19 September 2019
The Manager
Market Announcements Office
Australian Securities Exchange Ltd
Level 6, Exchange Centre
20 Bridge Street
Sydney NSW 2000
Dear Sir / Madam,
Re: FY19 Annual Report
FOR RELEASE TO THE MARKET
Please find attached for immediate release in relation to AUB Group Limited (ASX: AUB) is the following:
• Annual Report
About AUB Group
AUB Group Limited is Australasia’s largest equity-based insurance broker network driving approximately
A$3.2 billion GWP across its network of 93 businesses, servicing more than 550,000 clients and over one million
policies across more than 600 locations. In Australia, the Group has around 20 percent of the commercial
insurance broking market share with investment in 61 broking businesses, complimented by established
capabilities in life insurance broking, premium funding, claims management and legal services. In New Zealand,
AUB Group holds equity stakes in seven major insurance broker partners, an underwriting agency as well as equity
in NZbrokers, the largest broking management group in New Zealand with presence in 140 locations. The Group
also has a portfolio of 19 agencies within its SURA business with access to delegated global underwriting capacity
for niche specialist insurance products. The Group’s Risk Services division includes equity investments in three
businesses with capabilities in loss adjustment, investigations, claims management, claims legal support and
rehabilitation services.
Yours faithfully,
David Franks
Company Secretary
For further information, contact David Franks Tel: 0414 899 897
davidf@aubgroup.com.au
CONTENTS
Chair’s Message
CEO’s Message
FINANCIAL REPORT
3
4
Directors’ Report
(including Operating and Financial Review)
5 - 25
Auditor’s Independence Declaration
Environment, Social and Governance
Consolidated Statement of Profit or Loss
Consolidated Statement of Other
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
26
27
29
30
31
32
34
Notes to the Financial Statements
35 - 95
Directors' Declaration
Independent Auditor’s Report
ASX Additional Information
Dividend Details
Corporate Information
96
97
101
103
104
CHAIR’S
MESSAGE
Dear Shareholders,
I am pleased to share another set of results and consistent growth for
AUB Group in Financial Year 2019. Our results for the year are less than we
would wish for when consolidated, however notwithstanding setbacks,
the Group’s core insurance broking and underwriting agency business in
Australia and New Zealand have performed well, delivering double digit
growth. In the financial year, the business as a whole delivered a 4.1%
increase in Adjusted Net Profit After Tax (“ANPAT”) of $46.4 million, while
maintaining a strong balance sheet and capital position.
As a result, the Directors have declared a final fully franked dividend
of 32.5 cents per share, payable on 8 October 2019. This, together with
the interim dividend of 13.5 cents, results in a full year dividend of 46.0
cents, being a net earnings payout ratio of 73%. Earnings per share
retracted slightly, reducing by 3.1% due to a combination of an increase
in outstanding shares as a result of the capital raising in November
2019 and under-performance in a small number of businesses.
The Group continues to have significant scale and footprint and an
excellent market reputation. Our Australian Broking, Underwriting
Agencies and NZ Broking businesses all performed well in FY19 with
the Group’s Adjusted NPAT growing 10% year on year (excluding
Canberra results), and growth is expected to continue in FY20. In
pursuit of acquisition growth, the Company undertook major
additional equity-steps in BWRS in New Zealand and Adroit, funded
through a combination of debt and equity from the capital raising.
The financial result for the year was disrupted by two events. Firstly,
the concluding ramifications of a substantial fraud event in Austbrokers
Canberra impacted underlying Adjusted NPAT by $2.3 million. Whilst
recovery proceedings continue, the Group does not expect any further
negative impacts of the matter on future periods. Secondly, the
market-driven ongoing under-performance of two businesses within
the Health and Rehabilitation sector, in our Risk Services division.
Unfortunately, the external environment for these businesses, particularly
in NSW, is expected to continue to be under pressure in the short
term, management has initiated a cost-management program while
accelerating expansion into other states.
Our balance sheet is well positioned and we will continue our strategy
of disciplined acquisitions as well as supporting our partner businesses
to improve their underlying performance. The Company continues to
be prudent in managing capital, with the Group gearing ratio reducing
to 22% in FY19. The business has strong ongoing cash flow generation,
whilst the corporate entity has access to cash and long-term corporate
debt facilities to fund future acquisition and organic growth initiatives.
While our business and partner network remain focused on sustainable
growth, the Board recognises a need for renewal and investment in the
development of the business to meet the evolving market environment.
In March 2019, Mark Searles retired after 6 years of expansion and growth
for the Group. I’d like to thank Mark for his contributions to the Group and
we wish him all the best in the next stage of his career.
Following Mark’s departure, Mike Emmett was welcomed as the new
Chief Executive and Managing Director for AUB Group in Q3 FY19. Mike’s
impressive experience in a range of executive positions across distributed
business models provides for an exciting period at AUB and the Board is
looking forward to working with him to achieve enhanced outcomes for
our shareholders. Mike has been charged by the Board with the task of
reviewing strategies required to successfully execute on the long-term
growth vision for the Group.
We have operated a very successful business model for many years,
looking after and protecting the assets and livelihood of our clients.
Mike has seen the strength of our core businesses and has quickly gone
about implementing new and exciting initiatives to build on that strength.
The Group’s strategic plan involves an expansion of our existing portfolio
through continued focus on acquisitions as well as driving organic growth
via further investment in our broker value proposition to improve our
partners’ ability to serve clients. This includes taking control of our core
insurance capacity sourcing capabilities via a re-vamped wholly owned
AIMS and expanding it to deliver improved technology capabilities,
partner support services and a centralised claims capability, all of which
will assist partners in meeting the needs of their clients more efficiently
and effectively.
The Board is mindful of the heightened focus and scrutiny of the financial
services industry in light of the Hayne Royal Commission findings and are
actively participating in industry groups and working with regulators on key
areas to ensure a strong, ethical, sustainable and client-focused industry.
We have recognised the need for companies to embrace the increased
focus on the health of its corporate culture, to have clearly articulated
governance principles, and be active in promoting diversity in the
workforce. The ESG section of this report (page 27) highlights a small
number of the many contributions our partners make to the communities
they operate in.
I would like conclude by thanking all our employees and partners for their
contribution during the year. Whilst it is disappointing to have performed
below our potential in FY19, we know that the business is built on strong
foundations by a focused and committed team. As such, we are optimistic
about our future and anticipating an improved performance in future
years under the leadership of our new CEO.
On Tuesday 12 November 2019, we will be hosting our Annual General
Meeting in Sydney. The Directors and senior management team will
be present and look forward to answering your questions on our FY19
performance, strategy and future outlook.
David Clarke
Chair
AUB GROUP ANNUAL REPORT 2019 3
CEO’S
MESSAGE
Dear Shareholders,
I am honoured to have taken on the role as CEO of AUB Group. The
Group’s partnership model is designed to reward both our shareholders
and our partners’ performance. The strength of the business model,
the diversity and capabilities of the broking and underwriting agency
businesses and their underlying potential is what attracted me to my
role at AUB Group.
2019 was a challenging year for the Group. Pleasingly the core
insurance broking and underwriting agency businesses delivered a
solid performance however we faced significant headwinds arising
from the difficulties in the health and rehabilitation components of
the Risk Services division as well as the costs arising from remediation
of the Canberra fraud.
Since joining in March 2019, I have performed a detailed review of our
underlying businesses and their growth and profitability drivers. I am
very impressed with the quality and capability in each business and have
observed excellent strengths and specialist expertise in key industry
sectors and insurance areas, access to significant scale and footprint and
an excellent market reputation. I am also comfortable that the issues
experienced in Canberra are not systemic across the AUB Group.
Australian Broking, Underwriting Agencies and NZ Broking are expected
to continue strong growth performance in FY20. The Group has also
made good progress to remediate the issues that have impacted FY19
results namely Canberra (remediated) and Risk Services. Additionally,
we are enhancing services to our network partners to drive stronger
organic growth.
We have refreshed the Group’s strategic agenda which involves an
expansion of our existing portfolio through continued focus on M&A, and
an ongoing focus on driving organic growth via investment in our broker
value proposition to improve our partners’ ability to win in the market.
We will continue to grow our core broking businesses and expand our
underwriting agency capabilities in Australia and New Zealand. Having
built a strong distribution platform in New Zealand, the Group will look
to introduce new services to that market that accord with the Group’s
strategy. FY20 will be a year of consolidation and simplification of our
portfolio to unlock benefits of scale and focus. In Australia, our network
has pockets of strong specialist expertise in key industry sectors and
insurance risk areas, providing an opportunity to leverage these through
consolidation and, where appropriate, proactively make acquisitions
that accelerate our ability to optimise our footprint and specialisms. The
business will also increase focus on cost-management initiatives, both
at a Group and partner level, to improve the Group’s operating leverage.
In FY19, we commenced a process to take control of AIMS and expand
the group’s partner services proposition. The restructured and expanded
AIMS will comprise four units delivering best in class services for
underwriting capacity and placement, technology, claims handling
and partner back-office support.
4 AUB GROUP ANNUAL REPORT 2019
Capacity sourcing and product offering design is a key component
of the Group’s value proposition for its partners. We will provide our
partners with more competitive products with differentiated features
tailored for their customers. We have commenced a review of our
underwriting and placement arrangements. We will ensure current
and potential insurance partners can better participate with us to
deliver market leading offerings that meet the tailored needs of our
members and clients. We will also be creating closer alignment with
SURA. The response from our insurance partners and broker network
is very positive.
The Group has made good progress with a range of IT initiatives that
seek to provide access to significantly improved technology enhancing
our partners’ responsiveness and efficiency. Initiatives include a high-
volume broking system focused on efficiency and improved customer
service outcomes and a new underwriting agency system.
The Group has a strong set of claims propositions in larger brokers
as well as in Procare. We will be leveraging these to provide better
services to our clients and brokers across the full Austbrokers network.
We are consolidating the AUB Business Centre into AIMS in order
to provide the scale and capability to deliver enhanced accounting,
reporting, compliance, payroll, HR and training services designed to
support the back-office needs of our partners. Our commitment to
partners is that we’ll deliver these services better or cheaper than
they can source themselves.
The AIMS restructure and these initiatives allow us to leverage our scale
in ways that enhance the services to our customers in a manner that is
more efficient for our partners.
FY20 will be an important year for AUB, a year in which the Group will
deliver benefits to our customers and partners whilst also completing
the remediation of Risk Services, reducing Group overhead costs and
addressing any other under-performing elements of our portfolio. This
will position us for accelerated growth in the years ahead.
The Group announced a guidance of Adjusted NPAT growth of 8% to 10%
from the $46.4m comparative base (excluding major one-off acquisition
legal and financing costs).
Whilst 2019 has been disappointing on several fronts, the core business
remains strong, with potential to unlock significant value as we remediate
and build AUB Group for the future. I look forward to updating you on our
progress.
Michael Emmett
Chief Executive Officer and Managing Director
CHAIR’S
MESSAGE
FINANCIAL
REPORT
AUB GROUP ANNUAL REPORT 2019 5
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
Your Directors submit their report for the year ended 30 June 2019.
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.
D.C. Clarke
LB MAICD
Non-Executive Chair
M.P.C. Emmett
B Com, H.Dip. Acc CA (SA)
CEO and Managing Director
(appointed 11 March 2019)
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 Charter
Hall Group and Fisher Funds Management Limited. Mr Clarke joined
the Board on 3 February 2014 and was elected Group Chairman on 26
November 2015. He is on the Audit & Risk Management and Remuneration
& People Committees and Chairs the Nomination Committee.
In addition to his role as Group CEO, Mike serves on a number of boards
for companies in the Group including the Risk Services businesses, BWRS
and, NZbrokers and, as well as serving as Chair of Austagencies, AIMS and
AUB Group NZ. Prior to joining AUB Group he was Group CEO for Cover-
More, previously an ASX-listed global travel insurer and now part of the
Zurich Group. Mike also held senior roles in Australia at QBE as Group
Executive, Operations and at EY leading the Financial Services Advisory
business. Before moving to Australia, Mike spent several years working
in London including at IBM leading the Insurance and Banking consulting
teams and at Morse PLC (Application Services) as Managing Director.
Mike’s earlier career in South Africa included senior roles in consulting
at IBM, Accenture and PwC. Mike is also a Non-Executive Director of 1st
Group Limited (ASX:1ST) and the Gold Coast Suns AFL Club.
R. J. Carless
BEc, MAICD
R. J. Low
B Com, FCA, GAICD
Ray Carless was appointed to the Board on 1 October 2010 and has over
40 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.
Robin Low was a partner at PricewaterhouseCoopers with over 30 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 Public
Education Foundation, Primary Ethics and Guide Dogs NSW/ACT. 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, IPH Limited, Australian Reinsurance Pool
Corporation and Gordian Runoff Limited.
6 AUB GROUP ANNUAL REPORT 2019
P. A. Lahiff
BSc Agr, GAICD
C. L. Rogers
CFA, B Com, MBA, GAICD
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
Chair of Cuscal Limited and Australian Retail Credit Association, and
sits on the boards of NESS Super and Sezzle Ltd. Paul holds a BSc
from Sydney University and is a Fellow of the Australian Institute
of Company Directors. He is on the Audit & Risk Management,
Nomination and Chairs the Remuneration & People Committee.
M. P. L. Searles
GAICD, DipM, Grad Dip Mktg
CEO and Managing Director
(ceased 11 March 2019)
Whilst Mark was Group CEO, he also served on the Boards of a number
of Group companies. 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 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.
COMPANY SECRETARY
D. J. Franks
BEc, CA, F Fin, FGIA, JP
Joint Company Secretary
Cath was appointed to the Board on 3 May 2018. She is a Non Executive
Director of Digital Wallet Pty Ltd (trading as Beem It), a payments
app funded by CommBank, NAB and Westpac, a Director and co-
founder of Digital Receipt Exchange Limited and a member of the
Commercialisation Committee of the Heart Research Institute. Cath
holds a Bachelor of Commerce from the University of New South Wales,
an MBA from INSEAD, is a CFA Charterholder and a graduate of the
Australian Institute of Company Directors. She was previously a Director
of McGrath Limited (2016-2018) and has held Senior roles in leading
investment and financial services organisations in Sydney and overseas
including AirTree Ventures, Anchorage Capital Partners, Masdar Capital
and Credit Suisse. Cath is a member of the Audit & Risk Management,
Nomination and Remuneration & People Committees.
A. K. T. Luu
BBus, LLB, MCom, LLM, FGIA, Dip IT
Joint Company Secretary
Allan joined AUB Group Ltd on 10 December 2018 as General Counsel
(Interim) and was appointed Joint Company Secretary on 21 December
2018. He is a solicitor with almost 20 years’ experience across a variety
of industries, including infrastructure, major projects and technology.
He was previously Legal Counsel at DXC (formerly CSC) and the
Transurban Group and General Counsel and Company Secretary at a
number of SMEs. Prior to that, he was in private practice at K&L Gates,
Baker & McKenzie and Ogier. Allan also previously lectured at the Sydney
College of Law, Governance Institute, University of Melbourne and RMIT.
J. L. Coss
BA, LLB, Dip CII, ANZIIF (Fellow) CIP, FGIA, FCIS, Adv Dip (Management)
(ceased 21 December 2018)
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, E
ngland and Wales. He was previously General Counsel and Company
Secretary of InterRisk Australia Pty Ltd and prior to that was in private
practice with Allens Arthur Robinson.
H. T. Edelman
JD, BA
(ceased 21 December 2018)
David was appointed Joint Company Secretary of AUB Group Ltd
on 13 December 2018. With over 20 years in finance and accounting,
initially qualifying with Price Waterhouse in their Business Services and
Corporate Finance Divisions, David has been CFO, Company Secretary
and/or Director for numerous ASX listed and unlisted public and private
companies, in a range of industries covering financial services, energy
retailing, transport, mineral exploration, technology, automotive, software
development and healthcare. David is a non-executive director of
JCurve Solutions Limited(ASX: JCS) and a director of the Automic Group.
Howard joined AUB Group Ltd in October 2017 as Group Legal Counsel
and was appointed Company Secretary alongside J Coss in December
2017. Howard brings over 25 years’ corporate and commercial experience
across a variety of industries. He was previously General Counsel and
Company Secretary of iSoft Group Limited and CIMB Australia and
worked at ASIC in developing company reforms. Howard was also in
private practice with Allens Arthur Robinson, New York based Skadden
and Arps, and was partner at the US firm Pillsbury Winthrop. Howard
is admitted to practice law in NSW and New York, USA.
AUB GROUP ANNUAL REPORT 2019 7
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
Interests in the shares and options of the Company and related
bodies corporate
As at the date of this report, the interests of the Directors in the
shares and options of AUB Group Limited were:
Number of
Number of
Options over
Ordinary
Shares
Ordinary
Shares
164,129
99,920
–
22,932
11,646
12,917
–
10,334
–
–
–
–
–
–
M. P. L. Searles
(ceased 11/03/19)
M. P. C. Emmett
R. J. Carless
D. C. Clarke
R. J. Low
C. L. Rogers
P. A. Lahiff
PRINCIPAL ACTIVITIES
AUB Group Limited (AUB Group or Group) is Australasia’s largest
equity-based insurance broker network driving approximately A$3.2
billion GWP across its network of 93 businesses, servicing more
than 600,000 clients, over one million policies across more than
500 locations. In Australia, the Group has around 20 percent of the
commercial SME insurance broking market share with investment
in 61 broking businesses, complimented by established capabilities
in life insurance broking, premium funding, claims management
and legal services. In New Zealand, AUB Group holds equity
stakes in seven major insurance broker partners, an underwriting
agency as well as equity in NZbrokers, the largest broking
management group in New Zealand with presence in 140 locations
and Insurance Advisernet NZ. The Group’s Underwriting Agencies
business has a portfolio of 19 specialist agencies with access to
delegated global underwriting capacity for niche specialist
insurance products. The Group’s Risk Services division includes
equity investments in three businesses with capabilities in loss
adjustment, investigations, claims management, claims legal
support and rehabilitation services.
Our business model means that we have equity stakes in our
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
individual brokers (Cluster Groups), leveraging the benefits of its
services where appropriate.
AUB Group primarily operates through two key business segments:
1. Insurance intermediaries: we make investments in businesses
that provide insurance and risk related services to clients. These
businesses include:
broking networks operating in Australia and New Zealand,
which provide risk and insurance broking and advisory services
primarily to SME business clients; and
8 AUB GROUP ANNUAL REPORT 2019
underwriting agencies that underwrite, distribute and manage
specialist insurance products and portfolios on behalf of
licensed insurance companies. These services are available
via risk advisers, in and outside the Group’s broking networks.
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 intermediary 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.
2. Risk Services: We invest in organisations that provide people-
related risk management solutions for clients, insurance brokers
and insurance companies
Two of the three Risk Services businesses have seen their
business volumes impacted materially by changes in market
conditions.
The Risk Services businesses earn fees for services such as
occupational health and safety consulting, injured worker
rehabilitation services, corporate health and wellness initiatives,
investigations, training, risk advice and claims management to
insurers and clients. Fees are negotiated with State/Territory-based
scheme agents and insurers or directly with clients.
OPERATING AND FINANCIAL
REVIEW
Operating results for the year
In the year ended 30 June 2019 (FY19) net profit after tax
(Reported NPAT) attributable to equity holders of AUB Group was
$48.4 million (FY18: $46.5 million), a 4.0% increase over the prior
year.
This increase was mainly driven by the underlying performance of
the business as reflected in the increase in Adjusted NPAT.
Reported NPAT includes non-cash fair value movements on
investments and a reduction in the put option reserve offset by
impairment adjustments relating to the entities subject to the put
options and $3.2 million in losses resulting from misconduct by the
former Managing Director of a controlled entity (in addition to $1.5
million included in the first half of FY19).
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 $46.4 million in FY19 up 4.1% on prior year
(FY18: $44.6 million).
Adjusted NPAT is a key measure used by management and the
board to assess and review business performance.
The Group has benefited from the increase in ownership in
Australian broking businesses (44% of Adroit Holdings, 17% of
Northlake Holdings) and New Zealand broking businesses (50% of
BrokerWeb Risk Services) and an acquisition within our
underwriting agency business (50% of Cinesura Pty Ltd).
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
FY18
Variance
$’000
%
4.0%
OPERATING AND FINANCIAL REVIEW (CONTINUED)
RECONCILIATION OF ADJUSTED NPAT TO REPORTED NPAT 1
FY19
$’000
Net Profit after tax attributable to equity holders of the parent
48,361
46,520
Reconciling items net of tax and non-controlling interest adjustments for:
Adjustments to contingent consideration for acquisitions of controlled entities and
associates2
Add back offsetting impairment charge to the carrying value of associates & goodwill,
related to above2
Add back impairment charge to the carrying value of controlled entities3
Less non controlling interest relating to impairment charge to the carrying value of
controlled entities
Less/plus profit on sale or deconsolidation of controlled entities net of tax4
Plus cost of fraud relating to Austbrokers Canberra Pty Ltd - 1 January to 30 June
20195
Movement in put option liability (net of interest charge)6
Less profit on sale of associates/insurance broking portfolios net of tax7
Less adjustment to carrying value of entities (to fair value) on date they became
controlled or deconsolidated8
(44)
(114)
3,868
15,093
153
2,300
(6,336)
(575)
(788)
157
3,189
-
(6,484)
527
(68)
(861)
(15,871)
(7,753)
Net Profit from operations
Add back amortisation of intangibles net of tax9
Adjus ted NPAT
40,920
40,354
5,459
4,200
1.4%
30.0%
46,379
44,554
4.1%
1 The financial information in this table has been derived from the audited financial statements. The adjusted NPAT is non-IFRS financial information and has not been
audited in accordance with Australian Accounting Standards.
2 The Group’s acquisition policy is to defer a component of the purchase price, which is determined by future financial results. An estimate of the contingent consideration
is made at the time of acquisition and is reviewed and varied at balance date if estimates change, or payments are made. This adjustment can be a loss (if increased) or
a profit (if reduced). Where an estimate or payment is reduced, an offsetting adjustment (impairment) may be made to the carrying value.
3 Where the carrying value of a controlled entity exceeds the fair value an impairment expense is recognized during the period.
4 Gain/loss on deconsolidation are excluded from adjusted NPAT. Such adjustments will only occur in future if further sales of this type are made.
5 The costs associated with the misconduct by the former Managing Director of Austbrokers Canberra incurred from 1 January 2019 to 30 June 2019 have been excluded
from adjusted NPAT.
6 Movement in value of the put option liability
7 Insurance broking portfolios may be sold from time to time and any gains/loss from sale are excluded from adjusted NPAT.
8 The adjustments to carrying values of associates or controlled entities arise where the Group increases its equity in associates whereupon they became controlled
entities or decreases its equity in a controlled entity and it becomes an associate (deconsolidated). As required by accounting standards the carrying values for the
existing investments have been adjusted to fair value and the increase included in net profit. Such adjustments will only occur in future if further acquisitions or sales of
this type are made.
9 Amortisation expense is a non-cash item.
Results by operating division
Insurance intermediaries:
Australian Broking – profit increased by 3.7% to $52.8 million in
FY19. The current year result includes the increased profit
contribution from an increased interest in Adroit effective 1 July
2018 and several smaller acquisitions and mergers by partner
businesses.
Organic growth was achieved through client policy premium
growth, as well as margin improvement.
New Zealand Broking – profit increased by 41.5% to $9.2 million in
FY19 primarily due to the increased interest in BWRS effective 1
January 2019. Acquisition expansion opportunities remain strong
with investment in people, processes and infrastructure (including
technology) continuing as the business expands.
AUB GROUP ANNUAL REPORT 2019 9
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
OPERATING AND FINANCIAL REVIEW
(CONTINUED)
Underwriting Agencies:
Profit increased by 11.6% to $15.5 million in FY19, in the context of
significant revenue growth in a number of agencies partially offset
by the impact of delays in replacing strata binders, now
successfully transferred to a new panel of insurers with a strong
appetite for this portfolio. Income from profit shares increased
reflecting continued strong underwriting results delivered for
insurers.
Risk Services:
Profit decreased by 66% to $2.4 million, impacted by reduced
business volumes and excess service capacity in Altius and Allied.
Procare continued to deliver claims management and loss
adjustment services to insurers with the prospect of expanding
these to Austbrokers’ network clients.
Overall:
The core operational areas (now excluding Risk Services) grew,
with continued organic growth complemented by key step-up
changes.
The Group’s focus on managing the overall cost base resulted in
an improvement to our corporate cost-to-PBT ratio to 16.5%2
(FY18: 17.4%).
A reconciliation of the operating results to the Annual Report
operating segments is set out below.
