Centrepoint Alliance
Annual Report 2017

Plain-text annual report

ANNUAL FINANCIAL REPORT For the year ended 30 June 2017 Centrepoint Alliance Limited and its Controlled Entities ABN 72 052 507 507 CONTENTS 1 Chairman’s Report 3 Directors’ Report 15 Remuneration Report 25 Auditor’s Independence Declaration 26 Statement of Profit or Loss and Comprehensive Income 27 Statement of Financial Position 28 Statement of Cash Flows 29 Statement of Changes in Equity 30 Notes to the Consolidated Financial Statements 78 Directors’ Declaration 79 ASX Additional Information 81 Independent Auditor’s Report 86 Corporate Directory Centrepoint Alliance Limited and its controlled entities ABN 72 052 507 507 Annual Financial Report for the year ended 30 June 2017 Chairman's Report Annual Report 30 June 2017 1 Chairman's Report Annual Report 30 June 2017 2 CHAIRMAN’S REPORT Centrepoint Alliance Limited (‘Centrepoint’ or the ‘Company’) has continued to make significant progress during the financial year ended 30 June 2017 (‘FY17’) in executing its strategy to become the most respected financial services provider in Australia. We are pleased to announce a strong result for FY17 with a net profit after tax of $6.5m (up 51%) and an EBITDA from continuing operations of $5.3m (up 33%) excluding the legacy claims adjustment. The results include the sale of the Premium Funding business on 30 December 2016 for $21.4m. The sale of funding has resulted in Centrepoint focusing solely on its wealth management business, that is supported by a strong cash position. Subsequent to the sale, a number of acquisition opportunities have been investigated without success. As a result, the Board has made the decision to approve a special dividend of 7.0 cents per share fully franked. In addition, the Board approved a final dividend of 1.2 cents per share fully franked reflecting an updated dividend policy based on earnings outlook. The Group has made a significant investment in people, technology and client solutions. This investment is an integral part of the Group’s strategy to achieve sustainable, long term growth by delivering innovative solutions to meet customers’ needs while assisting financial advisers and brokers to operate efficient and profitable businesses. The employee engagement and satisfaction levels have improved strongly. The outcomes of our investments have resulted in improved adviser satisfaction with a net promoter score of +25.61 in Alliance Wealth and +33.3 in Associated Advisory Practices against industry score of -5.5. We have been successful in expanding adviser numbers and continue to lead the industry in being an early promoter of managed accounts. Net inflows into the Ventura Managed Accounts Portfolios (‘vMaps’) solution increased by 71% to $344m, and there has been a solid transformation of revenue to the contemporary business model. Centrepoint continues to focus on being a customer-centric wealth management business. Our primary goal is to improve the quality of advice and wealth management solutions provided to Australians as well as capturing the benefits from industry disruption and the move to ‘fee for service’ advice. A package of virtual service solutions was introduced during the year to enable advisers to benefit from greater scale and specialist expertise so they can focus on adding value to their clients. We believe this strengthens our adviser proposition allowing advice practices to choose from a menu of investment services that include asset allocation research and models, implemented portfolios on a wide variety of platforms and a fully outsourced CIO function. 1 CoreData April 2017 Centrepoint Aliiance Community Research During the year we have made strategic investments in R Financial Educators Pty Ltd (RFE) and Australian Life Development Pty Ltd (ALD). RFE is focused on establishing joint ventures with accountants to leverage their client base and provide financial advice. ALD is an Australian based insurance distribution business offering non-complex, customer-focused life insurance products through the financial adviser channel and is expected to release its products in March 2018. Centrepoint is well placed to take advantage of the anticipated growth in the wealth management market and is using technology to simplify the client experience. This should enable Centrepoint to attract quality advice businesses, grow funds under management and administration and enhance shareholder value. We remain focused on assessing acquisition opportunities that fit strategically and can generate shareholder value. Thank you to our employees, advisers, clients and business partners, and you, our shareholders, for your continued support as we strive to become the leading and most highly respected non-institutional financial services business in Australia. Yours sincerely Alan Fisher Chairman Directors' Report Annual Report 30 June 2017 3 Directors' Report Annual Report 30 June 2017 4 4 DIRECTORS' REPORT Your Directors present their report for the year ended 30 June 2017. DIRECTORS Directors were in office for this entire period unless otherwise stated. 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. Alan Fisher BCom, FCA, MAICD Chair of the Board, Independent Non-Executive Director John de Zwart BEcon, CA Managing Director and Chief Executive Officer Experience and expertise Alan has extensive and proven experience in restoring and enhancing shareholder value. He spent 24 years at world-leading accounting firm Coopers & Lybrand where he headed and grew the Melbourne Corporate Finance Division. Following this tenure Alan developed his own corporate advisory business and in the last 20 years has specialised in M&A, strategic advice, business restructurings and capital raisings. He is also managing director of DMC Corporate and Fisher Corporate Advisory. Alan has previously held the position of CEO of Pental Limited where he was instrumental in its successful restructuring. Alan holds a Bachelor of Commerce from Melbourne University, is a Fellow of the Institute of Chartered Accountants and a Member of the Australian Institute of Company Directors. Experience and expertise John has 20 years of experience in senior executive roles within the Australian, UK and NZ financial services industry. John’s passion and success has come from a focus on the customer and staff experience to transform and build fast growing and industry leading businesses in a range of sectors. John was the Chief Financial Officer for TAL Limited, Tower Limited and AMP Corporate Superannuation. He has also worked with Westpac, Credit Suisse and PricewaterhouseCoopers. John believes strongly in aligning corporate and social outcomes and has been actively involved in a range of charities, most recently as director of CanTeen. John holds a Bachelor of Economics from the University of Sydney and is a member of the Institute of Chartered Accountants. Alan was appointed as Non-Executive Director and Chair of the Company on 12 November 2015. John was appointed as Managing Director and Chief Executive Officer of the Company on 15 April 2013. Other current directorships Alan is currently a non-executive director and chair of the audit and risk committee of Thorney Technologies Ltd (ASX: TEK) (appointed 29 August 2014), IDT Australia Limited (appointed 10 June 2015) and Bionomics Limited (appointed 1 September 2016). Former directorships in last 3 years No former directorships of Australian listed entities. Special responsibilities Chair of the Board Member of the Nomination, Remuneration and Governance Committee Interests in shares and options Nil Other current directorships No other directorships of Australian listed entities. Former directorships in last 3 years No former directorships of Australian listed entities. Special responsibilities Managing Director and Chief Executive Officer Alternate Member of the Group Investment Committee for Martin Pretty or Hugh Robertson (from 21 October 2016) Member of the Group Investment Committee (until 21 October 2016) Interests in shares and options 3,230,743 ordinary shares 4,300,000 ordinary shares held under the Centrepoint Alliance Limited Executive Loan Funded Share Plan 1,500,000 performance rights held under the Centrepoint Alliance Limited Performance Rights Plan Georg Chmiel Diplom-Informatiker, MBA, CPA (USA), FAICD Independent Non-Executive Director, Chair of the Group Audit and Risk Committee Experience and expertise Georg brings over 23 years of experience in the financial services industry, online media and real estate industry. Georg is currently Chief Financial Officer of iFlix Group. Previously he was Managing Director and CEO of iProperty Group, the owner of Asia’s No. 1 network of property portal sites and related real estate services. He played a key role in finalising the sale of iProperty Group to REA Group, Southeast Asia’s largest ever internet buyout. Prior to iProperty Group, Georg was Managing Director and CEO of LJ Hooker Group with 700 offices across nine countries providing residential and commercial real estate as well as financial services. Georg holds a Master of Business Administration from INSEAD, a Diplom-Informatiker (Computer Science Degree) from Technische Universität München and is a member of the American Institute of Certified Public Accountants and a Fellow of the Australian Institute of Company Directors. Georg was appointed as Non-Executive Director of the Company on 7 October 2016. Other current directorships Georg is currently a Non-Executive Director of iCar Asia Limited (ASX: ICQ) (appointed 1 November 2016) and has held the position of Chair (since 24 February 2017). He is also a Non-Executive Director of Mitula Group Limited (ASX: MUA) (appointed 18 January 2017). Former directorships in last 3 years Georg is formerly an Executive and Non-Executive Director of iProperty Group Limited (ASX: IPP) (4 January 2011 to 21 April 2014), he also held the position of Managing Director and Chief Executive Officer (21 April 2014 to 16 February 2016). Special responsibilities Chair of the Group Audit, Risk and Compliance Committee (from 21 October 2016) Member of the Group Audit, Risk and Compliance Committee (until 21 October 2016) Interests in shares and options 25,000 ordinary shares John O’Shaughnessy MBA, Grad Cert Management, FFinsia, FGIA, FCIS, MAICD Independent Non-executive Director, Chair of the Nomination, Remuneration and Governance Committee Experience and expertise John has many years’ experience in financial services in Asia/Pacific and in the UK/Europe, having held CEO, Senior Executive and board roles covering funds management, insurance, banking and securities. John is currently Chairman of Forticode Limited; a Director of AlphaVista Financial Services Holdings Pty Limited; a Director on the University of Adelaide’s International Centre for Financial Services Advisory Board; a Councillor on the Macquarie University Faculty of Science and Engineering. He was previously Chairman of Elevate Australasia Limited; a Director with A. T. Kearney; and a Director of the Australian Services Roundtable. John was also Deputy CEO of the Financial Services Council of Australia. John holds a Master of Business Administration from Macquarie University and is a Fellow of the Governance Institute of Australia, a Fellow of the Financial Securities Institute of Australia, a Senior Associate of the Australian and New Zealand Insurance Institute and a member of the Australian Institute of Company Directors. John was appointed as Non-Executive Director of the Company on 28 May 2015. Other current directorships No other directorships of Australian listed entities. Former directorships in last 3 years No former directorships of Australian listed entities. Special responsibilities Chair of the Nomination, Remuneration and Governance Committee Chair of the Group Audit, Risk and Compliance Committee (until 21 October 2016) Member of the Group Audit, Risk and Compliance Committee (from 21 October 2016) Interests in shares and options 100,000 ordinary shares Directors' Report Annual Report 30 June 2017 5 Directors' Report Annual Report 30 June 2017 6 Martin Pretty BA, CFA, Graduate Diploma of Applied Finance Non-executive Director, Chair of the Group Investment Committee Hugh Robertson Independent Non-Executive Director Experience and expertise Martin is currently a consultant with the Thorney Investment Group, a substantial shareholder, and brings to the Board over 17 years’ experience in the finance sector. The majority of this experience was gained within ASX-listed financial services businesses, including Hub24, Bell Financial Group and IWL Limited. Martin has also previously worked as a finance journalist with The Australian Financial Review. Experience and expertise Hugh has over 30 years’ experience in the financial services sector having been involved in a number of successful stockbroking and equity capital markets businesses. Hugh is a senior investment adviser with Bell Potter. He has worked with a variety of stockbroking firms including Falkiners stockbroking, Investor First and Wilson HTM. Previously, Hugh has also held directorships with NSX Ltd, OAMPS Ltd, Catalyst Recruitment Ltd. Martin holds a Bachelor of Arts (Honours) from The University of Melbourne, and a Graduate Diploma of Applied Finance from Finsia. Martin is a CFA charterholder. Martin was appointed as Non-Executive Director of the Company on 27 June 2014. Other current directorships No other directorships of Australian listed entities. Former directorships in last 3 years No former directorships of Australian listed entities. Special responsibilities Chair of the Group Investment Committee Member of the Group Audit, Risk and Compliance Committee Interests in shares and options Nil Hugh was appointed as Non-Executive Director of the Company on 2 May 2016. Other current directorships Hugh is currently a Non-Executive Director of AMA Group Limited (ASX: AMA) (appointed 2 June 2015) He is also a Non-Executive Director and Chair of the Audit and Risk Committee of Primary Opinion Limited (appointed 26 October 2015) Former directorships in last 3 years Hugh is formerly a Non-Executive Director of TasFoods Limited (ASX: TFL) (21 February 2014 to 10 February 2017), he also held the position of Chair (25 May 2015 to 3 September 2015). Hugh has also held Executive and Non-Executive Directorship positions with HUB24 Limited (20 April 2011 to 29 February 2016) and Wentworth Holdings Limited (27 October 2005 to 3 September 2013) Special responsibilities Member of the Group Audit, Risk and Compliance Committee (until 21 October 2016) Member of the Nomination, Remuneration and Governance Committee (from 21 October 2016) Member of the Group Investment Committee (from 21 October 2016) Interests in shares and options Nil COMPANY SECRETARY Debra Anderson B. Law (LLB) Hons, Post Graduate Diploma in Legal Practice, Diploma of Financial Planning, AGIA, ACIS, MAICD Senior Corporate Lawyer & Company Secretary Debra is a lawyer who began her career in private practice in Australia and worked in New Zealand and Hong Kong, before joining the Company in 2003. She has gained extensive experience in financial services over the past 13 years and was appointed Company Secretary in November 2013. Debra is a qualified Chartered Secretary and is an Associate of the Institute of Chartered Secretaries and Administrators and the Governance Institute of Australia and a member of the Australian Institute of Company Directors. Marty Carne BM, BBus, LLB, LLM, MBA (Grad), GDLP, GCAIF General Counsel & Company Secretary Marty joined the Company in April 2016 and holds executive responsibility for Legal, Professional Standards and Risk and Claims Management. Marty holds qualifications in law and business and is a member of the Queensland Law Society and the Association of Financial Advisers. Marty has over 25 years’ experience in regulation and financial services. Marty has held senior positions with a range of financial services companies and the Australian Securities Commission. Marty has strong commercial and client-centric skills and experience in the delivery of strategic legal advice and management of risk. Marty was appointed as joint Company Secretary on 27 April 2017. Directors' Report Annual Report 30 June 2017 7 Directors' Report Annual Report 30 June 2017 8 MEETINGS OF DIRECTORS The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or committee member). Members Board of Directors Nomination, Remuneration & Governance Committee Group Audit, Risk & Compliance Committee Group Investment Committee Held Attended Held Attended Held Attended Held Attended A. D. Fisher J. A. O'Shaughnessy H. W Robertson J. M. de Zwart J Cowan M Walker M. P. Pretty G. Chmiel * 16 15 13 15 - - 13 9 16 15 11 15 - - 13 9 8 8 5** - - - - - 8 8 2 - - - - - - 5*** 2 - - - 5 3*** - 5 1 - - - 5 3 - - 3 3*** 5** 5** 5 - - - 1 2 5 5 5 - * Appointed 7 October 2016 **Appointed 21 October 2016 ***Change of membership effective 21 October 2016 CORPORATE INFORMATION Strategies and Prospects The Group is focused on becoming the most trusted and respected wealth management organisation in Australia with the creation of leading business lines in wealth advice, funds management and life insurance. ALD is an Australian based insurance distribution business offering life insurance products through financial adviser channels. In 2018 ALD will launch its products and establish their position on licensee approved product lists and adviser support. The Wealth business is implementing its strategy to become a leading client-centric wealth business focused on customer outcomes and building sustainable financial advice practices. Our aim is to increase alignment between advisers and the Group to drive growth. With a contemporary business model it is well positioned in an industry that remains very attractive for long- term growth driven by growing national savings and investment pool increases and the greater need for advice as the complexity of the regulatory environment, tax system and market increases. The Group’s strategy with respect to both RFE and ALD is to grow the long term values of these investments. The Group is strategically well positioned and benefiting from the disruption occurring across financial services as regulatory, technology and consumer driven change occurs. Being ahead of the curve in creating a differentiated contemporary client-centric wealth management business and leveraging scale as a player. The Group has a strong balance sheet with good return on capital and will continue to explore further opportunities to transform the wealth advice market. RFE is focused on partnering with accounting businesses to provide advice. The 2017 financial year was RFE’s start up year, where a number of accountant referral partnerships were established, and this number is expected to triple in the next financial year. History Centrepoint Alliance Limited (formerly Alliance Finance Corporation Limited) was founded