Computershare Annual Report 2016

Plain-text annual report

COMPUTERSHARE | ANNUAL REPORT | 2016 This financial report covers the consolidated entity consisting of Computershare Limited and its controlled entities. The financial report was authorised for issue by the directors on 19 September 2016. The company has the power to amend and reissue the financial report. The financial report is presented in United States dollars (USD), unless otherwise stated. A separate notice of meeting including a proxy form is enclosed with this financial report. Computershare Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Computershare Limited Yarra Falls 452 Johnston Street, Abbotsford Victoria 3067 Australia CONTENTS* OVERVIEW 2 3 5 Financial highlights Chairman and Chief Executive Officer Report Group and Regional Operating Overview 16 Business Strategies and Prospects GOVERNANCE 18 29 45 Corporate Governance Statement Directors’ Report Auditor’s Independence Declaration FINANCIALS 46 47 48 49 50 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements REPORTS 104 105 106 Directors’ Declaration Declaration to the Board of Directors Independent Auditor’s Report FURTHER INFORMATION 108 109 IBC Shareholder information Corporate directory Office locations * The Chairman and Chief Executive Officer Report, Group and Regional Operating Review and Business Strategies and Prospects comprise our Operating and Financial Review (OFR) and form part of the Directors’ Report. PAGE 1 FINANCIAL HIGHLIGHTS STATUTORY RESULTS Total revenue Net profit after non-controlling interests (NCI) Statutory earnings per share MANAGEMENT ADJUSTED RESULTS Management EBITDA* Management net profit after NCI* Management earnings per share* BALANCE SHEET Total assets Total shareholders’ equity PERFORMANCE INDICATORS Free cash flow (excluding SLS advances) JUNE 2016 JUNE 2015 % CHANGE 1,961.1 million 1,971.3 million 157.3 million 153.6 million 28.55 cents 27.61 cents 532.6 million 554.1 million 303.5 million 332.7 million 55.09 cents 59.82 cents 3,977.7 million 3,801.5 million 1,108.7 million 1,177.6 million 347.4 million 388.3 million -0.5% 2.4% 3.4% -3.9% -8.8% -7.9% 4.6% -5.9% -10.5% 14.0% -6.0% Net debt to management EBITDA (excluding non-recourse debt)* 2.12 times 1.86 times Return on equity* Staff numbers 26.91% 17,839 28.62% 15,836 For a reconciliation between statutory and management adjusted results, refer to note 3 in the notes to the financial statements. * These financial indicators are based on management adjusted results. Management adjusted results are used, along with other measures, to assess operating business performance. The Group believes that exclusion of certain items permits better analysis of the Group’s performance on a comparative basis and provides a better measure of underlying operating performance. Management adjustment items that were income to the Group are included in statutory results as other income and therefore management total revenue is consistent with statutory total revenue. Return on equity is calculated as management NPAT after NCI over average monthly shareholders’ equity. FINANCIAL CALENDAR 2016 17 AUGUST Record date for final dividend 13 SEPTEMBER Final dividend paid 9 NOVEMBER The Annual General Meeting of Computershare Limited ABN 71 005 485 825 LOCATION: Computershare Conference Centre Yarra Falls, 452 Johnston Street Abbotsford, Victoria 3067 TIME: 10.00am 2017 15 FEBRUARY Announcement of financial results for the half year ending 31 December 2016 PAGE 2 Computershare Annual Report 2016 CHAIRMAN AND CHIEF EXECUTIVE OFFICER REPORT On behalf of the Board of Directors, we are pleased to present our ﬁnancial results for FY2016. The Company expected a challenging FY2016 and we met that challenge head on, able to deliver on the guidance handed down at the beginning of the year despite the continued deterioration in macroeconomic conditions for the Company. We are looking forward enthusiastically, positioning the Company for sustained earnings growth after implementing a number of initiatives to meet this goal. YEAR IN REVIEW In constant currency terms (measuring performance based on exchange rates from the prior period), the Group delivered 5.0% growth in management revenues. There was a marginal improvement in management EBITDA, up 0.5%, however when excluding the negative impact of falling yields on client balances, the year-on-year growth was 4.3%. Management earnings per share (EPS) was down 4.3% on a constant currency basis, impacted by higher tax, interest and amortisation expenses. Our statutory basic earnings per share grew 3.4% year-on-year to 28.55 cents and net statutory profit after tax attributable to members grew 2.4% to $157.3 million. For the reconciliation between our statutory and management results, refer to note 3 on pages 52 to 53 in the notes to the consolidated financial statements. In actual currency terms, Computershare’s key performance indicator, management EPS, was down 7.9% to 55.09 cents. Total revenues were flat at $1,974.2 million while operating costs were up 1.5% to $1,440.2 million. This year, the strengthening of the USD again materially impacted our actual financial results. Register maintenance revenues fell, due largely to the sale of the Russian business in July 2015, while corporate actions activity was subdued in most markets, other than the US which registered a stronger performance following improved M&A activity. Business services experienced strong revenue uplift year-on-year, due mainly to growth in US loan servicing, bankruptcy and class actions administration and a contribution from the UK Asset Resolution (UKAR) contract win. The Company’s UK business was appointed by UKAR to undertake its mortgage servicing activities under a seven year outsourcing contract, covering GBP 30 billion of UKAR mortgages. Separate contracts for the servicing of GBP 11 billion of assets, purchased by Cerberus from UKAR, were also agreed, with both contracts commencing in June 2016. This is the largest single contract appointment in the Company’s history. There were also contributions to the business services segment from acquisitions, particularly HML reporting for the entire period in FY2016 and the purchase of Gilardi. The voucher services and deposit protection scheme businesses in the UK delivered lower revenue than in FY2015. Employee share plans revenue fell on the prior corresponding period, particularly in the larger UK and US markets. The major catalyst for the fall was reduced equity trading activity by participants, especially energy and mining sector employees, while margin income was also a drag on this segment. Free cash flows (excluding SLS advances) were 10.5% lower this year at $347.4 million and capital expenditure was $29.9 million, down from $38.6 million last year. STRATEGY FOR SUSTAINED EARNINGS GROWTH The Company continues to look at all facets of the organisation and is deploying strategies that it believes position us well for the future: GROWTH EFFICIENCY COSTS Significant progress has been made in executing our mortgage services growth strategy with the UKAR appointment and our acquisition of Capital Markets Cooperative LLC (CMC). Innovation and productivity gains are a key focus to sustain performance in registry. Our strategy is to ensure the employee share plans offering remains at the forefront of the market to leverage ongoing growth in demand for equity based remuneration administration services. A group wide cost reduction project is underway with external specialist input. This is expected to have a material impact on the Group in future periods. Our focus will be on process automation and business simplification. The property rationalisation project in the US remains on track, with savings commencing in FY2017. PAGE 3 CHAIRMAN AND CHIEF EXECUTIVE OFFICER REPORT MAJOR ACQUISITIONS AND DISPOSALS Gilardi, a leading class actions administrator in the US, was acquired in August 2015. This acquisition provides a strong strategic fit alongside our existing KCC business in a growing market. In May 2016 the Company completed the purchase of CMC, a business that provides processing, sale and servicing solutions for a wide network of mortgage originators across the US which, combined with our SLS loan servicing business, positions us well for significant growth in the sector. The Company disposed of its Russian business in response to increased regulatory risk in that jurisdiction surrounding foreign ownership of registry assets as well as VEM, the German Corporate Actions Bank, following regulatory approval obtained during 1H2016. The Company’s global headquarters in Melbourne were also sold in June 2016 in a sale and leaseback arrangement, with the transaction completing in September 2016. The gain on sale of the property, net of costs, of $40.3 million will be excluded from management earnings in FY2017. CAPITAL MANAGEMENT The Company’s issued capital reduced from 556,203,079 ordinary shares, as at 30 June 2015, to 546,826,010, as at 30 June 2016, as a result of the share buy-back announced on 18 August 2015. Under the buy-back program, the Company purchased 9,377,069 ordinary shares during FY2016 for a consideration of AUD 100.6 million at an average price of AUD 10.73 per share. A further 500,000 shares were purchased post 30 June 2016 for an additional AUD 4.6 million consideration, prior to the buy-back program lapsing. During FY2016 we stated publicly that we intend to maintain our gearing level such that net debt to EBITDA is between 1.75 to 2.25 times (excluding the non-recourse SLS advance facility debt). We also stated that we would look to maintain the flexibility to temporarily go above this range to take advantage of compelling investment opportunities should they arise, while also considering capital management initiatives to preserve leverage within the target band. This key leverage metric increased from 1.86 to 2.12 times at 30 June 2016. Acquisitions, the purchase of mortgage servicing rights and the buy-back contributed to the higher leverage outcome during the year. DIVIDENDS The Company announced a final dividend of AU 17 cents per share, 20% franked, paid on 13 September 2016 (dividend record date of 17 August 2016). This follows the interim dividend of AU 16 cents per share, 100% franked, paid in March 2016. Overall, our dividend increased 6.5% year-on-year. The Company continues to operate a dividend reinvestment plan. A new dividend franking policy was deployed during the year, providing shareholders access to maximum allowable franking credits. OUTLOOK We announced in August 2016 that we expected management EPS for FY2017 to be slightly up on FY2016. This outlook assessment is subject to the forward-looking statements disclaimer in our annual results announcement and assumes that equity markets and interest rate markets remain at the levels that existed at the time of providing that guidance and that FY2017 corporate action revenue is similar to FY2016. The FY2017 guidance is now given in constant currency terms to better illustrate Group underlying performance. ACKNOWLEDGEMENTS We would again like to thank our clients who continue to use our market-leading products and services around the world. We greatly appreciate the contribution from our employees across the globe, and thank our fellow directors for their ongoing support and guidance. We appreciate our shareholders’ loyalty and welcome feedback via investor.relations@computershare.com.au. Simon Jones Chairman Stuart Irving Chief Executive Officer PAGE 4 Computershare Annual Report 2016GROUP AND REGIONAL OPERATING OVERVIEW PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the course of the financial year were the operation of investor services, plan services, communication services, business services, stakeholder relationship management services and technology services. > The investor services operations comprise the provision of registry maintenance and related services. > The plan services operations comprise the provision of administration and related services for employee share and option plans. > The communication services operations comprise document composition and printing, intelligent mailing, inbound process automation, scanning and electronic delivery. > The business services operations comprise the provision of bankruptcy, class action and utilities administration services, voucher services, corporate trust services and mortgage servicing activities. > The stakeholder relationship management services group provides investor analysis, investor communication and management information services to companies, including their employees, shareholders and other security industry participants. > Technology services includes the provision of software, specialising in share registry and financial services. Computershare has a range of regulated businesses around the world, including transfer agencies, licensed dealers, corporate trusts and mortgage servicers. REVIEW OF OPERATIONS Overview The investor services business saw revenues lower as a result of the sale of the Russian business and the impact of the stronger USD. Register maintenance in the US was impacted by loss of clients due to M&A and lower shareholder activity, offset in part by new client wins. Register maintenance revenue grew in HK and UCIA but was lower in Canada and India. Corporate actions revenue was stronger in the US, underpinned by the strong M&A cycle. Corporate actions revenues in HK, Australia and UCIA were lower year-on-year. At the EBITDA level, the consolidated investor services business improved 2.6% over FY2015 on a constant currency basis. The plan services business had lower revenues this year, due primarily to significantly weaker transaction activity, particularly from employees in the energy and resources sectors. UCIA was impacted the most, with the US and Australia also weaker. In contrast, the HK and Canadian employee share plan businesses improved year-on-year. Overall, at the consolidated level, EBITDA was down 20.8% in constant currency terms, partly affected by increased regulatory costs and investment in service, product and systems. Business services’ revenue grew 21.2% on FY2015 in constant currency terms. The substantial improvement was due to a full period contribution from HML, growth in mortgage services, bankruptcy and Indian mutual funds, the start of the UKAR contract appointment as well as the Gilardi and CMC acquisitions. Weaker outcomes were seen in the deposit protection scheme and voucher services businesses in the UK. Business services’ EBITDA grew 13.9% year-on-year on a constant currency basis. The Communication Services business had a strong year, with revenue increasing 7.6% and EBITDA up 27.4% in constant currency as volumes increased, particularly in Australia and also in the US and Canada. Disposals of the Russian business and VEM Aktienbank AG occurred early in FY2016, after both these assets were classified as ‘held for sale’ at 30 June 2015. Revenue Region Asia Australia and New Zealand Canada Continental Europe United Kingdom, Channel Islands, Ireland and Africa (UCIA) United States * Total external revenue and other income (total segment revenue) apportioned by region. Operating costs % of total revenue* FY2016 $ million FY2015 $ million 6.5% 13.6% 8.5% 4.1% 18.4% 48.9% 128.0 266.9 166.1 81.0 359.4 957.9 124.6 309.6 186.7 113.3 358.6 870.5 Operating expenses were up 6.8% on FY2015 to USD 1,516.3 million in constant currency terms. The increase was driven by a number of factors, including the impact of acquisitions net of disposals, costs associated with revenue related activity (business mix) and ‘business as usual’ operating expenses that included investment in product development and innovation, increases in regulatory compliance costs, salary increases and some rightsizing costs. Technology costs as a percentage of revenue remained flat at 12.0%, largely unchanged from the prior two years. Earnings per share Statutory basic earnings per share Statutory diluted earnings per share Management basic earnings per share Management diluted earnings per share 2016 cents 28.55 28.51 55.09 55.00 2015 cents 27.61 27.56 59.82 59.72 The management basic and diluted earnings per share amounts have been calculated to exclude the impact of management adjusted items (refer to note 3 in this financial report). PAGE 5 REGIONAL OVERVIEW RESULTS Our Indian joint venture delivered record results on the back of growth in the funds administration business. Ongoing growth in our Hong Kong registry and employee plans administration business also enhanced regional performance. ACHIEVEMENTS ASIA 5,200 EMPLOYEES (INCLUDES INDIAN JV) REVENUE +2.8% MANAGEMENT EBITDA +7.1% 106.8 113.0 111.9 124.6 128.0 42.2 45.2 34.3 33.4 36.7 12 13 14 15 16 12 13 14 15 16 ) n o i l l i m $ ( ) n o i l l i m $ ( BIG CLIENT WINS Hong Kong and China > China Reinsurance IPO > Listings worth 90% of total IPO value in Hong Kong, or 54% in terms of the number of new listings on the main board > Alihealth for employee share plan services India > Larsen & Toubro Ltd and Aditya Birla Group for registry services WE MANAGE > 78% of Hang Seng Index > 97.5% of China Enterprise Index > 53% of BSE Sensex EXPANDED Our Indian JV into Malaysian and Philippines markets for Mutual Fund RTAs EXECUTED > Proxy services for the restructure of China’s two shipping conglomerates, China Cosco and China Shipping, involving 74 asset transactions worth 60 billion RMB > 823 meetings across Hong Kong and China, including a record 7,200 shareholders at the ICBC AGM INNOVATIVE SOLUTIONS KPRISM mobile application for IPO investor queries and service requirements in India FOCUS FOR FY2017 Focus on improving and automating processes to drive operational efficiencies Explore opportunities to further leverage our Plan Managers Asia team into new areas of the plan administration market Continue to bring enhancements to our offering in the advisory space for corporate governance and shareholder engagement to help our clients meet increasing market regulations Continue to work closely with the Hong Kong Securities & Futures Commission to drive reforms that enhance efficiency across the market PAGE 6 REGIONAL OVERVIEW RESULTS Resilient performance by our registry