RECONCILIATION OF OPERATING SEGMENTS
Consolidated
FY19
Consolidated
FY18
Insurance
Risk
Insurance
Risk
Intermediary
Services
Total
Intermediary
Services
$'000
$'000
$'000
$'000
$'000
Total
$'000
Profit before tax and after non-controlling interests
from:
- Insurance broking - Australia
52,821
-
52,821
50,948
-
50,948
- Insurance broking - New Zealand
9,159
-
9,159
6,474
-
6,474
- Underwriting agencies
- Risk Services
15,518
-
15,518
13,903
-
13,903
- 2,362
2,362
- 6,963
6,963
Profit after tax and after non-controlling interests
77,498 2,362
79,860
71,325 6,963
78,288
Corporate income
Corporate expenses3
4,545
-
4,545
2,187
-
2,187
(13,837)
-
(13,837)
(13,770)
-
(13,770)
Corporate interest expense and borrowing costs
(3,732)
-
(3,732)
(2,353)
-
(2,353)
Tax
Adjus ted NPAT
64,474 2,362
66,836
57,389 6,963
64,352
(19,649)
(808)
(20,457)
(17,633)
(2,165)
(19,798)
44,825 1,554
46,379
39,756 4,798
44,554
Other corporate expense adjustments (net of tax)
(623)
623
-
(553)
553
-
Less amortisation expense (net of tax and non-
controlling interests)
(5,459)
-
(5,459)
(4,200)
-
(4,200)
Plus impairment of controlled entity (net of non-
controlling entity interest)
(3,912)
(8,713)
(12,625)
(1,725)
-
(1,725)
Plus cost of fraud relating to Austbrokers Canberra
Pty Ltd -1 January to 30 June 2019
(3,189)
-
(3,189)
-
-
-
Plus non-controlling interests in relation to contingent
consideration adjustments 1
Plus non controlling interests in relation to fair value
adjustments1
portfolios by controlled entities and associates (net of
tax)1
Pr ofit after inc ome tax and non- c ontr olling
- -
-
(76)
(30)
(106)
(1,292)
-
(1,292)
-
-
-
(297)
-
(297)
799
- 799
inter es ts (refer Annual Report note 23 Operating
30,053
( 6,536)
23,517
34,001
5,321
39,322
Segments)
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))
2 Calculated as AUB corporate costs (excluding acquisition, finance and project costs) as a percentage of Adjusted PBT before corporate costs and tax
3 Corporate expenses for Australian Broking and Risk Services, previously captured in corporate expenses, have been reclassified to the respective divisions.
Comparative information has been restated to conform with the presentation in the current period.
10 AUB GROUP ANNUAL REPORT 2019
OPERATING AND FINANCIAL REVIEW
(CONTINUED)
Shareholder returns
On an Adjusted NPAT basis, earnings per share decreased by
3.1% over the prior year. Reported EPS decreased from 71.84
(TERP adjusted) cents to 69.49 cents due to the issue of 9.7 million
shares under the Group’s late calendar year 2018 equity capital
raising.
Compound annual growth rate in earnings per share from FY10 to
FY19 on an adjusted basis was 6.1%. Dividend per share declared
for FY19 totalled 46.0 cents, an increase of 1.1% on prior year.
Dividends
Cents
$’000
Final dividend recommended:
• on ordinary shares
32.5
23,888
Dividends paid in the year:
• on ordinary shares - interim
• on ordinary shares - final
13.5
32.0
9,923
20,431
30,354
FINANCIAL CONDITION
Shareholders’ equity increased to $483.4 million from $357.2
million at 30 June 2019, mainly due to the proceeds of the equity
capital raising.
The Group generated positive cash flow from operating activities
before customer trust account movements of $54.2 million (2018:
$46.2 million).
Cash flows used in investing activities increased in FY19 due
mainly to increases in shareholdings in controlled entities.
Cash flows from financing activities increased over the previous
year due to the equity capital raising partially offset by a partial
repayment of Group borrowings.
Cash held at the end of the period totalled $220.0 million ($70.0
million, excluding $150.0 million of monies held in trust).
Interest-bearing loans and borrowings decreased by $16.7 million
to $104.5 million as a result of the partial repayment of the
corporate debt facility, resulting in a reduction in the debt to debt
plus equity ratio to 22% in the year (FY18: 31%) on a look through
basis including share of associates debt. Borrowings by associates
of $23.0 million (FY18: $36.7 million)1 are not included in the Group
balance sheet as these entities are not consolidated. The
borrowings by associates relate largely to funding of acquisitions,
premium funding and other financing activities.
1 Total debt of associates, after considering AUB Group’s percentage
shareholding.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
BUSINESS STRATEGY
AUB Group and the broader insurance market has gained from
pricing tailwinds in the past few years and we expect this to
continue, albeit at a slower rate. The Group has a modest outlook
on the underwriting cycle with a premise that we are in the midst of
a positive phase with potential for extension considering recent
losses in key global Underwriting markets.
The Group’s strategic plan involves an expansion of our existing
portfolio to drive further organic growth and a continued disciplined
approach to M&A activity, while continuing to improve our partners’
ability to win in the market by delivering a market leading broker
value proposition. We will continue to grow our core broking
businesses and expand our underwriting agencies in Australia.
Having built a strong distribution platform in New Zealand, the
Group will look to introduce new services to that market that accord
with the Group’s strategy.
FY20 Strategic Priorities
Enhance our core business partner proposition with improved
product and capacity offerings.
Implement best-in-house technology features across the
Group.
Reduce Corporate costs and drive efficiency through cross-
network synergies.
Consolidate our core businesses for scale and create sector
specialisations to build market leadership.
Execute on strategically aligned acquisitions that drive
outperformance.
Redefine Risk Services strategy.
PROSPECTS FOR FUTURE
FINANCIALYEARS
During FY20 the Group anticipates strong growth from Insurance
Broking in Australia and New Zealand as well the Underwriting
Agencies. This will be reduced by several factors:
reduced interest rates;
lease accounting changes;
reduced revenues in Austbrokers Canberra, post restructuring;
delayed effect of remediation to health and rehabilitation
service lines;
lag to benefit from cost-out activities;
planned shareholding sell-downs to support succession
planning in broker partners; and
major acquisition legal and financing costs.
AUB GROUP ANNUAL REPORT 2019 11
people, conduct and culture risk – employees or partners may
act in a way which is inconsistent with the expected
behaviours, culture and values of the Group. Misconduct can
result in financial loss and reputational damage which impacts
the relationship with clients, partners, regulators and
stakeholders. The Group has policies, procedures and controls
in place to manage and monitor these risks;
technology and cyber risk - the Group relies upon internal and
externally sourced technology and services in conducting its
operations. AUB Group is continuing to modernise its
information technology environment to ensure that it meets
future needs. Malicious cyber activity may impact on privacy or
data security. This has been an area of focus for the Group and
controls include external IT audits on its service providers, an
overhaul of the Group’s cyber security framework, security
testing, cyber insurance, and an internal cyber security
education program; and
dependence on key suppliers – AUB Group and partners rely
on external third party suppliers and outsourcing arrangements
to provide certain services. These include insurance
underwriting and binder arrangements in the broking and
underwriting businesses. AUB Group actively manages key
relationships and monitors contracts, service level agreements
and performance targets to ensure required deliverables and
standards are met. This risk is also addressed in the Group’s
business continuity measures.
The above does not address all risks faced by the Group and the
risks discussed are not in any particular order. In addition to the
Key Business Risks, further information about material risks which
could impact the performance of the Group are detailed in the
Operating and Financial Review.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
RISK MANAGEMENT
The Group recognises that appropriate risk management is
required to ensure the effective delivery of strategy and
achievement of its objectives. The oversight of material risks is the
responsibility of the Board. The Board Audit & Risk Committee
provides support to the Board in reviewing the risk management
framework including the identification, assessment, management
and monitoring of material risks.
The activities of the Board and the Audit & Risk Committee
specifically include:
Board approval of the strategy, which encompasses the
Group’s vision, purpose and strategy statements designed to
meet stakeholders’ needs and manage 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;
approval of the Risk Management Framework and
consideration of the adequacy of risk treatments to achieve the
Board’s defined risk appetite; and
oversight of policies, procedures and activities to support the
effective management of regulatory risk across the Group.
KEY BUSINESS RISKS
The Group is exposed to various material risks in the course of its
operations and achievement of its strategic objectives.
Key risks which may impact the Group’s business strategy and
prospects for the future financial year include:
compliance and regulatory risk – changes in the regulatory
environment continue to represent a potential business risk for
the Group. The risk of regulatory action or policy change that
could negatively impact the Group’s financial position remains.
Regulatory changes are closely monitored and reported
internally. In turn, internal controls are reviewed and revised so
that they are appropriate for managing regulatory risk;
investment risk – the Group as part of its strategy invests in
partner businesses which may be subject to impairment or
decreases in value over time as a result of the changing
macroeconomic environment, including the markets in which
they operate. The ‘owner-driver’ model incentivises businesses
to continue to grow after joining the AUB network and the
Group service offering is designed to support partner business
growth. The Group strategy also relies upon access to funding
to capitalise on opportunities and recognises that performance
can be impacted by the macroeconomic environment including
interest rate changes and premium fluctuations. The Group
closely monitors the macroeconomic environment and regularly
reviews and revises its overall strategy and capital and debt
facilities to ensure adequate funding is available;
12 AUB GROUP ANNUAL REPORT 2019
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
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
and disposals disclosed above.
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.
SIGNIFICANT EVENTS
AFTER THE BALANCE DATE
On 1 August 2019, AUB Group Limited (AUB) executed a
conditional sale agreement with Pemba Capital Partners (Pemba
Capital) to acquire its 49% interest in Coverforce Holdings Pty Ltd
(Coverforce) and is working with Pemba Capital to acquire the
shares of all Coverforce shareholders.
The transaction and purchase price are subject to the outcome of
AUB’s due diligence and other customary terms and conditions
such as regulatory approvals and no restraints preventing
completion.
The acquisition is for a total aggregate consideration payable to
Coverforce's shareholders of approximately $150 million to $200
million, with the purchase price to be finalised following AUB's due
diligence and subject to customary adjustments for net debt and
working capital amounts. AUB will fund the acquisition via available
cash and a committed extension of its existing debt facilities. The
Group’s leverage ratio (net debt/EBITDA) is not expected to exceed
three times as a result of this transaction.
On 20 August 2019, the Directors of AUB Group Limited declared a
final fully franked dividend on ordinary shares of 32.5 cents per
share in respect of the 2019 financial year. Based on the current
number of ordinary shares on issue, the total amount of the
dividend is estimated to be $23.888 million.
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.
AUB GROUP ANNUAL REPORT 2019 13
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT
Dear Shareholders,
AUB Group is pleased to present its Remuneration Report for the year ended 30 June 2019. 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 FY19
period reflects a business strategy that has continued to evolve and deliver positive results.
Short Term Incentives (STI) and Long Term Incentives (LTI) for staff and senior management have been allocated in accordance with the
Company and individual objectives and are detailed further throughout the report.
Key people and culture highlights over the year ended 30 June 2019 have included the following:
Culture
This year, the Remuneration & People Committee has continued to focus on building a culture of shared accountability, embedding the
AUB Group purpose and values across the business and determining how we measure success. The AUB Board acknowledges its role in
establishing and maintaining an effective culture. A behavioural gateway has been incorporated into the STI program in recognition of the
importance of cultivating good corporate culture.
AUB Group Academy
The Academy has continued to deliver leadership and soft skills programs during FY19 with the introduction of a public speaking and
presentation skills program.
The Diploma of Leadership and Management has continued to receive strong support across AUB Group and Partner businesses with over
50 leaders across the network now holding the qualification.
The Academy will continue to support the development of leadership capability linking to succession planning activities.
Paul Lahiff
Chair
Remuneration & People Committee
14 AUB GROUP ANNUAL REPORT 2019
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 2019 (FY19). This report forms part of the
Directors’ Report and has been audited in accordance with section
300A of the Corporations Act 2001 (Cth). The Report details the
remuneration arrangements for the Company’s Key Management
Personnel (KMP) comprising the Company’s Non-Executive
Directors, the Executive Director and certain employees.
Details of Key Management Personnel
KMP are those persons with, directly or indirectly, the greatest
authority and responsibility for planning, directing and controlling
the activities of the business units that can materially affect the
performance of the Group during the financial year.
The table below outlines the KMP of the Company in FY19
Name
Position
Non- Ex ec utiv e Dir ec tor s
David Clarke
Non-Executive Chair
Ray Carless
Non-Executive Director
Robin Low
Paul Lahiff
Non-Executive Director
Non-Executive Director
Cath Rogers
Non-Executive Director
Ex ec utiv e Dir ec tor
Michael Emmett Managing Director and Chief Executive
Officer (from 11 March 2019)
Mark Searles
Managing Director and Chief Executive
Officer (ceased 11 March 2019)
Senior Ex ec utiv es
Mark Shanahan Chief Financial Officer
Elyse Henderson Chief Operating Officer
(ceased 19 March 2019)
Fabian Pasquini Divisional Chief Executive - National Partners
and Group Acquisitions
(ceased 30 November 2018)
Sunil Vohra
Divisional Chief Executive - Risk Services
(ceased 8 April 2019)
Keith McIvor
Managing Director, AUB Group NZ
Nigel Thomas
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 (Committee) of the Board of Directors of the Company
on remuneration outcomes for the Company’s senior executives
and other employees.
The Committee is responsible for reviewing compensation
arrangements for the Directors, CEO and Senior Executives,
including the Company’s KMP and making recommendations in
that regard for determination by the Board. The Committee
comprises all Non-Executive Directors of the Board.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
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 2018 Annual
General Meeting to increase the aggregate available remuneration
to $850,000 per year to reflect prevailing market conditions.
The manner in which remuneration is paid to Non-Executive
Directors is reviewed by the Committee and determined by the
Board every second year. This review was carried out in FY18 by
Guerdon & Associates, resulting in no increase in the normal
remuneration payable to Non-Executive Directors.
The total amount paid for FY19 was $691,000 from the maximum
available pool of $850,000.
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. The Chairs of the Audit & Risk Management
Committee and the Remuneration & People Committee receive an
additional fee to recognise the additional workload that these
positions entail. 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.
AUB GROUP ANNUAL REPORT 2019 15
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT
(CONTINUED)
From 1 July 2018 to 30 June 2019 each Non-Executive Director
received annual fees as set out in the table below:
Name
Board
Audit & Risk Management
Committee
Remuneration & People
Committee
Nomination Committee
C hair
$210,000
$21,000
$10,000
-
Member
$105,000
-
-
-
Subsidiary Boards
-
$10,000
The remuneration of Non-Executive Directors for the year ended 30
June 2019 is detailed in Tables 3 and 4 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.
CEO and Senior Executive 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 new CEO’s target remuneration mix comprises 37% fixed
remuneration, 26% target STI opportunity and 37% LTI and is as
set out in the accompanying graph.
16 AUB GROUP ANNUAL REPORT 2019
CEO Remuneration Mix
37%
37%
26%
Fixed
STI
LTI
The target remuneration mix of Senior Executives ranges from 56-
66% fixed remuneration, 23-25% target STI opportunity and 11-
20% LTI as set out in the graph below (using averages for each
component).
Senior Executive Remuneration Mix
16%
24%
60%
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 Committee is fully informed when making
remuneration decisions, it seeks external remuneration advice as
needed.
Fixed remuneration
Objective
The objective of the fixed remuneration component is to attract and
retain talented executives to the Company. The setting 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.
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 of the
Group is detailed in Tables 3 and 4.
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 executive to achieve the operational targets and such that the
cost to the Group is reasonable in the circumstances.
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT
(CONTINUED)
Structure
The Group sets financial targets and each executive has set
personal objectives against which their performance is evaluated.
A behavioural gateway was incorporated into the FY19
performance review process. The behavioural gateway operates to
reduce an incentive payment on the basis of conduct that is
inconsistent with the Company’s values, irrespective of
performance.
The table below provides a summary of key balanced scorecard
objectives and outcomes for the Group for FY19.
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.
Measure
Objective
Option exercise conditions
Financial
Partner
Deliver Group adjusted NPAT at or above
budget
Drive Group strategy to improve client
opportunities
Governance
Ensure Group governance frameworks are
implemented across all entities
People
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 this amount.
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, thereby 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
review by the Committee and approval of the Board. Payments
made are delivered as a cash bonus in the following reporting
period.
For FY18, the STI cash bonus of $2.176 million provided in the
financial statements was paid in FY19. The Committee considered
the STI payments for FY19 and has allocated a pool in the sum of
$0.882 million for STI cash bonuses for employees and senior
management. This amount has been provided for in FY19.
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:
Exercise conditions for options granted in FY16 onwards are as
follows.
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 (the
Second Test Date);
b) Options comprised 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%
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%
AUB GROUP ANNUAL REPORT 2019 17
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT
(CONTINUED)
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 that 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.
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:
2019 2018 2017 2016 2015
Group Revenue ($m)
307
278
265
234
217
d) Any options which have not become exercisable by the Second
Adjusted NPAT ($m)1
46.4
44.6
40.4
37.6
36.3
Share price ($)
10.44 13.58 12.99 10.10
9.00
Change in share price ($)
-3.14
0.59
2.89
1.10 -1.79
Dividends paid (cents)
46.0
45.5
42.0
40.0
39.7
Adjusted EPS (cents)*
66.6
68.8
62.3
58.8
58.5
* The previous periods earnings per share have been adjusted by
the theoretical ex-rights price factor (TERP) resulting from the
number of new shares issued following a non renounceable
entitlement offer. The TERP adjustment factor that has been
applied to the EPS values previously reported is 0.986.
1 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
The cash bonus pool for FY19 of $0.882 million has been
determined under AUB's STI plan by reference to the Company’s
performance for FY19.
($m)
2019 2018 2017 2016 2015
Cash bonuses
0.882 2.176 2.861 1.417 0.200
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 those options.
f) Where in the opinion of the Board:
i. a participant in the Company’s LTIP has acted fraudulently
or dishonestly, engaged in serious misconduct or materially
breached his or her duties or obligations to the Company or
any of its subsidiaries;
ii.
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
iii. 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.
that any options (whether or not capable of exercise)
held by the participant will lapse;
ii. any shares held by the participant as a result of
exercise of the options will be deemed to be forfeited; or
iii. where the participant has sold, encumbered or
otherwise transferred shares it received as a result of
exercise of the options, 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.
g) The exercise conditions for the 250,000 options (99,920 options
unvested at 30 June 2019) granted to Mr Searles in 2016 are
the same as set out above in paragraphs (a) – (f) (inclusive).
h) All options issued before 1 July 2015 have now lapsed. For
vesting conditions on those options refer to the FY18 Annual
Report.
18 AUB GROUP ANNUAL REPORT 2019
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
LTI Outcomes
The LTI outcomes for FY19 are tested at the date that the Company lodges its audited financial statements with the Australian Securities
Exchange. Once lodged, it is possible for the Company's Adjusted EPS and TSR for the relevant measurement period comprising FY17
to FY19 to be calculated. The Committee will meet and determine whether vesting conditions have been met and in turn make a
recommendation in this respect for the Board's determination. LTIP grants for FY20 will also be determined at this meeting.
The movement in LTI outcomes for FY19 for Senior Employees and the CEO are summarised in the LTIP tables below:
Options
SENIOR EMPLOYEES (including KMP's)
LTIP Financial Year
(tranche)
2015 (10th)
2016 (11th)
2017 (12th)
2018 (13th)
2019 (14th)
Total
Opening
Issued
27,861 -
Lapsed
Exercised
27,861 -
Remaining
-
Earliest
vesting date
-
Lapse date
-
77,682 -
2,403 46,634
93,510
-
8,105 -
77,255 -
3,314 -
-
276,308
79,364
79,364
15,947 -
57,630 46,634
251,408
28,645
85,405
73,941
63,417
23-Nov-18
23-Nov-22
24-Jan-20
24-Jan-24
23-Nov-20
23-Nov-24
31-Oct-21
31-Oct-25
Former CEO - Mark Searles
LTIP Financial Year
(tranche)
2016 (2nd)
Issued
Opening
250,000 -
Lapsed
Remaining
- 150,080 99,920
Exercised
Earliest
vesting date
1-Jan-19
Lapse date
1-Jan-23
Total
250,000 -
- 150,080
99,920
Shares issued as a result of the exercise of options
CEO Remuneration
During FY19, 196,714 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 351,328 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.
CEO Employment Contracts
Michael Emmett (current CEO)
The current CEO, Mr Emmett, is employed under an ongoing
Executive Agreement, with a mutual termination right on 12
months’ notice.
The Company may terminate his contract at any time without notice
if serious misconduct has occurred. On termination for cause, Mr
Emmett is only entitled to that portion of remuneration that is fixed,
and only up to the date of termination. On termination for cause any
unvested options are immediately forfeited.
Mark Searles (former CEO)
Mr Searles was employed under a fixed term contract, with a
mutual termination right on 12 months’ notice. Mr Searles provided
notice in August 2018 of employment cessation on 16 October
2019.
Michael Emmett (current CEO)
From 11 March 2019, Mr Emmett received a fixed remuneration of
$850,000 per annum.
Mr Emmett was entitled to a pro rata short term incentive (STI)
covering the period 11 March 2019 to 30 June 2019.
Mr Emmett was granted 200,000 options on 1 July 2019 over
ordinary shares under the Senior Executive Option Plan. The LTI
grant is subject to achievement of earnings per share target growth
criteria, relative total shareholder returns criteria and approval at the
2019 Annual General Meeting.
Mark Searles (former CEO)
From 1 July 2018, Mr Searles received fixed remuneration of
$678,628 plus an accommodation allowance of up to $60,000 per
annum.
Mr Searles was eligible to participate in the FY19 Short Term
Incentive Scheme (STI) with a maximum entitlement of 120 per
cent of his fixed remuneration.
Mr Searles was granted a transitional incentive (TI) in lieu of equity
long term incentive up to a maximum $580,000 assessed and
payable over three equal tranches over FY19, FY20 and FY21.
Other Key Management Personnel
Other KMP have letters of offer of employment or employment
contracts with no fixed term, and mutual termination rights on prior
notice for varying periods of up to six months. Details of
remuneration are contained in Tables 3 and 4.
AUB GROUP ANNUAL REPORT 2019 19
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
Table 1: Shares held in AUB Group Limited at 30 June 2019
Shares held in AUB Group Limited at 30 June 2019
30-Jun-18
during year
during year
Balance at
Shares acquired
Shares
disposed
Dir ec tor s
R. J. Carless
D. C. Clarke
R. J. Low
P. A. Lahiff
C. L. Rogers
M. P. C. Emmett
M. P. L. Searles*
Ex ec utiv es
M. Shanahan
F. Pasquini*
K. McIvor
S. Vohra*
N. Thomas
A. Zissis
Total
Balance at
30-Jun-19
22,932
11,646
12,917
10,334
19,973 2,959
-
10,143 1,503
-
9,710 3,207
-
9,000 1,334
-
-
-
-
-
-
-
-
-
74,049 150,080 224,129
-
- 2,227
- 2,227
77,039 9,691 86,730
-
- 1,950
- 1,950
- 9,697 9,697
-
989 9,394
- 10,383
-
-
-
-
200,903 192,042 320,556 72,389
* M. Searles, F. Pasquini and S. Vohra were deemed to have disposed of their total shareholding on the date they ceased being a KMP.
Table 2: Option holdings of Key Management Personnel
Options held at 30 June
beginning of
Granted as
Options
lapsed/
end of period
Vested/
Not vested/not
Balance at
Options
Balance at
Total options at year end
2019
Director
M. P. C. Emmett
M. P. L. Searles*
Executives
M. Shanahan
E. Henderson*
F. Pasquini*
N. Thomas
S. Vohra*
A. Zissis
Total
period 01-Jul-18
remuneration
exercised
forfeited
30-Jun-19
exercisable
exercisable
-
250,000
-
-
45,590
43,904
45,626
21,574
-
-
-
150,080
12,011
9,919
-
10,012
10,012
9,394
-
-
9,691
9,384
9,697
-
-
-
-
9,919
5,590
4,396
5,595
-
-
99,920
12,011
-
30,309
40,136
40,346
30,968
406,694
51,348
178,852
25,500
253,690
-
-
-
-
-
-
-
-
-
99,920
12,011
-
30,309
40,136
40,346
30,968
253,690
The outstanding options have an exercise price of $NIL.
During the current year a total of 79,364 zero priced options were issued (51,348 to KMP). Of the 51,348 options issued during the year, 9,919 lapsed due to the
KMP no longer being employed at year end.
There are no loans outstanding owing by KMP at 30 June 2019.
* These employees are no longer KMP’s and their unvested options (if any) are expected to lapse after 30 June 2019.
20 AUB GROUP ANNUAL REPORT 2019
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
Compensation of Directors and other Key Management Personnel
Table 3: Statutory Reporting Basis – period ending 30 June 2019
The table below outlines senior management team remuneration as calculated in accordance with accounting standards and the Corporations
Act 2001 (Cth) requirements. The amounts shown are equal to the amount expensed in the Company’s financial statements for the particular
year.