in 1991 as an insurance premium funding company. It was incorporated in Australia as a company limited by shares and listed on the Australian Securities Exchange in June 2002. On 30 September 2005, Centrepoint Alliance Limited merged with the Centrepoint Finance Pty Ltd. During the 2009 financial year, ‘the Group’ ceased its commercial finance activities, which involved the sale on 31 December 2008 of its finance broking businesses and the cessation of its equipment finance operations. On 13 December 2010 ‘the Company’ acquired 100% of Centrepoint Wealth Pty Ltd (formerly Professional Investment Holdings Limited) and its controlled entities through a scheme of arrangement. The insurance premium funding business was sold on 30 December 2016 to the Bank of Queensland as part of the Group’s business strategy to focus on and grow the Wealth business and has established a minority interest in life insurance. Principal activities The principal activities of the Company and its related entities during the course of the financial year were: • Licensee and Advice Services, which provides a range of financial advice and licensee support services (including licensing, technology, business support, training, compliance, and professional standards); and, • Funds Management and Administration, which is a provider of investment solutions (platforms and managed portfolios and funds) to financial advisers, accountants and their clients across Australia. Corporate structure Centrepoint Alliance Limited is a company limited by shares that is incorporated and domiciled in Australia and listed on the Australian Securities Exchange (ASX: CAF). Information on the Group structure is provided in Note 24 to the Consolidated Financial Statements. OPERATING & FINANCIAL REVIEW Group Business Operations Centrepoint Alliance Limited and its controlled entities (the ‘Group’) operates predominantly in the financial services industry within Australia and has two core business segments as outlined above in Principal activities. Financial Performance Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) from continuing operations for the year to 30 June 2017 was $5.3m, excluding the legacy claims adjustment of $3.7m in 1H17. (2016: $4.0m). The 33% increase in EBITDA is a good reflection of the increasing pace of transformation and growth of the Wealth business, which is performing well in challenging markets. a. Licensee and Advice Services Description: Provider of a range of financial advice and licensee support services (including licensing, technology, business support, training, compliance and professional standards) to financial advisers, accountants and their clients across Australia, including xseedwealth pty ltd (salaried advice) and Centrepoint Alliance Lending Pty Ltd (‘CALP’). Business Model: Services are provided to authorised representatives under its Australian Financial Services Licences through Professional Investment Services Pty Ltd and Alliance Wealth Pty Ltd. Similar services are also provided to other licensees through Associated Advisory Practices Pty Ltd. Salaried advice provides strategic financial advice to clients, and mortgage broking services are also offered to brokers and financial advisers. Key Drivers: The number of advice firms, fee income, operating costs, funds under distribution agreements, lending volumes and lending margins. Overview: Licensee and Advice Services operates with non-institutionally owned financial advisers and operates in a market alongside large institutions. The market is attractive with over $2.3 trillion2 in superannuation assets expected to continue to grow over the next twenty years and the need for quality advice continuing to grow. During the year, the salaried advice business changed its name from Alliance Wealth & Protection Pty Ltd to xseedwealth pty ltd. The business has performed strongly in the year and is moving to the next phase of its growth strategy and increasing the number of advisers. The mortgage broking business is an aggregator of mortgage and asset finance solutions. It is a boutique player in a large market, designed to primarily service the needs of advice businesses and offers lending services to financial planning clients. 2 APRA March 2017 Quarterly Superannuation Performance Directors' Report Annual Report 30 June 2017 9 Directors' Report Annual Report 30 June 2017 10 The Group continues to focus on being a client-centric business, which involves improving the quality of advice and wealth solutions provided to Australians, and capturing the benefits from industry disruption and the move to ‘fee for service’ advice. The Group continues to be successful in recruiting 39 wealth advice firms during the year, representing well in excess of 100 financial advisers. The quality of the team and client focus are key to this success, as well as continued enhancement of services and technologies across the business. The Group recently undertook its external client engagement survey and received a very positive response from clients. This was further confirmed through Alliance Wealth Pty Ltd being nominated for Independent Licensee of the year by CoreData. Financial Performance: EBITDA excluding the impact of the change in claims provision methodology was $4.6m (2016: $4.1m). The growth was driven by the transition of advisers to the contemporary solutions model and recruitment of new firms. b. Funds Management and Administration Description: Provider of funds management and platform solutions to financial advisers and their clients across Australia. Business Model: The business sources best of breed fund managers and platforms, constructs portfolio solutions and managed funds through Investment Diversity Pty Ltd and Ventura Investment Management Limited. Key Drivers: Funds under administration, funds under management, margins and operating costs. Overview: Funds Management and Administration provides advisers and their clients with world class investment solutions across the risk/return spectrum, which are managed by world class investment managers and provide a choice of investment styles to deliver on overall client and business objectives. During the year the Group has been successful in expanding the number of advisers using funds management and platform solutions. The Group is an early promoter of managed accounts, which has gained further momentum during the financial period, with $344m under management and $1.1b of gross inflows. Financial Performance: EBITDA increased 8% to $4.1m (2016: $3.8m). Increased adoption by advisers of the contemporary solutions and improved margins on contemporary products have contributed to this result. The Group has invested in the sales team and transition support during the financial period to deliver future growth. The business was also impacted by additional overheads following the sale of premium funding. c. Corporate Description: The costs of the Centrepoint Board of Directors, company secretarial functions and the administration of the listed public entity are reflected in Corporate. Overview: Consistent with the prior simplification of the corporate structure, some expenses have been reclassified to improve accountability and efficiency. d. Minority Investments On 5 October 2016 the Group made an investment in R Financial Educators Pty Ltd (RFE) which is establishing joint ventures with Accountants to leverage their client base and provide financial advice. The investment is at start up stage and is growing strongly. Post balance date, the Group provided a further $1m convertible loan (10% stake) to fund future growth, taking the total investment to $2.5m, which represents a 25% economic interest. An investment in Ginger Group Financial Services Limited (Ginger Group) was also made during the year for $0.1m (50% stake), which is focused on providing support services to financial services organisations and advisers in New Zealand. Ginger Group has a 37.5% stake in Kepa Financial Services Limited (Kepa) and as a result, the Group indirectly holds an 18.75% stake in Kepa. The Group also took up a minority investment in Australian Life Development Pty Ltd (ALD) which is focused on designing, distributing and administering life insurance products. Refer to Note 14(e) for further details. Cash Flows The Group held $31.2m in cash and cash equivalents as at 30 June 2017 (2016: $10.2m). Cash provided by continuing operations was $5.4m (2016: $5.6m) from which $4.2m was paid out in legacy claims (2016: $2.8m), $21.4m was received from the sale of the Premium Funding business resulting in an overall cash movement of $21.0m in the year (2016: $2.3m). Financial Position The Group has net assets at 30 June 2017 of $41.6m (2016: $39.6m) and net tangible assets of $30.4m (2016: $26.3m) representing net tangible assets per share of 19.35 cents (2016: 16.94 cents). The assets and liabilities of the Group declined during the year following the sale of Premium Funding. The significant items in the prior period were the Premium Funding Receivables and interest-bearing liabilities associated with the receivables. Risks and Risk Management The business regularly reviews operational and strategic risks faced by the Group that could affect its financial prospects. These include: • Legacy advice claims – the Consolidated Statement of Financial Position includes a provision for client advice claims in relation to advice provided prior to 1 July 2010. The provision is based on a detailed review of legacy claims as the approach moved from a general provision based on actuarial analysis and projections to a specific provision for each claim. Actual claims may exceed the provision and it is impracticable to quantify the amount of any such additional liability. Class action lawyers and the Australian Securities & Investments Commission has been active within the financial advice industry in relation to poor advice and failed investment products. There is an unquantifiable risk that such action may be taken against a Group subsidiary in the future. • Loss of financial advisers – Wealth depends on revenue generated from financial advisers. Financial advisers are able to leave the Group if they are dissatisfied with the services provided. Considerable effort and progress is being made to develop the leading advice business in Australia and a new advice fee model was recently implemented which is supporting retention of key financial advisers and helping to attract external advisers to the Group. • Regulatory change – whilst the Future of Financial Advice (‘FOFA’) legislation has been finalised, the Financial System Inquiry (‘FSI’) and new Life Insurance Framework (‘LIF’) regulations will continue to evolve the direction for the future of Australia’s financial system. Depending on the outcome of these changes it could impact the Group including operational change costs, slowing down adviser recruitment and increasing the ongoing costs and risks associated with regulatory compliance. • Loss of rebate income – the Group receives rebates from product issuers in relation to products that it placed with them prior to the introduction of FOFA. The natural consequence of FOFA is that as time goes by and consumers receive advice this grandfathered rebate income will reduce. • Loss of key personnel – Centrepoint has a relatively small team and could be negatively impacted if one or more of the key team members were to leave. A comprehensive staff review and feedback process is actively employed. Regular reviews of remuneration to ensure market competitiveness are undertaken, and short-term and long-term incentive programs are in place for staff. • Competitor behaviour – the financial services industry has several participants which have large market shares and are subsidiaries or operating divisions of large financial services businesses. The size of these competitors and their greater access to the resources of their institutions provide them with a strong position on which to compete. There is also the emergence of smaller businesses looking to disrupt the traditional business models. There is a risk that earnings of the Group could be adversely impacted by the activities of competitors. The Group is focused on building and maintaining the leading service propositions in the industry and its position as a non-aligned service provider helps to mitigate this risk. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with those risks and opportunities. Risk management is monitored and assessed by the Group Audit, Risk and Compliance Committee of the Board, which comprises three Non-Executive Directors. The Managing Director and Chief Executive Officer, General Counsel and Chief Financial Officer are standing attendees. As detailed in the Corporate Governance Statement, the Committee is governed by a charter and is responsible on behalf of the Board for overseeing: • The effectiveness of the Group’s system of risk management and internal controls; and • The Group’s systems and procedures for compliance with applicable legal and regulatory requirements. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following: • Board approval of a strategic plan, which encompasses the Group’s vision and strategy statements, designed to meet stakeholders’ needs and manage business risk. • Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of Key Performance Indicators (KPIs) of both a financial and non-financial nature. Directors' Report Annual Report 30 June 2017 11 Directors' Report Annual Report 30 June 2017 12 • Board approved Risk Management Policy and Risk Framework to assist in the identification, analysis, evaluation and treatment of Group risks. Dividends On 24 August 2017, the Directors of Centrepoint Alliance Limited declared a final dividend on ordinary shares in respect of the 2017 financial year. The dividend is to be paid out of the dividend reserve. The total amount of the dividend is $1,883,196, which represents 1.2 cents per share and is fully franked at the corporate income tax rate of 30%. The record date is 25 September 2017 and payment date is 9 October 2017. On 24 August 2017, the Directors of Centrepoint Alliance Limited declared a special dividend on ordinary shares in respect of the 2017 financial year. The dividend is to be paid out of the dividend reserve. The total amount of the dividend is $10,985,308, which represents 7.0 cents per share and is fully franked at the corporate income tax rate of 30%. The record date is 25 September 2017 and payment date is 9 October 2017. The Board has determined the Dividend Reinvestment Plan (DRP) will not be offered for either payment. SHARES AND PERFORMANCE RIGHTS Unissued shares During the year, 1,498,889 performance rights were vested, of which the Managing Director and Chief Executive Officer, John de Zwart, was allocated 650,000. A performance right is a right that can be converted to an ordinary fully paid share in the Company for no monetary consideration subject to specific performance criteria being achieved. At the date of this report there are 500,000 unissued ordinary shares subject to options, which are being held as reserved shares by the Group. Shares issued as a result of the exercise of options No shares have been issued as a result of the exercise of options during the financial year and up to the reporting date. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The Group sold its insurance Premium Funding business on 30 December 2016 to the Bank of Queensland as part of the Group’s business strategy to focus on wealth management. Other than the above, there are no matters or events constituting a significant change in the state of affairs of the Company. SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE DATE On 6 July 2017, the Group subscribed to a convertible loan of $1m in RFE, which represents a 10% stake in equity if converted. On 7 July 2017, the Group paid the balance of the convertible loan for ALD of $3.75m. There are no other matters or events which have arisen since the end of the financial period which have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. LIKELY DEVELOPMENTS Likely developments in the operations of the Company and the expected results of those operations in future financial years have been addressed in the Chairman’s Report and the Operating and Financial Review, where it was noted that the strategic plan includes the review and assessment of acquisition opportunities, and in the subsequent events disclosure. The Directors are not aware of any other significant material likely developments requiring disclosure. ENVIRONMENTAL REGULATION The Consolidated Entity’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. CORPORATE GOVERNANCE STATEMENT AND PRACTICES The Group’s Corporate Governance Statement for the financial year ended 30 June 2017 was approved by the Board on 24 August 2017. The Corporate Governance Statement is available on our website: http://www. centrepointalliance.com.au/investor-centre/corporate- governance/ INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Deloitte Touche Tohmatsu, 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 Deloitte Touche Tohmatsu during or since the end of the financial year. ROUNDING The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors' Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instruments amounts in the Directors' Report and the financial statements are rounded off to the nearest hundred thousand dollars, unless otherwise indicated. