remaining amortisation period (years) 2016 2015 9.5 7.0 8.0 - 10,674 - 8.0 9.0 3,055 4,981 1,963 2,194 AUB GROUP 2016 ANNUAL REPORT 67 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 15. IMPAIRMENT TESTING OF INTANGIBLE ASSETS, GOODWILL AND INVESTMENT IN ASSOCIATES The recoverable amount of the equity accounted associates and goodwill and insurance broking registers arising on consolidation of controlled entities is determined based on the higher of the directors' estimate of fair value of the cash generating unit (CGU) to which they relate less costs to sell and its value in use. In determining fair value, each controlled entity or associate is considered a separate CGU or grouped into a single CGU for impairment testing where cash inflows are interdependant. Interdependant businesses have the following similar characteristics;      the nature of the products and services the type of class of customer for their products and services the methods used to distribute their products or provide their services if applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. the business is integrated with other entities and the results are interdependent. In the current year, the group has reviewed the operations of the underwriting agency and the New Zealand businesses, which led to a reassessment of the structure of the CGUs to bring them more in line with the requirements of AASB 136. Consequently, the underwriting agency businesses and the New Zealand businesses have each been aggregated into single CGUs . These CGUs represent the lowest level within the Group at which the goodwill is monitored for internal management purposes and reflects the interdependency of cash inflows generated therein. Insurance broking entities and risk services entities are still viewed as separate CGUs at the entity level for impairment purposes, consistent with the previous year treatment. The measure used in assessing the directors' fair value is based on the directors' estimates of the sustainable profits, which have been tested against the current and prior year's profits as well as the following year's financial budgets approved by senior management. After determining the appropriate after tax profit for each associate/controlled entity, the after tax profit is multiplied by a profit multiple from within the range of 9.87 to 11.46 times (2015: 9.84 to 11.52 times). These profit multiples have been determined based on the cost of capital for each cash generating unit factoring in an assumed sustainable profit growth of 2.0% per annum (2015: 2.0%). The profit multiples used are reviewed against externally accessible factors and are considered by directors to be reflective of generally accepted market values. When considered appropriate, an alternative test is applied to determine directors' estimates of fair value. This measure applies a multiple of 1.8 times to broking revenue (2015: 1.8 times) for general insurance broking busin esses and 2.5 times to life insurance renewal commissions (2015: 2.5 times). These valuation bases are commonly used in the market to determine value for acquisitions of similar businesses. Where fair value less cost of sale methodology does not support the carrying value of an asset, a secondary Value in Use methodology is used. If this produces a higher valuation than Fair Value, this valuation is used for the Recoverable Amount. This measurement takes into account the expected discounted cash flows for the next 5 years based on the forecast profitability (DCF). The valuation under this approach takes into account the weighted average cost of capital (WACC) for those entities and also looks at the expected long term growth rate of 2.0% (2015: 2.0%) with a terminal value calculation at the end of 5 years. This methodology will result in a better estimate valuation for entities where the current year profit or the following year budget may not factor in the medium and long term expected growth from thi s business. The fair value and value in use measurements were categorised as level 3 fair value based on the inputs in the valuation technique used (see note 28 (c)). In previous periods, external expert advice had been sought in relation to the determination of the appropriate weighted average cost of capital (WACC) to be used in determining the profit multiples. For this financial year, this calculation was updated internally. The WACC is based on the cost of capital calculated for each cash generat ing unit after taking into account market risks, a risk loading recognising the size of the business, current borrowing interest rates, factoring in the borrowing capacity of the businesses and the risk free rate. The 10 year bond rate prevailing at year end was used for the current year after factoring in a risk margin. The risk free rate (before risk margin) used in the current year is 2.41% (2015: 2.5%). The resulting fair values derived from the appropriate measure are compared to the carrying value f or each cash generating unit and in the event that the carrying value exceeds the recoverable amount, an i mpairment loss is recognized. Key assumptions for the value in use methodology Post tax discount rates Short term revenue growth rate (1-5 years) Long term revenues growth rate 2016 % 10.7 – 12.1 1.0 – 5.0 1.5 – 2.0 2015 % NA NA NA 68 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 15. IMPAIRMENT TESTING OF INTANGIBLE ASSETS, GOODWILL AND INVESTMENT IN ASSOCIATES (CONTINUED) The Group's acquisition policy is to pay a deposit and defer a component of the purchase price to be determined based on future financial results. Estimates of the final acquisition cost are made and recognised in the financial statements. An estimate of the contingent consideration is made at the time of acquisition and is reviewed and varied at balance date if estimates change or actual payments are made. This adjustment can be a loss (if increased) or a profit (if reduced). Where an estimate is reduced an offsetting adjustment (impairment) is made to the carrying value. During the current year, due to current market conditions further adjustments to contingent considerations in respect of prior year acquisitions resulted in a net reduction to the estimates previously recognised by the Consolidated Group. Where the revised contingent consideration estimates were below the original estimated contingent consideration payments, a corresponding and offsetting impairment charge of $4,271,000 (2015:$4,104,000) was recognised against the carrying value of those investments (see note 4(vi)). The resulting fair value of an associate using the valuation methodology outlined above resulted in an impairment of $NIL (2015: $1,500,000). The previous year impairment was due to specific competitive circumstances in a niche segment of the market impacting income. The previous year impairment represented 0.4% of the Group's investment in associates and controlled entities. The previous year impairment loss was charged to the income statement (see note 4(vi)). Adjustments relating to controlled entities Adjustments relating to associates Impairment charge relating to an associate Contingent consideration adjustments Impairment charges 2016 $’000 (1,759) 2,036 - 2015 $’000 2,473 1,983 - 2016 $’000 2,040 2,231 - 2015 $’000 2,273 1,831 1,500 Total 277 4,456 4,271 5,604 No reasonable possible change in key assumptions would result in the recoverable amount of a cash generating unit that is material to the group's total investment in intangible assets, goodwill and investment in associates, being significantly less than the carrying value included in the accounts. AUB GROUP 2016 ANNUAL REPORT 69 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 16. SHARE-BASED PAYMENT PLANS Employee share option plan The share-based payments expense recognised in the income statement is included in note 4 (iv) Expenses. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share options issued during the year: Unless otherwise stated, all options are granted over shares in the ultimate controlling entity, AUB Group Limited. Share options Outstanding at the beginning of the 2016 No. 2015 2016 2015 No. WAEP ($) WAEP ($) year 378,687 508,834 0.12 Granted during the period – zero priced options 319,891 43,456 0.00 Exercised during the period: options issued during 2007 - (132,800) 0.00 Exercised during the period: options issued during 2008 (11,099) - 4.22 Exercised during the period: options issued during 2011 - (27,834) 0.00 Exercised during the period: options issued during 2013 (73,000) - 0.00 Lapsed/forfeited during the period: options issued during 2010 - (12,969) 0.00 Lapsed/forfeited during the period: options issued during 2011 (21,430) Lapsed/forfeited during the period: options issued during 2012 Lapsed/forfeited during the period: options issued during 2013 Lapsed/forfeited during the period: options issued during 2014 Outstanding at the end of the year (5,713) (9,235) (10,345) 567,756 - - - - 378,687 0.00 0.00 0.00 0.00 0.00 1.10 0.00 4.