and communication business lines in Australia and New Zealand drove solid results across the region, however, the stronger USD impacted translated profits. ACHIEVEMENTS RATED > 98% positive in the JP Morgan Australian Registry Service Provider Survey > Top 20 Most Attractive Employers by Randstad WE MANAGE > 70% of the ASX20 > 60% of listed companies on the NZX Main Board 1,200 EMPLOYEES REVENUE -13.8% MANAGEMENT EBITDA -11.4% 407.2 426.5 376.4 309.6 266.9 ) n o i l l i m $ ( 76.9 77.4 69.8 51.7 45.7 ) n o i l l i m $ ( 12 13 14 15 16 12 13 14 15 16 EXECUTED > Large Corporate Actions for Asciano, Santos, NAB and Transurban in excess of AUD 18 billion > The listing of Reliance, Australia’s largest IPO in FY2016 > All of NZX Main Board listings, including the IPO of Tegel Group Holdings Limited HELPED OUR CLIENTS WIN Employee Ownership Australia and New Zealand Awards for South 32, Singtel and Goodman Group INNOVATIVE SOLUTIONS Global wire payments Allows shareholders to receive their payments in over 100 currencies Investor Trade Since its launch in May 2015, we’ve processed over 17,000 trades totalling 45 million shares ACHIEVED ISO9001 quality management accreditation for Utility Services FOCUS FOR FY2017 Retain key accounts through proactive account management, market-leading products and superior service Continue to be first to market with innovative solutions on our industry-leading technology platforms Focus on lowering costs and automating processes to drive further operational efficiencies Grow the inbound services revenue of our Communication Services business by focusing on the mortgage and superannuation verticals PAGE 7 REGIONAL OVERVIEW RESULTS Our registry business delivered another year of consistent results but the region was impacted by the combined effects of lower transactional levels and investments in the employee share plan business, lower yields on client balances across a number of products and the stronger USD impacting translated profits. ACHIEVEMENTS 4,900 EMPLOYEES REVENUE +0.2% MANAGEMENT EBITDA -15.9% 358.6 359.4 104.1 100.0 115.8 120.4 119.0 293.4 299.6 324.0 12 13 14 15 16 12 13 14 15 16 ) n o i l l i m $ ( ) n o i l l i m $ ( RATED Number 1 in the 2016 Capital Analytics Survey of Registrars, for the 7th time in 10 years > 1st place in all eight headline categories > 96% overall satisfaction > 99% in account management and service to company categories APPOINTED by the UK government to service £41 billion of mortgage assets WELCOMED 1,700 new employees from UK Asset Resolution BIG CLIENT WINS > Henry Boot and Blackrock Strategic Investment Fund for registry services > Valero, Curtis and HomeServe for employee share plan services > Rolls Royce, Tesco, Easyjet for proxy services WE MANAGE > Registry or share plan services for 60% of the FTSE100 > £73 billion mortgage assets under administration, 62% of 3rd party market > Over 65% of the Irish Stock Exchange Equity Index > 60% of the Channel Islands listed funds market > 86% of South African market by market capitalisation EXECUTED > £3.3 billion Rights Issue for Standard Chartered plc across UK and Hong Kong registers > Significant dealing programmes for Verizon and Vodafone across UK and Ireland, with £112 million worth of shares sold > Complex acquisition of Cable & Wireless by Liberty Global, by our Channel Islands business > Proxy services for Shell’s acquisition of BG and Nokia’s bid for Alcatel Lucent > 70% of IPOs in Ireland WON Global Equity Organisation’s award for Best Plan Effectiveness, for Computershare’s One Plan HELPED OUR CLIENTS WIN > Global Equity Organisation awards for Nokia, SAP and Unilever > ESOP awards for Amadeus, Telefonica and Shell > ProShare awards for Aviva and ASDA RETAINED license for the Deposit Protection Service (DPS) to operate the custodial deposit scheme for a further five years INCREASED > value of deposits protected by DPS by 11% > funds under management by DPS to £1.18 billion > parent numbers for Voucher Services by 4.8%, to 147,000 INNOVATIVE SOLUTIONS > Redesigned the UK Electronic Initial Public Offering website > IFRS9 solution: Our data-driven solution removes the administrative headache associated with new accounting standards for mortgage lenders, SPVs and other portfolio owners FOCUS FOR FY2017 Deliver on the loan services transition and integration following the FY2016 UKAR appointment Complete the plans technology and operations investment to drive revenue growth and improve operational performance Capitalise on our position in market as No.1 registrar to drive new business wins and opportunities Support our clients through the Brexit process as the impacts and new requirements become clearer PAGE 8 REGIONAL OVERVIEW RESULTS The registry business delivered another satisfactory year, but overall regional results were impacted by the disposal of the Russian business, weakness in employee share plan transactional levels and the stronger USD impacting translated profits. ACHIEVEMENTS COMPLETED > Integration of PR IM TURM, German AGM business > ISO9001 certification for our German Communication Services business in Munich BIG CLIENT WINS > Telefonica, Spain’s first registry services contract > SAP SE and Maire Tecnimont S.p.A, for employee share plan services 350 EMPLOYEES REVENUE -28.5% MANAGEMENT EBITDA -38.0% 113.4 110.2 115.1 113.3 81.0 15.0 16.1 14.2 13.7 22.2 ) n o i l l i m $ ( ) n o i l l i m $ ( 12 13 14 15 16 12 13 14 15 16 MOVED The Munich team into a new sustainable building, our biggest site in Continental Europe INNOVATIVE SOLUTIONS Smart voting mobile application for German AGMs WE MANAGE > 90% of AGMs for DAX30 issuers in Germany > 75% of issuers in Italy > 80% of issuers in Denmark > 76% of issuers in Netherlands EXECUTED > IPO of Ferrari, dual-listed in Milan and New York > IPO of DONG Energy, one of the biggest ever IPOs in Denmark > IPO of ENAV, listed in Italy > Two of the top three IPOs in Germany this year > AGM for Siemens AG, with circa 9,000 shareholders FOCUS FOR FY2017 Retain our market-leading position across the region by enhancing our front office skills and cross-selling capabilities Target new revenue opportunities that leverage our meeting expertise for large clubs and associations Continue to monitor the central Securities Depositary regulations and Shareholder Rights Directive as Target 2 Securities is rolled out across Europe Support our US-based class action administration business to deliver projects and win clients across Europe PAGE 9 REGIONAL OVERVIEW RESULTS Stronger corporate action activity and growth across the mortgage services, bankruptcy and the class action administration business led to another year of improved regional results. 3,900 EMPLOYEES REVENUE +10.0% MANAGEMENT EBITDA +6.0% 843.2 889.7 870.5 957.9 208.8 213.5 226.4 654.4 171.8 125.0 ) n o i l l i m $ ( ) n o i l l i m $ ( 12 13 14 15 16 12 13 14 15 16 ACHIEVEMENTS RATED > 94% satisfaction from our registry clients > 91% satisfaction from our employee share plan clients COMPLETED ACQUISITIONS > Gilardi, class-actions business > Capital Markets Cooperative and Altavera, which together with SLS now form Computershare Loan Services BIG CLIENT WINS > Coca-Cola European Partners, STERIS and 30 closed-end funds for Legg Mason for registry services > CH2M Hill Companies and Cabela’s Inc. for plans services > 15 mortgage servicing deals including new sub-servicing contracts with Freddie Mac and BlackRock > 413 class action settlement administrations FOCUS FOR FY2017 WE MANAGE > 77% of DOW 30 EXECUTED 767 corporate actions, including merger deals for: > Charter Communications and Time Warner Cable: Deal value $78.7 billion > AT&T and DirecTV: Deal value $67 billion > Avago Technologies and Broadcom: Deal value $77 billion INNOVATIVE SOLUTIONS Iconsent website: Helps clients to determine employee interest in joining share purchase plans Continued focus on efficiency initiatives, including progressing our property rationalisation project away from high-cost locations to improve operating margins Execute a range of front office initiatives, including generating new sources of revenue in our traditional markets Complete integrations of the CMC and Altavera acquisitions to support the ongoing growth in our loan servicing business line Deliver on the growth plans for our class actions and employee share plans businesses PAGE 10 REGIONAL OVERVIEW RESULTS Despite the full year impact of lower interest rates and soft market conditions, the region delivered another year of solid results. Like most other regions, translated profits were impacted by the stronger USD. ACHIEVEMENTS CANADA 900 EMPLOYEES REVENUE -11.0% MANAGEMENT EBITDA -12.0% 208.5 198.0 189.8 186.7 95.6 166.1 81.6 75.7 76.6 67.4 12 13 14 15 16 12 13 14 15 16 ) n o i l l i m $ ( ) n o i l l i m $ ( RATED > 94% satisfaction from our registry clients > 9.5/10 for performance by our Communication Services clients COMPLETED > The integration of SyncBASE and Valiant Trust Company clients and staff BIG CLIENT WINS > Hydro One IPO > Sleep Country Canada IPO EXECUTED > Key corporate actions for over 300 companies in excess of CAD 39 billion, including Royal Bank of Canada’s CAD 5.4billion purchase of City National Bank and Suncor’s CAD 3.8 billion acquisition of Canadian Oil Sands > Subscription Receipt Offering for TransCanada Corporation, with aggregate proceeds of CAD 4.4 billion WE MANAGE 56% of TSX INNOVATIVE SOLUTIONS Dividend FX Allows issuers to fund multi-currency dividends with one single-currency payment Facilitating Online and Call Centre Dividend Reinvestment Plan (DRIP) transactions This service is an industry first in Canada, which simplifies the sale and transfer process for DRIP participants. Online tendering solution For shareholders that participated in the Restaurant Brands International Asset Reunification program FOCUS FOR FY2017 Retain key accounts through proactive account management, demonstrating industry involvement and leadership and providing superior service Pursue growth through our recently expanded private capital solutions, online capabilities and class action service offering Continue to develop new/enhanced product offerings and services that generate new sources of revenue Continued focus on cost reduction through automation and process improvement initiatives PAGE 11 GLOBAL OVERVIEW RESULTS TOTAL TECHNOLOGY SPEND $236.4M TOTAL SPEND AS A PERCENTAGE OF REVENUE 12.0% DRIVING SYNERGIES > Moved HML into our centralised UK data centre, harnessing global platforms and Shared Service systems for the loan management business > Deployed our operational suite to our Hong Kong business, improving transaction management and streamlining processes > Implemented a hyper converged infrastructure for our Munich and Hong Kong offices, improving system performance speed and reducing the support required ACHIEVEMENTS LAUNCHED > Investor Centre, designed for mobile devices, deployed to our Australian and American clients > On-demand reporting for employee share plan clients across the globe > New computershare.com corporate website > Loss mitigation capability for our US loan servicing businesses SECURITY INITIATIVES > Enhanced our disaster recovery position in North America by deploying a new metro zone disaster recovery site > Refined our data loss prevention processes, scanning seven million files per week to keep data secure > Enhanced Security Programme has delivered complex and privileged access controls to reduce the risk of unauthorised access to our clients’ data FOCUS FOR FY2017 1,300 EMPLOYEES RESEARCH AND DEVELOPMENT SPEND $76.9M PRODUCT INNOVATIONS > Improving the digital experience for employee share plans through refreshing the user interface of Employee Online and providing advanced capabilities and features for our clients > Developing our first data insight/business intelligence dashboards for clients, delivering descriptive, comparative and prescriptive analytics Integrate and consolidate Computershare Mortgage Services technology across our infrastructure landscape Deliver products and services to our employee share plans business, capitalising on existing capabilities and driving enhanced client engagement solutions Drive data services solutions to provide clients with a secure environment to generate data insights and encourage data driven innovation across our portfolio Continue with product innovation, focusing on process automation and cloud technologies to drive consistency and improved cost agility PAGE 12 GLOBAL OVERVIEW ACHIEVEMENTS BIG CLIENT PROJECTS > $28 billion tri-company merger of Coca-Cola Enterprises, spanning UK, US, Germany, France, Netherlands and Spain > $5.3 billion acquisition of Cable & Wireless by Liberty Global > $2.3 billion demerger of CYBG plc from National Australia Bank > $10 billion demerger of Ferrari from FiatChrysler; following $900 million Ferrari IPO > $6.3 billion merger between Rexam and Ball Corp., including provision of a Depositary Interest, a Corporate Sponsored Nominee and Dealing service MANAGED > 14 redomiciliation transactions in FY2016. More broadly, the trend for non-US companies looking to list in the US in the form of shares continues > 47 other cross-border deals completed in FY2016 around the world FOCUS FOR FY2017 INNOVATIVE SOLUTIONS > Partnered with SETL and demonstrated Australia’s first working blockchain capital markets solution > Developed solution to support prospective offering for digital securities on blockchain for Overstock.com > Developed various use cases for potential application of blockchain in capital markets > Cross-border application xSettle™ released into New Zealand SETTLEMENT PROCESSING Over 35,000 transactions processed across eight markets (including transactions for UK and Irish share plans), with a total value of over $34 billion REGULATORY AND MARKET INITIATIVES Engaged with industry stakeholders on: > Regulatory approach to capital markets for blockchain > CSD regulations across EU > SEC’s regulation of Transfer Agencies in the US > Vote confirmation pilots in UK, US and Netherlands Continue to explore and develop innovative applications for blockchain, in particular for capital markets, across Computershare’s core markets Continue to service and develop innovative structures for a wide range of cross-border transactions, including redomiciliations, M&A and IPO transactions Monitor and engage with key industry stakeholders on global regulatory and market initiatives Assess process automation technology to implement further efficiencies for xSettle™, our cross-border settlement processing platform PAGE 13 We know that corporate responsibility is part of doing business successfully. Computershare is committed to acting in an environmentally friendly and socially responsible manner and we seek to do so throughout our global business operations and activities. SUSTAINABILITY We have sustainability targets and environmental programs in place around the globe to further minimise our already low impact on the natural world, underpinned by a set of yearly objectives. REVIEW OF FY2016 SUSTAINABILITY OBJECTIVES Successful Green Office Challenge 6 Successful Green Days More than 80% of offices undertook a sustainability audit comprising 42 questions covering energy, resources, transportation and waste. In all, 62 offices took part in the challenge across 15 countries, most of which improved their score. Excellent participation in the Carbon Games, with more than 3,000 people calculating their personal carbon footprint. We also participated in Earth Hour, World Water Day and other local initiatives such as litter picks. Plan to achieve Phase 1 reduction targets Offices have local plans in place and are continuing to work towards their targets, which you can view at www.computershare.com/cr. Here’s a summary of our efforts to reduce gas, electricity, water and waste in four key premises by 2018: General waste The Pavilions, Bristol and Burr Ridge, Chicago have reached and maintained their targets. Electricity East Beaver Creek, Toronto and Burr Ridge have reached and maintained their targets. Natural gas Water The Pavilions has maintained its target, with Yarra Falls, Melbourne and Burr Ridge also reaching and maintaining their targets during the past year. Burr Ridge has reached and maintained its individual site target. Identify and implement new targets for additional offices Implement first sustainability principles globally Targets have been put in place for Hong Kong and Auckland. Our sustainability principles have been launched globally along with new promotional material to raise awareness. Undertake green IT maturity assessment The maturity assessment has been completed providing a benchmark across regions. Data centre relocations in the UK, USA and Continental Europe have also significantly driven down energy consumption. LOCAL ACHIEVEMENTS Employees’ participation drives our sustainability efforts. Visit our website to see more of our environmental achievements. Osborne Park, Australia pallet garden created by employees to grow plants and herbs Holte, Denmark 100% of electricity is now provided by off-shore wind power Canton, MA, USA reserved parking introduced for high occupancy or high efficiency vehicles Toronto, Canada introduced coffee pod recycling AWARD WINS Yarra City Council Sustainability Awards - Sustainable Business Bristol Green Capital Awards 2016 - Green organisation Bristol Go Green Awards 2016 - Most improved sustainable sourcing For commitment to sustainable business operations, staff engagement initiatives and development of community partnership building. In recognition of Computershare’s commitment to making Bristol, the West of England and our planet become greener, safer and cleaner. For demonstrating sustainable purchasing practices by sourcing Fairtrade goods and ensuring ethical standards are maintained throughout the supplychain. PAGE 14 VISIT OUR WEBSITE FOR MORE INFORMATION www.computershare.com/cr COMMUNITY In addition to the volunteer opportunities that we give our employees each year, many staff members also contribute to ongoing community events and charity initiatives in their local area. 100,000KM 35,700KM 500+ 200+ 133 colleagues in Australia collectively walked and ran 100,000km as part of the Global Corporate