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the Company paid a premium for a policy insuring all Directors of the Company, the Company Secretaries and all executive officers against any liability incurred by such director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Group. Details of the amount of the premium paid in respect of insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. The Company has not otherwise during or since the end of the financial year indemnified or agreed to indemnify any officer of the Company against a liability incurred as such officers. Centrepoint continues to focus on being a customer-centric wealth management business. Our primary goal is to improve the quality of advice and wealth management solutions to Australians. - Alan Fisher, Chairman Directors' Report Annual Report 30 June 2017 15 Directors' Report Annual Report 30 June 2017 16 16 REMUNERATION REPORT This Remuneration Report for the year ended 30 June 2017 outlines the remuneration arrangements of the Key Management Personnel of the Group in accordance with the requirements of the Corporations Act 2001 (the ‘Act’) and its regulations. This information has been audited as required by section 308(3C) of the Act. The Remuneration Report is presented under the following sections: • Key Management Personnel • Remuneration philosophy • Group performance • Nomination, Remuneration & Governance Committee (‘NRGC’) • Employment contracts • Remuneration of Key Management Personnel • Short-term incentives • Long-term incentives For the purposes of this Report, Key Management Personnel (‘KMP’) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Company. Key Management Personnel The key management personnel of the Company during the financial year were as follows: A. D. Fisher Chairman & Director (non-executive) J. A. O'Shaughnessy Director (non-executive) J. M. de Zwart Managing Director & Chief Executive Officer H. W. Robertson Director (non-executive) M. P. Pretty G. Chmiel J. S. Cowan R. M. Dodd Director (non-executive) Director (non-executive) – appointed 7 October 2016 Chief Financial Officer Chief Executive Officer – Centrepoint Alliance Premium Funding Pty Ltd – Resigned 30 December 2016 There were no changes of KMP after the reporting date and before the signing of this Report. Remuneration Philosophy The performance of the Company depends on the quality of its Directors, executives and employees. To prosper, the Company must attract, motivate and retain skilled and high performing individuals. Accordingly, the Company’s remuneration framework is structured to provide competitive rewards to attract the highest calibre people. The level of fixed remuneration is set to provide a base level of remuneration that is appropriate to the position and competitive in the market. It is not directly related to the performance of the Company. Fixed remuneration is reviewed annually and the process consists of a review of company-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. Short-term incentives in the form of potential cash bonuses are made available to KMP. Any award is based on the achievement of pre-determined objectives. Long-term incentives are made available to certain KMP in the form of performance rights, shares or options. The Directors consider these to be the best means of aligning incentives of KMP with the interests of shareholders. The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees and committee fees. Group performance Shareholder returns for the last five years have been as follows: GROUP Net profit/(loss) after tax EPS (basic) - (cents per share) EPS (diluted) - (cents per share) Share price ($) 2017 $'000 6,544 4.41 4.11 0.63 2016 $'000 4,262 2.94 2.75 0.41 2015 $'000 5,880 4.14 3.96 0.50 2014 $'000 3,223 3.20 3.13 0.37 2013 $'000 (7,288) (8.04) (8.04) 0.27 Nomination, Remuneration & Governance Committee (‘NRGC’) The role of the NRGC includes the setting of policy and strategy for the appointment, compensation and performance review of Directors and executives, approving senior executive service agreements and severance arrangements, overseeing the use of equity-based compensation and ensuring appropriate communication and disclosure practices are in place. Non-Executive Directors are not employed under specific employment contracts but are subject to provisions of the Corporations Act in terms of appointment and termination. The Company applies the ASX listing rules that specify that aggregate remuneration shall be determined from time to time by shareholders in a general meeting. The maximum aggregate remuneration for the financial year ended 30 June 2017, which was approved by a resolution of shareholders at the Annual General Meeting on 29 November 2016, is $550,000. The remuneration of the Non-Executive Directors does not currently incorporate a component based on performance. Within the limits approved by Company shareholders, individual remuneration levels are set by reference to market levels. Hare Group was engaged to review executive remuneration, and Norton Gledhill was engaged to prepare an updated employment contract for the Managing Director. They were engaged by and reported to the NRGC. Executive Directors and executives are employed under contracts or agreed employment arrangements that specify remuneration amounts and conditions. The Board has introduced for executives and senior employees an incentive system based on issuing performance rights, shares or options in the Company. The Company’s Securities Trading Policy prohibits Directors from entering into margin lending arrangements and also forbids Directors and senior executives from entering into hedging transactions involving the Company’s securities. Details of current incentive arrangements for key management personnel, where they exist, are shown under the disclosure of their contracts below. Employment Contracts Details of the terms of employment of the Managing Director & Chief Executive Officer and the named executives are set out below: Directors' Report Annual Report 30 June 2017 17 Directors' Report Annual Report 30 June 2017 18 John de Zwart – Managing Director & Chief Executive Officer Employment commencement date: 15 April 2013 John Cowan - Chief Financial Officer Employment commencement date: 12 January 2015 Term: No term specified Incentives: Short term incentive Term: No term specified Incentives: Short term incentive A short-term incentive of $145,000 was paid after the end of the 2016 financial year and on achievement of key performance targets set by the Board. The key performance targets are measures of underlying EBITDA, growth in business lines, improvement of customer retention and engagement, strengthening the organisational capability and business sustainability through talent acquisition, retention and development, improvement in compliance levels and risk management. Eligible from the date of appointment to participate in the Company’s short-term incentive plan as amended or varied from time to time by the Company in its absolute discretion and without any limitation on its capacity to do so. A short-term incentive of $130,000 was paid after the end of the 2016 financial year based on the Group-wide STI scheme structure. A short-term incentive for the 2017 financial year will be payable based on the objective and structure outlined in this Remuneration report. A short-term incentive for the 2017 financial year will be payable based on the objective and structure outlined in this Remuneration report. Long-term incentive – (Refer to page 22 for further details) CAESP17 2,800,000 fully paid ordinary CAF shares at 52.2 cents per share, that are legally held by the Centrepoint Alliance Services Pty Ltd ATF Centrepoint Alliance Employee Share Scheme (‘CAESPT’) until satisfaction of the vesting conditions determined on 15 December 2017 (‘2017 tranche’) and 15 December 2018 (‘2018 tranche’) as disclosed in the long-term incentive plans. CAESP18 Issue of up to 1,500,000 fully paid ordinary CAF shares at 34.0 cents per share, that are legally held by the CAESPT until satisfaction of the vesting conditions determined on 13 December 2018 as disclosed in the long-term incentive plans. CAESP19 Issue of up to 1,500,000 performance rights at 51.0 cents per performance right, that are legally held by the CAESPT until satisfaction of the vesting conditions determined on 9 December 2019 as disclosed in the long-term incentive plans. Required notice (Executive): 3 months. Required notice (Company): 6 months. Termination Entitlement: Statutory entitlements and so much of the total fixed remuneration as is due and owing on the date of termination. A retention incentive was approved by the Board in March 2016 and the first payment of $75,000 was made in September 2016, with the second payment of $75,000 to be made in September 2017. The incentive is subject to employment criteria. Long-term incentive – (Refer to page 22 for further details) CAESP18 Issue of up to 1,200,000 fully paid ordinary CAF shares at 34.0 cents per share, that are legally held by the CAESPT until satisfaction of the vesting conditions determined on 13 December 2018 as disclosed in the long-term incentive plans. CAESP19 Issue of up to 750,000 performance rights at 51.0 cents per performance right, that are legally held by the CAESPT until satisfaction of the vesting conditions determined on 9 December 2019 as disclosed in the long-term incentive plans. Required notice (Executive): 6 months. Required notice (Company): 3 months. 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M . J n a w o C . S . J d d o D . M . R P S E A C r e d n u s e r a h S s t h g i r e c n a m r o f r e P 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 t r a w Z e d . M . J n a w o C . S . J d d o D . M . R Directors' Report Annual Report 30 June 2017 21 Directors' Report Annual Report 30 June 2017 22 SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL (‘KMP’)* Shares held in Centrepoint Alliance Limited (Number) Balance 1 July 2016 Granted as remuneration On exercise of options Net change other # Balance 30 June 2017 Ordinary Ordinary Ordinary Ordinary Ordinary - 2,580,743 - 100,000 - - - 7,387 - - - - - - - - - - - - - - - - - 650,000 3,230,743 - - - - - 100,000 - - 25,000 25,000 - 200,000 207,387 A. Fisher J. M. de Zwart M. P. Pretty J. A. O'Shaughnessy J. S. Cowan H. W. Robertson G. Chmiel2 Former KMP’s R. M. Dodd1 1 Resigned during the year 2 Appointed during the year - Includes shares held directly, indirectly and beneficially by KMP # All equity transactions with KMP other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Company would have adopted if dealing at arm’s length. Short-term incentives Objective The objective of short-term incentives (‘STI’) 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 available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and the cost to the Group is reasonable. The purpose of STI is to focus the Group’s efforts on those performance measures and outcomes that are priorities for the Group for the relevant financial year and to motivate the employees to strive to achieve stretch performance objectives. Structure In August 2016 the Directors approved a new Executive STI scheme based on EBITDA and the achievement of underlying organisational and team goals. The Target EBITDA is approved by the Board for each financial year. To be eligible for an STI payment a threshold EBITDA must be met and executives must achieve at least 70% of their individual performance objectives and minimum job competency and core values ratings. The Target STI payable to executives is 40% and the Managing Director 50% of Total Fixed Remuneration. The Maximum STI payable for executives is 60% and the Managing Director 75% of Total Fixed Remuneration. On an annual basis, after consideration of performance against KPIs the NRGC will review results and determine individual amounts approved for payment. For other employees there is an STI scheme where a bonus pool based on results and approved by the Board is weighted by a two-tiered approach with weightings assigned to each level, being CAF Group results and individual KPIs. Long term incentives Objective The objective of long-term incentives (‘LTI’) is to reward executives in a manner that aligns remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to significantly influence the generation of shareholder wealth and thus have an impact on the Group’s performance against the relevant long term performance hurdle. Structure LTI awards to executives are made under the Executive LTI plan and are delivered in the form of shares or rights. Shares vest in tranches over a specified time period and may also have other performance hurdle requirements, typically related to shareholder return, as determined by the NRGC. Performance rights are rights that can be converted to fully paid ordinary shares in the Company for no monetary consideration subject to specific performance criteria being achieved. The performance rights will only vest if certain profit targets are met. Awards Underlying profit is a measure of consolidated net profit after tax for the Group from its core trading activities. It excludes gains or losses from unusual or rarely-occurring events and from any misalignment between economic value and accounting treatment. The final underlying profit or loss for a period will be determined by the Board. These arrangements form part of the Company’s LTI plan for senior executives, the purpose of which is to align their interests with those of the shareholders and to provide a key retention incentive. Upon issue, the shares will rank equally with all other fully paid ordinary shares in the Company then on issue. CAESP17 On 30 October 2014, the Board approved the award of 5,300,000 shares to the Managing Director and Chief Executive Officer and other senior executives of the Group under the CAESP at 52.2 cents per share. The vesting conditions are subject to the following: 2017 tranche If the cumulative fully diluted underlying EPS adjusted for any dilutionary impact of dividend reinvestment plan (‘DRP’) for the financial years ended 30 June 2015, 2016 and 2017 divided by 3 is: • Less than 133% of 2014 EPS, nil vest; • Between 133% and 145% of 2014 EPS, shares will vest on a pro-rata basis; • 145% and above of 2014 EPS, 100% of shares will vest. 2018 tranche If the cumulative fully diluted underlying EPS adjusted for any dilutionary impact of DRP for the financial years ended 30 June 2015, 2016, 2017 and 2018 divided by 4 is: • Less than 143% of 2014 EPS, nil vest; • Between 143% and 160% of 2014 EPS, shares will vest on a pro-rata basis; • 160% and above of 2014 EPS, 100% of shares will vest. CAESP18 On 15 July 2015, the Board approved the award of 4,550,000 shares to the Managing Director and Chief Executive Officer and other senior executives of the Group under the CAESP at 34.0 cents per share. These are legally held by the CAESPT until satisfaction of the vesting conditions determined on 13 December 2018 based on the following: If the underlying basic EPS for 30 June 2018 financial year is: • Less than 140% of the 30 June 2015 underlying basic EPS, none will vest; • 140% of the 30 June 2015 underlying basic EPS, 40% of the shares will vest; • Between 141% and 171% of the 30 June 2015 underlying basic EPS, shares will vest on a pro-rata basis; or • 172% and above of the 30 June 2015 underlying basic EPS, 100% of the shares will vest. Directors' Report Annual Report 30 June 2017 23 Directors' Report Annual Report 30 June 2017 24 CAESP19 On 19 December 2016, the Board approved the award of 3,750,000 performance rights to the Managing Director and Chief Executive Officer and other senior executives of the Group under the CAESP at 51.0 cents per performance right. These are legally held by the CAESPT and not converted into fully paid ordinary CAF shares until satisfaction of the vesting conditions determined on 9 December 2019 based on the following: If the Total Shareholder Return (TSR) for 30 June 2019 financial year is: • Below 25th percentile, none will vest; • Between 25th percentile and 49th percentile, 25% of the performance rights will vest; • Between 50th percentile and 74th percentile, 50% of the performance rights will vest; • Above 75th percentile, 100% of the performance rights will vest; Total TSR is a measure of investment return in percentage terms, adjusted for dividends and capital movements, from the start to the end of the performance period. The TSR of Centrepoint is compared and ranked to the TSR of each peer group constituent. The rank is converted to a percentile ranking which is used to determine the proportion of awards vesting based on the above set vesting schedule. Option holdings of key management personnel No options to purchase shares were held by KMP. Other transactions with key management personnel and their related parties Directors of the Company, or their related entities, conduct transactions with the Company or its controlled entities within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those with which it is reasonable to expect the entity would have adopted if dealing with the Director or Director related entity at arm’s length in similar circumstances. There are no transactions by Directors in the current or prior financial year other than the ones disclosed above. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The auditor, Deloitte Touche Tohmatsu, has provided a written independence declaration to the Directors in relation to its audit of the financial report for the year ended 30 June 2017. The Independence Declaration which forms part of this report is on page 25. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Act. The nature and scope of non-audit services provided means that auditor independence was not compromised. 