Centrepoint Alliance
Annual Report 2018

Plain-text annual report

PAGE 1 ANNUAL REPORT 2018 For the year ended 30 June 2018 Centrepoint Alliance Limited and its Controlled Entities ABN 72 052 507 507 Annual Report 2018 | Directors’ ReportPAGE 2 Centrepoint Alliance Limited and its Controlled Entities Annual Report 30 June 2018 Annual Report 2018 | Directors’ ReportContents. Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information Corporate Directory PAGE 3 02 13 24 25 26 27 28 29 72 73 77 79 Annual Report 2018 | Directors’ ReportPAGE 2 Directors’ Report The Directors of Centrepoint Alliance Limited (the Company) present their report together with the financial statements of the Consolidated Entity, being the Company and its Controlled Entities (the Group) for the year ended 30 June 2018. 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. Chairman of the Board, Independent Non-Executive Director. Appointed on 12 November 2015. Georg Chmiel Diplom-Informatiker, MBA, CPA (USA), FAICD Independent Non-Executive Director, Chairman of the Group Audit Risk & Compliance Committee. Appointed on 7 October 2016. Experience and expertise Experience and expertise Alan has extensive and proven experience in restoring Georg brings over 24 years of experience in the financial and enhancing shareholder value. services industry, online media and real estate industry. He spent 24 years at world-leading accounting firm Coopers & Lybrand where he headed and grew the Melbourne Corporate Finance Division. Following this tenure, he developed his own corporate advisory business specialising in M&A, strategic advice, business restructuring and capital raisings. 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 Alan holds a Bachelor of Commerce from Melbourne offices across nine countries providing residential and University, is a Fellow of the Institute of Chartered commercial real estate as well as financial services. Accountants in Australia and a member of the Australian Institute of Company Directors. Other current directorships Non-Executive Director and Chairman of IDT Australia Limited (ASX:IDT). 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. Non-Executive Director and Chairman of Audit and Risk Committees of Bionomics Limited (ASX:BNO) and Other current directorships Thorney Technologies Limited (ASX:TEK). Executive Director and Chairman of iCar Asia Limited Special responsibilities Chairman of the Board. Chairman of the Nomination, Remuneration and Governance Committee. Interest in shares and options Nil (ASX: ICQ). Non-Executive Director of Mitula Group Limited (ASX: MUA). Former Directorships Director of iProperty Group Limited (ASX:IPP) (from 1 January 2011 to 16 February 2016). Special responsibilities Chairman of the Group Audit, Risk & Compliance Committee. Interest in shares and options 25,000 Annual Report 2018 | Directors’ ReportMartin Pretty BA, CFA, Graduate Diploma of Applied Finance Independent Non-Executive Director, Chairman of the Group Investment Committee. Appointed on 27 June 2014. PAGE 3 Hugh Robertson Independent Non-Executive Director. Appointed on 2 May 2016. Experience and expertise Experience and expertise Martin brings to the Board over 17 years’ experience in Hugh has over 30 years’ experience in the financial the finance sector. The majority of this experience was services sector having been involved in a number of gained within ASX-listed financial services businesses, successful stockbroking and equity capital markets including Hub24, Bell Financial Group and IWL Limited. businesses. Hugh is a senior investment adviser with Bell Martin has also previously worked as a finance journalist Potter. He has worked with a variety of stockbroking with The Australian Financial Review. firms including Falkiners stockbroking, Investor First and Martin holds a Bachelor of Arts (Honours) from The with NSX Ltd, OAMPS Ltd and Catalyst Recruitment Ltd. Wilson HTM. Previously, Hugh has also held directorships University of Melbourne, and a Graduate Diploma of Applied Finance from Finsia. Martin is a CFA charterholder and a member of the Australian Institute of Company Directors. Other current directorships No other directorships of Australian listed entities. Special responsibilities Other current directorships Non-Executive Director and Chairman of the Audit and Risk Committee of Primary Opinion Limited (ASX:POP) (appointed 26 October 2015). Former directorships Non-Executive Director of TasFoods Limited (ASX: TFL) (21 February 2014 to 10 February 2017), he also held the Chairman of the Group Investment Committee. position of Chairman (25 May 2015 to 3 September 2015). Member of the Group Audit, Risk and Compliance Executive and Non-Executive Directorship positions with Committee. HUB24 Limited (ASX:HUB) (20 April 2011 to 29 February Interest in shares and options Nil 2016). Non-Executive Director of AMA Group Limited (ASX: AMA) (2 June 2015 to 3 August 2018). 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). Interest in shares and options Nil Annual Report 2018 | Directors’ ReportPAGE 4 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 Marty Carne BM, BBus, LLB, LLM, MBA (Grad), GDLP, GCAIF General Counsel & Company Secretary Experience and expertise Experience and expertise Debra is a lawyer who began her career in private Marty joined the Company in April 2016 and holds practice in Australia and worked in New Zealand and executive responsibility for Legal, Professional Standards Hong Kong, before joining the Company in 2003. and Risk and Claims Management. She has gained extensive experience in financial services over the past 14 years and was appointed Company Secretary in November 2013. 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 Debra is a member of the Queensland Law Society and is Securities Commission. Marty has strong commercial a qualified Chartered Secretary and is an Associate of the and client-centric skills and experience in the delivery of Institute of Chartered Secretaries and Administrators and strategic legal advice and management of risk. the Governance Institute of Australia and a member of the Australian Institute of Company Directors. Marty was appointed as joint Company Secretary on 27 April 2017. Marty holds qualifications in law and business and is a member of the Queensland Law Society and the Association of Financial Advisers. Annual Report 2018 | Directors’ ReportPAGE 5 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.S. Cowan M. Walker*** M. P. Pretty G. Chmiel 23 14 21 6 - - 21 22 23 14 19 6 - - 21 22 5**** 3 5 - - - 2**** - 5 3 1 - - - 2 - 2**** 3 - - - - 5 3 2 3 - - - - 5 3 - - 4 - 4 - 4 - - - - - 4 - 4 - # changed to an alternate member from 21 October 2016 *resigned 19 September 2017 **retired effective 27 November 2017 ***resigned 11 August 2017 ****Change of membership effective 27 November 2017 Corporate Information Strategies and Prospects As a result of the new CEO, Angus Benbow starting on 3 April 2018, a whole of company strategy refresh program was undertaken. This coincided with the significant uncertainty resulting from the initial Royal Commission hearings on financial advice. The resultant uncertainty, through the fundamental industry structural change emerging and the likelihood of further regulatory change, has been a key input to this work. The program identified six macro themes and when matched to Centrepoint’s key competencies, the regulatory and market environment, there is an opportunity for Centrepoint to become a leader in providing advice and business services, free of conflict, focussed on supporting advisers of a similar mindset. Centrepoint has already started the journey to the new model recently restructuring the business. The speed and impact of the transition will to a large extent be driven by the Royal Commission findings and thereafter the regulatory changes that are approved. Annual Report 2018 | Directors’ ReportPAGE 6 Centrepoint is well positioned in an industry that remains very attractive for long-term growth driven by growing national savings, the greater need for advice and the services and solutions that are required to support advisers given the complexity of the regulatory environment, tax system and market. As regulatory, technology and consumer driven change occurs, the Group is well positioned to realise opportunities that emerge from the disruption occurring across financial services and is ahead of the curve in creating a differentiated contemporary adviser-centric advice and business services company that leverages our scale. The Group has a strong balance sheet and will continue to explore further opportunities to transform the wealth advice market. 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 Limited (ASX) in June 2002. On 30 September 2005, Centrepoint Alliance Limited merged with 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 BOQ Finance (Aust) Limited as part of the Group’s business strategy to focus on and grow the Wealth business. Principal Activities The principal activities of the Company and its controlled entities during 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. Post balance date the business restructured to have two business lines, Advice and Advice Services and Solutions. The new structure also reflects the important role we believe data and technology will play in the future. Corporate Structure Centrepoint Alliance Limited is a company limited by shares that is incorporated and domiciled in Australia and listed on the ASX (ASX: CAF). Information on the Group structure is provided in Note 23 to the Consolidated Financial Statements. Operating and Financial Review Group Business Operation Centrepoint Alliance Limited (the Parent Entity) and its controlled entities (the Group) operates in the financial services industry within Australia and provides a range of financial advice and licensee support services (including licensing, systems, compliance, training and technical advice) and investment solutions to financial advisers, accountants and their clients across Australia, as well as lending mortgage aggregation services to mortgage brokers. Annual Report 2018 | Directors’ ReportPAGE 7 Financial Performance Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) for the year to 30 June 2018 was $5.5m (2017: $5.3m), excluding, CEO replacement and restructure costs ($0.3m), legacy claims adjustment ($5.4m) and regulatory costs largely associated with the impacts of the Royal Commission ($0.7m). The 4% increase in EBITDA is a reflection of the increasing pace of transformation and growth of the Wealth business, which is performing well in challenging regulator and competitor markets. Based on the significant regulatory and competitor environment and the transition of strategy, the deferred tax assets related to prior tax losses ($4.5m) has been taken off the Balance Sheet. Licensee and Advice Services Funds Management and Administration Description Provider of a range of financial advice and Provider of funds management and platform licensee support services (including licensing, solutions to financial advisers, accountants and technology, business support, training, compliance their clients across Australia. and professional standards) to financial advisers, accountants and their clients across Australia. Business Model Services are provided to authorised The business sources best of breed fund representatives under its Australian Financial managers and platforms, constructs portfolio Services Licences (AFSL) through Professional solutions and managed funds through Investment Services Pty Ltd (PIS) and Alliance Investment Diversity Pty Ltd and Ventura Wealth Pty Ltd (AW). Services are also provided Investment Management Ltd. to authorised representatives of other AFSL holders through Associated Advisory Practices Pty Ltd (AAP). Centrepoint Alliance Lending Pty Ltd (CALP) 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. Key Drivers The number of advice firms, fee income, operating Funds under administration, funds under costs, funds under distribution agreements, management, margins and operating costs. lending volumes and lending margins. Overview Licensee and Advice Services operates with Funds Management and Administration non-institutionally owned financial advisers and provides financial advisers, accountants and operates in a market alongside large institutions. their clients with world class investment The market is attractive with over $2.6 trillion in solutions across the risk/return spectrum, superannuation assets expected to continue to 1 which are managed by world class investment grow over the next twenty years and the need for managers and provide a choice of investment quality advice continuing to grow. styles to deliver on overall client and business objectives. The Group continues to focus on being a client- centric business, which involves improving the The Group is an early promoter of managed quality of advice and wealth solutions provided accounts, which has continued to grow during to Australians, and is capturing the benefits from the financial period. The Group has $4.1b of industry disruption. funds under management and administration. 