Challenge 35,700km cycled in Africa, raising R3.9 million Winter clothes appeal in Australia – 500+ items donated to homeless people 200+ outfits donated to Dress for Success events in Brisbane and Dublin 70 70 boxes of clothing donated to Syrian refugees 12HR 1 12 hour charity spinathon 1 sky dive event CHANGE A LIFE Food and gift drives in Australia, Canada, United States and United Kingdom DONATIONS OF OVER AUD 970,000 SUPPORTED OUR PROJECTS IN FY2016 Founded in 2005, Change A Life is our global community giving program that invests in projects that provide long-term solutions to the communities involved. We focus on long-term change that is felt on a global stage and provides an opportunity for people to build up their skills for a brighter and more sustainable future. PROJECTS COMPLETED IN FY2016 Kenya – Community Learning Centres WithOneSeed From 2012 to 2015, we funded a project run by World Vision Australia to develop three Community Learning Centres (CLCs) in rural Kenya. These centres are equipped with electronic encyclopaedias and other learning aids, and were designed to help communities access health and development information through technology. > 6,165 people accessed information > 5,220 children completed training in the use of technology > 18 communities have been formed for the exchange of information > 235 youth and community members have been trained on how to generate and share local information In 2012, Change A Life committed AUD 350,000 over three years to help build a small community forestry program, high in the mountains of Timor Leste. The program established Community Tree Cooperatives across 10 villages in Baguia, covering a mountainous region of 22,000 hectares, 35 schools and a population of 14,000. > 450 farmers, 56,000 trees > 3 community-based nurseries with the capacity to propagate over 20,000 saplings annually > established a Village Learning Centre, connecting the community to the internet > injected over $150,000 into the local economy > certified under the International Gold Standard for Afforestation/Reforestation CURRENT PROJECTS Sri Lanka - Come-Share Education Project Supported since 2005 > Covers 21 out of 25 districts in Sri Lanka > Tuition provided to 1,400 students Talensi, Ghana - Farmer Managed Natural Regeneration Change A Life’s sixth World Vision project Sihanoukville, Cambodia – Sunrise Village Supported since 2007 > Fourth year of a five-year project, due to complete in 2017 > Aims to reduce the annual hunger gap for over 8,400 children and their families > The village includes a medical and dental clinic, 12 houses and 4 kitchens, an administration building, 4 classrooms, a computer lab and dance and music hall > Housed around 100 children NEW PROJECTS Change A Life Rape Crisis Centre The Change A Life Rape Crisis Centre, located in South Africa, provides sanctuary for victims of violent crime. Renovations to the Khayelitsha Centre, for which Change A Life donated the funds, were completed at the beginning of 2016 and a food garden has been planted. Survivors, many of whom do not have any means of support, are given the opportunity to join the sewing, gardening and catering projects run by the Centre. South African staff contributed donations of over R157,000 in FY2016. PAGE 15 BUSINESS STRATEGIES AND PROSPECTS OUTLOOK In August 2016, we reported that we expect management EPS in constant currency to be slightly up on FY2016. The outlook assessment is subject to the forward-looking statements disclaimer in our annual results announcement and assumes that corporate actions revenue is similar to FY2016, and that interest rate markets perform broadly in line with expectations that existed at the time of providing that guidance and equity markets remain at the levels that existed at the time of providing that guidance. Computershare’s strategy is to be the leading provider of services in our selected markets by leveraging our core skills and competencies to deliver outstanding client outcomes from engaged staff. We focus on new products and services to reinforce market leadership in established markets and invest in technology and innovation to deliver productivity gains and improved cost outcomes. Our key growth drivers are as follows: ORGANIC MACRO STRUCTURAL We are investing in mortgage servicing, employee share plans and an enterprise wide cost out program which, coupled with property rationalisation benefits, is expected to drive growth and improved returns. We are leveraged to corporate actions and equity market activity and a rising interest rate environment, which should help drive improved yields on client balances. We are considering how we best position ourselves to benefit from the emerging trend of new non-share registry outsourcing that is being driven by rising compliance, technology complexity and the requirement for efficient processing, payments and reconciliations. We are prioritising actions that will best assure our future: > protecting profitability in our mature businesses through new revenue and cost initiatives > investing in growth opportunities for businesses that offer that potential, such as mortgage servicing and employee share plan administration > evaluating new business opportunities, but with high investment hurdle thresholds In delivering on our strategic focus, we remain cost focused and have made significant progress through FY2016 on centralising our US operations, which is expected to yield project benefits of $25-$30 million on an annualised basis. We have also commenced a group wide cost review project. Further enhancements to our business services portfolio were achieved with the Gilardi acquisition opening up new opportunities for our US class actions administration business, and the acquisition of CMC, which we expect to considerably strengthen our US mortgage servicing operation. Our UK mortgage services business was appointed by the UK Government to service a GBP 30 billion book of UKAR mortgage loans and was also appointed to service an additional GBP 11 billion of similar assets purchased by Cerberus, which was a significant milestone. While the competitive landscape remains challenging, we continue to achieve high levels of customer satisfaction and client retention. Our investments in integrated products continue to help us win new clients across the Group. RISKS The Board is ultimately responsible for ensuring that Computershare’s risk management practices are sufficient to mitigate the risks present in our business as efficiently and effectively as possible. The Board delegates some of this responsibility to the Risk and Audit Committee. Computershare has a clear approach to the oversight and management of risk, based on the three lines of defence model. This model provides a simple framework for the implementation and oversight of risk management in which management, as the first line of defence, has primary responsibility for risk management and control activities. The risk function, as part of the second line of defence, is responsible for setting and implementing the risk framework and supporting tools and methodologies as well as providing advisory support to management. The internal audit function, as the third line of defence, provides an independent and objective assurance function with the responsibility of confirming that the framework, policies, and controls designed to manage key risks are being executed by management. Internal audit carries out regular systematic monitoring of control activities and reports its findings to the senior managers of each business unit as well as to the Risk and Audit Committee. PAGE 16 Computershare Annual Report 2016BUSINESS STRATEGIES AND PROSPECTS RISK SUMMARY The following outlines areas of material risk that could impact our ability to achieve our strategic objectives and future financial prospects including, where applicable, our exposure to economic, environmental or social sustainability risks and how we seek to mitigate or manage them. Strategic and regulatory risk Our businesses operate in highly-regulated markets around the world and our success can be impacted by changes to the regulatory environment and the structure of these markets. As an organisation we pay very close attention to regulatory developments globally and play an active role in consulting with regulators on changes which could impact our business. Many of our key businesses are also subject to direct regulatory oversight and we are required to maintain the appropriate regulatory approvals and licenses to operate, and in some cases adhere to certain financial covenants. Our business is also at risk of disruption from new technologies and alternative service providers. This means we must be constantly looking for ways to improve our services by investing in new technologies and processes. We have also established a dedicated innovation team which is responsible for rapidly assessing the viability of new business ideas and initiatives in an agile yet systematic manner using proven innovation techniques. FY2016 has seen the emergence of distributed ledger technology or ‘blockchain’ as a technology, which has the potential to be deployed across financial market systems, including post trade clearing and settlement of securities. Deployment of distributed ledger technology into financial markets, if it ultimately proves to be a viable option, will require extensive dialogue and consultation with regulators and industry participants and its ultimate market structure implications are not yet known. Computershare is adopting a measured and considered approach to blockchain. We are pursuing a dual track approach in terms of assessing the commercial value of introducing innovative blockchain services in market adjacencies, while also rigorously defending our existing role and overall market positioning. We also believe that our global presence makes us an attractive partner to blockchain solution providers and gives us access to a wide range of potential commercial blockchain opportunities. Our future prospects also depend on finding and executing on opportunities to grow and diversify our business. We are potentially constrained by market structure and competition law restrictions from significantly growing our registry services footprint by acquisition (unless subsequent market structure changes present new opportunities) and this has inevitably changed the focus of our investment decisions. There is also inherent risk in any acquisition, including risk of financial loss or missed earnings potential from inappropriate acquisition decisions as well as integration risk in its implementation. Computershare has a strong track record of acquiring and integrating businesses successfully, in particular in the businesses of registry and employee share plan administration. We have a deliberately focused acquisition strategy with rigorous approval processes and we also undertake subsequent reviews of our acquisitions and their performance. Financial risk Our financial performance each year is underpinned by significant annuity revenue. However, there is also a material proportion of revenue that is derived from transactional activity that is dependent on factors outside our control, which can be challenging to predict. Changes to market activity generally and foreign exchange rates have the ability to impact on our financial performance. Margin income is a key contributor to earnings. Changes in investment restrictions, interest rates and to the level of balances that we hold on behalf of clients can have a material impact on the Group’s earnings. We also have strong relationships with the global financial institutions that hold our client balances. We have robust policies and other protections to manage risks associated with placing those funds and we also make significant investments in processes and technology to identify, allocate, reconcile and oversee client monies. We also experience vigorous competition in all of the markets in which we operate and the actions of our competitors can impact on our financial prospects. For example, aggressive price discounting by competitors could adversely affect our ability to retain existing clients and also win new clients. We continually strive to remain the leading provider of services in all our business lines globally and invest significantly in new technology and services to maintain our market-leading position. Operational risk Computershare is responsible for managing valuable client data. This presents a range of challenges, from ensuring the security and integrity of that data as well as the continuity of our service in the face of internal and external factors. We manage these risks through extensive business continuity planning and testing as well as rigorous internal controls around the ability to access and modify client data. We also make significant investments in technology and services to protect data at rest, in motion and at end point, including a specialist information security team whose responsibilities include ensuring we have appropriate and effective systems in place to protect our and our clients’ data from unauthorised access. Our dedicated financial crime team is also responsible for analysing information and transactions to mitigate the risk of fraud (both internal and external) and these resources are focused on areas of highest potential exposure. Computershare also undertakes high volumes of transactional processes, some of which are complex. There is a risk that failure to process these transactions correctly could result in liabilities being incurred to third parties. We invest significantly in technology to automate processes where possible. We also have policies, processes and corresponding controls to assist in mitigating this risk, which are routinely tested. The Group also maintains insurance. PAGE 17 CORPORATE GOVERNANCE STATEMENT 1. COMPUTERSHARE’S APPROACH TO CORPORATE GOVERNANCE The Board is committed to maintaining high standards of corporate governance by overseeing a sound and effective governance framework for the management and conduct of Computershare’s business. This corporate governance statement sets out a description of Computershare’s main corporate governance practices. Computershare’s governance arrangements complied with each of the recommendations set by the ASX Corporate Governance Council throughout the reporting period, except as identified in this statement. In this statement ‘Group’ is used to refer to Computershare Limited and its controlled entities, and references to ‘Group management’ refer to the Group’s Chief Executive Officer and the executives reporting directly to the Chief Executive Officer. This Corporate Governance Statement has been approved by the Board and is current as at 19 September 2016. 2. BOARD RESPONSIBILITIES The Board is responsible for the corporate governance of the Group and is governed by the principles set out in the Board Charter. A copy of the Board-approved Charter is available from http://www.computershare.com/governance. The principal role of the Board is to ensure the long-term prosperity of the Group and, in doing so, to determine the Group’s strategic direction. The Board also sets broad corporate governance principles, which govern the Group’s business operations and accountability, and ensures that those principles are effectively implemented by Group management. The Board’s other reserved powers and duties can be divided into five distinct areas of responsibility, an overview of which is provided below: > Strategic planning for the Group – involves commenting on, and providing final approval of, the Group’s corporate strategy and related performance objectives, as developed by Group management, as well as monitoring Group management’s implementation of, and performance with respect to, that agreed corporate strategy. > Financial matters – includes approving the Group’s budgets and other performance indicators and monitoring progress against them, as well as approving and monitoring financial and other reporting, internal and external audit plans, enterprise risk management plans and the progress of major capital expenditure, acquisitions and divestitures. > Corporate governance – incorporates overseeing Computershare’s corporate governance framework, including approving changes made to key supporting Group policies and overseeing Computershare’s reporting to shareholders and its compliance with its continuous disclosure obligations. > Overseeing Group management – involves the appointment and, if required, removal of the Chief Executive Officer and the monitoring of his or her ongoing performance, as well as, if applicable, the appointment and if required, removal of Group management personnel, including the Chief Financial Officer and Company Secretary. > Remuneration – comprises the approval of Computershare’s overall remuneration framework and determining the remuneration of non-executive directors within the limits approved by shareholders. The Board has delegated the responsibility for day-to-day management and administration of Computershare to the Chief Executive Officer. Ultimately, Group management is responsible for managing the Group in accordance with the corporate strategy, plans and policies approved by the Board, and is required to provide appropriate information to the Board to ensure it can effectively discharge its duties. 