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.12 The outstanding balance as at 30 June 2016 is represented by:  NIL (2015: 11,099) options granted on 29 September 2008, exercisable 3 years from 29 September 2008 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $4.22.  NIL (2015: 21,430) Share options were granted on 31 October 2011, exercisable 3 years from 31 October 2011 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $6.28.  26,490 (2015: 32,203) Share options were granted on 31 October 2012, exercisable 3 years from 31 October 2012 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $7.71.  160,000 (2015: 233,000) Share options were granted on 15 January 2014, exercisable 3 years from 1 January 2013 at an exercise price of $NIL. The options were valued using the dividend yield method resulting in an option price of $7.38. 70 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 16. SHARE-BASED PAYMENT PLANS (CONTINUED) Employee Share Option Plan (continued)  28,264 (2015: 37,499) Share options were granted on 30 October 2013, exercisable 3 years from 30 October 2013 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $11.15. The options were valued using the dividend yield method resulting in an option price of $10.06.  33,111 (2015: 43,456) Share options were granted on 31 October 2014, exercisable 3 years from 31 October 2014 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $10.28. The options were valued using the dividend yield method resulting in an option price of $9.09.  69,891 Share options were granted on 23 November 2015, exercisable 3 years from 23 November 2018 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $8.48. The options were valued using the dividend yield method resulting in an option price of $7.31.  250,000 Share options were granted on 7 April 2016, exercisable 3 years from 1 January 2019 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $8.73. The options were valued using the dividend yield method resulting in an option price of $7. 91. All options must be exercised by no later than 7 years from the issue date. During the year the following options were granted, exercised or lapsed  11,099 Share options were exercised on 16 October 2015 at an exercise price of $NIL. The volume weighted average price for the 5 business days prior to the date the options were exercised was $8.82.  25,293 Zero priced options, lapsed due to staff members resigning.  69,891 Share options were granted on 23 November 2015, exercisable 3 years from 23 November 2018 at an exercise price of $NIL. The options were valued using the dividend yield method resulting in an option price of $7.31.  21,430 options lapsed due to vesting conditions over the 4 years ended 30 June 2015, not being met.  250,000 Share options were granted on 7 April 2016, exercisable 3 years from 1 January 2019 at an exercise price of $NIL. The options were valued using the dividend yield method resulting in an option price of $7.91.  73,000 Share options were exercised on 6 April 2016 at an exercise price of $NIL. The volume weighted average price for the 5 business days prior to the date the options were exercised was $8.42. During the previous year the following options were granted, exercised or lapsed  43,456 Share options were granted on 31 October 2014, exercisable 3 years from 31 October 2014 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $9.0892. The options were valued using the dividend yield method resulting in an option price of $9.09.  132,800 Share options were exercised on 12 September 2014 at an exercise price of $4.20. The volume weighted average price for the 5 business days prior to the date the options were exercised was $10.87.  12,969 options lapsed due to vesting conditions over the 4 years ended 30 June 2014, not being met.  27,834 Share options were exercised on 16 December 2014 at an exercise price of $NIL. The volume weighted average price for the 5 business days prior to the date the options were exercised was $10.08. The fair value of the zero priced options issued before 1 January 2013 was based on the volume weighted average share price for the 5 day period prior to the options being granted. From 1 January 2013, the fair value of the zero p riced options has been based on the dividend yield method taking into account the vesting period, expected dividend payout and the share price at the date the options were granted. The weighted average remaining contractual life for the share options outstanding at 30 June 2016 is 5.32 years (2015: 4.59 years). AUB GROUP 2016 ANNUAL REPORT 71 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 16. SHARE-BASED PAYMENT PLANS (CONTINUED) Option Exercise conditions These option exercise conditions apply to all options issued up to 30 June 2015 except 233,000 options issued to the Chief Executive Officer (CEO) on 15 January 2013. a) subject to satisfaction of the performance based conditions referred to in paragraphs (b) and (c) below, the options will vest 3 years after the date of grant; b) if the First Test Compound Earnings Per Share Growth (Compound Growth) is: i) ii) iii) iv) greater than or equal to 8.5% per annum, 20% of the options will become exercisable; equal to 10% per annum, 50% of the options will become exercisable; between 10% and 15%, the percentage of options that are exercisable will be determined on a pro rata basis so that the number of options that are exercisable will increase from 50% by 1 percentage point for every 0.1% percent additional Compound Growth over 10%; 15% per annum or more, 100% of the options will become exercisable in each case on the date on which the Company's audited financial statements for the third financial year ending after the grant are lodged with the Australian Securities Exchange (the "First Test Date"); c) if all of the options do not become exercisable on the First Test Date and the Second Test Compound Growth is higher than the First Test Compound Growth then on the date on which the Company's audited financial statements for the fourth financial year ending after the grant are lodged with the Australian Secu rities Exchange (the "Second Test Date") an additional number of options will become exercisable as is equal to the difference between the number of options which became exercisable under paragraph (b) and the number of options which would have become exercisable if paragraph (b) applied on the basis of the Second Test Compound Growth (rather than the First Test Compound Growth); d) any options which have not become exercisable by the Second Test Date lapse and are of no further force or effect. e) Option exercise conditions for options granted in the 2014 financial year were modified so that between 8.5% and 10% EPSG the options that are exercisable will be determined on a pro rata basis so that the number of options that are exercisable will increase from 20% by 2 percentage points for every 0.1% additional Compound Growth over 8.5%. The exercise conditions for 233,000 (73,000 options vested and were exercised during the current year) options granted to the CEO on 1 January 2013 are the same as set out above except that between 8.5% and 10% compound growth the options that are exercisable will be determined on a pro rata basis so that the number of options that are exercisable will increase from 20% by 2 percentage points for every 0.1% additional Compound Growth over 8.5%. The following option exercise conditions apply to all options issued after 1 July 2015. 60% of options issued are subject to the compound annual growth rate hurdle set out in Part (b) below (EPS options). 40% of options issued will be subject to the total shareholder return hurdle set out in Part (d) below (TSR options) a) subject to satisfaction of the performance based conditions referred to in paragraphs (b) and (c) below, the EPS options will vest 3 years after the date of grant; b) if the First Test Compound Earnings Per Share Growth (Compound Growth) is: i) ii) greater than or equal to 4.0% per annum, 25% of the options will become exercisable; between 4% and 7%, the percentage of options that are exercisable will be determined on a pro rata basis so that the number of options that are exercisable will increase from 25% by 1 percentage point for every 0.12% additional growth over 4.0%; iii) equal to 7% per annum, 50% of the options will become exercisable; 72 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 16. SHARE-BASED PAYMENT PLANS (CONTINUED) Option Exercise conditions (continued) iv) v) vi) between 7% and 10%, the percentage of options that are exercisable will be determined on a pro rata basis so that the number of options that are exercisable will increase from 50% by 1 percentage point for every 0.06% additional growth over 7%; 10% per annum or more, 100% of the options will become exercisable in each case on the date on which the Company's audited financial statements for the third financial year ending after the grant are lodged with the Australian Securities Exchange (the "First Test Date"); c) if all of the options do not become exercisable on the First Test Date and the Second Test Compound Growth is