2017 $ 2016 $ 96,598 61,132 87,108 47,554 157,730 134,662 Taxation services provided by Deloitte Touche Tohmatsu Other regulatory services Total Signed in accordance with a resolution of the directors. A. D. Fisher Chairman 24 August 2017 Auditor's Independence Declaration Annual Report 30 June 2017 25 Consolidated Statement of Profit or Loss and Comprehensive Income for the year ended 30 June 2017 26 Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 Deloitte Touche Tohmatsu Tel: +61 7 3308 7000 ABN 74 490 121 060 Fax: +61 7 3308 7001 Riverside Centre www.deloitte.com.au Level 25 123 Eagle Street Brisbane QLD 4000 Tel: +61 7 3308 7000 Fax: +61 7 3308 7001 www.deloitte.com.au Board of Directors Centrepoint Alliance Limited Level 9, 10 Bridge Street Sydney, NSW, 2000 Dear Directors Board of Directors Centrepoint Alliance Limited Level 9, 10 Bridge Street Auditor’s Independence Declaration to Centrepoint Alliance Limited Sydney, NSW, 2000 In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following Dear Directors declaration of independence to the Directors of Centrepoint Alliance Limited. As lead audit partner for the audit of the financial report of Centrepoint Alliance Limited for the year Auditor’s Independence Declaration to Centrepoint Alliance Limited ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Centrepoint Alliance Limited. the auditor independence requirements of the Corporations Act 2001 in relation to the audit any applicable code of professional conduct in relation to the audit. • • As lead audit partner for the audit of the financial report of Centrepoint Alliance Limited for the year Yours sincerely ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit any applicable code of professional conduct in relation to the audit. DELOITTE TOUCHE TOHMATSU Yours sincerely David Rodgers Partner DELOITTE TOUCHE TOHMATSU Chartered accountants Brisbane, 24 August 2017 David Rodgers Partner Chartered accountants Brisbane, 24 August 2017 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited CONTINUING OPERATIONS Revenue Advice and financial product revenue (gross) Advice and financial product fees Advice and financial product revenue (net) Interest income Other revenue Gross Profit Expenses Borrowing expenses Employee related expenses Marketing and promotion Travel and accommodation Property costs Subscriptions & licences Professional services Client claims IT and communication expenses Depreciation and amortisation Other general and administrative expenses Profit before tax from continuing operations Income tax (expense)/benefit Net (loss)/profit from continuing operations after tax Discontinued operations Profit after tax from discontinued operations Net profit for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR Net profit attributable to: Owners of the parent Net profit for the period Total comprehensive profit attributable to: Owners of the parent Total comprehensive profit for the period Earnings per share for profit attributable to the ordinary equity holders of the parent Basic earnings per share Diluted earnings per share Basic (loss)/earnings per share from continuing operations Diluted (loss)/earnings per share from continuing operations 2017 Note $'000 2016 $'000 128,624 115,140 (97,193) (84,584) 31,431 30,556 4 4 458 362 444 960 32,251 31,960 (53) (100) 4(a) (18,609) (18,207) (481) (949) (710) (1,309) (1,180) 20(a) (4,193) (1,195) (1,106) (2,290) (638) (531) (2,425) (1,367) (883) (252) (1,120) (1,977) (2,109) (32,075) (29,609) 176 (264) (88) 6,632 6,544 6,544 6,544 6,544 6,544 6,544 2,351 402 2,753 1,509 4,262 4,262 4,262 4,262 4,262 4,262 Cents Cents 4.41 4.11 (0.06) (0.06) 2.94 2.75 1.90 1.77 5 10 10 10 10 The Consolidated Statement of Profit or Loss and Comprehensive Income is to be read in conjunction with the attached notes included in pages 31 to 77. Consolidated Statement of Financial Position as at 30 June 2017 27 Consolidated Statement of Cash Flows for the year ended 30 June 2017 28 ASSETS Current Cash and cash equivalents Trade and other receivables Interest bearing receivables Other assets Total current assets Non-current Interest bearing receivables Investments Other assets Property, plant & equipment Intangible assets & goodwill Deferred tax assets Total non-current assets TOTAL ASSETS LIABILITIES Current Trade and other payables Interest bearing liabilities Lease incentives Provisions Current tax liability Total current liabilities Non-current Lease incentives Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Equity attributable to shareholders Non-controlling interests TOTAL EQUITY 2017 Note $'000 2016 $'000 6(a) 31,242 11,362 345 529 10,192 11,696 125,848 4,558 43,478 152,294 1,642 1,632 1,015 976 2,231 9,018 16,514 460 36 1,048 1,441 3,831 9,395 16,211 8 14 14 15 16 17 5(d) 8 13 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash provided by operations Claims and litigation settlements Net cash flows provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Interest and borrowing expenses paid Payments to acquire financial assets Proceeds from sale of interest in a subsidiary Acquisition of intangible assets Acquisition of property, plant & equipment Proceeds from sale of property, plant & equipment 2017 Note $'000 2016 $'000 141,031 118,574 (135,614) (112,951) 5,417 5,623 (4,216) (2,809) 1,201 2,814 458 (12) (3,022) 21,422 (362) (213) - 430 (245) - - (103) (413) 98 20(a) 6(b) 17(a) 16 59,992 168,505 Net cash flows provided/(used in) by investing activities 18,271 (233) 9,109 34,534 Net (decrease)/increase in borrowings CASH FLOWS FROM FINANCING ACTIVITIES - 32 20 8,020 372 84,013 183 8,312 (1) Net (decrease)/increase in loan funds advanced Loan repayments received from advisors Dividends paid Net cash flows used in financing activities (26) (1,085) - (3,512) 108 - 9 (5,136) (1,840) (5,054) (6,437) Net increase/(decrease) in cash & cash equivalents (14,418) (3,856) Profit after tax from discontinued operations Cash & cash equivalents at the beginning of the year Cash & cash equivalents at the end of the period 18(a) 6(a) 6(a) 6,632 10,192 31,242 1,509 12,539 10,192 20 17,533 127,041 252 590 842 18,375 41,617 284 1,630 1,914 128,955 39,550 11 12 34,673 15,689 34,150 15,898 (8,863) (10,616) 41,499 39,432 118 118 41,617 39,550 The Consolidated Statement of Financial Position is to be read in conjunction with the attached notes included in pages 31 to 77. The Consolidated Statement of Cash Flows is to be read in conjunction with the attached notes included in pages 31 to 77. 0 5 5 9 3 , 8 1 1 2 3 4 9 3 , ) 6 1 6 0 1 ( , 8 8 0 , 1 . 7 7 o t 1 3 s e g a p n i 9 2 l a t o T y t i u q e 0 0 0 $ ' 0 5 5 9 3 , 4 4 5 6 , 4 4 5 6 , - 3 2 5 6 3 1 ) 6 3 1 , 5 ( 7 1 6 , 1 4 8 5 6 6 3 , 2 6 2 4 , 2 6 2 4 , 2 7 4 , 1 7 2 3 ) 9 6 1 , 3 ( - n o N g n i l l o r t n o c s t s e r e t n i 0 0 0 $ ' l a t o T d e t a l u m u c c A s e s s o l s e v r e s e r r e h t O d n e d i v i D e v r e s e r y r a n d r O i s e r a h s 0 0 0 $ ' 0 0 0 $ ’ 0 0 0 $ ' 0 0 0 $ ' 0 0 0 $ ' s e t o N 7 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 8 1 1 2 3 4 9 3 , ) 6 1 6 0 1 ( , 8 8 0 , 1 0 8 1 , 4 1 0 5 1 , 4 3 6 1 0 2 y l u J 1 t a e c n a l a B - - - - - - 8 1 1 8 1 1 - - - - - 4 4 5 6 , 4 4 5 6 , - 3 2 5 6 3 1 ) 6 3 1 , 5 ( 4 4 5 6 , 4 4 5 6 , ) 1 9 7 4 ( , - - - 9 9 4 , 1 4 ) 3 6 8 8 ( , 0 4 5 6 3 , ) 8 7 8 4 1 ( , 2 6 2 4 , 2 6 2 4 , 2 7 4 , 1 7 2 3 ) 9 6 1 , 3 ( - - - 2 6 2 4 , 2 6 2 4 , - - - - - 6 3 1 1 6 7 4 2 2 , 1 - - - - 7 2 3 - - - - 1 9 7 4 , ) 6 3 1 , 5 ( 5 6 4 4 1 , 9 7 9 7 1 , - - - - ) 9 6 1 , 3 ( 0 1 8 4 1 , - - - - - 3 2 5 3 7 6 4 3 , 8 7 6 2 3 , - - - - 2 7 4 , 1 0 5 1 , 4 3 1 1 5 2 1 1 5 2 d o i r e p e h t r o f t fi o r P e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i i d n e d v d o t i r e f s n a r T e v r e s e r l a t i p a c e r a h s f o e u s s I t n e m y a p d e s a b - e r a h S i d a p s d n e d v D i i 7 1 0 2 y l u J 0 3 t a e c n a l a B 5 1 0 2 y l u J 1 t a e c n a l a B d o i r e p e h t r o f t fi o r P e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i l a t i p a c e r a h s f o e u s s I t n e m y a p d e s a b - e r a h S i d a p s d n e d v D i i 6 1 0 2 e n u J 0 3 t a e c n a l a B d e d u c n l i s e t o n d e h c a t t a e h t h t i w n o i t c n u n o c n j i d a e r e b o t s i y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C e h T 30 Basis of preparation 1. Corporate information .............................................................................................................................................................................................. 31 2. Summary of significant accounting policies ................................................................................................................................................. 31 Financial performance 3. Segment information ...............................................................................................................................................................................................34 4. Revenue and expenses ........................................................................................................................................................................................... 37 5. Income tax ................................................................................................................................................................................................................... 39 6. Notes to cash flow statement .............................................................................................................................................................................. 43 7. Commitments .............................................................................................................................................................................................................. 44 Working Capital 8. Trade and other receivables and payables ..................................................................................................................................................... 45 Shareholder returns 9. Dividends ..................................................................................................................................................................................................................... 46 10. Earnings per share (‘EPS’) ................................................................................................................................................................................... 47 Capital and funding structure 11. Contributed equity ................................................................................................................................................................................................... 48 12. Reserves ...................................................................................................................................................................................................................... 49 13. Interest-bearing liabilities ..................................................................................................................................................................................... 49 Capital Investment 14. Interest-bearing receivables .............................................................................................................................................................................. 50 15. Investments.................................................................................................................................................................................................................. 53 16. Property, plant and equipment .......................................................................................................................................................................... 54 17. Intangibles .................................................................................................................................................................................................................... 56 18. Discontinued operations ...................................................................................................................................................................................... 59 Risk Management 19. Financial risk management ................................................................................................................................................................................... 61 20. Provisions .................................................................................................................................................................................................................... 67 21. Contingent liabilities ................................................................................................................................................................................................ 70 Other information 22. Remuneration of auditors .................................................................................................................................................................................... 71 23. Information relating to Centrepoint Alliance Limited (the ‘Company’) ......................................................................................... 71 24. Related party disclosures ................................................................................................................................................................................... 73 25. Share-based payment plans .............................................................................................................................................................................. 74 26. Events after reporting period ........................................................................................................................................................................... 77 Notes to the Consolidated Financial Statements Annual Report 30 June 2017 31 32 1. CORPORATE INFORMATION The consolidated financial statements of Centrepoint Alliance Limited (the ‘Company’ or the ‘Parent Entity’) and its subsidiaries (the ‘Group’) for the year ended 30 June 2017 were authorised for issue in accordance with a resolution of the Directors on 24 August 2017. The nature of the operations and principal activities of the Group are described in the Directors’ Report. Information on the Group’s structure and other related party disclosures is provided in Note 24. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The financial report is a general purpose financial report, which has been prepared on a going concern basis and in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis. For the purposes of preparing the consolidated financial statements, the Company is a for profit entity. Compliance with International Financial Reporting Standards The financial report complies with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board. New accounting standards and interpretations Accounting Standards and Interpretations issued but not yet effective The Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2017 are set out below. The Directors are still assessing the impact of the new standards for the reporting period ending 30 June 2018 onwards. Title Application date of standard Application date for Group AASB 15 Revenue from contracts with customers AASB 15 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. AASB 9 Financial Instruments (December 2014), AASB 2014-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) The final version of AASB 9 brings together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace AASB 139 Financial Instruments: Recognition and Measurement. This version adds a new expected loss impairment model and limited amendments to classification and measurement for financial assets. This version supersedes AASB 9 (December 2009) and AASB 9 (December 2010). AASB 16 Leases The Standard introduces a single accounting treatment, that is, recognition of a right-of-use asset and a lease liability. AASB16 supersedes the previous standard and related interpretations and brings in a new definition of a lease that will be used to identify whether a contract is, or contains, a lease. 1 January 2018 1 July 2018 1 January 2018 1 July 2018 1 January 2019 1 July 2019 AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 1 July 2017 AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions 1 January 2018 1 July 2018 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201733 34 3. SEGMENT INFORMATION The Group has organised its businesses and identified two reportable segments based on the nature of the products and services provided and the markets in which it operates. Internal reports are regularly reviewed by the Managing Director and Chief Executive Officer on this basis. The Group’s reportable segments are: • Licensee and Advice Services – provides Australian Financial Services Licence related services to financial advisers and their clients and mortgage broking services • Funds Management and Administration – provides investor directed portfolio services and investment management services to financial advisers and their clients Board, corporate finance, company secretarial and other administrative functions of the Company not allocated to the above reportable segments are identified as Corporate and unallocated. The Group operated only in Australia during the reporting period. A detailed review of these segments is included in the Directors’ Report. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. The Group does not currently manage its assets and liabilities on an individual segment basis. a. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company, Centrepoint Alliance Limited, and its subsidiaries as at 30 June 2017. Subsidiaries are entities that are controlled by the Company. The financial results and financial position of the subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases. A list of the Company’s controlled entities (subsidiaries) is included in Note 24. b. Significant accounting judgements, estimates and assumptions The key assumptions concerning the future and other key sources of estimation and uncertainty at the end of reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Accounting estimates with significant areas of uncertainty and critical judgements have been applied to the following; • Intangible assets & Goodwill recoverable amounts – note 17 • Impairment of loan receivables – note 14(b) • Provision for client claims – note 20 • Onerous contracts – note 20 • Recognition of deferred tax assets – note 5 c. Foreign currency Both the functional and presentation currency of Centrepoint Alliance Limited and its Australian subsidiaries is Australian dollars (A$). i. Foreign currency transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences relating to monetary items are included in the statement of comprehensive income, as exchange gains or losses, in the period when the exchange rates change. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. d. Comparative information Certain adjustments have been made to the prior year’s financial statements to enhance comparability with the current year’s financial statements. As a result, certain line items have been amended in the financial statements. Comparative amounts have been adjusted to conform to the current year’s presentation. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 Licensee & Advice Services Funds Management & Administration Lending Corporate & Unallocated Consolidated Licensee & Advice Services Funds Management & Administration Wealth Total Corporate & Unallocated Consolidated Year ended 2017 $'000 $'000 $'000 $'000 $'000 Year ended 2016 $'000 $'000 $'000 $'000 $'000 35 36 Revenue External customers Inter-segment revenue Interest income Segment revenue Inter-segment elimination Total revenue Segment results Borrowing expenses Client claims Depreciation & amortisation Impairment of assets Inter-segment expenses 23,905 7,821 31,726 - 121 - 29 - 150 24,026 7,850 31,876 (39) (4,182) (530) (134) 16,432 (0) (11) (103) - 3,318 (39) (4,193) (633) (134) 19,750 (19,750) Segment profit/(loss) before tax 14 4,033 4,047 (3,871) Inter-segment elimination Profit before tax Balance Sheet at 30 June 2017 Current assets Interest-bearing receivables Other current assets Total current assets Non-current assets 345 12,101 12,446 - 5,559 5,559 Interest-bearing receivables 216 - Other non-current assets Total non-current assets Total Assets Current liabilities Other current liabilities Total current liabilities Non-current liabilities Other non-current liabilities Total non-current liabilities Total Liabilities Net Assets 6,028 6,244 18,690 12,349 12,349 447 447 12,796 5,894 345 17,660 18,005 216 6,145 6,361 117 117 5,676 24,366 1,881 1,881 - - 1,881 3,795 14,230 14,230 447 447 14,677 9,689 67 6,000 308 6,375 (14) - (473) 4 - 25,473 25,473 1,426 8,727 10,153 35,626 3,303 3,303 395 395 3,698 31,928 31,793 6,000 458 38,251 (6,000) 32,251 (53) (4,193) (1,106) (130) - 176 - 176 345 43,133 43,478 1,642 14,872 16,514 59,992 17,533 17,533 842 842 18,375 41,617 Revenue External customers Inter-segment revenue Interest income (gross) Segment revenue Inter-segment elimination Total revenue Segment results Borrowing expenses Client claims Depreciation & amortisation Impairment of assets Inter-segment expenses 24,734 3,500 137 28,371 (366) (252) (1,737) 7 (2,473) 6,782 - 49 31,516 3,500 186 6,831 35,202 (1) - (176) - 788 (367) (252) (1,913) 7 (1,685) - 5,900 258 6,158 267 - (64) - 1,685 Segment profit before tax 2,077 3,636 5,713 (3,360) Inter-segment elimination Profit before tax Balance Sheet at 30 June 2016 Current assets Interest-bearing receivables Other current assets Total current assets Non-current assets Interest-bearing receivables Other non-current assets Total non-current assets Total Assets Current liabilities Interest bearing liabilities Other current liabilities Total current liabilities Non-current liabilities Other non-current liabilities Total non-current liabilities Total Liabilities Net Assets 208 13,004 13,212 460 6,850 7,310 20,522 86 16,738 16,824 1,499 1,499 18,323 2,199 - 2,703 2,703 - 190 190 2,893 - 830 830 - - 830 2,063 208 15,707 15,915 460 7,040 7,500 23,415 - 6,677 6,677 - 8,039 8,039 14,716 86 - 17,568 17,654 1,499 1,499 19,153 4,262 358 358 365 365 723 13,993 The Inter-segment sales are carried out on an arm’s length basis and are eliminated on consolidation. 