ANNUAL
REPORT
2017
SAFEGUARDING A
STRONGER FUTURE
AUB GROUP ANNUAL REPORT 2017
A
OUR VALUES
RELATIONSHIP
FOCUSSED
We are respectful, collaborative
and seek to amplify potential.
GENUINE
We are easy to deal with,
honest and fair.
RESOURCEFUL
We are creative and agile in our
delivery of the best outcome.
ASPIRATIONAL
We are progressive, explore opportunities
for growth and continually raise the bar.
CONTENTS
Our Purpose
Our Strategic Intent
Performance Highlights
Our Business Areas
Board of Directors
Chairman’s Message
CEO Message
2
3
4
6
7
8
9
Financial Report
Directors’ Report (Including Operating and Financial Review) 11-28
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
ASX Additional Information
Dividend Details
Corporate Information
29
30
31
32
33
35
36-92
93
94
98
100
101
OUR PURPOSE:
SAFEGUARDING A
STRONGER FUTURE
Since our inception in 1985,
we committed ourselves to
safeguarding a stronger
future for clients, partners,
employees and shareholders
- and we stand by that
commitment today.
We’re building our company by placing
clients at the heart of everything we do
– providing products, services and
solutions that help protect them from
harm, damage and financial burden.
Our partners and advisors provide
trusted support and guidance to clients
on the optimal combination of physical,
people and financial risk solutions.
2 AUB GROUP ANNUAL REPORT 2017
Our approach is backed by the same
commitment to high-quality service that
we’ve had from the start. Our services
are designed to help our partners
operate safely, manage the business
more profitably, and achieve better
outcomes for clients.
Together we’re providing a safer and
stronger future for all.
For clients: We’re dedicated to provide
advice and options that extend beyond
general business insurance into other
business and personal protection
products. Clients sit at the heart of
everything we do and we never forget
that we exist to provide a safer future for
them, their business and their families.
For our partners: Hundreds of thousands
of client policies are handled by our
partners each year. As the trusted advisors
for clients, our partners play an important
role in providing the best solutions and
advice. When they thrive, we thrive, so
we’re committed to work alongside them.
For our employees: We employ market
leading individuals. Our people are the
driving force of our business, and the
reason we make it possible to provide
market leading products, services and
solutions to clients. We provide
opportunities for them to grow in a
nurturing and supportive environment.
For our shareholders: We’re committed
to ensuring strong returns and a growing
business to safeguard our shareholders
financial investment.
OUR STRATEGIC INTENT:
HELPING CLIENTS REALISE A STRONGER,
MORE PROTECTED FUTURE, THROUGH
VALUED ADVICE SOLUTIONS AND SERVICES
BROADEN OUR
SOLUTIONS
OFFERINGS
MAXIMISE THE
PARTNERSHIP
MODEL
STRATEGIC
PRIORITIES
STRENGTHEN
THE
FOUNDATIONS
DRIVE
OPERATIONAL
ADVANTAGE
WITH VALUE
SERVICES
Maximise the partnership model
Broaden our solutions offerings
Strengthen the foundations
Our partners are one of our biggest
competitive advantages. We will continue
to invest in delivering opportunities for
partners to grow and thrive. They have
confidence in our group and know that
clients will benefit from a trusted advisory
experience across all insurance and risk
needs – physical, financial and people
related.
We’re committed to better serve clients
and help them secure their future. We’ll
continue to expand our horizons to deliver
risk and insurance products and services
that are designed to protect them from
harm, damage and financial burden. Our
offerings are genuinely client centric,
comprehensive and relevant.
Drive operational advantage
with value services
We’ll continue to excel at the things we
are good at and ensure our services
create value. They’ll be more efficient,
sustainable and profitable - focused
on providing a better client outcome
and revenue growth. We will help drive
productivity through simplifying the
business.
We know that we will not achieve our
strategy unless we have solid foundations.
Our people will be supported with enhanced
capabilities; we will remain disciplined in our
approach to investments; and we will
collectively drive our desired outcomes with
shared accountabilities.
AUB GROUP ANNUAL REPORT 2017 3
PERFORMANCE HIGHLIGHTS
DELIVERING STRONG PROFIT AND REVENUE GROWTH
Group Revenue increased to $264.5M
1
+13.1%
Adjusted NPAT growth to $40.4M
2
+7.5%
A TRACK RECORD OF ACHIEVING POSITIVE SHAREHOLDER
RETURNS
Total Shareholder Return (%)3
22.8
5 Year
11.6
5.7
32.6
1 Year
13.1
7.0
AUB Group
All Ords
Small Ords
12 CONSECUTIVE YEARS OF DIVIDEND INCREASES
Dividend Per Share (cents)
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Interim Dividend
Final Dividend
13.0
5.0
8.0
15.0
5.5
9.5
18.0
6.5
11.5
20.5
7.0
22.5
7.5
13.5
15.0
25.5
8.5
17.0
31.0
9.5
21.5
38.5
12.0
39.7
40.0
12.0
12.0
42.0
12.5
35.5
11.0
24.5
26.5
27.7
28.0
29.5
Jun '06
Jun '07
Jun '08
Jun '09
Jun '10
Jun '11
Jun '12
Jun '13
Jun '14
Jun '15
Jun '16
Jun '17
1 Revenue from ordinary activities include; revenue, other income and profit from associates
2 Removes the impact of one-off non-cash adjustments, profit on sales and amortisation
3 AUB Group and S&P reports
4 AUB GROUP ANNUAL REPORT 2017
DISCIPLINED EXECUTION OF OUR STRATEGY ACROSS
ALL AREAS - SAFEGUARDING A STRONGER FUTURE
Maximise the partnership model
Broaden our solutions offering
Positive NPS4
18
Client policy growth
+5.0%
New partnerships
+2
Life insurance premium (organic)
+12%
Improved profit margin
60 basis points
Supporting clients with claims
+5%
Strengthen the foundations
Drive operational advantage
Employee engagement score
+13%
Partner marketing service usage
+6%
Leadership academy participation
+38%
Deployment of specialist risk
+45%
services employees nationally
REALISING A BALANCED BREADTH OF SOLUTIONS
AND GEOGRAPHIES
Pre-tax profit contribution by business area
areas
13%
10%
FY13
$57.7M
87%
18%
7%
FY17
$74.7M
65%
Australian Broking Underwriting Risk Services New Zealand Broking
4 Net Promoter Score (NPS) from Reflections Research report July 2016. An NPS >0 is positive.
AUB GROUP ANNUAL REPORT 2017 5
OUR BUSINESS AREAS
AUB Group represents over 1 million client
policies via 135 partner businesses across
more than 425 locations in Australasia.
Combined, we have over 3,500 people
focused on serving clients, and collectively
manage over $4.5 billion in policy premium.
By operating across key areas of risk we are
helping our clients to safeguard a stronger
future across Australia and New Zealand.
BROKING NETWORKS
AUB Group’s insurance broking networks (Austbrokers
and NZbrokers) are represented by almost 110
businesses across Australia and New Zealand.
AUSTRALIAN BROKING
Client policies1
Locations where clients can reach us
>588,000
238
220
Clients we assist with claims each day
NEW ZEALAND BROKING
Client policies2
Locations where clients can reach us
>310,000
Clients we assist with claims each day
85
90
UNDERWRITING
SURA is a broad group of specialised underwriting agencies
that underwrite, distribute and manage specific niche
insurance products and portfolios on behalf of licensed
insurance companies, including Lloyd’s. With expert
underwriters at each agency, SURA is able to provide
purpose-built insurance cover, a comprehensive
understanding of the risks associated and offer tailored and
competitive insurance solutions specific to client industry and
need.
RISK SERVICES
Our Risk Services partners specialise in providing specialist
risk solutions primarily in the people/workplace risk arena.
We provide comprehensive risk management and claims
solutions for clients, insurance brokers and insurance
companies.
UNDERWRITING
Client policies
Locations where clients can reach us
New partners/start-up agencies
+13%
38
+3
RISK SERVICES
Locations where clients can reach us
Increase in fee earning personnel
Increase in revenue
67
45%
+33%
1 Total client policy increase from Austbrokers network of equity partners in FY17.
2 Total client policy increase from NZbrokers network (equity and non-equity) partners in FY17.
6 AUB GROUP ANNUAL REPORT 2017
THE BOARD
DAVID CLARKE
Chairman
David has 35 years’ experience in investment
banking, funds management, property and
retail banking. He has formerly held roles as
CEO of Investec Bank, Allco Finance Group,
MLC and Westpac’s Wealth Management
Business, BT Financial Group. He was also
Director of AMP. David is Chairman of The
University of New South Wales Medicine
Advisory Council, Charter Hall Group and a
Director of Fisher Funds Management
Limited. He serves on the Audit Committee
and Chairs the Nomination and Remuneration
& People Committees.
MARK SEARLES
CEO & Managing Director
Mark has been in the role since 2013. He has
over 25 years’ experience in senior executive
roles, including Chief Commercial Officer at
CGU, a division of IAG. Managing Director,
Direct & Partnerships and Chief Marketing
Officer with Zurich Financial Services in the
UK, and Marketing and Group Brands
Director with Lloyds TSB Group. Mark serves
on the Boards of a number of Group
companies including undertaking the role of
Chairman of Austagencies, AUB Group NZ
and AIMS amongst others.
PAUL LAHIFF
Non-Executive Director
Paul was previously Chief Executive of
Mortgage Choice. Prior to that he was
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 and a Director of
Endometriosis Australia, LIXI Australia and is
Chair of Retail Finance Intelligence. Paul
holds a BSc from Sydney University. He
serves on the Audit & Risk Management,
Nomination and Remuneration & People
Committees.
RAY CARLESS
Non-Executive Director
ROBIN LOW
Non-Executive Director
Ray has over 35 years’ experience in the
insurance industry based in Australia but with
management responsibilities throughout the
Pacific Rim. He previously held the positions
of Managing Director of reinsurance brokers
Benfield Greig in Australia, and has 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. Ray serves on the Audit &
Risk Management, Nomination and
Remuneration & People Committees.
Robin was a partner at PwC with 28 years’
experience in financial services, particularly
insurance, 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. Robin serves a Director of
CSG, Appen, IPH, the Australian
Reinsurance Pool Corporation and Gordian
Runoff. She is Chair of the Audit & Risk
Management Committee and serves on the
Nomination and Remuneration & People
Committees.
AUB GROUP ANNUAL REPORT 2017 7
CHAIRMAN’S
MESSAGE
It has been another positive year for AUB Group, with the
company making good progress on its strategy, and
delivering sound results towards the upper end of our
guidance.
The Group’s portfolio showed its value in a complex
market, with all business areas achieving growth. With the
focus on optimising profitability and performance across
the entire portfolio of businesses, the achievement of
7.5% growth of underlying Net Profit After Tax, and a
6.2% increase in Earnings Per Share, was encouraging.
Market Conditions. The soft premium cycle in Australasia
stabilised in the financial year, with premium rates in
commercial lines insurance evidencing growth in the last
quarter. An increasing premium rate environment
positively impacts income for our Broking and
Underwriting Agencies' business areas and provides
confidence as we look to financial year 2018.
The industry landscape and competitive pressure
continued to change, with greater emphasis on technology
seeing InsureTech offerings start to emerge. Many of
these look to increase the operational efficiency of various
parts of the insurance value chain. The pace of innovation
in this arena is continuing to accelerate. Recognising this,
from a Group perspective we have completed a review of
our core network and infrastructure capability and how we
deliver that to our partners. This will mean some change
moving forward and we are confident it will place a better
solution in the hands of our business partners.
Shareholder Value. The Group has achieved strong
Earnings Per Share growth, generated from prudent
capital management throughout the year.
We have declared a final dividend of 29.5 cents per share,
the total dividend for the year increased to 42.0 cents per
share.
AUB Group is in a strong financial position, and our
investments to diversify our client offering and strengthen
our operations have put the Group in a position to provide
more comprehensive risk protection solutions to our
clients.
8 AUB GROUP ANNUAL REPORT 2017
Board and People Update. The Board and Executive team
composition was stable over the year. The Board
introduced an additional oversight to its Corporate
Governance this year by appointing a main Board Director
to the Boards of our business divisions within the Group.
This initiative was instituted from the growth of New
Zealand, SURA and Risk Services and the Boards’ belief
that it would enhance decision making and risk
management at the Group level.
We continue to invest and build the capability of our
leaders, and this year accelerated the expansion of our
AUB Group Academy. This leadership based program is
aimed at building capability in the areas of strategic
thinking, emotional intelligence, change management and
resilience skills. The Group has partnered with learning
and development experts to design and deliver this
program, and on completion, participants achieve a
Diploma of Leadership and Management from the
Australian Institute of Management (AIM). We are
committed to creating opportunities for our people while at
the same time enhancing our skills and capabilities as an
organisation.
Look Forward. The Group’s efforts in the coming financial
year will be focused on continuing to execute its strategy
and grow shareholder value. In doing so, we will have an
increased focus on driving client outcomes, further
strengthening our partners performance, and championing
growth across all business areas.
The financial year ahead is an interesting one. Premium
rates in the insurance market appear to be improving, and
our New Zealand expansion gains in momentum and
reputation. Be assured we will focus on driving revenue,
keeping costs under control and being 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
efforts to grow your business.
David Clarke
Chairman
CEO’S
MESSAGE
During the financial year, AUB Group made considerable
progress. Our commitment to supporting our client’s risk
needs (principally SME and mid-market businesses) via our
partners saw continued expansion and growth across all our
business areas.
The 2017 financial year saw the Group delivering a good
financial result with underlying Net Profit After Tax of $40.4
million in the context of a flat premium rate environment.
Central to this performance was the growth across all
business areas, and our disciplined approach to managing
costs during a soft insurance premium cycle.
Our Purpose and Strategy. This year we’ve been firmly
focussed on the execution of our purpose “safeguarding a
stronger future” and our longstanding strategy to fulfil this. In
executing our strategy we concentrate on four key areas:
maximise the partnership model; broaden our offerings; drive
operational advantage; and strengthen the foundations.
The improvement in key drivers, including an increase in client
numbers, improved profit margins by 60 basis points for our
partner businesses, the introduction of a new Life Solutions
offering and our operational advantages gained through
services are testament to this focus.
Business Area Operating Performance. Our partner
businesses continued to focus on levers relating to driving
productivity, efficiency and growing client numbers this year.
Australian Broking (Austbrokers): Despite the
headwinds of a soft premium rate environment and
lower interest rates, we recorded a 3.7% organic
profit growth. Our focus this year on partners where
profitability has been under pressure has
demonstrated an operating margin improvement of
7%, and our model proved attractive with 1 stand
alone and 4 bolt-on acquisitions undertaken in the
year.
Underwriting Agencies (SURA): With a strong 13%
growth in client policy numbers, profit contribution for
this area increased 21% year on year. Our focus on
start-ups has traditionally delivered high return on
capital employed, and our cost to income ratio
improved throughout the year. In total, we had 1
acquisition and launched 2 new segment offerings
throughout the year.
Risk Services: A strong 33% revenue increase, and a
5% increase in profit contribution was supported by
geographic expansion, the introduction of new
specialist services and acquisitions. Client satisfaction
metrics consistently outperformed industry average.
New Zealand: Significant growth has been achieved
since we entered the market less than three years
ago. This financial year achieved 90% profit growth
and 59% growth in revenue. New Zealand is
performing ahead of our expectations. This is a major
step for our international expansion, and underlines
the strength of our model.
Outlook. We have a clear purpose and strategy, focussed on
our aspiration to drive long-term growth. We are excited about
the opportunities to continue to enhance our solutions and
services offered to partner and clients, and build AUB Group’s
position in the industry. What is good for partners and clients,
will be good for our business and long-term shareholder value.
I am extremely grateful to the AUB Group team, and its
partners, for their dedication and willingness to embrace change
as we continue to grow and evolve. We are committed to
making AUB Group not just a great company and a great place
to work, but one that safeguards a stronger future for all.
Mark Searles
Chief Executive Officer & Managing Director
AUB GROUP ANNUAL REPORT 2017 9
FINANCIAL
REPORT
10 AUB GROUP ANNUAL REPORT 2017
Your Directors submit their report for the year ended 30 June
2017.
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), MAICD
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, Charter Hall Group and a Director of Fisher
Funds Management Limited. Mr Clarke joined the Board on 3
February 2014 and was elected Group Chairman on 26 November
2015, is a member of the Audit Committee and Chairs the
Nomination and Remuneration & People Committees.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
R. J. Carless BEc, MAICD
Ray Carless was appointed to the Board on 1 October 2010 and
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 & Risk Management, Nomination and
Remuneration & People Committees.
R. J. Low B Com, FCA, GAICD
Robin Low was a partner at PricewaterhouseCoopers
with 28 years’ experience in financial services,
particularly insurance, and in assurance and risk
management. Robin was appointed to the Board on 3
February 2014, 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 & 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.
More recently, Ms. Low has been appointed to the board
of the Australian Reinsurance Pool Corporation and
Gordian Runoff Limited.
M. P. L. Searles GAICD, DipM, Grad Dip Mktg (Chief
P. A. Lahiff BSc Agr, GAICD
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, AUB Group NZ and AIMS amongst
others. Prior to joining AUB Group and being appointed to the
Board on 1 January 2013, 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 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.
Paul joined the Board 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
Endometriosis Australia, LIXI Australia and is Chair of
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 & 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 with over 20 years’ experience, he is 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.
AUB GROUP ANNUAL REPORT 2017 11
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
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:
PRINCIPAL ACTIVITIES
AUB Group Limited (AUB Group or Group) is a leading provider of
risk management, advice and solutions in Australasia. The Group
represents over 1 million client policies, via some 135 partner
businesses that span 425 locations throughout Australia and New
Zealand. Combined, we employ over 3,500 people who help protect
clients from harm, damage and financial burden.
The Group’s model is to hold equity stakes in partner businesses,
who in turn provide trusted support and guidance to clients relating
to physical, people and financial risks. This is backed by services
that help our partners operate safely, manage their businesses
more profitably and ultimately achieve better client outcomes.
These services include technology support via a centralised data
centre capability; common platforms to enable efficiency and
effectiveness; marketing, human resources, risk, compliance and
other operational support services.
Additionally, the Group manages/co-manages networks of
independent brokers (Cluster Groups) leveraging the benefits of its
services where appropriate. In total, the Group represents in excess
of $4.5 billion of policy premium (Gross Written Premium).
The AUB Group primarily operates through two key business
segments:
Insurance Intermediaries, where it has equity investments in
businesses which provide insurance and risk related services to
clients. These include:
• Broking networks, operating in Australia and New Zealand,
which provide risk and insurance broking and advisory
services to, primarily, small to medium sized business clients;
• Underwriting agencies, that underwrite, distribute and
manage specialist niche insurance products and portfolios
on behalf of licensed insurance companies. These services
are available via insurance brokers, in and outside the
Group’s broking networks; and
Risk Services, which provides risk solutions predominantly in the
people risk management arena. These services are provided for
clients, insurance brokers and insurance companies.
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, income on insurance premium funding 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 2017 (FY17) net profit after tax
(Reported NPAT) attributable to equity holders of the parent
was $33.0 million (FY16: $42.0 million), a decrease over the
prior year due to non-recurring profit on sale of investments and
non-cash accounting adjustments relating to mergers and
acquisitions.
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 $40.4
million in FY17 up 7.5% on prior year (FY16: $37.6 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.
12 AUB GROUP ANNUAL REPORT 2017
Number of Ordinary SharesNumber of Options over Ordinary SharesM. P. L. Searles74,049410,00R. J. Carless19,973–D. C. Clarke10,143–R J Low9,710–P.A Lahiff5,000–
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
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 offsettin g adjustment (impairment)
is made to the carrying value.