3. BOARD COMPOSITION AND DIRECTOR APPOINTMENT Computershare’s Constitution states that the Board must have a minimum of three and a maximum of ten directors. Re-appointment is not automatic and if retiring directors would like to continue to hold office they must submit themselves for re-election by Computershare’s shareholders at the Annual General Meeting. No director (other than the Chief Executive Officer) may be in office for longer than three years without facing re-election. In addition to ensuring that the Board has the mix of skills, knowledge and experience commonly required across boards of major ASX listed companies, the Board is also focused on ensuring that its composition aligns with the Group’s strategic objectives and that it has the necessary skills and expertise to provide oversight of those areas of the Group’s business where there is greatest scope to increase shareholder value in the future. As a global organisation, it is also of great importance to the Board that it has an appropriate balance of directors who are based in Australia, as well as directors who are based in or who have experience of regions where there are significant group operations. The Board also considers its size should be conducive to effective discussion and efficient decision making. The Board regularly reassesses its composition to ensure that it continues to meet these requirements. PAGE 18 Computershare Annual Report 2016To assist in this process the Board has developed a Board skills matrix which sets out the skills and experiences that the Board has or is looking to achieve. The current skills and experience of the Board assessed as a whole against the matrix is as follows: Leadership and governance Strategy Innovation and entrepreneurship CEO level experience Other non-executive director experience Corporate governance Business experience M&A and capital markets experience International business experience Working in regulated industries Outsourced business services Business development / access to networks Financial and risk Accounting and finance Banking and treasury Audit, risk management and compliance Other Technology HR / remuneration Geographic experience North America UK and Europe Asia Australia Total out of eight Directors 8 4 5 7 6 8 6 6 6 5 5 5 5 5 5 6 8 3 6 There was no change to the composition of the Board during the reporting period. All of Computershare’s non-executive directors have signed formal letters of appointment setting out the key terms and conditions relating to their appointment as a director. Senior managers at Computershare also sign employment agreements, except in certain overseas jurisdictions due to local employment practices. Proposed appointees to the Board are subject to appropriate background checks. The format of these checks is dependent on the residence of the proposed director but would typically include police and bankruptcy checks and searches of relevant public records and filings. This is in addition to confirmation of the proposed director’s experience and character as appropriate. Any director appointed by the Board will be required to stand for election at the next AGM, at which time the Company will provide in the notice of meeting all material information known to the Company that is relevant for shareholders to decide on whether or not to appoint the director. On appointment, all new directors undertake an induction process. They receive copies of all key governance documents as well as briefings from senior management on material matters relating to the Computershare group including strategic considerations, financial performance, major markets and business lines and operational and technological capability. As the Board holds meetings in all of the major markets in which the Group operates, new directors are, along with the rest of the Board, given the opportunity to meet with regional management and visit operational facilities during those meetings. Computershare does not have a formal program of professional development for its directors. Directors receive briefings on material developments, including structural developments and market changes, that relate to the Group’s operations. Directors may also request that the Company provide them with specific development opportunities which they may consider necessary to improve their skills and knowledge. PAGE 19 The Directors As at the date of this Annual Report, the Board composition (with details of the professional background of each director) is as follows: Simon Jones M.A. (Oxon), A.C.A. Position: Chairman Age: 60 Independent: Yes Years of service: 11 Term of ofﬁce Simon Jones was appointed to the Board in November 2005 as a non-executive director. Simon was last re-elected by shareholders in 2014 and was appointed as Computershare’s Chairman in November 2015. Skills and experience Simon is a chartered accountant with extensive experience in investment advisory, valuations, mergers and acquisitions, public offerings, audit and venture capital. Simon was previously a Managing Director of N.M. Rothschild and Sons (Australia) and Head of Audit and Business Advisory (Australia & New Zealand) and Corporate Finance (Melbourne) at Arthur Andersen. Other directorships and ofﬁces Director of Canterbury Partners Chairman of Melbourne IT Limited (Director since 2003 and Chairman since 2009) Chairman of the Advisory Board of MAB Corporation Pty Ltd Board Committee membership Chairman of the Nomination Committee Member of the Risk and Audit Committee Member of the Remuneration Committee Member of the Acquisitions Committee Stuart Irving Term of ofﬁce Stuart Irving was appointed Chief Executive Officer and President of Computershare on 1 July 2014. He joined Computershare in 1998. Skills and experience Stuart held a number of roles at The Royal Bank of Scotland before joining Computershare as IT Development Manager in the UK. Stuart subsequently worked in South Africa, Canada and the US before becoming Chief Information Officer for North America in 2005 and then the Computershare Group’s Chief Information Officer in 2008. Position: Chief Executive Officer Age: 45 Independent: No Years of service: 2 Board Committee membership Member of the Nomination Committee Member of the Acquisitions Committee Christopher John Morris Term of ofﬁce Chris Morris and an associate established Computershare in 1978. He was appointed Chief Executive Officer in 1990 and oversaw the listing of Computershare on the ASX in 1994. Chris became the Group’s Executive Chairman in November 2006 and relinquished his executive responsibilities in September 2010 and subsequently stood down as Chairman in November 2015. Chris was last re-elected in 2015. Skills and experience Chris has worked across the global securities industry for more than 30 years. His knowledge, long-term strategic vision and passion for the industry have been instrumental in transforming Computershare from an Australian business into a successful global public company. Other directorships and ofﬁces Non-Executive Chairman of Smart Parking Limited (appointed in March 2009) Non-Executive Chairman of DTI Limited (appointed in June 2011) Non-Executive Director of Adslot Limited (from September 2010 to February 2014) Board Committee memberships Chairman of the Nomination Committee Chairman of the Acquisitions Committee Member of the Remuneration Committee Position: Non-Executive Director Age: 68 Independent: No Years of service: 38 PAGE 20 Computershare Annual Report 2016CORPORATE GOVERNANCE STATEMENT Penelope Jane Maclagan BSc (Hons), DipEd Term of ofﬁce Penny Maclagan joined Computershare in 1983 and was appointed to the Board as an executive director in May 1995. Penny relinquished her executive responsibilities in September 2010. Penny was last re-elected in 2015. Skills and experience Penny has over 30 years of experience and knowledge in the securities industry. Having led Computershare’s Technology Services business until 2008, Penny has a very deep understanding of Computershare’s leading proprietary technology that contributes to its competitive advantage in the global marketplace. Other directorships and ofﬁces Non-Executive Director of Smart Parking Limited (appointed in February 2011) Board Committee membership Member of the Nomination Committee Member of the Remuneration Committee Term of ofﬁce Markus Kerber was first appointed to the Board as a non-executive director in August 2004. In November 2009 he was required to retire due to his appointment as the Head of the Planning Department in the German Treasury and re-joined the Board in 2011. Markus was last re-elected to the Board in 2014. Skills and experience Markus is Managing Director of the Federation of German Industries. Markus has worked as an investment banker in London in the equity capital markets divisions of Deutsche Bank AG and S.G. Warburg & Co Limited. Prior to his appointment to the German Treasury, Markus was the Director General at the German Ministry of the Interior from 2006 until 2009. Between 1998 and 2005 he was Chief Financial Officer, Chief Operating Officer and Vice Chairman of the Supervisory Board of GFT Technologies AG. Other directorships and ofﬁces Member of the Supervisory Board of Commerzbank Aktiengesellschaft Member of the Board of Supervisory Directors of KfW Board committee membership Member of the Acquisitions Committee Member of the Remuneration Committee Member of the Nomination Committee Term of ofﬁce Les Owen was appointed to the Board on 1 February 2007 as a non-executive director. Les was last re-elected in 2013. Skills and experience Les is a qualified actuary with over 35 years’ experience in the financial services industry. He held Chief Executive Officer roles with AXA Asia Pacific Holdings and AXA Sun Life plc and was a member of the Global AXA Group Executive Board. He was also a member of the Federal Treasurer’s Financial Sector Advisory Council. Other directorships and ofﬁces Non-Executive Director of Discovery Holdings Limited (a South African-listed health and life insurer) Non-Executive Director of the Royal Mail Group Plc Board Committee membership Member of the Risk and Audit Committee Member of the Remuneration Committee Member of the Nomination Committee Position: Non-Executive Director Age: 64 Independent: No Years of service: 21 Dr Markus Kerber Dipl.oec, Dr. Rer. Soc. Position: Non-Executive Director Age: 53 Independent: Yes Years of service: 5 Arthur Leslie (Les) Owen BSc, FIA, FPMI Position: Non-Executive Director Age: 67 Independent: Yes Years of service: 9 PAGE 21 Tiffany Lee Fuller B.Com, GAICD, ACA Position: Non-Executive Director Age: 46 Independent: Yes Years of service: 2 Joseph Mark Velli BA, MBA Term of ofﬁce Tiffany Fuller was appointed to the Board on 1 October 2014 as a non-executive director. Tiffany was elected by shareholders at the Company’s AGM in November 2014. Skills and experience Tiffany has held various corporate finance, financial advisory and management consulting positions with Arthur Andersen in Australia, the US and UK. She held roles in investment banking with Rothschild Australia and was also Director and Principal of the Rothschild e-Fund focusing on investments in early stage technology companies in Australia and New Zealand. Tiffany has also been appointed as a non-executive director for various public and private entities in both the for and not for profit sectors. Other directorships and ofﬁces Non-Executive Director of Costa Group Holdings Limited (appointed in 2015) Non-Executive Director of Smart Parking Technologies (since 2011) Non-Executive Director of Adslot Limited (2011 to 2014) Board Committee membership Chair of the Risk and Audit Committee Member of the Remuneration Committee Member of the Nomination Committee Term of ofﬁce Joseph Velli was appointed to the Board on 1 October 2014 as a non-executive director. Joseph was elected by shareholders at the Company’s AGM in November 2014. Skills and experience Joseph is a retired financial services and technology executive with extensive securities servicing, M&A and public board experience. For most of his career, Joseph served as Senior Executive Vice President of The Bank of New York and as a member of the Bank’s Senior Policy Committee. During his 22-year tenure with the Bank, Joseph’s responsibilities included heading Global Issuer Services, Global Custody and related Investor Services, Global Liquidity Services, Pension and 401k Services, Consumer and Retail Banking, Correspondent Clearing and Securities Services. Most recently Joseph served as the Chairman and Chief Executive Officer of Convergex Group. Position: Non-Executive Director Age: 57 Independent: Yes Years of service: 2 Other directorships and ofﬁces Non-Executive Director of Paychex, Inc. Board Committee membership Chairman of the Remuneration Committee Member of the Nomination Committee 4. BOARD INDEPENDENCE The Board has considered each of the eight directors in office as at the date of this Annual Report and has determined that a majority (five out of eight) are independent, and were so throughout the reporting period. The three directors who are not considered to be independent are Chris Morris, Penny Maclagan and Stuart Irving due to their past or present involvement in the senior management of the Company and, in the case of Chris Morris, his substantial shareholding in the Company. To determine the independence of a director, the Board has to consider a number of different factors, including those set out below: > whether the director acts (or has recently acted) in an executive capacity for the Company > the materiality of the director’s shareholding in the Company (if any) > the existence of any other material relationship between the director and a member of the Group (for example, where the director is or has been an officer of a significant adviser, supplier or customer) > the ability of the director to exercise his or her judgement independently The Board notes that the ASX Corporate Governance Council recommends that the Chair be an independent director. Chris Morris was Chairman of the Board until November 2015. Although not an independent director, the Board had been of the view that given Chris Morris, as founder of the company more than thirty years ago and the driving force behind Computershare’s transformation into a successful global public company, it was appropriate that he held the position of Chairman when he relinquished his CEO position in 2006. In November 2015, Computershare announced that Chris Morris was stepping down as Chairman and would remain on the Board as a non-executive director and Simon Jones was appointed as Chairman. Simon Jones was the Lead Independent Director for Computershare whilst Chris Morris was Chairman. Given Simon Jones is an independent director, no other director was appointed into that role when Simon Jones became Chairman. PAGE 22 Computershare Annual Report 2016CORPORATE GOVERNANCE STATEMENT5. BOARD MEETINGS AND REPORTS The Board met in person on four occasions in the reporting period. In-person meetings will generally take place over two full days and provide the Board with the opportunity to meet the senior management in the region where the meeting is held, so that the Board visits all of the Group management team in person over the year. At its meetings, the Board will also discuss the Group’s results, prospects and short and long-term strategy, as well as other matters, including operational performance and legal, governance and compliance issues. The Board also convened four other meetings by telephone during the reporting period. Group management provides monthly reports to the Board detailing current financial information concerning the Group and each of the regions in which it operates. Management also provides additional information on matters of interest to the Board, including operational performance, major initiatives and the Group’s risk profile, as appropriate. The Committees of the Board also meet regularly to fulfil their duties, as discussed further below. 6. BOARD COMMITTEES To assist in discharging its responsibilities, the Board has established four committees. The Risk and Audit Committee The principal function of the Risk and Audit Committee is to provide assistance to the Board in fulfilling its corporate governance and oversight responsibilities in relation to the Company’s financial reporting, internal control structure, risk management systems, internal audit function and external audit requirements. The Risk and Audit Committee is chaired by Non-Executive Director Tiffany Fuller. The Committee currently has two other permanent non-executive members, Simon Jones and Les Owen. Each member of this Committee is considered by the Board to be independent. The Board regards these members as having the required financial expertise and an appropriate understanding of the markets in which the Group operates. The Chief Executive Officer, the Chief Financial Officer, the Group Head of Internal Audit, the Group Risk Officer and the Company’s external auditors are invited to meetings of the Risk and Audit Committee at the Committee’s discretion. The Risk and Audit Committee is governed by a Board-approved charter. A copy of this Risk and Audit Committee Charter is available from http://www.computershare.com/governance. The Nomination Committee The main functions of the Nomination Committee are to review the competence, expertise, performance, constitution and succession of the Board, as well as the performance of individual directors. The Nomination Committee generally meets on each occasion that the Board meets in person. All current directors are members of the Nomination Committee and it is chaired by Simon Jones in his capacity as Chairman of the Board. Although not an independent director, Chris Morris was Chairman of the Nomination Committee until he stood down as Chairman of the Board in November 2015. The Nomination Committee’s policy for the appointment of directors is to select candidates whose skills, expertise, qualifications, networks and knowledge of the markets in which Computershare operates (and other markets into which it may expand) complement those of existing Board members so that the Board as a whole has the requisite skills, diversity and experience to fulfil its duties. The Nomination Committee is governed by a Board-approved charter. A copy of this Nomination Committee Charter is available from http://www.computershare.com/governance. The Remuneration Committee The Remuneration Committee’s primary function is to advise the Board on matters relating to the remuneration of the Group’s key management personnel and specifically to consider, review and make recommendations to the Board about the following matters: > the Chief Executive Officer’s remuneration policy recommendations > remuneration and contract terms for the Chief Executive Officer and the Group’s key management personnel > terms and conditions of long-term incentive plans, short-term incentive plans, share rights plans, performance targets and bonus payments for the Chief Executive Officer and the Group’s key management personnel > terms and conditions of any employee incentive plans > the recommendations of the Chief Executive Officer on offers to executives under any long-term incentive plan established by the Company from time to time > remuneration of non-executive directors within the limits approved by shareholders > content of the remuneration report to be included in the Company’s Annual Report The Committee is chaired by Joseph Velli. The Committee comprises all directors, except the CEO Stuart Irving. Pursuant to its Charter, the Committee must always be comprised of a majority of independent directors. The Remuneration Committee met on three occasions during the reporting period. The Committee has access to Group management and, where necessary, may consult independent experts to discharge its responsibilities effectively. The Remuneration Committee is governed by a Board-approved charter. A copy of this Remuneration Committee Charter is available from http://www.computershare.com/governance. PAGE 23 The Acquisitions Committee To assist in fulfilling its corporate governance and oversight responsibilities with respect to prospective acquisitions and divestitures being considered by the Group, the Board has established an Acquisitions Committee. The Committee receives reports from Group management on acquisition and divestiture opportunities and provides advice on matters such as the price, terms, structure and strategic management of such opportunities. The Committee is also authorised to approve transactions to be entered into by Group companies, provided that it does so within the scope of authority delegated to the Committee by the Board from time to time. The Acquisitions Committee is chaired by Chris Morris and also comprises Simon Jones, Markus Kerber, Stuart Irving and Mark Davis (the Group’s Chief Financial Officer). For details of directors’ attendance at Committee meetings, see the Directors’ Report, which starts on page 29 of this Annual Report. 