1 APRA Quarterly Superannuation Performance – March 2018 Annual Report 2018 | Directors’ ReportPAGE 8 Financial Performance Licensee and Advice Services Funds Management and Administration Segment revenue was $24.1m (FY17 $24.0m) Gross revenue was $12.9m (FY17 $12.6m) and Profit before tax was $3.0m (FY17 $4.0m). and profit before tax was $3.9m (FY17: Recruitment of quality advisers continues as $4.0m). The result reflects consistent the business transitions away from rebate growth of Centrepoint solutions. revenue. The EBITDA excludes the impact of $5.4m legacy claims expenses. (Claims from advice provided prior to 1 July 2010). The business specifically monitors these claims to provide a best estimate amount for each claim on a case by case basis. Corporate The costs of the Centrepoint Board of Directors, company secretarial functions and the administration of the listed public entity are reflected in Corporate. In 2016, the Long Term Incentive Plan (LTIP) was reviewed and re-structured to performance rights based on total shareholder return against peer group. Minority Investments The Group has made several investments in start-up businesses. R Financial Educators Pty Ltd (RFE) establishes joint ventures with accountants to leverage their client base and provide financial advice. Centrepoint has a 15% interest in the business and provided a convertible loan which if converted would increase our interest by 12% to 27%. RFE has struggled to achieve its revenue forecast and has refocused on generating positive cash earnings. As a result the Group reviewed and reduced the holding value of the asset. Neos Life (Neos) is a registered business name of Australian Life Development Pty Ltd (ALD), who released their products in June 2018. It is an Australian based insurance distribution business offering non-complex, customer- focused life insurance products through the financial adviser channel. The Group has $6.75m invested in ALD, now branded as Neos. There is a $5m convertible loan which if converted would equate to a minimum 30%. The Group exercised an option for $1.75m during the period which represents a 5% equity stake. As part of the strategy review, the Group declined to take up an additional option post balance date. Ginger Group Financial Services Limited (Ginger Group) is a New Zealand based business with the sole asset of 37.5% interest in Kepa Financial Services Limited (Kepa). Kepa provides support services to its New Zealand network of financial advisers. The Group has a 50% interest in Ginger Group. Refer to Note 15 for further details. Cash Flows The Group held $9.5m in cash and cash equivalents as at 30 June 2018 (2017: $31.2m). Cash provided by continuing operations was $6.4m (2017: $5.4m) from which $5.2m was paid out in legacy claims (2017: $4.2m), $15.0m paid in dividends (2017: $5.1m) and $6.7m for investment (2017: $3.0m) resulting in an overall cash movement of $21.7m in the year (2017: $21.0m). Annual Report 2018 | Directors’ ReportPAGE 9 Financial Position The Group has net assets at 30 June 2018 of $19.6m (2017: $41.6m) and net tangible assets of $13.3m (2017: $30.4m) representing net tangible assets per share of 8.46 cents (2017: 19.35 cents). 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 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. The provision includes a discrete estimate set aside for claims incurred but not yet reported. Class action lawyers and the Australian Securities & Investments Commission have 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 – The Company 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 towards the Company being the leading advice business in Australia. • Regulatory change – Regulatory change continues to evolve the future direction of Australia’s financial system. Depending on the outcome of these changes, including any changes that result from recommendations from the Royal Commission, possible impacts on the Group could include costs relating to operational change, reduced numbers of advisers recruited and increased ongoing costs, loss of grandfathered revenue and risks associated with regulatory compliance including remediating clients for non-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 Future of Financial Advice Reforms (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, 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-institutional service provider helps to mitigate this risk. The Board is responsible for ensuring that risks, as well as opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with those risks and opportunities. Annual Report 2018 | Directors’ ReportPAGE 10 Risk management is monitored and assessed by the Group Audit, Risk and Compliance (GARC) Committee of the Board, which comprises three Non-Executive Directors. The Chief Executive Officer, General Counsel and Chief Financial Officer are standing attendees. As detailed in the Corporate Governance Statement the GARC Committee is governed by a charter and is responsible on behalf of the Board for overseeing: • The Group’s system of risk management and internal controls; establishing an active risk management framework; the current and future risk appetite; recommendations to the risk appetite statement and active risk management strategic plan; 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: • 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; and • Board approved Risk Management Policy and Risk Framework, Risk Appetite Statement and Active Risk Management Strategic Plan to assist in the identification, analysis, evaluation and treatment of Group risks. Dividends On 23 February 2018 the Board approved an interim ordinary dividend of 1.2c fully franked, paid on 4 April 2018. Based on the current strategic direction and with reference to the dividend policy, the Board agreed not to pay a final dividend. Shares and Performance Rights During the year, under a Long-Term Incentive (LTI) award CAESP20, 700,000 performance rights were issued in October 2017 and have not yet vested. 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. These are legally held by the Centrepoint Alliance Services Pty Ltd ATF the Centrepoint Employee Share Plan Trust (CESPT) and not converted into fully paid ordinary shares until satisfaction of the vesting conditions. The LTI awards CAESP17 and CAESP18 were terminated in November 2017. At the date of this report there are 8,050,000 ordinary shares (associated with these plans) legally held by Centrepoint Alliance Services Pty Ltd ATF the Centrepoint Alliance Employee Share Plan Trust (CAESPT). These shares will be cancelled, subject to approval by shareholders at a General Meeting. 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 On 3 April 2018 Angus Benbow started as CEO. A Strategic Refresh was initiated which included an assessment of the issues arising from the Royal Commission. Post balance date the business was restructured to deliver the strategy with a key focus of the strategy on data and technology. It was announced that the Chief Financial Officer, John Cowan will leave Centrepoint on 6 November 2018. Events After Reporting Period The following matters have occurred subsequent to the end of the financial year: On 7 August 2018, the business was restructured to align with the strategy. This included the announcement that John Cowan, CFO will leave in November 2018. Annual Report 2018 | Directors’ ReportPAGE 11 On 23 August 2018, the Directors of Centrepoint Alliance Limited resolved not to pay a final dividend with reference to the dividend policy and based on the current strategic direction. 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 Operating and Financial Review and in the subsequent events disclosure. The Directors are not aware of any other significant material likely developments requiring disclosure. Environmental Regulation The Group’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 2018 was approved by the Board on 23 August 2018. The Corporate Governance Statement is available on our website: http://www.centrepointalliance.com.au/investor-centre/corporate-governance/ 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 Act). 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. 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 Corporation’s (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016 and in accordance with that Instrument, amounts in the financial report are presented in Australian dollars and have been rounded off to the nearest thousand dollars, unless otherwise stated. Annual Report 2018 | Directors’ ReportPAGE 12 “ ...there is an opportunity for Centrepoint to become a leader in providing advice and business services, free of conflict, focused on supporting advisers of a similar mindset. ” Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Remuneration Report PAGE 13 Remuneration Report This Remuneration Report for the year ended 30 June 2018 outlines the remuneration arrangements of the Key Management Personnel of the Group in accordance with the requirements of 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) – Retired 27 November 2017 J. M. de Zwart H. W. Robertson M. P. Pretty G. Chmiel J. S. Cowan E. Cargakis Managing Director & Chief Executive Officer – Resigned 19 September 2017 Director (non-executive) Director (non-executive) Director (non-executive) Chief Financial Officer Interim Chief Executive Officer - appointed from 24 November 2017 to 2 April 2018 A. G. R. Benbow Chief Executive Officer - appointed 2 April 2018 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 competition 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, internal relativities where appropriate and external advice on policies and practices. Short-term incentives in the form of potential cash bonuses are made available to Executive KMP. Any award is based on the achievement of pre-determined objectives. Long-term incentives are made available to certain Executive KMP in the form of performance rights, shares or options. The Directors consider these to be the best means of aligning incentives of Executive KMP with the interests of shareholders. The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees and committee fees. Annual Report 2018 | Directors’ ReportPAGE 14 Annual Report 2018 | Remuneration Report 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 ($) Dividends paid - (cents per share) 2018 $'000 (6,333) (4.25) (4.25) 0.38 9.40 2017 $'000 6,544 4.41 4.11 0.63 3.45 2016 $'000 4,262 2.94 2.75 0.41 2.20 2015 $'000 5,880 4.14 3.96 0.50 3.20 2014 $'000 3,223 3.20 3.13 0.37 - Nomination, Remunertion & Governance Committe (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 Act in terms of appointment and termination. The Company applies the ASX listing rules that specify 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 2018, 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. 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 KMPs, where they exist, are shown under the disclosure of their contracts below. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Remuneration Report PAGE 15 Employment Contracts Details of the terms of employment of the named KMP Executives are set out below: Angus Benbow – Chief Executive Officer Employment commencement date: 2 April 2018 Term: No term specified Discretionary Incentives: Sign-on incentive A one-off equity allocation of fully paid ordinary Centrepoint Alliance Limited shares up to a value of $120,000, which have yet to be issued Short-term incentive A short-term incentive to a value of $237,500 at target, subject to Transitional Terms (refer to page 22 for further details) Long-term incentive A long-term incentive to a value between $142,500 up to a potential value of $285,000, subject to Transitional Terms (refer to page 22 for further details) Required notice by Executive and 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. John de Zwart – Managing Director & Chief Executive Officer Employment period: 15 April 2013 - 19 September 2017 Term: Resigned as Managing Director effective 19 September 2017 and as Chief Executive Officer effective 24 November 2017. Incentives: Short-term incentive A short-term incentive of $232,048.80 was paid after the end of the 2017 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. An additional short-term incentive of $350,000 was paid after the end of the 2017 financial year based on recognition of achievement of outstanding performance resulting in increased shareholder value during the period since June 2013. Long-term incentive – (Refer to page 20 for further details) CAESP19 Issue of up to 1,500,000 performance rights at 51.0 cents per performance right, that are legally held by the CESPT until satisfaction of the vesting conditions is 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. Annual Report 2018 | Directors’ ReportPAGE 16 Annual Report 2018 | Remuneration Report John Cowan - Chief Financial Officer Contract commencement date: 12 January 2015 Term: No term specified Incentives: Short-term incentive 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 $147,048.80 was paid after the end of the 2017 financial year based on the Group-wide short-term incentive scheme structure. An additional short term incentive of $100,000 was paid after the end of the 2017 financial year based on recognition of outstanding performance resulting in increased shareholder value during the period since June 2013. A short-term incentive for the 2018 financial year will be payable based on the objective and structure outlined in this Remuneration Report. A retention incentive of $75,000 was paid in September 2017. A retention incentive was approved by the Board in September 2017 for a payment of $100,000 on or after 30 September 2018. The incentive is subject to employment criteria. Long term incentive – (Refer to page 20 for further details) CAESP19 Issue of up to 750,000 performance rights at 51.0 cents per performance right, that are legally held by the CESPT until satisfaction of the vesting conditions is determined on 9 December 2019 as disclosed in the long-term incentive plans. CAESP20 Issue of up to 250,000 performance rights at 41.0 cents per performance right, that are legally held by the CESPT until satisfaction of the vesting conditions determined on 25 September 2020 as disclosed in the long-term incentive plans. Required notice by Executive and Company: 6 months. Termination Entitlements: Statutory entitlements. Efrossiney (Soula) Cargakis, Interim Chief Executive Officer (24 November 2017 to 2 April 2018) and Distribution and Marketing Executive Contract commencement date: 15 October 2008. A Higher Duties allowance was paid for the period that Efrossiney (Soula) Cargakis acted as Interim Chief Executive Officer. Term: No term specified Incentives: Short-term incentive 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 for the 2018 financial year will be payable based on the objective and structure outlined in this Remuneration Report. There were no short-term incentives paid during the period as acting Interim Chief Executive Officer. Required notice by Executive and the Company: 6 months. Termination Entitlements: Statutory entitlements. Those Executives that do not meet the KMP definition are not included here. Annual Report 2018 | Directors’ Report% % $ $ $ $ $ $ $ $ s e r a h S e c n a m r o f r e P i e c v r e s g n o L h s a C s t h g i r e v a e l s e v i t n e c n I n o i t a u n n a r e p u S h s a C s u n o B y r a a S l s e e F & d e t a l e R d e t a l e r e r a h S e c n a m r o f r e P l a t o T n o i t a n m r e T i s t n e m y a p s t n e m y a p d e s a b - e r a h S s t i f e n e b m r e t - g n o L t s o P t n e m y o p m E l s t i f e n e b m r e t - t r o h S s y a d f o . o N n o i t a r e n u m e r r a e Y : l l w o e b e b a t e h t n i n w o h s e r a p u o r G e h t f o P M K h c a e f o n o i t a r e n u m e r e h t l f o t n e m e e h c a e f o t n u o m a d n a e r u t a n e h t f o s l i a t e D n o i t a r e n u m e R f o s l i a t e D t t r r o o p p e e R R n n o o i i t t a a r r e e n n u u m m e e R R | | 8 8 8 1 1 1 0 0 0 2 2 2 t t t r r r o o o p p p e e e R R R l l l a a a u u u n n n n n n A A A 7 1 E G A P - - - - - - - - - - - - - - - - - PAGE 17 - - - - - - - - - - 0 0 0 5 3 1 , 0 0 0 5 3 1 , 6 1 4 5 3 , 0 0 0 5 8 , 0 0 0 5 8 , 0 0 0 5 8 , 0 0 0 5 8 , 0 7 7 9 7 , 0 0 0 5 8 , 4 2 2 2 6 , - - - - - - - - - - % 9 3 3 2 . 0 0 0 0 2 6 , - - 6 0 5 4 4 1 , 9 5 4 3 1 1 , % 8 5 4 3 . 5 0 4 4 1 7 , % 8 3 2 3 . % 6 5 2 7 . , 4 1 6 5 8 5 5 7 0 7 4 7 , - - - - - - % 7 9 6 4 . 7 9 1 , 9 3 2 , 1 0 0 5 0 4 4 , , 3 8 9 6 3 6 2 , , 3 8 6 9 9 3 2 , - 0 0 5 0 4 4 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 1 7 , 1 1 2 1 7 , 1 1 2 7 0 3 , 4 7 3 7 , 4 7 3 7 , 4 7 3 7 , 4 7 3 7 , 4 7 3 7 , 4 7 3 7 , 8 9 3 5 , 5 7 9 4 1 , 6 1 6 9 1 , 8 9 1 , 5 2 1 0 5 , 0 0 0 5 2 , 0 0 0 5 3 , 0 0 5 7 1 , 1 9 0 7 8 , 8 4 3 , 1 1 1 - - - - - - - - - - 8 8 2 3 2 1 , 8 8 2 3 2 1 , 4 4 3 2 3 , 6 2 6 7 7 , 6 2 6 7 7 , 6 2 6 7 7 , 6 2 6 7 7 , 6 9 3 2 7 , 6 2 6 7 7 , 5 6 3 5 6 3 9 4 1 5 6 3 5 6 3 5 6 3 5 6 3 5 6 3 5 6 3 6 2 8 6 5 , 6 6 2 8 4 0 2 8 5 , 4 7 6 , 1 0 2 6 4 1 0 0 0 5 4 1 , 4 8 3 5 5 4 , 5 6 3 - - 8 0 3 9 3 1 , 9 2 1 7 4 4 8 0 1 , 9 8 8 4 0 2 2 3 , 7 5 3 7 6 3 , 5 6 3 , 5 1 6 9 8 1 , 9 9 9 0 6 3 5 6 3 , 5 7 0 2 4 5 0 0 5 7 8 1 , 2 8 1 , 6 9 0 4 0 9 , 6 9 2 5 0 2 , 1 0 9 6 6 7 8 , 5 4 6 , 1 1 4 , 1 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 8 1 0 2 8 1 0 2 7 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 1 y s s e n h g u a h S O ’ . A . J r e h s i F . D . A n o s t r e b o R W H . . y t t e r P . P . M i 5 l e m h C . J . G 2 t r a w Z e d . M . J 3 w o b n e B . R . G . A 3 s i k a g r a C . E n a w o C . S . J 4 d d o D . M . R l a t o T l a t o T r a e y r o i r p e h t g n i r u d d e t n o p p A i 5 r a e y l i i a c n a n fi s u o v e r p e h t g n i r u d d e n g i s e R 4 r a e y e h t g n i r u d d e t n o p p A i 3 r a e y e h t g n i r u d d e n g i s e R 2 r a e y e h t g n i r u d d e r i t e R 1 Annual Report 2018 | Directors’ Report PAGE 18 8 1 E G A P t 8 r t 1 o 0 r p o 2 e p t R e r R o n p o n e i o t R a i t r l a e a r n u e u n n m n u A m e R e R 8 | 1 8 0 1 2 0 2 t r o t r p o e p R e R a u a n u n n A n A | l l d e t i e f r o f d n a d e s p a l , d e t s e v , d e d r a w a s n o i t p o d n a s e r a h s , s t h g i r e c n a m r o f r e P r a e y n i d e t i e f r o F . o N d e s p a L r a e y n i . o N r a e y n i d e t s e V . o N e t a d y r i p x E e s i c r e x E e c i r p $ e t a D g n i t s e V t a e u l a v r i a F e t a d t n a r g $ . o N r o s n o i t p o , s t h g R i e t a d t n a r G r a e y n i d e t n a r g s e r a h s r a e Y e m a N - - , 0 0 0 0 0 5 , 1 , 0 0 0 0 0 5 , 1 , 0 0 0 0 0 4 , 1 , 0 0 0 0 0 4 , 1 , 0 0 0 0 0 2 , 1 - - - - - - - - - - - - - - 2 2 0 2 c e D 9 3 2 0 2 p e S 4 2 2 2 0 2 c e D 9 5 1 0 2 c e D 1 2 4 1 0 2 c e D 2 2 4 1 0 2 c e D 2 2 5 1 0 2 c e D 1 2 - - - - - - - 9 1 0 2 c e D 9 1 5 0 . 6 1 0 2 c e D 9 1 , 0 0 0 0 0 5 , 1 0 2 0 2 p e S 4 2 1 4 0 . 7 1 0 2 t c O 2 0 0 0 0 5 2 , 9 1 0 2 c e D 9 1 5 0 . 6 1 0 2 c e D 9 1 0 0 0 0 5 7 , 8 1 0 2 c e D 3 1 1 2 0 . 5 1 0 2 c e D 4 1 , 0 0 0 0 0 5 , 1 7 1 0 2 c e D 5 1 6 1 . 0 4 1 0 2 c e D 6 1 , 0 0 0 0 0 4 , 1 8 1 0 2 c e D 5 1 7 1 . 0 4 1 0 2 c e D 6 1 , 0 0 0 0 0 4 , 1 8 1 0 2 c e D 3 1 1 2 0 . 5 1 0 2 c e D 4 1 , 0 0 0 0 0 2 , 1 7 1 0 2 8 1 0 2 7 1 0 2 6 1 0 2 5 1 0 2 5 1 0 2 6 1 0 2 * s t h g i r e c n a m r o f r e P t r a w Z e d . M . J n a w o C . S . J * * P S E A C r e d n u s e r a h S t r a w Z e d . M . J n a w o C . S . J l P M K y b d e h s t h g i r e c n a m r o f r e p d n a s e r a h s l , s n o i t p o f o e u a v r i a f d n a r e b m u n e h t f o n o i t a i l i c n o c e R - - - - 0 0 0 0 5 2 , 0 0 0 0 5 7 , - - - - - - 0 0 0 0 5 2 , 0 0 0 0 5 7 , - - - - - 0 0 0 5 6 7 , , 0 0 0 0 0 5 , 1 - - - 1 6 0 0 1 3 , , 0 0 0 0 0 5 , 1 , 7 4 3 8 5 4 , 0 0 0 0 0 8 2 , 9 4 0 8 4 2 , , 0 0 0 0 0 2 , 1 - - - - - - - - - - - - - - - - - - - - - - - - 0 0 5 2 0 1 , 0 0 0 0 5 2 , - - - , 0 0 0 0 0 5 , 1 - - - - - - - - 0 0 0 0 5 7 , , 0 0 0 0 0 5 , 1 , 0 0 0 0 0 8 2 , , 0 0 0 0 0 2 , 1 d e t s e v n U . o N d n a d e t s e V l e b a s i c r e x e . o N t a e c n a l a B e h t f o d n e e h t d o i r e p . o N ) $ ( e u l a V . o N ) $ ( e u l a V . o N e u l a V ) $ ( . o N ) $ ( e u l a V . o N e h t g n i r u d d e t i e f r o F e h t g n i r u d d e s p a L g n i r u d d e s i c r e x E n o i t a s n e p m o c s a d e t n a r G d o i r e p d o i r e p d o i r e p e h t d o i r e p e h t g n i r u d e h t t a e c n a l a B e h t f o t r a t s d o i r e p . o N r a e Y e m a N 7 1 0 2 8 1 0 2 7 1 0 2 t r a w Z e d . M . J n a w o C . S . J * * P S E A C r e d n u s e r a h S 6 1 0 2 5 1 0 2 6 1 0 2 t r a w Z e d . M . J n a w o C . S . J * s t h g i r e c n a m r o f r e P l T P S E C y b d e h e r a s t h g i r e c n a m r o f r e P * l T P S E A C y b d e h e r a s e r a h S * * Annual Report 2018 | Directors’ Report Annual Report 2018 | Remuneration Report PAGE 19 “ The 4% increase in EBITDA is a reflection of the increasing pace of transformation and growth of the Wealth business, which is performing well in challenging regulator and competitor markets. ” BREAK PAGE - - - - - - - - - - - r a e y n i d e t i e f r o F . o N d e s p a L r a e y n i . o N r a e y n i d e t s e V . o N e s i c r e x E e c i r p $ t a e u l a v r i a F e t a d t n a r g $ r o s n o i t p o , s t h g i R . o N e t a d y r i p x E e t a D g n i t s e V e t a d t n a r G r a e y n i d e t n a r g s e r a h s r a e Y e m a N d e t i e f r o f d n a d e s p a l , d e t s e v , d e d r a w a s n o i t p o d n a s e r a h s , s t h g i r e c n a m r o f r e P - - 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 4 , 1 0 0 0 , 0 0 4 , 1 0 0 0 , 0 0 2 , 1 - - - - - - - 2 2 0 2 c e D 9 3 2 0 2 p e S 4 2 2 2 0 2 c e D 9 5 1 0 2 c e D 1 2 4 1 0 2 c e D 2 2 4 1 0 2 c e D 2 2 5 1 0 2 c e D 1 2 - - - - - - - 9 1 0 2 c e D 9 1 5 . 0 6 1 0 2 c e D 9 1 0 0 0 , 0 0 5 , 1 0 2 0 2 p e S 4 2 1 4 . 0 7 1 0 2 t c O 2 0 0 0 , 0 5 2 9 1 0 2 c e D 9 1 5 . 0 6 1 0 2 c e D 9 1 0 0 0 , 0 5 7 8 1 0 2 c e D 3 1 1 2 . 0 5 1 0 2 c e D 4 1 0 0 0 , 0 0 5 , 1 7 1 0 2 c e D 5 1 6 1 . 0 4 1 0 2 c e D 6 1 0 0 0 , 0 0 4 , 1 t r a w Z e d . M . J 8 1 0 2 c e D 5 1 7 1 . 0 4 1 0 2 c e D 6 1 0 0 0 , 0 0 4 , 1 8 1 0 2 c e D 3 1 1 2 . 0 5 1 0 2 c e D 4 1 0 0 0 , 0 0 2 , 1 n a w o C . S . J 7 1 0 2 8 1 0 2 7 1 0 2 6 1 0 2 5 1 0 2 5 1 0 2 6 1 0 2 * s t h g i r e c n a m r o f r e P t r a w Z e d . M . J n a w o C . S . J * * P S E A C r e d n u s e r a h S d e t s e v n U . o N d n a d e t s e V e l b a s i c r e x e . o N t a e c n a l a B e h t f o d n e e h t d o i r e p . o N ) $ ( e u l a V . o N ) $ ( e u l a V . o N . o N ) $ ( e u l a V . o N e u l a V ) $ ( e h t g n i r u d d e t i e f r o F e h t g n i r u d d e s p a L g n i r u d d e s i c r e x E n o i t a s n e p m o c s a d e t n a r G d o i r e p d o i r e p d o i r e p e h t d o i r e p e h t g n i r u d e h t t a e c n a l a B e h t f o t r a t s d o i r e p . o N r a e Y e m a N P M K y b d l e h s t h g i r e c n a m r o f r e p d n a s e r a h s , s n o i t p o f o e u l a v r i a f d n a r e b m u n e h t f o n o i t a i l i c n o c e R - - - - - - - - - - 0 0 0 , 0 5 2 0 0 0 , 0 5 7 0 0 0 , 0 5 2 0 0 0 , 0 5 7 - - - - 0 0 0 , 5 6 7 0 0 0 , 0 0 5 , 1 1 6 0 , 0 1 3 0 0 0 , 0 0 5 , 1 7 4 3 , 8 5 4 0 0 0 , 0 0 8 , 2 9 4 0 , 8 4 2 0 0 0 , 0 0 2 , 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0 0 5 , 2 0 1 0 0 0 , 0 5 2 - 0 0 0 , 0 0 5 , 1 0 0 0 , 0 5 7 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 8 , 2 0 0 0 , 0 0 2 , 1 7 1 0 2 8 1 0 2 7 1 0 2 6 1 0 2 5 1 0 2 6 1 0 2 * s t h g i r e c n a m r o f r e P t r a w Z e d . M . J n a w o C . S . J * * P S E A C r e d n u s e r a h S t r a w Z e d . M . J n a w o C . S . J Annual Report 2018 | Directors’ Report PAGE 20 Annual Report 2018 | Remuneration Report Shareholdings of Key Management Personnel* Shares held in Centrepoint Alliance Limited (Number) A. D. Fisher M. P. Pretty J. S. Cowan H. W. Robertson G. Chmiel E. Cargakis3 A. G. R. Benbow3 Former KMP’s J. M. de Zwart1 J. A. O’Shaughnessy2 Balance 1 July 2017 Granted as remuneration On exercise of options Net change other # Balance 30 June 2018 Ordinary Ordinary Ordinary Ordinary Ordinary - - - - 25,000 - - 3,230,743 100,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25,000 - - 3,230,7434 100,0004 1 Resigned during the year 2 Retired during the year 3 Appointed during the year 4Balance as at date of Resignation and Retirement * 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 Long-term incentives Objective The objective of short term incentives (STI) is The objective of long-term incentives (LTI) is to link the achievement of the Group’s to reward Executives in a manner that aligns operational targets with the remuneration remuneration with the creation of shareholder received by the executives charged with wealth. As such, LTI grants are only made to meeting those targets. The total potential STI executives who are able to significantly influence available is set at a level so as to provide the generation of shareholder wealth and thus sufficient incentive to the executive to achieve have an impact on the Group’s performance the operational targets and the cost to the against the relevant long-term performance Group is reasonable. The purpose of hurdle. 