higher than the First Test Compound Growth then on the date on which the Company's audited financial statements for the fourth financial year ending after the grant are lodged with the Australian Securities Exchange (the "Second Test Date") an additional number of options will become exercisable as is equal to the difference between the number of options which became exercisable under paragraph (b) and the number of options which would have become exercisable if paragraph (b) applied on the basis of the Second Test Compound Growth (rather than the First Test Compound Growth); d) subject to satisfaction of the performance based conditions referred to in paragraphs (e) and (f) below, the TSR options will vest 3 years after the date of grant; e) The percentage of TSR options that will be exercisable on the 3 Year Test Date is; i) ii) iii) At Target Group (100% of Target Group TSR) 50% of TSR options become vested Between 100% and 150% of Target Group, the number of TSR options that are exercisable will increase from 50% by 1 percentage point for every 1% increase in TSR against the Target Group over 100%. If all of the TSR options do not become exercisable on the Second Test Date and the 4 Year TSR, as a percentage of the Target Group TSR, is higher than the 3 Year TSR, as a percentage of the Target Group TSR, then on the Second Test Date an additional number of TSR options will become exercisable equal to the difference between the number of TSR options which became exercisable at the First Test Date and the number of TSR options which would have become exercisable if the 4 Year TSR had been applied. iv) Any TSR options which have not become exercisable by the Second Test Date lapse and are of no further force or effect. f) Target Group means the companies in the S&P/ASX Small Ordinaries Index as adjusted by the Board, in its discretion, to take into account matters or events, which may distort the results. This may include, but is not limited to, removing entities in a particular sector or entities affected by takeovers, mergers or de -mergers. AUB GROUP 2016 ANNUAL REPORT 73 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 17. TRADE AND OTHER PAYABLES Current Trade payables Amount payable on broking/underwriting agency operations Contingent consideration and other payables Other payables – related entities Total trade and other payables (current) Non-current Contingent consideration and other payables Trade payables Total trade and other payables (non current) Included in trade and other payable are the following contingent consideration payables: Balance at the beginning of the year Contingent consideration on current year acquisitions (at net present value) Payments made in respect of previously recognised contingent consideration Adjustments to contingent consideration payments previously recognised Reversal of prior year impairment charge (see note 11) Foreign currency translation movements Interest recognised in original contingent consideration at net present value Consolidated 2016 $’000 2015 $’000 27,141 11,542 186,253 217,647 25,371 22,596 745 595 239,510 252,380 11,334 19,280 118 - 11,452 19,280 28,259 6,006 (4,330) (277) 687 683 1,189 13,747 24,271 (4,967) (4,456) - (638) 302 Balance at the end of the year 32,217 28,259 74 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 18. PROVISIONS Year ended 30 June 2016 Balance at the beginning of the year Acquisition/disposal of controlled entity Arising during the year Employee Make good entitlements provision $’000 $’000 11,918 603 1,741 872 - 11 Consolidated Total $’000 12,790 603 1,752 Balance at the end of the year 14,262 883 15,145 Current 2016 Non-current 2016 Total provisions Year ended 30 June 2015 Balance at the beginning of the year Disposal of controlled entity Arising during the year Balance at the end of the year Current 2015 Non-current 2015 Total provisions 12,006 2,256 409 474 12,415 2,730 14,262 883 15,145 11,938 (1,259) 1,239 764 97 11 12,702 (1,162) 1,250 11,918 872 12,790 9,793 2,125 262 610 10,055 2,735 11,918 872 12,790 Make good provision on leased premises In accordance with the various lease agreements, the Group must restore the leased premises to a similar condition that existed prior to leasing the premises by removing all fixed and removable partitions. A provision has been included for expected amounts payable. Because of the long-term nature of the liability, the greatest uncertainty in estimating the provision is the cost that will ultimately be incurred. During the year further amounts were provided for premises leased during the year. Current lease durations range from less than 1 year to 10 years. Make good payments will only be made at the end of the lease. Employee entitlements 'Refer to note 2.2 (r) for the relevant accounting policy and a discussion of the significant estimation an d assumptions applied in the measurement of this provision. AUB GROUP 2016 ANNUAL REPORT 75 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 19. INTEREST BEARING LOANS AND BORROWINGS Current Secured bank loan * Obligations under finance leases and hire purchase contracts (note 22) Unsecured loan from other related parties Total interest bearing loans and borrowings (current) Non-current Secured bank loan * Obligations under finance leases and hire purchase contracts (note 22) Unsecured loan from other related parties Total interest bearing loans and borrowings (non current) * The Group has negotiated facilities through various banks as shown below. Details of those facilities are as follows; Summary of secured bank loans St George Bank Macquarie Bank Commonwealth Bank National Australia Bank Hunter Premium Funding Westpac NZ Bank Total secured bank loans Consolidated 2016 $’000 2015 $’000 2,975 7,393 1,069 772 417 459 4,461 8,624 83,692 56,891 493 - 534 16 84,185 57,441 65,067 47,826 4,871 1,245 2,677 353 440 1,136 2,898 524 12,454 11,460 86,667 64,284 The facilities are subject to financial undertakings and warranties typical of facilities of this nature and have sub -limits for various purposes including acquisitions. On 1 December 2015, AUB Group Limited accepted terms for the refinancing and increasing of the existing St George Bank finance facilities for a further 3 years. The finance facility was increased from $50.8 million to $79.5 million, including $20.118 (NZ $21 million) advanced to a controlled entity in New Zealand. In addition to the St George Bank facilities provided to AUB Group Limited, controlled entities within the group have al so negotiated other facilities with both St George Bank and other banks as disclosed below. Whilst the facilities expire beyond the next 12 months some facilities have provision for mandatory principal repayments during the facility period. These mandatory repayments are shown as current liabilities. The facilities are subject to financial undertakings and warranties typical of facilities of this nature and have sub -limits for various purposes including acquisitions. During the current and prior years, there were no defaults or breaches of terms and conditions of any of these facilities. 76 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 19. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) Group borrowing facilities as at 30 June 2016 Facility provider Type of borrowing AUB Group Limited Total Undrawn Amount Borrowing Non Interest Variable facility amount utilised amount Current current Expiry date rate / fixed $’000 $’000 $’000 $’000 $’000 $’000 % (Var/fix) St George Bank Loan facility 53,500 16,500 37,000 37,000 Credit cards 1,450 - 1,450 Bank guarantee / overdraft 5,000 478 4,522 - - - - - 37,000 30/11/2018 3.16 - 30/11/2018 17.45 Var Var - 30/11/2018 N/A Var Facilities arranged by other controlled entities St George Bank Loan facility 30,662 2,595 28,067 28,067 2,088 25,979 10/07/2020 3.51 - 6.14 Fix/Var Westpac NZ Bank Loan facility 12,454 Bank overdraft 70 70 - - - 12,454 12,454 - - - 13/03/2018 12,454 31/01/2018 N/A 4.24 Var Var Between 02/07/2015 & 10,669 1,526 9,143 9,146 887 8,259 20/06/2021 4.65 - 8.89 Var 113,805 21,169 92,636 86,667 2,975 83,692 Between 31/10/2017 & Type of borrowing Total Undrawn Amount Borrowing Non Interest Variable facility amount utilised amount Current current Expiry date rate / fixed $’000 $’000 $’000 $’000 $’000 $’000 % (Var/fix) Finance facilities with other banks Total borrowing facilities Group borrowing facilities as at 30 June 2015 Facility provider AUB Group Limited St George Bank Loan facility 45,000 7,935 37,065 37,065 Credit cards Bank guarantee / overdraft 1,000 - 1,000 5,000 553 4,447 - - - - - 37,065 30/07/2016 3.68 - 5.35 - 30/07/2016 17.50 Var Var - 30/07/2016 N/A Var Facilities arranged by other controlled entities Between 02/07/2015 & St George Bank Loan facility 15,482 4,721 10,761 10,761 6,594 4,167 10/07/2020 3.68 - 6.2 Fix/Var Westpac NZ Bank Loan facility 11,460 Bank overdraft 70 70 - - - 11,460 11,460 - - - 13/03/2018 11,460 31/01/2018 N/A 5.46 Var Var Finance facilities with other banks Total borrowing facilities 5,184 186 4,998 4,999 799 4,200 20/06/2018 4.99. - 6.6 