3 Profits on deconsolidation occur when interests in a controlled entity are sold and it becomes an associate.
4 The Group sold shareholdings in certain entities over the period, resulting in profits on sale. These may not occur in a future periods unless similar
transactions take place.
5 The adjustments to carrying values of associates or controlled entities arise where the Group increases its equity in associa tes 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.
6 Amortisation of intangibles expense decreased over last year due to some intangible assets now being fully amortised. The exp ense is a non-cash
item.
The 7.5% 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, with strong and growing contributions from all
divisions, in the context of a stabilising insurance market.
Premium rates for commercial insurance have been flat
year on year. Small increases in premium rates were
experienced over the last quarter of the financial year, and
this bodes well for more stable to increasing price
environment in FY18.
The Group has benefited from the acquisition of two
standalone businesses utilising its ‘owner-driver’ model and
a number of smaller acquisitions by business partners in
Australia and New Zealand.
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 increased by 2.5% to $49.2
million in FY17, in the context of a stabilising premium rate
environment, after several years of reducing premium rates
on renewal business. The interest rate environment has
also been stable over the last year after a period of year on
year reductions. The prior year result included a
contribution from a business (Strathearn Insurance Group
Pty Ltd) divested in December 2015. The current year
results includes the profit contribution from a broking
business, LEA Insurance Brokers Pty Ltd acquired on 1
May 2017 and several smaller acquisitions and mergers by
partner businesses. Excluding acquisitions and
divestments, organic growth in Adjusted NPAT was 3.6%.
New Zealand Broking - profit increased to $5.5 million up
significantly on prior year. This includes a full year
contribution from Runacres & Associates Ltd net of interest
and acquisition costs, compared to six months in the prior
comparable period. Our associate BWRS acquired two
businesses in the period.
AUB GROUP ANNUAL REPORT 2017 13
RECONCILIATION OF ADJUSTED NPAT TO REPORTED NPAT 1FY17FY16Variance$’000$’000%Net Profit after tax attributable to equity holders of the parent32,98842,002-21.5%Reconciling items net of tax and non controlling interest adjustments for:Adjustments to contingent consideration for acquisitions of controlled entities and associates 25,811343Add back offsetting impairment charge to the carrying value of associates & goodwill, related to above 22,6233,114Net adjustment8,4343,457Less / plus profit on sale or deconsolidation of controlled entities net of tax 3- (191)Less profit on sale of associates net of tax 4(661)(6,047)Adjustment to carrying value of entities (to fair value) on date they became controlled or deconsolidated 5(4,334)(5,725)Net Profit from operations36,42733,4968.8%Add back amortisation of intangibles net of tax 63,9554,057-2.5%Adjusted NPAT40,38237,5537.5%
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
OPERATING AND FINANCIAL REVIEW
(CONTINUED)
Underwriting Agencies – profit of $12.5 million was up $2.2
million, in a flat premium rate environment.
Increasing policy count (up 12.7%) and profit commissions
were the key drivers of revenue growth. Margins improved,
with cost growth managed tightly despite volume growth
together with actions to rationalize the portfolio. The
business acquired 50% of an underwriting agency
(Fleetsure Pty Ltd) and two new agencies have now been
launched to market.
Risk Services:
Profit increased to $7.5 million, up $0.4 million on prior
year, including a contribution from acquisitions in the
period.
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 65% to profit before corporate
expenses in FY17, down from 87% in FY13.
Due to a strong performance against budget in FY17, there
were increased short term and long term incentives paid
which contributed to corporate expense growth.
Other cost increases reflect the ongoing investment in
infrastructure as the business grows, including increased
lease costs, technology costs and an investment in the
direct life offer.
A reconciliation of the operating results to the Annual
Report operating segments is set out below.
1 This includes adjustments to non controlling interests and tax expense relating to contingent consideration payments and profit on sale (see Annual
Report note 4 (vi), (vii))
14 AUB GROUP ANNUAL REPORT 2017
RECONCILIATION OF OPERATING SEGMENTSInsurance Intermediary $000Risk Services $000Total $000Insurance Intermediary $000Risk Services $000Total $000Profit before tax and after non-controlling interests from:- Insurance broking - Australia49,166 - 49,16647,955 - 47,955- Insurance broking - New Zealand5,465 - 5,4652,880 - 2,880- Underwriting agencies12,529 - 12,52910,347 - 10,347- Risk Services - 7,5207,520 - 7,1587,158Profit after tax and after non-controlling interests67,1607,52074,68061,182 7,158 68,340Corporate income2,248 - 2,2482,601 - 2,601Corporate expenses(17,055) - (17,055)(13,983) - (13,983)Corporate interest expense and borrowing costs(1,762) - (1,762)(3,185) - (3,185)50,5917,52058,11146,6157,15853,773Tax(15,372)(2,357)(17,729)(14,025)(2,195)(16,220)Adjusted NPAT35,2195,16340,38232,5904,96337,553Less amortisation expense (net of tax and non controlling interests)(3,955) - (3,955)(3,797)(260)(4,057)Add/(Less) non controlling interests in relation to contingent consideration adjustments 1221(15)206537 - 537Add/(Less) capital gains tax adjustments relating to sales of associates 1631 - 631(2,520) - (2,520)Profit after income tax and non-controlling interests (refer Annual Report note 23 Operating Segments)32,1165,14837,26426,8104,70331,513ConsolidatedFY17ConsolidatedFY16
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Shareholder returns
On an Adjusted NPAT basis, earnings per share increased by
6.2% over the prior year. Reported EPS reduced to 51.7 cents
due to non-recurring profit on sale of investments and non cash
accounting adjustments in relation to mergers and acquisitions.
Compound annual growth rate in earnings per share over the
five years to 30 June 2017 on an adjusted basis was 5.0%.
Dividends per share declared for FY17 are 42.0 cents, an
increase of 5.0% on prior year and continuing a 12 year trend of
year on year dividend growth.
The Company’s total shareholder return (comprising share price
growth and dividends paid) reflects the performance, with a
return of 32.6% for one year and 22.8% (annualised) for the five
years to 30 June 2017. These returns are above the returns for
the ASX All Ordinaries and ASX Small Ordinaries Indices.
FINANCIAL CONDITION
Shareholders’ equity increased to $371.7 million from $351.2
million at 30 June 2016. The main reason for the increase was
the profit for the year less dividends paid.
The Group generated positive cash flow from operating activities
before customer trust account movements of $56.4 million up
significantly on prior year (2016: $34.0 million) due to strong
revenue growth. Cashflow on investment activities reduced in
FY17 due to lower acquisition spend, net of divestments.
Cashflow from financing activities increased due to the
suspension of the dividend re-investment plan and higher
payments for deferred contingent consideration. After investing
and financing activities cash held totaled $63.5 million.
Borrowings increased by $6.5 million to $95.1 million as a result
of acquisitions by the Group. Borrowings of associates of $74.7
million (2016 $57.4 million)1 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 parent company’s banking facilities total $92.4 million with
tenure to 30 November 2018. This increased from prior year with
the rationalisation of banking arrangements in New Zealand.
Gearing increased slightly to 20.4% in the year, as funds were
drawn down to pay for acquisitions.
Dividends
Cents
$’000
Final dividend recommended:
• on ordinary shares
29.5
18,835
Dividends paid in the year:
• on ordinary shares - interim
• on ordinary shares - final
12.5
28.0
7,981
17,877
25,858
BUSINESS STRATEGIES
The Group’s strategic intent is to grow by ‘helping clients realise a
stronger, more protected future, through valued advice, solutions
and services’.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
Maximising the partnership model, by delivering
opportunities for our partners to be more efficient and
profitable;
Broadening our solutions offerings to deliver a better
outcome for clients;
Driving operational advantage via valued services; and
Strengthening our foundations, by ensuring we remain
disciplined in our approach to investments, and by
supporting our people.
Our strategy remains focused on supporting and growing our core
client-facing partner businesses of insurance broking, underwriting
agencies and risk services, organically and via acquisition.
PROSPECTS FOR FUTURE FINANCIAL YEARS
Insurance premium rates in Australia and New Zealand have
declined over the FY15 and FY16 financial years as a result of
competition between insurers and a benign claims
environment. The rate environment over FY17 was flat on
renewal business, with small, single digit, percentage increases
in premium rates experienced over the last quarter of FY17.
While we do not control the setting of prices for insurance
products, the outlook for premium rates into FY18 appears to
be positive with an expectation of continued increases in
premium rates, at low single digit percentages.
Increases to premium rates is expected to enhance broker
commission revenues and support improved business margins,
where expense growth is maintained to similar levels to wage
inflation and CPI growth. The Broking businesses continue to
focus on the levers of profit they can control, including other
sources of income such as premium funding, life insurance,
and services income. Similarly, Underwriting Agencies will
continue to focus on expense management and new business
development.
Risk Services businesses are likely to be impacted by transition
arrangements in NSW impacting managing agents under
iCare, with a risk that workers compensation case volumes
may slow for a temporary period in FY18. Prospects for these
businesses outside of NSW and in ancillary services remain
strong.
Acquisitions in FY17 and any future acquisitions will also
support future growth.
The Group continues to invest in corporate infrastructure for
long term growth as we expand into new areas and
geographies.
In this context, organic growth, bolstered by acquisitions should
again provide moderate growth in FY18. 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.
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:
Profit commissions paid by underwriters, which depend on the
growth and profitability of business written, were a significant
contributor to the results in 2017 but cannot be reliably
predicted for future years.
1 Total debt of associates, before considering AUB Groups percentage shareholding. FY16 comparable has increased due to the inclusion of debt of an associate
both periods.
AUB GROUP ANNUAL REPORT 2017 15
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
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:
Competitiveness of the premium rate environment – insurance
premiums rates are set by insurers independently of AUB
Group. Whilst rates have stabilised in the last financial year,
any reversion to a negative premium rate environment would
put 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.
Regulatory and Industry 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. In Risk Services
the changes proposed by iCare to rationalise Managing
Agents (key customers of our businesses) are expected to
benefit our Risk Services businesses over the long term, due
to increased focus on client and return to work outcomes.
However, there may be impacts in the short term if case load
volumes slow through the next 12 month transition period.
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 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.
16 AUB GROUP ANNUAL REPORT 2017
SIGNIFICANT EVENTS
AFTER THE BALANCE DATE
On 28 August 2017 the Directors of AUB Group Limited
declared a final fully franked dividend on ordinary shares of
29.5 cents per share in respect of the 2017 financial year.
Based on the current number of ordinary shares on issue,
the total amount of the dividend is $18.8 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.
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 & 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, purpose 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 &
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.
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.
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.
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.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT
Dear Shareholders,
AUB Group is pleased to present its Remuneration Report for the year ended 30 June 2017. The report outlines the Group’s
remuneration philosophy, framework and outcomes.
The AUB Group remuneration framework is designed to support sustainable value for shareholders, partners and our people.
The FY17 period reflects a business strategy that has continued to evolve and deliver positive results.
Short Term Incentives (STI) and Long Term Incentives (LTI) for employees and senior management have been allocated in
accordance with the company and individual objectives and is detailed further throughout the report.
Key people highlights over the year ended 30 June 2017 have included the following:
Restructure of Leadership
In recognition of the expansion of the AUB Group beyond its traditional heritage of Australian Broking, a new management
structure was implemented during the year with leaders appointed to each market facing segment (Australian Broking, New
Zealand, Underwriting Agencies, Placements/Wholesale Broking and Risk Services).
AUB Group Academy
Designed specifically for the Company and partner businesses the AUB Group Academy was established in 2016 offering
leadership development programs focused on building strategic leadership, emotional intelligence, change management and
resilience skills. The Company has partnered with learning and development experts to design and deliver the programs.
The Academy continued to gain momentum during FY17 with 19 participants achieving a Diploma of Leadership and
Management.
Looking ahead, the focus of the AUB Group Academy will be on the implementation of an additional leadership program. This
program is aimed at leadership of business strategy and is targeted at the Senior Leader level and links to ongoing successio n
planning activities.
Review of Balanced Performance Scorecard
AUB Group undertook a review of the Company’s objectives set out in a balanced performance scorecard. As part of this
review executive and senior leadership performance is measured across four core areas of:
Financial;
Partner;
Governance; and
People.
The four core areas are weighted dependent on the role focus to ensure AUB Group is creating a culture of performance that
shareholders, partners and clients can rely upon.
Long Term Incentive
The Remuneration & People Committee have taken the opportunity over the 2017 financial year to expand the Long Term
Incentive Plan (LTIP) across a number of senior leadership roles that are critical to the long term success of the business.
The Remuneration & People Committee are confident that AUB Group’s remuneration framework supports the Group’s
financial and strategic goals now and into the future and remain committed to a framework that is aligned to AUB Group ’s
strategy.
David Clarke
Chairman
AUB GROUP ANNUAL REPORT 2017 17
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT (CONTINUED)
The Directors of AUB Group Ltd (the Company) present the
Remuneration Report (the Report) for the Company for the
financial year ended 30 June 2017 (FY17). This report forms part
of the Directors’ Report and has been audited in accordance with
section 300A of the Corporations Act 2001. The Report details the
remuneration arrangements for the Company’s Key Management
Personnel (KMP’s) comprising the Company’s Non-Executive
Directors, the Executive Director and certain employees.
Details of Key Management Personnel
KMP’s are those persons with, directly or indirectly, the greatest
authority and responsibility for the planning, directing and
controlling the activities of the business units that can materially
affect the performance of the consolidated entity during the
financial year.
The table below outlines the KMP’s of the Company in FY17.
Name
Position
Non-Executive Directors
David Clarke
Non-Executive Chair
Robin Low
Paul Lahiff
Non-Executive Director
Non-Executive Director
Ray Carless
Non-Executive Director
Executive Director
Mark Searles
Senior Executives
Chief Executive Officer and
Managing Director
Jodie Blackledge
Chief Financial Officer
Fabian Pasquini
Sunil Vohra
Keith McIvor
Nigel Thomas
Divisional Chief Executive, National
Partners and Group Acquisitions
Divisional Chief Executive, Risk
Services
Managing Director, AUB Group NZ
and Head of Group Development
Divisional Chief Executive,
Austbrokers Network
Angie Zissis
Managing Director, SURA
Governance
The Chief Executive Officer (CEO) has responsibility for
implementation of the Company’s Remuneration Policies and
making recommendations to the Remuneration & People
Committee of the Board of Directors of the Company on
remuneration outcomes for the Company’s senior executives
and other employees.
The Remuneration & People Committee is responsible for
reviewing compensation arrangements for the Directors, the
CEO and Senior Executives, including the Company’s Key
Management Personnel and making recommendations in that
regard for determination by the Board. The Remuneration &
People Committee is comprised of all Non-Executive
Directors of the Board.
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
individuals;
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.
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.
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 available
remuneration to $750,000 per year. There is no intention to
seek an increase in this amount at this year’s Annual General
Meeting.
The manner in which remuneration is paid to Non-Executive
Directors is reviewed by the Remuneration & People
Committee and determined by the Board every second year.
The last such review was carried out in FY17 resulting in a
5% increase in the remuneration payable to Non-Executive
Directors effective from 1 July 2016. This translates to a total
amount payable to the Non-Executive Directors of $514,500
from the maximum available of $750,000.
The Remuneration & People Committee and the Board
consider advice from external consultants as needed and the
fees paid to Non-Executive Directors of comparable
companies when undertaking the review process.
18 AUB GROUP ANNUAL REPORT 2017
REMUNERATION REPORT (CONTINUED)
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 serves. The Chair of the Board
receives an all-inclusive fee irrespective of the Committees on
which he serves as Chair and the Chair of the Audit & Risk
Management Committee receives an additional fee recognising
the additional workload that this position entails. Non-Executive
Directors do not receive retirement benefits other than amounts
paid by way of the superannuation guarantee charge, nor do they
participate in any incentive programs but they may be reimbursed
for expenses reasonably incurred in the course of carrying out
their duties as a Non-Executive Director of the Company.
From 1 July 2016 each Non-Executive Director received annual
fees as set out in the table below:
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
CEO Remuneration Mix
25%
28%
47%
Fixed
STI
LTI
Senior executives target remuneration mix ranges from 60-
70% fixed remuneration, 20-25% target STI opportunity and
10-15% LTI as set out in the graph below:
Name
Board
Audit & Risk
Remuneration
Nomination
Senior Exectuive Remuneration Mix
Management
& People
Committee
Committee
Committee
12%
Chair
$178,500
$21,000
Member $105,000
-
-
-
-
-
The remuneration of Non-Executive Directors for the year ended 30
June 2017 is detailed in Table 3 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:
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
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 47% fixed
remuneration, 28% target STI opportunity and 25% LTI. The CEO’s
Key Performance Indicators (KPI’s) together with the relevant
weighting of each KPI to achieve the target STI opportunity are set
out in the graph below:
25%
63%
Fixed
STI
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 as needed.
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
performance, relevant comparative remuneration in the
market and internally and, where appropriate, external advice
on policies and practices. The Committee has access to
external advice independent to management which was last
obtained as part of the 2014 review.
Structure
Senior executives are given the opportunity to receive their
fixed remuneration in a variety of forms including cash and
fringe benefits such as motor vehicles.
The fixed remuneration component of the executive KMP’s of
the Group is detailed in Table 3.
Variable remuneration
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.
AUB GROUP ANNUAL REPORT 2017 19
a) Total Shareholder Return including share price
appreciation and the amount of any dividends or capital
returns (TSR) measured against the S&P/ASX Small
Ordinaries Index (the Target Group) determined by the
relevant VWAP in the 60 day period leading up to the
relevant date in respect of the testing period; and
b) Compound annual growth rate (CAGR) of the adjusted
earnings per share for the measurement period
calculated based on the adjusted NPAT divided by
weighted average number of ordinary shares in the
Company on issue during the relevant financial year.
It is believed the differing measures of TSR and CAGR
provide improved alignment between comparative
shareholder return and reward for executives.
Option exercise conditions
Exercise conditions for options granted in FY16 onwards
a) Subject to satisfaction of the performance hurdles
referred to in paragraphs below, options will vest and
become capable of exercise 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);
b) Options are comprised of 60% EPS options and 40%
TSR options and will vest and may be exercised at the
First Test Date and the Second 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
CAGR over period
Percentage Vesting
Less than 4%
Equal to 4%
Between 4% and 7%
0%
25%
Straight line vesting between 25%
and 50%
Equal to 7%
50%
Between 7% and 10%
Straight line vesting between 50%
and 100%
Equal to or greater than 10% 100%
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT (CONTINUED)
Structure
The Group sets financial targets and each executive has set
personal objectives against which their performance is evaluated.
The table below provides a summary of key balanced scorecard
objectives and outcomes for the Group ended 30 June 2017:
Measure
Objective
Financial
Partner
Deliver Group Adjusted NPAT at or above
budget
Drive Group Strategy to improve client
opportunities
Governance Ensuring Group governance frameworks
People
are implemented across all entities
Deliver a continued improvement on
employee engagement
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.
The aggregate of annual STI payments available for executives
across the Group is subject to the review by the Remuneration &
People Committee and approval of the Board. Payments made
are delivered as a cash bonus in the following reporting period.
For the 2016 financial year, the STI cash bonus of $1.417 million
provided in the financial statements was paid in the 2017
financial year. The Remuneration & People Committee
considered the STI payments for the 2017 financial year and
has allocated a pool in the sum of $2.861 million for STI cash
bonuses for employees and senior management. This amount
has been provided for in the 2017 financial year.
Variable remuneration – long term incentive
Objective
The objective of the long term incentive plan (LTIP) is to reward
senior executives in a manner that aligns this element of
remuneration with the creation of shareholder wealth. As such,
LTI grants are only made to executives who are able to influence
the generation of shareholder wealth and thus have a direct
impact on the Group’s performance against the relevant long term
performance hurdle.
Structure
LTI grants to executives are delivered in the form of options.