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Remuneration Report PAGE 21 Short-term incentives Long-term incentives Structure In August 2017 the Directors approved a new LTI awards to Executives are made under the executive STI scheme based on EBITDA and Executive LTI plans and are delivered in the the achievement of underlying organisational form of shares or rights. Shares vest in and team goals. The Target EBITDA is tranches over a specified time period and may approved by the Board for each financial year. also have other performance hurdle To be eligible for a STI payment a threshold requirements, typically related to shareholder EBITDA must be met and executives must return, as determined by the NRGC. achieve at least 70% of their individual performance objectives and minimum job Performance rights are rights that can be competency and core values ratings. The converted to fully paid ordinary shares in the Target STI payable to Executives is 40% and Company for no monetary consideration the former Managing Director and CEO is 50% subject to specific performance criteria being of Total Fixed Remuneration. The Maximum achieved. The performance rights will only STI payable for Executives is 60% and the vest if certain profit targets are met. former Managing Director and CEO 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 a 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 Centrepoint Group results and individual KPIs. Awards CAESP17 and CAESP18 On 21 November 2017, the Board and the CAESPT approved the termination of participants (including the former Managing Director & Chief Executive Officer and other senior executives) of the CAESP17 and CAESP18 plans. The participants loan shares were purchased by the CAESP at $0.59 per share (which was the equivalent to the ASX market close price of CAF shares on 17 November 2017) in accordance with the plan rules. CAESP19 The Board approved the grant of 3,750,000 performance rights on 19 December 2016 to the former 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: Annual Report 2018 | Directors’ ReportPAGE 22 Annual Report 2018 | Remuneration Report Awards 2 If the Total Shareholder Return (TSR) for the peer group 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 CAESP20 The Board approved the grant of 700,000 performance rights on 2 October 2017 to the senior executives of the Group under the CAESP at 41.0 cents per performance right. These are legally held by the CESPT and not converted into fully paid ordinary CAF shares until satisfaction of the vesting conditions determined on 24 September 2020 based on the following: If the Total Shareholder Return (TSR) for the peer group for 30 June 2020 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; 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. CEO Transitional Terms (short-term and long-term incentives) The CEO will be entitled to STI (50% - 75%) and LTI (40% - 60%) benefit limits as set out on page 15, varied in accordance with the below commencement and ending periods: • On or before 2 April 2018 to 30 September 2018, pro-rata portion of STI and LTI benefit • 1 October 2018 to 30 June 2019, pro-rata portion of STI and LTI benefit • 1 July 2019 to 30 June 2020 Successive annual periods 2 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 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. Annual Report 2018 | Directors’ ReportPAGE 23 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 2018. The Independence Declaration which forms part of this report is on page 24. 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. 2018 $ 2017 $ 66,830 72,207 96,598 61,132 139,037 157,730 Taxation services provided by Deloitte Touche Tohmatsu Other regulatory services Total Signed in accordance with a resolution of the directors. A. D. Fisher Chairman 23 August 2018 Annual Report 2018 | Directors’ Report PAGE 24 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Consolidated Statement of Profit or Loss and other Comprehensive Income PAGE 25 Consolidated Statement of Profit or Loss and other Comprehensive Income For the year ended 30 June 2018 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 Interest charges Employee related expenses Marketing and promotion Travel and accommodation Property costs Restructuring provision Subscriptions & licences Professional services Client claims IT and communication expenses Depreciation and amortisation Impairment expenses Other general and administrative expenses (Loss)/Profit before tax from continuing operations Income tax expense Net loss from continuing operations after tax Discontinued operations Profit after tax from discontinued operations Net (loss)/profit for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR Net (loss)/profit attributable to: Owners of the parent Net (loss)/profit for the period Total comprehensive (loss)/profit attributable to: Owners of the parent Total comprehensive (loss)/profit for the period 2018 2017 Note $'000 $'000 121,781 128,624 (90,943) (97,193) 30,838 31,431 4(a) 4(a) 1,298 926 458 362 33,062 32,251 (35) (53) 4(b) (18,246) (18,609) (579) (827) (1,142) (550) (1,504) (2,072) 19(a) (6,056) (888) (923) (837) (2,007) (481) (949) (710) - (1,309) (1,180) (4,193) (1,195) (1,106) (134) (2,156) (35,666) (32,075) (2,604) 5 (3,729) (6,333) - (6,333) (6,333) (6,333) (6,333) (6,333) (6,333) 176 (264) (88) 6,632 6,544 6,544 6,544 6,544 6,544 6,544 Earnings per share for profit attributable to the ordinary equity holders of the parent Cents Cents Basic earnings per share Diluted earnings per share Basic (loss)/earnings per share from continuing operations Diluted (loss)/earnings per share from continuing operations 10 10 10 10 (4.25) (4.25) (4.25) (4.25) 4.41 4.11 (0.06) (0.06) The Consolidated Statement of Profit or Loss and other Comprehensive Income is to be read in conjunction with the attached Notes. Annual Report 2018 | Directors’ Report PAGE 26 Annual Report 2018 | Consolidated Statement of Financial Position Consolidated Statement of Financial Position As at 30 June 2018 ASSETS Current Cash and cash equivalents Trade and other receivables Interest-bearing receivables Other assets Current tax asset 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 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 The Consolidated Statement of Financial Position is to be read in conjunction with the attached Notes. 2018 Note $'000 2017 $'000 6(a) 8 14 14 15 16 17 5(d) 8 19 19 11 12 9,469 10,540 345 789 286 31,242 11,362 345 529 - 21,429 43,478 6,572 2,482 890 951 1,651 4,632 17,178 1,642 1,632 1,015 976 2,231 9,018 16,514 38,607 59,992 9,715 82 8,781 - 9,109 32 8,020 372 18,578 17,533 19 455 474 19,052 19,555 34,673 12,174 252 590 842 18,375 41,617 34,673 15,689 (27,410) (8,863) 19,437 41,499 118 118 19,555 41,617 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Consolidated Statement of Cash Flows PAGE 27 Consolidated Statement of Cash Flows For the year ended 30 June 2018 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash provided by operations Restructure costs Claims and litigation settlements Note 2018 $'000 2017 $'000 134,503 141,031 (128,090) (135,614) 6,413 (1,441) 5,417 - 19(a) (5,315) (4,216) Regulatory costs associated with the Royal Commission Net cash flows (used in)/provided by operating activities 6(b) (77) (420) - 1,201 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 Dividend received from investments 505 - (6,700) - (15) (322) 199 458 (12) (3,022) 21,422 (362) (213) - 14, 15 17(a) 16 Net cash flows provided by/(used in) investing activities (6,333) 18,271 CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease)/increase in borrowings Loan repayments received from advisers Dividends paid Net cash flows used in financing activities - - 9 (15,020) (15,020) (26) 108 (5,136) (5,054) Net increase/(decrease) in cash & cash equivalents (21,773) 14,418 Profit after tax from discontinued operations Cash & cash equivalents at the beginning of the year Cash & cash equivalents at the end of the period - 31,242 9,469 6(a) 6(a) 6,632 10,192 31,242 The Consolidated Statement of Cash Flows is to be read in conjunction with the attached Notes. Annual Report 2018 | Directors’ Report8 1 1 9 9 4 , 1 4 ) 3 6 8 8 ( , 4 2 2 , 1 5 6 4 4 1 , 3 7 6 4 3 , 0 0 0 $ ' 0 0 0 $ ' 0 0 0 $ ' 0 0 0 $ ’ 0 0 0 $ ' 0 0 0 $ ' 0 0 0 $ ' s e t o N PAGE 28 l a t o T y t i u q e - n o N g n i l l o r t n o c s t s e r e t n i 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 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 8 1 1 0 0 2 2 t t r r o o p p e e R R l l a a u u n n n n A A 8 2 E G A P 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 0 2 e n u J 0 3 d e d n e r a e y e h t r o F 7 1 6 , 1 4 ) 3 3 3 6 ( , ) 3 3 3 6 ( , - ) 9 0 7 ( ) 0 2 0 5 1 ( , 5 5 5 9 1 , 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 1 1 8 1 1 - - - - - ) 3 3 3 6 ( , ) 3 3 3 6 ( , ) 3 3 3 6 ( , ) 3 3 3 6 ( , - ) 9 0 7 ( ) 0 2 0 5 1 ( , 7 3 4 9 1 , 2 3 4 9 3 , 4 4 5 6 , 4 4 5 6 , - 3 2 5 6 3 1 ) 6 3 1 , 5 ( - - ) 4 1 2 2 1 ( , ) 0 1 4 7 2 ( , 4 4 5 6 , 4 4 5 6 , ) 1 9 7 4 ( , - - - - - - - - 6 3 1 ) 6 1 6 0 1 ( , 8 8 0 , 1 - - - ) 9 0 7 ( - 5 1 5 - - - 4 1 2 2 1 , ) 0 2 0 5 1 ( , 9 5 6 , 1 1 0 1 8 4 1 , - - - - 1 9 7 4 , ) 6 3 1 , 5 ( - - - - - - - - - - 3 2 5 3 7 6 4 3 , 0 5 1 , 4 3 ) a ( 2 1 t n e m y a p d e s a b - e r a h S e m o c n i 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 7 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 s s o L e v r e s e r d n e d v d o t i i r e f s n a r T 1 1 ) a ( 2 1 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 8 1 0 2 e n u J 0 3 t a e c n a l a B 6 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 m o c n i 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 v r e s e r d n e d v d o t i i r e f s n a r T i d a p s d n e d v D i i i d a p s d n e d v D i i 8 1 1 9 9 4 , 1 4 ) 3 6 8 8 ( , 4 2 2 , 1 5 6 4 4 1 , 3 7 6 4 3 , 7 1 0 2 e n u J 0 3 t a e c n a l a B . 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 Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 29 Notes to the Consolidated Financial Statements Basis of preparation 1. Corporate information .................................................................................................................................................................................30 2. Summary of significant accounting policies ..................................................................................................................................30 Financial performance 3. Segment information ...................................................................................................................................................................................32 4. Revenue and expenses ...............................................................................................................................................................................35 5. Income tax .........................................................................................................................................................................................................37 6. Notes to Statement of Cash Flows .......................................................................................................................................................41 7. Commitments .....................................................................................................................................................................................................42 Working capital 8. Trade and other receivables and payables .......................................................................................................................................43 Shareholder returns 9. Dividends ............................................................................................................................................................................................................44 10. Earnings per share .......................................................................................................................................................................................45 Capital and funding structure 11. Contributed equity ....................................................................................................................................................................................... 