7. EQUITY PARTICIPATION BY NON-EXECUTIVE DIRECTORS The Board encourages non-executive directors to own shares in the Company, however the Company has not awarded shares to non-executive directors. As at 30 June 2016, all non-executive directors held a relevant interest in shares in the Company. 8. REMUNERATION For information relating to the Group’s remuneration practices, and details relating to the directors’ remuneration and that of the Group’s key management personnel during the year ended 30 June 2016, see the Remuneration Report, which starts on page 32 of this Annual Report and is incorporated into this corporate governance statement by reference. In addition to the disclosures contained in the Remuneration Report, it should be noted that the Board is keen to encourage equity holdings in the Company by employees with a view to aligning staff and shareholder interests. Many employees have participated (and continue to participate) in the various equity plans offered by the Company, and the directors believe that, historically, this has contributed significantly to the Group’s success. 9. ANNUAL REVIEW OF BOARD AND GROUP MANAGEMENT PERFORMANCE The Board’s performance is regularly reviewed by the directors of the Company as a whole (acting as the Nomination Committee). These reviews are undertaken in an open manner each time the Board meets in person. There is a standing agenda item at each in-person Board meeting for directors to be given an opportunity to discuss any concerns they may have with the Board’s and its Committees’ performance as well as any steps that can be taken to maintain their effectiveness. Directors also completed a questionnaire relating to Board and Committee performance during the reporting period and the Board then reviewed the responses. The directors believe that this process works well for its size and composition. The process for evaluating the performance of individual directors is an informal one. The Chairman is responsible for engaging directly with directors on any individual performance concerns. Directors are able to raise concerns they might have with an individual director’s performance directly with the Chairman. The Board annually reviews the Chief Executive Officer’s performance while the Chief Executive Officer annually reviews the performance of the other members of Group management against their KPIs for the year. This review process results in each member of Group management receiving a proposed numerical rating which determines their short-term incentive outcomes for the year. The proposed rating given to each member of Group management is then reviewed by the Remuneration Committee. The Risk and Audit Committee also undertakes a review of its performance from time to time. The review comprises completion of a questionnaire by the individual members of the Committee and a review by the Committee of the responses. A review did not take place within the current reporting period. 10. IDENTIFYING AND MANAGING BUSINESS RISKS The Business Strategies and Prospects section of this Annual Report contains a summary of Computershare’s approach to managing risk within the organisation. In respect of the reporting period, the Board received a report from the Chief Executive Officer and the Chief Financial Officer that confirms, among other things, the following: > The ‘Declaration to the Board of Directors of Computershare Limited’, a copy of which is included in this Annual Report (see page 105) as required by section 295A of the Corporations Act 2001, is founded on a sound risk management and internal control system that is operating effectively in all material respects in relation to financial reporting risks. > The Group’s material business risks have been managed effectively. The Risk and Audit Committee also undertook a review of the Group’s risk management framework during the reporting period and was satisfied that it remained sound. PAGE 24 Computershare Annual Report 2016CORPORATE GOVERNANCE STATEMENT11. DIVERSITY With two newly appointed global diversity champions, we anticipate that there will be positive updates for both our diversity policy and objectives in FY2018, with FY2017 being a year of transition. This report reflects the situation in FY2016. Diversity Policy Computershare expects a lot from our employees and we rely on them to protect and grow our business. These employees trust Computershare to properly recognise their diverse talents. The Board and senior management are committed to honouring that trust. Computershare’s philosophy on diversity is a practical one. It simply makes good business sense to leverage the diverse skills and talents of our entire global workforce regardless of gender, age, race, origin, ethnicity, cultural background, disability, sexual orientation and religious beliefs. Computershare’s Board and management believe that we should hire, develop, reward, promote and retain our people strictly on the basis of their talent and commitment, and the results they achieve. We will never recruit or promote on anything other than the basis of merit, competence and potential. Our approach to diversity is underpinned by practical objectives to ensure that all of our employees have an equal opportunity to demonstrate their talent, commitment and results. These are what we will measure ourselves against and they will be our primary external reporting metrics. The Board annually assesses the objectives and progress made. Measurable objectives Listed below is the summary of the objectives that were established in 2011. There have been no material changes to the objectives or measurements since 2011. It is important to note that the objectives outlined below do not exclude male employee participation in any relevant programmes. Objectives Measurement FY2016 Results 1. Recognised opportunity culture Our employees believe that Computershare has an equal opportunity culture where men and women are able to demonstrate equally their talent, commitment and results. 2. Development of high potential women Via the annual global staff survey, the majority of employees agree that men and women at Computershare have equal opportunity to demonstrate their talents, commitment and results. The annual global staff survey has been enhanced to delve further into diversity perspectives. The average rating on diversity related questions was 6.7 (out of ten). As part of the company’s succession planning process, high potential women are identified and developed for career progression. High potential women are identified and are actively developed for career progression. Their development is reviewed annually. Regional heads reviewed the progress of identified high potential women as part of the annual employee review process. 3. Mentoring and networking women Where identified as valuable, mentoring and/or networking programmes are implemented to develop women in our business. Programme implementation and results are reviewed annually. Mentoring and/or networking programmes are available on a needs basis to employees. 4. Improve support for pregnancy and maternity leave Programmes are implemented that provide better support for pregnant women in the workplace; and for women commencing, on and returning from, maternity leave. Over 80% of women return to the workforce from maternity leave. An annual report to the CEO monitors progress. Currently operating at above target rates in each region. Globally Computershare has a return rate in excess of 85%. 5. Flexible working arrangements implemented Flexible working initiatives are supported by management and where appropriate made available to employees to achieve improved business outcomes and support work/life balance. Flexible working arrangements are defined in the appropriate workplace policies and/or are actively used as an engagement tool by management. Management feedback on usage and effectiveness is provided to the CEO annually. Flexible working arrangements are available to our employees. Requests for a flexible arrangement are assessed by Human Resources and the business unit involved. PAGE 25 Gender diversity statistics Role category Board (inc. CEO) Direct Reports of CEO Company Executive Senior Manager Manager Other Totals Total Male Female Male % Female % 8 13 98 471 2,092 9,983 12,665 6 12 74 305 1,100 4,315 5,812 2 1 24 166 992 5,668 6,853 75% 92% 76% 65% 53% 43% 46% 25% 8% 24% 35% 47% 57% 54% Data valid as at 30 June 2016. Our joint venture in India where Computershare is not the active manager is excluded. 12. WORKPLACE GENDER EQUALITY REPORT In accordance with the requirements of the Workplace Gender Equality Act 2012, on 19 May 2016 Computershare Australia lodged its annual compliance report with the Workplace Gender Equality Agency. A copy of this report is available from http://www.computershare.com/governance. Any comments regarding this report can be submitted via email to the following address wgea.comments@computershare.com.au. 13. SECURITIES TRADING POLICY The Company has a Securities Trading Policy in place which sets out the restrictions that apply to the Group’s directors, officers and employees trading in Computershare securities. The policy explains the insider trading laws as they relate to trading in Computershare securities and the securities of Computershare’s clients. It also sets out the penalties that apply to insider trading offences under the Corporations Act 2001 and makes clear that Computershare adopts a zero tolerance approach to breaches of insider trading laws. The policy imposes additional restrictions on dealings in Computershare securities by Computershare directors and certain specified executives (designated persons). These designated persons may deal in Computershare securities during the four week period after the Company releases its half year and full year financial results, and after the date on which its Annual General Meeting is held, subject always to the laws on insider trading. In addition, these designated persons may only deal in Computershare securities outside those specified four week trading windows with an express prior clearance by a nominated director. During certain prohibited periods, being the period between 15 December and the Company’s release of its half year results and the period between 15 June and the Company’s release of its full year results, and such other periods as may be determined by the Board from time to time, clearance to deal can only be given in exceptional circumstances. Under the policy, designated persons are also prohibited from entering into an arrangement pursuant to which they seek to hedge the economic risk associated with an unvested incentive award made to them by Computershare. The list of designated persons is set out in Schedule 1 of the Securities Trading Policy. It is reviewed and updated as appropriate, having regard to any changes in the structure of or the creation of new roles within Group management. An up-to-date copy of the Board-approved Securities Trading Policy is available from http://www.computershare.com/governance. 14. CORPORATE REPORTING The Chief Executive Officer and the Chief Financial Officer have made a Declaration to the Board of Directors in respect of the year ended 30 June 2016, as detailed on page 105 of this Annual Report. The Chief Executive Officer and the Chief Financial Officer also provided an equivalent statement to the Directors in respect of the Company’s half year report for the period ended 31 December 2015. 15. CONFLICT OF INTEREST AND INDEPENDENT ADVICE If a director has an actual or potential conflict of interest in a matter under consideration by the Board or a Committee of the Board, that director must promptly disclose that conflict of interest and abstain from deliberations on the matter. In that circumstance, the director is not permitted to exercise any influence over other Board members or Committee members on that issue, nor receive relevant Board or Committee papers. The Company permits any director or Committee of the Board to obtain external advice about transactions or matters of concern at the Company’s cost. Directors seeking independent advice must obtain the approval of the Chairman, who is required to act reasonably in deciding whether the request is appropriate. PAGE 26 Computershare Annual Report 2016CORPORATE GOVERNANCE STATEMENT16. ETHICAL STANDARDS Computershare recognises the need for directors and employees to perform to the highest standards of behaviour and business ethics. The Board has adopted a Code of Conduct that sets out the principles and standards with which all officers and employees are expected to comply as they perform their respective functions. The Code recognises the legal and other obligations that the Company has to legitimate stakeholders, and requires that directors, officers and employees maintain the highest standards of propriety and act in accordance with the law. A copy of the Group’s Board-approved Code of Conduct is available from the corporate governance section of http://www.computershare.com/governance. 17. SHAREHOLDER COMMUNICATIONS AND INVESTOR RELATIONS Computershare has an investor relations program in place with the aim of facilitating effective communication between Computershare and its investors. A key feature of this program is to ensure that shareholders are notified of, or are otherwise able to access information necessary to assess Computershare’s performance. Information is communicated to shareholders through the following means: > The Annual Report, which is distributed to all shareholders who elect to receive it. An overview of the previous financial year is also included in the Notice of AGM that all shareholders receive. > The AGM and any other shareholder meetings called from time to time to obtain shareholder approval as required. > The Company’s website, which contains information regarding the Company and the Group and its corporate governance framework. The Investor Relations section of the website also includes information released to the ASX, a copy of investor and analyst briefing documentation, press releases and webcasts. > By email to those shareholders who have supplied their email address for the purpose of receiving communications from the Company electronically. Computershare actively encourages shareholders to provide an email address to facilitate more timely and effective communication with them and runs campaigns from time to time to encourage greater email adoption. Computershare also encourages shareholders to participate in the Company’s AGM. Shareholders who are unable to attend and vote in person at the meeting are encouraged to vote electronically via Computershare’s service known as InvestorVote, where they can view an electronic version of the voting form and accompanying materials and submit their votes. Computershare also encourages shareholders who are unable to attend the AGM to communicate any issues or questions by writing to the Company. 