The following were selected as the measures for the LTIP in 2016
onwards:
20 AUB GROUP ANNUAL REPORT 2017
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
ii.
iii.
the participant has been involved in a material
misstatement, error or omission in the financial
statements of the Company or any of its
subsidiaries; or
the Company is required or entitled by law to reclaim
remuneration from the participant,
then the Board may determine all or any of the following:
i.
ii.
iii.
that any options (whether or not capable of exercise)
held by the participant will lapse;
any shares held by the participant as a result of
exercise of the options will be deemed to be
forfeited; or
where the participant has sold, encumbered or
otherwise transferred shares it received as a result
of exercise of the options, that the participant must
repay to the Company as a debt all or part of the
proceeds or benefit received from the sale,
encumbrance or transfer of those Shares.
Company performance and the link to remuneration
Long term incentives are based on Adjusted EPS Growth and
Total Shareholder Returns. Short term incentives are based on
Adjusted NPAT growth and balanced scorecard outcomes.
The table below provides a summary of the Company’s
earnings performance for the current and prior years:
Group Revenue
($m)
Adjusted NPAT*
($m)
Share price ($)
Change in share
price ($)
Dividends paid
(cents)
TSR (%)
Adjusted EPS*
(cents)
2017
2016
2015
2014
2013
265
234
217
199
168
40.4
37.6
36.3
35.5
32.1
12.99
10.10
9.00
10.79
10.90
2.89
1.10
-1.79
-0.11
3.96
42
40
40
39
36
32.57
16.63
-13.02
2.34
61.74
63
60
59
60
56
* The financial information in this table has been derived from the
audited financial statements. The Adjusted NPAT and Adjusted EPS are
non-IFRS financial information and as such have not been audited in
accordance with Australian Accounting Standards.
STI Outcomes
($m)
2017
2016
2015
2014
2013
Cash bonuses
2.861
1.417
0.200
0.879
1.754
REMUNERATION REPORT (CONTINUED)
The TSR Options
Total Shareholder Return
Percentage Vesting
Less than Target Group
Equal to Target Group
0%
50%
Greater than Target Group
Straight line vesting between
50% and 100%
Greater than 150% of Target
Group
100%
c)
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 are exercisable on the Second Test Date;
d) Any options which have not become exercisable by the
Second Test Date lapse and are of no further force or
effect.
e) All options 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.
Exercise conditions for options granted prior to FY16:
f) Option exercise conditions for options granted in the 2014
and 2015 financial years have the performance hurdles set
out in the table below:
The EPS Options
CAGR over the period
Percentage Vesting
Less than 8.5%
Equal to 8.5%
Between 8.5% and 10%
0%
20%
Straight line vesting between 20%
and 50%
Equal to 10%
50%
Between 10% and 15%
Straight line vesting between 50%
and 100%
Equal to or greater than 15% 100%
Exercise conditions for options granted to the CEO:
g)
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 FY15 except
that 20% vest below 8.5% CAGR for FY15 and FY17
The exercise conditions for the 250,000 options granted to
the CEO in 2016 are the same as set out above in
paragraphs (a)-(e).
i) Where in the opinion of the Board:
i. a participant in the Company’s LTIP has acted
fraudulently or dishonestly, has engaged in serious
misconduct or has materially breached his or her duties
or obligations to the Company or any of its subsidiaries;
AUB GROUP ANNUAL REPORT 2017 21
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT (CONTINUED)
LTI Outcomes
The movement in LTI outcomes for FY17 is summarized in the LTIP table below:
Options
A Further 32,321 options were issued in FY17 under the 2015 LTIP to remedy an administrative error in the number of options
issued under the plan in FY16.
Shares issued as a result of the exercise of options
During the financial year, no options were exercised to acquire
shares in AUB Group Limited under the LTIP.
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 672,205 unissued
ordinary shares under options as part of the Long Term
Incentive Plan that have not vested. 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.
Employment contracts
Chief Executive Officer
The CEO, Mr Searles, is employed under contract terminating on
31 December 2018, subject to twelve months’ notice by either
party.
CEO Remuneration
From 1 July 2016, Mr Searles received fixed remuneration of
$642,600 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 were not subject to any performance
22 AUB GROUP ANNUAL REPORT 2017
hurdles other than Mr Searles being an employee of a
group. These options vested on 1 January 2016 and were
exercised on 7 April 2016. They are not subject to disposal
restrictions.
For all options issued to Mr Searles on 1 January 2013 other
than 33,000 options listed in (ii) above, 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. 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.
The exercise price for each option was zero for all of the options.
CEO Termination Provisions
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
Other KMP’s 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 3.
SENIOR EMPLOYEESLTIP Calendar Year (tranche)OpeningIssuedLapsedExercisedRemainingEarliest vesting dateLapse date2012 (8th)26,490–26,490––31-Oct-155-Oct-192013 (9th)28,264–4,018–24,24630-Oct-165-Oct-202014 (10th)33,111–5,250–27,86131-Oct-1731-Oct-212015 (11th)69,89132,3217,816–94,39623-Nov-1823-Nov-222016 (12th)–115,702––115,70224-Jan-2024-Jan-24Total157,756148,02343,574–262,205CEOLTIP Calendar Year (tranche)OpeningIssuedLapsedExercisedRemainingEarliest vesting dateLapse date2012 (1st)160,000–––160,0001-Jan-161-Jan-202015 (2nd)250,000–––250,0001-Jan-191-Jan-23Total410,000–––410,000
REMUNERATION REPORT (CONTINUED)
Table 1: Shareholdings of Key Management Personnel
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
Table 2: Option holdings of Key Management Personnel
The outstanding options have an exercise price of $NIL.
During the current year a total of 148,023 options were issued (97,508 to KMP).
There are no loans outstanding owing by Key Management Personnel at 30 June 2017.
AUB GROUP ANNUAL REPORT 2017 23
Shares held in AUB Group Limited at 30 June 2017Balance at01-Jul-16Shares acquired during yearShares disposedduring yearBalance at30-Jun-17DirectorsR. J. Carless 19,973 - - 19,973D. C. Clarke 10,143 - - 10,143R. J . Low 8,710 1,000 - 9,710P. A. Lahiff 5,000 - - 5,000M. P. L. Searles 74,049 - - 74,049 ExecutivesJ. Blackledge - - - - F. Pasquini 77,039 - - 77,039 K. McIvor - - - - S. Vohra 989 - - 989 A. Zissis - - - - N. Thomas - - - - Total195,9031,000-196,903Options held at 30 June 2017Balance at beginning of period 01-Jul-16Granted as remunerationOptions exercisedOptions lapsed/ forfeitedBalance at end of period 30-Jun-17Vested/ exercisableNot vested/not exercisableDirectorM. P. L. Searles410,000- - - 410,000- 410,000ExecutivesJ. Blackledge8,35722,095- - 30,452- 30,452F. Pasquini24,15721,338- 6,130 39,365- 39,365N. Thomas16,13521,093- - 37,228- 37,228S. Vohra18,66621,354- - 40,020- 40,020A. Zissis- 11,628- - 11,628- 11,628Total477,31597,508-6,130 568,693-568,693Total options at year end
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT (CONTINUED)
Table 3: Compensation of Directors and other Key Management Personnel for the year-ended 30 June 2017 (Consolidated)
* Short term incentives (STI) were paid during the year in respect of the group's performance for 30 June 2016. Any amount payable in respect of 2017 performance
will be paid during 2018 and will be included in the 2018 remuneration report. An estimate of the amounts expected to be paid in respect of June 2017 entitlements
has been provided for in the financial statements.
** Share based payments are calculated on the accrued cost to the company recognising that options issued to KMP will vest over 3 years after taking into account a
40 -50% probability that the Group will achieve the performance hurdles required for those options to vest.
*** Remuneration for K McIvor is in respect to his role as a member of the Group Executive and does not include other remuneration received for his role
as Managing Director of New Zealand operations totalling $367,973 which were paid to K McIvor in New Zealand.
24 AUB GROUP ANNUAL REPORT 2017
30-Jun-17$$$$$$%DirectorsD. C. Clarke163,014 - - 15,486 - 178,500 - ChairmanM. P. L. Searles616,096235,93314,37734,992289,8351,191,23344.14%Chief Executive OfficerR. J. Carless75,000 - - 30,000 - 105,000 - Non-executive DirectorP. A. Lahiff95,890 - - 9,110 - 105,000 - Non-executive Director R. J. Low115,068 - - 10,932 - 126,000 - Non-executive Director ExecutivesJ. Blackledge323,84087,50836630,00041,017482,73126.62%Chief Financial OfficerF. Pasquini279,567 99,353 38,882 32,307 39,612 489,721 28.38%Divisonal Chief Executive, National Partner & Group AcquisitionK. McIvor190,68294,055 - - - 284,73733.03%Managing Director, AUB Group NZ ***S. Vohra318,95684,6171,99230,00039,641475,20626.15%Divisonal Chief Executive, Risk ServicesN. Thomas278,72181,92437,55534,14739,003471,35025.66%Divisional Chief Executive, Austbrokers NetworkA. Zissis272,5269971,58425,89017,423318,4205.78%Managing Director, SURA2,729,360684,38794,756252,864466,5314,227,898Total perform-ance relatedTotalEquity options**Super-annuationNon monetary benefitsPost employmentShare- based paymentCash short term incentive*Salary & feesShort-term
REMUNERATION REPORT (CONTINUED)
Table 4: Compensation of Directors and other Key Management Personnel for the year-ended 30 June 2016
(Consolidated)
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
* short term incentives (STI) were paid during the year in respect of the group's performance for 30 June 2015. Any amount pa yable in respect of 2016
performance will be paid during 2017 and will be included in the 2017 remuneration report. An estimate of the amounts expected to be paid in r espect of
June 2016 entitlements has been provided for in the financial statements.
** Share based payments are calculated on the accrued cost to the company recognising that options issued during the period will vest over 3 years after
taking into account a 50% probability that the Group will achieve the performance hurdles required for those options to vest.
AUB GROUP ANNUAL REPORT 2017 25
30-Jun-16$$$$$$%DirectorsD.C. Clarke129,541––12,306–141,847–Chairman (appointed 26 November 2015)R.A. Longes62,860––5,972–68,832–Chairman (retired 26 November 2015)M. P. L. Searles569,42818,75028,49735,000164,792816,46722.48%Chief Executive OfficerR. J. Carless70,000––30,000–100,000–Non-Executive DirectorP.A. Lahiff68,493––6,507–75,000–R. J. Low109,589––10,411–120,000–ExecutivesJ. Blackledge315,843–1,58429,99510,182357,6042.85%F. Pasquini269,01712,50042,40322,5009,833356,2536.27%Chief Distribution OfficerK. McIvor165,90012,5007927,153–186,3456.71%S. Vohra305,23912,5001,58328,9639,841358,1266.24%T. Stevens218,09412,50055,59720,7819,523316,4956.96%N. Thomas262,0337,50037,80424,8939,523341,7534.98%2,546,03776,250168,260234,481213,6943,238,722Chief Financial Officer (appointed 1 July 2015)MD AUB Group NZ and Head of Group DevelopmentChief Operating Officer Chief Information Officer (ceased 20 May 2016)General Manager, Broker Network DevelopmentNon-Executive Director (appointed 1 October 2015)Non-Executive Director Total perform-ance relatedSalary & feesCash short term incentive*Non monetary benefitsSuper-annuationEquity options**TotalPost employmentShare- based paymentShort-term
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
REMUNERATION REPORT (CONTINUED)
Table 5: Number of options granted as part of remuneration
For options granted since 2012 financial year, where options are exercised within two years after the date the options vest, the shares cannot be disposed
of prior to the expiry of the two year period from the date the options vested, except if employment is terminated.
Table 6: Value of options granted as part of remuneration to Key Management Personnel (Consolidated)
* Total gross value of options granted during the year which will vest over three years if all performance hurdles requi red for options to vest, are met.
**Share based payments as a percentage of remuneration is calculated on the accrued cost to the company recognising that opti ons issued to KMP will
vest over 3 years after taking into account a 40 - 50% probability that the Group will achieve the performance hurdles required for those options to vest.
26 AUB GROUP ANNUAL REPORT 2017
Fair value per option at grant dateExercise price per optionOptions held at 30 June 2017Granted no.Grant date($) (note 16)($) (note 16)Expiry dateFirst exercise dateLast exercise dateExecutivesJ. Blackledge8,3578-Dec-169.360.0023-Nov-2223-Nov-1823-Nov-2213,73824-Jan-178.990.0024-Jan-2424-Jan-2024-Jan-24F. Pasquini8,0718-Dec-169.360.0023-Nov-2223-Nov-1823-Nov-2213,26724-Jan-178.990.0024-Jan-2424-Jan-2024-Jan-24S. Vohra8,0778-Dec-169.360.0023-Nov-2223-Nov-1823-Nov-2213,27724-Jan-178.990.0024-Jan-2424-Jan-2024-Jan-24N. Thomas7,8168-Dec-169.360.0023-Nov-2223-Nov-1823-Nov-2213,27724-Jan-178.990.0024-Jan-2424-Jan-2024-Jan-24A. Zissis11,62824-Jan-178.990.0024-Jan-2424-Jan-2024-Jan-24Total97,508Value of options granted during the year*Value of options exercised during the yearNumber of shares issued on exercise of optionsPaid per share on shares issued on exercise of optionsOptions fully vestedduring the year30 June 2017$$%No.$No.DirectorsM. P. L. Searles - - 24.33% - - - ExecutivesJ. Blackledge 201,726 - 8.50% - - - F. Pasquini 194,815 - 8.09% - - - S. Vohra 194,961 - 8.34% - - - N. Thomas 192,518 - 8.27% - - - A. Zissis 104,536 - 5.47% - - - Total888,556 - - - - Shares issued on exercise of optionsPercentage of remuneration consisting of value share based payments incurred during the year**
REMUNERATION REPORT (CONTINUED)
Table 7: Options granted, vested or lapsed during the year
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
All options were issued with an exercise price of $NIL and the expiry date of the options is 4 years after t he vesting date.
All options shown above with an award date of 23 Nov 2015, totalling 32,321 options, were granted on 8 Dec 2016, with terms, conditions and vesting
periods similar to those issued in the previous year on 23 Nov 2015. Those options were iss ued in FY17 under the 2015 LTIP to remedy an administrative
error in the number of options issued under the plan in FY16.
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of committees of Directors) held during the year and the
numbers of meetings attended by each Director were as follows:
Mr Searles was not a member of any Committee. All other Directors were eligible to attend all meetings held.
Committee membership
As at the date of this report, the Company had an Audit & Risk Management Committee, Remuneration & People Committee and a
Nomination Committee of the Board of Directors. Members acting on the committees of the Board during the year were:
AUB GROUP ANNUAL REPORT 2017 27
30-Jun-17Grant yearGranted during current yearAward datevesting dateFair value of options at grant dateNumber lapsed during yearNumber vested during yearJ. Blackledge20168,35723-Nov-1523-Nov-189.36$ ––201613,73824-Jan-1724-Jan-208.99$ ––F. Pasquini2012–31-Oct-1231-Oct-157.71$ 6,130–20168,07123-Nov-1523-Nov-189.36$ ––201613,26724-Jan-1724-Jan-208.99$ ––S. Vohra20168,07723-Nov-1523-Nov-189.36$ ––201613,27724-Jan-1724-Jan-208.99$ ––N. Thomas20167,81623-Nov-1523-Nov-189.36$ ––201613,27724-Jan-1724-Jan-208.99$ ––A. Zissis201611,62824-Jan-1724-Jan-208.99$ ––97,5086,130-Directors’ MeetingsAudit & Risk ManagementNominationRemuneration & PeopleNo. of meetings held:6615No. of meetings attended:M. P. L. Searles6615R J Carless5514D. C. Clarke6615R. J. Low6615P. A. Lahiff6515Meetings of CommitteesAudit & Risk ManagementRemuneration & PeopleNominationR. J. Low (Chairman)D. C. Clarke (Chairman)D. C. Clarke (Chairman)R. J. CarlessR. J. CarlessR. J. CarlessD. C. ClarkeR. J. LowR. J. LowP. A. LahiffP. A. LahiffP. A. Lahiff
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2017
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 instrument "Rounding in Financial/Directors' Reports"
2016/191. The Company is an entity to which this legislative instrument applies.
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The Directors received an independence declaration from the auditors of AUB Group Limited. Refer to page 29 of the Directors’
Report.
Non-audit services provided to the AUB Group by the entity’s auditor, Ernst & Young, in the financial year ended 30 June
2017 were predominantly in relation to tax matters. Other services included policy and project assurance. 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 24 of the Financial
Report.
Signed in accordance with a resolution of the Directors.