46 12. Reserves .............................................................................................................................................................................................................47 13. Interest-bearing liabilities .......................................................................................................................................................................... 48 Capital investment 14. Interest-bearing receivables .................................................................................................................................................................. 48 15. Investments .......................................................................................................................................................................................................51 16. Property, plant and equipment ..............................................................................................................................................................52 17. Intangibles assets ..........................................................................................................................................................................................54 Risk management 18. Financial risk management.......................................................................................................................................................................58 19. Provisions ............................................................................................................................................................................................................63 20. Contingent liabilities ....................................................................................................................................................................................66 Other information 21. Remuneration of auditors ........................................................................................................................................................................66 22. Information relating to Centrepoint Alliance Limited .............................................................................................................67 23. Related party disclosures ........................................................................................................................................................................68 24. Share-based payment plans .................................................................................................................................................................69 25. Events after reporting period ................................................................................................................................................................71 Annual Report 2018 | Directors’ ReportPAGE 30 Annual Report 2018 | Notes to the Consolidated Financial Statements 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 2018 were authorised for issue in accordance with a resolution of the Directors on 23 August 2018. 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 23. 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 Act, Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). 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. Standards 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 2018 are set out below. The Directors have assessed the impact of the new standards for the reporting period ending 30 June 2019 onwards. Title Application date of standard Application date for Group AASB 15 Revenue from contracts with customers 1 January 2018 1 July 2018 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. Management are continuing to assess the impact of AASB 15 and have reached initial conclusions on all key revenue types. Based on the work completed to date, the impact of implementing AASB 15 is expected to be immaterial for total Revenue as a whole. For product margins revenue, amounts are paid/ invoiced to product providers on a monthly, quarterly or annual basis and can be in arrears or in advance. A detailed review of each contract will then need to be undertaken in order to identify the performance criteria of each contract. That detailed review on an individual contract level will be completed by 31 December 2018 half year reporting to ensure the Group’s current revenue recognition continues to comply with requirements of the standard and/or adjust current and retrospective periods as required. 1 January 2018 1 July 2018 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 31 Title 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). There is no impact to the Group on the changes to the standard. Application date of standard Application date for Group 1 January 2018 1 July 2018 1 January 2018 1 July 2018 AASB 16 Leases 1 January 2019 1 July 2019 The Standard was issued during 2016 and will replace existing accounting requirements for leases. Under current requirements, leases are classified based on their nature as either finance leases, which are recognised on the balance sheet, or operating leases, which are not recognised on the balance sheet. The application of AASB 16 will result in the recognition of all leases on the balance sheet in the form of a right-of-use asset and a corresponding lease liability, except for leases of low value assets and leases with a term of 12 months or less. As a result, the new standard is expected to impact leases which are currently classified by the Group as operating leases which is primarily the leases over premises. The Group’s operating lease commitments are disclosed in Note 7. 1 January 2019 1 July 2019 AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions 1 January 2018 1 July 2018 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 June 2018. 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 datecont rol ceases. A list of the Company’s controlled entities (subsidiaries) is included in Note 23. Significant accounting judgements, estimates and assumptions The key assumptions concerning the future and other key sources of estimation and uncertainty at the end of the 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 and Goodwill recoverable amounts – Note 17 • Provision for client claims – Note 19 • Recognition of deferred tax assets – Note 5 Annual Report 2018 | Directors’ ReportPAGE 32 Annual Report 2018 | Notes to the Consolidated Financial Statements Foreign currency Both the functional and presentation currency of the Group is Australian dollars (A$). 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. 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. 3. Segment information The Group has organised its businesses reportable segments based on the nature of the products and services provided and the markets in which it operates and Corporate. Internal reports are regularly reviewed by the management on this basis. The Group’s reportable segments are: Reportable Wealth segments Operations 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, accountants and their clients. Board, corporate finance, company secretarial and other administration 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. The Group does not currently manage its assets and liabilities on an individual segment basis. The segment results are presented on a continuing operations basis. Annual Report 2018 | Directors’ Report3. Segment information (cont.) Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 33 Licensee & Advice Services Funds Management & Administration Wealth Total Corporate & Unallocated Consolidated $'000 $'000 $'000 $'000 $'000 Year ended 2018 Revenue Gross Revenue Commissions paid Net revenue Other revenue External customers Inter-segment revenue Interest income Segment revenue Total revenue Segment results Interest charges Client claims Depreciation & amortisation Impairment of assets Inter-segment expenses Segment profit/(loss) before tax Income tax benefit/(expense) Addback: Legacy claims expense Segment profit/(loss) before tax (excl legacy claims) Balance Sheet at 30 June 2018 Current assets Interest-bearing receivables Other current assets Total current assets Non-current assets 108,826 (86,255) 22,571 690 23,261 661 223 24,145 (22) (6,056) (817) 63 (16,974) (2,346) 766 5,358 3,012 345 10,703 11,048 Interest-bearing receivables 133 - 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 5,459 5,592 16,640 12,791 12,791 96 96 12,887 3,753 12,950 121,776 (4,688) (90,943) 8,262 30,833 - 8,262 (1,000) 196 7,458 690 31,523 (339) 419 5 - 5 236 241 339 879 31,603 1,459 (1) - (74) - (23) (6,056) (891) 63 (3,604) (20,578) 3,948 (1,184) - 1,602 (418) 5,358 (12) - (32) (900) 20,578 (4,206) (3,311) - 121,781 (90,943) 30,838 926 31,764 - 1,298 33,062 33,062 (35) (6,056) (923) (837) - (2,604) (3,729) 5,358 3,948 6,960 (4,206) 2,754 - 3,566 3,566 - - 345 14,269 14,614 133 5,459 5,592 3,566 20,206 609 609 - - 609 2,957 13,400 13,400 96 96 13,496 6,710 - 6,815 6,815 6,439 5,147 11,586 18,401 5,178 5,178 378 378 5,556 12,845 345 21,084 21,429 6,572 10,606 17,178 38,607 18,578 18,578 474 474 19,052 19,555 Annual Report 2018 | Directors’ ReportPAGE 34 Annual Report 2018 | Notes to the Consolidated Financial Statements 3. Segment information (cont.) Licensee & Advice Services Funds Management & Administration Wealth Total Corporate & Unallocated Consolidated $'000 $'000 $'000 $'000 $'000 Year ended 2017 Revenue Gross Revenue Commissions paid Net revenue Other revenue External customers Inter-segment revenue Interest income (gross) Segment revenue Inter-segment elimination Total revenue Segment results Interest charges Client claims Depreciation & amortisation Impairment of assets Inter-segment expenses Segment profit/(loss) before tax Income tax benefit/(expense) Addback: Legacy claims expense Segment profit/(loss) before tax (excl legacy claims) Balance Sheet at 30 June 2017 Current assets Interest-bearing receivables Other current assets Total current assets Non-current assets 116,052 (92,448) 23,605 300 23,905 - 121 12,567 128,619 (4,746) (97,193) 7,821 - 7,821 - 29 31,426 300 31,726 - 150 24,026 7,850 31,876 (39) (4,182) (530) (143) (16,432) 14 (34) 4,040 4,055 345 12,101 12,446 - (11) (103) - (3,318) 4,033 (1,232) - 4,033 - 5,559 5,559 (39) (4,193) (633) (134) (19,750) 4,047 (1,266) 4,040 8,088 345 17,660 18,005 216 6,145 6,361 Interest-bearing receivables 216 - Other non-current assets Total non-current assets Total Assets Current liabilities Interest bearing liabilities Other current liabilities Total current liabilities Non-current liabilities Interest bearing 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 5,894 117 117 5,676 24,366 - 1,881 1,881 - - - 1,881 3,795 - 14,230 14,230 - 447 447 14,677 9,689 The Inter-segment sales are carried out on an arm’s length basis and are eliminated on consolidation. 6 - 6 61 67 6,000 308 6,375 (14) - (473) 4 19,750 (3,871) 1,002 128,626 (97,193) 31,432 361 31,793 6,000 458 38,251 (6,000) 32,251 (53) (4,193) (1,106) (130) - 176 (264) - 4,040 (3,871) 4,216 - 25,473 25,473 1,426 8,727 10,153 35,626 - 3,303 3,303 - 395 395 3,698 31,928 345 43,133 43,478 1,642 14,872 16,514 59,992 - 17,533 17,533 - 842 842 18,375 41,617 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 35 4. Revenue and expenses a) Interest and other income Interest income Interest expense Bank fees & other Interest income (net) Cost recoveries from advisers Retail and wholesale asset and service fees Services Other Total other revenue 2018 $'000 2017 $'000 1,298 - (35) 1,263 458 (12) (41) 405 2018 $’000 2017 $’000 331 201 210 184 926 265 80 - 17 362 Rate of Interest Average Balance Interest Average Rate p.a. 2018 2017 2018 2017 2018 $'000 $'000 $'000 $'000 % 2017 % Loan receivables Cash and deposits 3,331 692 14,225 23,611 92 413 83 376 2.77% 11.96% 2.90% 1.59% b) Employee benefit expenses Wages and salaries Share-based compensation expense Termination costs Total employee benefit expenses Key Accounting Policies Revenue recognition 2018 $'000 2017 $'000 17,103 354 789 18,313 136 160 18,246 18,609 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. The Inter-segment sales are carried out on an arm’s length basis and are eliminated on consolidation. Annual Report 2018 | Directors’ ReportPAGE 36 Annual Report 2018 | Notes to the Consolidated Financial Statements 4. Revenue and expenses (cont.) Revenue type Recognition 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 client and the right to receive the revenue is established. Service revenue Ongoing revenue Revenue for services provided is recognised at the point of delivery of the service to clients. Ongoing financial advice fee revenue is recorded monthly for ongoing services provided to clients. Dividend and distribution revenue 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 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. 