18. COMMITMENT TO AN INFORMED MARKET RELATING TO COMPUTERSHARE SECURITIES The Board has a Market Disclosure Policy to ensure the fair and timely disclosure of price-sensitive information to the investment community as required by applicable law. In order to effectively manage its continuous disclosure obligations, the Chief Executive Officer has established a Disclosure Committee which is responsible for the following matters: > considering what information needs to be released to the market by Computershare, although routine administrative announcements may be made by the Company Secretary without consulting the Disclosure Committee > ensuring announcements relating to significant matters are referred to the Board for consideration and approval, namely announcements relating to the Company’s half and full year financial reports, financial projections and future financial performance as well as changes to the Group’s policy or strategy > approving the disclosure of information to the market for matters not referred to the Board > implementing adequate systems for ensuring the timely disclosure of material information to the market, including where such information needs to be released urgently The Disclosure Committee consists of the Chief Executive Officer, the Chief Financial Officer, the Head of Investor Relations and the Company Secretary. Where the urgency of an issue, which under the policy is to be referred to the Board, prevents its consideration by the full Board, an announcement relating to that issue may be approved for release to the market by all available directors in conjunction with the Disclosure Committee. Further, in circumstances where it is considered appropriate to request a trading halt (for example, where Computershare is required to disclose information to the market, but for whatever reason is unable to do so promptly and without delay) the Chief Executive Officer, or if the Chief Executive Officer is unavailable, the Chairman or the Chief Financial Officer, is authorised to request a trading halt on behalf of the Company. The full Board is to be consulted as far as is practicable on any request for a trading halt. A copy of the Board-approved Market Disclosure Policy is available from the corporate governance section of http://www.computershare.com/governance. PAGE 27 19. EXTERNAL AUDITORS The Company’s policy is to appoint external auditors who demonstrate professional ability and independence. The auditor’s performance is reviewed annually. PricewaterhouseCoopers were appointed as the external auditors in May 2002. PricewaterhouseCoopers normally rotates audit engagement partners on listed companies every five years. It is also PricewaterhouseCoopers’ policy to provide an annual declaration of independence, a copy of which can be found on page 45 of this Annual Report. The external auditor is required to attend the Company’s Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation of the content of the audit report, the accounting policies adopted by the Company in relation to the preparation of the financial statements and the independence of the auditor in relation to the conduct of the audit. An analysis of fees paid to the external auditors, including a breakdown of fees for non-audit services, is provided in the Directors’ Report (see page 44 of this Annual Report). 20. INTERNAL AUDITORS Computershare has a dedicated Group Internal Audit function. The function is led by the Group Head of Internal Audit who has a reporting line to the Chairman of the Risk and Audit Committee. Group Internal Audit is authorised to audit all areas of the Computershare group without the need for prior approval. In carrying out its responsibilities, it has full and unrestricted access to all records, property, functions, IT systems and staff in the group. Each financial year, the function develops an annual audit plan which is approved by the Risk and Audit Committee. The function’s key responsibilities are to review and appraise the adequacy, design and effectiveness of the group’s system of internal controls, advise on process improvements, evaluate and improve the effectiveness of risk management, control and governance processes and to identify control gaps. On completion of audit assignments, Internal Audit will issue written reports which are distributed to management and communicated to the Risk and Audit Committee. Where the report identifies specific findings and recommendations, the report will include an action plan from management to implement appropriate corrective action. All internal audits are conducted in accordance with the Institute of Internal Auditor’s Standards for the Professional Practice of Internal Auditing. 21. WHISTLEBLOWING The Board has approved a Whistleblower Policy that specifically outlines procedures for dealing with allegations of improper conduct made by directors, officers or employees of the Company or parties external to Computershare. Concerns can be raised anonymously in a number of ways, including through the Company’s online whistleblower reporting system, by telephone or by mail. Any reported concerns are assessed and handled by regional Whistleblower officers. The Group Whistleblower Officer also provides quarterly reports to the Group Risk and Audit Committee on any concerns reported over the period. All Computershare employees have received training about the Company’s Whistleblower Policy, including how to detect and report improper conduct. A copy of the Whistleblower Policy is available from http://www.computershare.com/whistleblowing. 22. CORPORATE AND SOCIAL RESPONSIBILITY For details relating to the Company’s corporate and social responsibility initiatives, see pages 14 to 15 of this Annual Report. 23. HEALTH AND SAFETY Computershare aims to provide and maintain a safe and healthy work environment. Computershare acts to meet this commitment by implementing work practices and procedures throughout the Group that comply with the relevant regulations governing workplaces in each country in which the Group operates. Employees are expected to take all practical measures to ensure a safe and healthy working environment, in keeping with their defined responsibilities and applicable laws. 24. COMPANY SECRETARY The Company Secretary during the reporting period was Dominic Horsley. Under Computershare’s Constitution, the appointment and removal of the Company Secretary is a matter for the Board. Among other matters, the Company Secretary advises the Board on governance procedures and supports their effectiveness by monitoring Board policy and procedures, coordinating the completion and dispatch of Board meeting agendas and papers and assisting with the induction of new Directors. The Company Secretary is accountable to the Board, through the Chairman, for these responsibilities. Dominic Horsley joined the Company in June 2006, having previously practised law at one of Asia Pacific’s leading law firms and worked as a Corporate Counsel with a major listed Australian software and services supplier. Dominic completed a Bachelor of Arts (Hons) in Economics at the University of Cambridge and completed his legal studies at the College of Law in London. Dominic is also the Chief Legal Counsel for the Group’s Asia Pacific operations and is a Fellow of the Governance Institute of Australia. All directors have access to the advice and services of the Company Secretary. PAGE 28 Computershare Annual Report 2016CORPORATE GOVERNANCE STATEMENTDIRECTORS’ REPORT DIRECTORS’ REPORT The Board of Directors of Computershare Limited has pleasure in submitting its report in respect of the financial year ended 30 June 2016. DIRECTORS The names of the directors of the Company in office during the whole year and up to the date of this report, unless otherwise indicated, are: Non-executive Simon David Jones (Chairman effective 11 November 2015) Christopher John Morris (Chairman until 11 November 2015) Tiffany Lee Fuller Markus Erhard Kerber Penelope Jane Maclagan Arthur Leslie Owen Joseph Mark Velli Executive Stuart James Irving (President and Chief Executive Officer) PRINCIPAL ACTIVITIES The principal activities of the Group are outlined in the Group and Regional Operating Review set out on page 5 and forms part of this report. CONSOLIDATED PROFIT The profit of the consolidated entity for the financial year was $161.8 million after income tax. Net profit attributable to members of the parent entity was $157.3 million, which represents an increase of 2.4% on the previous year’s result of $153.6 million. Profit of the consolidated entity for the financial year after management adjustment items was $303.5 million after income tax and non-controlling interests. This represents a decrease of 8.8% on the 2015 result of $332.7 million. Net profit after management adjustment items is determined as follows: Net profit attributable to members of the parent entity Management adjustment items (net of tax): Amortisation Intangible assets amortisation Acquisitions and disposals Acquisition and disposal accounting adjustments Foreign currency translation reserve write-off on disposals Gain on acquisition Acquisition and disposal related expenses Acquisition related restructuring costs Asset write-down Gain on disposal Other Major restructuring costs Put option liability re-measurement Marked to market adjustments – derivatives Voucher Services impairment Net profit after management adjustment items 2016 $000 2015 $000 157,334 153,576 64,043 58,520 46,341 25,904 (8,891) 2,408 1,304 1,687 (325) 8,465 7,526 (2,256) - 303,540 (6,583) - (670) 3,552 6,014 5,241 (7,631) 1,226 7,749 2,204 109,536 332,734 PAGE 29 Management adjustment items Management results are used, along with other measures, to assess operating business performance. The Group believes that exclusion of certain items permits better analysis of the Group’s performance on a comparative basis and provides a better measure of underlying operating performance. Description of management adjustment items can be found in note 3 of the financial statements. The non-IFRS financial information contained within this Directors’ report has not been audited in accordance with the Australian Auditing Standards. DIVIDENDS The following dividends of the consolidated entity have been paid or declared since the end of the preceding financial year: Ordinary shares A final dividend in respect of the year ended 30 June 2015 was declared on 12 August 2015 and paid on 15 September 2015. This was an ordinary dividend of AU 16 cents per share franked to 25% amounting to AUD 89.0 million ($64.7 million). An interim dividend was declared on 10 February 2016 and paid on 16 March 2016. This was an ordinary dividend of AU 16 cents per share franked to 100% amounting to AUD 87.8 million ($63.8 million). A final dividend in respect of the year ended 30 June 2016 was declared by the directors of the Company on 10 August 2016 and paid on 13 September 2016. This was an ordinary dividend of AU 17 cents per share, franked to 20%. As the dividend was not declared until 10 August 2016, a provision was not recognised as at 30 June 2016. REVIEW OF OPERATIONS The review of operations is outlined in the Group and Regional Operating Review set out on page 5 and forms part of this report. SIGNIFICANT EVENTS AND SIGNIFICANT CHANGES IN ACTIVITIES A discussion of significant events and significant changes in activities is included in the Group and Regional Operating Review set out on page 5 and forms part of this report. In the opinion of the directors, there were no other significant changes in the affairs of the consolidated entity during the financial year under review that are not otherwise disclosed in this report or the consolidated accounts. SIGNIFICANT EVENTS AFTER YEAR END No other matter or circumstance has arisen since the end of the financial year which is not otherwise dealt with in this report or in the consolidated financial statements that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years. LIKELY DEVELOPMENTS AND FUTURE RESULTS A discussion of business strategies and prospects is set out on pages 16 to 17 and forms part of this report. ENVIRONMENTAL REGULATIONS The Computershare Group is not subject to significant environmental regulation. INFORMATION ON DIRECTORS The qualifications, experience and responsibilities of directors together with details of all directorships of other listed companies held by a director in the three years to 30 June 2016 and any contracts to which the director is a party to under which they are entitled to a benefit are outlined in the Corporate Governance Statement and form part of this report. PAGE 30 DIRECTORS’ REPORT Computershare Annual Report 2016Directors’ interests At the date of this report, the direct and indirect interests of the directors in the securities of the Company are: Name SJ Irving TL Fuller SD Jones ME Kerber PJ Maclagan CJ Morris AL Owen JM Velli Meetings of directors Number of ordinary shares Number of performance rights 17,837 2,000 17,000 40,000 11,902,025 37,431,000 12,910 10,000 487,606 - - - - - - - The number of meetings of the Board of Directors (and of Board Committees) and the number of meetings attended by each of the directors during the financial year were: Directors’ Meetings Risk and Audit Committee Meetings Nomination Committee Meetings Remuneration Committee Meetings A 8 8 8 6 8 7 8 8 B 8 8 8 8 8 8 8 8 A - 8 8 - - - 8 - B - 8 8 - - - 8 - A 4 4 4 4 4 3 4 4 B 4 4 4 4 4 4 4 4 A 3 3 3 3 3 2 3 3 B 3 3 3 3 3 3 3 3 SJ Irving TL Fuller SD Jones ME Kerber PJ Maclagan CJ Morris AL Owen JM Velli A – Number of meetings attended B – Number of meetings held during the time the director held office during the financial year. The Board also has an Acquisitions Committee comprising SD Jones, ME Kerber, CJ Morris, SJ Irving and MB Davis (Chief Financial Officer). The Committee receives a monthly report and meets on an informal basis as necessary. Accordingly, it is not included in the above table. INFORMATION ON COMPANY SECRETARY The qualifications, experience and responsibilities of the Company Secretary are outlined in the Corporate Governance Statement and form part of this report. INDEMNIFICATION OF OFFICERS During the period, the Group paid an insurance premium to insure directors and executive officers of the Group and its controlled entities against certain liabilities. Disclosure of the amount of insurance premium payable and a summary of the nature of liabilities covered by the insurance contract is prohibited by the insurance policy. PAGE 31 REMUNERATION REPORT This report covers: A. Remuneration strategy B. A summary of key remuneration highlights in the current financial year C. The structure of remuneration at Computershare D. Details of remuneration and service contracts E. Proportions of fixed and performance related remuneration F. Other information A. REMUNERATION STRATEGY Computershare’s remuneration strategy is designed to: > Be competitive in the local employment market where an executive is based so as to support the attraction and retention of a talented executive team; > Motivate executives to deliver excellent performance; and > Align remuneration outcomes for executives with the interests of shareholders. Computershare’s remuneration strategy and structure is reviewed by the Board and the Remuneration Committee on an ongoing basis for its appropriateness and effectiveness. B. A SUMMARY OF KEY REMUNERATION HIGHLIGHTS IN THE CURRENT FINANCIAL YEAR In the financial year 2016, there were no material changes to the structure of the Group’s remuneration arrangements. Set out below are some of the key remuneration outcomes and highlights which occurred during the year. > There was a modest salary increase for Computershare staff globally. There were no general salary increases for the Group’s executive key management personnel. > Short-term incentive (STI) outcomes for senior executives were impacted negatively by the decline in management adjusted earnings per share in the financial year 2016 as compared to 2015. > There will be a vesting of awards under Computershare’s legacy long-term incentive plan for awards granted in the financial year 2012. The 50% of the awards that were subject to a performance target of at least 7.5% annual compound growth in management earnings per share over a five-year period will lapse as the target was not met. However, the 50% of the awards that were subject to a retention condition will vest for those executives who satisfy the five-year retention period. > The Chairman’s fee and the fee payable to the Chair of the Risk and Audit Committee were increased in November 2015 following a market review. All other non-executive directors’ fees remained unchanged in the current financial year. > Computershare staff globally continued to participate in the various employee share plans made available in their regions. The Computershare One Plan for staff based in Europe was also launched in the financial year 2016. This plan won an award at the Global Equity Organisation Awards for Best Plan Effectiveness following a 42% growth in membership. C. THE STRUCTURE OF REMUNERATION Non-executive directors Computershare’s total non-executive directors’ fee pool has a limit of AUD 2.0 million. This limit was approved by shareholders in November 2014. SD Jones receives a fixed fee of AUD 325,000 as Chairman. All other non-executive directors receive a base fee of AUD 150,000. TL Fuller receives an additional AUD 75,000 as the Chair of the Risk and Audit Committee and other non-Chair members of the Risk and Audit Committee (AL Owen and SD Jones) receive an additional AUD 25,000 per annum as members on that committee. JM Velli, as Chairman of the Remuneration Committee receives an additional AUD 25,000 for performing those duties. These fees are inclusive of statutory superannuation where applicable. The fees payable to the Chairman and the Chair of the Risk and Audit Committee were increased effective November 2015 following a market review. All other non-executive director fees remained unchanged during the reporting period. If any director wishes to receive their director fees in a different currency to AUD, then they can elect to do so and an exchange rate will be struck at the start of each financial year for the fees payable in that year. No bonuses, either short or long-term, are paid to non-executive directors. They are not provided with retirement benefits other than statutory superannuation entitlements (where applicable). They do not receive shares or options from Computershare. PAGE 32 DIRECTORS’ REPORT Computershare Annual Report 2016CEO and other senior executives Remuneration for the CEO and other key senior executives comprises three main components, being a fixed base salary (which is not at risk), a variable short-term incentive (STI) which is calculated by reference to current year’s performance and a variable long-term incentive (LTI) which comprises awards of performance rights over shares in Computershare. Short-term incentives STI incentives for senior executives at Computershare comprise a cash bonus (CSTI) and a grant of Computershare shares made on a deferred vesting basis (DSTI). Executives are provided with an ‘on target package guide’ which is an amount equal to the value of the base salary and their STI assuming ‘on target’ performance. If an executive achieves ‘on target’ performance their total STI award would be equal to approximately 43% of their base salary. The maximum entitlement that an executive could receive as an STI would be 75% of their base salary. The following table explains how each component of the STI (being the CSTI and the DSTI) are determined and the limits that apply to each component. Component % of on target package guide Minimum entitlement Maximum entitlement Measurement CSTI (short-term cash bonus) 15% (equal to 21.4% of base salary) Nil 15% (equal to 21.4% of base salary) Nil DSTI (short-term incentive satisfied by the grant of equity on a deferred basis 22.5% of the on target package guide (equal to 32% of base salary) 30% of the on target package guide (equal to 43% of base salary) 70% of CSTI is calculated by reference to performance against the budgeted management EBITDA of the business unit(s) or region(s) for which the relevant executive is responsible. On target performance for an executive is meeting the relevant budgeted management EBITDA target for that executive and the maximum entitlement is reached if the executive achieves 120% of their budgeted management EBITDA target. No CSTI is payable based on financial performance if the executive achieves less than 80% of their target. The remaining 30% of CSTI is calculated based on personal objectives tailored to the executive’s responsibilities and role. Matters typically covered include cost control, business expansion, risk management and service levels. 