Short-term
Post Share-based
payment
employment
30-Jun-19
Non Ex ec utiv e Dir ec tor s
D. C. Clarke
R. J. Carless
P. A. Lahiff
R. J. Low
C. L. Rogers
Ex ec utiv e Dir ec tor
M. P. C. Emmett
M.P.L. Searles
Ex ec utiv es
M. Shanahan
J. Blackledge
E. Henderson
F. Pasquini
K. McIvor***
S. Vohra
N. Thomas
A. Zissis
Total Remuneration
Total Remuneration
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Cash
Non
Salary & short term monetary
benefits
incentive*
$
$
fees
$
191,781
163,014
90,001
90,000
105,023
105,023
124,201
124,201
105,023
15,466
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
238,719
-
684,555
618,556
82,911
-
175,028
438,766
5,361
-
33,437
15,037
409,401
104,083
-
307,055
468,470
135,353
149,522
274,725
651,037
669,008
334,344
324,299
352,059
304,655
332,451
303,713
74,623
-
-
50,000
67,470
-
31,076
155,805
-
50,000
62,203
155,932
73,271
155,928
126,021
139,613
4,236,587
692,603
3,539,151
1,146,044
3,487
336
-
-
1,404
805
22,376
52,256
-
-
306
1,992
2,560
21,627
1,902
2,050
70,834
94,103
Super-
annuation
$
18,219
15,486
24,999
25,000
9,977
9,977
11,799
11,799
9,977
1,469
7,212
-
25,000
25,000
25,000
9,888
-
25,000
25,000
10,577
12,746
25,000
-
-
25,000
25,000
25,000
25,000
24,999
25,000
Equity
Total
options** Remuneration
$
$
-
-
-
-
-
-
-
-
-
-
210,000
178,500
115,000
115,000
115,000
115,000
136,000
136,000
115,000
16,935
-
-
144,918
289,835
334,202
-
1,062,938
1,387,194
26,610
-
-
-
-
-
31,045
66,698
-
-
-
66,750
53,250
66,110
49,075
41,739
539,121
114,307
-
382,055
562,345
146,735
246,765
574,484
651,037
719,008
421,853
573,973
506,140
573,320
534,448
512,115
Total per-
formance
related
%
-
-
-
-
-
-
-
-
-
-
24.81%
-
30.10%
52.52%
18.78%
0.00%
-
13.09%
12.00%
0.00%
25.17%
38.73%
0.00%
6.95%
14.75%
38.80%
25.00%
38.73%
32.76%
35.41%
244,928
234,197
304,899
531,132
5,549,851
5,544,627
Statutory remuneration represents the accounting expense of remuneration in the financial year. It includes salary remuneration, annual and long service leave
payments, the amortisation expense of deferred share awards previously granted and an accrual for STIs.
* STI amounts included above relate to the accrued provision in respect of the current year’s performance that will be paid during the following financial year if each
KMP achieves at least 85% of their personal objectives for performance to 30 June 2019. The 2019 amounts are yet to be approved by the Remuneration Committee
and are subject to each KMP achieving their personal objectives for the year.
** 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 -80% probability that the Group will achieve the performance hurdles required for those options to vest.
*** Total remuneration for K McIvor is in respect of his role as Managing Director of New Zealand operations.
AUB GROUP ANNUAL REPORT 2019 21
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
Compensation of Directors and other Key Management Personnel (continued)
Table 4 – Cash and vesting basis - period ending 30 June 2019
The table below outlines remuneration received individually during the year including the prior year STI paid in cash in the reporting year
and the benefit received from vesting of shares granted under the Employee Share Option Scheme.
Short-term
employment
Post Share-based
payment
Salary
& fees
$
Cash
short term
incentive*
$
Non
monetary
benefits
$
Super-
annuation
$
Equity
Total
options** Remuneration
$
$
30-Jun-19
Non Ex ec utiv e Dir ec tor s
D. C. Clarke
R. J. Carless
P. A. Lahiff
R. J. Low
C. L. Rogers
Ex ec utiv e Dir ec tor
M. P. C. Emmett
M.P.L. Searles
Ex ec utiv es
M. Shanahan
J. Blackledge
E. Henderson
F. Pasquini
K. McIvor***
S. Vohra
N. Thomas
A. Zissis
Total Remuneration
Total Remuneration
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
191,781
163,014
90,001
90,000
105,023
105,023
124,201
124,201
105,023
15,466
238,719
-
-
-
-
-
-
-
-
-
-
-
-
-
684,555
450,784
618,556
638,796
409,401
104,083
40,000
-
-
45,662
307,055
272,120
468,470
135,353
10,000
-
149,522
173,816
274,725
191,019
651,037
669,008
47,929
92,140
334,344
167,485
324,299
145,771
352,059
161,110
-
-
-
-
-
-
-
-
-
-
18,219
15,486
24,999
25,000
9,977
9,977
11,799
11,799
9,977
1,469
5,361
7,212
-
33,437
15,037
3,487
336
-
-
1,404
805
22,376
52,256
-
-
306
1,992
2,560
-
25,000
25,000
25,000
9,888
4,338
25,000
25,000
10,577
12,746
25,000
-
-
25,000
25,000
25,000
25,000
24,999
25,000
249,266
234,197
-
-
-
-
-
-
-
-
-
-
-
-
210,000
178,500
115,000
115,000
115,000
115,000
136,000
136,000
115,000
16,935
251,291
-
1,943,536
3,137,313
-
-
-
-
-
-
-
115,323
-
-
-
115,394
-
111,670
-
-
-
1,297,389
477,888
114,307
50,000
604,175
504,874
146,735
473,783
543,000
698,966
761,148
642,529
497,062
652,399
573,517
509,352
480,763
2,285,923
8,089,397
-
5,579,532
304,655
222,235
21,627
332,451
150,000
303,713
150,000
4,236,587
1,246,787
3,539,151
1,712,081
1,902
2,050
70,834
94,103
Total per-
formance
related
%
-
-
-
-
-
-
-
-
-
-
-
-
76.32%
49.24%
8.37%
0.00%
91.32%
45.04%
1.98%
0.00%
61.03%
35.18%
6.86%
12.11%
44.03%
29.33%
41.81%
38.75%
29.45%
31.20%
* STI amounts paid during each financial year for performance during the prior financial year based on agreed KPIs.
** The actual remuneration relating to share based payments is based on the market value on the date the options were exercised multiplied by the actual number of
options vested during the year.
*** Total remuneration for K McIvor in respect of his Group Executive role and Managing Director of New Zealand operations role.
22 AUB GROUP ANNUAL REPORT 2019
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
Table 5: Number of options granted as part of remuneration
Fair value per
option at grant Exercise price
per option ($)
date ($)
Granted no.
Grant date (see note 16)
(see note 16)
Expiry date
First exercise Last exercise
date
date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,011
31-Oct-18
9,919
31-Oct-18
10.72
10.72
0.00
0.00
31-Oct-25
31-Oct-21
31-Oct-25
31-Oct-25
31-Oct-21
31-Oct-25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,012
10,012
31-Oct-18
31-Oct-18
9,394
31-Oct-18
51,348
10.72
10.72
10.72
0.00
0.00
0.00
31-Oct-25
31-Oct-21
31-Oct-25
31-Oct-25
31-Oct-21
31-Oct-25
31-Oct-25
31-Oct-21
31-Oct-25
Year ended
30-Jun-19
Dir ec tor s
M. P. C Emmett
M. P. L. Searles
Ex ec utiv es
M. Shanahan
E. Henderson
F. Pasquini
K. McIvor
S. Vohra
N. Thomas
A. Zissis
Total
Where options are exercised within two years after the date the options vest, the resulting shares issued cannot be disposed of prior to the expiry of the two year period
from the date the options originally vested, except if employment is terminated or the employee resigns.
The fair value above is the weighted average price of the EPS options and the TSR options at the date the options were granted.
Table 6: Value of options granted as part of remuneration to Key Management Personnel (Consolidated)
Shares issued on exercise of
options
* Value of
options
granted during
** Value of
*** Percentage of remuneration
Number of
options consisting of value share based shares issued
payments incurred during the on exercise of
options
year
exercised
the year during the year
Paid per share
on shares
issued on
exercise of
Options fully
vested
options during the year
30 June 2019
Dir ec tor s
$
$
%
No.
$
No.
M. P. C Emmett
- -
- - - -
M. P. L. Searles
- 1,187,133
13.63% 150,080 - 150,080
Ex ec utiv es
M. Shanahan
E. Henderson
128,758 -
106,332 -
- - - -
- - - -
F. Pasquini
-
76,947
12.58%
9,691 - 9,691
K. McIvor
S. Vohra
N. Thomas
A. Zissis
Total
- -
- - - -
107,329
107,329
76,994
74,509
100,704 -
550,451
1,415,582
-
9,697 - 9,697
10.52%
9,394 - 9,384
9.18% - - -
178,862 - 178,852
* Total gross value of options granted during the year which will vest over three years if all performance hurdles required for options to vest, are met.
** Total value of options exercised during the year is calculated based on the fair value of the options at grant date multiplied by the number of options exercised.
*** Share based payments as a percentage of remuneration is 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 - 80% probability that the Group will achieve the performance hurdles required for those options to vest.
AUB GROUP ANNUAL REPORT 2019 23
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
REMUNERATION REPORT (CONTINUED)
Table 7: Options granted, vested or lapsed during the year
30 June 2019
M. P. C. Emmett
M. P. L. Searles
M. Shanahan
E. Henderson
F. Pasquini
K. McIvor
S. Vohra
Grant year Granted during
current year
(FY)
Award date
vesting date
options at Number lapsed Number vested
during year
during year
grant date
Fair value of
2019 - - - - - -
2016 -
07-Apr-16
01-Jan-19
$7.91 -
150,080
2019 12,011
31-Oct-18
31-Oct-21
$10.72 -
2019 9,919
31-Oct-18
31-Oct-21
$10.72
2015 -
31-Oct-14
31-Oct-17
2016 -
23-Nov-15
23-Nov-18
2019 - - -
2019 - - -
2015 -
31-Oct-14
31-Oct-17
2016 -
23-Nov-15
23-Nov-18
2019 10,012
31-Oct-18
31-Oct-21
$9.09
$7.94
$0.00
$0.00
$9.09
$7.94
$10.72
$9.09
$7.94
$10.72
$10.72
9,919
5,590
-
-
-
5,595
-
-
4,396
-
-
-
-
-
-
9,691
-
-
-
9,697
-
-
9,384
-
-
N. Thomas
2015 -
31-Oct-14
31-Oct-17
2016 -
23-Nov-15
23-Nov-18
2019 10,012
31-Oct-18
31-Oct-21
A. Zissis
2019 9,394
31-Oct-18
31-Oct-21
51,348
25,500
178,852
All options were issued with an exercise price of $NIL and the expiry date of the options is four years after the vesting date.
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of committees of Directors) held during the year and the numbers of meetings
attended by each Director were as follows:
No. of meetings held:
No. of meetings attended:
R. J. Carless
D. C. Clarke
M. P. C. Emmett*
P. A. Lahiff
R. J. Low
C. L. Rogers
M. P. L. Searles*
Meetings of Committees
Directors’
Audit & Risk
Remuneration &
Meetings
Management
Nomination
People
20
18
19
4
20
20
20
16
6
6
6
2
5
6
6
4
4
4
4
-
3
4
4
3
5
5
5
1
5
5
5
4
* Mr Searles and Mr Emmett were not members of any committee but attended all possible committee meetings as an invitee whilst they were a KMP. All other
Directors were eligible to attend all meetings held.
24 AUB GROUP ANNUAL REPORT 2019
DIRECTORS’ REPORT
YEAR ENDED 30 JUNE 2019
DIRECTORS’ MEETINGS (CONTINUED)
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 as follows:
Audit & Risk Management
Remuneration & People
Nomination
R. J. Low (Chair)
P. A. Lahiff (Chair)
D. C. Clarke (Chair)
R. J. Carless
D. C. Clarke
P. A. Lahiff
C. L. Rogers
R. J. Carless
D. C. Clarke
R. J. Low
C. L. Rogers
R. J. Carless
P. A. Lahiff
R. J. Low
C. L. Rogers
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 26 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 2019 were
predominantly in relation to tax matters. Other services included independent investigation and reviews. 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
(Cth). 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
Chair
M. P. C. Emmett
Chief Executive Officer and Managing Director
Sydney, 20 August 2019
Sydney, 20 August 2019
AUB GROUP ANNUAL REPORT 2019 25
AUDITOR’S INDEPENDENCE DECLARATION
26 AUB GROUP ANNUAL REPORT 2019
ENVIRONMENT, SOCIAL AND GOVERNANACE
YEAR ENDED 30 JUNE 2019
AUB Group is committed to being a responsible and sustainable
Group of businesses. We believe it makes good business sense to
have environmental, social and governance (ESG) policies and
programs where doing the right thing by our people, our partners,
our environment and the communities in which we operate is part
of our ethos.
AUB Group’s direct environmental and social impacts mainly relate
to the operation of our tenanted offices, travel and the resources
consumed by these activities. AUB Group Limited has taken steps
to lower this impact with less staff travelling by using interoffice
video conferencing to reduce reliance on air travel, and the closure
of the AUB Melbourne Office.
Our Environmental Commitment
When it comes to AUB Group’s purpose, environmental
sustainability is integral in helping clients realise a stronger, more
sustainable future. Our broking and underwriting partners are
subject to the risk-based pricing of insurer terms, which inevitably
considers the exposure of our clients to climate change.
In addition, we are committed to reducing our own environmental
footprint. AUB Group Limited has a corporate social responsibility
policy that reflects the Group’s ESG stance. The policy is provided
to our partners for their adoption and requires that AUB Group and
our partner businesses develop and follow a robust environmental
management approach. Future iterations of this policy will continue
to explore ways in which our businesses can assess climate risks
and promote sustainability.
Our objectives:
How we’re achieving this:
Reduce water and energy
consumption
Green buildings: AUB Group Limited’s head office building has a 4.0 Star NABERS1 Energy
rating and a 3.5 Star NABERS Water rating, while the SURA head office building has a 5.0
Star NABERS Energy rating and a 4.0 Star NABERS Water rating.
Meeting room lights are sensor triggered and are turned out completely by 8.00pm each night.
Minimise waste, and encourage
the reuse and recycling of waste
items
Promote sustainable transport to
employees, clients and suppliers
Active encouragement of recycling with paper, glass and aluminum, print toner and cartridge
recycling stations in each office.
Head offices are in central locations with public transport hubs. No car-parking spaces are
made available in head office, so employees travel to and from work via public transport (train,
bus, ferry) or active transport (walking and bicycle).
Participation in the Global Step Challenge, which encouraged employees to walk, run or cycle
to work.
Support sustainable procurement
and other sustainable work
practices
Where possible, only office stationery and supplies with environmentally-friendly attributes are
procured.
We progress with eliminating hard copy corporate brochures and reports in a move to online
versions. Annual report printing reduced by half between FY17 and FY18.
1 National Australian Built Environment Rating System
Partnering and connecting with our community
AUB Group and our partner businesses are committed to
supporting community organisations including charities and
sporting clubs through fundraising, sponsorship and volunteering.
Because our partners are spread through a variety of communities,
we adopt an approach of decentralised community support.
Individual partners determine the best approach to engage with and
support their local communities. From golf days and gala dinners,
to fun runs and local bushland clean ups, the AUB family is ready to
get involved and show their support.
Over $600,000 in donations and sponsorships were made and
hundreds of hours were given to volunteering and event
participation in FY19. Being part of the community in this way
enables our partners to deliver social value to their community.
Highlights
Broking
Two of our partner businesses have gone the extra mile to show
their commitment to their communities:
Insurance Advisernet
Through the Insurance Advisernet Foundation, Insurance
Advisernet Australia and their authorised representatives raised
funds for a number of organisations through a range of fundraising
activities. Some of the Foundation’s beneficiaries include Australian
Men’s Shed Association, Act For Kids, Starlight Children’s
Foundation and Top Blokes Foundation. In recognition of their
efforts, the Foundation was awarded the Best Community
Engagement Program of the Year – Broker at the 2019 Insurance
Business Awards.
MGA Insurance Brokers
The MGA Whittles Foundation raised money for various
organisations, including AllKids, Rotary Australia, Cancer Council
and Australian Melanoma Research Foundation.
AUB GROUP ANNUAL REPORT 2019 27
ENVIRONMENT, SOCIAL AND GOVERNANACE
YEAR ENDED 30 JUNE 2019
Underwriting agencies
Corporate governance
SURA once again helped organise, and participated in the
Insurance Ashes cricket day in support of the Primary Club of
Australia, raising money for the purchase of soft-fall surfaces and
safe play equipment at the Spring Farm Public School in Western
Sydney. The school takes care of more than 30 students with
autism.
SURA also supported the Dive In Festival and served as the
Melbourne event lead since the inaugural event in 2016. Dive In is
a global movement in the insurance industry supporting the
development of inclusive workplace cultures.
Risk Services
The Procare Group Sydney team raised funds for the Sydney
Children’s Hospital Foundation through their annual SCHF Charity
Cricket Challenge, which started in 2009. The Canberra office held
their own charity cricket day in support of this year’s chosen charity,
OzHarvest.
As well as supporting the community, we actively support
workplace diversity and inclusion, and are committed to developing
and caring for our people.
Workplace diversity and inclusion
AUB Group and our partnering businesses strive to create an
inclusive workplace where individuals can reach their full potential
and a strategy that supports the recruitment, retention and
development of the most diverse talent.
This year AUB Group Limited signed the CEO Pledge of promoting
inclusive behaviours in insurance, making a commitment to set the
standard for inclusive behaviours from the top.
The gender composition of our workforce is 61% female1
Workplace health and safety
We are committed to ensuring we provide a safe workplace for our
people that is focused on a total wellbeing strategy. In addition to
our ongoing commitment to workplace health and safety over the
past 12 months we have introduced wellness and financial
wellbeing platforms for AUB Group Limited employees.
The AUB Group Limited Board of Directors is responsible for the
corporate governance of AUB Group Limited. The Board guides
and monitors the business and affairs of AUB Group on behalf of
stakeholders and its activities are governed by the Constitution.
The board structure is summarised here:
Our Corporate Governance Statement is founded on the ASX
Corporate Governance Council’s principles and recommendations.
The Statement is periodically reviewed and, if necessary, revised to
reflect the changing nature of the industry.
The responsibilities of the Board of Directors and those functions
reserved to the Board, together with the responsibilities of the Chief
Executive Officer are set out in our Board Charter. To assist with
governance AUB Group has established Board Committees and
policies.
For copies of policies and charters noted in this section, please visit
the AUB Group website and navigate to Who we are > Corporate
governance.
AUB Group Academy
Future commitment
Our leadership development programs are designed to ensure we
stretch our people and give them the skills and opportunities to step
into their next role.
In FY20, AUB Group and its partners will continue to seek ways in
which we can contribute to the communities that support us, and to
minimise the environmental impact of our business activities.
Focused on building leadership resilience and emotional
intelligence skills our programs span all levels of the business.
Across AUB Group and our business partners 50 leaders have
graduated with a Diploma of Leadership and Management in
addition to over 5,000 hours of professional training and soft skills
development.
We will further refine AUB Group’s Corporate Responsibility policy
to become several ESG policies and programs. AUB Group will
formalise the process by which we and our partners report
adherence to the policy.
Delivering on our corporate responsibility statement policy is
integral to safeguarding a stronger future for our clients, our
partners, our employees and our shareholders.
1 For businesses where AUB Group has more than 51% shareholding
28 AUB GROUP ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
YEAR ENDED 30 JUNE 2019
Revenue
Other income
Share of profit of associates
Expenses
Finance costs
Income/(Expenses) arising from adjustments to carrying values of associates, sale
of interests in associates, controlled entities and broking portfolios
– Adjustments to carrying value of associates and estimates for contingent
consideration and movements in put option liability
– Profit/(loss) from sale of interests in controlled entities, associates and
insurance portfolios
Profit before income tax
Income tax expense
Net Profit after tax for the period
Net Profit after tax for the period attributable to:
Equity holders of the parent
Non-controlling interests
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Consolidated
2018
$’000
2019
$’000
276,396
246,111
3,415
27,367
2,377
29,991
(245,031)
(210,467)
(6,596)
55,551
(5,320)
62,692
5,424
5,551
1,155
62,130
12,958
49,172
48,361
811
49,172
69.49
69.41
(95)
68,148
13,177
54,971
46,520
8,451
54,971
71.84
71.57
Notes
4 (i)
4 (ii)
4 (iii)
4 (iv)
4 (v)
4(vi)
4(vii)
5
8
8
AUB GROUP ANNUAL REPORT 2019 29
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2019
N et Pr ofit after tax for the per iod
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Net movement in foreign currency translation reserve
Income tax benefit relating to currency translation
Other comprehensive income after income tax for the period
Total comprehensive income after tax for the period
Total comprehensive income after tax for the period attributable to:
Equity holders of the parent
Non-controlling interests
Consolidated
2018
$'000
2019
$'000
49,172 54,971
972
(789)
- -
972
50,144
(789)
54,182
49,192 45,849
952
50,144
8,333
54,182
30 AUB GROUP ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
YEAR ENDED 30 JUNE 2019
As s ets
Current Assets
Cash and cash equivalents
Cash and cash equivalents – Trust
Trade and other receivables
Other financial assets
Total Current Assets
Non-current Assets
Trade and other receivables
Other financial assets
Investment in associates
Property, plant and equipment
Intangible assets and goodwill
Deferred income tax asset
Total Non-current Assets
Total Assets
Liabilities
Current Liabilities
Trade and other payables
Income tax payable
Provisions
Interest-bearing loans and borrowings
Total Current Liabilities
Non-current Liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Interest-bearing loans and borrowings
Total Non-current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Retained earnings
Share based payments reserve
Put option reserve
Foreign currency translation reserve
Asset revaluation reserve
Equity attr ibutable to equity holder s of the par ent
Non-controlling interests
T otal Equity
Consolidated
2018
$’000
2019
$’000
Notes
6
6
9
10
9
10
11
13
14
5
17
5
18
19
17
18
5
19
20
21
21
21
21
21
70,016
149,981
243,309
8
58,688
99,969
179,704
9
463,314
338,370
133
393
127,453
14,559
401,146
12,645
556,329
429
18
155,888
11,996
267,097
7,343
442,771
1,019,643
781,141
385,835
244,637
6,533
15,432
18,945
5,140
14,568
8,917
426,745
273,262
1,021
3,362
19,587
85,530
109,500
536,245
26,403
3,165
8,796
112,285
150,649
423,911
483,398
357,230
255,662
171,168
7,820
(19,919)
372
141,708
169,022
6,861
(26,403)
(459)
- -
415,103
290,729
68,295
66,501
483,398
357,230
AUB GROUP ANNUAL REPORT 2019 31
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2019
Attributable to equity holders of the parent
Foreign
Asset
currency
Put
Share
based
Issued
Retained
revaluation
translation
option
payment
capital
earnings
reserve
reserve
reserve
reserve
Total
Non-
controlling
interest
Total
equity
Consolidated
At 1 July 2018
Impact due to change in
accounting standard*
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
141,708
169,022
-
(459)
(26,403)
6,861
290,729
66,501
357,230
-
(4,183)
-
-
- -
(4,183)
(631)
(4,814)
Adjusted balance at 1 July 2018
141,708
164,839
-
(459)
(26,403)
6,861
286,546
65,870
352,416
Profit for the year
- 48,361
-
-
- - 48,361
811
49,172
Other comprehensive income
Total comprehensive income for
- -
- 831
- - 831
141
972
the year
- 48,361
- 831
- - 49,192
952
50,144
T r ans ac tions w ith ow ner s in
their c apac ity as ow ner s :
Adjustment relating to increases in
the voting shares in controlled
entities. (see note 7(a))
-
(7,282)
-
-
- -
(7,282)
(5,767)
(13,049)
Adjustment relating to reductions in
the voting shares in controlled
entities. (see note 7(a))
- 2,088
-
-
- - 2,088
2,687
4,775
Non controlling interests relating to
new acquisitions (see notes 7(d))
- -
-
-
- - - 14,320
14,320
Transfer to put option reserve
-
(6,484)
-
- 6,484
- - - -
Cost of share-based payment
- -
-
-
- 773
773
- 773
Tax benefit
related to employee
share trust transactions
- -
-
-
- 186
186
- 186
Exchange rate movements
- -
-
-
- - - 202
202
Proceeds from capital raising
116,353
-
-
-
- - 116,353
- 116,353
Share issue expenses
(2,399)
-
-
-
- -
(2,399)
-
(2,399)
Equity dividends
-
(30,354)
-
-
- -
(30,354)
(9,969)
(40,323)
At 30 June 2019
255,662
171,168
- 372
(19,919)
7,820
415,103
68,295
483,398
* The Group adopted AASB 15 Revenue from Contracts with Customers on a modified retrospective basis. This resulted in a charge of $4,183,000 to retained
earnings at 1 July 2018, being the cumulative effect on initial application of the standard referred to in note 2. As permitted by the new accounting standard, the
comparative results for the year ended 30 June 2018 are not restated.