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 37 5. Income tax a) Income tax (benefit)/expense The major components of income tax expense for the years ended 30 June 2018 and 2017 are: Current income tax Current income tax charge Adjustment to current tax of prior period Deferred income tax Adjustment to deferred tax of prior period Income tax expense/(benefit) reported in the income statement 2018 $'000 2017 $'000 (744) 256 - 4,473 3,729 8 - 264 Based on the significant regulatory and competitor environment and the transition of strategy, the deferred tax assets related to prior tax losses ($4.5m) has been taken off the Balance Sheet. b) Amounts charged or credited directly to equity No income tax was charged directly to equity for the year ended 2018 (2017: 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: Accounting profit before tax from continuing operations At the Company's statutory income tax rate of 30% (2017: 30%) Non-deductible expenses Amounts not included in assessable income Adjustment in respect of current tax of prior years Adjustment in respect of deferred tax of prior years Aggregate income tax expense/(benefit) 2018 $'000 2017 $'000 (2,604) 176 (781) 65 (28) - 4,473 3,729 53 203 - 8 - 264 Annual Report 2018 | Directors’ Report PAGE 38 Annual Report 2018 | Notes to the Consolidated Financial Statements 5. Income tax (cont.) d) Recognised deferred tax assets and liabilities Deferred income tax relates to the following: Deferred tax liabilities Deferred revenue Gross deferred tax liabilities Deferred tax assets Provisions for claims Provisions for doubtful debts Provision for restructure Provision for impairment of loan receivables Provision for leases General accruals and other costs Employee benefits Tax losses available Gross deferred tax assets Net deferred tax assets Statement of Financial Position Statement of Comprehensive Income 2018 2017 2018 2017 $'000 $'000 $'000 $'000 (7) (7) (192) (192) 1,626 1,096 165 (147) 121 732 1,046 - 4,639 4,632 1,403 1,499 - 78 195 563 999 4,473 9,210 9,018 185 185 223 (403) 165 (225) (74) 169 47 (4,473) (4,571) (186) (186) (174) 94 - 156 (234) (95) (151) 213 (191) The Group has decided to reduce the deferred tax asset by removing the tax benefit of past losses previously recognised due to the initial investment to drive the new strategy. The recognition of this asset was 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. e) Unrecognised tax losses The Group has the following Australian tax losses for which no deferred tax assets are recognised at reporting date. Revenue losses Capital losses Total unrecognised losses 2018 $'000 2017 $'000 23,969 35,953 59,922 29,609 35,953 65,562 The above losses are available indefinitely for offset against future taxable income and capital gains subject to continuing to meet relevant statutory tests. Unrecognised tax loss were increased by $4.5m and reduced by $10.1m related to a review of a historic tax loss. Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 39 5. Income tax (cont.) 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 Parent 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 Parent 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. Key accounting policies 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. Annual Report 2018 | Directors’ ReportPAGE 40 Annual Report 2018 | Notes to the Consolidated Financial Statements 5. Income tax (cont.) 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. The deferred tax balance will be written down if there are changes in circumstances and forecasts are not met. 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 Parent 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 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, the Company 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 41 5. Income tax (cont.) 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. 6. Notes to Statement of Cash flows a) Reconciliation of cash & cash equivalents Cash and cash equivalents Total cash and cash equivalents 2018 2017 $'000 $'000 9,469 9,469 31,242 31,242 Annual Report 2018 | Directors’ ReportPAGE 42 Annual Report 2018 | Notes to the Consolidated Financial Statements 6. Notes to Statement of Cash Flows (cont.) b) Reconciliation of net profit after tax to net cash provided by operating activities Net loss after income tax from continuing operations (6,333) (88) Adjustments to reconcile profit before tax to net cash flows: 2018 2017 $'000 $'000 Depreciation and amortisation Impairment of investments Loss on disposal of non-current assets Interest received Interest expense Dividend received from investments Share based compensation (income)/expense Tax expense current year 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 restructure costs Provision for tax Net cash from operating activities from continuing operations 7. Commitments Contracted operating lease expenditure 923 900 17 (505) - (199) (709) (744) 1,586 (128) 4,386 424 (406) 742 - (255) 550 (669) (420) 1,106 - 31 (458) 12 - 136 264 334 4,058 377 (3,551) (488) (65) (120) (659) - 312 1,201 The Group has entered into commercial leases on certain properties expiring at various times up to 5 years from 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 2018 $'000 2017 $'000 1,341 1,349 - 2,690 2,272 2,394 - 4,666 Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 43 8. Trade and other receivables and payables Current Commissions receivable Trade receivables Total Refer Note 18(c) for Ageing analysis. Current Amounts payable to financial advisers Trade payables Other creditors and accrued expenses Total 2018 2017 $'000 $'000 7,937 2,603 10,540 8,570 2,792 11,362 2018 2017 $'000 $'000 5,474 1,696 2,545 9,715 6,292 1,182 1,635 9,109 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. 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. Financial guarantees No guarantees have been given over trade and other payables. Related party payables For terms and conditions relating to related party payables refer to Note 23. Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in Note 18. Annual Report 2018 | Directors’ Report PAGE 44 Annual Report 2018 | Notes to the Consolidated Financial Statements 8. Trade and other receivables and payables (cont.) Key accounting policies 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. 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 Special Dividends paid on ordinary shares Total dividends 2018 $'000 2017 $'000 4,035 10,985 15,020 5,136 - 5,136 2018 $'000 2017 $'000 b) Franking credit balance Franking account balance as at the end of the financial year 17,563 23,886 The tax rate at which paid dividends were franked is 30%. Franking credits are reported on a tax paid basis. Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 45 10. Earnings per share The following reflects the income used in the basic and diluted Earnings per share (EPS) computations: a) Profit used in calculating profit per share Net (loss)/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 2018 $'000 2017 $'000 (6,333) - 6,544 6,632 (6,333) (88) b) Weighted average number of shares No. of shares No. of shares Weighted average number of ordinary shares (excluding reserved shares) 148,882,969 148,533,913 Effect of dilution: Performance rights and LTI shares Weighted average number of ordinary shares (excluding reserved shares) adjusted for the effect of dilution Basic earnings per share from discontinued operations Basic (loss)/earnings per share from continuing operations Basic earnings per share Diluted earnings per share 12,321,644 10,863,470 161,204,613 159,397,383 - (4.25) (4.25) (4.25) 4.47 (0.06) 4.41 4.11 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 CAESPT 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 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. Annual Report 2018 | Directors’ Report PAGE 46 Annual Report 2018 | Notes to the Consolidated Financial Statements 11. Contributed equity a) Paid up capital Ordinary shares Reserved shares Reference 2018 $’000 2017 $’000 (i) (ii) 39,108 (4,435) 34,673 39,108 (4,435) 34,673 Number of Shares 2018 $’000 Number of Shares 2017 $’000 i) Ordinary shares (issued & fully paid) Balance at start of year 156,932,969 39,108 155,434,080 38,585 Movements during the year:- - Share issue - long-term incentive plan - - 1,498,889 On issue at end of year 156,932,969 39,108 156,932,969 ii) Reserved shares Balance at start of year On issue at end of year (8,050,000) (4,435) (8,050,000) (8,050,000) (4,435) (8,050,000) 523 39,108 (4,435) (4,435) Total contributed equity 148,882,969 34,673 148,882,969 34,673 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 resolved not to declare a final dividend having referred to the dividend policy and strategic direction of the business. Key accounting policies 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. Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 47 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 Value of share based payments expired during the year Balance at end of year 2018 $'000 515 11,659 12,174 2017 $'000 1,224 14,465 15,689 2018 2017 $'000 $'000 1,224 354 (1,063) 515 1,088 136 - 1,224 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, 700,000 performance rights were issued to senior executives of the Group as follows: Performance rights No. of shares Vesting period Issue price Fair value at issue date Senior Executives 700,000 3 years $0.585 $0.410 b) Dividend reserve Balance at start of year Dividends paid Transfer from current year profits Balance at end of year 2018 2017 $'000 $'000 14,465 (15,020) 12,214 11,659 14,810 (5,136) 4,791 14,465 Annual Report 2018 | Directors’ ReportPAGE 48 Annual Report 2018 | Notes to the Consolidated Financial Statements 13. Interest-bearing liabilities Fair value of interest-bearing liabilities Interest-bearing liabilities are carried at amortised cost. The carrying value of borrowings approximates their fair value. Financial risk Key accounting policies Refer to Note 18 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. 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. 14. Interest-bearing receivables Current Loan receivables - financial advisers Provision for impairment - specific Total current interest-bearing receivables Non-current Loan receivables - financial advisers Convertible loans Provision for impairment - specific Total non-current interest-bearing receivables An ageing analysis of loan receivables is provided in Note 18(b) 2018 $'000 2017 $'000 435 (90) 345 345 603 6,439 (470) 6,572 435 (90) 345 345 711 1,426 (495) 1,642 Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 49 14. Interest-bearing receivables (cont.) Allowance for Impairment Opening Balance Movement in the allowance is as follows Adjustment for disposal of subsidiary Allowance for impairment Closing balance Receivables impairment expense Impairment expense Bad debts (recovery)/written-off directly Total expense Term and conditions Impairment 2018 $'000 2017 $'000 585 1,071 - (28) 557 (28) (35) (63) (522) 36 585 36 98 134 Loans due from financial 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. Impairment expense amounts are included in the Statement of Profit or Loss and Comprehensive Income under ‘Other general and administrative expenses’. 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. Annual Report 2018 | Directors’ ReportPAGE 50 Annual Report 2018 | Notes to the Consolidated Financial Statements 14. Interest-bearing receivables (cont.) Related party receivables There are currently no related party receivables. Fair value and risk management Convertible Notes Key accounting policies The carrying value of interest-bearing receivables approximates their fair value. Credit risk, interest rate risk and currency risk is addressed in Note 18. ALD The Group subscribed to $5m in a convertible loan in ALD to provide seed funding to the 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 was granted four call options of $1.75m each (totalling $7.0m) to purchase shares which expire by January 2020. The Group declined to take up an additional option post balance date. The Group exercised the first option for $1.75m on 11 September 2017 which represents a 5% equity stake. As at 30 June the Group has a total $6.75m in ALD. RFE The Group subscribed to $1.2m in a convertible loan in RFE to provide seed funding to the business. The first advance of $1.0m was made in 6 July 2017 and a further $0.2m was advanced on 28 February 2018. 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. 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. 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 51 14. Interest-bearing receivables (cont.) Key accounting policies 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 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. 