D.C. Clarke
Chairman
Sydney, 28 August 2017
M.P.L. Searles
Chief Executive Officer and Managing Director
28 AUB GROUP ANNUAL REPORT 2017
AUDITOR’S INDEPENDENCE 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 2017, I declare to the best of my
knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
b)
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
28 August 2017
AUB GROUP ANNUAL REPORT 2017 29
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
YEAR ENDED 30 JUNE 2017
30 AUB GROUP ANNUAL REPORT 2017
20172016Notes$’000$’000Revenue4 (i)234,225202,977Other income4 (ii)5,6147,629Share of profit of associates4 (iii)24,67023,272Expenses4 (iv)(201,723)(178,064)Finance costs4 (v)(4,133)(5,389)58,65350,425Income arising from adjustments to carrying values of associates, sale of controlled entities and broking portfolios– Adjustments to carrying value of associates and estimates for contingent consideration4(vi)(4,306)1,730– Profit from sale of interests in controlled entities, associates and insurance portfolios4(vii)30 8,759 Profit before income tax54,37760,914Income tax expense511,27612,127Net Profit after tax for the period43,10148,787Net Profit after tax for the period attributable to:Equity holders of the parent32,98842,002Non-controlling interests10,1136,78543,10148,787Basic earnings per share (cents per share)851.6766.60Diluted earnings per share (cents per share)851.5066.50Consolidated
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2017
AUB GROUP ANNUAL REPORT 2017 31
2017$'0002016$'000Net Profit after tax for the period43,101 48,787 Other comprehensive incomeOther comprehensive income to be reclassified to profit or loss in subsequent periods:Net movement in foreign currency translation reserve(42)575Income tax benefit relating to currency translation - (13)Other comprehensive income after income tax for the period(42)562Total comprehensive income after tax for the period43,05949,349Total comprehensive income after tax for the period attributable to:Equity holders of the parent32,952 42,429 Non-controlling interests10,1076,92043,05949,349Consolidated
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
32 AUB GROUP ANNUAL REPORT 2017
20172016Notes$’000$’000AssetsCurrent AssetsCash and cash equivalents663,54670,933Cash and cash equivalents – Trust689,77287,513Trade and other receivables9175,979165,801Other financial assets10108670Total Current Assets329,405324,917Non-current AssetsTrade and other receivables9476163Other financial assets105140Investment in associates11141,713133,894Property, plant and equipment1311,6489,806Intangible assets and goodwill14263,859246,746Deferred income tax asset57,2105,535Total Non-current Assets424,957396,184Total Assets754,362721,101LiabilitiesCurrent LiabilitiesTrade and other payables17253,412239,510Income tax payable54,7065,593Provisions1815,24412,415Interest bearing loans and borrowings196,1694,461Total Current Liabilities279,531261,979Non-current LiabilitiesTrade and other payables1797011,452Provisions183,6062,730Deferred tax liabilities59,6729,520Interest bearing loans and borrowings1988,92784,185Total Non-current Liabilities103,175107,887Total Liabilities382,706369,866Net Assets371,656351,235EquityIssued capital20141,708141,708Retained earnings154,579146,533Share based payments reserve216,0905,384Foreign currency translation reserve21212248Asset revaluation reserve21199370Equity attributable to equity holders of the parent302,788294,243Non-controlling interests2168,86856,992Total Equity371,656351,235Consolidated STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2017
AUB GROUP ANNUAL REPORT 2017 33
Non-controllinginterestTotalequityIssuedcapitalRetainedearningsAssetrevaluationreserveForeigncurrencytranslationreserveShare basedpaymentreserveTotalConsolidated$'000$'000$'000$'000$'000$'000$'000$'000At 1 July 2016 141,708 146,533 370 248 5,384 294,243 56,992 351,235 Profit for the year - 32,988 - - - 32,988 10,113 43,101 Other comprehensive income - - - (36) - (36)(6)(42)Total comprehensive income for the year - 32,988 - (36) - 32,952 10,107 43,059 Transactions with owners in their capacity as owners:Adjustment relating to movements in the voting shares in controlled entities. (see note 7 (a)) - 745 - - - 745 5,387 6,132 Noncontrollinginterestsrelatingtonewacquisitions (see notes 7(c)) - - - - - - 4,886 4,886 Transfer from asset revaluation reserve - 171 (171) - - - - - Cost of share-based payment - - - - 580580 - 580Taxbenefitrelatedtoemployeesharetrusttransactions. - - - - 126126 - 126Equity dividends - (25,858) - - - (25,858)(8,504)(34,362)At 30 June 2017141,708 154,579 199 212 6,090 302,788 68,868 371,656 Attributable to equity holders of the parent
STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2017
34 AUB GROUP ANNUAL REPORT 2017
Non-controllinginterestTotalequityIssuedcapitalRetainedearningsAssetrevaluationreserveForeigncurrencytranslationreserveShare basedpaymentreserveTotalConsolidated$'000$'000$'000$'000$'000$'000$'000$'000At 1 July 2015 128,890 128,165 540 (179) 5,707 263,123 48,203 311,326 Profit for the year - 42,002 - - - 42,0026,78548,787Other comprehensive income - - - 427 - 427135562Total comprehensive income for the year - 42,002 - 427 - 42,4296,92049,349Transactions with owners in their capacity as owners:Adjustment relating to an increase in the voting shares in controlled entities. (see note 7(b)) - 1,800 - - - 1,8008352,635Non controlling interests relating to new acquisitions (see notes 7(d)) - - - - - - 11,99911,999Adjustment resulting from the deconsolidation of controlled entity (see note 7 (e)) - (758) - - - (758)(6,566)(7,324)Transfer from asset revaluation reserve - 170(170) - - - - - Cost of share-based payment - - - - (312)(312) - (312)Tax benefit related to employee share trust transactions. - - - - (11)(11) - (11)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 - - - - 12,852 - 12,852Allotted 11,099 shares at an issue price of $NIL (see note 20) - - - - - - - - Allotted 73,000 shares at an issue price of $NIL (see note 20) - - - - - - - - Share issue expenses(34) - - - - (34) - (34)Equity dividends - (24,846) - - - (24,846)(4,399)(29,245)At 30 June 2016 141,708 146,533 370 248 5,384 294,243 56,992 351,235 Attributable to equity holders of the parent
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 30 JUNE 2017
AUB GROUP ANNUAL REPORT 2017 35
Notes2017$’0002016$'000Cash flows from operating activitiesReceipts from customers226,691 191,629Dividends received from others1 2Dividends/trust distributions received from associates21,839 20,454Interest received2,784 3,619Management fees received from associates/related entities10,661 11,099Payments to suppliers and employees(186,858)(175,886)Income tax paid(14,976)(12,700)Interest paid(3,730)(4,179)Net cash from operating activities before customer trust account movements56,412 34,038Net decrease in cash held in customer trust accounts(883)(9,292)Net cash flows from operating activities655,529 24,746Cash flows from investing activitiesProceeds from reduction in interests in controlled entities7(a),(b)6,624 2,425Payment for increase in interests in controlled entities7(a),(b)(165)(291)Payments for new consolidated entities, net of cash acquired7(c),(d)(1,001)(40,007)Cash outflow from sale/deconsolidation of controlled entities7(e)- (10,539)Payment for new associates11(8,477)(2,971)Payment for new broking portfolios purchased by members of the economic entity- (1,836)Proceeds from sale of broking portfolios by member of the economic entity60 - Proceeds from sale of associates- 30,432Proceeds from sale of other financial assets2 14Proceeds from new shares issued to non-controlling interests7(d)- 2,714Proceeds from sale of plant and equipment326 195Payment for plant and equipment and capitalised projects(6,457)(5,032)Repayment/(advances) of loans to associates/related entities123 (2,316)Proceeds from loan repayments from associates/related entities- 1,815Net cash flows (used in) investing activities(8,965)(25,397)Cash flows from financing activitiesDividends paid to shareholders(25,858)(12,028)Dividends paid to shareholders of non-controlling interests(8,504)(4,399)Payment for contingent consideration on prior year acquisitions(23,555)(4,330)Increase in borrowings and lease liabilities6,61023,387Advances to related entities(385)458Net cash flows (used in)/from financing activities(51,692)3,088Net increase in cash and cash equivalents(5,128)2,437Cash and cash equivalents at beginning of the period158,446156,009Cash and cash equivalents at end of period6153,318158,446Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 the 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 Consolidated Statement of
Profit or Loss.
1. CORPORATE INFORMATION
The financial report of AUB Group Limited for the year
ended 30 June 2017 was authorised for issue in
accordance with a resolution of the directors on 28 August
2017.
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), unless otherwise stated, under
the option available to the Company under ASIC
instrument "Rounding in Financial / Directors' Reports"
2016/191. The Company is an entity to which this
legislative instrument 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.
36 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
Impairment of goodwill / intangibles and investments in
associates
The Group determines whether goodwill is impaired at least
on an annual basis and for any identifiable intangibles that
have an indicator of impairment. 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. The fair value of options
has been valued 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.
(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.
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), 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)
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 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:
AUB GROUP ANNUAL REPORT 2017 37
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
(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.
The financial statements of the associates are used by the
Group to apply the equity method. The reporting dates of the
associates and the 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 Statement of Profit or Loss 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.
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(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 the Consolidated Statement of
Profit or Loss.
Capitalised leased assets are depreciated over the shorter of
the estimated useful life of the asset and the lease term if
there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term.
Operating lease payments are recognised as an expense in
the Consolidated Statement of Profit or Loss on a straight-line
basis over the lease term. Lease incentives are recognised in
the Consolidated Statement of Profit or Loss as an integral
part of the total lease expense.
38 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(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) Investments and other financial assets
Loans and Receivables
Loans and receivables 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 Consolidated Statement of Profit or Loss
when the loans and receivables are derecognised or
impaired, as well as through the amortisation process.
(n) 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.
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.
(o) 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.
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.
AUB GROUP ANNUAL REPORT 2017 39
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 Consolidated Statement
of Profit or Loss. Where there is a change in ownership and
the Group loses control, the gain or loss will be recognised in
the Consolidated Statement of Profit or Loss 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 Consolidated Statement of Profit or
Loss. 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 Consolidated Statement of
Profit or Loss 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.
Impairment losses recognised for goodwill are not
subsequently reversed.
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(p) 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 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.
(q) 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.
40 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
(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) 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.
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(q) Business combinations (continued)
(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 Consolidated Statement of Profit or Loss 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 Consolidated Statement of Profit or
Loss 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 Consolidated Statement of Profit or Loss 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.
AUB GROUP ANNUAL REPORT 2017 41
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(t) 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 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 conditions is included in the determination of
fair value at grant date. The Consolidated Statement of Profit
or Loss 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).
(u) 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.
(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.
42 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
2.2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(v) Income tax (continued)
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
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) Property, plant and equipment
Property, 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 property, 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.
AUB GROUP ANNUAL REPORT 2017 43
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 2017. The
directors have assessed the impact of these new or
amended standards and interpretations (to the extent
relevant to the group) as follows:
AASB 15: Revenue from Contracts with Customers
Summary
AASB 15 Revenue from Contracts with Customers which
will be effective for the Group from annual periods
beginning on or after 1 July 2018 will replace all of the
current revenue standards and interpretations including
AASB 118 Revenue. The core principle of AASB 15 is that
revenue is recognised when a customer obtains control of
promised goods or services. The amount of revenue
recognised should reflect the consideration to which the
entity expects to be entitled in exchange for those goods or
services. The standard has introduced a five-step model as
the framework for applying that core principle as follows: (i)
identify the contract with the customer; (ii) identify the
performance obligations; (iii) determine the transaction
price; (iv) allocate the transaction price to separate
performance obligations; and (v) recognise revenue when a
performance obligation is satisfied. Moreover, AASB 15
includes more disclosure requirements about the nature,
amount, timing and uncertainty of revenues and cash flows
arising from contracts with customers.
The Group has collated relevant information from the
majority of controlled entities and associates for the
implementation of AASB 15, with an aim to identify potential
areas of impact by each operating segment (i.e. Insurance
Intermediary & Risk Services entities) and to consider the
need to adjust internal control systems over financial
reporting, if necessary. Whilst we do not believe that there
will be a significant impact on the treatment of revenue for
the Risk Services entities arising from AASB 15, our
preliminary assessment has identified a number of potential
changes in accounting treatments required for revenue
under AASB 15.
Revenue generated by insurance intermediaries represents
commissions, brokerage and fees in respect of broking and
underwriting agency services, the majority of which are non-
refundable up-front fees which are currently generally
recognised as revenue under AASB 118 upon the invoice
issuance date. As part of the fees charged to customers,
they may receive claims handling services and other
general advice.
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(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 (both in
Australia and New Zealand) 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 Australian Financial Services Licence (AFSL) to
operate and are governed by different legislation and
therefore are considered a separate segment, "Risk
Services".
44 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
3. NEW ACCOUNTING STANDARDS AND
INTERPRETATIONS (CONTINUED)
AASB 15: Revenue from Contracts with Customers
Summary (continued)
Under AASB 15, different services included in a contract
need to be classified as individual performance obligations
whilst separate transaction prices will need to be allocated
for each performance obligation. This is likely to cause a
change in the pattern of revenue recognition for non-
refundable up-front fees during the delivery of services. In
particular, the Group may need to identify any specific
performance obligations associated with the additional
services provided to the customers, and allocate transaction
prices to each of these additional performance obligations.
Furthermore, the businesses earn two types of
performance-based incentive commissions, with
corresponding current revenue recognition methods under
AASB 118 as follows:
(i) Brokers’ override commissions from insurers based on
volume of premiums - the Group generally recognises
this revenue upon receipt of the insurers’ advice of the
amount of commissions earned; and
(ii) Profit commissions of brokers and underwriting
agencies from insurers based on the profitability of
underwritten policies - the Group generally recognises
this revenue using probability estimates of the profit
commissions earned.
AASB 15 requires the entity to estimate the amount of
variable considerations using the method which best
predicts the amount of consideration to which the entity will
be entitled (i.e. either the ‘expected value’ or ‘most likely
amount’ method). The estimated variable consideration is
included in the transaction price to the extent it is highly
probable that a significant revenue reversal will not
subsequently occur. Revenue is only recognised in respect
of closed underwriting years when it is certain that the
amount is due and payable. In respect of open underwriting
years, a probability of receipt will be applied to determine if
an amount should be recognised during the period.
Although the investigations are not complete, the Group
does not expect material changes in the revenue
recognition pattern for profit commissions or brokers'
override commissions under AASB 15.
Impact on financial report
A detailed impact assessment arising from AASB 15 is in
progress, and will be finalised along with the establishment
of revised accounting policies on revenue recognition, and
implementation of necessary procedures to capture any
adjustments and additional disclosures required during the
course of the next financial year. There are two transitions
approaches (i.e. “full retrospective” and “modified
retrospective”). The Group is in the process of assessing
which one will be adopted.
AASB 16: Leases
Summary
AASB 16 Leases will replace AASB 117 Leases and other
related interpretations. The new lease standard will be
effective from the annual reporting period commencing 1
July 2019.
All leases should be recognised on the balance sheet at
inception of the lease with the exception of short-term
leases (less than 12 months) and leases of low-value
assets. The lessee must recognize a right-of-use asset and
a corresponding lease liability in the amount of the present
value of the lease payments. Subsequent to this initial
measurement, the right-of-use asset is depreciated over the
lease term, whilst lease payments are separated into a
principal and interest portion to wind up the lease liability
over the lease term.
Although depreciation on the right-of-use asset will be
recorded on a straight-line basis, the total periodic expense
(i.e. the sum of interest and depreciation expenses) will be
generally higher in the early periods and lower in the later
periods. As a constant interest rate is applied to the lease
liability, interest expenses decrease as lease payments are
made during the lease term and the lease liability
decreases. This trend in the interest expense, combined
with straight-line depreciation of the right-of-use asset,
results in a front-loaded expense recognition pattern.
Impact on financial report
At this stage, the Group is not able to reasonably measure
the quantitative impact arising from AASB 16 as there may
be new lease agreements between the date of this report
and the effective date of AASB 16, which could be
materially different from the existing lease agreements.
Nevertheless, after its initial assessment on the impact
arising from AASB 16, the Group anticipates that upon
adoption of this standard:
The Group’s Statement of Financial Position will be
grossed up (both assets and liabilities) to reflect the
rights and obligations relating to the Group’s leases. For
leased properties occupied by the Group, the Statement
of Financial Position will hold a depreciating non-
financial asset and the associated payable under the
lease. Refer to the current existing commitments Note
22 in the financial report for an indicator of the impact of
the gross up.
In the Statement of Comprehensive Income, net rental
expense will be replaced by a ‘front-loaded’ net interest
expense and a straight-lined depreciation expense. This
is expected to have some impact on the Group’s
earnings before interest and tax (‘EBIT’).
The Group is considering the available options for transition
which include “full retrospective” and “modified
retrospective” approaches. The Group will determine in due
course which transition approach will be adopted.
AASB 9: Financial Instruments
Summary
AASB 9 (December 2014) is a new standard that replaces
AASB 139, which will be effective from the annual reporting
period commencing 1 July 2018. This new standard
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.
Impact on financial report
Although the assessment is still being undertaken, the
Group does not expect material changes arising from this
new standard.
AUB GROUP ANNUAL REPORT 2017 45
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
4. REVENUE AND EXPENSES
46 AUB GROUP ANNUAL REPORT 2017
20172016 $’000 $’000 (i) RevenueCommission, brokerage and fee income 223,564 191,878 Management fees from related entities 10,661 11,099 Total revenue 234,225 202,977 (ii) Other incomeDividends from other persons/corporations 1 2 Interest from related persons/corporations 32 54 Interest from other persons/corporations 2,752 3,565 Other income 2,829 4,008 Total other income 5,614 7,629 (iii) Share of profit of associatesShare of net profits of associates accounted for using the equity method before amortisation (net of income tax expense) 27,462 26,536 Amortisation of intangibles – associates(2,792)(3,264)Total share of profit of associates 24,670 23,272 (iv) ExpensesAmortisation of Intangibles - controlled entities 3,763 3,323 Amortisation of capitalised Project Costs 415 405 Advertising and Marketing 2,607 2,218 Audit fees 1,609 1,488 Business Technology and software costs 7,821 6,763 Commission expense 12,173 12,344 Depreciation of property plant and equipment 2,851 2,532 Insurance 4,640 4,517 Legal Fees/Acquisition Costs 1,774 1,532 Rent (operating leases) 10,786 9,737 Salaries and wages 134,411 116,231 Share-based payments 580 (313)Travel/Telephone/Motor/Stationery 8,122 7,741 Other expenses 10,171 9,546 Total other expenses 201,723 178,064 (v) Finance costsInterest paid and other borrowing costs 4,133 5,389 Total finance costs 4,133 5,389 (vi) Adjustments to carrying value of associates and contingent consideration paymentsAdjustments to carrying value of entities (to fair value) on the date they became controlled entities or deconsolidated 4,334 5,724 Adjustment to contingent consideration on acquisition of controlled entities and associates (see notes 7(d),11,15)(5,657) 277 Impairment charge relating to the carrying value of associates and goodwill (see notes 11, 15)(2,983)(4,271)Total adjustments to carrying value of associates and contingent consideration payments(4,306) 1,730 (vii) Profit from sale of interests in controlled entities and associatesLosses from sale of interests in controlled entities and associates - (649)Profit from sale of interests in controlled entities, associates and insurance portfolios 30 9,408 Total profit from sale of interests in controlled entities and associates 30 8,759 Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
5. INCOME TAX
AUB GROUP ANNUAL REPORT 2017 47
20172016$’000$’000Major components of income tax expenseStatement of Profit or LossCurrent income taxCurrent income tax charge14,14513,485Adjustment for prior years(292)(315)Deferred tax creditOrigination and reversal of temporary differences(2,577)(1,043)Total income tax expense in Consolidated Statement of Profit or Loss 11,276 12,127 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 54,377 60,914At the Company’s statutory income tax rate of 30% (2016: 30%) 16,313 18,274Rebateable dividends - (1)Equity accounted income from associates(5,759)(5,169)Non-taxable gains/losses on sale(650)(305)(Over)/under provision prior year(292)(315)Income taxed at different tax rates on overseas operations(60)(21)Tax on distributions from associates operating as trusts(154)(138)Adjustments to contingent consideration on acquisition of controlled entities and associates 1,697 (97)Adjustments to carrying value of entities (to fair value) on the date they became controlled entities or deconsolidated(1,300)(1,894)Impairment charge relating to the carrying value of associates and controlled entities 895 1,281Non deductible expenses/other 586 512Income tax expense reported in the Consolidated Statement of Profit or Loss 11,276 12,127Income tax payable4,7065,593Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
5. INCOME TAX (CONTINUED)
Tax consolidation
For the purposes of income taxation, AUB Group Limited entered into a Consolidated Tax Group with its 100% owned
subsidiaries. Tax consolidation results in the subsidiary 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 Off ice.
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 provi des 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 AAS B 112
Income Taxes. Allocations under the tax funding agreement are made at the end of each quarter.
48 AUB GROUP ANNUAL REPORT 2017
2017201620172016$’000$’000$’000$’000Deferred income taxDeferred income tax at 30 June relates to the following:Deferred tax liabilityIncome accrued not yet assessable2,0261,821 205 (96)Unamortised value of broker register8,7538,685 - - Tax credit on insurance broking register amortisation expense(1,107)(986)(1,107)(986)Deferred income tax liabilities9,6729,520Deferred tax assetProvisions and accruals not yet claimed for tax purposes7,2105,535(1,675) 39 Deferred income tax assets7,2105,535Deferred tax income/(expense)(2,577)(1,043)ConsolidatedConsolidatedStatement of Financial PositionStatement of Profit or Loss
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
6. CASH AND CASH EQUIVALENTS
Due to acquisitions/disposal of consolidated entities during the year, some changes in assets and liabilities shown above wil l
not agree to the movements in the Statement of Financial Position.
Non cash financing activity transactions include transactions resulting from the dividend reinvestment plan.
Trust cash (other than undrawn income) cannot be used to meet business obligations/operating expenses other than payments
to underwriters and/or refunds to policy holder.
AUB GROUP ANNUAL REPORT 2017 49
20172016$’000$’000Reconciliation of profit after tax to net cash flows from operationsProfit after tax for the period 43,101 48,787 Equity accounted (profits) after income tax(24,670)(23,272)Dividends/trust distributions received from associates 21,839 20,454 Amortisation of intangibles 3,763 3,324 Amortisation of capitalised project costs 415 405 Depreciation of fixed assets 2,851 2,532 Share options expensed 580 (313)Losses from sale of interests in controlled entities and associates - 649 Profit from sale of interests in controlled entities and associates(30)(9,408)Adjustment to contingent consideration on acquisition of controlled entities and associates 5,657 (277)Adjustment to carrying value of entities (to fair value) on the date they became controlled entities(4,334)(5,724)Impairment charge relating to the carrying value of associates and goodwill 2,983 4,271 Changes in assets and liabilitiesDecrease/(increase) in trade and other receivables 3,918 (1,964)Increase/(decrease) in trade and other payables 4,002 (5,186)(Increase)/decrease in trust receivables(8,074)203Increase/(decrease) in trust payables 3,973 (11,792)Increase in provisions 3,253 2,630(Increase) in deferred tax asset(1,511)(27)Increase/(decrease) in deferred tax liability 130 (732)(Decrease)/increase in provision for tax(2,317)186Net cash flows from operating activities 55,529 24,746Cash and cash equivalents63,54670,933Cash and cash equivalents – trust89,77287,513Total cash and cash equivalents153,318158,446Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS
The business combinations referred to in note 7(a) - 7(e) relate to Insurance Intermediaries except for 7 (c) and (d),
PeopleSense Pty Ltd, Allied Health Australia Pty Ltd and CIM Pty Ltd, which relates to Risk Services.