32 AUB GROUP ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2019
Attributable to equity holders of the parent
Foreign
Asset
currency
Put
Share
based
Non-
controlling
interest
Total
equity
Consolidated
At 1 July 2017
Issued
Retained
revaluation
translation
option
payment
capital
earnings
reserve
reserve
reserve
reserve
$'000
$'000
$'000
$'000
$'000
$'000
Total
$'000
$'000
$'000
141,708
154,579 199 212
(25,875)
6,090
276,913
68,868
345,781
Profit for the year
- 46,520
-
-
- - 46,520
8,451
54,971
Other comprehensive income
- -
-
(671)
- -
(671)
(118)
(789)
Total comprehensive income for
the year
- 46,520
-
(671)
- - 45,849
8,333
54,182
T r ans ac tions w ith ow ner s in
their c apac ity as ow ner s :
Adjustment relating to movements
in the voting shares in controlled
entities (see note 7(b))
-
(5,350)
-
-
- -
(5,350)
(2,963)
(8,313)
Reduction to non-controlling
interests relating to deconsolidated
entities (see note 7(e))
- -
-
-
- - -
(2,120)
(2,120)
Transfer from asset revaluation
reserve
- 199
(199)
-
- - - - -
Transfer to put option reserve
- 528
-
-
(528)
- - - -
Cost of share-based payment
- -
-
-
- 652
652
- 652
Tax benefit related to employee
share trust transactions
- -
-
-
- 119
119
- 119
Exchange rate movements
(126)
(126)
Equity dividends
-
(27,454)
-
-
- -
(27,454)
(5,491)
(32,945)
At 30 June 2018
141,708
169,022
-
(459)
(26,403)
6,861
290,729
66,501
357,230
AUB GROUP ANNUAL REPORT 2019 33
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 30 JUNE 2019
Cas h flows fr om oper ating ac tiv ities
Receipts from customers
Dividends received from others
Dividends/trust distributions received from associates
Interest received
Management fees received from associates/related entities
Payments to suppliers and employees
Income tax paid
Interest paid
Net cash from operating activities before customer trust account movements
Net increase/(decrease) in cash held in customer trust accounts
Net cash flows from operating activities
Cas h flows fr om inv es ting ac tiv ities
Proceeds from reduction in interests in controlled entities
Payment for increase in interests in controlled entities
Payments for new consolidated entities, net of cash acquired
Cash outflow from sale/deconsolidation of controlled entities
Payment for new associates
Payment for new broking portfolios purchased by members of the economic entity
Consolidated
2018
$'000
2019
$’000
Notes
258,349
36
26,371
3,379
13,736
232,837
1
22,620
2,376
12,390
(229,720)
(205,095)
(12,038)
(5,886)
54,227
15,257
6(a)
69,484
7(a),(b)
3,262
7(a),(b)
7(d),(e)
7(d),(e)
11
(12,308)
(13,748)
1,184
(1,938)
(5,028)
(14,204)
(4,679)
46,246
11,261
57,507
1,639
(10,327)
(8,656)
(2,760)
(3,031)
(460)
Proceeds from sale of broking portfolios by member of the economic entity
327
-
Proceeds from sale of associates
Proceeds from sale of other financial assets
-
5
Proceeds from new shares issued to non-controlling interests
7(a),(b)
-
38
(4)
368
(Payment for) / proceeds from purchases / sale of other financial assets
- -
Proceeds from sale of plant and equipment
Payment for plant and equipment and capitalised projects
Repayment/(advances) of loans to associates/related entities
Advance settlement sale of associates
Proceeds from loan repayments from associates/related entities
Net cash flows (used in) investing activities
Cas h flows fr om financ ing ac tiv ities
Dividends paid to shareholders
Dividends paid to shareholders of non-controlling interests
Net proceeds from issue of share capital
Payment for contingent consideration on prior year acquisitions
Increase in borrowings and lease liabilities
Repayment of borrowings and finance lease liabilities
Advances to related entities
Net cash flows (used in)/from financing activities
Net ( dec r eas e) /inc r eas e in c as h and c as h equiv alents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of period
34 AUB GROUP ANNUAL REPORT 2019
1,161
(7,171)
28
659
(5,733)
103
3,400
-
- -
(30,826)
(28,164)
(30,354)
(9,969)
(27,454)
(5,491)
113,197
-
(3,934)
(18,411)
4,216 27,428
(48,808)
-
(1,666)
22,682
61,340
158,657
219,997
(76)
(24,004)
5,339
153,318
158,657
6(b)
6(b)
6(a)
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
(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.
Information from the financial statements of controlled entities is
included from the date the parent entity obtains control until such
time as control ceases. Generally, there is a presumption that a
majority of voting rights results in control. To support this
presumption, the Group also considers all relevant facts and
circumstances in assessing whether it has control over an entity,
including rights arising from contractual arrangements with the
entity and/or other vote holders of the entity.
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 Consolidated
Statement of Profit or Loss and within equity in the Consolidated
Statement of Financial Position.
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
accumulated 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 2019 was authorised for issue in accordance with a resolution
of the directors on 20 August 2019.
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 except for the new and amended
accounting standards which came into effect on 1 July 2018, which
are detailed in note 2.3 below.
The 30 June 2019 financial statements, and respective notes to the
financial statements have been prepared in accordance with the
new and amended accounting standards. The accounting policies
in note 2.2 below have also been updated to reflect the new and
amended accounting standards in effect during the year.
The 30 June 2018 prior year comparatives have been prepared in
accordance with the previous accounting standards applicable for
that period. The relevant accounting policies for 30 June 2018 can
be found in the Group's 2018 Annual Report, note 2.2 Summary of
Significant Accounting Policies.
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 (Cth), 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.
AUB GROUP ANNUAL REPORT 2019 35
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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.
Re-estimation of put options financial liability
A financial liability has been recognised representing an estimate of
the value the Group could be required to pay on the future exercise
by holders of put options. The Group re-estimates put options
financial liability at the reporting date, taking into account the
estimated future outcomes for income or profit, on which the
purchase price will be determined. Historical trends and any
relevant external factors are taken into account in determining the
likely outcome.
(f) Fair value measurement
The Group measures its financial instruments at fair value at each
balance sheet date. Refer to note 28(c).
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement
is based on the presumption that the transaction to sell the asset or
transfer the liability takes places either:
in the principal market for the asset or liability; or
in the absence of a principal market, in the most advantageous
market for the asset or liability.
The principal or the most advantageous market must be accessible
by the Group.
The fair value of an asset or lability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that the market participants act in their
economic best interests.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure the fair value, maximising the use of relevant observable
inputs and minimising the unobservable inputs.
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:
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 and investments in
associates 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.
36 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(f) Fair value measurement (continued)
All assets and liabilities for which fair value is measured or
disclosed on 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 value 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.
The consolidated entity's put option liabilities are categorised as
level 3.
(g) Current versus non-current classification
The Group presents assets and liabilities in the Consolidated
Statement of Financial Position based on current and non-current
classification.
An asset is current when it is:
expected to be realised, or intended to be sold, or consumed in
the normal operating cycle;
expected to be realised within twelve months after the reporting
period;
(h) Revenue recognition
Revenue from contracts with customers
The Group will recognise as revenue the amount of the transaction
price that is allocated to the performance obligation, excluding any
amounts highly probable of reversal, when the performance
obligation has been satisfied.
(i) Insurance intermediary segment
Commission, brokerage and fees
The Group considered whether commissions, brokerage and fee
revenue in respect of its broking and underwriting agency services
(“insurance intermediary revenue”) should be recognised at invoice
date or insurance policy inception date.
Based on the main considerations that: (a) the Group acts primarily
as an agent of the customer when acting in the capacity as a
broker, and as an agent of the insurer while acting in the capacity
as underwriting agent; (b) the Group’s performance obligations are
distinct from those of the insurer; and (c) the Group’s performance
obligations are predominantly completed prior to the inception of
the insurance policy, the invoice date is the relevant date to
recognise the fixed components associated with the insurance
intermediary revenue.
Claims handling and premium settlement activities
The Group recognises the variable amount of revenue only to the
extent that it is highly probable that a significant reversal of revenue
will not occur when the uncertainty associated with the variability is
resolved. Revenue associated with claims handling services and
premium settlement activities is recognised over time as the
services are provided to the customer and variable consideration is
constrained to reflect potential cancellations.
Generally, the Group receives short-term advances from its
customers. Using the practical expedient in AABS 15, the Group
does not adjust the promised amount of consideration for the
effects of a significant financing component if it expects, at contract
inception, that the period between the transfer of the promised
good or service to the customer and when the customer pays for
that good or service will be one year or less.
Performance-based income
held primarily for the purpose of trading; or
The Group recognises performance-based income either:
cash or cash equivalents unless restricted from being
exchanged or used to settle a liability for at least twelve months
after the reporting period.
A liability is current when:
it is expected to be settled in the normal operation cycle;
it is held primarily for the purpose of trading
it is due to be settled within twelve months after the reporting
period; or
there is no unconditional right to defer the settlement of the
liability for at least twelve months after the reporting period.
The Group classifies all other assets and liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current
assets and liabilities.
upon receipt of payment; or
upon receipt of the insurers’ advice of the amount earned.
(ii) Risk services segment
Fees
Fee revenue earned by the Group’s risk services segment is
recognised upon issue of an invoice, plus an accrual for a
percentage of completion of any work in progress (including a profit
margin), which has yet to be invoiced, but for which the Group has
an enforceable right of payment.
Revenue for other services performed by the risk services segment
is recognised once the services have been performed and provided
to the customer, to the extent the recognition criteria for variable
consideration are met.
(iii) Management fees and other income
Management fees and other revenue are recognised at the point in
time when the Group has satisfied its performance obligations and
the transaction price is determined.
AUB GROUP ANNUAL REPORT 2019 37
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(h) Revenue recognition (continued)
Interest Income
Interest income is recognised as interest accrues using the
effective interest method.
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 the 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.
See also accounting policy (q) Impairment of financial assets and
expected credit loss.
Dividends and Distributions from trusts
(l) Investment in associates
Dividends and distributions from trusts recognised when the
shareholder's right to receive the payment is established.
Other income
Other income is recognised when the service has been performed
and the right to receive the payment is established.
(i) Cash and cash equivalents
Cash and cash equivalents, and cash and cash equivalents - trusts
(trust cash), in the Consolidated 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 Consolidated Statement of Cash Flows,
cash and cash equivalents as defined above are shown net of
outstanding bank overdrafts.
(j) 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.
(k) Trade and other receivables
Trade and other receivables which generally have 30 day credit
terms, are initially recognised at fair value and subsequently
measured at amortised cost.
Receivables include amounts due from policyholders in respect of
insurances arranged by controlled entities. Insurance brokers have
38 AUB GROUP ANNUAL REPORT 2019
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 Consolidated Statement
of Comprehensive Income.
Refer to note 15 Impairment Testing Identifiable Intangible Assets
and Goodwill.
(m) Interest-bearing liabilities
Interest-bearing liabilities are initially recognised at fair value of the
consideration received, net of any directly attributable transaction
costs. After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost.
Gains and losses are recognised in profit or loss when the liabilities
are derecognised.
Borrowing costs
Borrowing costs are amortised over the term of the loan.
(n) 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.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(n) Trade and other payables (continued)
Put option financial liability
The Group recognises put options financial liability initially at
present value of the value the Group could be required to pay on
the future exercise by holders of the put options. After initial
recognition, put options financial liability is subsequently measured
at amortised cost using the effective interest method. The Group re-
estimates put options financial liability at the reporting date, taking
into account the estimated future outcomes for income or profit, on
which the purchase price will be determined. The Group
recalculates the carrying amount of these put options financial
liability by computing the present value of estimated future cash
flows at the financial liability’s original effective interest rate. The
adjustment is recognised through the Consolidated Statement of
Profit or Loss as income or expense.
(o) 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.
See also accounting policy (q) Impairment of financial assets and
expected credit loss.
(p) 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.
(q) Impairment of financial assets and expected credit loss
Expected credit loss
Lifetime expected credit losses are recorded on receivables,
including trade and other receivables, interest-bearing loans,
investments and other financial assets.
(i) Cash and cash equivalents
Cash and cash equivalents are subject to an insignificant risk of
changes in value. See also accounting policy (i) Cash and cash
equivalents.
(ii) Trade receivables
Fiduciary receivables - the Group's exposure to fiduciary
receivables is limited to commissions and fees charged. See
Other receivables - commissions and fees below.
Other receivables - commissions and fees - an allowances is
made for anticipated lapses and cancellations based upon
historical information, adjusted for forward-looking information.
The provision for lapses provides an amount for expected
cancellations and loss of commissions and fees. See
accounting policy (k) Trade and other receivables.
AUB GROUP ANNUAL REPORT 2019 39
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
reversed and any under accruals are charged as an expense
against profits. The contingent consideration is carried in the
Consolidated 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.
(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 (2018:10 to 15 years) for broking
portfolios/client relationships and 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.
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(r) 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.
(s) Business combinations
The acquisition method of accounting is used to account for all
business combinations. Cost is measured as the fair value of the
assets given, shares issued or liabilities assumed at the date of
exchange. All acquisition costs including stamp duty and legal fees
are charged against profits as incurred.
Change in the ownership interest in a controlled entity (without loss
of control) is accounted for as a transaction with owners in their
capacity as owners and these transactions will not give rise to a
gain or loss in the 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
derecognised.
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
40 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(ii) Intangible assets - Insurance Broking Register (continued)
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 Consolidated 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.
(t) 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 accumulated superannuation funds
by entities within the Group are charged against profits when due.
(u) 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.
(v) 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.
For options vesting based on earnings per share hurdles, 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.
AUB GROUP ANNUAL REPORT 2019 41
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(v) Share-based payment transactions (continued)
For options issued based on total shareholder return hurdles, an
expense is recognised based on the Group's meeting market
expectations.
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).
(w) 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.
(x) 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 Consolidated
Statement of Financial Position.
Deferred income tax is provided on all temporary differences at the
date of the Consolidated Statement of Financial Position between
the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
when the deferred income tax liability arises from the initial
recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss; or
when the taxable temporary differences associated with
investments in subsidiaries, associates or interests in joint
ventures, and the timing of the reversal of the temporary
difference can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
No deferred tax liability has been recognised in respect of any
potential profit on the disposal of an associate or controlled
entity by the Group as there is no intention of disposing of
these assets in the foreseeable future. Any tax liability will be
recognised when the asset is disposed.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences
and the carry-forward of unused tax credits and unused tax losses
can be utilised, except:
when the deductible temporary differences arise from the initial
recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; or
when the deductible temporary differences associated with
investments in subsidiaries, associates or interests in joint
ventures, in which case a deferred tax asset is only recognised
to the extent that it is probable that the temporary difference will
reverse in the foreseeable future and taxable profit will be
available against which the temporary difference can be
utilised.
The carrying amount of deferred income tax assets is reviewed at
each year end date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or
part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
year end date and are recognised to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to
be recovered.
Deferred income tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates and tax laws
that have been enacted or substantively enacted at the year end
date as presented in the Consolidated 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.
42 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
(y) 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 Consolidated Statement of Financial Position. Cash flows are
included in the Consolidated 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.
(z) 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.
(aa) 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 Consolidated Statement of
Financial Position by adjusting both the expense or asset and the
provision. The related carrying amounts are disclosed in note 18.
(bb) 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".
AUB GROUP ANNUAL REPORT 2019 43
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
Expected credit loss
AASB 9 introduces a new expected-loss impairment model that
involves the timely recognition of a loss allowance for expected
credit losses. This requires the Group to apply a forward-looking
credit loss approach, and allows the application of a simplified
approach by recording lifetime expected credit losses on trade
receivables.
The Group applies the simplified approach to its trade receivables,
and measures the loss allowance at an amount equal to lifetime
expected credit losses. The impact of the application of the
expected-loss impairment requirements of AASB 9 on the Group’s
trade and other receivables was not material.
Hedge accounting
The Group does not have any hedge relationships in place, and as
such, there is no impact from the application of the hedging
requirements under AASB 9.
Impact of AASB 9
Upon initial application of AASB 9 at 1 July 2018, the Group has
assessed the impact of AASB 9 on the Group as not material.
2.3. NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS ADOPTED
DURING THE YEAR
The following Australian and International Accounting Standards
and interpretations have been adopted by the Group for the year
ended 30 June 2019.
AASB 9: Financial Instruments
AASB 9, and related amendments, took effect for the Group on 1
July 2018, replacing AASB 139 Financial Instruments: Recognition
and Measurement. AASB 9 consolidates the requirements for the
classification and measurement of financial assets and liabilities,
derecognition of financial instruments, impairment of financial
assets and hedge accounting.
Financial Assets
Under AASB 9, financial assets previously held at fair value
continue to be measured at fair value, including any transaction
costs directly attributable to the acquisition of the financial assets.
Where financial assets are carried at fair value through the profit
and loss, the transaction costs are expensed through profit or loss.
Financial assets carried at amortised cost are subsequently
measured at amortised cost using the effective interest method.
Cash is held at fair value. Trade receivables are initially recorded at
the fair value amounts to be received, and are subsequently
measured at amortised cost using the effective interest method.
The Group derecognises financial assets when the contractual
rights to the cash flows from the financial assets have expired, or
the Group transfers substantially all the risks and rewards
associated with ownership of the financial asset.Where receivables
result from contracts with customers and do not contain a
significant financing component, such receivables are measured at
their transaction price as required by AASB 15 Revenue from
Contracts with Customers. See further below for the Group’s AASB
15 accounting policy.
Loans receivable are carried at amortised cost using the effective
interest method. The Group calculates interest revenue by applying
the effective interest method to the amortised cost of a financial
asset. Any gains, losses or impairment are recognised or
derecognised in the income statement.
Financial liabilities
All loans and borrowings are initially recognised at fair value, less
any directly attributable transaction costs. Interest-bearing loans
and borrowings are subsequently measured at amortised cost
using the effective interest method.
A financial liability is derecognised upon extinguishment; when the
obligation is discharged, cancelled or expires. Where there has
been an exchange between an existing borrower and lender of debt
instruments with substantially different terms, or there has been a
substantial modification of the terms of an existing financial liability,
such an exchange or modification is treated as a derecognition of
the original financial liability and the recognition of a new financial
liability. The difference in the respective carrying amounts is
recognised in profit or loss.
44 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.3. NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS ADOPTED
DURING THE YEAR (CONTINUED)
AASB 15: Revenue from Contracts with Customers
Quantitative impact of AASB 15
On 1 July 2018, the Group adopted AASB 15 Revenue from
Contracts with Customers which replaced all revenue standards
and interpretations, including AASB 118 Revenue. As permitted by
AASB 15, the Group adopted AASB 15 on a modified retrospective
basis, so that prior year comparative results have not been
restated. As disclosed in note 3 of the 30 June 2018 Financial
Statements, the estimated total impact on equity (after tax) would
fall into the range of $4.0 million and $5.0 million. The actual impact
on equity upon adoption was $4.814 million after tax – see table
below for the breakdown between equity holders and non-
controlling interests. See note 11(j) for the impact to the carrying
value of associates.
Impact of AASB 15 on retained earnings and non controlling interests at 1 July 2018:
Retained earnings resulting from AASB 15 adjustment to consolidated entities
Retained earnings resulting from AABS 15 adjustment to associates (after tax)
Impact on equity holders of the parent
Non-controlling interests
Impact of AASB 15 after tax - total impact on equity
The above values include the impact on deferred taxes in respect of deferred revenue from contracts with customers
as shown in note 17.
The amount included in the deferred income tax asset is $1,340,000.
Impact on deferred revenue from contracts with customers (see note 17)*
Impact on opening deferred revenue relating to equity holders of the parent (before tax)
Impact on opening deferred revenue relating to non-controlling interests (before tax)
Less: adjustments relating to tax rate differences and translation movements
Impact of AASB 15 on deferred revenue from contracts with customers
$’000
2,748
1,435
4,183
631
4,814
$’000
3,926
901
(326)
4,501
* Impact on opening deferred revenue has been calculated at 30 cents tax rate. Adjustments for foreign tax rates have been included in the tax rate differences.
The deferral of revenue under AASB 15 is a reflection of a shift in
the timing of revenue recognised, with no material change in the
quantum of revenue recognised.
This deferral, mainly arises from the change in the timing of the
recognition of a portion of insurance intermediary revenue, which
the Group allocates to two new distinct performance obligations,
namely claims handling services and premium settlement activities,
along with an allowance for policy cancellations. As a result, the
insurance intermediary revenue is still recognised at invoice date,
but the portion associated with claims handling services and
premium settlement activities is recognised over time as the
services are provided to the customer and variable consideration is
constrained to reflect potential cancellations. See accounting policy
2.2(h).
Refer to the Consolidated Statement of Changes in Equity and note
17 Trade and Other Payables which show the quantitative impact
of AASB 15.
AUB GROUP ANNUAL REPORT 2019 45
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
2.3. NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS ADOPTED
DURING THE YEAR (CONTINUED)
AASB 15: Revenue from Contracts with Customers (continued)
Transitional disclosure
Set out below, are the amounts by which each line item in the
Consolidated Statement of Profit or Loss is affected for the year
ended 30 June 2019, as a result of the adoption of AASB 15. The
first column shows amounts as prepared under AASB 118, the
second column shows the AASB 15 adjustments for the financial
year, and the last column shows the actual amounts, as prepared
under AASB 15:
Revenue
Other income
Share of profit of associates
Expenses
Finance costs
Impact of AASB 15 after tax - total impact on equity
Income arising from adjustments to carrying values of controlled entities and profit
from sale of interests in controlled entities and broking portfolios
- Adjustments to carrying value of controlled entities and contingent consideration
payments
- Profit from sale of interests in controlled entities and broking portfolios
Profit before income tax
Income tax expense
Net profit after tax for the period
Other amendments to Australian Accounting Standards
The Group has also adopted the following amendments to, and
interpretation of accounting standards:
AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of Share-based
Payment Transactions
AASB Interpretation 22 Foreign Currency Transactions and
Advance Consideration
For the year ended 30 June 2019, the adoption of this amendment
and interpretation had no material impact on the Financial
Statements of the Group.
46 AUB GROUP ANNUAL REPORT 2019
Amounts
prepared under
Current period
previous adjustments due
to AASB 15
$’000
AASB 118
$’000
Amounts
prepared
under AASB
$’000
276,636
(240)
276,396
3,415 -
27,431
(64)
3,415
27,367
(245,031)
-
(245,031)
(6,596)
-
(6,596)
55,855
(304)
55,551
5,424 -
1,155 -
62,434 -
13,030
49,404
(72)
(232)
5,424
1,155
62,130
12,958
49,172
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
3. NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS – ISSUED BUT
NOT YET EFFECTIVE
There are a number of new accounting standards and amendments
issued, but not yet effective, none of which have been early
adopted by the Group in this Financial Report. The Group has
reviewed the impact of these changes and has determined that the
adoption of these standards will not have a material effect on the
financial position or performance of the Group other than as set out
below.
AASB 17: Insurance contracts
AASB 17 was issued in July 2017, replacing AASB 4 Insurance
Contracts, AABS 1023 General Insurance Contracts and AASB
1038 Life Insurance Contracts. The new standard establishes
principles for the recognition, measurement and disclosure of
insurance contracts issued.
The Group is in the business of providing risk management, advice
and risk solutions, distributing insurance policies through its
network of insurance brokers and underwriting agencies. The
Group does not issue insurance contracts or reinsurance contracts,
and accordingly, does not expect the impact of AASB 17 to be
material.
AASB 16: Leases
The new lease standard (AASB 16) will become effective for the
Group from the annual reporting period commencing 1 July 2019.
Although early adoption is permitted, the Group has not early
adopted this standard or any other standards, interpretations or
amendments that have been issued, but are not yet effective.
The Group intends to apply the exemptions available under AASB
16 for short term leases and low value underlying assets. In
addition, the Group intends to apply AASB 16 using the modified
retrospective approach under paragraph C8(b)(ii), along with
practical expedients permitted by the standard. The modified
retrospective approach does not require the restatement of
comparative financial information.
All leases will be recognised on the balance sheet at inception of
the lease, with the exception of short-term leases and leases of
low-value assets. The lessee must recognise a right-of-use asset
and a corresponding lease liability in the amount of the present
value of the remaining 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.
Estimated impact of AASB 16
Upon initial application of AASB 16 on 1 July 2019, the Group
estimates that the modified retrospective approach will result in a
right-of-use asset of $36.48 million and a lease liability of $36.48
million measured, at the present value of the remaining lease
payments using each lessee’s respective incremental borrowing
rate. The Group estimates that the impact to retained earnings will
not be material.