15. Investments Investments Impairment on investments Total investments 2018 2017 $'000 $'000 3,382 (900) 2,482 1,632 - 1,632 In October 2016, an investment of $1.5m was made in RFE which represents a 15% stake of equity. An impairment provision of $0.9m was raised against this investment during the year. RFE has reduced their revenue growth forecast to reduce cash strain and focus on profitability. As a result the investment was reviewed and the holding value was reduced. In September 2016 $0.1m was invested in Ginger Group, which increased the Group’s equity interest to 50% from 37.5%. Ginger Group has a 37.5% shareholding in Kepa. In September 2017 the Group exercised an option for an investment of $1.75m in ALD, which represents a 5% equity stake. ALD launched in June 2018. Key accounting policies 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. Annual Report 2018 | Directors’ ReportPAGE 52 Annual Report 2018 | Notes to the Consolidated Financial Statements 16. Property, plant and equipment Leasehold Improvements Plant & Equipment $’000 $’000 Total $’000 Cost At 1 July 2016 Additions Disposals At 30 June 2017 Additions Disposals At 30 June 2018 Depreciation and impairment At 1 July 2016 Depreciation charge for the year Disposals At 30 June 2017 Depreciation charge for the year Disposals At 30 June 2018 Net carrying value At 30 June 2018 At 30 June 2017 Key accounting policies 2,002 - (16) 1,986 - - 1,986 1,247 275 - 1,522 155 - 1,677 309 464 3,115 213 (542) 2,786 322 (9) 3,099 2,429 186 (341) 2,274 186 (3) 2,457 642 512 5,117 213 (558) 4,772 322 (9) 5,085 3,676 461 (341) 3,796 341 (3) 4,134 951 976 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 53 16. Property, plant and equipment (cont.) Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows: Asset Plant and equipment Leasehold improvements Motor vehicles Useful Life 2 – 7 years Lease term 5 years De-recogntion: 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. Annual Report 2018 | Directors’ ReportPAGE 54 Annual Report 2018 | Notes to the Consolidated Financial Statements 17. Intangible assets a) Reconciliation of carrying amounts at the beginning and end of the year Period ending 30 June 2018 At 1 July 2017 net of accumulated amortisation and impairment Disposals Additions Amortisation At 30 June 2018 net of accumulated amortisation and impairment At 30 June 2018 Cost Accumulated amortisation and impairment Net carrying value Year ending 30 June 2017 At 1 July 2016 net of accumulated amortisation and impairment Disposals Additions Amortisation At 30 June 2017 net of accumulated amortisation and impairment At 30 June 2017 Cost Accumulated amortisation and impairment Net carrying value Goodwill Software Network & Client Lists Total $'000 $'000 $'000 $'000 956 -- - - 956 1,209 (253) 956 2,132 (1,176) - - 956 1,209 (253) 956 123 (13) - (35) 75 1,152 - 15 (547) 2,231 (13) 15 (582) 620 1,651 3,773 (3,698) 75 10,387 (9,767) 620 15,369 (13,718) 1,651 337 (141) 15 (88) 123 1,362 - 347 (557) 3,831 (1,317) 362 (645) 1,152 2,231 3,786 10,372 (3,663) (9,220) 123 1,152 15,367 (13,136) 2,231 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 55 17. Intangible assets (cont.) Intangible asset Description of the Group’s intangible assets Key Accounting Policies Impairment Test Cash Generating Units Goodwill Cash Generating Units (CGU) Goodwill was 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 Ltd. Goodwill is tested on an annual basis and when there is an indication of potential impairment. The current carrying value of Goodwill is $956,000 Goodwill is tested annually for impairment by calculation of value in use at the CGU level. As there were no indicators of impairments 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% (2017: 1.00%) Cost of equity: 12.35% (2017: 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. 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. 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 carryingvalue 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 CGU 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. Annual Report 2018 | Directors’ ReportPAGE 56 Annual Report 2018 | Notes to the Consolidated Financial Statements 17. Intangible assets (cont.) Intangible asset Description of the Group’s intangible assets Key Accounting Policies Impairment Test 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 2018 of $620,000 (2017: $1,152,000). Adviser network businesses 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 and 1 year respectively. Cash flows associated with remaining advisers and clients are inflated only at CPI with no growth assumed. Cost of equity: 12.35% (2017: 12.35%) The testing resulted in no impairment losses. The value in use calculations are most sensitive to the remaining useful life assumption. Sensitivity analysis indicates a decrease in the assumed useful life of 1 year would have resulted in an impairment expense of $187,858 (2017: $86,463). 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. 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 57 17. Intangible assets (cont.) Intangible asset Software Description of the Group’s intangible assets The Group has developed or acquired software, which are being amortised over their expected useful lives. Key Accounting Policies Impairment Test 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. 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. Annual Report 2018 | Directors’ ReportPAGE 58 Annual Report 2018 | Notes to the Consolidated Financial Statements 18. Financial risk management 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 GARC 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, interestbearing 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. Outlined below are the requirements for collateral, credit quality and concentration levels for the various categories of receivables. 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. Concentration levels of loan assets were monitored continuously to ensure that there are no significant concentrations of credit risk within the Group. Loans receivable – financial advisers Loans to financial 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 59 18. Financial risk management (cont.) At reporting date, the ageing analysis of receivables is as follows: 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. 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. At reporting date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk: Ageing analysis Ageing Analysis 2018 Total $'000 0-30 Days $'000 31-60 Days $'000 61-90 Days PDNI* $'000 61-90 Days CI** $'000 +91 Days PDNI* $'000 +91 Days CI** $'000 Trade receivables 10,540 10,259 Loan receivables - Adviser 1,038 157 21 4 Ageing Analysis 20 4 2017 - - 241 404 - 469 Total $'000 0-30 Days $'000 31-60 Days $'000 61-90 Days PDNI* $'000 61-90 Days CI** $'000 +91 Days PDNI* $'000 +91 Days CI** $'000 11,362 11,066 1,146 157 266 4 (28) 4 - - 58 486 - 495 Trade receivables Loan receivables - advisers * Past due not impaired (PDNI) ** Considered impaired (CI) Annual Report 2018 | Directors’ ReportPAGE 60 Annual Report 2018 | Notes to the Consolidated Financial Statements 18. Financial risk management (cont.) Weighted average effective interest rate 2018 Fixed Fixed Variable ≤ 6 Months > 6 Months % $'000 $'000 $'000 2.90% 4,904 2.77% - 181 - 5,085 5,085 2017 - 857 890 1,747 1,747 4,565 - - 4,565 4,565 Weighted average effective interest rate Fixed Fixed Variable ≤ 6 Months > 6 Months % $'000 $'000 $'000 1.59% 24,517 - 6,725 11.96% - 182 - 24,699 24,699 964 1,017 1,981 1,981 - - 6,725 6,725 Financial Assets Cash and term deposits Interest bearing receivables Security deposits Net Exposure Financial Assets Cash and term deposits Interest bearing receivables Security deposits Net Exposure 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. 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. 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. Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 61 18. Financial risk management (cont.) 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 2018 Cash and term deposits Trade and commissions receivable Loan receivables - financial advisers Security deposits Financial Liabilities Trade and other payables Other liabilities 9,469 10,411 181 - 20,061 9,715 41 9,756 - 29 254 - 283 - 41 41 - 100 603 890 9,469 10,540 1,038 890 1,593 21,937 - 19 19 9,715 101 9,816 12,121 Net Maturity 10,305 242 1,574 2017 Financial Assets ≤ 6 Months 6-12 Months 1-5 Years Total $’000 $'000 $'000 $'000 Cash and term deposits Trade and commissions receivable Loan receivables - financial 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 e) Foreign currency risk The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Annual Report 2018 | Directors’ ReportPAGE 62 Annual Report 2018 | Notes to the Consolidated Financial Statements 18. Financial risk management (cont.) 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) as 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. Financial asset/liability Fair value assumptions 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 2018. 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 $10,353 (2017: $11,460). Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 63 18. Financial risk management (cont.) Financial asset/liability Fair value assumptions Interest-Bearing Receivables 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 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. 19. Provisions Current Provision for claims Provision for employee entitlements Property make good Onerous lease Restructuring Total Non-current Provision for claims Provision for employee entitlements Property make good Onerous lease Total a) Movement in provision for claims Opening balance Movement in the provision is as follows: Claims provisioning expense during the period Claims settlements & fees paid (net of recoveries) Closing balance 2018 2017 $'000 $'000 5,393 2,669 83 86 550 8,781 25 198 232 - 455 4,589 3,093 83 255 - 8,020 88 182 232 88 590 2018 2017 $'000 $'000 4,589 4,743 5,992 (5,163) 5,418 4,150 (4,216) 4,677 Annual Report 2018 | Directors’ Report PAGE 64 Annual Report 2018 | Notes to the Consolidated Financial Statements 19. Provisions (cont.) Provision for 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 (Legacy Claims) by authorised representatives of the Group. The Group makes a specific provision for claims arising from advice provided prior to 1 July 2010. The provision for general claims is the estimated cost of resolving claims from external parties that may arise as the Group becomes aware of them. Legacy 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. b) Movement in provision for employee benefits Opening balance Movement in the provision is as follows: Provision for year 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: Disposal of subsidiary Closing balance d) Movement in provision for onerous lease Opening balance Movement in the provision is as follows: Provision for year Onerous lease unwind Sub-lease reduction Closing balance e) Movement in provision for restructuring costs Opening balance Movement in the provision is as follows: Provision for year Closing balance 2018 2017 $'000 $'000 3,275 3,763 2,681 (3,089) 2,867 2,954 (3,442) 3,275 2018 2017 $'000 $'000 315 - 315 435 (120) 315 2018 2017 $'000 $'000 343 1,001 - (222) (35) 86 - (523) (135) 343 2018 2017 $'000 $'000 - 550 550 - - - Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 65 19. Provisions (cont.) Provision for onerous lease contract 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. A tenant subleases the unused space in the Gold Coast office for the remaining duration of the lease, being to October 2018 and the remaining amount of the onerous lease provision is $87,521. Provision for restructuring costs On 3 April 2018, Angus Benbow was appointed CEO and initiated a Strategic Refresh of the Group. The implementation of the updated strategy included a formal plan for restructuring and direct expenditure arising from the restructuring. Key accounting policies 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 Entity 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. 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. 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. 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. Annual Report 2018 | Directors’ ReportPAGE 66 Annual Report 2018 | Notes to the Consolidated Financial Statements 20. 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 19. The regulatory environment, specifically the Royal Commission is expected to result in changes in regulations and the approach used by the regulator. The Group is actively reviewing and managing these impacts. 