A major strategy of the Group is to acquire insurance broking portfolios or part ownership in insurance broking, underwriting
agency and risk services businesses. 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 an agreed multiple of a probability weighted best estimate of future
outcomes for income or profit, on which the purchase price is determined, discounted to present value. Future outcomes
for income or profit are significant unobservable inputs. 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, any
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 ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS (CONTINUED)
(a) Equity transactions between owners–current period
Transactions resulting in a decrease in shareholding
Effective 1 July 2016, a controlled entity disposed of 7.5% of the voting shares in Austbrokers Financial Solutions (ACT) Pty Ltd
(AFS (ACT)) for $166,344 decreasing its ownership from 100% to 92.5%.
On 1 July 2016, the Group disposed of 17.2% of the voting shares in Terrace Insurance Brokers (Terrace) Pty Ltd for $1,372,734
decreasing its ownership from 70.83% to 53.7%.
Effective 1 July 2016, a controlled entity disposed of 5.0% of the voting shares in Film Insurance Underwriting Agency Pty Lt d
(FIUA) for $225,000 decreasing its ownership from 100% to 95%.
On 1 July 2016, a controlled entity disposed of 10% of the voting shares in Runacres and Associates Limited (Runacres)
for $3,449,000 decreasing its ownership from 100% to 90%.
Effective 30 November 2016, a controlled entity, Altius Group holdings Pty Ltd (Altius), issued shares to its employees at
fair value for $899,440. The issue of the additional shares by Altius diluted the Group's shareholding from 56.5% to 55.3%.
On 1 March 2017, a controlled entity disposed of 15% of the voting shares in Asia Mideast Insurance and Reinsurance Pty
Limited (AMIR) for $565,000 decreasing its ownership from 75% to 60%.
Transaction resulting in an increase in shareholding
Effective 30 November 2016, a controlled entity acquired a further 20% of the voting shares in Atlas Insurance Broking Pty
Ltd (Atlas) increasing its ownership to 100%. The purchase price was $275,000 including an upfront payment of $165,000
plus a deferred settlement of $110,000 payable over the next 2 year period.
Carrying value of assets on the date of change in voting shares were:
AUB GROUP ANNUAL REPORT 2017 51
Increase in voting sharesDilution in voting sharesDilution in voting sharesCarrying value of assets attributable to AtlasCarrying value of assets attributable to RunacresCarrying value of assets attributable to AFS (ACT), Terrace, FIUA, Altius and AMIR$’000$’000$’000Cash1,1575,7259,718Receivables96111,45410,399Property plant and equipment846754Intangibles1,68931,3304,262Total assets3,81548,97624,433Payables and provisions1,86211,40116,141Tax liabilities(17)3,341194Total liabilities1,84514,74216,335Net assets1,97034,2348,098Non-controlling interest in net assets - - - Net assets attributable to AUB Group1,97034,2348,098Cash (received)/paid on sale of shares165(3,449)(3,175)Deferred settlement110 - - Capital gains tax on sale of units - - 217Adjustment to non-controlling interest(179)3,4082,158Transfer to retained earnings on equity transactions between owners(96)41800
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS (CONTINUED)
(b) Equity transactions between owners–previous period
Transactions resulting in a decrease in shareholding
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 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%.
On 1 November 2015, the consolidated entity sold 10% of the voting shares in Austbrokers Canberra Pty Ltd (Canberr a)
for $1,500,000 decreasing its equity ownership from 85% to 75%.
Transactions resulting in an increase in shareholding
On 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%.
On 28 October 2015, the consolidated entity acquired an additional 1.8% of the voting shares in InterRISK Australia Pty
Ltd (InterRISK) for $287,530 increasing its equity ownership from 77.1% to 78.9%.
Carrying value of assets attributable to Interfin, InterRISK, AB Phillips and Canberra on the date of change in voting
shares were:
52 AUB GROUP ANNUAL REPORT 2017
Increase in voting sharesDilution in voting sharesCarrying value of assets attributable to InterRISK and InterfinCarrying value of assets attributable to Canberra, SPT and AB Phillips$’000$’000Cash16,20718,947Receivables17,13516,249Property plant and equipment298979Intangibles25,16113,664Total assets58,80149,839Payables and provisions 32,289 31,743 Borrowings - 3,805 Tax liabilities 17 988 Total liabilities 32,306 36,536 Net assets26,495 13,303 Non-controlling interst in net assets(1,725) - Net assets attributable to AUB Group24,770 13,303 Cash (received) on sale of shares/units in trust - (1,883)(Proceeds) from additional units in trust/shares issued - (1,101)Cash paid291 - Capital gains tax on sale of units - 59 Adjustment to non-controlling interest(499) 1,333 Transfer to retained earnings on acquisition/dilution in voting shares208 1,592
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS (CONTINUED)
(c) Acquisition / disposal of controlled entities - current period
On 1 July 2016, Altius Group Holdings Pty Limited (Altius), acquired 100% of the voting shares in PeopleSense Pty Ltd
(PeopleSense) for $8,582,268 which included the fair value of the deferred consideration payment of $3,290,402 payable no later
than 18 months after the date of acquisition. The maximum amount of the contingent consideration payable is $3,300,000.
The acquisition of PeopleSense was funded by a cash payment of $2,709,598 and a shares issue valued at $2,582,268. The
issue of the additional shares by Altius to acquire People Sense diluted the group's shareholding from 60% to 56.5%.
On 20 June 2017, a 55% controlled entity acquired 50% of the voting shares in Bruce Park Pty Ltd (Bruce Park) for $3,963,647
increasing the Group's ownership of Bruce Park to 100% of the voting shares. The Group's share of voting shares through this
transaction increased from 50% to 75%. On this date, Bruce Park ceased being an associate and became a controlled entity.
The acquisition of the additional 50% of the voting shares in Bruce Park was through an issue of additional voting shares by the
controlled entity valued at $1,724,971 plus a cash payment of $2,238,676. The issue of additional voting shares by the contro lled
entity reduced the Group's direct ownership from 55% to 51%.
On 1 April 2017, a controlled entity acquired a further 50% of the voting shares in Blumberg Pty Ltd through an issue of addi tional
voting shares by that controlled entity valued at $157,000. The Group already held 50% of the voting shares before this
transaction and through this additional acquisition of voting shares, the consolidated group increased the voting shares to 51%.
On this date, the entity ceased being an associate and became a controlled entity.
On 28 February 2017, a controlled entity acquired 40% of the voting shares in Northern Tablelands Insurance Brokers Pty Ltd
(NTIB) for $1,600,000 including a contingent consideration payment of $564,000. The Group already held 50% of the voting
shares before this transaction and through this additional acquisition of voting shares, the consolidated group increased the
voting shares to 78%. On this date, the entity ceased being an associate and became a controlled entity.
On 30 June 2017, a controlled entity disposed of all the voting shares in All-Trans Underwriting Pty Ltd for $1.
Fair values of the identifiable assets and liabilities of PeopleSense, Bruce Park, Blumberg and NTIB as at the date of acquisition
were:
The acquisition of 100% of PeopleSense was effective on 1 July 2016. The acqui sition contributed $1,621,364 to net profit after tax and $9,872,571 to revenue.
Since the date they became controlled entities, the acquisition of Bruce Park and NTIB contributed $197,613 to net profit aft er tax and $668,131 to revenue.
If the acquisition had taken place at the beginning of the year, Bruce Park and NTIB would have contributed $1,178,761 and $4,620,386 to net pro fit after tax
and revenue respectively.
AUB GROUP ANNUAL REPORT 2017 53
Fair value recognised on acquisitionCash4,983Receivables4,338Intangibles3,570Plant and equipment208Total assets13,099Payables and borrowings8,009Tax provisions336Deferred tax liability1,071Provisions241Total liabilities9,657Net assets3,442Net assets acquired3,355Current carrying value transferred from associates 1,744 Fair value on the date the associates became controlled entities (see note 4(vi)) 4,334 Purchase price - cash paid 5,984 Purchase price - share issue 4,464 Purchase price - deferred payment 3,854 Total purchase price of acquisition 20,380 Goodwill arising on acquisition relating to the group 11,672 Goodwill arising on acquisition relating to non-controlling interests 5,666 Increase in non-controlling interest 4,886 Cash outflow on acquisition is as follows;Net cash acquired with the acquisition 4,983 Cash paid(5,984)Net cash (outflow) (1,001)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS (CONTINUED)
(d) Acquisition of new controlled entities– previous period
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 da te 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, Insurance Investment Solutions Pty Ltd (previously Expert Stra ta
Pty Ltd) with issued capital of $200,000. The group 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 an additional 100% of the voting shares in Financ ial Affairs Pty Limited (Financial
Affairs) for $4,256,340 which included a fixed deferred consideration payment of $816,340.
On 1 December 2015, Altius 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 (Runacr es)
Pty Ltd for $34,488,000.
Portfolio acquisitions of $1.836 million by members of the group that occurred during the year are not separately disclosed.
On 31 December 2015, an 80% controlled entity in New Zealand issued additional voting shares tota lling $13,120,800 including a
contribution from non-controlling interests of $2,624,160.
Fair values of the identifiable assets and liabilities of Runacres, Allied, Financial affairs and CIM as at the date of acquisition
were:
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 profi t 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 ne t 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 an d $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 $5,250,000 to
revenue.
54 AUB GROUP ANNUAL REPORT 2017
Fair value recognised on acquisition of RunacresFair value recognised on acquisition of Allied Financial Affairs and CIM$’000$’000Cash8,330821Receivables10,1991,740Intangibles11,2351,277Plant and equipment594438Total assets30,3584,276Payables and borrowings12,6851,375Borrowings - 344Deferred tax liability3,146383Provisions39631Total liabilities15,8702,733Net assets14,4881,543Net assets acquired14,4881,310Purchase price – cash paid34,48814,670Purchase price – deferred payment/contingent consideration payments - 6,006Total purchase price of acquisition34,48820,676Goodwill arising on acquisition relating to the Group20,00019,366Goodwill arising on acquisition relating to the non-controlling interests - 9,077Total goodwill arising on acquisition20,00028,443Cash outflow on acquisition is as follows;Net cash acquired with the acquisition8,330821Cash paid(34,488)(14,670)Net cash (outflow)(26,158)(13,849)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
7. BUSINESS COMBINATIONS (CONTINUED)
(e) Deconsolidation of controlled entities on loss of control - previous year
On 1 July 2015, the group disposed 5% of the voting shares in AEI Transport Pty Ltd and its controlled entities (AEIT ) for
$990,622 reducing its equity from 55% to 50% and therefore it is no longer consolidated from that date.
Carrying values of the assets and liabilities of AEIT on 1 July 2015:
AUB GROUP ANNUAL REPORT 2017 55
Carrying value of assets and liabilitiesAssetsCash11,530Receivables13,577Plant and equipment58Other assets93Intangibles11,143Total assets36,401Liabilities Payables22,725Borrowings2,000Tax liabilities171Total liabilities24,896Net assets11,505Carrying value of controlled entity transferred to shares in associates3,593Fair value adjustment on the date the controlled entity became an associate6,313Fair value of associate on the date the Group lost controlling interest9,906Sale proceeds991Less: carrying value of shares sold(605)Reversal of previous period transaction between owners previously transferred to retained earnings on sale of voting shares in controlled entity758Profit on sale of of voting shares in controlled entity1,144Fair value adjustment on the date the controlled entity became an associate6,313Profit on deconsolidation of controlled entities before tax and non-controlling interests7,457Tax expense(952)Total fair value adjustment and profit on deconsolidation of controlled entity - after tax6,505Non-controlling interests - Profit after tax and non controlling interests6,505Cash outflow on disposal is as follows;Net cash reduction on deconsolidation of controlled entity acquired with the controlled entity(11,530)Cash received on sale991Net cash (outflow) on deconsolidation of controlled entity(10,539)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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:
56 AUB GROUP ANNUAL REPORT 2017
20172016$’000$’000Net profit attributable to ordinary equity holders of the parent 32,988 42,002 20172016ThousandsThousandssharessharesWeighted average number of ordinary shares for basic earnings per share63,84663,041Effect of dilution:Weighted average number of shares under option adjusted for shares that would have been issued at average market price213160Weighted average number of ordinary shares adjusted for the effect of dilution64,05963,201Basic earnings per share (cents per share) 51.7 66.6Diluted earnings per share (cents per share) 51.5 66.5Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
8. EARNINGS PER SHARE (EPS) / DIVIDENDS PAID AND PROPOSED (CONTINUED)
Dividends Paid and Proposed
(d) Equity dividends on ordinary shares:
AUB GROUP ANNUAL REPORT 2017 57
20172016$’000$’000Dividends paid during the yearFinal franked dividend for financial year ended 30 June 2015: 27.7 cents - 17,245Interim franked dividend for financial year ended 30 June 2016: 12.0 cents - 7,601Final franked dividend for financial year ended 30 June 2016: 28.0 cents 17,877 - Interim franked dividend for financial year ended 30 June 2017: 12.5 cents 7,981 - Total dividends paid in current year25,85824,846In addition to the above, dividends paid to non controlling interests totalled $8,504,000 (2016: $4,399,000)Dividends proposed and not recognised as a liabilityFinal franked dividend for financial year ended 30 June 2016: 28.0 cents - 17,877Final franked dividend for financial year ended 30 June 2017: 29.5 cents 18,835 - 18,83517,877Dividends paid per share (cents per share)40.539.7Dividends proposed per share (cents per share) not recognised at balance date29.528.0(e) Franking credit balanceThe amount of franking credits available for the subsequent financial year are:– franking account balance as at the end of the financial year at 30% (2016: 30%)34,52932,255– franking credits that will arise from the payment of income tax payable as at the end of the financial year1331,966The amount of franking credits available for future reporting periods34,66234,221– impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the year(8,072)(7,662)The amount of franking credits available for future reporting periods after payment of dividend26,59026,559The tax rate at which paid dividends have been franked is 30% (2016: 30%)Dividends proposed will be franked at the rate of 30% (2016: 30%)Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
9. TRADE AND OTHER RECEIVABLES
10. OTHER FINANCIAL ASSETS
58 AUB GROUP ANNUAL REPORT 2017
20172016$’000$’000CurrentTrade receivables26,50129,961Amount due from customers on broking/underwriting agency operations138,118126,788Amount due from clients in respect of premium funding operations7,7886,366Other receivables – related entities3,5722,686 Total trade and other receivables (current)175,979165,801Non-CurrentTrade receivables50163Loans to associated entitites426- Total trade and other receivables (non-current)476163ConsolidatedCurrentSecured loans - related entitites (amortised cost) - 459Other108211Total other financial assets (current)108670The secured loans are supported by registered fixed and floating charges over assets in the business, securities and supplemented with cross guarantees and indemnities where necessary.Non-currentOther5140Total other financial assets (non-current)5140
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
11. INVESTMENT IN ASSOCIATES
AUB GROUP ANNUAL REPORT 2017 59
20172016$’000$’000Investment in associatesAssociated entities – unlisted shares141,713133,894Associated entities (and their controlled entities)2017201620172016Unlisted shares - equity percentage owned and equity accounted%%$’000$’000Austral Insurance Brokers Pty Ltd50.050.0 2,852 2,787 Austbrokers AEI Transport Pty Ltd 50.050.0 9,677 9,597 A & I Member Services Pty Ltd50.050.0 - - Adroit Holdings Pty Ltd50.050.0 13,229 13,333 Austbrokers RIS Pty Ltd49.949.9 2,686 2,653 Austbrokers ABS Aviation Pty Ltd50.050.0 277 253 Austbrokers Dalby Insurance Brokers Pty Ltd50.050.0 2,483 3,029 Austcan Risk Services (UK) Ltd30.030.0 89 63 Bruce Park Pty Ltd (controlled entity from 20 June 2017)75.049.9 - 1,523 Brett Grant and Associates Pty Ltd50.050.0 1,596 1,661 Brokerweb Risk Services Ltd*40.040.0 14,943 16,499 Blumberg Pty Ltd (controlled entity from 1 April 2017)51.050.0 - 103 Bluestone Insurance Pty Ltd50.050.0 - - Insurance Advisernet Australia Pty Ltd/Insurance Advisernet Australia Unit Trust49.949.9 15,566 15,350 Insurance Advisernet Holdings Pty Ltd/Insurance Advisernet Holdings Unit Trust49.949.9 616 874 JMD Ross Insurance Brokers Pty Ltd50.049.9 969 877 Markey Group Pty Ltd49.949.9 3,626 3,742 Global Assured Finance Pty Ltd49.949.9 - - HQ Insurance Pty Ltd40.440.4 2,028 1,877 KJ Risk Group Pty Ltd49.049.0 1,728 1,752 Lea Insurance Broking Pty Ltd/ Lea Insurance Broking Unit Trust50.0 - 5,844 - MGA Management Services Pty Ltd49.949.9 14,444 12,199 Northern Tablelands Insurance Brokers Pty Ltd (controlled entity from 1 March 2017)78.049.9 - 117 Northlake Holdings Pty Ltd50.050.0 5,558 5,554 Nexus (Aust) Pty Ltd50.050.0 9,951 11,157 Peter L Brown & Associates Pty Ltd49.949.9 582 562 The Procare Group Pty Ltd50.050.0 11,322 11,337 Rivers Insurance Brokers Pty Ltd49.949.9 3,122 3,074 Supabrook Pty Ltd49.949.9 837 785 R.G Financial Services Pty Ltd50.050.0 15 5 SRG Group Pty Ltd50.050.0 2,043 2,137 Western United Financial Services Pty Ltd49.949.9 2,010 1,985 WRI Insurance Brokers Pty Ltd50.050.0 3,165 3,052 Countrywide Tolstrup Financial Services Group Pty Ltd/Countrywide Tolstrup Group Unit Trust49.949.9 2,318 2,214 Oxley Insurance Brokers Pty Ltd/Port Macquarie Insurance Brokers Unit Trust49.949.9 120 155 Coffs Harbour Insurance Brokers Unit Trust37.537.5 153 140 Aust Re Brokers Pty Ltd50.050.0 1,427 943 Cinesura Entertainment Pty Ltd50.050.0 171 71 Fleetsure Pty Ltd50.0 - 3,622 - Longitude Insurance Pty Ltd***58.556.1 837 794 Millennium Underwriting Agency Pty Ltd**50.050.0 508 446 Sura Professional Risks Pty Ltd50.050.0 900 696 Sura Accident and Health Pty Ltd50.050.0 - - Tasman Underwriting Pty Ltd50.050.0 399 498 141,713 133,894 ConsolidatedEquity percentage ownedEquity accounted amount
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 38.75% of Longitude Insurance Pty Ltd. The consolidated entity has a further 19.33% interest indirectly
through an associate.
During the current year, the following transactions occurred;
On 13 January 2017, the consolidated entity contributed a further capital to Countrywide Tolstrup Financial Services
Group Pty Ltd / Countrywide Tolstrup Group Unit Trust.
On 1 March 2017, the consolidated entity acquired 50% of the voting shares of Fleetsure Pty Ltd.