AUB GROUP ANNUAL REPORT 2019 47
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
4. REVENUE AND EXPENSES
( i) Rev enue
Commission, brokerage and fee income
Management fees from related entities
Other revenue
Total revenue
( ii) O ther inc ome
Dividends from other persons/corporations
Interest from related persons/corporations
Interest from other persons/corporations
Total other income
( iii) Shar e of pr ofit of as s oc iates
Share of net profits of associates accounted for using the equity method before amortisation
(net of income tax expense)
Amortisation of intangibles – associates
Total share of profit of associates
( iv ) Ex pens es
Amortisation of intangibles - controlled entities
Amortisation of capitalised project costs
Advertising and marketing
Audit fees
Business technology and software costs
Commission expense
Depreciation of property plant and equipment
Insurance
Legal fees/acquisition costs
Rent (operating leases)
Salaries and wages
Share-based payments
Travel/telephone/motor/stationery
Other expenses
Total other expenses
( v ) F inanc e c os ts
Interest paid and other borrowing costs
Interest unwind on put option liability
Total finance costs
( v i) Adjus tments to c ar r y ing v alue of as s oc iates and c ontingent c ons ider ation pay ments
and put option liability
Adjustments to carrying value of entities (to fair value) on the date they became controlled entities or
deconsolidated (see notes 7(e),(d))
Movement in put option liability
Adjustment to contingent consideration on acquisition of controlled entities and associates (see note 15)
Impairment charge relating to the carrying value of associates and goodwill (see note 15)
Total adjustments to carrying value of associates and contingent consideration payments and put option
liability
( v ii) Pr ofit fr om s ale of inter es ts in c ontr olled entities and ins ur anc e por tfolios
Profit (loss) from sale on deconsolidation of controlled entities (see note 7 (d),(e))
Profit from sale of insurance broking/underwriting agency portfolios
Total profit from sale of interests in controlled entities and insurance/underwriting agency portfolios
48 AUB GROUP ANNUAL REPORT 2019
Consolidated
2019
$’000
2018
$’000
257,319
13,736
5,341
228,256
12,390
5,465
276,396
246,111
36
65
3,314
1
23
2,353
3,415
2,377
29,929
33,197
(2,562)
(3,206)
27,367
29,991
6,375
1,503
3,070
1,749
7,613
12,465
3,432
6,078
5,025
12,945
164,348
773
7,935
11,720
4,032
574
3,864
1,661
8,766
13,242
2,690
4,662
1,289
11,145
140,475
652
9,156
8,259
245,031
210,467
5,900
696
4,762
558
6,596
5,320
17,162
7,752
7,179 31
287
(2,519)
44
(18,961)
5,424
5,551
1,192
(37)
1,155
(339)
244
(95)
5. INCOME TAX
Major components of income tax expense
Cons olidated Statement of Pr ofit or Los s
Current income tax
Current income tax charge
Adjustment for prior years
Deferred tax credit
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
Consolidated
2018
$’000
2019
$’000
16,725
(8)
14,254
(14)
Origination and reversal of temporary differences
(3,759)
(1,063)
Total income tax expense in Consolidated Statement of Profit or Loss
12,958
13,177
A reconciliation between tax expense and the product of accounting profit before income tax
multiplied by the company's applicable income tax rate is as follows:
Profit before income tax
At the Company’s statutory income tax rate of 30% (2018: 30%)
62,130
68,148
18,639
20,444
Impact of:
Rebateable dividends
Equity accounted income from associates
Non taxable distributions from associates operating as trusts
Non-taxable/(deductible) gains/losses on sale
Tax Losses not recognised
Income taxed at different tax rates on overseas operations
Put options liability
Adjustments to carrying value of entities (to fair value) on the date they became controlled entities or
deconsolidated
Adjustments to contingent consideration on acquisition of controlled entities and associates
Impairment charge relating to the carrying value of associates and controlled entities
(Over)/ under provision prior year
Non deductible expenses/other
(11)
-
(5,611)
(6,587)
(480)
96
(130)
501
1,240
-
(183)
(119)
(1,945)
158.00
(5,149)
(2,259)
(13)
5,688
(8)
694
(86)
755
(14)
514
Income tax expense reported in the Consolidated Statement of Profit or Loss
12,958
13,177
Income tax payable
6,533
5,140
AUB GROUP ANNUAL REPORT 2019 49
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
5. INCOME TAX (CONTINUED)
Defer r ed inc ome tax
Deferred income tax at 30 June relates to the following:
Deferred tax liability
Income accrued not yet assessable
Unamortised value of broker registers
Consolidated
Consolidated
Statement of Financial Position
Statement of Profit or Loss
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2,930
6,643
2,284 646
258
7,700
- -
Deferred tax relating to new broking registers acquired
11,930
-
Tax credit on insurance broking registers amortisation expense
Deferred income tax liabilities
Deferred tax asset
(1,916)
19,587
(1,188)
8,796
(1,916)
(1,188)
Provisions and accruals not yet claimed for tax purposes
9,832
7,343
(2,489)
(133)
Acquisition/disposal of controlled entities
Deferred income tax assets
Deferred tax credits
Tax consolidation
2,813
-
12,645
7,343
(3,759)
(1,063)
For the purposes of income taxation, AUB Group Limited (AUB) 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 formally notified the Australian Taxation Office of its adoption of the
tax consolidation regime.
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
carries forward tax funding assets or tax funding liabilities for which an intercompany loan is recognised between the parties.
Tax effect accounting by members of the tax consolidated group
Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation
of current taxes to members of the tax consolidated group in accordance with their accounting profit for the period, while deferred taxes are
allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax
funding agreement are made at the end of each quarter.
Effective Tax Rate
AUB is conscious of its social responsibility to pay corporate taxes. The Group’s effective Australian corporate tax rate at 30 June 2018 was
30.52%.
The information reported by the Australian Taxation Office (ATO) (as prescribed by statute) in respect of corporate tax entities will not
necessarily provide the complete picture, particularly for organisations such as AUB that receive the majority of its income through franked
dividends.
The AUB consolidated group consists of AUB Group Limited, the parent entity and ASX listed entity, plus over 130 businesses wholly or
partly owned by the parent entity, including associates.
The AUB Tax Consolidation Group (AUB TCG), comprises only AUB Group Limited (the parent entity) and its 100% wholly owned entities.
The primary income of the AUB TCG is the receipt of franked dividend income received from the partly owned entities. Given tax has
already been paid in respect of the franked dividends, the AUB TCG is entitled to a credit equal to that tax. That is, the franking credits
attaching to the dividends reflect tax that has already been paid by the individual entity paying the dividends. While the franking credits
represent tax paid, they are reflected in the income tax return of the AUB TCG group as an offset against AUB’s gross tax, thereby
reducing the amount disclosed as “tax payable”. Accordingly, the amount disclosed by the ATO in their report is after the franking credits
have been taken into account.
50 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
6. CASH AND CASH EQUIVALENTS
a) Cash and cash equivalents
Reconciliation of profit after tax to net cash flows from operations
Profit after tax for the period
Equity accounted (profits) after income tax
Dividends/trust distributions received from associates
Amortisation of intangibles
Amortisation of capitalised project costs
Depreciation of fixed assets
Share options expensed
Net movement in put option liability (including interest unwind)
Profit/Loss from sale of insurance portfolios and controlled entities
Adjustment to contingent consideration on acquisition of controlled entities and associates
Adjustments to carrying value of entities (to fair value) on the date they became controlled entities or
deconsolidated
Impairment charge relating to the carrying value of associates and goodwill
Changes in assets and liabilities
(Decrease) in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease) in trust receivables
Increase in trust payables
(Decrease)/increase in provisions
(Increase) in deferred tax asset
Increase/(decrease) in deferred tax liability
(Increase) in provision for tax
Net cash flows from operating activities
Cash and cash equivalents
Cash and cash equivalents – trust
Total cash and cash equivalents
Consolidated
2018
$’000
2019
$’000
49,172
54,971
(27,367)
(29,991)
26,371
22,620
6,375
1,503
3,432
773
(6,483)
(1,155)
(44)
(17,162)
18,961
(7,775)
7,032
(10,392)
26,216
(893)
(995)
5,742
(3,827)
69,484
70,016
149,981
4,032
574
2,690
652
527
95
(287)
(7,752)
2,519
(1,593)
(2,210)
(9,386)
20,647
426
(344)
(483)
(200)
57,507
58,688
99,969
219,997
158,657
Due to acquisitions/disposal of consolidated entities during the year, some changes in assets and liabilities shown above will not agree
to the movements in the Consolidated Statement of Financial Position.
Trust cash (other than undrawn income) cannot be used to meet business obligations/operating expenses other than payments to
underwriters and/or refunds to policyholders.
AUB GROUP ANNUAL REPORT 2019 51
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
6. CASH AND CASH EQUIVALENTS (CONTINUED)
b) Changes in liabilities arising from financing activities
Disclosure: AASB 107
Listed below are the disclosure requirements in respect of the changes in the liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).
Consolidated
Foreign
Exchange
New
consolidated
30 June
New
Year ended 30 June 2019
$’000
$’000
$’000
$’000
1 July 2018 Cash Flows
movement
acquisitions
Other
$’000
entity
$’000
2019
$’000
Current interest-bearing loans and
borrowings (excluding items listed below)
8,302 2,405
- - - 7,763
18,470
Current obligations under finance leases
and hire purchase contracts
468
(95)
- - -
-
373
Non current interest-bearing loans and
borrowings (excluding items listed below)
111,621
(46,010)
1,798
- - 17,706
85,115
Unsecured Loan Other
147
(45)
- - -
-
102
Non current obligations under finance
leases and hire purchase contracts
664
(847)
- - - 598
415
121,202
(44,592)
1,798
- - 26,067
104,475
Amounts payable under contingent
consideration arrangements
2,981
(3,934)
3 5,228
(44)
2,289
6,523
Total liabilities from financing activities
124,183
(48,526)
1,801 5,228
(44)
28,356
110,998
Year ended 30 June 2018
$’000
$’000
$’000
$’000
$’000
$’000
1 July 2017 Cash Flows
movement
acquisitions
Other New leases
Current interest-bearing loans and
Consolidated
Foreign
Exchange
New
30 June
2018
$’000
borrowings (excluding items listed below)
5,305 2,997
- - -
- 8,302
Current obligations under finance leases
and hire purchase contracts
488
(20)
- - -
- 468
Non current interest-bearing loans and
borrowings (excluding items listed below)
88,298 24,658
(1,335)
- -
- 111,621
Unsecured Loan Other
376
(229)
- - -
- 147
Non current obligations under finance
leases and hire purchase contracts
629 22
- - - 13 664
95,096 27,428
(1,335)
- - 13 121,202
Amounts payable under contingent
consideration arrangements
19,272
(18,411)
(71)
2,130 61
- 2,981
Total liabilities from financing activities
114,368
9,017
(1,406)
2,130 61 13 124,183
52 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS
The business combinations referred to in note 7(a) - 7(e) relate to insurance broking and underwriting agency businesses except for 7(a),
Altius Group 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 a best estimate of future outcomes for income or profit, on which the purchase price is determined,
discounted to present value. Historical trends and any relevant external factors are taken into account in determining the likely outcome.
An increase or decrease in the weighted best estimate of future outcomes will result in an increase or decrease in contingent liabilities
respectively.
For business combinations referred to in notes 7(d) and 7(e) 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 as at the date of acquisition, then any
revisions to the fair value previously recognised, will be retrospectively adjusted.
(a) Equity transactions between owners–current period
Transactions resulting in an increase in shareholding
Effective 1 July 2018, the Group acquired 5% of AUB Group NZ for $3,091,637 increasing its shareholding to 85%. On 1 January 2019, the
Group subscribed to further shares in AUB Group NZ Ltd increasing it’s shareholding to 89.3%.
On 1 July 2018, a controlled entity acquired 15% of the voting shares in SURA Hospitality Pty Ltd (Hospitality) for $1,727,300 including a
deferred payment of $345,460 which is due in 12 months.
Effective 1 December 2018, the Group acquired a further 1.29% of the voting shares of Altius Group Pty Ltd (Altius) for $585,982
increasing its shareholding to 56.63%.
Effective 1 January 2019, the Group acquired a further 5% of the voting shares of Film Insurance Underwriting Agencies Pty Ltd (FIUA) for
$751,000 including a deferred payment of $191,000, increasing its shareholding to 100%.
Effective 1 January 2019, the Group acquired a further 7.95% of the voting shares in Insurance Brokers Alliance Ltd (IBAL) for $1,355,481
increasing its shareholding to 100%.
Effective 1 January 2019, the Group acquired a further 20% of the voting shares of ABFS NSW for $1,066,269 increasing its shareholding
to 95%.
Effective 1 January 2019, the Group acquired a further 20% of the voting shares of Citycover Insurance Brokers Pty Ltd (Citycover) for
$2,172,000 including a deferred settlement of $200,000 increasing its shareholding to 95%.
Effective 1 December 2018, a controlled entity, purchased an additional 3.0388% equity in Adroit Bellarine Pty Ltd (Bellarine). The value of
the transaction was $509,540, which represented fair value of the shares acquired.
Effective 1 February 2019, a controlled entity purchased an additional 14.5% equity in Adroit MHL Unit Trust (MHL). The value of the
transaction was $1,262,381, which represented fair value of the units acquired.
Effective 1 April 2019, a controlled entity purchased an additional 5.9% equity in Adroit Sandhurst Pty Ltd (Sandhurst). The value of the
transaction was $461,043, which represented fair value of the shares acquired.
Transactions resulting in a decrease in shareholding
Effective 1 July 2018, the Group disposed 100% of the voting shares in Insurics Pty Ltd to Citystate Insurance Broker Pty Ltd (Citystate).
Citystate issued shares to existing shareholders to fund the acquisition. AUB received shares in Citystate plus $971,295 in cash from non-
controlling shareholders in Citystate as payment for the sale of Insurics Pty Ltd.
Effective 1 July 2018, a controlled entity disposed of 40% of the voting shares in SURA Construction Pty Ltd (Construction) and SURA
Engineering Pty Ltd (Engineering) for $1,125,734 and $821,224 respectively, decreasing its ownership to 60% of both entities.
Effective 1 July 2018, the Group disposed of its shares in Bruce Park Pty Ltd in exchange for shares in AB Phillips Group Pty Ltd. (Phillips).
On this date AUB Group increased its shareholding in Phillips from 50.5% to 56.9%
Effective 1 July 2018, a controlled entity disposed of a further 1% of the voting shares in Runacres and Associates Limited (Runacres) for
$344,035 ($NZ 361,875) decreasing its ownership from 85% to 84%.
Effective 1 January 2019, a controlled entity disposed of 10% of the voting shares in Austbrokers Unit Trust Pty Ltd (ABS UT) for
$1,513,000 decreasing its ownership from 100% to 90%. Sale proceeds have been deferred until 30 September 2019.
AUB GROUP ANNUAL REPORT 2019 53
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS (CONTINUED)
Carrying value of assets on the date of change in voting shares were;
Decrease in voting shares
Increase in voting shares
Carrying value of assets
attributable to Runacres,
Carrying value of assets
attributable to Hospitality,
FIUA, AUB Group NZ,
Insurics, Construction, Citycover, Bellarine, MHL,
Sandhurst and Altius
$’000
Engineering and ABS UT
$’000
ASSET S
Cash
Receivables
Property plant and equipment
Intangibles
Total assets
LIABILIT IES
Payables and provisions
Tax liabilities
Total liabilities
Net assets
16,365
18,292
471
14,424
49,552
29,893
217
30,110
19,442
Less non-controlling interest in net assets
-
Net assets attributable to Parent entity
Cash (received)/paid on sale of shares
Deferred Settlement
(Increase)/decrease to non-controlling interests
T r ans fer to r etained ear nings on equity tr ans ac tions between
owner s
(b) Equity transactions between owners–previous period
Transactions resulting in an increase in shareholding
19,442
(3,262)
(1,513)
(2,687)
( 2,088)
19,568
20,597
735
98,251
139,151
70,043
3,444
73,487
65,664
(9,578)
56,086
12,308
741
5,767
7,282
Effective 1 July 2017, the Group acquired 10% of Sura Specialty Pty Ltd (Specialty) for $671,400 increasing its shareholding to 100%.
Effective 1 July 2017, a controlled entity acquired 30% of SPT Financial Solutions Pty Ltd (SPTFS) for $310,757 increasing its shareholding
from 70% to 100%.
Effective 31 July 2017, the Group acquired a further 10.2% of the voting shares of InterRisk Australia Pty Ltd (InterRisk) for $2,240,000
increasing its shareholding to 89.2%.
On 1 May 2018, InterRisk issued further shares to existing shareholders valued at $4,900,000 ($368,264 contribution from non-controlling
interests) to enable the acquisition of a further 57% of InterRisk Qld Limited increasing its shareholding to 100%. On this date AUB
increased its shareholding in InterRisk from 89.2% to 89.95%.
Effective 1 May 2018, the group acquired a further 0.5% of InterRisk for $111,039 increasing its shareholding to 90.47%.
54 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS (CONTINUED)
(b) Equity transactions between owners–previous period (continued)
Transactions resulting in an increase in shareholding (continued)
Effective 1 November 2017, a controlled entity acquired a further 49% of the voting shares in SURA Construction Pty Ltd (Construction) for
$1,379,000 increasing its ownership to 100%.
Effective 1 April 2018, a controlled entity acquired a further 49% of the voting shares in SURA Engineering Pty Ltd (Engineering) for
$1,006,000 increasing its ownership to 100%.
Transactions resulting in a decrease in shareholding
Effective 1 July 2017, a controlled entity disposed of a further 5% of the voting shares in Runacres and Associates Limited (Runacres) for
$1,639,260 ($NZ 1,800,000) decreasing its ownership from 90% to 85%.
Effective 1 July 2017, the Group disposed of 15% of Sura Hospitality Pty Ltd (Hospitality) for $290,756 decreasing its shareholding to 85%.
Carrying value of assets on the date of change in voting shares were;
ASSET S
Cash
Receivables
Property plant and equipment
Intangibles
Total assets
LIABILIT IES
Payables and provisions
Tax liabilities
Total liabilities
Net assets
Non-controlling interest in net assets
Net assets attributable to Parent Entity
Cas h ( r ec eiv ed) /paid on s ale of s har es
Adjustment to non-controlling interest
T r ans fer to r etained ear nings on equity tr ans ac tions between owner s
Decrease in voting shares Increase in voting shares
Carrying value of assets Carrying value of assets
attributable to
attributable to Runacres
Construction,
Engineering, SPTFS,
Specialty, Hospitality
and InterRisk
$’000
$’000
5,075
9,800
351
27,725
42,951
12,251
2,542
14,793
28,158
(2,816)
25,342
(1,639)
(1,522)
(117)
19,071
31,036
314
32,761
83,182
46,503
423
46,926
36,256
(5,186)
31,070
10,327
4,860
5,467
AUB GROUP ANNUAL REPORT 2019 55
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS (CONTINUED)
(c) Acquisition of new controlled entities - previous period
During the previous period a controlled entity, incorporated 2 new entities SURA NZ Limited and NZbrokers Limited for a total of $2. During
the period a controlled entity acquired 50% of the voting shares of AB Phillips Professional Lines Pty Ltd for $1,072,000. Net assets
acquired on this acquisition were $17,000.
(d) Consolidation/Deconsolidation of controlled entities – current period
On 1 November 2018, the Group disposed 100% of the voting shares in Austbrokers C E McDonald Pty Ltd (CEM) to an associate for
$2,685,000. On this date it ceased to be a controlled entity.
Effective 1 July 2018, the Group acquired a further 44% of the shares (but 50% of the voting rights) of Adroit Holdings Pty Ltd (Adroit),
increasing its shareholding to 94%. On this date, Adroit ceased to be an associate and became a controlled entity. The purchase price for
the additional 44% of Adroit was $21,698,975.
On 1 October 2018, the Group acquired a further 15.8% of the voting shares of Northlake Holdings Pty Ltd (Northlake), increasing its
shareholding to 65.8%. On this date, Northlake ceased to be an associate and became a controlled entity. The purchase price for the
additional 15.8% of Northlake was $1,494,240.
On 1 January 2019, the Group acquired a further 50% of the voting shares of Cinesura Entertainment Pty Ltd (Cinesura), increasing its
shareholding to 100%. On this date, Cinesura ceased to be an associate and became a controlled entity. The purchase price for the
additional 50% of Cinesura was $2,182,000 including a deferred payment of $561,000.
On 1 January 2019, a controlled entity acquired a further 50% of the voting shares of BWRS Ltd (BWRS), increasing its shareholding to
100%. On this date, BWRS ceased to be an associate and became a controlled entity. The purchase price for the additional 50% of BWRS
was $37,867,100.
On 1 March 2019, a controlled entity acquired a further 90% of the voting shares of Primesure Insurance Brokers BWRS Ltd (Primesure)
for $2,595,213. The settlement date was deferred until September 2019.
On 1 April 2019, a controlled entity acquired 100% of the business assets of MIG Fire and General Ltd (MIG) for $2,676,100 including a
deferred payment of $845,960.
56 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS (CONTINUED)
(d) Consolidation/Deconsolidation of controlled entities – current period (continued)
Fair values of the assets and liabilities of consolidated/carrying values of the assets and liabilities of deconsolidated entities.
Assets
Cash
Receivables
Investment in Associates
Plant and equipment
Intangibles
Total assets
Liabilities
Payables and other provisions
Borrowings
Deferred tax liabilities
Total liabilities
Net Assets
Carrying value
of assets and
liabilities of CEM
Fair value of
assets and
liabilities of
BWRS
Fair value of
assets and
liabilities of
Northlake,
Adroit,
Cinseura, MIG
and Primesure
$'000
$'000
$'000
1,501 21,009 29,754
1,573 18,019 27,091
- 7,552
-
166 390 2,453
1,746 21,829 23,691
4,986 68,799 82,989
3,162
93
-
3,255
1,731
34,874
18,743
6,112
59,729
9,070
1,731
-
7,831
16,491
49,954
7,262
5,367
62,583
20,406
(8,232)
12,174
17,556
- 37,867 26,644
-
- 4,296
Less Non-controlling interest
-
(1,239)
Net As s ets attr ibutable to Par ent Entity
Carrying value of investment in associate/controlled entity
Acquisition price of controlled entities
Deferred consideration on acquisition of controlled entities
Fair value adjustments on the date the Associate became a controlled entity
- 10,520 6,643
Total purchase price/fair value of acquisition/disposal
Goodwill arising on acquisition relating to the Group
Goodwill arising on acquisition relating to non controlling interests
Goodwill reduction on deconsolidation of controlled entities
Sale pr oc eeds - r ec eiv ed
Les s : c ar r y ing v alue of v oting s har es s old
Profit on deconsolidation of controlled entities before tax and non-controlling interests
Tax expense - relating to sale of voting shares
Profit after tax on deconsolidation of controlled entity
Cas h outflow on ac quis ition/dis pos al is as follows :
-
-
-
(1,746)
2,685
1,494
1,191
(403)
788
64,878
57,047
-
-
-
-
-
-
-
55,139
42,216
4,849
-
-
-
-
-
-
Net cash acquired on consolidation or reduction on deconsolidation of controlled entities
(1,501)
21,009
29,754
Cash (paid) on acquisition / cash received on disposal
2,685
(37,867)
(26,644)
Net cash inflow/(outflow) on acquisition or deconsolidation of controlled entities
(including cash available in insurance broking trust accounts)
1,184
(16,858)
3,110
AUB GROUP ANNUAL REPORT 2019 57
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
7. BUSINESS COMBINATIONS (CONTINUED)
(e) Consolidation/Deconsolidation of controlled entities – previous period
On 1 July 2017, the Group disposed 10% of the voting shares in Austbrokers SPT Pty Ltd and its controlled entities (SPT) for $862,737
reducing its equity from 60% to 50% and therefore it was no longer consolidated from that date.
On 30 November 2017, the Group disposed all its voting shares in Asia Mideast Insurance and Reinsurance Pty Ltd, (AMIR) for
$1,444,000. $600,000 was paid on completion of the sale and the balance payable after 12 months. AMIR was no longer consolidated from
that date.
On 1 March 2018, the Group disposed all its voting shares in Austbrokers Premier Pty Ltd (Premier), to an associate for $2,898,839.
Premier was no longer consolidated from that date.
On 1 October 2017, the Group acquired the remaining 50% of the voting shares of Aust Re Brokers Pty Ltd (Aust Re) that it did not
previously own, increasing its shareholding to 100%. On this date, Aust Re ceased to be an associate and became a controlled entity. The
purchase price for the additional 50% of Aust Re was $10,500,000 including a deferred payment of $2,100,000 ($2,048,550 net present
value) payable after 12 months.
Effective 1 April 2018, a controlled entity acquired 50% of the voting shares in SURA Accident and Health Pty Ltd for $NIL.
Fair values of the assets and liabilities of consolidated/carrying values of the assets and liabilities of deconsolidated entities.
Fair value of assets
Carrying value of
and liabilities of assets and liabilities
of SPT, AMIR and
Premier
$'000
Aust Re and SURA
AH
$'000
Assets
Cash
Receivables
Plant and equipment
Intangibles
Total assets
Liabilities
Payables and other provisions
Borrowings
Tax liabilities
Total liabilities
Net Assets
Non-controlling interest
Net As s ets attr ibutable to AUB G r oup
Carrying value of investment in associate / controlled entity
Acquisition price of controlled entity
Deferred consideration on acquisition of controlled entity
Fair value adjustment on the date the controlled entity became an Associate
Fair value adjustments on the date the Associates became controlled entities
Total purchase price/fair value of acquisition/disposal
Goodwill arising on acquisition relating to the Group
Goodwill reduction on deconsolidation of controlled entities
Sale pr oc eeds - r ec eiv ed
Sale proceeds - deferred settlement
Les s : c ar r y ing v alue of v oting s har es s old
Los s on s ale on dec ons olidation of c ontr olled entities
815 7,623
1,989 9,609
- 242
- 8,539
2,804 26,013
2,135 15,588
- 146
285 484
2,420 16,218
384 9,795
-
(2,120)
384 7,675
327 1,442
-
8,400
-
2,049
- 2,871
4,881
-
15,657 4,313
15,273
-
-
(8,539)
- 4,863
- 844
(6,046)
-
-
(339)
F air v alue adjus tment on the date the entity bec ame an as s oc iate or c ontr olled 4,881 2,871
( s ee note 4( v ii) )
Profit on consolidation/deconsolidation of controlled entities before tax and
non-controlling interests
Tax expense - relating to sale of voting shares
4,881 2,532
- 183
T otal fair v alue adjus tment/pr ofit on dec ons olidation of c ontr olled entity
4,881 2,715
Cas h outflow on ac quis ition/dis pos al is as follows :
Net cash acquired on consolidation or reduction on deconsolidation of controlled entities
815
(7,623)
Cash (paid) on acquisition/cash received on disposal
Net c as h ( outflow) on ac quis ition or dec ons olidation of c ontr olled entities
(8,400)
4,863
(7,585)
(2,760)
58 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
8. EARNINGS PER SHARE (EPS) / DIVIDENDS PAID AND PROPOSED
Earnings Per Share (EPS)
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Consolidated
2018
$’000
2019
$’000
Net profit attributable to ordinary equity holders of the parent
48,361
46,520
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution:
Weighted average number of shares under option adjusted for shares that would have been issued
at average market price
Weighted average number of ordinary shares adjusted for the effect of dilution
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
(a) Earnings used in calculating EPS
2019
2018
Thousands
Thousands
shares
69,593
shares
63,846
81
69,674
69.49
69.41
242
64,088
71.84
71.57
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:
(d) The previous period earnings per share have been adjusted by the theoretical ex-rights price factor (TERP) resulting from the
number of new shares issued following a non renounceable entitlement offer. The TERP adjustment factor that has been
applied to the EPS values previously reported is 0.986.