Var 83,196 13,465 69,731 64,284 7,393 56,891 Between 31/10/2017 & AUB GROUP 2016 ANNUAL REPORT 77 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 20. ISSUED CAPITAL Issued capital opening balance 128,890 108,339 Net proceeds from dividend reinvestment plan 12,852 20,183 Consolidated 2016 $’000 2015 $’000 On 11 September 2014 allotted 132,800 shares at an issue price of $4.20 On 16 December 2014 allotted 27,834 shares at an issue price of $nil On 10 October 2015 allotted 11,099 shares at an issue price of $nil On 6 April 2016 allotted 73,000 shares at an issue price of $nil Share issue expenses Issued capital - - - - 558 – – – (34) (190) 141,708 128,890 Consolidated 2016 2015 Shares Shares No. No. Number of shares on issue (ordinary shares fully paid) 63,846,476 62,256,689 Movements in number of shares on issue Beginning of the financial year On 10 October 2015 allotted 11,099 shares at an issue price of $NIL. On 30 October 2015 1,004,770 shares were issued at $8.629 as a result of a Dividend Reinvestment Plan. On 29 April 2016 500,918 shares were issued at $8.3468 as a result of a Dividend Reinvestment Plan. On 6 April 2016 73,000 shares were issued at an issue price of $NIL. On 11 September 2014 allotted 132,800 shares at an issue price of $4.20. On 15 October 2014 696,147 shares were issued at $9.8016 as a result of a Dividend Reinvestment Plan. On 24 October 2014 928,220 shares were issued at $9.8016 as a result of a Dividend Reinvestment Plan. On 16 December 2014 allotted 27,834 shares at an issue price of $NIL. On 30 April 2015 516,092 shares were issued at $8.2522 as a result of a Dividend Reinvestment Plan. Total shares on issue 62,256,689 59,955,596 11,099 1,004,770 500,918 73,000 - - - - - - - - 132,800 696,147 928,220 27,834 516,092 63,846,476 62,256,689 - 78 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 20. ISSUED CAPITAL (CONTINUED) Ordinary shares have the right to receive dividends and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. Of the total shares issued up to 30 June 2016, 73,000 had restrictions whereby the shares could not be disposed of before 1 January 2018, except in the case where employee who own the shares, resigns. 21. NATURE AND PURPOSE OF RESERVES Asset revaluation reserve The asset revaluation reserve was used to record movements in the revalued amounts of broker register acquired through step up acquisition of broking subsidiaries before 1 July 2009. From this date, fair value adjustments on business combinations are no longer recognised through the asset revaluation reserve but in the income statement. The reserve can only be used to pay dividends in limited circumstances. The current year amortisation expense relating to those step ups is transferred to retained earnings when the amortisation expense is charged to the profit and loss account. Foreign currency translation reserve This reserve is used to record foreign currency differences from translation of the financial information of foreign operations that have a currency other than Australian dollars. Share based payment reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 16 for further details of these plans. Non controlling interests This is measured at their proportionate share of the acquirees' identifiable net assets. Interest in: Ordinary shares Retained earnings Consolidated 2015 $’000 – 48,203 48,203 2016 $’000 – 56,992 56,992 AUB GROUP 2016 ANNUAL REPORT 79 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 22. COMMITMENTS AND CONTINGENCIES Finance lease and hire purchase commitments – group as lessee The Group has finance leases and hire purchase contracts for various items of software and plant and machinery. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Finance lease and hire purchase commitments Payable – Not later than one year – Later than one year and not later than five years – Later than five years Minimum lease and hire purchase payments Deduct: future finance charges Present value of minimum lease and hire purchase payments (refer note 19) Operating lease commitments – group as lessee The Group has entered into leases for premises, commercial leases on certain motor vehicles and fixed assets. These leases have an average life of between 3 and 10 years with no renewal option included in the contracts. There are no restrictions placed upon the lessee by entering into these leases. Operating lease commitments: non cancellable Operating leases contracted for but not capitalised in the financial statements Payable – Not later than one year – Later than one year and not later than five years – Later than five years Operating lease commitments – associates as lessee Operating lease commitments: non cancellable Operating leases contracted for but not capitalised in the financial statements Payable – Not later than one year – Later than one year and not later than five years – Later than five years Contingent liabilities Estimates of the maximum amounts of contingent liabilities that may become payable AUB Group Limited has guaranteed loan facilities provided to associates in proportion to its shareholding. AUB Group Limited has guaranteed lease facilities provided to associates in proportion to its shareholding. 80 AUB GROUP 2016 ANNUAL REPORT Consolidated 2015 $’000 2016 $’000 1,117 519 – 1,636 74 1,562 6,758 18,099 5,508 30,365 2,289 5,945 2,104 10,338 799 564 – 1,363 57 1,306 4,880 4,792 – 9,672 2,248 3,609 28 5,885 5,373 3,656 460 1,035 5,833 4,691 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 22. COMMITMENTS AND CONTINGENCIES (CONTINUED) AUB Group Limited has provided indemnities to other shareholders of related entities and associates in relation to guarantees given by those shareholders, to financiers of or lessors to entities in which AUB Group Limited has an equity interest. At balance date no liability has arisen in relation to these indemnities. AUB Group Limited has entered into agreements with various financiers and shareholders of related entities and associates, granting options to put shares held in related companies or associates to AUB Group Limited at market values current at the date of exercise of that option. These have been given in relation to shares in the related entity/associate pledged by the borrower as security for funding provided to those shareholders in relation to the acquisition of those shares. AUB Group Limited has entered into agreements with various shareholders of related entities and associates, granting options to put shares held by those shareholders to AUB Group Limited at market values current at the date of exercise of that option. The earliest the put option can be exercised is 5 years from the date of AUB acquiring its initial shareholding in those entities, which falls within the next 3-5 years. 23. OPERATING SEGMENTS The company's corporate structure is organised into two business units which have been identified as separate reportable segments as follows:   equity investments in Insurance Intermediary entities (insurance broking and underwriting agencies); and equity investments in Risk Services entities. Discrete financial information about each of these segments is reported to management on a regular basis and the operating results are monitored separately for the purposes of resource allocation and performance assessment. Management believes that all of the Group's equity investments in insurance intermediary entities or providers of insurance, exhibit similar economic characteristics and have therefore been aggregated into a single reporting segment, being the insurance intermediary sector. This assessment is based on each of the operating segments having similar products and services, similar types of customer, employing similar operating processes and procedures and operating within a common regulatory environment. The Risk Services segment comprises of equity investments in risk related service entities operating under a separate jurisdiction and licence as well as a separate regulatory framework. The financial information of entities that fall within Risk Services have been aggregated into one operating segment. AUB GROUP 2016 ANNUAL REPORT 81 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 23. OPERATING SEGMENTS (CONTINUED) 30 June 2016 30 June 2015 Insurance Risk Insurance Risk Intermediary Services Total Intermediary Services Total $’000 $’000 $’000 $’000 $’000 $’000 Revenue Interest from other persons / corporations 3,545 20 3,565 3,593 12 3,605 Other income received from customers 168,341 38,700 207,041 185,398 7,649 193,047 Total Income 171,886 38,720 210,606 188,991 7,661 196,652 Share of profit of associates Share of Net Profits of Associates Accounted for using the Equity Method (net of income tax expense) 24,914 1,622 26,536 22,958 610 23,568 Amortisation of Intangibles - Associates (2,892) (372) (3,264) (2,873) - (2,873) Total Revenue Less: Expenses 193,908 39,970 233,878 209,076 8,271 217,347 Amortisation of Intangibles - controlled entities Amortisation of capitalised Project Costs Depreciation of property plant and equipment Other expenses Borrowing costs 3,323 405 2,119 - - 3,323 405 4,043 - - - 4,043 - 413 2,532 2,043 76 2,119 141,868 29,936 171,804 151,462 5,616 157,078 5,373 16 5,389 4,310 - 4,310 Total expenses including borrowing costs 153,088 30,365 183,453 161,858 5,692 167,550 Profit before income tax Less: Income tax expense Profit after income tax 40,820 9,605 50,425 47,218 2,579 49,797 (9,525) (2,602) (12,127) (10,315) (594) (10,909) 31,295 7,003 38,298 36,903 1,985 38,888 Less: Non-controlling interest (4,485) (2,300) (6,785) (7,420) (550) (7,970) Profit after income tax and non-controlling interests 26,810 4,703 31,513 29,483 1,435 30,918 Other Adjustments to carrying value of associates, contingent consideration payments and profit on sale (see note 4(vi),(vii)) Profit after non controlling interests attributable to shareholders of the parent Other comprehensive income attributable to members of AUB Group Limited Profit after non controlling interests and other comprehensive income 10,489 42,002 427 42,429 3,969 34,887 (179) 34,708 Segments include intergroup charges at commercial terms and conditions for services rendered. These charges are eliminated on consolidation. 