On 1 April 2017, the consolidated entity acquired a further 1.25% of the voting shares of Longitude Pty Ltd.
On 1 May 2017, the consolidated entity acquired 50% of the voting shares in Lea Insurance broking Pty Ltd.
The cost of acquisitions and additional capital in respect of these transactions was $9,387,000 including a deferred
payment of $910,000.
On 20 June 2017, a controlled entity acquired 50% of the voting shares in Bruce Park Pty Ltd on which date it became a
controlled entity.
On 1 March 2017, a controlled entity acquired 40% of the voting shares in Northern Tablelands Insurance Brokers Pty Ltd
on which date it became a controlled entity.
Further adjustments to estimated contingent consideration payable in respect of associates, resulted in a reduction to the
estimates previously recognised by the Consolidated Group by $2,664,000 (see note 4(vi)). As the revised contingent
consideration estimates were below the original estimated contingent consideration payments, a corresponding and
offsetting impairment charge of $2,664,000 was recognised against the carrying value of that associate (see note 4(vi)).
There were no associates disposed of during the year.
During the previous year, the following transactions occurred;
On 1 July 2015, the consolidated entity acquired 49% of the voting shares of KJ Risk Group 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.
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 offse tting impairment charge of
$2,231,640 was recognised against the carrying value of that associate (see note 4(vi)).
Further adjustments to contingent considerations in respect of an associate resulted in an increase to the estimates
previously recognised by the Consolidated Group by $881,000 to reflect the estimated final payment. In recognition of the
increase in the contingent consideration, a $687,000 impairment charge booked in prior periods was reversed and a
further $195,000 was charged against profits. (see note 4(vi)).
During the previous year the consolidated entity disposed of the following associates;
On 1 December 2015, the group disposed of all the voting shares owned in Strathearn Insurance Group Pty Ltd.
On 1 February 2016, the group disposed of all the voting shares owned 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 in respect of the disposal of the associates above were $30,648,882.
60 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
11. INVESTMENT IN ASSOCIATES (CONTINUED)
Other information in respect of associated entities which carry on business directly or through controlled entities.
(a) The principal activity of each associate is insurance broking, except for associates owned by Austagencies Pty Ltd, which
are underwriting agents and The Procare Group Pty Ltd which offer Risk Services.
(b) The proportion of voting power held by the controlling entity in respect of each associate is 50% except for Coffs Harbour
Unit Trust where the voting power is 37.5%, Longitude Insurance Pty Ltd where voting power is 38.75%, Millennium
Underwriting where the voting power is 18.4%, HQ Insurance Brokers Pty Ltd where the voting power is 40.4% and
Austcan Risk Services (UK) Ltd where the voting power is 30%.
(c) The reporting date of each associate is 30 June 2017 (prior year reporting date 30 June 2016).
(d) There have been no significant subsequent events affecting the associates' profits for the year.
(e) Other than disclosed in note 15, there were no other impairments of investment in associates for the year.
(f) All associates, including unit trusts, were incorporated or established in Australia except for Brokerweb Risk Services Ltd
which is incorporated in New Zealand and Austcan Risk Services (UK) Limited which is incorporated in the United
Kingdom.
(g) The entity's share of the associate's commitments and contingent liabilities are disclosed in note 22.
(h) The entity's share of associates' profits/(losses):
AUB GROUP ANNUAL REPORT 2017 61
20172016$’000$’000Revenue108,305108,473Operating profits before income tax35,57534,060Amortisation of intangibles(2,792)(3,264)Net profit before income tax32,78330,796Income tax expense attributable to operating profits(8,113)(7,524)Share of associates’ net profits24,67023,272(i) The entity’s share of the assets and liabilities of associates:Current assets235,025220,047Non-current assets61,37454,212Current liabilities(225,502)(210,656)Non-current liabilities(14,079)(10,122)Net assets56,81853,481(j) Reconciliation of carrying value of associates:Balance at the beginning of the financial year 133,894 141,661 Acquisition of associates 9,386 2,971 Reclassification of investment in controlled entities to associates - 9,906 Reclassification of investment in associates to controlled entities (1,744) 650 Disposal of associates - (22,357)Share of associates’ profit after income tax 24,670 23,272 Impairment resulting from adjustment to contingent consideration (2,664)(2,231)Dividends/trust distributions received(21,839)(20,454)Net foreign exchange and other movements 9 476 Balance at the end of the financial year 141,712 133,894 Consolidated NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
12. SHARES IN CONTROLLED ENTITIES
62 AUB GROUP ANNUAL REPORT 2017
20172016%%All controlled entities are incorporated in Australia except for AUB Group NZ Ltd and its controlled entities which are incorporated in New Zealand, and comprise:Name and Interests in controlled entities:Austbrokers Pty Ltd and its controlled entities100100 - Austbrokers Investments Pty Ltd100100 - Austbrokers Trade Credit Pty Ltd7575 - Austbrokers SPT Pty Ltd AS Trustee for Austbrokers SPT Unit Trust7070 - Finsura Holdings Pty Ltd and its controlled entities7070 - Finsura Insurance Broking (Australia) Pty Ltd7070 - Finsura Financial Services Pty Ltd7070 - Finsura FinPlanning & Risk Pty Ltd7070 - Finsura Investment Management Services Pty Ltd7070 - Finsura Insurance Broking Unit Trust7070 - Finsura Workers Compensation Services Pty Ltd2828 - RI Hornsby Pty Ltd7070 - Northern Tablelands Insurance Brokers Pty Ltd7850Allied Health Australia Pty Ltd and its controlled entities6060 - Peak Conditioning Pty Ltd6060 - Peak Support Services Pty Ltd6060 - Pinnacle Rehab Pty Ltd6060 - Securis Pty Ltd6060AUB Group Services Pty Ltd100100AUB Group Business Centre Pty Ltd 100100Kyros Cook & Associates Pty Ltd100100Adept Insurance Brokers Pty Ltd and its controlled entity100100 - Geary Smith Pty Ltd100100AB Phillips Group Pty Ltd and its controlled entities5156 - AB Phillips Pty Ltd5156 - Austbrokers Compensation Services Pty Ltd5156 - Interfin Pty Ltd5156 - Financial Affairs Pty Ltd5156 - Blumberg Pty Ltd5156 - Bruce Park Pty Ltd7550AEI Holdings Pty Ltd / AEI Insurance (Brokers) Pty Ltd100100Austbrokers Financial Solutions (Syd) Pty Ltd and its controlled entities7575 - SPT Financial Services Pty Ltd5252 - Austbrokers Financial Solutions (ACT) Pty Ltd6975Austbrokers C.E. McDonald Pty Ltd and its controlled entity100100 - Traders Voice Services Pty Ltd100100Austbrokers Central Coast Pty Ltd and its controlled entities8080 - Austbrokers Central Coast Financial Services Pty Ltd8080 - Austbrokers Affinity Pty Ltd4040Equity Interest Held
12. SHARES IN CONTROLLED ENTITIES (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
AUB GROUP ANNUAL REPORT 2017 63
20172016%%All controlled entities are incorporated in Australia except for AUB Group NZ Ltd and its controlled entities which are incorporated in New Zealand, and comprise:Name and Interests in controlled entities:Austbrokers City State Pty Ltd7070Austbrokers Life Pty Ltd*100 - Austbrokers Premier Pty Ltd9090Austbrokers Southern Pty Ltd8080Austbrokers Canberra Pty Ltd7575Australian Bus and Coach Underwriting Agency Pty Ltd 100100Austbrokers Sydney Pty Ltd and its controlled entities 100100 - Austbrokers FWR Pty Ltd100100 - Austbrokers Professional Services Pty Ltd8080Austbrokers RWA Pty Ltd and its controlled entities6060 - CTRL Pty Ltd6060AHL Insurance Brokers (Aust) Pty Ltd100100Austagencies Pty Ltd and its controlled entities100100 - Sura Plant and Equipment Pty Ltd100100 - Latitude Underwriting Agency Pty Ltd100100 - Dolphin Insurance Pty Ltd100100 - Sura Hospitality Pty Ltd as trustee for G.U.S. Trust100100 - All-Trans Underwriting Pty Ltd (sold 30 June 2017) - 100 - Sura Pty Ltd100100 - Trinity Pacific Underwriting Agency Pty Ltd100100 - Asia Mideast Insurance and Reinsurance Pty Ltd6075 - 5 Star Underwriting Agency Pty Ltd100100 - Film Insurance Underwriting Agencies Pty Ltd95100 - Sura Film and Entertainment Pty Ltd95100 - Lawsons Underwriting Agency Pty Ltd9090 - Sura Labour Hire Pty Ltd9090 - Insurance Investment Solutions Pty Ltd (formerly Expert Strata Pty Ltd) 5555 - Sura Construction Pty Ltd5151 - Sura Engineering Pty Ltd5151Citycover (Aust) Pty Ltd7575Comsure Insurance Brokers Pty Ltd and controlled entities8080 - Austbrokers Financial Solutions (QLD) Pty Ltd6060 - Comsure Financial Solutions Pty Ltd6060Altius Group Holdings Pty Ltd ( previously Forean Group Holdings Pty Ltd) and its controlled entities5560 - Altius Group Pty Ltd5560 - Rehabilitation Services Pty Ltd5560 - Occheath Network Pty Ltd5560 - Psychological Health Interventions Pty Ltd5560 - Altius Group Services Pty Ltd5560 - CIM Group Holdings Pty Ltd5560 - PeopleSense Pty Ltd55 -
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
12. SHARES IN CONTROLLED ENTITIES (CONTINUED)
* During the year, the Group incorporated a new controlled entity, Austbrokers Life Pty Ltd, with capital of $200,000.
During the current year, the following transaction occurred;
Further adjustments to contingent considerations in respect of controlled entities resulted in increases to the estimates
previously recognised by the Consolidated Group by $8,674,000. This amount was charged against profits in the current year.
(see note 4(vi)).
During the previous year, the following transactions occurred;
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)).
Further adjustments to contingent considerations in respect of controlled entities resulted in increases to the estimates
previously recognised by the Consolidated Group by $3,799,302. This amount was charged against profits in the current
year. (see note 4(vi)).
See note 7 - Business Combinations, for details of increases and decreases in voting shares in controlled entities and acquisition
of new controlled entities during the current and previous year.
64 AUB GROUP ANNUAL REPORT 2017
20172016%%All controlled entities are incorporated in Australia except for AUB Group NZ Ltd and its controlled entities which are incorporated in New Zealand, and comprise:Name and Interests in controlled entities:AUB Group NZ Ltd and its controlled entities8080 - NZ Brokers Management Ltd8080 - Runacres and Associates Ltd 7280Austbrokers Coast to Coast Pty Ltd and its controlled entity7575 - Austbrokers Coast to Coast Financial Services Pty Ltd7575Insurics Pty Ltd100100InterRISK Australia Pty Ltd and its controlled entities7979 - InterRISK Queensland Pty Ltd3535 - Atlas Insurance Brokers Pty Ltd3527Shield Underwriting Holdings Pty Ltd100100McNaughton Gardiner Insurance Brokers Pty Ltd and its controlled entity7070 - McNaughton Gardiner Financial Services Pty Ltd7070North Coast Insurance Brokers Pty Ltd and its controlled entity7070 - NCFS Unit Trust7070Terrace Insurance Brokers Pty Ltd and controlled entity5471 - Austbrokers Financial Solutions (SA) Pty Ltd3647AUB International Pty Ltd 100100Austbrokers Employee Share Acquisition Schemes Trust 100100
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
13. PROPERTY, PLANT AND EQUIPMENT
AUB GROUP ANNUAL REPORT 2017 65
PropertyPlant and equipmentMotor vehiclesTotalProperty, plant and equipment$’000$’000$’000$’000Year ended 30 June 2017Balance at the beginning of the year80319,0932,46322,359Acquisition of controlled entities - 63621657Translation movements - (4)(3)(7)Additions during the year - 4,4623554,817Disposals during the year(101)(1,078)(379)(1,558)Property, plant and equipment at cost70223,1092,45726,268DepreciationBalance at the beginning of the year12411,3071,12212,553Acquisition of controlled entities - 449 - 449Disposals during the year(17)(891)(324)(1,232)Translation movements - (2)1(1)Depreciation during the year82,4463972,851Accumulated depreciation11513,3091,19614,620SummaryNet carrying amount at beginning of year6797,7861,3419,806Net carrying amount at end of year5879,8001,26111,648Year ended 30 June 2016Balance at the beginning of the year73016,6901,40118,821Acquisition of controlled entities - 1,2498492,098Disposal of controlled entities - (214) - (214)Translation movements - 71320Additions during the year734,4085505,031Disposals during the year - (3,047)(350)(3,397)Property, plant and equipment at cost80319,0932,46322,359DepreciationBalance at the beginning of the year11411,59360712,314Acquisition of controlled entities - 6393821,021Disposal of controlled entities - (156) - (156)Disposals during the year - (3,005)(198)(3,203)Translation movements - 39645Depreciation during the year102,1973252,532Accumulated depreciation12411,3071,12212,553SummaryNet carrying amount at beginning of year6165,0977946,507Net carrying amount at end of year6797,7861,3419,806Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
14. INTANGIBLE ASSETS AND GOODWILL
.
66 AUB GROUP ANNUAL REPORT 2017
Capitalised project costsGoodwillInsurance broking registersTotal$’000$’000$’000 $’000Year ended 30 June 2017Balance at the beginning of the year 1,011 219,76653,382274,159Additional businesses and portfolios acquired - 17,3383,57020,908Additional capitalised project acquired 879 - - 879Impairment charge - (319) - (319)Translation of foreign exchange rate movements - (117)(60)(177)Total intangibles1,890236,66856,892295,450AmortisationBalance at the beginning of the year405 - 27,00827,413Amortisation current year415 - 3,7634,178Accumulated amortisation820 - 30,77131,591SummaryNet carrying amount at beginning of year606219,76626,374246,746Net carrying amount at end of year1,070236,66826,121263,859Year ended 30 June 2016Balance at the beginning of the year1,011181,25143,725225,987Additional businesses and portfolios acquired - 50,65012,69363,343Impairment charge - (2,040) - (2,040)Translation of foreign exchange rate movements - 477 - 477Deconsolidation of controlled entity - (10,572)(3,036)(13,608)Total intangibles1,011219,76653,382274,159AmortisationBalance at the beginning of the year - - 26,15126,151Deconsolidation of controlled entity - - (2,466)(2,466)Amortisation current year 405 - 3,3233,728Accumulated amortisation 405 - 27,00827,413SummaryNet carrying amount at beginning of year1,011181,25117,574199,836Net carrying amount at end of year606219,76626,374246,746Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
14. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)
Individual intangible assets material to the group are attributable to the following controlled entities.
(i) Goodwill
(ii) Insurance Broking Registers
AUB GROUP ANNUAL REPORT 2017 67
20172016AUB Group NZ Ltd and its controlled entities8.59.59,503 10,674InterRISK Australia Pty Ltd and its controlled entities6.07.03,747 4,364Citycover (Aust) Pty Ltd7.58.52,475 2,804AB Phillips Group Pty Limited and its controlled entities9.58.03,560 1,391Remaining amortisation period (years)20172016$’000$’000InterRisk Australia Pty Ltd and its controlled entities 18,995 18,995 Austbrokers Sydney Pty Ltd and its controlled entities 8,890 8,890 Altius Group Holdings Pty Ltd and its controlled entities 45,969 38,349 Austagencies Pty Ltd and its controlled entities 33,828 33,828 AUB Group NZ Ltd and its controlled entities 27,001 27,134 Citycover (Aust) Pty Ltd 8,689 8,689 Allied Health Australia Pty Ltd and its controlled entities 22,693 22,693 AB Phillips Group Pty Limited and its controlled entities 13,317 6,974 Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
15. IMPAIRMENT TESTING OF IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
The Group determines whether goodwill is impaired at least on an annual basis. Ongoing reviews of the perfor mance of each
cash generating unit (CGU) is carried out regularly to determine if any CGU shows new indicators of impairment.
The recoverable amount of the identifiable intangible assets and goodwill is determined based on the higher of the estimate o f
fair value of the CGU to which they relate less costs to sell and its value in use. In determining fair value, each controlled e ntity or
associate is considered a separate CGU or grouped into a single CGU for impairment testing where cash inflows are
interdependent and have similar characteristics.
The CGU represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.
Australian insurance broking entities, New Zealand insurance broking entities and Risk Services entities are viewed as separate
CGUs at the entity level for impairment purposes, whilst the underwriting agency businesses have each been aggregated into a
single CGU.
To conduct impairment testing, the group compares the carrying value with the recoverable amount of each CGU.
The recoverable amount is based on the higher of:
Fair value - based on maintainable earnings; or
Value in use - based on a discounted cash flow model.
Fair value
The Company has sought independent external advice to determine the appropriate pre tax profit multiple used to determine fair
value. The Weighted Average Cost of Capital (WACC) is based on the cost of capital calculated for each CGU after taking into
account: market risks; a risk loading recognising; the size of the business; current borrowing interest rates, borrowing capacity of
the businesses; and the risk free rate.
Key assumptions for the fair value methodology
2017
2016
Fair value is based on estimates of maintainable earnings. The appropriate pre tax
maintainable earnings for each CGU is multiplied by a multiple from within the range,
depending on the type of business carried out by the CGU
The risk free rate (before risk margin)
Multiples have been determined after factoring in the following assumed sustainable profit
growth
7 – 8 times
7 – 8 times
2.8%
Up to 2%
2.4%
2.0%
Value in use
Where the Value In Use methodology 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 takes into account the weighted average cost of capital (WACC) for those CGUs and also looks
at the expected long term growth rate with a terminal value calculation at the end of 5 years. This methodology will result in a
better estimate valuation for entities where historic performance may not factor in the medium and long term expected growth
from this business.
During the current year, five CGUs (2016: two) were valued using the value in use methodology. All other CGUs were
supportable using the fair value methodology.
Key assumptions for the value in use methodology
Post tax discount rates (WACC)
2017 %
2016 %
9.5% - 11.3% 10.7% - 12.1%
Short term revenue growth rate - used in discount cash flow assumptions (1-5 years)
2.0% – 10.0%
1.0% - 5.0%
Long term revenue growth rate
1.0% - 1.5%
1.5% - 2.0%
The short term growth rate of 10% relates to a CGU in the Risk Services segment which has a differen t income and expense
growth characteristics to other CGUs within the group. Given the largely different CGUs tested under the DCF methodology this
year, compared to those in last year, the assumptions presented above are not fully comparable.
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)).
The resulting recoverable amounts derived from the appropriate measures described above are compared to the carryi ng value
for each CGU and in the event that the carrying value exceeds the recoverable amount, an impairment loss is recognised.
No reasonable possible change in key assumptions would result in the recoverable amount of a CGU that is material to the
group's total intangible assets, goodwill and investment in associates, being significantly less than the carrying value included in
the accounts.
68 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
15. IMPAIRMENT TESTING OF IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL (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 curr ent
and prior year acquisitions resulted in a net increase to the estimates previously recog nised 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 $2,983,000 (2016: $4,271,000) was recognised against the carrying value of
those investments (see note 4(vi)).
16. SHARE-BASED PAYMENT PLANS
Employee share option plan
The share-based payments expense recognised in the Consolidated Statement of Profit or Loss is included in note 4 (iv)
Expenses.
The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share
options issued during the year:
Unless otherwise stated, all options are granted over shares in the ultimate controlling entity, AUB Group Limited.