Res tatement of ear nings per s har e
Basic earnings Per Share - previously reported
Diluted Earnings Per Share - previously reported
TERP adjustment
Adjusted Basic Earnings Per Share
Adjusted Diluted Earnings Per Share
As at 30 June 2018
cents per share
72.86
72.59
0.986
71.84
71.57
AUB GROUP ANNUAL REPORT 2019 59
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
8. EARNINGS PER SHARE (EPS) / DIVIDENDS PAID AND PROPOSED
(CONTINUED)
Dividends Paid and Proposed
(e) Equity dividends on ordinary shares:
Consolidated
2018
$’000
2019
$’000
Dividends paid during the year
Final franked dividend for financial year ended 30 June 2017: 29.5 cents
- 18,835
Interim franked dividend for financial year ended 30 June 2018: 13.5 cents
- 8,619
Final franked dividend for financial year ended 30 June 2018: 32.0 cents
20,431
-
Interim franked dividend for financial year ended 30 June 2019: 13.5 cents
9,923
-
Total dividends paid in current year
30,354
27,454
In addition to the above, dividends paid to non-controlling interests totalled $9,969,000
(2018: $5,491,000)
Dividends proposed and not recognised as a liability
Final franked dividend for financial year ended 30 June 2018: 32.0 cents
- 20,431
Final franked dividend for financial year ended 30 June 2019: 32.5 cents
23,888
-
Dividends paid per share (cents per share)
Dividends proposed per share (cents per share) not recognised at balance date
( e) F r ank ing c r edit balanc e
The amount of franking credits available for the subsequent financial year are:
23,888
20,431
45.50
32.50
43.00
32.00
– franking account balance as at the end of the financial year at 30% (2018: 30%)
36,423
34,498
– franking credits that will arise from the payment of income tax payable as at the end of the financial
year
535
385
The amount of franking credits available for future reporting periods
36,958
34,883
– 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
(10,238)
(8,756)
The amount of franking credits available for future reporting periods after payment of dividend
26,720
26,127
The tax rate at which paid dividends have been franked is 30% (2018: 30%)
Dividends proposed will be franked at the rate of 30% (2018: 30%)
60 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
9. TRADE AND OTHER RECEIVABLES
Cur r ent
Trade receivables
Amount due from customers on broking/underwriting agency operations
Amount due from clients in respect of premium funding operations
Other receivables – related entities
Total trade and other receivables (current)
Non- Cur r ent
Trade receivables
Loans to associated entities
Total trade and other receivables (non-current)
10. OTHER FINANCIAL ASSETS
Cur r ent
Other
Total other financial assets (current)
Non- c ur r ent
Secured loans - related entities (amortised cost)
Other
Total other financial assets (non-current)
2019
$’000
37,271
196,951
2,285
6,802
Consolidated
2018
$’000
28,186
148,026
350
3,142
243,309
179,704
133
-
133
26
403
429
Consolidated
2018
$’000
9
9
2019
$’000
8
8
375
-
18
393
18
18
AUB GROUP ANNUAL REPORT 2019 61
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
11. INVESTMENT IN ASSOCIATES
Inv es tments at equity ac c ounted amount:
Associated entities – unlisted shares
Consolidated
2019
$’000
2018
$’000
127,453
155,888
Equity percentage
Equity accounted
owned
amount
As s oc iated entities ( and their c ontr olled entities )
2019
2018
2019
2018
Unlisted shares - equity percentage owned and equity accounted carrying value
%
%
$’000
$’000
Ins ur anc e Br ok ing Entities - Aus tr alia
Adroit Holdings Pty Ltd
Austbrokers AEI Transport Pty Ltd
Austbrokers SPT Pty Ltd
Trust (AB CWT)
HQ Insurance Pty Ltd
Insurance Advisernet Australia Pty Ltd/ Insurance Advisernet Australia Unit Trust
Lea Insurance Broking Pty Ltd/ Lea Insurance Broking Unit Trust
Markey Group Pty Ltd
MGA Management Services Pty Ltd
Nexus (Aust) Pty Ltd
Northlake Holdings Pty Ltd (Country Wide Ins Brokers WA)
Rivers Insurance Brokers Pty Ltd
-
50.0
- 13,437
50.0
50.0
49.9
49.7
49.9
50.0
49.9
49.9
50.0
50.0 9,724 9,512
50.0 4,652 4,771
49.9 2,441 3,494
49.7 4,607 3,740
49.9 16,738 16,178
50.0 5,553 5,934
49.9 3,876 4,085
49.9 18,232 16,686
50.0 7,257 9,868
-
50.0
- 5,676
49.9
49.9 4,643 4,626
Other Australian Insurance Broking Associates not material to the Group
- - 21,331 22,224
Ins ur anc e Br ok ing Entities - New Z ealand
Brokerweb Risk Services Ltd *
Dawson Insurance Brokers (Rotorua) Ltd
Commercial and Rural Insurance Limited
-
40.0
- 15,937
44.6
- 4,576
-
44.6
- 3,141
-
Other New Zealand Insurance Broking Associates not material to the Group
- - 1,273
-
Under wr iting Agenc ies
Fleetsure Pty Ltd
Longitude Insurance Pty Ltd **
50.0
58.5
50.0 3,805 4,038
58.5 735 1,355
Other Underwriting Agency Associates not material to the Group
- - 2,385 2,414
Ris k Ser v ic es
The Procare Group Pty Ltd
50.0
50.0 12,484 11,913
127,453 155,888
* The Group has an 80% interest in the controlled entity which has a 50% interest in Brokerweb Risk Services Ltd.
** A controlled entity owns 38.75% of Longitude Insurance Pty Ltd. The consolidated entity has a further 19.33% interest indirectly through an associate.
62 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
11. INVESTMENT IN ASSOCIATES (CONTINUED)
During the current year, the following transactions occurred;
On 1 July 2018, the Group acquired 25% of the voting shares in Rosser Underwriting Ltd for $1,298,228.
On 1 October 2018 the Group acquired a further 15.8% of the voting shares in Northlake Holdings Pty Ltd. On that date Northlake
Holdings Pty Ltd became a controlled entity.
NRIG Pty Ltd and Broker Claims Pty Ltd were acquired when Adroit Holdings Pty Ltd became a controlled entity.
During the current period, further adjustments to contingent considerations relating to prior year acquisitions resulted in a net
decrease in estimates previously recognised by the Consolidated Group by $44,000 (see note (4vi)).
On 1 January 2019, the Group acquired a further 50% of the voting shares of Cinesura Entertainment Pty Ltd (Cinesura), increasing
its shareholding to 100%. On this date, Cinesura ceased to be an associate and became a controlled entity.
On 1 January 2019, the Group acquired a further 50% of the voting shares of Brokerweb Risk Services Ltd (BWRS). On this date
BWRS ceased to be an associate and became a controlled entity.
During the period, two associates were subject to impairment totalling $3,868,000 see note 15.
During the previous year, the following transactions occurred;
On 1 July 2017, the Group disposed 10% of the voting shares in Austbrokers SPT Pty Ltd and its controlled entities (SPT) for
$862,737 reducing its equity from 60% to 50%. On that date SPT became an Associate. On 1 March 2017, the consolidated entity
acquired 50% of the voting shares of Fleetsure Pty Ltd.
On 1 October 2017, the Group acquired a further 50% of the voting shares in Aust Re Pty Ltd and its controlled entities for
$10,500,000 increasing its equity from 50% to 100%. On that date Aust Re Pty Ltd became a controlled entity.
On 1 March 2018, Rivers Insurance Brokers Pty Ltd issued voting shares to the total of $2,629,000 ($1,314,500 AUB Group Limited
share) to acquire 100% of the voting shares in Austbrokers Premier Pty Limited.
On 1 March 2018, the Group acquired a further 9.2% of the voting shares in HQ Insurance Pty Ltd for $1,717,800
On 1 April 2018, a controlled entity acquired an additional 50% of the voting shares in SURA Accident and Health Pty Ltd for $NIL.
On this date it ceased being an associate and became a controlled entity.
On 1 April 2018, a controlled entity disposed all of the voting shares in Austcan Risk Services (UK) Ltd for $1.
There were no associates disposed of during the previous year.
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% and HQ Insurance Brokers Pty Ltd where the voting power is 49.7%.
(c) The reporting date of each associate is 30 June 2019 (prior year reporting date 30 June 2018).
(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. Brokerweb Risk Services Ltd became a controlled entity on 1 January 2019.
(g) The entity's share of the associate's commitments and contingent liabilities are disclosed in note 22.
AUB GROUP ANNUAL REPORT 2019 63
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
11. INVESTMENT IN ASSOCIATES (CONTINUED)
(h) The entity's share of associate’s revenue, profits/(losses):
Revenue
Operating profits before income tax
Amortisation of intangibles
Net profit before income tax
Income tax expense attributable to operating profits
Share of associates’ net profits
(i) The entity’s share of the assets and liabilities of associates:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
(j) Reconciliation of carrying value of associates:
Balance at the beginning of the financial year
Associate acquired through new controlled entity
Acquisition of associates
Reclassification of investment in controlled entities to associates
Reclassification of investment in associates to controlled entities
Share of associates’ profit after income tax
Impairment loss on carrying value of associates
Adjustment to carrying value of associates due to impact of AASB 15
Impact of AASB 15 acquired through new controlled entity
Dividends/trust distributions received
Net foreign exchange and other movements
Balance at the end of the financial year
Consolidated
2018
$’000
2019
$’000
113,030
123,808
38,491
(2,562)
35,929
(8,562)
27,367
42,261
(3,206)
39,055
(9,064)
29,991
283,006
61,827
303,391
80,551
(269,321)
(291,480)
(12,184)
(22,873)
63,328
69,589
155,888
141,713
7,552 38
1,938
3,032
- 4,313
(34,193)
27,367
(327)
29,991
(3,868)
-
(1,435)
-
(253)
-
(26,371)
(22,620)
828
(252)
127,453
155,888
64 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
12. SHARES IN CONTROLLED ENTITIES
All controlled entities are incorporated in Australia except for AUB Group NZ Ltd and its controlled
Equity Interest Held
2019
%
2018
%
entities which are incorporated in New Zealand, and comprise:
Name and Inter es ts in c ontr olled entities :
Cor por ate Entities
Adept Insurance Brokers Pty Ltd and its controlled entity
AEI Holdings Pty Ltd / AEI Insurance (Brokers) Pty Ltd
AHL Insurance Brokers (Aust) Pty Ltd
AUB Group Business Centre Pty Ltd
AUB Group Services Pty Ltd
AUB International Pty Ltd
Austbrokers Investments Pty Ltd
Austbrokers Employee Share Acquisition Schemes Trust
Austbrokers Pty Ltd
Australian Bus and Coach Underwriting Agency Pty Ltd
Kyros Cook & Associates Pty Ltd
Shield Underwriting Holdings Pty Ltd
Ins ur anc e Br ok ing Entities - Aus tr alia
AB Phillips Group Pty Ltd and its controlled entities1
Adroit Holdings Pty Ltd and its controlled entities
ABFS (NSW) Pty Ltd and its controlled entities2
Austbrokers Canberra Pty Ltd
Austbrokers C.E. McDonald Pty Ltd and its controlled entity (sold 1 November 2018)3
Austbrokers Central Coast Pty Ltd and its controlled entities
Austbrokers Coast to Coast Pty Ltd and its controlled entity
Austbrokers City State Pty Ltd and its controlled entity
Insurics Pty Ltd4
Austbrokers Life Pty Ltd
Austbrokers RWA Pty Ltd and its controlled entity
Austbrokers Southern Pty Ltd
Austbrokers Sydney Pty Ltd and its controlled entities
Austbrokers Trade Credit Pty Ltd
Citycover (Aust) Pty Ltd7
Comsure Insurance Brokers Pty Ltd and controlled entities
Finsura Holdings Pty Ltd and its controlled entities
InterRISK Australia Pty Ltd and its controlled entities
McNaughton Gardiner Insurance Brokers Pty Ltd and its controlled entity (MGIB)
North Coast Insurance Brokers Pty Ltd and its controlled entity (NCFS)
Northlake Holdings Pty Ltd (Country Wide Ins Brokers WA)
Terrace Insurance Brokers Pty Ltd and controlled entity
Ins ur anc e Br ok ing Entities - New Z ealand
AUB Group NZ Ltd and its controlled entities5
Under wr iting Agenc ies
Austagencies Pty Ltd and its controlled entities
Ris k Ser v ic es
Allied Health Australia Pty Ltd and its controlled entities
Altius Group Holdings Pty Ltd and its controlled entities6
100
100
100
100
100
100
100
100
100
100
100
100
56.9
94.0
95.0
75.0
-
80.0
75.0
70.0
-
100
60.0
80.0
100
75.0
95.0
80.0
70.0
90.5
70.0
70.0
65.8
53.7
89.3
100
60.0
56.6
100
100
100
100
100
100
100
100
100
100
100
100
51.0
-
75.0
75.0
100
80.0
75.0
70.0
100
100
60.0
80.0
100
75.0
75.0
80.0
70.0
90.5
70.0
70.0
-
53.7
80.0
100
60.0
55.0
AUB GROUP ANNUAL REPORT 2019 65
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
12. SHARES IN CONTROLLED ENTITIES (CONTINUED)
During the current year, the following transaction occurred;
1 Effective 1 July 2018, the Group disposed of its shares in Bruce Park Pty Ltd in exchange for shares in AB Phillips Group Pty Ltd.
(Phillips) On this date AUB Group increased its shareholding in Phillips from 50.5% to 56.9%.
2 Effective 1 January 2019, the Group acquired 20% of ABFS (NSW) Pty Ltd for $1,066,269 increasing its shareholding from 75% to 95%.
3 On 1 November 2018, the Group disposed 100% of the voting shares in Austbrokers C E McDonald to an associate for $2,685,000. On
this date it ceased to be a controlled entity.
4\ Effective 1 July 2018, the Group disposed 100% of the voting shares in Insurics Pty Ltd to Citystate Insurance Broker Pty Ltd (Citystate).
Citystate issued shares to existing shareholders to fund the acquisition. AUB received shares in Citystate plus $971,295 in cash from non-
controlling shareholders in Citystate as payment for the sale of Insurics Pty Ltd.
5 Effective 1 July 2018, the Group acquired 5% of AUB Group NZ for $3,091,637 including a deferred amount of $65,000 increasing its
shareholding to 85%. On 1 January 2019, the Group subscribed to further shares in AUB Group NZ Ltd increasing its shareholding to
89.3%.
5 Effective 1 January 2019, a controlled entity acquired a further 50% of the voting shares in Brokerweb Risk Services Ltd increasing its
shareholding to 100%. On this date this entity became a controlled entity.
6 Effective 1 December 2018, the Group acquired a further 1.29%
of the voting shares of Altius Group Pty Ltd (Altius) for $585,982 increasing its shareholding to 56.63%.
7 Effective 1 April 2019, the Group acquired a further 20% of the voting shares of Citycover Insurance Brokers Pty Ltd for $2,172,000
increasing its shareholding to 95%.
Further adjustments to contingent considerations in respect of controlled entities resulted in decreases in the estimates previously
recognised by the Consolidated Group by $44,000. This amount was credited to the profit and loss in the current year (see note 4(vi)).
During the period, two cash generating units (CGU’s) were subject to impairment totalling $15,049,000 ($8,713,000 net of non-controlling
interest) see note 15.
During the previous year, the following transactions occurred;
Further adjustments to contingent considerations in respect of controlled entities resulted in decreases in the estimates previously
recognised by the Consolidated Group by $287,000. This amount was credited to the profit and loss in the current year (see note 4(vi)).
The Group incorporated a new controlled entity, NZbrokers Life and Health Ltd, with capital of $100.
See note 7 - Business Combinations, for details of increases and decreases in voting shares in controlled entities and acquisition of new
controlled entities during the current and previous year.
66 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
13. PROPERTY, PLANT AND EQUIPMENT
Consolidated
Property
$’000
Plant and
equipment
$’000
Motor vehicles
$’000
Total
$’000
Cos t
Year ended 30 J une 2019
Balance at the beginning of the year
Acquisition of controlled entities
Deconsolidation of controlled entities
Translation of foreign exchange rate movements
Additions during the year
Disposals during the year
Property, plant and equipment at cost
Depr ec iation
Balance at the beginning of the year
Acquisition of controlled entities
Deconsolidation of controlled entities
Disposals during the year
Translation movements
Depreciation during the year
Accumulated depreciation
Summar y
Net carrying amount at beginning of year
Net carrying amount at end of year
Cos t
Year ended 30 J une 2018
Balance at the beginning of the year
Acquisition of controlled entities
Deconsolidation of controlled entities
Translation of foreign exchange rate movements
Additions during the year
Disposals during the year
Property, plant and equipment at cost
Depr ec iation
Balance at the beginning of the year
Acquisition of controlled entities
Deconsolidation of controlled entities
Disposals during the year
Translation movements
Depreciation during the year
Accumulated depreciation
Summar y
Net carrying amount at beginning of year
Net carrying amount at end of year
702
-
-
-
-
-
702
123
-
-
-
-
8
131
579
571
702
-
-
-
-
-
702
115
-
-
-
-
8
123
587
579
22,025
7,673
(141)
38
3,511
(1,627)
31,479
12,431
5,173
(152)
(1,353)
25
2,881
19,005
9,594
12,474
23,109
300
(1,101)
(34)
2,482
(2,731)
22,025
13,309
214
(867)
(2,490)
(22)
2,287
12,431
9,800
9,594
2,906
603
(140)
25
388
(648)
3,134
1,083
260
(78)
(202)
14
543
1,620
1,823
1,514
2,457
-
(126)
(23)
1,150
(552)
2,906
1,196
-
(57)
(437)
(14)
395
1,083
1,261
1,823
25,633
8,276
(281)
63
3,899
(2,275)
35,315
13,637
5,433
(230)
(1,555)
39
3,432
20,756
11,996
14,559
26,268
300
(1,227)
(57)
3,632
(3,283)
25,633
14,620
214
(924)
(2,927)
(36)
2,690
13,637
11,648
11,996
AUB GROUP ANNUAL REPORT 2019 67
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
14. INTANGIBLE ASSETS AND GOODWILL
Cos t
Year ended 30 J une 2019
Balance at the beginning of the year
Additional businesses and portfolios acquired
Acquisition of controlled entities
Deconsolidation of controlled entities
Additional capitalised project acquired
Disposal businesses and portfolios
Disposal capitalised project
Impairment charge
Capitalised
project costs
$’000
Consolidated
Goodwill
$’000
Insurance broking
registers
$’000
2,737
-
-
-
242,499
4,651
109,703
(1,403)
54,956
1,500
39,927
(343)
1,706
- -
-
(631)
-
(1,113)
- -
-
(15,094)
-
Translation of foreign exchange rate movements
15
1,185
3,345
340,910
383
-
- -
(1,114)
- -
1,503
-
6,375
- - - -
Translation of foreign exchange rate movements
- -
Total intangibles
Amor tis ation
Balance at the beginning of the year
Deconsolidation of controlled entities
Disposal capitalised project
Amortisation current year
Disposals of broking portfolios
Accumulated amortisation
Summar y
Net carrying amount at beginning of year
Net carrying amount at end of year
Year ended 30 J une 2018
Balance at the beginning of the year
Additional businesses and portfolios acquired
Deconsolidation of controlled entities
Additional capitalised project acquired
Disposal businesses and portfolios
Disposal capitalised project
Impairment charge
Translation of foreign exchange rate movements
Total intangibles
Amor tis ation
Balance at the beginning of the year
Deconsolidation of controlled entities
Disposal capitalised project
Amortisation current year
772
0
2,354
2,573
1,890
-
-
242,499
340,910
236,668
17,881
(8,345)
1,858
- -
-
(74)
-
(1,011)
- -
(2,518)
-
-
-
2,737
(1,113)
242,499
820
-
- -
(1,011)
- -
574
-
Total
$’000
300,192
6,151
149,630
(1,746)
1,706
(631)
(1,113)
(15,094)
1,690
440,785
33,095
(342)
(1,114)
7,878
122
39,639
267,097
401,146
295,450
18,610
(10,550)
1,858
(74)
(1,011)
(2,518)
(1,573)
300,192
31,591
(2,011)
(1,011)
4,606
(80)
33,095
263,859
267,097
490
96,530
32,712
(342)
122
38,867
22,244
57,663
56,892
729
(2,205)
(460)
54,956
30,771
(2,011)
4,032
(80)
32,712
26,121
22,244
Translation of foreign exchange rate movements
- -
Accumulated amortisation
383
0
Summar y
Net carrying amount at beginning of year
Net carrying amount at end of year
1,070
2,354
236,668
242,499
68 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
14. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)
Individual intangible assets material to the Group are attributable to the following controlled entities.
(i) Goodwill
InterRISK Australia Pty Ltd and its controlled entities
Adroit Holdings Pty Ltd
Austbrokers Sydney Pty Ltd and its controlled entities
ABFS NSW and its controlled entities
AB Phillips Group Pty Limited and its controlled entities
Altius Group Holdings Pty Ltd and its controlled entities
Allied Health Pty Ltd and its controlled entities
Austagencies Pty Ltd and its controlled entities
AUB Group NZ Ltd and controlled entities
Citycover (Aust) Pty Ltd
Other controlled entities
Total Goodwill
(ii) Insurance Broking Registers
InterRISK Australia Pty Ltd and its controlled entities
Adroit Holdings Pty Ltd
ABFS NSW and its controlled entities
AB Phillips Group Pty Limited and its controlled entities
AUB Group NZ Ltd and its controlled entities
Finsura Holdings Pty Ltd and its controlled entities
Citycover (Aust) Pty Ltd
Consolidated
2019
$’000
2018
$’000
18,995
18,995
39,806
-
8,886
8,890
8,054
6,259
14,901
14,654
37,321
45,969
16,719
22,693
50,817
46,464
87,231
25,887
8,689
8,689
49,491
43,999
340,910
242,499
Remaining amortisation
period (years)
2019
2018
4.0
9.0
7.5
7.5
9.5
7.5
5.5
5.0 2,514
3,130
- 11,460
-
8.5
2,171
1,598
8.5
2,672
3,108
7.5
30,987
8,039
8.5
1,027
1,161
6.5
1,815
2,144
Northlake Holdings Pty Limited and its controlled entities
9.5
- 2,167
-
Other controlled entities
Total Insurance Broking Register
2,850
3,064
57,663
22,244
AUB GROUP ANNUAL REPORT 2019 69
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 performance 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 of fair value of
the CGU to which they relate less costs to sell and its value in use. In determining fair value, each controlled entity or associate is
considered a separate CGU or grouped into a single CGU for impairment testing where cash inflows are 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
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 long term
profit growth
2019
2018
7 – 9.75 times
7 – 8 times
1.8%
2.8%
Up to 2.0%
Up to 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, two CGUs (2018: five) 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)
2019 %
2018 %
8.9% - 10.8%
9.5% - 12.3%
Short term revenue growth rate - used in discount cash flow assumptions (1-5 years)
2.5% – 4.0%
3.0% – 10.0%
Long term revenue growth rate
1.5% -2.0%
1.5% - 2.0%
The short term growth rate of 10% in the previous year relates to a CGU in the Risk Services segment which has a different income and
expense growth characteristics to other CGUs within the Group.
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 carrying 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.
70 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 current and prior
year acquisitions resulted in a net reduction (previous year increase) to the estimates previously recognised by the Consolidated Group of
$44,000 (2018: $287,000). Where the revised contingent consideration estimates were below the original estimated contingent
consideration payments, a corresponding and offsetting impairment charge of $44,000 (2018: $219,000) was recognised against the
carrying value of those investments (see note 4(vi)).
Impairment – current year
Two associates in the insurance intermediary segment were valued during the financial year using the value in use methodology. The
valuations used cash flow projections and were based on previous year forecasts which are no longer supportable due to loss of revenue in
the current year as a result of continuing market competition. For valuation purposes, more conservative growth assumptions have been
incorporated for future periods resulting in the carrying values now being higher than the recoverable amounts. Based on the outcomes of
these valuations the Group has recognised an impairment loss on these two CGU's totalling $3,868,000. This impairment represents 0.7%
of the Group's investment in associates and controlled entities. The impairment loss was charged to the income statement (see note 4(vi)).
Based on the continuing market condition impacting two risk services CGUs, the carrying values of the intangibles in these entities was
impaired by a total of $15,048,985 ($8,712,766 net of non-controlling interests). The CGU's are subject to put option arrangements which
have been re-estimated at 30 June 2019 (see note 22). At 30 June 2019, the movement in the fair value of those put options was
determined to be a reduction of $6,483,717 resulting in a net charge to the Consolidated Statement of Profit or Loss of $2,229,049 (net of
non-controlling interests).