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. 21. Remuneration of auditors The primary auditor of the Group was Deloitte Touche Tohmatsu. 2018 $ 2017 $ 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 204,173 224,074 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 66,830 72,207 96,598 61,132 343,210 381,804 310,640 310,640 53,220 53,220 Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 67 22. Information relating to Centrepoint Alliance Limited The Consolidated Financial Statements of the Company are: Current assets Non-current assets Current liabilities Net Assets Issued capital Dividend reserve Accumulated profit Total Shareholder Equity Net profit after tax of the parent entity Total comprehensive income of the parent entity At reporting date the Company has given nil guarantees to external parties (2017: nil). 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 2018 $'000 2017 $'000 32,323 8,968 35 41,326 37,934 10,504 (7,111) 41,326 (7,191) (7,191) 54,939 8,370 (39) 63,270 37,934 13,971 11,365 63,270 11,285 11,285 2018 $'000 2017 $'000 370 370 740 1,091 740 1,831 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. Annual Report 2018 | Directors’ ReportPAGE 68 Annual Report 2018 | Notes to the Consolidated Financial Statements 23. Related party disclosures a) Information relating to subsidiaries Name Licensee and Advice Services Country of Incorporation Ownership Interest 2018 2017 Principal Activity Centrepoint Alliance Lending Pty Ltd Australia 100% 100% Mortgage broker / aggregator Associated Advisory Practices Pty Ltd Australia 100% 100% AFSL licensee support services xseedwealth pty ltd Australia 100% 100% Salaried advice Professional Investment Services Pty Ltd Australia 100% 100% Financial advice Funds Management and 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 Presidium Research and Investment Management Pty Ltd (formerly Imagine Your Lifestyle Pty Ltd) Australia 100% 100% Dormant Professional Accountants Pty Ltd Australia 100% 100% Loans to advisers Professional Investment Services (NZ) Limited** New Zealand 43% 43% Dormant R Financial Educators Pty Ltd Australia 15% 15% Business partnering/ Financial advice Ginger Group Financial Services Limited New Zealand 50% 50% Financial advice ** Currently under Solvent Voluntary Liquidation Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Notes to the Consolidated Financial Statements PAGE 69 23. Related party disclosures (cont.) b) Ultimate parent The ultimate holding company is Centrepoint Alliance Limited, a company incorporated and domiciled in Australia. 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 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (2017: 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 24. Share based payment plans a) Types of share-based payment plans i) Performance Rights 2018 2017 $'000 $'000 2,109 87 - - 441 2,637 2,289 11 1 - - - 2,400 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. ii) Centrepoint Alliance Employee Share Plan (CAESP) 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. iii) Centrepoint Alliance Employee Share Option Plan (CAESOP) Share options may be granted to employees as determined by the Board of Directors. The CAESOP is designed to align participant’s interests with those of the shareholder by increasing the value of the Company’s shares. Annual Report 2018 | Directors’ ReportPAGE 70 Annual Report 2018 | Notes to the Consolidated Financial Statements 24. Share based payment plans (cont.) b) Recognised share-based payment expenses Expense arising from equity-settled share-based payment transactions under the CAESP Expense arising from performance rights Total c) Movements during the year 2018 2017 $'000 $'000 - 354 354 659 (523) 136 All current option awards are fully vested at reporting date. There are 8,050,000 shares which are held within the CAESP which are held as reserved shares. 2018 2017 No WAEP* No WAEP* i) Shares under the CAESP Outstanding at beginning of period 8,050,000 0.18 10,885,001 Forfeited during the period - - (2,835,001) Outstanding at end of period 8,050,000 0.18 8,050,000 0.19 0.21 0.18 ii) Options under CAESOP Outstanding at beginning of period Expired during the period Outstanding at end of period iii) Performance rights under the CESP Outstanding at beginning of period Issued during the period Vested during the period Expired during the period Outstanding at end of period *WAEP is weighted average exercise price d) Performance rights pricing model - - - 3,750,000 700,000 - (2,000,000) 2,450,000 - - - - - - - - 400,000 0.40 (400,000) - 3,566,666 3,750,000 (1,498,889) (2,067,777) 3,750,000 - - - - - - - The fair value of the performance rights issued are calculated as at the date of grant using the Monte Carlo Model. This Model take into account the terms and conditions upon which they were granted and market based inputs as at the grant date. Key accounting policies i) Equity settled transactions: The Group provides benefits to its employees, including KMP, in the form of share-based payments, whereby employees render services in exchange for rights over shares (equity-settled transactions). 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. Annual Report 2018 | Directors’ Report Annual Report 2018 | Notes to the Consolidated Financial Statements PAGE 71 24. Share based payment plans (cont.) 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. 25. Events after the reporting period The following matters have occurred subsequent to the end of the financial year: On 7 August 2018, the business was restructured to align with the strategy. This included the announcement that John Cowan, CFO will leave in November 2018. On 23 August 2018, the Directors of Centrepoint Alliance Limited resolved not to pay a final dividend with reference to the dividend policy and based on the current strategic direction. 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. Annual Report 2018 | Directors’ ReportPAGE 72 Annual Report 2018 | Directors’ Declaration Directors’ Declaration In accordance with a resolution of the Directors of Centrepoint Alliance Limited, I state that: 1. In the opinion of the Directors: (a) The consolidated financial statements and notes of Centrepoint Alliance Limited for the financial year ended 30 June 2018 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 2018 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. This declaration has been made after receiving the declarations required to be made to the Directors by the 2. Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2018. On behalf of the Directors: A. D. Fisher Chairman 23 August 2018 Annual Report 2018 | Directors’ Report Annual Report 2018 | Independent Auditors’ Report PAGE 73 Annual Report 2018 | Directors’ ReportPAGE 74 Annual Report 2018 | Independent Auditors’ Report Key Audit Matter Provision for 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: As disclosed in Note 19a, the Group has provided $5.4 million for the estimated cost of resolving adviser client claims for financial advice provided by authorised representatives of the Group prior to 1 July 2010 and estimated cost of resolving claims from external parties that may arise as the Group becomes aware of them. As disclosed, the Group does not believe it is appropriate to recognise any provision for financial advice provided post 1 July 2010. 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.     Understanding the provisioning process 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 the accuracy of the data used to estimate the cost of settling open claims and the value and volume of unreported claims; and to assess 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 19a to the financial statements. Recoverability of deferred tax assets Our procedures, performed with the support of our tax specialists included, but were not limited to: As disclosed in Note 5d and 5e, the Group has recognised deferred tax assets of $4.6 million which relate to the future reversal of existing temporary differences for which Group expects to utilise against future taxable profits. 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. The Group makes an estimate of the extent of carried forward losses that can be utilised against future taxable profits with reference 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. $4.5 million of recognised tax losses have been written off during the year in response to continuing sector wide challenge and to reflect that the Group is now conducting a strategic refresh in response to those challenges. The Group has unrecognised revenue losses of $24.0 million and capital losses of $36.0 million.    the reasonableness Challenging of management’s estimation of future taxable profits (including but not limited to the reasonableness of estimates of growth in financial advice revenues) and assessing whether these estimates were consistent with the forecasts used as part of the impairment testing of goodwill and intangible assets Evaluating the competence, capabilities and objectivity of management’s external tax expert used to assess the available fraction; and the appropriateness of the Challenging 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 5d and 5e to the financial statements. PAGE 74 Annual Report 2018 | Directors’ Report Annual Report 2018 | Independent Auditors’ Report PAGE 75 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 2018, 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 intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery,  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. PAGE 75 Annual Report 2018 | Directors’ Report PAGE 76 Annual Report 2018 | Independent Auditors’ Report  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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 13 to 22 of the Directors’ Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Centrepoint Alliance Limited, for the year ended 30 June 2018, 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, 23 August 2018 PAGE 76 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | ASX Additional Information PAGE 77 ASX Additional Information Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 16 August 2018. 1. Class of securities and voting rights a) Ordinary shares Ordinary shares of the Company are listed (quoted) on the ASX. There are 1,903 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 Size of holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,000 and over No. of ordinary shareholders No. of performance right holders 295 512 262 733 101 3 The number of shareholders with less than a marketable parcel is 380. 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 Annual Report 2018 | Directors’ Report  PAGE 78 Annual Report 2018 | ASX Additional Information ASX Additional Information 4. Twenty largest holders of quoted equity securities Ordinary Shareholders 1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2 UBS NOMINEES PTY LTD 3 CITICORP NOMINEES PTY LIMITED 4 CENTREPOINT ALLIANCE SERVICES PTY LTD 5 J P MORGAN NOMINEES AUSTRALIA LIMITED 6 ONE MANAGED INVT FUNDS LTD 7 NATIONAL NOMINEES LIMITED 8 MR RICHARD JOHN NELSON + MRS KAYE MARIE NELSON 9 SUPERTCO PTY LTD 10 GRIFFIN FUND MANAGEMENT PTY LTD 11 WAYLEX PTY LTD 12 SOBA PTY LTD Fully paid No. of Shares % Held 34,292,131 2 1.85 32,804,489 20.90 9,331,061 5.95 8,050,000 5.13 5,127,176 4,914,761 2,819,289 2,729,660 2,000,000 1,991,231 1,418,051 1,352,652 3.27 3.13 1.80 1.74 1.27 1.27 0.90 0.86 13 MR DANIEL BARON DROGA + MRS LYNDELL DROGA 1,250,000 0.80 14 FETTERPARK PTY LTD 15 CATHAYS PTY LTD 16 EDSONMERE PTY LTD 17 AUSTIN SUPERANNUATION PTY LTD 18 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 19 LAYUTI PTY LTD 20 MR DAVID O’ROURKE 1,200,000 909,500 829,600 739,075 712,830 567,767 554,944 0.76 0.58 0.53 0.47 0.45 0.36 0.35 113,594,217 72.38 Annual Report 2018 | Directors’ ReportAnnual Report 2018 | Corporate Directory PAGE 79 Corporate Directory Securities Exchange Listing Centrepoint Alliance Limited’s shares are listed on the Annual General Meeting 10:30am (AEDT) Tuesday, 30 October 2018 Deloitte Touche Tohmatsu Level 10, 550 Bourke Street Melbourne, Victoria Australia 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 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 2000 Australia Telephone: (within Australia) 1300 557 598 (outside Australia) +61 2 8987 3000 Facsimile: +61 2 8987 3075 Website: www.centrepointalliance.com.au Annual Report 2018 | Directors’ ReportPAGE 80 Annual Report 2018 | Directors’ ReportPAGE 81 Annual Report 2018 | Directors’ ReportPAGE 82 Centrepoint Alliance Limited and its Controlled Entities ABN 72 052 507 507 1300 557 598 centrepointalliance.com.au Annual Report 2018 | Directors’ Report