82 AUB GROUP 2016 ANNUAL REPORT 23. OPERATING SEGMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 Geographic information Revenue Revenue - Australia Revenue - New Zealand Total Revenue The revenue attributable to each region is based on the income earned from clients that reside in those regions. Total non-current assets Non current assets - Australia Non-current assets - New Zealand Total non-current assets Consolidated 2015 $’000 2016 $’000 224,179 215,260 9,699 2,087 233,878 217,347 333,884 62,300 396,184 324,173 29,620 353,793 Non current assets attributable to each region have been aggregated based on the assets that reside wi thin each business in addition to any assets within the Consolidated Group that are necessary in the operation of those businesses. 24. SUBSEQUENT EVENTS On 25 August 2016 the Directors of AUB Group Limited declared a final dividend on ordinary shares in respect of the 2016 financial year. The total amount of the dividend is $17,877,013 which represents a fully franked dividend of 28.0 cents per share. The dividend has not been provided for in the 30 June 2016 financial statements. 25. AUDITORS REMUNERATION Amounts received or due to Ernst & Young (Australia) for: Audit of the financial statements Other – including taxation services Total Amounts received or due to other audit firms for: Audit of the financial statements Other assurance related services Other – taxation services Total Total auditors’ remuneration Consolidated 2016 $ 2015 $ 987,807 44,369 952,575 112,155 1,032,176 1,064,730 350,735 418,363 10,080 94,704 14,820 87,173 455,519 520,356 1,487,695 1,585,086 AUB GROUP 2016 ANNUAL REPORT 83 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 26. RELATED PARTY DISCLOSURES a) The following related party transactions occurred during the year: (i) Transactions with related parties in parent, controlled entities and associates. Entities within the wholly owned group charge associates $11,098,753 (2015: $10,136,090) management fees for expenses incurred and services rendered. Entities within the wholly owned group invest in trusts managed by related parties. These transactions are at normal commercial terms and conditions. (ii) Transactions with related parties in controlled entities and associates. Entities within the wholly owned group provide funds to other entities within the group. These funds are non-interest bearing and are repayable on demand. See note 9 for amounts receivables from related parties $2,686,093 (2015: $3,076,233) and note 17 for payables to related parties $744,610 (2015: $594,477). Entities within the wholly owned group have advanced funds to other related entities. John Edward Hallman Austbrokers Aviation Pty Ltd Austbrokers Hiller Marine Pty Ltd R G Financial Services A & I Member Services Pty Ltd Geebeejay Pty Ltd Mishjola Pty Ltd Tapmaa Pty Ltd Longitude Insurance Pty Ltd 2016 $ 2015 $ - 5,492 10,704 - 53,035 - 32,191 - 9,877 10,081 7,800 15,550 - 50,000 - 50,000 1,318,623 1,436,032 Sura Travel Pty Ltd (formerly Sura Accident and Health Pty Ltd) 816,950 750,569 Tasman Underwriting Pty Ltd Austbrokers AEI Transport Pty Ltd Austbrokers AEI Pty Ltd Aust Re Brokers Pty Ltd Newsurety Pty Ltd Australian Insurance Broking Services Pty Ltd Damian Price HQ Insurance Pty Ltd Sura Professional Risk Pty Ltd Gard Insurance Pty Ltd Austbrokers Financial Solution RG Pty Ltd Venrick Pty Ltd Blumberg Pty Ltd Brokerweb Risk Services Ltd Tezzared Pty Ltd Tibec Pty Ltd 84 AUB GROUP 2016 ANNUAL REPORT 24,487 8,863 30,078 - 2,385 - 8,498 12,142 39,406 23,309 - 15,750 12,671 11,867 - 6,720 78,203 450,809 78,257 921 - 20,000 70,000 70,000 31,157 13,628 13,771 - - 30,000 48,000 94,500 2,686,093 3,076,233 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 26. RELATED PARTY DISCLOSURES (CONTINUED) (ii) Transactions with related parties in parent, controlled entities and associates (continued) Other payables – related entities 2016 $ 2015 $ James Wiechman Pty Ltd ATF Wiechman Family Trust 227,719 159,444 Peter Curtis Pty Ltd ATF Curtis Family Trust Areten Pty Ltd Tim Parry Budin Financial Services Pty Ltd Integal Insurance Solutions Pty Ltd Judd O'Shea Rhys Bastian Corunnaa Investments Pty Ltd 121,547 75,815 44,817 53,725 2,181 697 90,220 115,220 - 24,644 19,644 - 101,731 - 10,364 - SPFS Enterprises Pty Ltd ATF Salisbury Family Trust 126,387 164,932 744,610 594,477 (iii) Transactions with other related parties. Entities within the wholly owned group charge associated entities interest on interest bearing loans. Total interest charged for the period was $54,277 (2015: $17,765). The interest charged is on normal commercial terms and conditions. Further loans have been advanced to members of the economic entity of $2,315,000 (2015: $84,000). Members of the economic entity have repaid loans issued by AUB Group Services Pty Ltd totalling $1,815,000 (2015: $213,000) during the year. The balance outstanding at 30 June 2016 was $629,000 (2015: $128,000). A key management personnel, K. McIvor, has a 20% interest in the voting shares of a controlled entity, AUB Group NZ Limited. A party related to M. P. L. Searles provides services to an associate on normal commercial terms and conditions. (iv) Transactions with directors and director-related entities. Entities within the wholly owned group receive fees for arranging insurance cover for directors and/or director related entities. These transactions are at normal commercial terms and conditions Other than disclosed above and in note 26 (c), there were no other transactions with director or directors ’ related entities. Information regarding outstanding balances at year end is included in notes 9, 10 and 17. b) Details of Key Management Personnel The non-executive directors of the company in office during the year and until the date of signing this report are: D. C. Clarke (appointed Chairman from 26 November 2015) Chairman (non-executive) R. J. Carless P. A. Lahiff (appointed 1 October 2015) R. A. Longes (retired 26 November 2015) R. J. Low Director (non-executive) Director (non-executive) Chairman (non-executive) Director (non-executive) AUB GROUP 2016 ANNUAL REPORT 85 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 26. RELATED PARTY DISCLOSURES (CONTINUED) b) Details of Key Management Personnel (continued) The following persons were the executives with the greatest authority for the planning, directing and controlling the activities of the consolidated entity during the financial year: M. P. L. Searles S. S. Rouvray (ceased 1 July 2015) J. S. Blackledge (appointed 1 July 2015) F. Gualtieri (ceased 1 July 2015) F. Pasquini S. Vohra K. R. McIvor T. M. Stevens (ceased 20 May 2016) N. F. Thomas Managing Director and Chief Executive Officer Chief Financial Officer and Company Secretary Chief Financial Officer National Manager - Group Services and Support Chief Distribution Officer Chief Operating Officer Head of Group Development Chief Information Officer General Manager – Broker Network Development a) There are no loans outstanding owing by Key Management Personnel at 30 June 2016 (2015: NIL). b) Compensation of Key Management Personnel by Category Short-term Post employment Other long-term Termination benefits Share-based payment Consolidated 2016 $ 2015 $ 2,790,547 3,457,617 234,481 326,696 - - – – 213,694 243,409 3,238,722 4,027,722 86 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 27. PARENT ENTITY INFORMATION Assets Cash and cash equivalents Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Interest bearing loans and borrowings Total liabilities Net assets Equity Issued capital Share based payments Retained earnings Total shareholders equity Profit for the year before income tax Income tax (credit) Net profit after tax for the period Other comprehensive (expense)/income after income tax for the period 2016 $’000 2015 $’000 19,441 56,246 10,134 79,187 167,474 146,018 243,161 235,339 17,635 4,583 37,000 59,218 9,238 11,186 