Impairment – previous year
A financial services entity (insurance intermediary segment) had been subject to legislative changes including changes to the trail
commissions from dormant superannuation funds which has resulted in a loss of revenue in the last 3 years which is also expected to
continue for at least next year. The main impact is a reduction in upfront commissions since January 2018 due to the Life Insurance
Framework legislation.
The resulting recoverable amount of $5,326,000 as at 30 June 2018 was based on the fair value less cost of disposal of a controlled entity
using the valuation methodology above resulted in an impairment of $2,300,000 ($1,725,000 after adjusting for non-controlling interests).
This impairment represented 0.54% of the Group's investment in associates and controlled entities. The impairment loss was charged to
the income statement (see note 4(vi)).
Reductions in contingent consideration and impairment adjustments relating
to controlled entities
Contingent
consideration
adjustments
2019
$’000
(44)
2018
$’000
(287)
Impairment charges
2019
$’000
44
2018
$’000
219
Impairment adjustments relating to investments in associates
- - 3,868
-
Impairment charge relating to controlled entities
- -
15,049 2,300
Total impairment/contingent consideration adjustment
(44)
(287)
18,961
2,519
Adjustments attributable to non-controlling interests
- -
(6,336)
Net adjustment attributable to equity holders of the parent
(44)
(287)
12,625
(575)
1,944
AUB GROUP ANNUAL REPORT 2019 71
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
16. SHARE-BASED PAYMENT PLANS
Employee share option plan
The share-based payments expense recognised in the Consolidated Statement of Profit or Loss is included in note 4(iv) Expenses.
The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share options
issued during the year:
Unless otherwise stated, all options are granted over shares in the ultimate controlling entity, AUB Group Limited.
Share options movements (applicable to each relevant financial year)
2019
No.
2018
No.
2019
2018
WAEP ($)
WAEP ($)
Outstanding at the beginning of the year
Granted during the year
526,308
672,205
79,364
80,217
Options lapsed or forfeited during the period relating to options previously
issued during the financial year ending 30 June;
- 2013
- 2014
- 2015
- 2016
- 2017
- 2018
- 2019
Outstanding at the end of the year
-
(160,000)
-
(24,246)
(27,861)
-
(199,117)
(8,105)
(3,314)
(8,357)
(30,549)
(2,962)
(15,947)
-
351,328
526,308
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
The number of options outstanding as at 30 June 2019 is represented by:
Financial year in which
Number of options outstanding at
options were issued
Option grant date
Earliest exercise date
Valuation
year end
2015
2016
2016
2017
2017
2018
2019
31-Oct-14
23-Nov-15
07-Apr-16
08-Dec-16
24-Jan-17
23-Nov-17
31-Oct-18
31-Oct-17
23-Nov-18
01-Jan-19
23-Nov-18
24-Jan-20
23-Nov-20
31-Oct-21
Options outstanding at the end of the year
$
2019
2018
9.09
- 27,861
7.31 19,067
53,718
7.90 99,920
250,000
9.36 9,578
23,964
8.99 85,405
93,510
11.83 73,941
77,255
10.72 63,417
-
351,328
526,308
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
79,364 (63,417 after lapses due to staff resignations) share options were granted on 31 October 2018, exercisable 3 years
from 31 October 2018 at an exercise price of $NIL. The volume weighted average share price for the 5 business days prior to
the date the options were issued was $11.90. 60% of these options are subject to Earnings Per Share hurdles and 40% are
subject to Total Shareholder Return hurdles. The options were valued using an average price of $11.93 for EPS options and
$8.90 for TSR options (weighted average price of $10.72). All options were issued on the same terms and conditions as
options issued in the previous year.
27,861 options issued in 2015 lapsed due to vesting conditions not being met.
29,769 options issued in 2015, 2016, 2017, 2018 and 2019 lapsed due to various staff members no longer employed.
46,634 options issued 23 November 2015 vested on 23 November 2018 due to vesting conditions being met. The remainder
will be retested in 12 months and if vesting conditions are not met the balance of 28,645 options will lapse.
150,080 options issued 7 April 2016 vested on 1 January 2019 due to vesting conditions being met. The remainder will be
retested after 30 June 2019 and if vesting conditions are not met the balance of 99,920 options will lapse.
72 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
16. SHARE-BASED PAYMENT PLANS (CONTINUED)
During the previous year the following options were granted, exercised or lapsed
80,217 Share options were granted on 23 November 2017, exercisable 3 years from 23 November 2017 at an exercise price of
$NIL. The volume weighted average share price for the 5 business days prior to the date the options were issued was $13.23.
60% of these options are subject to Earnings Per Share hurdles and 40% are subject to Total Shareholder Return hurdles. The
options were valued using an average price of $11.83.
41,868 options lapsed due to various staff members no longer employed.
184,246 options lapsed due to vesting conditions over the 4 years ended 30 June 2017, not being met.
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 2019 is 5.67 years (2018: 4.90 years).
Employee Share Option Plan – Option Exercise conditions
(a) Options issued before 1 July 2015
All unvested options at 30 June 2018 which were issued before 30 June 2015 have now lapsed. For vesting conditions on those
options refer to 30 June 2018 Financial Statements.
(b) Options issued after 1 July 2015
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) greater than or equal to 4.0% per annum, 25% of the options will become exercisable;
(ii) between 4% and 7%, the percentage of options that are exercisable will be determined on a pro rata basis so that the
number of Options that are exercisable will increase from 25% by 1 percentage point for every 0.12% additional growth over
4.0%;
(iii) equal to 7% per annum, 50% of the options will become exercisable;
(iv) 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%;
(v) 10% per annum or more, 100% of the options will become exercisable;
(vi) 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 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.
AUB GROUP ANNUAL REPORT 2019 73
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
17. TRADE AND OTHER PAYABLES
Cur r ent
Trade payables
Amount payable on broking/underwriting agency operations
Contingent consideration and other payables
Put option liability
Deferred revenue from contracts with customers*
Other payables – related entities
Total trade and other payables (current)
Non- c ur r ent
Contingent consideration payables
Put option liability
Other payables - other
Total trade and other payables (non-current)
Deferred revenue from contracts with customers*
Balance at 1 July 2018
Balances previously included in the financial statements
Amounts resulting from associates becoming consolidated entities
Movement during the year
Balance at the end of the year
2019
$’000
18,152
313,298
27,346
Consolidated
2018
$’000
16,449
215,768
11,537
19,919
-
5,590
-
1,530 883
385,835
244,637
872
-
- 26,403
149
-
1,021
26,403
4,501
-
498
-
351
-
240
-
5,590
-
* AASB 15 Revenue from contracts with Customers was adopted on 1 July 2018 on a modified
retrospective basis, and as permitted by the Standard, prior year comparative numbers have not
been restated.
Included in trade and other payable are the following contingent consideration payables;
Balance at the beginning of the year
Contingent consideration on current year acquisitions (at net present value)
Payments made in respect of previously recognised contingent consideration
Adjustments to contingent consideration payments previously recognised
2,981
5,037
(3,934)
(44)
19,272
2,418
(18,411)
(287)
Contingent consideration payments recognised on acquisition of new controlled entities
2,289
-
Foreign currency translation movements
Interest recognised in original contingent consideration at net present value
Balance at the end of the year
3
191
6,523
(72)
61
2,981
74 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
18. PROVISIONS
Year ended 30 J une 2019
Balance at the beginning of the year
Acquisition of controlled entity
Movement in provisions charged to consolidated statement of profit or loss
Deconsolidation of controlled entities
Balance at the end of the year
Current 2019
Non-current 2019
Year ended 30 J une 2018
Balance at the beginning of the year
Acquisition of controlled entity
Deconsolidation of controlled entities
Balance at the end of the year
Current 2018
Non-current 2018
Employee
Make good
entitlements
provision
$’000
$’000
16,636
1,097
2,236 45
(738)
(65)
(417)
-
Consolidated
Total
$’000
17,733
2,281
(803)
(417)
17,717 1,077
18,794
15,116
2,601
17,717
316
761
1,077
15,432
3,362
18,794
Employee
Make good
entitlements
provision
$’000
$’000
Consolidated
Total
$’000
17,725
1,125
18,850
7
-
7
(313)
(811)
(811)
-
16,636 1,097
17,733
14,374
2,262
16,636
194
903
1,097
14,568
3,165
17,733
Movement in provisions charged to consolidated statement of profit or loss
(285)
(28)
Make good provision on leased premises
In accordance with the various lease agreements, the Group must restore the leased premises to a similar condition that existed prior to
leasing the premises by removing all fixed and removable partitions. A provision has been included for expected amounts payable.
Because of the long-term nature of the liability, the greatest uncertainty in estimating the provision is the cost that will ultimately be incurred.
During the year further amounts were provided for premises leased during the year.
Current lease durations range from less than 1 year to 10 years. Make good payments will only be made at the end of the lease.
Employee entitlements
Refer to note 2.2(t) for the relevant accounting policy and a discussion of the significant estimation and assumptions applied in the
measurement of this provision.
AUB GROUP ANNUAL REPORT 2019 75
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
19. INTEREST-BEARING LOANS AND BORROWINGS
Cur r ent
Secured bank loan*
Obligations under finance leases and hire purchase contracts (note 22)
Unsecured loan - other
T otal inter es t- bear ing loans and bor r ow ings ( c ur r ent)
Non- c ur r ent
Secured bank loan*
Obligations under finance leases and hire purchase contracts (note 22)
T otal inter es t- bear ing loans and bor r ow ings ( non- c ur r ent)
* Summary of secured bank loans
St George Bank
Syndicated finance facility (ANZ Banking Group and St George Bank)
Macquarie Bank
Commonwealth Bank
National Australia Bank
Bendigo Bank
Hunter Premium Funding
Total secured bank loans
Consolidated
2018
$’000
2019
$’000
18,470
8,302
373
468
102
147
18,945
8,917
85,115
415
85,530
111,621
664
112,285
8,272
9,362
55,513 99,576
9,358
2,739
2,567
8,237
1,045
1,703
6,691 -
18,445
-
103,585
119,923
Group borrowing facilities as at 30 June 2019
The facilities are subject to financial undertakings and warranties typical of facilities of this nature and have sub-limits for various purposes
including acquisitions.
AUB Group Limited secured a syndicated, multi-currency debt facility comprising ANZ Banking Group and St George Bank for $150 million
(2018: $150 million). This facility includes an advance in $NZ totalling $NZ45 million. The syndicated debt facility expires on 6 December
2021 with a mechanism for a one year extension on agreement of both parties. During the period, $68.5 million was repaid from the
proceeds of the non renounceable entitlement offer.
AUB Group Limited also has a facility with St George Bank relating to rental guarantees and credit card facilities totalling $8 million (2018:
$8 million).
In addition to the syndicated debt facility provided to AUB Group Limited, controlled entities within the Group have also negotiated other
facilities with other banks as shown 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 these facilities.
76 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
19. INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
Group borrowing facilities as at 30 June 2019 (continued)
Name of Facility
Type of
Facility
Amount
Utilised
g Amount
Current
current
Interest
Fixed
Provider
borrowing
$'000
$'000
$'000
$'000
$'000
$'000
Expiry date
rate %
(Var/Fix)
Total
Undrawn
Amount
Borrowin
Non
Variable /
AUB Group Limited
Syndicated finance
Loan facility
106,987
94,487
12,500
12,500
- 12,500
6/12/2021
Loan facility NZ$
43,013
- 43,013
43,013
- 43,013
6/12/2021
facility
St George
Credit Cards
1,500
1,050
450
- - -
6/12/2021
17.45
Bank guarantee
6,500
3,758
2,742
- - -
6/12/2021
1.70
3.18
3.41
Var
Var
Var
Var
Facilities arranged by other controlled entities
St George Bank
Loan facility
11,447
3,176
8,271
8,271
6,801
1,470
Between
2.76 -
Var
Finance facilities
Loan facility
45,152
5,237
39,815
39,801
11,669
28,132
Between
2.76 -
Var
with other banks
1/07/2019
13.99
& 30/06/2033
Total Borrowing Facilities
214,599 107,708 106,791
103,585
18,470
85,115
3/07/2019
6.20
& 16/11/2023
G r oup bor r owing fac ilities as at 30 J une 2018
Name of Facility
Type of
Facility
Amount
Utilised
g Amount
Current
current
Interest
Fixed
Provider
borrowing
$'000
$'000
$'000
$'000
$'000
$'000
Expiry date
rate %
(Var/Fix)
Total
Undrawn
Amount
Borrowin
Non
Variable /
AUB Group Limited
Syndicated finance
Loan facility
118,924
50,424
68,500
68,500
- 68,500
6/12/2020
facility
Loan facility NZ$
31,076
- 31,076
31,076
- 31,076
6/12/2020
3.86
3.75
St George
Credit cards
1,500 1,154
346
- - -
6/12/2020
17.45
Bank guarantee
6,500
3,380
3,120
- - -
6/12/2020
1.70
Var
Var
Var
Var
/overdraft
Facilities arranged by other controlled entities
St George Bank
Loan facility
11,506
2,144
9,362
9,362
6,002
3,360
Between
3.59 -
Var/Fix
Finance facilities
Loan facility
13,466
2,476
10,990
10,985
2,300
8,685
Between
4.87 -
Var
with other banks
31/07/2018
5.53
& 15/06/2022
Total Borrowing Facilities
182,972
59,578 123,394
119,923
8,302 111,621
25/07/2018
8.14
& 29/06/2020
AUB GROUP ANNUAL REPORT 2019 77
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
20. ISSUED CAPITAL
Issued capital opening balance
Consolidated
2019
$’000
2018
$’000
141,708
141,708
Proceeds from capital raising as a result of the accelerated pro-rata non-renounceable entitlement offer
116,353
-
Share issue expense (net of tax)
Issued capital
Number of shares on issue (ordinary shares fully paid)
Mov ements in number of s har es on is s ue
Beginning of the financial year
Number of shares issued during period - options exercised on 23 November 2018
Number of shares issued during period - options exercised on 28 February 2019
Number of shares issued during period - non-renounceable entitlement offer
Total shares on issue
Weighted average number of shares on Issue at end of period
(2,399)
-
255,662 141,708
Shares
Shares
No.
No.
73,502,778
63,846,476
63,846,476 63,846,476
46,634
-
150,080
-
9,459,588
-
73,502,778 63,846,476
69,593,019 63,846,476
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 2019, 193,104 have restrictions whereby the shares could not be disposed of before 23
November 2020, unless an employee resigns at which time the restrictions cease.
AUB Group Limited raised $116,353,032 via a fully underwritten 4 new shares issued for every 27 shares currently held, accelerated
pro-rata non-renounceable entitlement offer at $12.30 per share.
The Institutional Entitlement Offer was conducted from 12 November 2018 to 13 November 2018.
The Retail Entitlement Offer opened on 19 November 2018 and closed on 29 November 2018. The entitlement offer was fully
underwritten.
New shares issued as a result of non-renounceable entitlement offer will rank equally in all respects with existing shares.
On 23 November AUB Group Limited issued 7,984,478 shares to institutional shareholders raising $98,209,879 and on 6
December 2018 issued a further 1,475,110 shares to retail and institutional shareholders raising $18,143,153.
Proceeds from the Entitlement Offer will be used to provide additional financial flexibility for growth initiatives and to fund the
acquisition of a new controlled entity. Underwriting and other costs associated with the capital raising have been charged against
the capital raised.
78 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
21. NATURE AND PURPOSE OF RESERVES
Asset revaluation reserve
The asset revaluation reserve was used to record movements in the revalued amounts of broker register acquired through step up
acquisition of broking subsidiaries before 1 July 2009. From this date, fair value adjustments on business combinations are no longer
recognised through the asset revaluation reserve but in the 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 operations that have a
currency other than Australian dollars.
Put Option Reserve
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 7 – 15
months. Movements in the put option liability are ultimately transferred to the Put Option Reserve.
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 identifiable net assets and proportion of goodwill.
Interest in:
Ordinary shares
Non-controlling Interest share of net assets
Consolidated
2019
$’000
2018
$’000
- -
68,295
66,501
68,295
66,501
AUB GROUP ANNUAL REPORT 2019 79
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 plant and machinery, which include motor vehicles and
office fitouts. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the
specific entity that holds the lease.
Finance lease and hire purchase commitments
Payable
– Not later than one year
– Later than one year and not later than five years
– Later than five years
Minimum lease and hire purchase payments
Deduct: future finance charges
Present value of minimum lease and hire purchase payments (refer note 19)
Consolidated
2019
2018
409
502
420
680
- -
829
1,182
41
50
788
1,132
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 8 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: Non Cancellable
Operating leases contracted for but not capitalised in the financial statements
Payable
– Not later than one year
– Later than one year and not later than five years
– Later than five years
Consolidated
2019
$'000
2018
$'000
10,870
26,500
3,233
40,603
8,423
21,252
2,923
32,598
80 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
22. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating lease commitments: Associates as lessee
Operating lease commitments: Non Cancellable
Operating leases contracted for but not capitalised in the financial statements
Operating Lease Commitments: Non Cancellable
Operating leases contracted for but not capitalised in the financial statements
Payable
– Not later than one year
– Later than one year and not later than five years
– Later than five years
Contingent liabilities
Consolidated
2019
$'000
2018
$'000
3,109
6,572
1,018
3,783
7,456
1,915
10,699
13,154
Estimates of the maximum amounts of contingent liabilities that may become payable
AUB Group Limited has guaranteed loan facilities provided to associates in proportion to its shareholding 9,969
12,805
AUB Group Limited has guaranteed lease facilities provided to associates in proportion to its shareholding - 27
9,969
12,832
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.
Put/call options
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 7 - 15
months.
Other than shown on note 17, at balance date no liability has arisen in relation to these arrangements.
Other put/call option
Included in the above arrangements are instances where AUB Group Limited (AUB) had acquired a controlling interest in two cash
generating units (CGU's) where they granted an option to non-controlling shareholders to put their shares to AUB at fair value on a
specified date after 20 January 2020.
This has been determined by AUB to be a financial liability and the amount expected to be paid after that date, if the shares are put to AUB,
has been included in the financial statements as a current liability (2018: non-current) as an amount payable under put/call options
obligations under those contracts. The movement in fair value of those obligations during subsequent financial years has been included as
an expense or revenue in the Consolidated Statement of Profit or Loss (see note 4).
An amount of $6.484 million (2018: $0.527) has been credited (2018: charged) to the Consolidated Statement of Profit or Loss recognising
that the value of those CGU's has decreased (2018: increased) during the period.
Whilst this obligation will only be payable in the event that non-controlling shareholders put their remaining shares to AUB, a put option
reserve has been created to recognise the liability. The financial liability will be derecognised when the put option expires unexercised. At
balance date there has been no indication from the non-controlling shareholders that they wish to exit their respective businesses and put
their shares to AUB.
AUB GROUP ANNUAL REPORT 2019 81
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
22. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Austbrokers Canberra Pty Ltd
During the current reporting period, the directors were advised of a fraud perpetrated by the Managing Director of Austbrokers Canberra
Pty Limited. ASIC was advised that the company was investigating the full extent of the fraud.
The company has reported the matter to the Australian Federal Police. A recovery claim was brought by the company against the former
Managing Director and his related entities and the company obtained court orders for the freezing of various assets. A claim was made
against insurance policies to seek to recover potential losses.
AUB Group has announced that the investigation into the impact of the reported financial misconduct within its subsidiary Austbrokers
Canberra has been completed and remediation work is in its final stages.
The following is the net impact (after tax and non-controlling interest) in respect of the cost of the fraud on the AUB Group FY19
Consolidated result:
Financial impact of fraud reported in 31 December 2018 Consolidated Statement of Profit or Loss
Additional financial Impact of fraud included in period 1 January 2019 to 30 June 2019
Full year reduction in profit after tax resulting from financial impact of fraud included in 30 June 2019
Consolidated Statement of Profit or Loss
2019
$'000
1,525
3,189
4,714
AUB Group does not expect any further material negative impact of the matter on future results.
23. OPERATING SEGMENTS
The Company's corporate structure is organised into two business units which have been identified as separate reportable segments as
follows:
equity investments in insurance intermediary entities (insurance broking and underwriting agencies); and
equity investments in risk services entities.
Discrete financial information about each of these segments is reported to management on a regular basis and the operating results are
monitored separately for the purposes of resource allocation and performance assessment.
Management believes that all of the Group's equity investments in insurance intermediary entities or providers of insurance, exhibit similar
economic characteristics and have therefore been aggregated into a single reporting segment, being the insurance intermediary sector.
This assessment is based on each of the operating segments having similar products and services, similar types of customer, employing
similar operating processes and procedures and operating within a common regulatory environment.
The Risk Services segment comprises of equity investments in risk related service entities operating under a separate jurisdiction and
licence as well as a separate regulatory framework. The financial information of entities that fall within risk services have been aggregated
into one operating segment.
82 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
23. OPERATING SEGMENTS (CONTINUED)
R ev enue and other inc ome
Revenue
Total other income
Total revenue and other income
Shar e of pr ofit of as s oc iates
30 June 2019
30 June 2018
Insurance
Intermediary
$’000
Risk
Services
$’000
Insurance
Intermediary
$’000
Total
$’000
Risk
Services
$’000
Total
$’000
225,263
51,133
276,396
187,416
58,695
246,111
3,366
49
3,415
2,325
52
2,377
228,629
51,182
279,811
189,741
58,747
248,488
Share of Net Profits of Associates Accounted for using
the Equity Method (net of income tax expense)
28,808
1,121
29,929
31,956
1,241
33,197
Amortisation of Intangibles - Associates
(2,562)
-
(2,562)
(3,206)
-
(3,206)
Total income
Les s : Ex pens es
254,875
52,303
307,178
218,491
59,988
278,479
Amortisation of Intangibles - controlled entities
6,375
-
Depreciation of property plant and equipment
2,920
512
6,375
3,432
4,032
-
4,032
2,113 577
2,690
Operating expenses
187,451 47,773
235,224
156,289 47,456
203,745
Borrowing costs (excluding interest unwind on put option
liability)
5,733 167
5,900
4,637 125
4,762
Total expenses including borrowing costs
202,479 48,452
250,931
167,071 48,158
215,229
Profit before income tax
Less: Income tax expense
Profit after income tax
Less: Non-controlling interest
Profit after income tax and non-controlling interests
52,396
(12,089)
40,307
(6,342)
33,965
3,851
(869)
2,982
5,531
8,513
56,247
(12,958)
43,289
(811)
51,420
(9,886)
41,534
(5,233)
11,830
63,250
(3,291)
(13,177)
8,539
(3,218)
50,073
(8,451)
42,478
36,301
5,321
41,622
Impairment charge on carrying value of goodwill
(3,912)
(15,049)
(18,961)
(2,300)
-
(2,300)
Profit after income tax and non-controlling interests and
impairment charges
Other Adjustments to carrying value of associates,
contingent consideration payments and profit on sale
30,053
(6,536)
23,517
34,001
5,321
39,322
(see note 4(vi),(vii)
18,361
-
18,361
7,725
-
7,725
Profit after non-controlling interests attributable to
shareholders of the parent
48,414
(6,536)
Movement in put option liability (including finance charge)
-
6,483
41,878
6,483
41,726
-
5,321
(527)
47,047
(527)
Other comprehensive income attributable to members of
AUB Group Limited (net of non-controlling interests)
831
-
831
(671)
-
(671)
Profit after non-controlling interests and other
comprehensive income
49,245
(53)
49,192
41,055
4,794
45,849
Segments include intergroup charges at commercial terms and conditions for services rendered. These charges are eliminated on
consolidation.
Included in revenue of the insurance intermediary segment of $225,263,000 is an amount of $240,000 representing the current year
movement relating to deferred revenue from customers (see note 17). Included in the share of profit of associates of the insurance
intermediary segment of $28,808,000 is an amount of $64,000 representing the Group's share of the current year movement relating to
deferred revenue from customers (see note 2.3).
AUB GROUP ANNUAL REPORT 2019 83
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
23. OPERATING SEGMENTS (CONTINUED)
G eogr aphic infor mation
R ev enue and other inc ome
Revenue - Australia
Revenue - New Zealand
Total Revenue and other income
The revenue attributable to each region is based on the income earned from clients that reside in those regions.
T otal non- c ur r ent as s ets
Non current assets - Australia
Non-current assets - New Zealand
Total non-current assets
Consolidated
2019
$’000
2018
$’000
264,487
260,966
42,691
17,513
307,178
278,479
426,082
391,884
130,247
50,888
556,329
442,772
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
Amounts received or due to Ernst & Young (Australia and NZ) for:
Audit of the financial statements
Other assurance related services
Other - including taxation services
Total
Amounts received or due to non Ernst & Young audit firms for:
Audit of the financial statements
Other assurance related services
Other - taxation services
Total
Total auditors' remuneration
2019
$
2018
$
1,108,474
1,044,633
103,107
189,850
87,739
45,500
1,299,320
1,279,983
362,759
290,914
12,350
18,927
75,062
71,591
450,171
381,432
1,749,491
1,661,415
25. SUBSEQUENT EVENTS
On 1 August 2019, AUB Group Limited (AUB) executed a conditional sale agreement with Pemba Capital Partners (Pemba Capital) to
acquire its 49% interest in Coverforce Holdings Pty Ltd (Coverforce) and is working with Pemba Capital to acquire the shares of all
Coverforce shareholders.
The transaction and purchase price are subject to the outcome of AUB’s due diligence and other customary terms and conditions such as
regulatory approvals and no restraints preventing completion.