31,516 9,400 444 41,360 (9,400) 31,960 (100) (252) (1,977) 7 - 2,353 - 2,353 208 22,384 22,592 460 15,079 15,539 38,131 86 17,926 18,012 1,864 1,864 19,876 18,255 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 37 38 4. REVENUE AND EXPENSES Interest income Interest expense Bank fees & other Interest income (net) Cost recoveries from advisers Retail and wholesale asset and service fees Other Total other revenue 2017 2016 $'000 $'000 458 (12) (41) 405 265 80 17 362 444 (62) (38) 344 538 161 261 960 Rate of Interest Average Balance Interest Average Rate p.a. Loan receivables Cash and deposits 2017 2016 2017 2016 2017 $'000 $'000 $'000 $'000 % 2016 % 692 251 23,611 11,323 83 376 77 353 11.96% 30.63% 1.59% 3.12% a. Employee benefit expenses Wages and salaries Share-based compensation expense Termination costs Total employee benefit expenses 2017 2016 $'000 $'000 18,313 17,556 136 160 327 324 18,609 18,207 Key accounting policies Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognised. i. Financial advice and product margin revenue Financial advice and product margin revenue is recorded at the time business is written as at this point all services have been provided to the customer and the right to receive the revenue is established. ii. Service revenue Revenue for services provided is recognised at the point of delivery of the service to clients. iii. Ongoing revenue Ongoing financial advice fee revenue is recorded monthly for ongoing services provided to clients. iv. Dividend and distribution income Dividend and distribution revenue is recognised when the right to receive a dividend has been established. Dividends received from associates are accounted for in accordance with the equity method of accounting. Leases i. Operating Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease assets are not capitalised and rental payments are expensed on a straight line basis over the lease term. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of the incentives is recognised as a reduction of rental expense on a straight- line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. ii. Finance Leases Finance leases, which transfer to the Group substantially all the risk and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments are allocated between finance charges and reduction in the lease liability. Finance charges are charged directly against income. Assets acquired under finance leases are capitalised and amortised over the life of the relevant lease, or where ownership is likely to be obtained on expiration of the lease, over the expected useful life of the asset. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201739 40 5. INCOME TAX a. Income tax (benefit)/expense The major components of income tax expense for the years ended 30 June 2017 and 2016 are: d. Recognised deferred tax assets and liabilities Deferred income tax relates to the following: Current income tax Current income tax charge Adjustment to current tax of prior period Deferred income tax Utilisation of previously unrecognised tax losses Adjustment to deferred tax of prior period 2017 2016 $'000 $'000 256 8 - - 867 47 (1,345) 29 Income tax expense/(benefit) reported in the income statement 264 (402) b. Amounts charged or credited directly to equity No income tax was charged directly to equity for the year ended 2017 (2016: Nil). c. Reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate The difference between income tax expense provided in the financial statements and the prima facie income tax expense is reconciled as follows: 2017 2016 Deferred tax liabilities Deferred revenue Gross deferred tax liabilities Deferred tax assets Provisions for claims Provisions for doubtful debts Provision for impairment of loan receivables Provision for leases General accruals and other costs Employee benefits Tax losses available Accounting profit before tax from continuing operations 176 2,351 Net deferred tax assets $'000 $'000 Gross deferred tax assets Statement of Financial Position Statement of Comprehensive Income 2017 2016 2017 2016 $'000 $'000 $'000 $'000 (192) (192) 1,403 1,499 78 195 563 999 4,473 9,210 9,018 (6) (6) 1,577 1,405 (78) 429 658 1,150 4,260 9,401 9,395 (186) (186) (174) 94 156 (234) (95) (151) 213 (2) (2) (827) (246) 153 429 (122) 24 292 (191) (297) At the Company's statutory income tax rate of 30% (2016: 30%) Non-deductible expenses Utilisation of previously unrecognised tax losses Adjustment in respect of current tax of prior years Adjustment in respect of deferred tax of prior years 53 203 - 8 - 705 162 (1,345) 47 29 Aggregate income tax expense/(benefit) 264 (402) The Group recognised a deferred tax asset to account for the benefit of past losses. The recognition of this asset is subject to estimation uncertainty as the utilisation of the deferred tax asset is dependent on estimates of future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences. In addition, the utilisation of certain acquired tax losses is also subject to fractioning under Australian tax legislation which effectively prescribes the rate at which such acquired tax losses may be offset against the Group’s taxable income. Given that the available fraction of the transferred losses is based on the relative market value of the Group, the determination of the available fraction is subject to some uncertainty. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 41 42 e. Unrecognised tax losses The Group has the following Australian tax losses for which no deferred tax assets are recognised at reporting date. Key accounting policies Revenue losses Capital losses Total unrecognised 2017 2016 $'000 $'000 29,609 35,953 65,562 29,609 29,097 58,706 The above losses are available indefinitely for offset against future taxable income and capital gains subject to continuing to meet relevant statutory tests. f. Tax consolidation Tax effect accounting by members of the tax consolidated group a. Measurement method adopted under AASB interpretation 1052 Tax Consolidation Accounting The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the ‘separate taxpayer within group’ approach whereby the Company measures its current and deferred taxes as if it continued to be a separately taxable entity in its own right, with adjustments for its transactions that do not give rise to a tax consequence for the Group or that have a different tax consequence at the level of the Group. The current and deferred tax amounts are measured by reference to the carrying amount of assets and liabilities in the Statement of Financial Position and their tax bases applying under the tax consolidation, this approach being consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. b. Nature of the tax funding agreement Members of the tax consolidated group have entered into a tax funding agreement. Under the funding agreement the funding of tax within the Group is based on taxable profit. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. These amounts are payable at call. Taxation i. Income Tax The income tax expense for the period represents the tax payable on the pre-tax accounting profit adjusted for changes in the deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and unused tax losses. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of profit and loss. a. Current tax Current tax assets and liabilities for the period 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, at the reporting date in the countries where the Group operates and generates taxable income. b. Deferred tax Deferred tax assets and liabilities are recognised for all deductible and taxable temporary differences at the tax rates that are expected to apply to the year when the asset is realised or liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date. Deferred income tax liabilities are recognised on 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 that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • In respect of taxable temporary difference associated with investments in subsidiaries, associates or interests in joint ventures, when the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences, carry forward tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences, unused tax credits and unused tax losses can be utilised, except: • When a deferred tax asset relating to the deductible temporary difference arises 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 • In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting 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 tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow a deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when an asset is realised or a liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 43 44 b. Reconciliation of net profit after tax to net cash provided by operating activities Net (loss)/profit after income tax from continuing operations (88) 2,753 Adjustments to reconcile profit before tax to net cash flows: 2017 2016 $'000 $'000 c. Tax consolidation legislation Centrepoint Alliance Limited and its wholly-owned Australian controlled entities implemented tax grouping under the tax consolidation legislation as of 1 July 2007. The head entity, Centrepoint Alliance Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Centrepoint Alliance Limited also recognises current tax liabilities (or assets) and deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. ii. Goods and Services Tax (‘GST’) Revenues, expenses and assets are recognised net of the amount of 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 an expense item as applicable; and • When receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, a taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, a taxation authority are classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, a taxation authority. Depreciation and amortisation Loss on disposal of non-current assets Interest received Interest expense Share based compensation expense Tax expense Working capital adjustments: (Increase)/decrease in assets: Trade and other receivables Other assets Deferred tax assets (Decrease)/increase in liabilities: Trade and other payables Provisions for employee entitlements Provision for client claims Provision for property make good Provision for onerous lease Provision for tax 1,106 31 (458) 12 136 264 334 4,058 377 (3,551) (488) (65) (120) (659) 312 1,201 2,141 30 (430) 245 471 299 (320) (439) (2) (368) 247 (2,557) (116) 1,002 (144) 2,812 6. NOTES TO CASH FLOW STATEMENT a. Reconciliation of cash & cash equivalents Net cash from operating activities from continuing operations 7. COMMITMENTS Cash at bank Total 2017 2016 $'000 $'000 31,242 31,242 10,192 10,192 Contracted operating lease expenditure The Group has entered into commercial leases on certain properties expiring at various times up to 5 years from the reporting date. The leases have varying terms, options and rent renewals. On renewal, if applicable, the terms are renegotiated. The Company has also entered into corporate services agreements for IT and telecommunications hardware and support. The agreements have terms between 1 and 3 years with options to renew at expiry of the initial term on a month to month basis. Not later than one year Later than one year but not later than five years Later than five years Total 2017 $'000 2016 $'000 2,272 2,394 - 4,666 2,300 5,207 - 7,507 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 45 46 8. TRADE AND OTHER RECEIVABLES AND PAYABLES Key accounting policies Current Commissions receivable Trade receivables Total An ageing analysis is provided in note 19(b)(iii). Current Insurance premium funding - commissions payable Insurance premium funding - premiums payable Amounts payable to financial advisers Trade payables Other creditors and accrued expenses Total 2017 2016 $'000 $'000 8,570 2,792 11,362 10,799 897 11,696 2017 2016 $'000 $'000 - - 6,292 1,182 1,635 9,109 900 22,057 8,225 1,239 2,113 34,534 a. Terms and conditions Trade and other payables are non-interest bearing. The trade payables relate principally to financial advice fees payable to advisers and insurance premiums and commissions payable to insurance brokers. Other creditors and accrued expenses relate mainly to operating expenses and are normally payable within 60 days. b. Fair value Due to the short-term nature of the majority of the current trade and other payables, their carrying value is assumed to approximate their fair value. c. Financial guarantees No guarantees have been given over trade and other payables. d. Related party payables For terms and conditions relating to related party payables refer to note 24. e. Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 19. Trade and other receivables Trade receivables, which generally have 30-90 day terms, are measured at amortised cost using the effective interest method, less provision for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for impairment is raised when there is objective evidence that the Group will not be able to collect the debt. The criterion for impairment is if the debt is 180 days overdue with no repayments or payment arrangement and/or the debtor is placed in administration or liquidation. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the impairment loss is recognised in the profit or loss within other expenses. When a trade receivable for which an impairment allowance has been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. Trade and other payables Liabilities for trade creditors and other amounts payable are carried at amortised cost and represents liabilities that arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services for goods and services provided to the Group prior to the end of the financial year. Liabilities are recognised, whether or not the liability has been billed to the economic entity. Deferred cash settlements are recognised at the present value of the outstanding consideration payable on the acquisition of an asset discounted at prevailing commercial borrowing rates. 9. DIVIDENDS Dividends payable are recognised when declared by the Company. a. Dividends paid or payable The following fully franked dividends were provided for or paid during the year: Dividends paid on ordinary shares 2017 2016 $'000 $'000 5,136 3,169 2017 2016 $'000 $'000 b. Franking credit balance Franking account balance as at the end of the financial year 23,886 26,682 The tax rate at which paid dividends were franked is 30%. Franking credits are reported on a tax paid basis. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 47 48 10. EARNINGS PER SHARE (‘EPS’) The following reflects the income used in the basic and diluted EPS computations: a. Profit used in calculating profit per share Net profit attributable to ordinary equity holders of the Company Net profit attributable to ordinary equity holders of the Company from discontinued operations Net (loss)/profit attributable to ordinary equity holders of the Company from continuing operations 2017 $'000 2016 $'000 6,544 6,632 4,262 1,509 (88) 2,753 11. CONTRIBUTED EQUITY a. Paid up capital Ordinary shares Reserved shares References 2017 $’000 2016 $’000 (i) (ii) 39,108 (4,435) 34,673 38,585 (4,435) 34,150 Number of Shares 2017 $’000 Number of Shares 2016 $’000 b. Weighted average number of shares shares shares i. Ordinary shares (issued & fully paid) Weighted average number of ordinary shares (excluding reserved shares) 148,533,913 144,969,010 Balance at start of year 155,434,080 38,585 148,300,806 36,178 Effect of dilution: Performance rights and LTI shares 10,863,470 10,250,271 Movements during the year:- Weighted average number of ordinary shares (excluding reserved shares) adjusted for the effect of dilution 159,397,383 155,219,281 Basic earnings per share from discontinued operations Basic (loss)/earnings per share from continuing operations Basic earnings per share Diluted earnings per share 4.47 (0.06) 4.41 4.11 1.04 1.90 2.94 2.75 There have been no other 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 Reserved shares (Centrepoint Alliance Employee Share Plan) As at reporting date 8,050,000 reserved shares were held by the Trust and are excluded from the calculations of earnings per share because they are treated as reserved shares under AASB 132 Financial Instruments: Presentation. Key accounting policies Earnings per share (‘EPS’) Basic EPS is calculated as net profit attributable to members of the Company, adjusted to exclude any costs of servicing equity (other than dividends) and preference dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members of the Company, adjusted for: • Costs of servicing equity (other than dividends) and preference share dividends; • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; • Divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, and adjusted for any bonus element. - Share issue - long-term incentive plan 1,498,889 - Share issue - dividend reinvestment plan - 523 - 2,750,000 4,383,274 935 1,472 On issue at end of year 156,932,969 39,108 155,434,080 38,585 ii. Reserved shares Balance at start of year (8,050,000) (4,435) (5,300,000) (3,500) Movements during the year:- - Share issue - long-term incentive plan - - (2,750,000) (935) On issue at end of year (8,050,000) (4,435) (8,050,000) (4,435) Total contributed equity 148,882,969 34,673 147,384,080 34,150 b. Capital management The Company’s capital is currently only comprised of shareholder funds. When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Subsequent to balance date the Directors declared a final dividend in respect of the 2017 financial year of 1.2 cents per ordinary share amounting to $1,883,196 (2016: $1,865,209) and a special dividend in respect of the 2017 financial year of 7.0 cents per ordinary share amounting to $10,985,308 (2016: Nil). No provision has been recognised as at 30 June 2017 Key accounting policies Contributed Equity Ordinary shares are classified as equity and recognised at the fair value of the consideration received by the Company. Any transaction cost arising on the issue of ordinary shares is recognised, net of tax, directly in equity as a reduction of the share proceeds. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 49 50 12. RESERVES Employee equity benefits reserve Dividend reserve Total a. Employee equity benefits reserve Balance at start of year Value of share-based payments provided or which vested during the year Balance at end of year 2017 2016 $'000 $'000 1,224 14,465 15,689 1,088 14,810 15,898 2017 2016 $'000 $'000 1,088 136 1,224 761 327 1,088 The employee equity benefits reserve is used to record the value of share-based payments provided to employees, including KMP, as part of their remuneration. During the current period 1,498,889 of performance rights issued in a prior financial year vested and were issued to the Managing Director & Chief Executive Officer and other senior executives of the Group as follows: a. Fair value of interest-bearing liabilities Interest-bearing liabilities are carried at amortised cost. The carrying value of borrowings approximates their fair value. b. Financial risk Refer to note 19 for interest rate risk and liquidity risk. There is no exchange rate risk as the interest-bearing liabilities are documented and payable in Australian dollars. Key accounting policies Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs as well as any discount or premium on settlement. Borrowing costs are recognised as an expense when incurred. They include interest on bank overdrafts, bills of exchange and other borrowings. The Group does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with these assets would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). Shares No. of shares Vesting period Issue price Fair value at issue date 14. INTEREST-BEARING RECEIVABLES 650,000 848,889 3 years 3 years $0.360 $0.340 $0.320 $0.302 Managing Director Senior Executives b. Dividend reserve Balance at start of year Dividends paid Transfer from current year profits Balance at end of year 13. INTEREST-BEARING LIABILITIES Current Receivables finance facility - Insurance Premium Funding Equipment hire and software finance liabilities Total 2017 2016 $'000 $'000 14,810 (5,136) 4,791 17,979 (3,169) - 14,465 14,810 2017 2016 $'000 $'000 - - - 83,987 26 84,013 Current Loan receivables - Insurance Premium Funding Provision for impairment - collective Provision for impairment - specific Loan receivables - Investment advisers Provision for impairment - specific Total current interest-bearing receivables Non-current Loan receivables - Investment advisers Convertible loans Provision for impairment - specific Total non-current interest-bearing receivables 2017 $'000 2016 $'000 - - - - 435 (90) 345 345 711 1,426 (495) 1,642 126,160 (245) (275) 125,640 328 (120) 208 125,848 891 - (431) 460 a. Terms and conditions Loans due from investment advisers have terms ranging from 1 to 5 years and varying interest terms at or above commercial rates. The majority of these loans were secured through charges over assets, by guarantees, or by retention of financial advice fees. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 51 52 b. Impairment of loan receivables Impairment expense amounts are included in the Statement of Profit or Loss and Comprehensive Income under ‘Other general and administrative expenses’. Allowance for Impairment Opening Balance Movement in the allowance is as follows Adjustment for disposal of subsidiary Allowance for impairment Bad debts written-off (gross) Closing balance Receivables impairment expense Impairment expense Bad debts (recovery)/written-off directly Amounts recovered against debts previously written-off Total expense 2017 $'000 2016 $'000 1,071 1,286 (522) 36 - 585 36 98 - 134 - 1,094 (1,309) 1,071 1,101 (7) (492) 602 All interest-bearing receivables are reviewed and graded according to the anticipated level of credit risk. The classification adopted is described below. Non-Accrual Loans Total of loan receivables with allowance Specific allowance for impairment Non-accrual loans included in loan receivables (net) Interest foregone on non accrual loans 2017 $'000 2016 $'000 - - - - 1,373 (275) 1,098 41 “Non-accrual loans” are loan receivables where the debt has been written down to recoverable value. Once classified as a non-accrual loan, interest accruing on Insurance Premium Funding loans were not brought to account as income unless actually received. An ageing analysis of loan receivables is provided in note 19(b)(iii). c. Related party receivables There are currently no related party receivables. d. Fair value and risk management The carrying value of interest-bearing receivables approximates their fair value. Credit risk, interest rate risk and currency risk is addressed in note 19. The Group subscribed to $5m in a convertible loan in Australian Life Development Pty Ltd (ALD) that will provide seed funding to the ALD business. The first advance of $1.25m was made in February 2017 with the remaining amount of $3.75m transferred in July 2017 on achievement of certain milestones. Bad debts are written-off when identified. If a provision for impairment has been recognised in relation to a loan, write-offs for bad debts are made against the provision. If no provision for impairment has previously been recognised, write-offs for bad debts are recognised as expenses in profit or loss. Convertible notes Convertible notes are initially recognised at cost, including acquisition charges associated with the loan. Subsequent to initial recognition, the convertible loans are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate. Impairment The Group assesses at each reporting date, whether there is objective evidence that a financial asset or group of financial assets are impaired. The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. If a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. As part of the convertible note arrangements, the Group has also been granted four call options of $1.75m each (totalling $7.0m) to purchase shares which expire by January 2020. Based on results achieved, a potential equity interest of up to 80% by the end of the expiration period could materialise. e. Convertible Notes Australian Life Development (ALD) The Group subscribed to $5m in a convertible loan in Australian Life Development Pty Ltd (ALD) that will provide seed funding to the ALD business. The first advance of $1.25m was made in February 2017 with the remaining amount of $3.75m transferred in July 2017 on achievement of certain milestones. As part of the convertible note arrangements, the Group has also been granted four call options of $1.75m each (totalling $7.0m) to purchase shares which expire by January 2020. Based on results achieved, a potential equity interest of up to 80% by the end of the expiration period could materialise. Key accounting policies Loan receivables All loan receivables are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest rate method. i. Financial advisers These are comprised of loans to advisers for terms varying from 1 to 5 years and attract interest at market rates. The majority of these loans are secured through charges over assets, by guarantees, or by retention of financial advice fees. ii. Impairment of loan receivables Impairment of a loan is recognised when there is objective evidence that not all the principal and interest can be collected in accordance with the terms of the loan agreement. Impairment is assessed by specific identification in relation to individual loans and by estimation of expected losses in relation to loan portfolios where specific identification is impracticable. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201753 54 15. INVESTMENTS 16. PROPERTY, PLANT AND EQUIPMENT Investments Total investments 2017 2016 $'000 $'000 1,632 1,632 36 36 R Financial Educators (RFE) In October 2016, an investment of $1.5m was made in RFE which represents a 15% stake of equity. An investment in Ginger Group was also made during the year for $0.1m which increased the Group’s equity interest to 50%. Key accounting policies Investments and other financial assets Investments are initially recognised at cost, including acquisition charges associated with the investment. Subsequent to initial recognition, investments are measured at fair value. Gains or losses arising from changes in the fair value of investments are recognised in the Statement of Profit or Loss and Comprehensive Income. For investments that are actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices at the close of business on the reporting date. Financial assets are stated at cost where there is no quoted market price and the fair value cannot be reliably measured. Financial assets (excluding available for sale investments) are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, the asset’s carrying amount is written down to the asset’s estimated recoverable amount. Financial assets and liabilities are offset and the net amount is reported in the Statement of Financial Position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis. Cost At 1 July 2015 Additions Disposals At 30 June 2016 Additions Disposals At 30 June 2017 Depreciation and impairment At 1 July 2015 Depreciation charge for the year Disposals At 30 June 2016 Depreciation charge for the year Disposals At 30 June 2017 Net carrying value At 30 June 2017 At 30 June 2016 Leasehold Improvements Plant & Equipment Total $’000 $’000 $’000 1,677 364 (39) 2,002 - (16) 1,986 616 710 (79) 1,247 275 - 1,522 464 755 3,206 4,883 49 (140) 3,115 213 (542) 413 (179) 5,117 213 (558) 2,786 4,772 2,187 263 (21) 2,429 186 (341) 2,274 512 686 2,803 973 (100) 3,676 461 (341) 3,796 976 1,441 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201755 56 Key accounting policies Plant and equipment At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Plant and equipment is carried at cost, net of accumulated depreciation and any accumulated impairment losses. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised and the asset is written down to its recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, 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. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined by reference to the cash-generating unit to which the asset belongs. Depreciation is calculated on a diminishing value basis over the estimated useful lives of the assets as follows: Plant and equipment Leasehold improvements Motor vehicles De-recognition 2 – 7 years Lease term 5 years An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Statement of Profit or Loss and Comprehensive Income when the asset is derecognised. Residual values, useful lives and methods of depreciation of plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. 17. INTANGIBLE ASSETS a. Reconciliation of carrying amounts at the beginning and end of the year Goodwill Software Network & Client Lists Total $'000 $'000 $'000 $'000 Period ending 30 June 2017 At 1 July 2016 net of accumulated amortisation and impairment Disposals Additions Amortisation 2,132 (1,176) - - 337 (141) 15 (88) 1,362 - 347 (557) 3,831 (1,317) 362 (645) At 30 June 2017 net of accumulated amortisation and impairment 956 123 1,152 2,231 At 30 June 2017 Cost Accumulated amortisation and impairment Net carrying value Year ending 30 June 2016 At 1 July 2015 net of accumulated amortisation and impairment Additions Amortisation At 30 June 2016 net of accumulated amortisation and impairment At 30 June 2016 Cost Accumulated amortisation and impairment Net carrying value 1,209 (253) 956 2,132 - - 3,786 10,372 (3,663) (9,220) 123 1,152 774 103 (540) 2,039 - (677) 15,367 (13,136) 2,231 4,945 103 (1,217) 2,132 337 1,362 3,831 2,385 (253) 2,132 3,913 (3,576) 337 10,025 (8,663) 1,362 16,323 (12,492) 3,831 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201757 58 b. Description of the Group’s intangible assets i. Goodwill Cash generating units (‘CGU’) The Premium Funding business was sold during the year, resulting in the release of goodwill of $1,176,000. Goodwill was also created during 2012 on the acquisitions of the externally owned interests in Ventura Investment Management Ltd of $93,000 and in Centrepoint Alliance Lending Pty Ltd (previously Centrepoint Lending Solutions Pty Ltd) of $863,000. Other CGUs include Professional Investment Services Pty Ltd and Investment Diversity Pty Limited. Goodwill is tested on an annual basis and when there is an indication of potential impairment. ii. Networks and client lists Intangible assets in the form of adviser network businesses and adviser client lists acquired to expand the adviser network. These had a total book value at 30 June 2017 of $1,152,000 (2016: $1,362,000). iii. Software The Group has developed or acquired software, which are being amortised over their expected useful lives. c. Impairment tests for goodwill and intangibles i. Goodwill Goodwill is tested annually for impairment by calculation of value in use at the CGU level. As there were no indicators of impairment in any CGUs and goodwill only exists within the Centrepoint Alliance Lending Pty Ltd CGU and Ventura Investment Management Limited CGU, impairment testing was only performed for these 2 CGUs. Management is of the view that core assumptions such as cost of equity and terminal growth rate are the same across these 2 CGUs. Value in use is calculated using discounted cash flow projections for five years and terminal values prepared from current forecasts using the following assumptions: • Terminal growth rate 1.00% (2016: 2.50%) • Cost of equity: 12.35% (2016: 12.35%) The testing resulted in no impairment being required. The value in use model is not materially sensitive to any of the above assumptions. Sensitivity suggests that no reasonable change in any assumptions gives rise to impairment. No indicators of impairment are noted for the remaining CGUs. ii. Networks and client lists Adviser networks and client lists are regularly tested for impairment by calculation of value in use when indicators of potential impairment arises. Value in use is calculated using discounted cash flow projections associated with the applicable asset using the following assumptions: • The number of revenue generating advisers and clients declines to nil over the remaining useful life of 4 years. • Cash flows associated with remaining advisers and clients are inflated only at CPI with no growth assumed. • Cost of equity: 12.35% (2016: 12.35%) The testing resulted in no impairment losses (2016: Nil). The value in use calculations are most sensitive to the remaining useful life assumption. Sensitivity analysis indicates that a decrease in the assumed useful life of 1 year would have resulted in an impairment expense of $86,463 (2016: $248,614). iii. Software The value of the developed or acquired software of the Group is amortised on a straight line basis over a 2.5 year period, which the directors assess as the intangible asset’s useful life. No software is considered to be impaired. Key accounting policies Goodwill and intangibles i. Goodwill Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment at least annually either individually or at the cash-generating unit level. The assessment of indefinite life of an intangible asset is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. The estimated useful lives in the current and comparative periods are as follows Software 2.5 years Network and Client Lists 5 – 15 years Impairment of non-financial assets other than goodwill At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Non-financial assets are carried at cost, net of accumulated depreciation and any accumulated impairment losses. The carrying values of non-financial assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised and the asset is written down to its recoverable amount. The recoverable amount of a non-financial asset is the greater of fair value less costs to sell and value in use. In assessing value in use, 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. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. As at acquisition date, any goodwill acquired is allocated to each of the cash-generating units which are expected to benefit from the acquisition. 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 within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash- generating unit retained. Impairment losses recognised are not subsequently reversed. ii. Intangibles Intangible assets acquired separately 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 losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in an accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit or Loss and Comprehensive Income. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201718. DISCONTINUED OPERATIONS On 30 December 2016, the Group completed the sale of Centrepoint Alliance Premium Funding (CAPF) at which point it met the criteria for being classified as discontinued operations. CAPF was a separate operating and reportable segment of the Group in prior reporting periods (refer to Note 3 Segment information). This operating segment was not previously classified as held for sale or as a discontinued operation. The comparative Statements of Comprehensive Income of the Group have been restated to show discontinued operations separately from continuing operations. a. Analysis of profit for the year from discontinued operations The results set out below represent the discontinued operations of CAPF. Net operating income Total expenses Profit before income tax Income tax expense Net profit from discontinued operations Gain on sale of discontinued operations before tax Income tax benefit associated with sale Gain on sale of discontinued operations after tax Total net profit from discontinued operations Attribute to owners Non-controlling interests 2017 $'000 2016 $'000 5,285 (3,019) 2,266 (669) 1,597 5,035 - 5,035 6,632 6,632 - 9,110 (6,899) 2,211 (702) 1,509 - - - 1,509 1,509 - 59 60 b. Effect of disposal on the financial position of the Group The assets and liabilities of CAPF discontinued operations removed from the Group’s balance sheet at the date that control was lost (30 December 2016) is set out below. In line with accounting standard requirements comparative information of the Group’s balance sheet for CAPF has not been restated. ASSETS Cash and cash equivalents Trade and Other Receivables Interest-Bearing Receivables Other Assets Property, Plant & Equipment Intangible Assets Deferred Tax Asset TOTAL ASSETS LIABILITIES Trade and other payables Interest-Bearing Liabilities Provisions TOTAL LIABILITIES NET ASSETS EQUITY Contributed Equity Retained earnings TOTAL EQUITY c. Cash flows provided by/(used) from discontinued operations Net cash flows provided by operating activities Net cash flows used in investing activities Net cash flows used in financing activities Net change in cash and cash equivalents Cash & cash equivalents at the beginning of the year Cash & cash equivalents at the end of the period 2017 $'000 2016 $'000 7,291 122 143,088 4,151 168 145 390 29 - 125,701 3,455 144 121 408 155,355 129,858 15,458 125,000 607 141,065 26,279 83,988 791 111,058 14,290 18,800 12,500 1,790 14,290 2017 $'000 13,365 (142) (6,000) 7,223 29 7,252 12,500 6,300 18,800 2016 $'000 4,282 (35) (4,350) (58) 87 29 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201761 62 19. FINANCIAL RISK MANAGEMENT iii. Ageing analysis At reporting date, the ageing analysis of receivables is as follows: Ageing Analysis Total 0-30 Days 31-60 Days 2017 61-90 Days PDNI 61-90 Days +91 Days +91 Days CI PDNI CI $'000 $'000 $'000 $'000 $'000 $'000 $'000 Trade receivables 11,362 11,066 Loan receivables - Adviser 1,146 157 266 4 (28) 4 - - 58 486 - 495 Ageing Analysis Total 0-30 Days 31-60 Days 2016 61-90 Days PDNI 61-90 Days +91 Days +91 Days CI PDNI CI $'000 $'000 $'000 $'000 $'000 $'000 $'000 Trade receivables 11,696 11,094 Loan receivables - IPF 126,160 124,076 Loan receivables - Adviser 1,219 167 31 744 19 141 274 14 - 256 - 430 232 588 - 578 431 * Past due not impaired (PDNI) ** Considered impaired (CI) No further credit is provided to PDNI debtors until full repayment of overdue amounts is made. Payment terms for some PDNI debtors have been re-negotiated to aid recovery. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full. Impairment analysis is included at Note 14. Outlined below are the requirements for collateral, credit quality and concentration levels for the various categories of receivables. i. Trade and other receivables The Group does not have any significant credit risk exposure to any single counter-party or any group of counter-parties having similar characteristics. Trade and other receivables relate mainly to financial advice revenue and product margins earned as a financial dealer group and the majority is receivable from major financial institutions with high credit ratings assigned by international credit rating agencies. The Group does not require collateral in respect of trade and other receivables. A risk assessment process was used for new loan applications, which ranges from credit background checks to formal reviews by a credit committee and, where appropriate, the obtaining of guarantees from directors and/or related entities. Each new loan was assessed in terms of total exposure risk to the customer concerned, pre-determined limits were applied to ensure appropriate analysis and approval procedures were applied. Concentration levels of loan assets were monitored continuously to ensure that there are no significant concentrations of credit risk within the Group. Loans were provided to a large number of customers who are generally not related. ii. Loans receivable – investment advisers Loans to advisers have terms ranging from 1 to 5 years. Full credit submissions are prepared and reviewed and security is usually obtained in the form of charges over assets or guarantees and financial advice fees payable. In some cases repayments are deducted from weekly financial advice fee payments. a. Risk exposures and responses The Group’s principal financial instruments comprise receivables, payables, bank and other loans, bank overdrafts, finance leases, cash and short-term deposits. The Group manages its exposure to key financial risks 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 main risks arising from the Group’s financial instruments are credit risk, interest rate risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and assessments of market forecasts for interest rates. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, and liquidity risk is monitored through the development of regular short and long-term cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Group Audit, Risk and Compliance Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below. b. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, interest- bearing receivables and trade and other receivables. The Group's exposure to credit risk arises from potential default of the counter-party, with a maximum exposure equal to the carrying amount of these assets (as outlined in each applicable note). The Group’s maximum exposure to credit risk for interest-bearing receivables and trade receivables at the reporting date is limited to Australia. The Group trades only with recognised, creditworthy third parties and the majority of the Group’s cash balances are held with National Australia Bank Limited and Westpac Banking Corporation. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, all receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is monitored and managed. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201763 64 c. Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations as disclosed below. The Group adopts a policy to minimise exposure to interest rate risk by depositing excess funds in interest-bearing accounts at a variable rate or with short date maturities. d). Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of instruments such as bank overdrafts, bank loans, subordinated debt, preference shares, finance leases and other committed available credit lines from time to time as required. At reporting date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk: 2017 Fixed Fixed Variable Weighted average effective interest rate ≤ 6 Months > 6 Months % $'000 $'000 $'000 1.59% 24,517 - 6,725 11.96% - 182 - 24,699 24,699 2016 964 1,017 1,981 1,981 - - 6,725 6,725 Weighted average effective interest rate Fixed Fixed Variable ≤ 6 Months > 6 Months % $'000 $'000 $'000 3.12% 125 - 10,067 Financial Assets Cash and term deposits Loan receivables - investment advisers Security deposits Net Exposure Financial Assets Cash and term deposits Loan receivables - insurance premium funding 10.97% 51,022 75,138 Loan receivables - investment advisers Security deposits 15.31% 240 - - 979 1,778 - - - 51,387 77,895 10,067 Financial Liabilities Receivables finance facility - insurance premium funding 3.25% 83,987 Equipment hire and software finance 3.25% 26 84,013 - - - - - - Net Exposure (32,626) 77,895 10,067 The Group’s objective is to minimise exposure to adverse risk and therefore it continuously analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. The Group’s policy is to match debt with the nature and term of the underlying assets. At reporting date over 99% of the Group’s financial assets mature in less than 12 months. The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial liabilities. The respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing as at reporting date. i. Maturity analysis of financial assets and liability based on management’s expectation: The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in ongoing operations such as property, plant, equipment and investments in working capital e.g. trade receivables. These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, the Group has established reporting requirements which monitor maturity profiles and anticipated cash flows from Group assets and liabilities. The tables below are based on the carrying values at reporting date and includes future interest receivable or payable. Financial Assets ≤ 6 Months 6-12 Months 1-5 Years Total $’000 $'000 $'000 $'000 2017 Cash and term deposits Trade and commissions receivable Loan receivables - investment advisers Security deposits Financial Liabilities Trade and other payables Other liabilities 31,242 11,234 181 5 42,662 9,109 16 9,125 - 139 254 - 393 - 16 16 - (11) 711 1,017 1,717 - 252 252 31,242 11,362 1,146 1,022 44,772 9,109 284 9,393 Net Maturity 33,537 377 1,465 35,379 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201765 66 Financial Assets ≤ 6 Months 6-12 Months 1-5 Years Total $’000 $'000 $'000 $'000 2016 Cash and term deposits Trade and commissions receivable Loan receivables - insurance premium funding Loan receivables - investment advisers Security deposits Financial Liabilities Trade and other payables Other liabilities Receivables finance facility Equipment hire and software finance Net Maturity 10,192 11,450 51,022 245 730 - 245 75,138 88 - 73,639 75,471 34,534 91 37,912 26 72,563 1,076 - 91 46,075 - 46,166 29,305 - 2 - 886 1,048 1,936 - 284 - - 284 1,652 10,192 11,697 126,160 1,219 1,778 151,046 34,534 466 83,987 26 119,013 32,033 e. Foreign currency risk The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. f. Market and price risk The Group’s exposure to commodity and equity securities price risk is significant because a portion of the Group’s net advice and investment products revenue is governed by the amount of funds under management or under advice, which is impacted by the market price of equities and other investment assets. This risk is effectively a feature of the financial advice industry and cannot easily be managed. However, the increasing proportion of fee for service revenue and the ability of the Group to adjust resource inputs in relation to market movements decreases the level of risk. g. Fair value of financial instruments The Group uses various methods in estimating the fair value of a financial instrument. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The methods comprise: Level 1 – the fair value is calculated using quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 – the fair value is estimated using inputs other than quoted (unadjusted) market prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. Quoted (unadjusted) market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The fair value of listed equity investments are based on quoted market prices. For financial instruments not quoted in active markets, the Group uses valuation techniques such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in their hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There were no transfers between categories during the year. The following methods and assumptions are used to determine the net fair values of financial assets and liabilities. Cash and Cash equivalents: Fair value approximates the carrying amount as these assets are receivable on demand or short-term in nature. Interest-Bearing Receivables: For fixed rate loans, excluding impaired loans, fair value is determined by discounting expected future cash flows by the RBA Indicator Lending Rate for small business loans adjusted using quoted BBSW interest rates to reflect the average remaining term of the loans as at 30 June 2017. The calculated fair value using this Level 3 methodology approximates carrying value. Increasing the interest rate used to discount future cash flows by 1% would reduce fair value by less than $11,460 (2016: $377,000). For variable rate loans, excluding impaired loans, fair value approximates the carrying amount as they are repriced frequently. Interest-Bearing Liabilities: The carrying values of variable rate interest-bearing liabilities approximate their fair value as they are short-term in nature and reprice frequently. Key accounting policies Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position are stated at nominal value and comprise cash at bank and in hand and short-term deposits with a maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and short- term deposits as defined above, net of outstanding bank overdrafts. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 67 68 20. PROVISIONS Current Provision for adviser client claims Provision for employee entitlements Property make good Onerous lease Total Non-current Provision for adviser client claims Provision for employee entitlements Property make good Onerous lease Total 2017 2016 $'000 $'000 4,589 3,093 83 255 8,020 88 182 232 88 590 4,743 3,057 83 429 8,312 - 706 352 572 1,630 2017 2016 $'000 $'000 a. Movement in provision for adviser client claims Opening balance 4,743 7,300 b. Movement in provision for employee benefits Opening balance Movement in the provision is as follows: Provision for year Reduction resulting from re-measurement without cost Leave and other employee benefits paid Closing balance c. Movement in provision for property make good Opening balance Movement in the provision is as follows: Provision for year Disposal of subsidiary Closing balance Movement in the provision is as follows: Claims provisioning expense during the period Claims settlements & fees paid (net of recoveries)* Closing balance * Movement excludes $43k (2016: $78k) from claims arising from advice post 30 June 2010. 4,150 (4,216) 4,677 174 (2,731) 4,743 d. Movement in provision for onerous lease Opening balance Movement in the provision is as follows: Provision for adviser client claims The provision for adviser client claims is the estimated cost of resolving claims from clients arising from financial advice provided prior to 1 July 2010 by Authorised Representatives of the Group. The Group makes a specific provision for claims arising from advice provided prior to 1 July 2010. During the financial period, the Group changed the methodology used to estimate the provision. In prior periods, a general provision was maintained based on an actuarial model of past claims, reviewed annually by independent actuaries. A specific provision has been established based on the best estimate of all open claims and an allowance for claims not reported. The change in methodology was adopted as the number of open claims and the incidence of new claims is expected to continue to reduce over time. The statute of limitations provides a general limitation period of 6 years from the time a cause of action arises to bring legal proceedings and this has the impact of reducing and ultimately diminishing the value of new claims. The impact of the change in methodology was an increase in the claims provision of $3,698,300. Claims are expected to be reported and resolved by approximately 2021. Resolution is dependent on the circumstances of each claim and the level of complexity involved. Any costs are offset against the provision as incurred. Provision for year Onerous lease unwind Sub-lease reduction Closing balance Provision for onerous lease contract In the previous financial year, the Gold Coast office was consolidated from two floors to one and an onerous contract was created for the unused space. This resulted in the creation of an onerous lease provision for $1,001,000. During the year, management secured a tenant to sub-lease the unused space in the Gold Coast office for the remaining duration of the lease, being to October 2018. As a result, the onerous lease provision was reduced by $134,667 in the current period and this benefit was included in property expenses. The remaining amount of the onerous lease provision is split between a current provision of $254,882 and non-current provision of $87,521. 2017 2016 $'000 $'000 3,763 3,515 2,954 - (3,442) 3,275 2,885 (133) (2,504) 3,763 2017 2016 $'000 $'000 435 551 - (120) 315 (116) - 435 2017 2016 $'000 $'000 1,001 - - (523) (135) 343 1,001 - - 1,001 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 69 70 21. CONTINGENT LIABILITIES The nature of the financial advice business is such that from time to time advice given by the Group or its Authorised Representatives results in claims by clients for compensation. The Group has provided for claims arising from advice provided prior to 1 July 2010 based on a specific provision as described in Note 20. At the date of this report the Directors are not aware of any other material contingent claims in relation to advice provided after 1 July 2010. There were no other contingent liabilities at reporting date. Key accounting policies Provisions and employee benefits i. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. 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. Provisions are measured at the present value of Management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. 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. The Company recognises a liability to make cash or non-cash distributions to equity holders of the parent when the distribution is authorised and the distribution is no longer at the discretion of the Company. A corresponding amount is recognised directly in equity. A provision for claims is recognised when client claims received by advisers are notified to the Company or the Group expects to incur liabilities in the future as a result of past advice given. It is measured at the present value of the future costs that the Group expects to incur to settle the claims. ii. Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long-service leave. Liabilities for wages and salaries, including non-monetary benefits, annual leave, and other benefits, expected to be settled wholly within 12 months of the reporting date are measured at the amounts due to be paid when the liability is settled. The liability for long-service leave is recognised and measured as the present value of expected future payments 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 the expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. iii. Make good costs for leased property A provision for make good costs for leased property is recognised when a make good obligation exists in the lease contracts. The provision is the best estimate of the present value of the expenditure required to settle the make good obligation at the reporting date. Future make good costs are reviewed annually and any changes are reflected in the present value of the make good provision at the end of the reporting period. The unwinding of the discounting is recognised as a finance cost. iv. Onerous contracts Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201722. REMUNERATION OF AUDITORS The primary auditor of Centrepoint Alliance Limited was Deloitte Touche Tohmatsu. Amounts received or due and receivable by Deloitte Touche Tohmatsu Audit of the financial report of the entity and other entities in the consolidated group 224,074 232,451 2017 2016 $'000 $'000 Other services in relation to the entity and other entities in the consolidated group Taxation services - Deloitte Touche Tohmatsu Other regulatory audit services Amounts received or due and receivable by other audit firms for: Audit fees - managed funds & international businesses 96,598 61,132 381,804 53,220 53,220 87,108 47,554 367,113 79,241 79,241 71 72 23. INFORMATION RELATING TO CENTREPOINT ALLIANCE LIMITED (THE ‘COMPANY’) The Consolidated Financial Statements of the Company are: Current assets Non-current assets Current liabilities Net Assets Issued capital Employee equity benefits reserve Dividend reserve Accumulated profit Total Shareholder Equity Net profit after tax of the parent entity Total comprehensive income of the parent entity 2017 2016 $'000 $'000 54,939 8,370 (39) 63,270 37,934 - 13,971 11,365 63,270 11,285 11,285 41,195 17,144 (373) 57,966 37,411 1,089 14,594 4,872 57,966 4,791 4,791 At reporting date the Company has given nil guarantees to external parties (2016: $45,804). Contractual operating lease expenditure commitments of the Company are as follows: Not later than one year Later than one year but not later than five years Total 2017 2016 $'000 $'000 1,091 740 1,831 1,031 1,831 2,862 The Company has various corporate services agreements for IT and telecommunications hardware and support. The agreements have terms between 1 and 3 years with options to renew at expiry of the initial term on a month to month basis. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 73 74 24. RELATED PARTY DISCLOSURES a. Information relating to subsidiaries Name Centrepoint Funding Country of Incorporation Ownership Interest 2017 2016 Principal Activity Centrepoint Alliance Lending Pty Ltd Australia 100% 100% Mortgage broker / aggregator Centrepoint Alliance Premium Funding Pty Ltd Australia Alliance Premium Funding Limited New Zealand - - 100% Insurance premium funding 100% Insurance premium funding Licensee & Advice Services Alliance Wealth Pty Ltd Australia 100% 100% Financial advice Associated Advisory Practices Pty Ltd Australia 100% 100% AFSL licensee support services xseedwealth pty ltd (formally Alliance Wealth & Protection Pty Ltd) Australia 100% 100% Salaried advice Professional Investment Services Pty Ltd Australia 100% 100% Financial advice Funds Management & Administration Investment Diversity Pty Ltd Australia 100% 100% Packages investment platforms Ventura Investment Management Ltd Australia 100% 100% Packages managed funds Corporate Centrepoint Alliance Services Pty Ltd Australia 100% 100% Trustee – Employee share plan Centrepoint Services Pty Ltd Australia 100% 100% Service company Centrepoint Wealth Pty Ltd Australia 100% 100% Holding company De Run Securities Pty Ltd Australia 56% 56% Financial services Imagine Your Lifestyle Pty Ltd Australia 100% 100% Dormant c. Terms and conditions of transactions with related parties other than KMP Sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 30 June 2017, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (2016: Nil). An impairment assessment is undertaken each financial year through examination of the financial position of related parties and the market in which a related party operates. d. Transactions with key management personnel The aggregate compensation made to Directors and other members of key management personnel of the Company and the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Termination/resignation benefits Total compensation 2017 2016 $'000 $'000 2,217 111 - - - 1,572 149 6 361 - 2,328 2,088 25. SHARE BASED PAYMENT PLANS a. Types of share-based payment plans i. Performance Rights Performance rights are rights that can be converted to fully paid ordinary shares in the Company for no monetary consideration subject to specific performance criteria, as determined by the Board for each issue of rights, being achieved. Professional Accountants Pty Ltd Australia 100% 100% Loans to adviser network ii. Centrepoint Alliance Employee Share Plan (‘CAESP’) Advisers Worldwide (NZ) Limited** New Zealand 100% 100% Dormant Ausiwi Limited** New Zealand 100% 100% Dormant Professional Investment Holdings (NZ) Limited** New Zealand Professional Investment Services (NZ) Limited** New Zealand Professional Lending Services Limited** New Zealand R Financial Educators Pty Ltd Australia 43% 43% 38% 15% Ginger Group Financial Services Limited New Zealand 50% ** Currently under Solvent Voluntary Liquidation 43% Dormant 43% Dormant 38% Dormant Business partnering/ Financial advice Financial advice - - b. Ultimate parent The ultimate holding company is Centrepoint Alliance Limited, a company incorporated and domiciled in Australia. The purpose of the CAESP is to provide employees with an opportunity to acquire a financial interest in the Company, which will align their interests more closely with shareholders and provide a greater incentive to focus on the Company’s longer-term goals. b. Recognised share-based payment expenses Expense arising from equity-settled share-based payment transactions under the CAESP Expense arising from performance rights Total 2017 2016 $'000 $'000 659 (523) 136 377 (50) 327 Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 201775 76 c. Movements during the year All current option awards are fully vested at reporting date. There are 8,050,000 shares which are held within the CAESP which are not yet vested. The Board approved the vesting of 1,498,889 of 3,566,666 performance rights which were issued during the year. Key accounting policies Share-based payment transactions i. Equity settled transactions: 2017 2016 No WAEP* No WAEP* The Group provides benefits to its employees, including key management personnel, in the form of share-based payments, whereby employees render services in exchange for rights over shares (equity-settled transactions). i. Shares under the CAESP Outstanding at beginning of period 10,885,001 0.19 5,585,001 New share awards - - 5,300,000 Forfeited during the period (2,835,001) 0.21 - Outstanding at end of period 8,050,000 0.18 10,885,001 0.17 0.21 - 0.19 ii. Options under CAESOP Outstanding at beginning of period 400,000 0.40 400,000 0.40 Issued during the period Expired during the period Outstanding at end of period iii. Performance rights Outstanding at beginning of period Issued during the period Vested during the period Expired during the period Outstanding at end of period - (400,000) - 3,566,666 3,750,000 (1,498,889) (2,067,777) 3,750,000 - - - - - - - - - - - - 400,000 0.40 3,700,000 - - (133,334) 3,566,666 - - - - - d. Option pricing model The fair value of the shares issued under the CAESP, the options issued under the CAESOP and the performance rights are estimated as at the date of allocation using the Black-Scholes Model, taking into account the terms and conditions upon which they were granted and market based inputs as at the grant date. Current equity settled transactions are: • Performance rights issued in August 2013; • The Centrepoint Alliance Employee Share Option Plan, which provides benefits to employees by invitation from the Board; and • The Centrepoint Alliance Employee Share Plan, which provides benefits to employees by invitation from the Board. 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. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Centrepoint Alliance 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 become fully entitled to the award (vesting date). At each subsequent reporting date until vesting, the cumulative charge to the Statement of Profit or Loss and Comprehensive Income is the product of: i. the grant date fair value of the award; ii. the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of non-market performance conditions being met; and iii. the expired portion of the vesting period. The charge to the Statement of Comprehensive Income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. If the terms of an equity-settled award are modified, the minimum expense recognised is the expense had the terms not been modified. An additional 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 the modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Shares in the Group reacquired on market and held by the Employee Share Plan Trust are classified and disclosed as reserved shares and deducted from equity. ii. Reserved shares The Group’s own equity instruments, which are reacquired for later use in employee share-based payment arrangements (reserved shares), are deducted from equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Notes to the Consolidated Financial Statements Annual Report 30 June 2017Notes to the Consolidated Financial Statements Annual Report 30 June 2017 Notes to the Consolidated Financial Statements Annual Report 30 June 2017 77 Directors' Declaration Annual Report 30 June 2017 78 26. EVENTS AFTER THE REPORTING PERIOD The following matters have occurred subsequent to the year end: On 6 July 2017, the Group subscribed to a convertible loan of $1m in RFE which represents a 10% stake in equity if converted. On 7 July 2017, the Group paid the balance of the convertible loan for ALD of $3.75m. On 24 August 2017, the Directors of Centrepoint Alliance Limited declared a final dividend on ordinary shares in respect of the 2017 financial year. The dividend is to be paid out of the dividend reserve. The total amount of the dividend is $1,883,196 which represents 1.2 cents per share and is fully franked at the corporate income tax rate of 30%. The record date is 25 September 2017 and payment date is 9 October 2017. On 24 August 2017, the Directors of Centrepoint Alliance Limited declared a special dividend on ordinary shares in respect of the 2017 financial year. The dividend is to be paid out of the dividend reserve. The total amount of the dividend is $10,985,308 which represents 7.0 cents per share and is fully franked at the corporate income tax rate of 30%. The record date is 25 September 2017 and payment date is 9 October 2017. There are no other matters or events which have arisen since the end of the financial period which have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. In accordance with a resolution of the Directors of Centrepoint Alliance Limited, I state that: 1. In the opinion of the Directors: a. the financial statements and notes of Centrepoint Alliance Limited for the financial year ended 30 June 2017 are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and 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; 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. 2. This declaration has been made after receiving the declarations required to be made to the Directors by the Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2017. On behalf of the Directors: A. D. Fisher Chairman 24 August 2017 Partnering for growth Centrepoint Alliance Limited ABN 72 052 507 507 Level 9, 10 Bridge St, Sydney NSW 2000 +61 2 9921 6900 | centrepointalliance.com.au ASX Additional Information Annual Report 30 June 2017 79 ASX Additional Information Annual Report 30 June 2017 80 80 Additional Information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current at 26 September 2017. 1. CLASS OF SECURITIES AND VOTING RIGHTS a. Ordinary shares Ordinary shares of the Company are listed (quoted) on the ASX. There are 1,697 holders of ordinary shares, holding 156,932,969 fully paid ordinary shares. Holders of ordinary shares are entitled to one vote per share when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. b. Performance rights A performance right is a right that can be converted to an ordinary fully paid share in the Company for no monetary consideration subject to specific performance criteria being achieved. Details of performance rights are not quoted on the ASX and do not have any voting rights. 2. DISTRIBUTION OF SHAREHOLDERS AND PERFORMANCE RIGHTS No. of ordinary shareholders No. of performance right holders Size of holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,000 and over The number of shareholdings held in less than marketable parcels is 271. 3. SUBSTANTIAL SHAREHOLDERS The names of substantial holders in the Company who have notified the Company in accordance with section 671B of the Corporations Act 2001 are set out below: Ordinary Shareholders TIGA Trading Pty Ltd Adam Smith Asset Management Pty Ltd River Capital Pty Ltd Fully paid No. of Shares 41,596,497 10,069,911 5,689,719 4. TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES Ordinary Shareholders 1 UBS Nominees Pty Ltd 2 HSBC Custody Nominees (Australia) Limited Fully paid No. of Shares % Held 32,471,759 20.69 29,779,676 18.98 3 Citicorp Nominees Pty Limited 9,589,344 4 Centrepoint Alliance Services Pty Ltd 8,050,000 5 RBC Investor Services Australia Nominees Pty Ltd 6 J P Morgan Nominees Australia Limited 7 One Managed Invt Funds Ltd 8 National Nominees Limited 7,460,831 5,388,769 4,943,217 2,931,374 9 Mr Richard John Nelson + Mrs Kaye Marie Nelson 2,729,660 310 473 217 598 99 10 Griffin Fund Management Pty Ltd 11 HSBC Custody Nominees (Australia) Limited - A/C 2 12 Optimar Pty Ltd 13 Supertco Pty Ltd 5 14 Soba Pty Ltd 15 Waylex Pty Ltd 16 Fetterpark Pty Ltd 1,991,231 1,851,405 1,792,008 1,500,000 1,352,652 1,275,193 1,200,000 17 Mr Daniel Baron Droga + Mrs Lyndell Droga 1,000,000 18 Mr Daryl John Griffiths 19 Edsonmere Pty Ltd 20 Austin Superannuation Pty Ltd 909,500 829,600 739,075 117,785,294 75.05 6.11 5.13 4.75 3.43 3.15 1.87 1.74 1.27 1.18 1.14 0.96 0.86 0.81 0.76 0.64 0.58 0.53 0.47   Independent Auditor's Report Annual Report 30 June 2017 81 Independent Auditor's Report Annual Report 30 June 2017 82 Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 Tel: +61 7 3308 7000 Fax: +61 7 3308 7001 www.deloitte.com.au Independent Auditor’s Report to the members of Centrepoint Alliance Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Centrepoint Alliance Limited (the “Company”) and its subsidiaries (the “Group)”, which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and 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 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. further described We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. 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 for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Key Audit Matter Provision for adviser client claims How the scope of our audit responded to the Key Audit Matter Our procedures, performed in conjunction with our actuarial specialists, included but were not limited to: financial As disclosed in note 20a, the Group has provided $4.7m for the estimated cost of resolving adviser client claims authorised for representatives of the Group prior to 1 July 2010. As disclosed, the Group does not believe it is appropriate to recognise any provision for financial advice provided post 1 July 2010. provided advice by The determination of the provision for adviser client claims requires management to exercise significant judgement to estimate the likely value of claims already reported and the estimated volume and value of unreported claims. Recoverability of deferred tax assets As disclosed in note 5d and 5e, the Group has recognised deferred tax assets of $9.0m including $4.5m of revenue tax losses that the Group expects to utilise against future taxable profits. In addition Group has unrecognised revenue losses of $29.6m and capital losses of $36.0m. The ability to recognise deferred tax assets is dependent on the estimation of future taxable profits against which the deferred tax assets can be utilised. Significant judgement is required in forecasting future taxable profit. In addition, the Group makes an estimate of the extent of carried forward losses that can be utilised against future taxable profits due to the available fraction concept set out in the Income Tax Assessment Act 1997. This applies due to changes in the group structure over time. • • • • • the provisioning process Understanding management undertook to estimate the claims provision including management’s process to assess whether a provision is required for financial advice provided post 1 July 2010. Evaluating controls over the completeness of the data in the claims database. Selecting a sample of open claims and agreeing details to underlying records and external correspondence to assess the accuracy of the data used to estimate the cost of settling open claims and the value and volume of unreported claims. Selecting a sample of claims paid to evaluate historical forecasting accuracy and the accuracy of the movement in the provision due to settled claims. Challenging the core assumptions applied by management in estimating claim volume for unreported claims and value per claim with regard to historical claims experience. We have also assessed the appropriateness of the disclosures included in note 20a to the financial report. Our procedures, performed with the support of our tax specialists, included but were not limited to: • • • the reasonableness (including but not Challenging of management’s estimation of future taxable the profits reasonableness of estimates of growth in financial advice and assessing revenues) whether these estimates were consistent with the forecasts used as part of the impairment testing of goodwill and intangible assets. limited to Evaluating the competence, capabilities and objectivity of management’s external tax expert used to assess the available fraction. Challenging the appropriateness of the available fraction applied to estimate the extent to which carried forward tax losses can be recognised as a deferred tax asset. We have also assessed the appropriateness of the disclosures included in note 5(d) and 5(e) to the financial report. Independent Auditor's Report Annual Report 30 June 2017 83 Independent Auditor's Report Annual Report 30 June 2017 84 Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, 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 we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise 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’s 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 with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period 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. Independent Auditor's Report Annual Report 30 June 2017 85 86 CORPORATE DIRECTORY Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 15 to 23 of the Directors’ Report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Centrepoint Alliance Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration 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. DELOITTE TOUCHE TOHMATSU David Rodgers Partner Chartered Accountants Brisbane, 24 August 2017 AUDITOR Deloitte Touche Tohmatsu Riverside Centre Level 25, 123 Eagle Street Brisbane Queensland 4000 Australia REGISTERED ADDRESS Centrepoint Alliance Limited Registered address and head office: Level 9, 10 Bridge Street, Sydney New South Wales 2001, Australia GPO Box 1322, Melbourne Victoria 3001, Australia Telephone: (within Australia) 1300 557 598 (outside Australia) +61 2 8987 3000 Facsimile: +61 2 8987 3075 Website: www.centrepointalliance.com.au ANNUAL GENERAL MEETING 10:30am (Sydney time) Tuesday, 28 November 2017 Deloitte Touche Tohmatsu Grosvenor Place, Level 10, 225 George Street, Sydney New South Wales Australia SECURITIES EXCHANGE LISTING Centrepoint Alliance Limited’s shares are listed on the Australian Securities Exchange (ASX) and are traded under the ASX code CAF SHARE REGISTRY Computershare Investor Services Pty Limited Level 11, 172 St George’s Terrace, Perth Western Australia 6000, Australia GPO Box 2975, Melbourne Victoria 3001, Australia Telephone: (within Australia) 1300 763 925 (outside Australia) +61 3 9415 4870 Facsimile: +61 3 9473 2500 Email: web.queries@computershare.com.au Website: www.computershare.com.au Centrepoint is well placed to take advantage of the anticipated growth in the wealth management market and is using technology to simplify the client experience. - Alan Fisher, Chairman 89 Adelaide | Brisbane | Gold Coast | Melbourne | Perth | Sydney 1300 557 598 centrepointalliance.com.au Notes to the Consolidated Financial Statements Annual Report 30 June 2017