37,065 57,489 183,943 177,850 141,708 128,890 5,384 36,851 5,707 43,253 183,943 177,850 18,433 (796) 19,229 - 35,532 (519) 36,051 - Total comprehensive income after tax for the period 19,229 36,051 Other information Guarantees entered into by the parent entity in relation to the debts of its controlled entities or associates Austbrokers Holdings Ltd has guaranteed loan facilities provided to associates in proportion to its shareholding. Austbrokers Holdings Ltd has guaranteed lease facilities provided to associates in proportion to its shareholding. Contingent liabilities 10,477 7,118 460 10,937 1,035 8,153 AUB Group Limited has provided indemnities to other shareholders of related entities and associates in relation to guarantees given by those shareholders, to financiers of or lessors to entities in which AUB Group L imited has an equity interest. At balance date no liability has arisen in relation to these indemnities. AUB GROUP 2016 ANNUAL REPORT 87 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 27. PARENT ENTITY INFORMATION (CONTINUED) AUB Group Limited has entered into agreements with various financiers and shareholders of related entities and associates, granting options to put shares held in related companies or associates to AUB Group Limited at market values current at the date of exercise of that option. These have been given in relation to shares in the related entity/associate pledged by the borrower as security for funding provided to those shareholders in relation to the acquisition of those shares. AUB Group Limited has entered into agreements with various shareholders of related entities and associates, granting options to put shares held by those shareholders to AUB Group Limited at market values current at the date of exercise of that option. The earliest the put option can be exercised is 5 years from the date of AUB acquiring its initial shareholding in those entities, which falls within the next 3-5 years. 28. FINANCIAL INSTRUMENTS Financial risk management objectives and policies The Group's principal financial instruments comprise receivables, mortgages, cash and short-term deposits, payables, finance leases, overdrafts, interest bearing loans and borrowings and bank overdrafts. The Group manages its exposure to key financial risks, including interest rate and foreign currency risk in accordance with the Group's financial risk management policy. The objective of the policy is to support the delivery of the Group's financial targets whilst protecting future financial security. The Group does not enter into derivative transactions nor has any significant foreign currency transactions. The Board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and control of financial risks rests with the Board Audit and Risk Management Committee, supported by a Management Committee, under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below. Risk exposures and Responses a) Credit Risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, intercompany receivables, mortgages, trade and other receivables. Although there is a concentration of cash and cash equivalents held with a major bank, credit risk is not considered significant. The company’s exposure to credit risk is concentrated in the financial services industry with parties which are considered to be of sufficiently high credit quality. There are no financial assets which are past due or impaired. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. Amounts due from premium funding operations Amounts due from premium funding operations include amounts due from policyholders in respect of insurances arranged by a controlled entity. These arrangement with policyholders have repayment terms up to 10 months from policy inception. The individual funding arrangements are used to pay insurers. Should policyholders default under the premium funding arrangement, the insurance policy is cancelled by the insurer and a refund issued which is credited against the amount due. The Group's credit risk exposure in relation to these receivables is limited to commissions and fees charged plus any additional interest charged under the premium funding arrangement. Insurance Broking Account receivables Receivables include amounts due from policyholders in respect of insurances arranged by controlled entities. Insurance brokers have credit terms of 90 days from policy inception to pay funds received from policyholders to insurers. Should policyholders not pay, the insurance policy is cancelled by the insurer and a credit given against the amount due. The Group's credit risk exposure in relation to these receivables is limited to commissions and fees charged. Commission revenue is recognised after taking into account an allowance for expected revenue losses on policy lapses and cancellations, based on past experience. The Group's assets and liabilities include amounts due from policyholders and amounts due to underwriters from broking activities. Due to the reasons disclosed above, these assets and liabilities have been excluded from the Group’s credit risk analysis. 88 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) a) Credit Risk (continued) The net difference between the assets and liabilities relate to the undrawn commission and fee income brought to account in revenue. This amount has been deducted from amounts payable on broking/underwriti ng agency operations. Assets and liabilities relating to Insurance Broking Account. Amounts due from customers on broking/underwriting agency operations. Cash held on trust Amounts payable on broking/underwriting agency operations. Undrawn income Net receivables included in Insurance Broking Account Financial assets Consolidated 2016 $’000 2015 $’000 126,788 87,513 139,946 105,498 (186,253) (217,647) (28,048) (27,797) – – The Group’s exposure to credit risk in relation to financial assets arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets. There is no significant concentration of risks within the Group as cash and cash equivalents are invested amongst a number of financial institutions to minimise the risk of defaults by counterparties. Cash and cash equivalents are deposited with Australian and New Zealand Banks. The majority of trade receivables are expected to be collected within 90 days. The remainder of the financial assets are to related entities or entities that have a relationship to our associates and are either on call or where loans have a fixed maturity date, are secured by fixed and floating charges (see note 10). At 30 June 2016, all financial assets were neither past due nor impaired. Financial assets Cash and cash equivalents Trade and other receivables Amounts due from clients in respect of premium funding activities Related party receivables Mortgages – other Other receivables The amount for trade and other receivables included in the table above excludes insurance broking account receivables. Consolidated 2015 $’000 50,511 22,174 - 3,076 128 94 2016 $’000 70,933 30,124 6,366 2,686 629 81 110,819 75,983 AUB GROUP 2016 ANNUAL REPORT 89 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) b) Liquidity Risk The company’s objective is to maintain adequate cash to ensure continuity of funding and flexibility in its day-to-day operations. The company reviews its cash flows weekly and models expected cash flows for the following 12 to 24 months (updated monthly) to ensure that any stress on liquidity is detected, monitored and managed, before risks arise. To monitor existing financial assets and liabilities as well as enable an effective controlling of future risks, the Group ha s established comprehensive risk reporting that reflects expectations of management of expected settlement of fi nancial assets and liabilities. The Group's main borrowing facilities are provided by St George Bank, although some controlled entities have arranged borrowing facilities with other banks. The terms of these arrangements have been disclosed in Note 19 "Inte rest bearing loans and borrowings". The company considers the maturity of its financial assets and projected cashflows from operations to monitor liquidity risk. Liquidity risk arises in the event that the financial assets/liabilities are not able to be re alised/settled for the amounts disclosed in the accounts on a timely basis. The table below reflects all contractually fixed pay-outs and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities. Cash flows for financial assets and liabilities without a fixed amount or timing are based on the conditions existing at 30 June 2016 with comparatives based on conditions existing at 30 June 2015. The table summarises the maturity profile of the Groups financial assets and financial liabilities based on contractual undiscounted payments. Financial assets Due not later than six months Six months to not later than one year Later than one year and not later than five years Later than five years Financial liabilities Due not later than 12 months Later than one year and not later than five years Later than five years 2016 $’000 Consolidated 2015 $’000 318,215 321,136 6,702 75 203 215 - – 325,120 321,426 (243,971) (95,637) – (261,004) (76,721) – (339,608) (337,725) The Group's liquidity risk relating to amounts receivable/ payable from broking operations have been included in the table above, although trust cash and amounts due from insurance broking account receivables/broking account payables are not available to meet operating expenses/business obligations other than for payments to underwriters and/or repayments to policyholders. Should policyholders not pay, the insurance policy is cancelled by the insurer and a credit given against the amount due. The Group's liquidity risk in relation to these receivables is limited to commissions and fees charged. The risk implied from the values shown in the table, reflects a balanced view of cash inflows and outflows. Lease liabilities, trade payables and other financial liabilities mainly originate from the financing of assets used in the Group's ongoing operations such as plant and equipment and investments in working capital, e.g. trade receivables and deferred payments on broker acquisitions. 