AUB GROUP ANNUAL REPORT 2017 69
2017201620172016$’000$’000$’000$’000Increases in contingent consideration adjustments relating to controlled entities 8,674 3,799 - - Increases in contingent consideration adjustments relating to associates - 195 - - Reductions in contingent consideration and impairment adjustments relating to controlled entities(353)(2,040) 319 2,040 Reductions in contingent consideration and impairment adjustments relating to associates(2,664)(2,231) 2,664 2,231 Total 5,657 (277) 2,983 4,271 Contingent consideration adjustmentsImpairment charges2017201620172016Share options movements (applicable to each relevant financial year)No.No.WAEP ($)WAEP ($)Outstanding at the beginning of the year567,756378,6870.000.12Granted during the year115,702319,8910.000.00Granted during the year - previous year adjustment32,321 - 0.000.00Exercised during the period: Options issued during 2009 - (11,099)0.004.22Exercised during the period: Options issued during 2014 - (73,000)0.000.00Lapsed / forfeited during the period: Options issued during 2012 - (21,430)0.000.00Lapsed / forfeited during the period: Options issued during 2013(26,490)(5,713)0.000.00Lapsed / forfeited during the period: Options issued during 2014(4,018)(9,235)0.000.00Lapsed / forfeited during the period: Options issued during 2015(5,250)(10,345)0.000.00Lapsed / forfeited during the period: Options issued during 2016(7,816) - 0.000.00Outstanding at the end of the year672,205567,756 0.00 0.00
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
16. SHARE-BASED PAYMENT PLANS (CONTINUED)
Employee share option plan (continued)
The number of options outstanding as at 30 June 2017 is represented by:
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
115,702 Share options were granted on 24 January 2017, exercisable 3 years from 24 January 2017 at an exercise price of
$NIL.
32,321 Share options were granted on 8 December 2016, exercisable 2 years from 23 November 2016 at an exercise price of
$NIL. These options were issued as a result of an administrative error in respect of the number of options issued during the
previous year. The additional options were issued on the same terms and conditions as the 62,075 options issued on 23
November 2015.
22,726 options, lapsed due to an employee no longer employed.
20,848 options lapsed due to vesting conditions over the 4 years ended 30 June 2016, not being met.
During the previous year the following options were granted, exercised or lapsed
11,099 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 options, lapsed due to employees resigning.
69,891 share options were granted on 23 November 2015, exercisable 3 years from 23 November 2018 at an exercise price
of $NIL.
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 28 November 2015, exercisable 3 years from 1 January 2019 at an exercise price of
$NIL.
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.
The fair value of all options has been valued 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 2017 is 4.52 years. (2016: 5.32
years).
70 AUB GROUP ANNUAL REPORT 2017
Financial year in which options were issuedOption grant dateEarliest exercise dateValuation$201720162013 31-Oct-1231-Oct-157.71- 26,490 2013 15-Jan-1301-Jan-167.38160,000 160,000 2014 30-Oct-1330-Oct-1610.0624,246 28,264 2015 31-Oct-1431-Oct-179.0927,861 33,111 2016 23-Nov-1523-Nov-187.3162,075 69,891 2016 07-Apr-1601-Jan-197.90250,000 250,000 2017 08-Dec-1623-Nov-189.3632,321 - 2017 24-Jan-1724-Jan-208.99115,702 - 672,205 567,756 Number of options outstanding at year end Options oustanding at the end of the year
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
16. SHARE-BASED PAYMENT PLANS (CONTINUED)
Employee share option plan (continued)
Option Exercise conditions
These option exercise conditions apply to all options issued up to 30 June 2015 except 160,000 unvested 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)
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% additional Compound
Growth over 10%;
(iv)
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 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) 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 160,000 options granted to the CEO on 15 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)
(iii)
(iv)
(v)
(vi)
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%;
equal to 7% per annum, 50% of the options will become exercisable;
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
7.0%;
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");
AUB GROUP ANNUAL REPORT 2017 71
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
16. SHARE-BASED PAYMENT PLANS (CONTINUED)
Option exercise conditions (continued)
(c)
if all of the options do not become exercisable on the First Test Date and the Second Test Date Compound Growth is
higher than the First Test Compound Growth then 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)
At Target Group (100% of Target Group TSR) 50% of TSR options become vested.
(ii) 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%.
(iii)
If all of the TSR 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 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.
72 AUB GROUP ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
17. TRADE AND OTHER PAYABLES
AUB GROUP ANNUAL REPORT 2017 73
20172016$’000$’000CurrentTrade payables27,19027,141Amount payable on broking/underwriting agency operations196,082186,253Contingent consideration and other payables28,86825,371Other payables – related entities1,272745Total trade and other payables (current)253,412239,510Non-currentContingent consideration payables26011,334 Other payable - related entities710 - Other payables - other - 118 Total trade and other payables (non-current)97011,452 Included in trade and other payable are the following contingent consideration payables;Balance at the beginning of the year32,21728,259Contingent consideration on current year acquisitions (at net present value)4,7646,006Payments made in respect of previously recognised contingent consideration(23,555)(4,330)Adjustments to contingent consideration payments previously recognised5,657(277)Reversal of prior year impairment charge - 687Foreign currency translation movements(78)683Interest recognised in original contingent consideration at net present value2671,189Balance at the end of the year19,27232,217Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
18. PROVISIONS
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 amou nts
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 and assumptions
applied in the measurement of this provision.
74 AUB GROUP ANNUAL REPORT 2017
Employee entitlementsMake good provisionTotal$’000$’000$’000Year ended 30 June 2017Balance at the beginning of the year14,26288315,145Acquisition of controlled entity458 - 458Arising during the year3,0052423,247Balance at the end of the year17,725 1,125 18,850 Current 201715,06917515,244Non-current 20172,6569503,60617,7251,12518,850Year ended 30 June 2016Balance at the beginning of the year11,91887212,790Disposal of controlled entity603 - 603Arising during the year1,741111,752Balance at the end of the year14,26288315,145Current 201612,00640912,415Non-current 20162,2564742,73014,26288315,145Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
19. INTEREST BEARING LOANS AND BORROWINGS
Group Borrowing facilities as at 30 June 2017
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 20 April 2017, AUB Group Ltd accepted terms to a revised facility from St George Bank, which increased from $79.5m to
$92.4m, incorporating a facility previously arranged through Westpac NZ Bank. The facility, which expires on 30 November 2018 ,
has an undrawn amount of $11.5m (excluding bank guarantees and overdraft of $1.5m). The total amount drawn down under this
facility was $42.0m relating to AUB Group Ltd, and an amount of $32.4m advanced to AUB Group NZ Ltd. A further amount of
$5.0m has been utilised for credit cards and bank guarantees.
In addition to the St George Bank facilities provided to AUB Group Limited, controlled entities within the Group have also
negotiated other facilities with both St George Bank and other banks as disclosed below. Whilst the facilities expire beyond the
next 12 months some facilities have provision for mandatory principal repayments during the facility period. These mandatory
repayments are shown as current liabilities.
During the current and prior years, there were no defaults or breaches of terms and conditions of any of the se facilities.
AUB GROUP ANNUAL REPORT 2017 75
20172016$’000$’000CurrentSecured bank loan* 5,305 2,975 Obligations under finance leases and hire purchase contracts (note 22) 488 1,069 Unsecured loan - other 376 - Unsecured loan - related parties - 417 Total interest bearing loans and borrowings (current) 6,169 4,461 Non-currentSecured bank loan*88,29883,692Obligations under finance leases and hire purchase contracts (note 22)629493Total interest bearing loans and borrowings (non-current)88,92784,185* Summary of secured bank loansSt George Bank82,60565,067Macquarie Bank7,4384,871Commonwealth Bank1,1431,245National Australia Bank2,2442,677Hunter Premium Funding173353Westpac NZ Bank - 12,454Total secured bank loans93,60386,667Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
19. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
Group Borrowing facilities as at 30 June 2017 (continued)
76 AUB GROUP ANNUAL REPORT 2017
Name of Facility ProviderType of borrowingTotal Facility $'000Undrawn Amount $'000Amount Utilised $'000Borrowing Amount $'000Current $'000Non current $'000Expiry dateInterest rate %Variable / Fixed (Var/Fix)AUB Group LimitedSt George BankLoan facility53,50011,50042,00042,000 - 42,00030/11/20182.35VarCredit cards1,450 - 1,450 - - - 30/11/201817.45VarBank guarantee / overdraft5,0001,5183,482 - - - 30/11/2018N/AVarSt George BankLoan facility43,9943,38940,60540,6052,19838,407Between 13/09/2017& 1/04/20203.27 - 6.50Var/FixFinance facilities with other banksLoan facility13,4722,44511,02710,9983,1077,891Between 30/07/2017& 15/06/20224.62 - 5.61Var117,41618,85298,56493,6035,30588,298Name of Facility ProviderType of borrowingTotal Facility $'000Undrawn Amount $'000Amount Utilised $'000Borrowing Amount $'000Current $'000Non current $'000Expiry dateInterest rate %Variable / Fixed (Var/Fix)AUB Group LimitedSt George BankLoan facility53,50016,50037,00037,000 - 37,00030/11/20183.16VarCredit cards1,450 - 1,450 - - - 30/11/201817.45VarBank guarantee / overdraft5,0004784,522 - - - 30/11/2018N/AVarSt George BankLoan facility30,7322,66528,06728,0672,08825,979Between 02/07/2015& 10/07/20203.51 - 6.14Var/FixWestpac NZ BankLoan facility12,454 - 12,45412,454 - 12,45431/01/20184.24VarFinance facilities with other banksLoan facility10,6691,5269,1439,1468878,259Between 31/10/2017& 20/06/20214.65 - 8.89Var113,80521,16992,63686,6672,97583,692Total Borrowing FacilitiesTotal Borrowing FacilitiesFacilities arranged by other controlled entitiesGroup borrowing facilities as at 30 June 2016Facilities arranged by other controlled entities
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
20. ISSUED CAPITAL
Ordinary shares have the right to receive dividends and, in the event of winding up the company, to participate in the proceeds from the
sale of all surplus assets in proportion to the number of and amounts paid up on shares held.
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.
Of the total shares issued up to 30 June 2017, 40,000 had restrictions whereby the shares could not be disposed of before 1 January
2018, except in the case where an employee who owns the shares, resigns.
AUB GROUP ANNUAL REPORT 2017 77
20172016$’000$’000Issued capital opening balance 141,708 128,890 Net Proceeds from Dividend Reinvestment Plan - 12,852 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 - (34)Issued capital 141,708 141,708 SharesSharesNo.No.Number of shares on issue (ordinary shares fully paid)63,846,47663,846,476Movements in number of shares on issueBeginning of the financial year 63,846,476 62,256,689 On 10 October 2015 allotted 11,099 shares at an issue price of $NIL - 11,099 On 30 October 2015 1,004,770 shares were issued at $8.629 as a result of a Dividend Reinvestment Plan - 1,004,770 On 6 April 2016 73,000 shares were issued at an issue price of $NIL - 73,000 On 29 April 2016 500,918 shares were issued at $8.3468 as a result of a Dividend Reinvestment Plan - 500,918 Total shares on issue 63,846,476 63,846,476 Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
21. NATURE AND PURPOSE OF RESERVES
Asset revaluation reserve
The asset revaluation reserve was used to record movements in the revalued amounts of broker register acquired through step
up acquisition of broking subsidiaries before 1 July 2009. From this date, fair value adjustments on business combinations ar e no
longer recognised through the asset revaluation reserve but in the Consolidated Statement of Profit or Loss. The reserve can
only be used to pay dividends in limited circumstances. The current year amortisation expense relating to those step ups is
transferred to retained earnings when the amortisation expense is charged to the profit and loss account.
Foreign currency translation reserve
This reserve is used to record foreign currency differences from translation of the financial information of foreign operatio ns that
have a currency other than Australian dollars.
Share based payment reserve
This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration.
Refer to note 16 for further details of these plans.
Non controlling interests
This is measured at their proportionate share of the acquirees’ identifiable net assets.
22. COMMITMENTS AND CONTINGENCIES
Finance lease and hire purchase commitments - Group as lessee
The Group has finance leases and hire purchase contracts for various items of software and plant and machinery. These leases
have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that
holds the lease.
78 AUB GROUP ANNUAL REPORT 2017
20172016$’000$’000Interest in:Ordinary - - Non Controlling Interest share of net assets 68,868 56,992 68,868 56,992 Consolidated2017$'0002016$'000Finance lease and hire purchase commitmentsPayable– Not later than one year 519 1,117 – Later than one year and not later than five years 663 519 – Later than five years - - Minimum lease and hire purchase payments 1,182 1,636 Deduct: future finance charges 65 74 Present value of minimum lease and hire purchase payments (refer note 19) 1,117 1,562 Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
22. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
Operating lease commitments: Associates as lessee
Operating lease commitments: Non Cancellable
Operating leases contracted for but not capitalised in the financial statements
Contingent liabilities
Estimates of the maximum amounts of contingent liabilities that may become payable
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 - 4 years.
At balance date no liability has arisen in relation to these indemnities.
AUB GROUP ANNUAL REPORT 2017 79
201720162017$'0002016$'000Payable– Not later than one year7,4756,758– Later than one year and not later than five years19,54818,099– Later than five years4,5715,50831,59430,365ConsolidatedPayable– Not later than one year3,3742,289– Later than one year and not later than five years7,3485,945– Later than five years1,7412,10412,46310,338AUB Group Limited has guaranteed loan facilities provided to associates in proportion to its shareholding7,4775,373AUB Group Limited has guaranteed lease facilities provided to associates in proportion to its shareholding444607,5215,833
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 manage ment 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 insura nce
intermediary sector. This assessment is based on each of the operating segments having similar products and service s, 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.
Segments include intergroup charges at commercial terms and conditions for services rendered. These charges are eliminated
on consolidation.
80 AUB GROUP ANNUAL REPORT 2017
Insurance IntermediaryRisk ServicesTotalInsurance IntermediaryRisk ServicesTotal$’000$’000$’000$’000$’000$’000RevenueInterest from other persons / corporations2,6171352,7523,545203,565Other income received from customers180,46656,621237,087168,34138,700207,041Total Income183,08356,756239,839171,88638,720210,606Share of profit of associatesShare of Net Profits of Associates Accounted for using the Equity Method (net of income tax expense) 27,051 41127,46224,9141,62226,536Amortisation of Intangibles - Associates(2,792) - (2,792)(2,892)(372)(3,264)Total Revenue 207,342 57,167264,509193,90839,970233,878Less: ExpensesAmortisation of Intangibles - controlled entities3,763 - 3,7633,323 - 3,323Depreciation of property plant and equipment2,3325192,8512,1194132,532Other expenses151,08944,020195,109142,27329,936172,209Borrowing costs3,9651684,1335,373165,389Total expenses including borrowing costs161,14944,707205,856153,08830,365183,453Profit before income tax46,19312,46058,65340,8209,60550,425Less: Income tax expense(7,500)(3,776)(11,276)(9,525)(2,602)(12,127)Profit after income tax 38,6938,68447,37731,2957,00338,298Less: Non-controlling interest(6,577)(3,536)(10,113)(4,485)(2,300)(6,785)Profit after income tax and non-controlling interests32,1165,14837,26426,8104,70331,513(4,276)10,489Profit after non controlling interests attributable to shareholders of the parent 32,98842,002Other comprehensive income attributable to members of AUB Group Limited (net of non controlling interests)(36)427Profit after non controlling interests and other comprehensive income 32,95242,42930 June 201730 June 2016Other Adjustments to carrying value of associates, contingent consideration payments and profit on sale (see note 4(vi),(vii))
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
23. OPERATING SEGMENTS (CONTINUED)
Non current assets attributable to each region have been aggregated based on the assets that reside within each business in
addition to any assets within the Consolidated Group that are necessary in the operation of those businesses.
24. AUDITORS REMUNERATION
25. SUBSEQUENT EVENTS
On 28 August 2017, the Directors of AUB Group Limited declared a final dividend on ordinary shares in respect of the 2017 financial
year. The total amount of the dividend is $18,834,710 which represents a fully franked dividend of 29.5 cents per share. The dividend
has not been provided for in the 30 June 2017 financial statements.
AUB GROUP ANNUAL REPORT 2017 81
20172016$’000$’000Geographic informationRevenueRevenue - Australia248,771224,179Revenue - New Zealand15,7389,699Total Revenue264,509233,878Total non-current assetsNon current assets - Australia372,934341,056Non-current assets - New Zealand52,02355,128Total non-current assets424,957396,184ConsolidatedThe revenue attributable to each region is based on the income earned from clients that reside in those regions.20172016$$Amounts received or due to Ernst & Young (Australia and NZ) for:Audit of the financial statements1,062,511 987,807 Other assurance related services46,792 - Other - including taxation services73,567 44,369 Total1,182,870 1,032,176 Amounts received or due to non Ernst & Young audit firms for:Audit of the financial statements321,098 350,735 Other assurance related services27,035 10,080 Other - taxation services77,829 94,704 Total425,962 455,519 Total auditors' remuneration1,608,832 1,487,695
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
26. RELATED PARTY DISCLOSURES
a) The following related party transactions occurred during the year:
(i) Transactions with related parties in parent, controlled entities and associates.
Entities within the wholly owned group charge associates $10,660,989 (2016: $11,098,753) management fees for expenses incurre d
and services rendered.
Entities within the wholly owned group invest in trusts managed by related parties. These transactions are at normal commercial
terms and conditions.
Entities within the wholly owned group provide funds to other entities within the group. These funds are non-interest bearing and are
repayable on demand. See note 9 for amounts receivables from related parties $3,571,186 (2016: $2,686,093) and note 17 for
payables to related parties $1,981,524 (2016: $744,610).
Entities within the wholly owned group have advanced funds to other related entities.
82 AUB GROUP ANNUAL REPORT 2017
20172016$$Austbrokers Aviation Pty Ltd 9,237 10,704 Austbrokers Hiller Marine Pty Ltd 238,905 53,035 R.G Financial Services Pty Ltd - 32,191 A & I Member Services Pty Ltd - 9,877 Geebeejay Pty Ltd 18,800 7,800 Longitude Insurance Pty Ltd 2,090,742 1,318,623 Tasman Underwriting Pty Ltd 7,914 24,487 Austbrokers AEI Transport Pty Ltd - 30,078 Austbrokers AEI Pty Ltd - 2,385 Aust Re Brokers Pty Ltd - 8,498 Newsurety Pty Ltd - 39,406 All -Trans Underwriting Pty Ltd 50,122 - Damian Price 25,060 12,671 Sura Accident and Health Pty Ltd 775,059 816,950 Sura Professional Risk Pty Ltd 8,559 78,203 Gard Insurance Pty Ltd 44,498 78,257 Venrick Pty Ltd 48,605 70,000 Blumberg Pty Ltd - 31,157 Brokerweb Risk Services Ltd 13,705 13,771 Joe Lo Surdo 225,000 - Bay Insurance Brokers Ltd 7,490 - Dawson Insurance Brokers (Rotorua) Limited 7,490 - Tibec Pty Ltd - 48,000 3,571,186 2,686,093
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
26. RELATED PARTY DISCLOSURES (CONTINUED)
a) The following related party transactions occurred during the year: (continued)
(i) Transactions with related parties in parent, controlled entities and associates. (continued)
(ii) Transactions with related parties
Entities within the wholly owned group charge associated entities interest on interest bearing loans. Total inter est charged for the
period was $22,331 (2016: $54,277). The interest charged is on normal commercial terms and conditions.
The loan is repayable within 4 years, and includes annual minimum payments.
No further loans have been advanced to members of the economic entity (2016: $2,315,000). Members of the economic entity
have repaid loans issued by AUB Group Services Pty Ltd totalling $33,000 (2016: $1,815,000) during the year. The balance
outstanding at 30 June 2017 was $425,961 (2016: $458,937).
A key management personnel, K. McIvor, has a 20% interest in the voting shares of a controlled entity, AUB Group NZ Ltd.
(iii) 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 notes 26(c) and 26(d), 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.