50% of DSTI is calculated by reference to the Group’s management earnings per share (EPS) growth. On target performance is management EPS growth over the financial year of 7.5% and the maximum entitlement is reached if management EPS growth over the financial year exceeds 15%. No DSTI is payable based on management EPS growth if EPS growth over the year is 0% or less. The remaining 50% of DSTI is calculated based on strategic, cultural and organisational measures. These measures are regularly reviewed and typically cover non-financial performance, leadership, replaceability and character. Comment Calculated and paid annually after the release of the annual results. The CSTI strongly aligns the executive’s CSTI with the performance of the business unit(s) or region(s) they manage. Calculated annually after the release of the annual results. Grants are not generally made until after the release of the annual report. The DSTI aligns an executive’s remuneration with the overall Group’s performance, and provides an incentive for executives to work to maximise overall Group performance as well as the performance of the particular business unit(s) they manage. Deferred vesting: DSTI grants are unable to be sold for two years after the date of grant and are also subject to forfeiture if an executive resigns or is terminated for cause in this period. DSTI grants are designed as an incentive to encourage long-term, sustainable performance. The management adjustment items applied to determine management EBITDA (for CSTI) and management EPS (for DSTI) are set out in note 3 of the financial statements. The Board retains the discretion to review management adjustment items before the calculation of STI awards to executives. No DSTI was awarded to executives for the financial year 2016 for the 50% of the DSTI that is calculated by reference to growth in management EPS as management EPS was 7.9% lower in the financial year 2016 than in the financial year 2015. The STI awards payable to the CEO are structured in the same way as other senior executives, except that the CEO receives his DSTI entitlement in cash rather than shares. This is because, as an executive director, he is ineligible to participate in Computershare’s general equity based plans. However, the CEO is eligible, with shareholder approval where required, to participate in the Group’s long-term incentive plans. PAGE 33 STI outcomes in the 2016 financial year The table below shows the STI paid or payable to each Computershare executive who is identified as a key management personnel for entitlements referable to performance in the financial year ended 30 June 2016. The table sets out the actual amounts awarded as STI and how they relate to the maximum entitlement for each executive. Executive SJ Irving SA Cameron PA Conn MB Davis SHE Herfurth ML McDougall SR Rothbloom N Sarkar SS Swartz JLW Wong Long-term incentives STI awarded (USD) STI as percentage of maximum 296,109 108,490 188,305 230,576 113,394 138,103 409,029 190,534 94,762 227,275 59.7% 47.4% 46.8% 52.5% 46.2% 48.2% 45.8% 45.5% 40.4% 47.7% In addition to base salary and STI awards, certain senior executives may also receive long-term incentive awards which comprise grants of performance rights (also known as zero exercise price options) over Computershare shares. The executives who receive long-term incentive awards will generally comprise the executives who are identified as key management personnel in this report as well as a small number of other senior executives who are identified as being particularly important to the longer term future of Computershare. Details of the long-term incentive plan, which is known as Computershare’s LTI plan, are set out below. Key features of the LTI plan Eligibility Participants in the LTI plan comprise the Group’s CEO and CFO and a limited pool of the most senior executives who are important to the Company’s future. Frequency and value of grants Awards under the LTI plan will typically be made annually. A resolution to approve the proposed grant of performance rights under the LTI plan to the Group CEO is put to shareholders each year at the Company’s AGM. The value of an award made to an eligible executive under the LTI plan is calculated as a percentage of the executive’s base salary plus ‘on target’ STI award (being both the cash (CSTI) and deferred shares (DSTI) components). For awards made in November 2015, the Group CEO and CFO received an LTI award equal to 100% of their base salary plus ‘on target’ STI award. For other eligible executives, the value of their LTI award was in a range of 30% to 60% of their base salary plus ‘on target’ STI award. As an illustration, the current mix between fixed, short-term variable and long-term variable remuneration for the Group CEO in FY2016 was (based on ‘on target’ STI performance): CEO Fixed remuneration Base Salary 35% Variable remuneration STI 15% LTI 50% The Board continues to review the mix to ensure shareholder and management objectives are best aligned. The actual number of performance rights that an eligible executive receives is calculated by dividing that executive’s LTI award entitlement by the ‘face value’ of Computershare’s share price. For a grant of performance rights in a given financial year, ‘face value’ is the volume weighted average share price over the five trading days after the full year results announcement for the prior financial year. For awards made in November 2015 in respect of the financial year 2016, the face value of Computershare’s share price for the purpose of calculating LTI award entitlements was AUD 9.96. PAGE 34 DIRECTORS’ REPORT Computershare Annual Report 2016EPS growth performance hurdle Under the LTI plan, 50% of each award is subject to a management EPS growth hurdle that is tested once at the end of a three year performance period and will vest in accordance with the table below: Compound annual growth in management adjusted EPS over the performance period Performance rights subject to EPS hurdle that vest (%) Maximum % or above 15% or greater 100% Between threshold % and maximum % Between 5% and 15% Progressive pro rata vesting between 50% to 100% (i.e. on a straight line basis) Threshold % Less than the threshold % 5% Less than 5% 50% 0% The Board believes that the EPS growth hurdle under the LTI plan provides an appropriate incentive to its management team to achieve sustainable growth outcomes for the Computershare Group over the longer term. The Board reviews the management EPS performance hurdles from time to time to ensure that this remains the case. Total Shareholder Return performance hurdle The remaining 50% of each award under the LTI plan is subject to a performance measure based on Total Shareholder Return or ‘TSR’. For these purposes, TSR means the change in shareholder value over the performance period by measuring movement in share price plus dividends (assuming reinvestment). The performance measure compares the TSR of Computershare’s stock against the TSR of the companies within the ASX 100 index at the start of the performance period on the following basis: Relative TSR ranking against peer group Performance rights subject to TSR hurdle that vest (%) At or above the 75th percentile 100% Between the 50th to 75th percentile Progressive pro rata vesting between 50% to 100% (i.e. on a straight line basis) Equal to the 50th percentile Below the 50th percentile 50% 0% The Board has chosen to compare the TSR of Computershare against the ASX 100 index as there is not a narrow comparator group of companies that are listed on exchanges globally that Computershare can readily compare itself with. The Board believes that having a performance measure that compares Computershare’s TSR performance with the TSR of companies in a broad index (the ASX 100) will further align the remuneration outcomes for its senior executives with the investment performance of its shareholders. As at the date of this report, there are 1.3 million performance rights outstanding under the LTI plan. These include 716,916 performance rights that were granted to 12 executives in the financial year 2016 and which are due to vest in September 2018 (subject to performance against hurdles). Other plan features Other features of the LTI plan include Board discretion to determine award outcomes for executives in certain circumstances such as cessation of employment or a change of control and also to cash settle awards on vesting if local regulations or practices make it appropriate to do so. The LTI plan also includes a clawback mechanism that may be triggered in the event of fraud, dishonesty or material misstatement of financial statements. PAGE 35 Overview of the legacy DLI plan The Computershare LTI plan was introduced in 2014 following a review of the then current long-term incentive plan which was known as the Deferred Long-Term Incentive Plan or (DLI plan). The DLI plan is now a legacy plan with final awards under that plan scheduled to vest or lapse in September 2017. Accordingly, details of the terms of the DLI plan will continue to be provided in the Group’s remuneration report until those awards have vested or lapsed in accordance with their terms. The DLI plan comprised awards of performance rights where 50% of awards were subject to a performance hurdle based on Computershare meeting management EPS growth targets, while the remaining 50% were subject to a retention condition which is satisfied if the relevant executive remains with Computershare for five years. Awards under the DLI plan were intended to remunerate key executives in relation to Computershare’s long-term performance and also to act as a retention incentive for Computershare’s senior executive team and accordingly provide a degree of protection for the competitive advantage that results from the extensive industry specific knowledge within that team. As at the date of this report, there are 1.9 million performance rights outstanding (being performance rights granted to executives, yet to vest or lapse) that have been made under the DLI plan. These include 900,000 performance rights which were granted in the financial year 2012, of which it is expected that 450,000 will vest on the date of this report. This is on the basis that the 50% of awards subject to a retention period will vest in full for executives who remain employed on the vesting date and all of the 50% of awards subject to the management EPS hurdle will lapse. Other remuneration Like all our employees, key management personnel (except directors) can participate in the Group’s general employee share plans. An overview of the Group’s employee option and share plans is disclosed in note 41 of the financial statements. Computershare pays cash bonuses and makes STI awards (but not LTI grants) to a further group of senior executives in accordance with the same STI structure as outlined above. Computershare will also generally pay discretionary cash bonuses and make allocations of shares (subject to deferred vesting periods) to an additional broader pool of high performing employees who are not participants in the structured STI award program. On occasions, the Group allocates shares (subject to deferred vesting periods) outside the structured annual cycle, for instance as sign-on incentives, as part of specific project incentives or in recognition of exceptional performance. Relationship between remuneration and Group’s performance One of the key principles of Computershare’s remuneration strategy is to ensure that there is a link between the remuneration outcomes for executives and company performance and its consequent impact on shareholder interests. The Board believes that the use of a management EPS growth hurdle and a relative TSR hurdle under the group’s executive LTI plan supports that alignment. Similarly the Board believes that short-term incentive outcomes for executives should reflect a combination of personal objectives as well as targets that are based on financial performance. The following table highlights some of the key financial results for Computershare over the period from the financial year 2012 to the financial year 2016 with the corresponding average STI outcomes for executive key management personnel over the same period. Management EBITDA (USD million) Statutory EPS (US cents) Management EPS (US cents) Total Dividend (AU cents per share) Share price as at 30 June (AUD) Average STI received as % of maximum opportunity for executive KMP (%) 2012 459.0 31.10 49.09 28 7.41 2013 509.8 28.25 54.85 28 10.27 2014 540.6 45.20 60.24 29 12.48 2015 554.1 27.61 59.82 31 11.71 2016 532.6 28.55 55.09 33 9.17 43.2 66.5 65.3 48.7 48.0 PAGE 36 DIRECTORS’ REPORT Computershare Annual Report 2016 D. DETAILS OF REMUNERATION AND SERVICE CONTRACTS Directors The directors of Computershare Limited who held the position during the current financial year are listed below. Non-executive CJ Morris TL Fuller SD Jones ME Kerber PJ Maclagan AL Owen JM Velli Executive SJ Irving President and Chief Executive Officer Key management personnel other than directors The individuals listed below are key management personnel of the Group other than directors (within the meaning of the Australian accounting standard AASB 124 Related Party Disclosures) who have the authority and responsibility for planning, directing and controlling the activities of the Group. All individuals named below held their position for the whole of the financial year ended 30 June 2016. Name Position Employer SA Cameron President – Australia and New Zealand Computershare Investor Services Pty Ltd PA Conn MB Davis President – Global Capital Markets Chief Financial Officer SHE Herfurth President – Continental Europe ML McDougall Chief Information Officer SR Rothbloom President – North America Computershare Inc (US) Computershare Ltd CPU Deutschland GmbH & Co KG Computershare Technology Services Pty Ltd Computershare Inc (US) N Sarkar SS Swartz JLW Wong Service contracts President – United Kingdom, Channel Islands, Ireland and South Africa Computershare Investor Services PLC (UK) President – Canada President – Asia Computershare Trust Company of Canada Computershare Hong Kong Investor Services Limited On appointment to the board, all non-executive directors sign a formal appointment letter which includes details of their director fees. Non-executive directors do not have notice periods and are not entitled to receive termination payments. Except for the Group CEO, no director may be in office for longer than three years without facing re-election. Please refer to Section 3 of the Corporate Governance Statement for further information on the Company’s re-election process. Neither the Group CEO nor other executive key management personnel are employed under fixed term arrangements with Computershare. Their notice periods are based on contractual provisions and local laws (e.g. for the Group CEO and CFO and for those executives based in Australia this is 30 days’ notice). On termination of employment key management personnel are entitled to statutory entitlements in their respective jurisdictions of employment. The DSTI plan provides for full vesting on redundancy or termination by the Group other than for cause. The DLI plan has a structured pro rata arrangement in the same circumstances and under the LTI plan, subject to Board discretion otherwise, performance rights for ‘good leavers’ will not vest on cessation of employment but instead a pro rata proportion will be eligible to be retained by the executive and will be subject to vesting at the end of the original performance period based on satisfaction of the applicable performance measures. Otherwise, none of these executives would, subject in some instances to local requirements in the jurisdictions where the Group operates, receive special termination payments should they cease employment for any reason. Amounts of remuneration Details of the nature and amount of each element of the total remuneration for each director and member of key management personnel for the year ended 30 June 2016 are set out in the table below. Where remuneration was paid in anything other than USD, it has been translated at the average exchange rate for the financial year (for example the 2016 USD/AUD average rate was 0.72732, the 2015 USD/AUD average rate was 0.83887). PAGE 37 Statutory remuneration details Post employment Short-term Long-term benefits Share based payments expense Termination Other4 Total Financial year Salaries and fees $ Cash profit share and bonuses $ Superannuation/ pension $ Other¹ $ Shares $ Performance rights/ options² $ Phantom plan³ $ Directors SJ Irving 2016 661,866 296,109 11,046 14,043 11,496 144,500 2015 763,372 335,708 39,794 15,757 85,834 184,067 TL Fuller5 2016 137,556 2015 99,863 SD Jones 2016 214,394 2015 190,824 ME Kerber 2016 115,159 2015 121,371 PJ Maclagan 2016 109,099 2015 122,485 CJ Morris 2016 141,311 2015 225,141 AL Owen 2016 138,966 2015 157,041 JM Velli5 2016 139,171 2015 100,689 Key management personnel - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12,983 9,487 13,948 15,757 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - SA Cameron7 2016 305,481 72,487 2015 352,325 63,010 PA Conn 2016 536,550 119,320 2015 532,292 120,984 (777) 5,872 - - 14,043 55,325 632 15,757 75,381 (5,826) - 82,369 (39,118) - 110,413 210,705 MB Davis7 2016 585,501 149,025 9,773 14,043 107,594 123,549 2015 675,290 170,356 44,693 15,757 124,781 158,759 - - - - - - - - - - - - - - - - - - - - - - SHE Herfurth7 2016 327,020 71,349 2015 354,641 103,093 - - - - - 40,657 26,890 3,349 (25,673) 77,255 ML McDougall7 2016 381,854 84,917 6,364 14,043 71,674 2015 440,407 99,305 10,954 15,757 90,506 53,724 37,958 SR Rothbloom 2016 1,190,039 268,779 2015 1,184,167 209,568 N Sarkar7 2016 558,318 106,786 2015 553,456 139,947 SS Swartz6,7 2016 312,450 51,242 2015 264,721 84,084 JLW Wong7 2016 634,709 152,469 2015 630,078 187,135 Retired directors and key management personnel 2015 350,452 75,386 - - - - - - - - - 29,950 168,190 (13,530) 29,950 235,428 270,411 45,596 89,251 41,393 55,346 105,920 109,738 13,665 42,855 17,255 47,475 58,969 45,651 113,719 87,958 (10,917) 94,512 120,632 96,608 - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ $ - 1,139,060 62,474 1,487,006 - - - - - - - - - - - - - - 150,539 109,350 228,342 206,581 115,159 121,371 109,099 122,485 141,311 225,141 138,966 157,041 139,171 100,689 1,806 448,997 2,086 508,605 - - 699,121 974,394 2,166 991,651 2,508 1,192,144 2,847 468,763 3,346 516,011 2,166 614,742 2,508 697,395 - 1,643,428 - 1,929,524 2,680 844,024 2,543 966,950 2,918 482,099 880 460,066 2,350 980,288 4,645 1,133,610 23,507 70,504 90,535 - 428,614 344 1,039,342 1 Other long-term remuneration comprises long service leave accruals and other long-term entitlements. 