90 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) c) Fair Values of recognised assets and liabilities. Set out below is a comparison by category of the carrying value and the fair value of all the Group’s financial instruments. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement in unobservable. The Company’s contingent considerations made in relation to acquisitions of controlled entities and associates are categorised as level 3. These are valued based on the inputs in the valuation used on new acquisitions during the reporting period, refer to Note 7. All other assets and liabilities measured at fair value are categorised as level 2 under the three level hierarchy reflecting the availability of observable market inputs when estimating the fair value. Financial assets Cash and cash equivalents Trade and other receivables Amounts due from clients in respect of premium funding operations Related party receivables Mortgages – related entities Mortgages – other Loan with associated entities Total financial assets Financial liabilities Loans and other borrowings Carrying value 2016 $’000 2015 $’000 Fair value 2015 $’000 2016 $’000 158,446 156,009 158,446 156,009 156,912 162,119 156,912 162,119 6,366 2,686 629 41 40 - 3,076 128 22 72 6,366 2,686 629 41 40 - 3,076 128 22 72 325,120 321,426 325,120 321,426 (88,646) (66,065) (88,641) (66,130) Trade and other payables and accruals (250,962) (271,660) (250,962) (271,660) Total financial liabilities (339,608) (337,725) (339,603) (337,790) Market values have been used to determine the fair value of securities. The fair value of loans and notes and other financial assets has been calculated using market interest rate. The Group's fair value of recognised assets and liabilities above include trust cash and amounts relating to receivables/ payables from broking operations, although trust cash and amounts due from insurance broking account receivables/broking account payables are not available to meet oper ating expenses/business obligations other than for payments to underwriters and/or repayments to policyholders. AUB GROUP 2016 ANNUAL REPORT 91 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) c) Fair Values of recognised assets and liabilities (continued) The value of the deferred consideration payments outstanding at 30 June 2016 was $32.2 million (2015: $28.3 million) Of the $32.2 million, a total of $20.9 million relates to contingent consideration payments which are due to be paid within 9 0 days and are based on actual results for those businesses as at 30 June 2016. The balance of $11.3 million is due to be due to be paid over the next 15 to 24 months and is shown in the accounts as a non current liability. (See note 17 for movements in contingent consideration estimates). The fair value of the non current deferred contingent consideration payments may change as a result of changes in the projected future financial performance of the acquired assets and liabilities. Reasonable possible changes in assumptions will change these deferred payments as follows:   If the full year 2017 operating profit declines by 10% compared to the current forecast, a reduction of $3.4 million in the deferred consideration would result. If the full year 2017 operating profit increases by 10% compared to the current forecast, an increase of $3.2 million in the deferred consideration would result. Management has assessed that cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged i n a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Group based on parameters such as interest rates, individual creditworthiness of the customer. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. As at 30 June 2016, the carrying amounts of such receivables, net of a llowances, were not materially different from their calculated fair values. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, a s well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. Fair values of the Group’s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. d) Market Risk Interest rate risk The Group's exposure to interest rate movements relates to cash and cash equivalents held by the Group and the Group's long-term debt obligations. To manage interest rate risk, interest rates on borrowings are fixed for a period depending on market conditions. This risk is minimal as the Group holds cash received from policyholders to pay insurers in excess of the amount of borrowings and therefore the group has a hedge against interest rate rises. Mortgage loans generally have interest rate resets every six months. In the event of interest rate rises, a net increase in interest revenue will occur due to cash and cash equivalents exceeding borrowings. 92 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) d) Market Risk (continued) Interest rate risk (continued) The main risk to the Group is in relation to interest rate reductions which will decrease the net income earned on cash and cash equivalents held. The cash held to pay insurers must be held in prescribed investments (Australian bank accounts or deposits) and as such will be subject to market interest rate fluctuations. The Group has at balance date, the following mix of financial assets and liabilities exposed to Australian variable interest rate risk. Financial assets Cash and cash equivalents (including trust account balance) Mortgages – related entities Mortgages – other Total financial assets Financial liabilities Loans and other borrowings Net exposure to interest rate movements Borrowings fixed for a period greater than 12 months have been excluded from the table above. Consolidated 2016 $’000 2015 $’000 158,446 156,009 629 41 128 22 159,116 156,159 (88,279) (65,054) 70,837 91,105 The Group's long term policy is to maintain a component of long term borrowings at fixed interest rates, which are carried at amortised cost and it is acknowledged that exposure to fluctuations in fair value is a by -product of the Group's policy. Due to the current low interest rate environment, the group has determined that variable interest rates will result in a better overall interest rate risk than fixing for extended periods. Of the total current and non current interest bearing loans and borrowin gs totalling $86.7 million (2015:$66.1 million), $367,000 (2015: $1.1 million) has been fixed for periods greater than 12 months at approximately 6.1% (2015: 6.1%). All other borrowings are based on variable interest rates. See note 19 for full details of terms and conditions. The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing and the term for fixing interest rates. The following sensitivity analysis is based on the interest rate exposures in existence at year end. The sensitivity for the prior year has been prepared on an equivalent basis. At year end, had interest rates moved as illustrated in the table below, with all other variables held constant, post tax pro fits and equity would have been affected as follows: Judgements of reasonably possible movements. Consolidated +0.5% (50 Basis points) (2015 +0.50% (50 Basis points)) -0.5% (50 Basis points) (2015 -0.50% (50 Basis points)) Post tax profits Higher/(lower) Higher/(lower) Impacts directly to equity 2016 $’000 349 (349) 2015 $’000 319 (319) 2016 $’000 2015 $’000 – – – – The net increase in consolidated profits in respect of interest rate rises is due to the net positive impact of interest bearing assets being greater than borrowings. AUB GROUP 2016 ANNUAL REPORT 93 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) d) Market Risk (continued) Equity securities price risk Equity securities price risk arises from investments in equity securities. The group does not invest in listed equity securities or derivatives. At year end, the Group had no material exposure to equities other than to shares in associated entities and co ntrolled entities and therefore has no exposure to price risk that has not already been reflected in the financial statements. The Group tests for impairment annually and reviews all investments at least half yearly. The methodology for testing for impairment is shown in note 15. Other than shown below, there were no impaired investments at balance date. At 30 June 2016, an impairment charge totalling $4,271,000 (2015: $5,604,000) relating to the carrying value of controlled entities and associates was recognised and was shown as an expense in the income statement. The impairment charge was offset against a reduction in contingent consideration payments in respect of controlled entities and associates plus further current year adjustments resulting in a net movement of $277,000 (2015: $4,456,000) that was in excess of the expected settlement amounts and were credited to the income statement. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign currency rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expenses is denominated in a foreign currency) and the Grou p's investment in overseas controlled entities. The Group does not hedge its exposure in foreign currencies. The majority of the foreign exchange rate exposure relates to the investment in New Zealand (NZ) operations, although some controlled entities raise client invoices in foreign currency denominations. At year end, had foreign exchange rates moved as illustrated in the table below, with all other variables held constant, post tax profits (other comprehensive income) and equity would have been affected as follows: Judgements of reasonably possible movements. Consolidated -NZ $0.10 (ten cents) (2015 -NZ $0.10 (ten cents) +NZ $0.10 (ten cents) (2015 +NZ $0.10 (ten cents) Post tax profits Higher/(lower) Higher/(lower) Impacts directly to equity 2016 $’000 1,397 (1,397) 2015 $’000 320 (320) 2016 $’000 – – 2015 $’000 – – 94 AUB GROUP 2016 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2016 28. FINANCIAL INSTRUMENTS (CONTINUED) e) Capital Management The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimum capital structure. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt if required. The Group monitors capital on the basis of the gearing ratio. The debt to equity ratio is calculated as total borrowings divided by total equity and borrowings. During 2016, the Group's strategy was to maintain a gearing ratio of not greater than 30% which was unchanged from 2015. The gearing ratios at 30 June were as follows; Debt to equity ratio Interest bearing loans and borrowings (see note 19) Total equity Total equity and borrowings Debt/Equity plus Borrowings Ratio f) Put Option Consolidated 2016 $’000 2015 $’000 88,646 66,065 351,235 311,326 439,881 377,391 20.2% 17.5% AUB Group Limited has entered into agreements with various financiers and shareholders of related entities and associates, granting options to put shares held in related companies or associates to AUB Group Limited at market values current at the date of exercise of that option. These have been given in relation to shares in the related entity/associate pledged by the borrower as security for funding provided to those shareholders in relation to the acquisition of those shares. AUB Group Limited has entered into agreements with various shareholders of related entities and associates, granting options to put shares held by those shareholders to AUB Group Limited at market values current at the date of exercise of that option. The earliest the put option can be exercised is 5 years from the date of AUB acquiring its initial shareholding in those entities, which falls within the next 3-5 years. At balance date no liability has arisen in relation to these indemnities. AUB GROUP 2016 ANNUAL REPORT 95 INDEPENDENT AUDITOR’S REPORT DIRECTORS DECLARATION YEAR ENDED 30 JUNE 2016 In the opinion of the directors: i. the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: 1. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; 2. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; ii. iii. iv. the financial statements and notes also comply with International Financial Reporting Standar ds as disclosed in note 2.2; there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2016. On behalf of the Board D.C. Clarke Chairman M. P. L. Searles Chief Executive Officer and Managing Director Sydney, 25 August 2016 Sydney, 25 August 2016 96 AUB GROUP 2016 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion In our opinion: (a) the financial report of AUB Group Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.2. Report on the remuneration report We have audited the Remuneration Report included in pages 15 to 26 of the directors' report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of AUB Group Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young David Jewell Partner Sydney, 25 August 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUB GROUP LIMITED Report on the financial report We have audited the accompanying financial report of AUB Group Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2.2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. AUB GROUP 2016 ANNUAL REPORT 97 ASX ADDITIONAL INFORMATION YEAR ENDED 30 JUNE 2016 Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 19 August 2016. (a) Distribution of equity securities Ordinary share capital • 63,846,476 fully paid ordinary shares are held by 1,853 individual shareholders. All issued ordinary shares carry one vote per share and carry the rights to dividends. 84,099 ordinary shares issued on exercise of options under the Senior Executive Option Plan are held in escrow in accordance with the Plan. Options • 567,756 options are held by 11 individual option holders. Options do not carry a right to vote. The number of shareholders, by size of holding, in each class are: 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holding less than a marketable parcel Fully paid ordinary shares 714 770 207 142 20 1,853 106 Options - - 3 7 1 11 - 98 AUB GROUP 2016 ANNUAL REPORT (b) Substantial shareholders Ordinary shareholders QBE Insurance Group Limited Challenger Limited Bennelong Funds Management Group Pty Ltd MFS Investment Management Greencape Capital Pty Ltd FMR LLC BT Investment Management Ltd Allianz Australia Insurance (c) Twenty largest holders of quoted equity securities Ordinary shareholders J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Ltd National Nominees Limited BNP Paribas Nominees Pty Ltd RBC Investor Services Australia Pty Ltd Milton Corporation Limited Masfen Securities Limited HSBC Custody Nominees(Australia) Limited Mirrabooka Investments Limited BNP Paribas Noms (NZ) Ltd Djerriwarrh Investments Limited The Trust Company Superannuation Limited RBC Investor Services Australia Nominees Pty Ltd Mrs Gaeleen Enid Rouvray Markey Investments Pty Ltd SIB Holdings Pty Ltd Gemnet Pty Ltd Mr Stephen Spence Rouvray Bond Street Custodians Limited ASX ADDITIONAL INFORMATION YEAR ENDED 30 JUNE 2016 Date of Notice Number Percentage Fully paid 20/12/11 8,902,942 31/07/15 7,205,209 17/03/15 4,351,246 09/06/16 4,321,380 31/07/15 4,110,118 19/04/16 3,533,988 06/05/16 3,290,658 27/08/07 3,324,279 13.90 11.28 6.80 6.80 6.40 5.50 5.20 5.20 Fully paid Number Percentage 17,395,039 14,759,548 10,025,447 6,097,497 1,614,685 1,152,709 1,044,795 747,096 632,021 557,907 374,015 365,003 361,500 303,055 236,723 148,709 127,441 126,404 125,359 119,951 27.25 23.12 15.70 9.55 2.53 1.81 1.64 1.17 0.99 0.87 0.57 0.57 0.57 0.47 0.37 0.23 0.20 0.20 0.20 0.19 AUB GROUP 2016 ANNUAL REPORT 99 DIVIDEND DETAILS Dividend Details Dividend Interim* Final** Amount Franking Ex Date Record Date Payment Date 12c Fully Franked 08/04/16 11/04/16 29/04/16 28c Fully Franked 07/10/16 10/10/16 31/10/16 * The Dividend Reinvestment Plan issue price for the interim dividend was $8.4638 based on a discount of 2.5% **The Dividend Reinvestment Plan was suspended from 25/08/16 . 100 AUB GROUP 2016 ANNUAL REPORT This annual report covers the consolidated entity comprising AUB Group Limited and its subsidiaries. The Group’s functional and presentation currency is AUD($). A description of the Group’s operations and of its principal activities is included in the operating and financial review in the Directors’ report on pages 8-27. Directors R. A. Longes (retired 26 November 2015) M. P. L. Searles (Chief Executive Officer) R. J. Carless D. C. Clarke (Chairman) R. J. Low P. A. Lahiff (appointed 1 October 2015) Company Secretary (appointed 30 November 2015) J. L. Coss Annual General Meeting The Annual General Meeting of AUB Group Limited will be held at the Intercontinental Hotel, 117 Macquarie Street, Sydney, NSW 2000 on Thursday 24th of November 2016 at 10.00am Registered Office and Principal Place of Business Level 10, 88 Phillip Street Sydney, NSW 2000 Phone: +61 2 9935 2222 Share Register Link Market Services Limited Level 12 680 George Street Sydney, NSW 2000 Phone: 1300 554 474 (Outside Australia + 61 2 8280 7100) AUB Group Limited shares are listed on the Australian Securities Exchange (ASX) Auditors Ernst & Young 200 George Street Sydney, NSW 2000 CORPORATE INFORMATION ABN 60000000715 AUB GROUP 2016 ANNUAL REPORT 101  

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