AUB GROUP ANNUAL REPORT 2017 83
$$Other payables - related entitiesJames Wiechman Pty Ltd ATF Wiechman Family Trust 250,264 227,719 Peter Curtis Pty Ltd ATF Curtis Family Trust 289,102 121,547 Areten Pty Ltd 49,689 44,817 Tim Parry 4,775 2,181 Budin Financial Services Pty Ltd 81,887 90,220 Judd O'Shea 16,377 19,644 Rhys Bastian - 101,731 Aust Re Brokers Pty Ltd 62,312 - Cinesura Entertainment Pty Ltd 52,119 - Derick Borean 475,064 - Richard Forby 475,064 - MGA Management Services Pty Ltd 80,000 - Corunna Investments Pty Ltd 11,988 10,364 SPFS Enterprises Pty Ltd ATF Salisbury Family Trust 132,883 126,387 1,981,524 744,610 Consolidated20172016$$KJ Risk Group Pty Ltd425,961 458,937425,961 458,937
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
26. RELATED PARTY DISCLOSURES (CONTINUED
b) Details of Key Management Personnel:
The directors of the company in office during the year and until the date of signing this report are:
D. C. Clarke
R. J. Carless
P. A. Lahiff
R. J. Low
M.P.L Searles
Chairman (non-executive)
Director (non-executive)
Director (non-executive)
Director (non-executive)
Chief Executive Officer and Managing Director
The following persons were the executives with the greatest authority for the planning, directing and controlling the activit ies of
the consolidated entity during the financial year:
J. Blackledge
F. Pasquini
S. Vohra
K. McIvor
N. Thomas
A. Zissis
Chief Financial Officer
Divisional Chief Executive, National Partner & Group Acquisition
Divisional Chief Executive, Risk Services
Managing Director, AUB Group New Zealand
Divisional Chief Executive, Austbrokers Network
Managing Director, SURA (appointed 1 July 2016)
c) There are no loans outstanding owing by Key Management Personnel at 30 June 2017 (2016: NIL)
d) Compensation of Key Management Personnel by Category
84 AUB GROUP ANNUAL REPORT 2017
Consolidated20172016$$Salary, fees and short term incentives3,508,503 2,790,547Post employment252,864 234,481Other long-term- - Termination benefits- - Share-based payment466,531 213,6944,227,898 3,238,722
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
27. PARENT ENTITY INFORMATION
Contingent liabilities
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 entiti es,
which falls within the next 3-4 years.
At balance date no liability has arisen in relation to these indemnities.
AUB GROUP ANNUAL REPORT 2017 85
20172016$’000$’000AssetsCash and cash equivalents7,60019,441Current assets59,40056,246Non-current assets172,042167,474Total assets239,042243,161LiabilitiesCurrent liabilities12,62417,635Non-current liabilities - 4,583Interest bearing loans and borrowings42,00037,000Total liabilities54,62459,218Net assets184,418183,943EquityIssued capital141,708141,708Share based payments6,0905,384Retained earnings36,62036,851Total shareholders equity184,418183,943Profit for the year before income tax24,72718,433Income tax (credit)(901)(796)Net profit after tax for the period25,62819,229Other comprehensive (expense)/income after income tax for the period - - Total comprehensive income after tax for the period25,62819,229Other informationGuarantees entered into by the parent entity in relation to the debts of its subsidiariesor associatesAustbrokers Holdings Ltd has guaranteed loan facilities provided to associates in proportion to its shareholding.12,72910,477Austbrokers Holdings Ltd has guaranteed lease facilities provided to associates in proportion to its shareholding. 44 46012,77310,937
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
28. FINANCIAL INSTRUMENTS
Financial risk management objectives and policies
The Group's principal financial instruments comprise receivables, loans, 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 t he
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. P rimary responsibility for
identification and control of financial risks rests with the Board Audit & Risk Management Committee, supported by a
Management Committee, under the authority of the Board. The Board reviews and agrees policies for managing each o f 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, loans, trade and other receivables. Although there is a concentration of cash and cash equivalents held with
major banks, 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 gi ven 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 a nd
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 exclud ed from the Group's credit risk
analysis. 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/underwriting agency operations.
86 AUB GROUP ANNUAL REPORT 2017
20172016$’000$’000Assets and liabilities relating to Insurance Broking Account.Amounts due from customers on broking/underwriting agency operations138,118126,788Cash held on trust89,77287,513Amounts payable on broking/underwriting agency operations(196,082)(186,253)Undrawn income(31,808)(28,048)Net receivables included in Insurance Broking Account - - Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
28. FINANCIAL INSTRUMENTS (CONTINUED)
a) Credit Risk (continued)
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. Cash and cash equivalents are concentrated with
major banks and the risk of default by these counterparties is not considered significant.
Cash and cash equivalents are deposited with Australian 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 2017, all financial assets were neither past due nor impaired.
AUB GROUP ANNUAL REPORT 2017 87
20172016Financial assets$’000$’000Cash and cash equivalents63,54670,933Trade and other receivables26,55130,124Amount due from clients in respect of premium funding operations7,7886,366Related party receivables3,5722,686Loans - related entities80629Other receivables50581102,042110,819ConsolidatedThe amount for trade and other receivables included in the table above excludes insurance broking account receivables.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 has
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 "Interest 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 realised/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 tim ing are
based on the conditions existing at 30 June 2017 with comparatives based on conditions existing at 30 June 2016.
The risk implied from the values shown in the table below, 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.
The table summarises the maturity profile of the Group’s financial assets and financial liabilities based on contractual
undiscounted payments.
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.
88 AUB GROUP ANNUAL REPORT 2017
20172016Financial assets$’000$’000Due not later than 6 months321,563318,2156 months to not later than one year7,8426,702Later than one year and not later than five years527203Later than five years - - 329,932325,120Financial liabilitiesDue not later than 12 months(259,581)(243,971)Later than one year and not later than five years(89,897)(95,637)Later than five years - - (349,478)(339,608)Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
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 is unobservable.
The Group’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.
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 operating expenses/business obligations other than for paymen ts to underwriters and/or
repayments to policyholders.
The value of the deferred consideration payments outstanding at 30 June 2017 was $19.3 million (2016: $32.2 million).
Of the $19.3 million, a total of $12.2 million relates to contingent consideration payments which are due to be paid within 90 days
and are based on actual results for those businesses as at 30 June 2017. The balance of $4.3 million is due to be paid within 12
months with only $270,000 expected to be paid over a period greater than 13 mo nths (see note 17 for movements in contingent
consideration estimates).
AUB GROUP ANNUAL REPORT 2017 89
2017201620172016Financial assets$’000$’000$’000$’000Cash and cash equivalents153,318158,446153,318158,446Trade and other receivables165,095156,912165,095156,912Amounts due from clients in respect of premium funding operations7,7886,3667,7886,366Related party receivables3,5722,6863,5722,686Loans – related entities8062980629Loans – other28412841Loan with associated entities51405140Total financial assets329,932325,120329,932325,120Financial liabilitiesLoans and other borrowings(95,096)(88,646)(95,092)(88,641)Trade and other payables and accruals(254,382)(250,962)(254,382)(250,962)Total financial liabilities(349,478)(339,608)(349,474)(339,603)Carrying valueFair value
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
28. FINANCIAL INSTRUMENTS (CONTINUED)
c) Fair Values of recognised assets and liabilities (continued)
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 2018 operating profit declines by 10% compared to the current forecast, a reduction of $1,173,000 in the deferred
consideration would result.
- If the full year 2018 operating profit increases by 10% compared to the current forecast, an increase of $ 1,211,000 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 in 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 2017, the carrying amounts of such receivables, net of allowances, were not materi ally
different from their calculated fair values.
The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as 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. 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.
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 fi nancial
assets and liabilities exposed to Australian variable interest rate risk.
Borrowings fixed for a period greater than 12 months have been excluded from the table above.
90 AUB GROUP ANNUAL REPORT 2017
20172016Financial assets$’000$’000Cash and cash equivalents (including trust account balance)153,318158,446Loans – related entities80629Loans – other2841Total financial assets153,426159,116Financial liabilitiesLoans and other borrowings(94,821)(88,279)Net exposure to interest rate movements58,60570,837Consolidated
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
28. FINANCIAL INSTRUMENTS (CONTINUED)
d) Market Risk (continued)
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 borrowings totalling $ 93.6
million (2016: $86.7 million), $275,000 (2016: $367,000) has been fixed for periods greater than 12 months at approximately 6.5%
(2016: 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:
The net increase in consolidated profits in respect of interest rate rises is due to the net positive impact of interest bear ing assets
being greater than borrowings.
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 controlled entiti es
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 2017, an impairment charge
totalling $2,983,000 (2016: $4,271,000) relating to the carrying value of controlled entities and associates was recognised a nd
was shown as an expense in the Consolidated Statement of Profit or Loss. The impairment charge was offset against a reduction
in contingent consideration payments in respect of controlled entities and associates totalling $3,017,000 (2016: $4,271,000) that
was in excess of the expected settlement amounts and were credited to the Consolidated Statement of Profit or Loss.
AUB GROUP ANNUAL REPORT 2017 91
2017201620172016Judgements of reasonably possible movements.$’000$’000$’000$’000Consolidated+0.5% (50 basis points) (2016 +0.50% (50 basis points))291349 - - -0.5% (50 basis points) (2016 -0.50% (50 basis points))(291)(349) - - Post tax profits Higher/(lower)Impacts directly to equity Higher/(lower)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2017
28. FINANCIAL INSTRUMENTS (CONTINUED)
d) Market Risk (continued)
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 Group'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 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:
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 2017, the Group's strategy was to maintain a gearing ratio of not greater than 30% which was unchanged from 201 6.
f) Put Option
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 in itial shareholding in
those entities, which falls within the next 3-4 years.
At balance date no liability has arisen in relation to these indemnities.
92 AUB GROUP ANNUAL REPORT 2017
2017201620172016Judgements of reasonably possible movements.$’000$’000$’000$’000Consolidated-NZ $0.10 (ten cents) (2015 -NZ $0.10 (ten cents)1,4501,397––+NZ $0.10 (ten cents) (2015 +NZ $0.10 (ten cents)(1,450)(1,397)––Post tax profits Higher/(lower)Impacts directly to equity Higher/(lower)20172016The gearing ratios at 30 June were as follows;$’000$’000Debt to equity ratioInterest bearing loans and borrowings (see note 19)95,09688,646Total equity371,656351,235Total equity and borrowings466,752439,881Debt/(Debt plus Equity) Ratio20.4%20.2%Consolidated
DIRECTORS’ DECLARATION
YEAR ENDED 30 JUNE 2017
In the opinion of the directors:
(a) the financial statements and notes of the consolidated entity are 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 201 7 and of its
performance for the year ended on that date;
ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(b) the financial statements and notes also comply with International Financial Reporting Standar ds as disclosed in note
2.2;
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
(d) 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 2017.
On behalf of the Board
D.C. Clarke
Chairman
M. P. L. Searles
Chief Executive Officer and Managing Director
Sydney, 28 August 2017
Sydney, 28 August 2017
AUB GROUP ANNUAL REPORT 2017 93
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
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUB GROUP LIMITED
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of AUB Group Limited (the Company) and its subsidiaries (collectively the Group),
which comprises the consolidated statement of financial position as at 30 June 2017, 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 to the financial statements, including a summary of significant accounting policies, and the
Directors’ Declaration.
In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
i.
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its
consolidated financial performance for the year ended on that date; and
ii.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to res pond
to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial
report.
Why significant
How our audit addressed the key audit matter
Carrying value of goodwill, insurance broker register intangible assets and investment in associates
Financial report reference: Notes 11, 14,15, 2.2(e)(ii)
Goodwill, other intangible assets and investment in
Our audit procedures included the following:
associates total $406 million and represent 53% of total
We assessed the Group’s determination of CGUs.
assets.
This is a key matter as the determination of whether or
not certain elements of goodwill, insurance broker register
intangible assets and investment in associates are
impaired, involves complex and subjective judgments by
the Group about the future results of the relevant parts of
the business. All of these assets are assessed for
impairment using the same impairment model.
The key inputs and judgments involved in the impairment
assessment include:
applicable profit multiples
94 AUB GROUP ANNUAL REPORT 2017
We evaluated the Group’s process regarding impairment
assessment of goodwill, other intangible assets and
investment in associates to determine any asset impairments.
In 2017 the Group engaged an independent valuer to
recommend key inputs used in developing the Group’s
applicable profit multiples and discount rates. We assessed
the independence and capability of the valuer and evaluated
their work.
We involved our valuation specialists to assist in assessing
the appropriateness of the impairment model including key
inputs into the models such as the applicable profit multiples.
INDEPENDENT AUDITOR’S REPORT
Why significant
How our audit addressed the key audit matter
forecast cash flows including assumptions on revenue
We evaluated the cash flow forecasts by comparing them to
growth
discount rates
terminal growth rate
Economic and entity specific factors are incorporated into
the profit multiples used in the impairment assessment.
The Group has a high number of individual Cash
Generating Units (CGUs) which can be impacted
positively or adversely by state based changes in the
macro-environment changes, particularly those impacted
by specific industries or natural events.
The future results of brokers and underwriting agencies
are exposed to insurance premium rates, volumes and
commission rates, and broker fees. Similarly, the risk
services entities are likely to be affected by any changes
the Board approved budgets and our understanding of the
industry’s external factors affecting revenue growth.
We independently developed expectations regarding the
impairment testing results based on our understanding of the
business, external industry trends and experience and the
Group’s historic business activity. We evaluated the Group’s
impairment testing results against those expectations.
We checked the mathematical accuracy of the impairment
model and agreed relevant data back to the latest budgets,
actual results and other supporting documentation.
We evaluated the estimated useful life attributed to
identifiable insurance broking register intangible assets.
We assessed the Group’s sensitivity analysis and evaluated
whether any reasonably foreseeable change in assumptions
in state based workers compensation scheme
could lead to an impairment.
arrangements.
We assessed the adequacy of the disclosures in note 15 to
the financial report.
Decentralised operations
Financial report reference: Notes 2.2, 11,12
The Group comprises more than 70 subsidiaries and
Our audit procedures included the following:
associates (‘components’) that are part of two reportable
We assessed the design and operating effectiveness of
segments, with operations in Australia and New Zealand.
relevant controls over the Group’s decentralised structure,
This was a key audit matter as the individual components
including centralised monitoring controls at the Group,
are wide ranging in their size, customers and products.
segment and individual component level.
The decentralised and varied nature of these operations
require significant oversight by the Group to monitor the
We planned and scoped our audit using a risk based
approach across all key components of the Group to
activities, review component financial reporting and
undertake the Group consolidation procedures.
determine the extent of audit work to be undertaken at each
location.
The financial report of a number of controlled entities and
We met the component audit teams of the significant entities
associates are audited by component teams and
therefore the assessment of the adequacy of the
procedures of another auditor is considered significant to
the audit.
to evaluate, through review of the work papers, scoping of
key audit areas, planning and execution of audit procedures,
significant areas of estimation and judgment, and audit
findings.
We performed overall analytical review procedures on
financial information of all components, including the ones not
considered as individually significant. Procedures included
discussion with the Group about the components’ financial
performance against the Board’s approved budget, and the
prior year actual results, and an assessment as to whether
there was any material change not in line with the Group’s or
our knowledge, or industry general trends.
AUB GROUP ANNUAL REPORT 2017 95
INDEPENDENT AUDITOR’S REPORT
Information Other than the Financial Report and Auditor’s Report
The Directors are responsible for the other information. The other information comprises the information included in the Group’s
2017 Annual Report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, c onsider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors 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 control as the Directors
determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going con cern,
disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise profess ional judgement and maintain
professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resultin g
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on t he
Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, includ ing the disclosures, and whether the
financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or busines s activities within the
Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
96 AUB GROUP ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the
financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s repo rt
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 17 to 27 of the Directors’ Report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of the AUB Group Limited for the year ended 30 June 2017, complies with section 300A
of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the Remuneration Repo rt 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.
Ernst & Young
David Jewell
Partner
Sydney
28 August 2017
AUB GROUP ANNUAL REPORT 2017 97
ASX ADDITIONAL INFORMATION
YEAR ENDED 30 JUNE 2017
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 25 July 2017.
(a) Distribution of equity securities
Ordinary share capital
63,846,476 fully paid ordinary shares are held by 1,726 individual shareholders. All issued shares carry one vote per share
and carry the rights to dividends.
40,000 ordinary shares issued on exercise of options under the Senior Executive Option Plan are he ld in escrow in accordance
with the Plan.
Options
672,205 options are held by 17 individual option holders.
Options do not carry a right to vote.
The number of shareholders, by size of holding, in each class are:
98 AUB GROUP ANNUAL REPORT 2017
Fully paid ordinary sharesOptions1 – 1000744-1,001 – 5,00063655,001 – 10,000184 - 10,001 – 100,00013711100,001 and over2511,72617Holding less than a marketable parcel103-
ASX ADDITIONAL INFORMATION
YEAR ENDED 30 JUNE 2017
AUB GROUP ANNUAL REPORT 2017 99
(b) Substantial shareholdersFully paidOrdinary shareholdersDate of NoticeNumberPercentageChallenger Limited22-June-20177,603,09511.91%FMR LLC27-October-20164,463,2756.99%MFS Investment Management on behalf of Sun Life Financial Inc.30-May-20173,514,1035.50%Allianz Australia Insurance Limited27-August-20073,324,2795.21%QBE Insurance Group Limited02-March-20173,257,9425.10%BT Investment Management Limited06-May-20163,189,9285.00%(c) Twenty largest holders of quoted equity securitiesFully paidOrdinary shareholdersNumberPercentageFidelity Mgt & Research4,860,7427.60%BT Investment Mgt3,601,8535.60%MFS Investment Mgt3,488,7925.50%Allianz Australia Insurance3,324,2795.20%QBE Insurance3,257,9425.10%NovaPort Capital2,973,0334.70%Avoca Investment Mgt2,504,1063.90%Ellerston Capital2,373,9373.70%Greencape Capital2,249,2123.50%WaveStone Capital2,102,6373.30%Perpetual Investments2,036,5683.20%Wilson Asset Mgt1,724,7522.70%Fisher Funds Mgt1,321,6092.10%Adam Smith Asset Mgt1,313,1712.10%Aberdeen Asset Mgt1,192,7481.90%Colonial First State - Core Australian Equities1,163,5471.80%Karara Capital1,097,7801.70%Milton Corporation1,044,7951.60%Invesco Australia876,9061.40%Perennial Value Mgt847,4571.30%43,355,86667.90%
DIVIDEND DETAILS
* The Dividend Reinvestment Plan was suspended from 25/08/16
100 AUB GROUP ANNUAL REPORT 2017
Dividend DetailsDividendAmountFrankingEx DateRecord DatePayment DateInterim*12.5cFully Franked6/04/20177/04/201727/04/2017Final*29.5cFully Franked6/10/20179/10/201731/10/2017
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 11-28.
Directors
D. C. Clarke (Chairman)
M. P. L. Searles (Chief Executive Officer and Managing Director)
R. J. Carless
R.J Low
P.A Lahiff
Company Secretary
J. L. Coss
Annual General Meeting
The Annual General Meeting of AUB Group Limited will be held at
the Auditorium, Level 15, 1 Farrar Place, Sydney, NSW 2000 on
Tuesday 21st of November 2017 at 10.00am
Registered Office and Principal Place of Business
AUB Group Limited
Level 10, 88 Phillip Street
Sydney NSW 2000
P: + 61 2 9935 2222
W: www.aubgroup.com.au
ACN: 000 000 715
Share Register
Link Market Services Limited
Level 12, 680 George Street
Sydney, NSW 2000
P: 1300 554 474
(Outside Australia + 61 2 8280 7100)
AUB Group Limited shares are listed on the
Australian Securities Exchange (ASX: AUB)
Auditors
Ernst & Young
200 George Street
Sydney, NSW 2000
CORPORATE INFORMATION
AUB GROUP ANNUAL REPORT 2017 101