The acquisition is for a total aggregate consideration payable to Coverforce's shareholders of approximately $150 million to $200 million,
with the purchase price to be finalised following AUB's due diligence and subject to customary adjustments for net debt and working capital
amounts. AUB will fund the acquisition via available cash and a committed extension of its existing debt facilities. The Group’s leverage
ratio (net debt/EBITDA) is not expected to exceed three times as a result of this transaction.
On 20 August 2019 the Directors of AUB Group Limited declared a final dividend on ordinary shares in respect of the 2019 financial year.
The total amount of the dividend is $23,888,403 which represents a fully franked dividend of 32.5 cents per share. The dividend has not
been provided for in the 30 June 2019 financial statements.
84 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 Consolidated Group charge associates $13,735,542 (2018: $12,390,265) management fees for expenses incurred and
services rendered.
Entities within the Consolidated Group invest in trusts managed by related parties. These transactions are at normal commercial terms and
conditions.
Entities within the Consolidated Group provide funds to other related entities within the Group. These funds are interest bearing, except in
the case of small working capital advances, and are repayable on demand. See note 9 for amounts receivable from related parties
$6,801,827 (2018: $3,142,299) and note 17 for payables to related parties $1,529,411 (2018: $883,069).
Entities within the Consolidated Group have advanced funds to other related parties.
Austbrokers Aviation Pty Ltd
All -Trans Underwriting Pty Ltd
Austbrokers AEI Transport Pty Ltd
Austbrokers Hiller Marine Pty Ltd
Brian Reedy
Barreto Family Trust
Blackfish Pty Ltd
Blair Arnot
Brian Barreto
Brokerweb Risk Services Ltd
Commercial and Rural Insurance Limited
Craig Walker
Cruden & Read Pty Ltd
Damian Price
Dawson Insurance Brokers (Rotorua) Ltd
Dean Fiddes
David Crick
Gard Insurance Pty Ltd
Geebeejay Pty Ltd
HQ Insurance Pty Ltd
Joe Lo Surdo
Lexsa Pty Ltd
Longitude Insurance Pty Ltd
Maurice Carmeri
Michael Holbrook
NRIG Pty Ltd
Paul Brown
Paul Wilkes
R.G Financial Services Pty Ltd
Rebecca Wilson
Rosser Underwriting Ltd
Sally Underwood
Sura Professional Risk Pty Ltd
Tasman Underwriting Pty Ltd
Venrick Pty Ltd
2019
2018
$
11,136
$
11,167
- 49,849
- 2,198
321,350
293,899
339,278
-
4,438
-
24,079
24,079
904,686
-
- 5,800
- 50,186
269,058
-
45,759
43,736
490,203
108,177
54,072
39,702
158,961
-
- 34,422
7,505
-
346,365
297,221
5,000
6,000
- 546,857
- 165,000
- 110,000
8,434
401,741
133,434
-
904,686
-
50,000
-
508,761
-
48,950
-
- 20,055
1,318,909
-
94,624
-
739,422
804,000
- 61,347
8,847
39,653
3,870
27,210
6,801,827
3,142,299
AUB GROUP ANNUAL REPORT 2019 85
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
26. RELATED PARTY DISCLOSURES (CONTINUED)
The following related party transactions occurred during the year: (continued)
O ther pay ables - r elated par ties
Beaubella Investments Pty Ltd
Blair Arnot
Cinesura Entertainment Pty Ltd
Derick Borean
Fleetsure Pty Ltd
LaTrobe Insurance Brokers (Vic) Pty Ltd
Michael Holbrook
Northern Tablelands Insurance Brokers Pty Ltd
Paul Dlitvich
Richard Forby
Samkris Pty Ltd
Theodorus Sanders
Trickey & Proctor Insurance Agencies Pty Ltd
Tim Parry
2019
$
2018
$
96,997
-
- -
- 54,161
340,618
235,064
- 300,000
169,744
-
- -
- 53,091
17,192
-
340,619
235,064
37,310
-
2,221
-
522,365
-
2,345
5,689
1,529,411
883,069
(ii) Transactions with other related parties
Entities within the Consolidated Group charge associated entities interest on interest bearing loans. Total interest charged for the period
was $19,477 (2018: $23,039). The interest charged is on normal commercial terms and conditions.
KJ Risk Group Pty Ltd
2019
$
374,641
374,641
Consolidated
2018
$
403,164
403,164
No further loans have been advanced to members of the economic entity (2018: $NIL). During the year members of the economic entity
have repaid loans issued by AUB Group Services Pty Ltd totalling $28,523 (2018: $22,797). The balance outstanding at 30 June 2019 was
$374,641 (2018: $403,164).
A key management personnel, K. McIvor, has a 10.7% (2018: 20.0%) interest in the voting shares of a controlled entity, AUB Group NZ
Ltd.
(iii) Transactions with directors and director related entities
Entities within the Consolidated 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 director related entities.
Information regarding outstanding balances at year end is included in notes 9, 10 and 17.
86 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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
Chair (non-executive)
R.J. Carless
Director (non-executive)
P.A. Lahiff
R.J. Low
Director (non-executive)
Director (non-executive)
C.L. Rogers
Director (non-executive)
The following persons were the executives with the greatest authority for the planning, directing and controlling the activities of the
consolidated entity during the financial year:
M.P.C. Emmett
Director and Chief Executive Officer (from 11 March 2019)
M.P.L Searles*
Director and Chief Executive Officer (ceased 11 March 2019)
M. Shanahan
Chief Financial Officer
E. Henderson
Chief Operating Officer (ceased 19 March 2019)
F. Pasquini
Divisional Chief Executive, National Partners & Group Acquisitions (ceased 1 December 2018)
S. Vohra
K. McIvor
Divisional Chief Executive, Risk Services (ceased 8 April 2019)
Managing Director, AUB Group New Zealand
N. Thomas
Divisional Chief Executive, Austbrokers Network
A. Zissis
Managing Director, SURA
*M.P.L. Searles ceased being a KMP upon appointment of M.P.C. Emmett upon which date M Searles took on an advisory role.
c) There are no loans outstanding owing by Key Management Personnel at 30 June 2019 (2018: NIL)
d) Compensation of Key Management Personnel by Category
Salary, fees and short term incentives
Post employment
Other long-term
Termination benefits
Share-based payment
Consolidated
2018
$
2019
$
5,000,024
244,928
4,779,298
234,197
-
-
-
-
304,899
531,132
5,549,851
5,544,627
The above amounts include an estimate of short term incentives (STI) accrued at 30 June 2019 based on all KMP’s achieving 85% of their
personal objectives. The 2019 STI amounts are yet to be approved by the Remuneration Committee and are subject to each KMP
achieving their personal objectives.
AUB GROUP ANNUAL REPORT 2019 87
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
27. PARENT ENTITY INFORMATION
As s ets
Cash and cash equivalents
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities - interest-bearing loans and borrowings
Total liabilities
Net assets
Equity
Issued capital
Share based payments
Retained earnings
Total shareholders equity
Profit for the year before income tax
Income tax (credit)
Net profit after tax for the period
2019
$’000
17,140
75,911
268,374
361,425
4,452
55,513
59,965
301,460
2018
$’000
9,940
75,538
207,348
292,826
644
99,576
100,220
192,606
255,662
141,708
7,820
37,978
6,861
44,037
301,460
192,606
22,980
670
22,310
34,084
(787)
34,871
Other comprehensive (expense)/income after income tax for the period
- -
Total comprehensive income after tax for the period
22,310
34,871
O ther infor mation
Guarantees entered into by the parent entity in relation to the debts of its controlled entities
or associates
AUB Group Limited has guaranteed loan facilities provided to controlled entities and associates in
proportion to its shareholding
AUB Group Ltd has guaranteed lease facilities provided to associates in proportion to its
shareholding
Contingent liabilities
18,941
18,909
-
18,941
27
18,936
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. Refer note 22.
88 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 the Group's
financial risk management policy. The objective of the policy is to support the delivery of the Group's financial targets whilst protecting
future financial security.
The Group does not enter into derivative transactions nor has any significant foreign currency transactions.
The Board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and
control of financial risks rests with the Board Audit and Risk Management Committee, supported by a Management Committee, under the
authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below.
Risk exposures and Responses
a) Credit Risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, intercompany receivables, 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 given against the amount due. The Group's credit risk exposure in relation to these
receivables is limited to commissions and fees charged. Commission revenue is recognised after taking into account an allowance for
expected revenue losses on policy lapses and cancellations, based on past experience.
The Group's assets and liabilities include amounts due from policyholders and amounts due to underwriters from broking activities. Due to
the reasons disclosed above, these assets and liabilities have been excluded from the Group's credit risk analysis. 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.
Assets and liabilities relating to Insurance Broking Account.
Amounts due from customers on broking/underwriting agency operations
Cash held on trust
Amounts payable on broking/underwriting agency operations
Undrawn income
Consolidated
2018
$’000
2019
$’000
196,951
149,981
148,026
99,969
(313,298)
(215,768)
(33,634)
(32,227)
Net receivables included in Insurance Broking Account
- -
AUB GROUP ANNUAL REPORT 2019 89
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
28. FINANCIAL INSTRUMENTS (CONTINUED)
a) Credit Risk (continued)
Financial assets
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 and New Zealand Banks. The majority of trade receivables are expected to be
collected within 90 days. The remainder of the financial assets are to related entities or entities that have a relationship to our associates
and are either on call or where loans have a fixed maturity date, are secured by fixed and floating charges (see note 10). At 30 June 2019,
all financial assets were neither past due nor impaired.
Financial assets
Cash and cash equivalents
Trade and other receivables
Amount due from clients in respect of premium funding operations
Related party receivables
Loans - related entities
Other receivables
2019
$’000
70,016
37,404
2,285
6,802
375
26
Consolidated
2018
$’000
58,688
28,212
350
3,142
80
350
116,908
90,822
The amount for trade and other receivables included in the table above excludes insurance broking account receivables.
90 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 financial assets and liabilities.
The Group's main borrowing facilities are provided by a syndicated facility comprising ANZ Bank and 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 timing are based on the conditions
existing at 30 June 2019 with comparatives based on conditions existing at 30 June 2018.
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.
Financial assets
Due not later than 6 months
6 months to not later than one year
Later than one year and not later than five years
2019
$’000
461,025
2,289
526
Consolidated
2018
$’000
338,015
355
447
Later than five years
- -
Financial liabilities
Due not later than 12 months
Later than one year and not later than five years
463,840
338,817
(379,271)
(86,551)
(253,554)
(138,688)
Later than five years
- -
(465,822)
(392,242)
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.
AUB GROUP ANNUAL REPORT 2019 91
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 Company’s contingent considerations made in relation to acquisitions of controlled entities and associates are categorised as level 3.
These are valued based on the inputs in the valuation used on new acquisitions during the reporting period, refer to note 7.
All other assets and liabilities measured at fair value are categorised as level 2 under the three level hierarchy reflecting the availability of
observable market inputs when estimating the fair value.
The consolidated entity's put option liabilities are categorised as level 3.
F inanc ial as s ets
Cash and cash equivalents
Trade and other receivables
Amounts due from clients in respect of premium funding operations
Related party receivables
Loans – related entities
Loans – other
Loan with associated entities
Total financial assets
F inanc ial liabilities
Loans and other borrowings
Carrying value
Fair value
2019
$’000
2018
$’000
2019
$’000
2018
$’000
219,997
158,657
219,997
158,657
234,355
176,641
234,355
176,641
2,285
6,802
375
8
18
350
3,142
80
(71)
18
2,285
6,802
375
8
18
350
3,142
80
(71)
18
463,840
338,817
463,840
338,817
(104,475)
(121,202)
(104,471)
(121,198)
Trade and other payables and accruals
(361,347)
(271,040)
(361,347)
(271,040)
Total financial liabilities
(465,822)
(392,242)
(465,818)
(392,238)
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 payments to underwriters and/or repayments to policyholders.
The value of the deferred/contingent consideration payments outstanding at 30 June 2019 was $6.523 million (2018: $2.981 million).
Of the $6.523 million, a total of $5.258 million relates to deferred or contingent consideration payments of which $4.386 million is expected
to be settled within 12 months and the balance of $872,000 settled after 30 June 2020. The remaining balance of $1.265 million relates to
contingent consideration payments which is in respect of one acquisition and this amount is expected to be settled within 12 months based
on actual results for those businesses as at 30 June 2019 (see note 17 for movements in deferred settlements and contingent
consideration estimates).
92 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 2020 operating profit declines by 10% compared to the current forecast, a reduction of $NIL (2018: $NIL) in the
deferred consideration would result.
If the full year 2020 operating profit increases by 10% compared to the current forecast, an increase of $NIL (2018: $NIL) 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 and
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 2019, the carrying amounts of such receivables, net of allowances, were not materially different from their
calculated fair values.
The fair value of unquoted instruments, loans from banks and other financial liabilities (including put option liability), 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 the 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 financial assets and liabilities exposed to
Australian variable interest rate risk.
Financial assets
Cash and cash equivalents (including trust account balance)
Loans – related entities
Loans – other
Total financial assets
Financial liabilities
Loans and other borrowings
Net exposure to interest rate movements
Borrowings fixed for a period greater than 12 months have been excluded from the table above.
Consolidated
2018
$’000
2019
$’000
219,997
158,657
375
8
80
(71)
220,380
158,666
(104,475)
(121,202)
115,905
37,464
AUB GROUP ANNUAL REPORT 2019 93
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
28. FINANCIAL INSTRUMENTS (CONTINUED)
d) Market Risk (continued)
Interest rate 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. In 2019 there are no fixed interest components in the current and non-current interest bearing loans and borrowings totalling
$103.6 million (2018: $119.9 million). In 2018, $183,000 had been fixed at 6.5%. 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 profits and equity
would have been affected as follows:
Judgements of reasonably possible movements.
Consolidated
+0.5% (50 basis points) (2018 +0.50% (50 basis points))
-0.5% (50 basis points) (2018 -0.50% (50 basis points))
Post tax profits Higher/(lower)
Higher/(lower)
Impacts directly to equity
2019
$’000
578
(578)
2018
$’000
2019
$’000
2018
$’000
187
- -
(187)
- -
The net increase in consolidated profits in respect of interest rate rises is due to the net positive impact of interest-bearing assets being
greater than borrowings.
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 entities and therefore
has no exposure to price risk that has not already been reflected in the financial statements. The Group tests for impairment annually and
reviews all investments at least half yearly. The methodology for testing for impairment is shown in note 15. Other than shown below, there
were no impaired investments at balance date. At 30 June 2019, impairment charges totalling $18,961,000 (2018: $2,519,000) relating to
the carrying value of controlled entities and associates was recognised and 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 $44,000 (2018: $287,000) that was in excess of the expected settlement amounts and were credited to the
Consolidated Statement of Profit or Loss.
Included in the impairment charge of $18,961,000 shown above was an amount of $15,049,000 ($8,713,000 net of non-controlling
interests) relating to two Risk Services controlled entities which are subject to put options. A net adjustment to the fair value of the put
options totalling $6,483,000 was credited to the Consolidated Statement of Profit or Loss during the year.
In 2018, the impairment charge of $2,519,000 included an amount of $2,300,000 (1,725,000 net of non-controlling interests) relating to
goodwill in a controlled entity. A financial services entity has been subject to legislative changes including changes to the trail commissions
which has resulted in a loss of revenue in the last 3 years which is also expected to continue for at least the next 2 years.
94 AUB GROUP ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 2019
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 (NZ) operations, although some controlled
entities raise client invoices in foreign currency denominations.
At year end, had foreign exchange rates moved as illustrated in the table below, with all other variables held constant, post tax profits and
equity would have been affected as follows:
Judgements of reasonably possible movements.
Consolidated (AUB direct investment in New Zealand)
Post tax profits Higher/(lower)
Higher/(lower)
Impacts directly to equity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
-NZ $0.10 (ten cents) (2018 -NZ $0.10 (ten cents)
- - 4,986
1,671
+NZ $0.10 (ten cents) (2018 +NZ $0.10 (ten cents)
- -
(4,986)
(1,671)
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 2019, the Group's strategy was to maintain a gearing ratio of not greater than 30% which was unchanged from 2018.
The gearing ratios at 30 June were as follows;
Debt to equity ratio
Interest-bearing loans and borrowings (see note 19)
Total equity
Total equity and borrowings
Debt/(Debt plus Equity) Ratio
f) Put Option
Consolidated
2018
$’000
121,202
357,230
478,432
2019
$’000
104,475
483,398
587,873
17.8%
25.3%
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. Refer note 22.
Other than shown on note 17, at balance date no liability has arisen in relation to these arrangements.
AUB GROUP ANNUAL REPORT 2019 95
DIRECTORS’ DECLARATION
YEAR ENDED 30 JUNE 2019
In the opinion of the directors:
(a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001 (Cth), including:
i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 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 Standards as disclosed in note 2.2; and
(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 (Cth) for the financial year ended 30 June 2019.
On behalf of the Board
D.C. Clarke
Chair
M. P. C. Emmett
Chief Executive Officer and Managing Director
Sydney, 20 August 2019
Sydney, 20 August 2019
96 AUB GROUP ANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT
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 2019, consolidated statement of comprehensive income,
consolidated statement of changes in equity and 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:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial
performance for the year ended on that date; and
b) 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 respond 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AUB GROUP ANNUAL REPORT 2019 97
INDEPENDENT AUDITOR’S 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 2, 11, 14, and 15
Goodwill, other intangible assets and investment in associates
total $565 million and represent 55% of total assets. This was
a key matter as the determination of whether or not 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.
The key inputs and judgments involved in the impairment
assessment include:
Determination of Cash Generating Units (CGUs)
Applicable Revenue and Earnings Before Interest and Tax
(EBIT) multiples
Forecast cash flows including assumptions on revenue
and expense growth, discount rates, and terminal growth
rates within Discounted Cashflow (DCF) models
Economic and entity specific factors are incorporated into the
EBIT multiples or DCFs used in the impairment assessment.
The Group’s CGUs operate within a number of industries
within the insurance intermediary and ancillary services sector,
and geographical regions across Australia and New Zealand.
The Group has more than 50 individual Cash Generating Units
(CGUs) which can be impacted positively or adversely by state
based changes in the macro-environment, 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 in state-based workers
compensation scheme arrangements.
The models used for impairment testing are utilised to value the
Put Option liabilities, with an allowance for the different time
horizons of cash flows. The same key inputs and judgements
apply to the Put Options as the impairment testing.
We assessed the Group’s determination of CGUs based on
management internal reporting of results. Our audit procedures to
assess management’s impairment analysis for each CGU using
either an EBIT multiple or DCF model included the following:
We evaluated the competence, capabilities and objectivity of
management’s external expert who produces a report of the
current market EBIT multiples applicable to the Group’s
operating segments, geographical regions, and CGU size.
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 EBIT multiples
and discount rates based on comparable companies within
the industry and publicly available information.
We tested the mathematical accuracy of the impairment
model and agreed relevant data back to the latest Board
approved budgets, and actual results.
We evaluated the cash flow forecasts by comparing them to
the Board approved budgets and our understanding of the
industry’s external factors affecting revenue growth. We also
conducted a retrospective analysis of management’s prior
projections to actual results to assess the reliability of
management’s budgets.
We independently developed expectations regarding the
impairment testing results based on our understanding of the
business, external industry trends and experience of the
Group’s historic business activity. We evaluated the Group’s
impairment testing results against those expectations.
We evaluated the estimated useful life attributed to identifiable
insurance broking register intangible assets based on historic
lapse rates.
We assessed the Group’s sensitivity analysis and evaluated
whether any reasonably foreseeable change in assumptions
could lead to an impairment.
We assessed the adequacy of the disclosures in note 15 to
the financial report.
We determined the reasonableness, with the support of our
valuation specialists, of the model used by the Group to value
the recognised Put Options.
98 AUB GROUP ANNUAL REPORT 2019
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Decentralised operations
Financial report reference: Notes 2.2, 11 and 12
Why significant
The Group comprises more than 80 subsidiaries and
associates (‘components’) that are part of two reportable
segments, with operations in Australia and New Zealand.
The scoping of the Group audit due to the decentralised
operations was a key audit matter as the individual
components are wide ranging in size, the customers and
products of each business operation. The decentralised and
varied nature of these operations require significant oversight
by the Group to monitor the activities, review component
financial reporting and undertake the Group consolidation
procedures.
The financial report of a number of controlled entities and
associates are audited by component teams and therefore the
assessment of the adequacy of the procedures of other
auditors was considered significant to the audit.
INDEPENDENT AUDITOR’S REPORT
How our audit addressed the key audit matter
Our audit procedures included the following:
The components selected as in scope locations were based
on size and risk. The selected components in aggregate
represented more than 95% by Revenue and Total Assets of
the Group.
For these locations we instructed component auditors to
perform an audit at local entity materiality in accordance with
the relevant auditing standard (ISA or ASA 320) to express an
audit opinion on the financial reporting package for Group
reporting.
We met the component audit teams of the significant entities
to evaluate, through review of underlying audit work, their
scoping of key audit areas, planning and execution of audit
procedures, significant areas of estimation and judgment, and
audit findings.
For other locations we compared the financial information to
prior year results and expectations regarding the results based
on our understanding of the business and external industry
trends. We held discussions with the Group about the
component’s financial performance and obtained support for
unexpected variations.
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 2019
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, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider 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 concern,
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AUB GROUP ANNUAL REPORT 2019 99
INDEPENDENT AUDITOR’S REPORT
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional 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 resulting 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 the 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, including 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 business 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.
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 report 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 Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 15 to 25 of the Directors’ Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of the AUB Group Limited for the year ended 30 June 2019, 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 Report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our
audit conducted in accordance with Australian Auditing Standards.
Ernst & Young
David Jewell
Partner
Sydney
20 August 2019
100 AUB GROUP ANNUAL REPORT 2019
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
ASX ADDITIONAL INFORMATION
YEAR ENDED 30 JUNE 2019
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 13 August 2019.
(a) Distribution of equity securities
Ordinary share capital
73,502,778 fully paid ordinary shares are held by 1,477 individual shareholders. All issued shares carry one vote per share and carry
the rights to dividends.
Nil ordinary shares issued on exercise of options under the Senior Executive Option Plan are held in escrow in accordance with the Plan.
Options
351,328 options are held by 13 individual option holders.
Options do not carry a right to vote.
The number of shareholders, by size of holding, in each class are:
1 – 1000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Holding less than a marketable parcel
Fully paid
ordinary shares
Options
592
-
579
-
162 1
116
12
28
-
1,477
114
13
AUB GROUP ANNUAL REPORT 2019 101
ASX ADDITIONAL INFORMATION
YEAR ENDED 30 JUNE 2019
(b) Substantial shareholders
Ordinary shareholders
Challenger Limited
Perpetual Limited
Greencape Capital Pty Ltd
Pendall Group Limited
Regal Funds Management
Carol Australia Holdings Pty Limited
Mitsubishi UFJ Financial Group Inc
Date of Notice
Number
Percentage
05-July-2019
7,957,010
10.83%
Fully paid
22-May-2019
5,458,778
05-July-2019
6,332,085
26-October-2018
5,154,373
25-June-2019
4,156,481
05-August-2019
3,951,264
08-August-2019
4,201,940
7.43%
8.61%
8.07%
5.65%
5.38%
5.72%
(c) Twenty largest holders of quoted equity securities
Ordinary shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Australian Foundation Investment Company Limited
BNP Paribas Noms Pty Ltd
UBS Nominees Pty Ltd
Brispot Nominees Pty Ltd
Milton Corporation Limited
BNP Paribas Nominees Pty Ltd
Mirrabooka Investments Limited
Buttonwood Nominees Pty Ltd
Djerriwarrh Investments Limited
Warbont Nominees Pty Ltd
Masfen Securities Limited
CS Third Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Netwealth Investments Limited
Mrs Gaeleen Enid Rouvray
AMCIL Limited
102 AUB GROUP ANNUAL REPORT 2019
Fully paid
Number
Percentage
22,617,481
30.77%
15,829,056
21.54%
7,746,008
10.54%
5,255,511
2,165,837
2,071,316
2,069,303
1,547,487
1,292,991
976,432
800,000
777,000
637,012
538,071
447,096
426,076
389,015
286,557
236,723
225,000
7.15%
2.95%
2.82%
2.82%
2.11%
1.76%
1.33%
1.09%
1.06%
0.87%
0.73%
0.61%
0.58%
0.53%
0.39%
0.32%
0.31%
DIVIDEND DETAILS
Div idend Details
Dividend
Interim
Final*
Amount
Franking
Ex Date
Record Date
Payment Date
13.5c
32.5c
Fully Franked
Fully Franked
6/03/2019
4/09/2019
7/03/2019
5/09/2019
5/04/2019
8/10/2019
* The Dividend Reinvestment Plan (DRP) arrangements will be activated.
AUB GROUP ANNUAL REPORT 2019 103
CORPORATE INFORMATION
60 000 000 715
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 5-25.
Directors
D. C. Clarke (Chair)
M. P. C Emmett (Chief Executive Officer and Managing Director)
R. J. Carless
R. J. Low
P.A. Lahiff
C. L. Rogers
Company Secretaries
D. J. Franks
A. K. T. Luu
Annual General Meeting
The Annual General Meeting of AUB Group Limited will be held at
the Auditorium, Level 15, 1 Farrer Place, Sydney NSW 2000 on
Tuesday 12th of November 2019 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
104 AUB GROUP ANNUAL REPORT 2019