2 Performance rights expense has been included in the total remuneration on the basis that it is considered probable at the date of this financial report that the performance condition and service condition will be met. In future reporting periods, if the probability requirement regarding the EPS performance condition or the service condition is not met, a credit to remuneration will be included consistent with the accounting treatment. As part of the 2017 financial year budget process, it was no longer considered probable that the performance condition applicable to 50% of the performance rights granted on 25 September 2012 and 100% of the performance rights granted on 1 December 2014 would be met. On this basis, the accounting expense (excluding the TSR component) related to prior years has been reversed. Similarly, for the financial year 2015 the expense related to the 50% of the performance rights granted on 12 October 2011 and 4 May 2012 was reversed. 3 The Phantom Share Awards Plan (Phantom Plan) functions as an alternative to the DSTI Share Plan to employees who are resident for tax purposes in countries where the taxation and/or legal requirements mean the DSTI Share Plan does not achieve the most effective outcome for Computershare or those employees. Awards under the Phantom Plan are cash-settled and vest after specified periods of service have been completed. PAGE 38 DIRECTORS’ REPORT Computershare Annual Report 2016 4 Other include payments made to key management personnel engaged on long term assignments in accordance with Computershare’s expatriate policy and benefits related to Computershare’s general employee share plan as detailed in note 41 of the financial statements. 5 TL Fuller and JM Velli were appointed as non-executive directors on 1 October 2014. 6 SS Swartz was remunerated as key management personnel from 1 October 2014. 7 Key management personnel outside of the United States are paid in their local currency. Foreign exchange rate movements can impact on comparison between the years in US dollar terms. Actual remuneration received The table below represents the ‘actual’ remuneration outcomes for executive key management personnel in the financial year 2016. Amounts paid in currencies other than USD are translated at average exchange rates applicable to each financial year. Statutory remuneration disclosures prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards differ from the numbers presented below, as they include (among other benefits) expensing for equity grants that are yet to vest and may never vest. The statutory remuneration table in respect of the executive key management personnel is presented in a separate disclosure. SJ Irving6 SA Cameron6 PA Conn MB Davis6 SHE Herfurth6 ML McDougall6 SR Rothbloom N Sarkar6 SS Swartz5,6 JLW Wong6 Financial year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Fixed pay 1 $ 675,909 779,129 319,524 368,082 536,550 532,292 599,544 691,047 327,020 354,641 395,897 456,164 1,219,989 1,214,117 603,914 608,802 326,115 281,976 748,428 724,590 Cash STI for performance $ Other benefits and cash payments 2 $ Deferred STI vested 3 $ Performance rights vested 4 $ Total actual remuneration $ 291,069 276,080 54,631 76,661 120,984 126,746 147,704 139,578 94,602 79,161 86,100 92,933 209,568 276,953 131,764 130,674 74,207 - 187,015 151,341 - - 3,877 5,941 - - - - 2,847 3,346 - - - - 3,086 4,350 - - 25,320 34,242 127,999 147,250 66,242 67,322 101,756 104,547 101,347 107,327 66,368 54,705 77,157 81,077 199,001 228,712 91,882 85,406 - - 106,521 115,461 - 1,094,977 1,760,159 2,962,618 - - - 444,274 518,006 759,290 1,257,256 2,020,841 - 848,595 1,760,159 2,698,111 - - - - - 490,837 491,853 559,154 630,174 1,628,558 1,511,224 3,231,006 - 830,646 1,005,805 1,835,037 - - - 400,322 281,976 1,067,284 1,005,805 2,031,439 1 Represents base salary plus superannuation/pension. 2 Includes shares held in the Deferred Employee Share Plan (note 41) that vested in the relevant financial year and the phantom shares vesting. 3 Deferred STI that vested in the relevant financial year. The five day weighted average share price used to value the deferred STI at vesting date is AUD 9.87 for awards vested on 1 September 2015 (1 September 2014: AUD 12.23). 4 Performance rights that vested in the relevant financial year. These were rights granted under the legacy DLI plan, which were generally granted on a non-annual basis and with a five-year performance and retention period. The five-day weighted average share price used to value the performance rights at vesting date is AUD 11.99 for awards vested on 22 September 2014. 5 SS Swartz was remunerated as key management personnel from 1 October 2014. 6 Key management personnel outside of the United States are paid in their local currency. Foreign exchange rate movements can impact on comparison between the years in US dollar terms. PAGE 39 1. Short-term salary and fees, cash profit share and bonuses, long-term other, post-employment benefits Directors SJ Irving, TL Fuller, SD Jones, PJ Maclagan, and CJ Morris are paid in Australian dollars. Although the non-executive director fees for ME Kerber, AL Owen and JM Velli are set in Australian dollars, they can elect to be paid in Euros, British pounds and United States dollars respectively based on an exchange rate set at the start of each financial year. Group CEO and other executive key management personnel There were no general increases to base salary and STI award packages for the executive key management personnel in the financial year 2016. N Sarkar received an increase of GBP 25,000 to reflect additional responsibilities. All executive key management personnel receive their salary and other cash payments in their local currency. 2. Shares granted as remuneration under DSTI Plan Set out below is a summary of shares granted under the DSTI plan and the maximum value of shares that are expected to vest in the future if the vesting conditions are met: Date granted Number granted Number vested during the year Number outstanding end of the year Financial year in which grant may vest Value at grant date (if granted this year) Maximum total value of grant yet to be expensed SJ Irving SA Cameron PA Conn MB Davis SHE Herfurth ML McDougall SR Rothbloom N Sarkar SS Swartz JLW Wong 1/10/2013 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 1/10/2013* 1/10/2014* 1/10/2015* 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 1/10/2013 1/10/2014 1/10/2015 17,837 9,231 7,981 4,241 14,180 10,879 7,751 14,123 14,538 10,568 9,285 8,468 4,719 10,752 9,940 6,362 28,353 25,161 11,460 12,804 11,539 9,327 5,636 5,196 5,114 14,844 12,574 6,881 (17,837) (9,231) - - (14,180) - - (14,123) - - (9,285) - - (10,752) - - (28,353) - - (12,804) - - (5,636) - - (14,844) - - - - 7,981 4,241 - 10,879 7,751 - 14,538 10,568 - 8,468 4,719 - 9,940 6,362 - 25,161 11,460 - 11,539 9,327 - 5,196 5,114 - 12,574 6,881 Vested Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 Vested FY 2017 FY 2018 $ - - - 32,681 - - 59,729 - - 81,437 - - 36,365 - - 49,026 - - 88,311 - - 71,874 - - 39,409 - - 53,025 $ - - 6,303 19,925 - 8,592 36,416 - 11,482 49,651 - 5,003 19,517 - 7,851 29,890 - 19,872 53,842 - 9,114 43,821 - 4,104 24,027 - 9,931 32,329 * Awards made under the Phantom Plan Fair values of shares at grant date are determined using the closing share price on grant date. PAGE 40 DIRECTORS’ REPORT Computershare Annual Report 2016 3. Performance rights Performance rights granted under the DLI plan and the LTI plan are for no consideration and carry no dividend or voting rights. Each performance right carries an entitlement to one fully paid ordinary share in Computershare Limited. Set out below is a summary of performance rights granted under the DLI and LTI plans. Date granted Number granted Number vested during the year Number outstanding end of the year Financial year in which grant may vest Value at grant date (if granted this year) Maximum total value of grant yet to be expensed SJ Irving SA Cameron 12/10/2011 25/09/2012 1/12/2014 1/12/2015 04/05/2012 25/09/2012 1/12/2014 1/12/2015 150,000 100,000 107,084 130,522 200,000 150,000 29,654 36,144 PA Conn 25/09/2012 100,000 MB Davis SHE Herfurth ML McDougall 1/12/2014 1/12/2015 12/10/2011 25/09/2012 1/12/2014 1/12/2015 12/10/2011 25/09/2012 1/12/2014 1/12/2015 1/12/2014 1/12/2015 43,937 49,024 150,000 100,000 94,728 115,461 200,000 100,000 30,069 38,768 18,533 33,885 SR Rothbloom 25/09/2012 100,000 N Sarkar SS Swartz JLW Wong 1/12/2014 1/12/2015 12/10/2011 25/09/2012 1/12/2014 1/12/2015 1/12/2014 1/12/2015 12/10/2011 25/09/2012 1/12/2014 1/12/2015 73,086 72,487 100,000 100,000 45,411 67,498 22,288 37,895 100,000 100,000 39,000 38,698 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 150,000 100,000 107,084 130,522 200,000 150,000 29,654 36,144 100,000 43,937 49,024 150,000 100,000 94,728 115,461 200,000 100,000 30,069 38,768 18,533 33,885 100,000 73,086 72,487 100,000 100,000 45,411 67,498 22,288 37,895 100,000 100,000 39,000 38,698 FY 2017 FY 2018 FY 2018 FY 2019 FY 2017 FY 2018 FY 2018 FY 2019 FY 2018 FY 2018 FY 2019 FY 2017 FY 2018 FY 2018 FY 2019 FY 2017 FY 2018 FY 2018 FY 2019 FY 2018 FY 2019 FY 2018 FY 2018 FY 2019 FY 2017 FY 2018 FY 2018 FY 2019 FY 2018 FY 2019 FY 2017 FY 2018 FY 2018 FY 2019 $ - - - $ - 52,331 56,986 773,221 515,480 - - - - 78,497 15,781 214,119 142,746 - - 52,331 23,381 290,421 193,614 - - - - 52,331 50,410 683,999 455,995 - - - - 52,331 16,001 229,664 153,109 - 9,862 200,737 133,821 - - 52,331 38,894 429,418 286,274 - - - - 52,331 24,165 399,863 266,575 - 11,860 224,493 149,657 - - - - 52,331 20,754 229,250 152,833 PAGE 41 Shareholdings of key management personnel The number of ordinary shares in Computershare Limited held during the financial year by each director and the other named key management personnel, including details of shares granted as remuneration during the current financial year and ordinary shares provided as the result of the exercise of remuneration options during the current financial year, are included in the table below. Balance at beginning of the year Vested under DSTI plan On exercise of options/ performance rights On market purchases/ (sales) Balance at end of the year Other Value of options/ performance rights exercised Directors SJ Irving TL Fuller SD Jones M Kerber PJ Maclagan CJ Morris AL Owen JM Velli Key management personnel SA Cameron PA Conn MB Davis SHE Herfurth ML McDougall SR Rothbloom N Sarkar SS Swartz JLW Wong - 17,837 2,000 14,000 40,000 12,777,025 37,564,000 12,910 10,000 78 588,508 7,218 13,134 53,238 66,357 11,942 16,266 158,924 - - - - - - - 9,231 14,180 14,123 - 10,752 28,353 12,804 5,636 14,844 - - - - - - - - - - - - - - - - - - - 3,000 - (160,000) (133,000) - - (9,682) (98,936) (6,921) (11,965) - (11,231) (17,168) (21,902) (14,000) - - - - - - - - 451 - - 693 - - 204 - 17,837 2,000 17,000 40,000 12,617,025 37,431,000 12,910 10,000 78 503,752 14,420 1,862 63,990 83,479 7,782 - 3,269 163,037 $ - - - - - - - - - - - - - - - - - E. PROPORTIONS OF FIXED AND PERFORMANCE RELATED REMUNERATION The percentage value of total remuneration relating to the current financial year received by key management personnel that consists of fixed and performance related remuneration is as follows: % of fixed/ non-performance related remuneration % of total remuneration received as cash bonus (CSTI) % of remuneration received as equity bonus (DSTI) % of total remuneration received as performance related rights/options* SJ Irving TL Fuller SD Jones ME Kerber PJ Maclagan CJ Morris AL Owen JM Velli SA Cameron PA Conn MB Davis SHE Herfurth ML McDougall SR Rothbloom N Sarkar SS Swartz JLW Wong 48.07% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 44.43% 58.92% 48.28% 50.27% 63.41% 64.51% 57.36% 64.54% 63.31% 20.72% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 10.05% 13.10% 11.77% 10.76% 13.31% 14.21% 10.10% 10.05% 12.86% 0.80% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 7.67% 9.04% 8.50% 3.53% 11.24% 8.89% 8.44% 8.41% 7.42% 30.41% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 37.85% 18.94% 31.45% 35.44% 12.04% 12.39% 24.10% 17.00% 16.41% * Excludes the DLI performance rights reversal in the year ended 30 June 2016. PAGE 42 DIRECTORS’ REPORT Computershare Annual Report 2016 F. OTHER INFORMATION Loans and other transactions with directors and executives Computershare made no loans to directors and executive directors or other key management personnel during the current financial year. CJ Morris has a significant interest in Lumi Technologies Limited. This entity provides meeting services to Computershare on ordinary commercial terms and conditions. Total value of services provided in the year ended 30 June 2016 was $2,136,399. Computershare also provides services to Lumi Technologies Limited, which comprise rental of premises and voucher services, on ordinary commercial terms and conditions. Total value of services provided in the year ended 30 June 2016 was $827,036. The consolidated entity made rental payments related to property used by Computershare and owned by CJ Morris. Payments made in the year ended 30 June 2016 amounted to $31,898. The consolidated entity made rental payments related to property used by Computershare and owned by PJ Maclagan. Payments made in the year ended 30 June 2016 amounted to $66,000. As a matter of Board approved policy, the Group maintains a register of all transactions between employees and the consolidated entity. It is established practice for any director to excuse himself or herself from discussion and voting upon any transaction in which that director has an interest. The consolidated entity has a Board approved ethics policy governing many aspects of workplace conduct, including management and disclosure of conflicts of interest. Derivative instruments Computershare’s policy forbids key management personnel to deal in derivatives designed as a hedge against exposure to unvested shares in Computershare Limited. Shares under option Unissued ordinary shares in Computershare Limited under performance rights at the date of this report are as follows: Date granted Performance rights 12/10/2011 4/05/2012 25/09/2012 1/12/2014 1/12/2015 AUDITOR Financial year of expiry Number under performance rights 2017 2017 2018 2018 2019 700,000 200,000 950,000 579,238 716,916 PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. Auditor’s independence declaration A copy of the auditor’s signed independence declaration as required under section 307C of the Corporations Act 2001 is provided immediately after this report. Non-audit services The Group may decide to employ its auditor, PricewaterhouseCoopers, on assignments in addition to their statutory audit duties where the auditor’s expertise and experience with the Group are important. The Board is satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and internal guidelines. Further details regarding the Board’s internal policy for engaging PricewaterhouseCoopers for non-audit services are set out in the Corporate Governance Statement. The directors are satisfied that the provision of non-audit services by PricewaterhouseCoopers, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: > No services were provided by PricewaterhouseCoopers that are prohibited by policy (the policy lists services that cannot be undertaken). > None of the services provided undermine the general principles relating to auditor’s independence, including reviewing or auditing the auditor’s own work, acting in a management capacity or a decision making capacity for the Group, acting as an advocate for the Group or jointly sharing economic risks and rewards. PAGE 43 During the year the following amounts were incurred in relation to services provided by PricewaterhouseCoopers and its network firms. 1. Audit services Audit and review of the financial statements and other audit work by PricewaterhouseCoopers Australia Audit and review of the financial statements and other audit work by network firms of PricewaterhouseCoopers Australia 2. Other services Other assurance services performed by PricewaterhouseCoopers Australia Other assurance services performed by network firms of PricewaterhouseCoopers Australia Tax advice on acquisitions provided by network firms of PricewaterhouseCoopers Australia Total Auditor’s Remuneration ROUNDING OF AMOUNTS 2016 $000 704 2,691 3,395 317 2,139 10 2,466 5,861 2015 $000 843 3,084 3,927 372 2,203 38 2,613 6,540 The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class order to the nearest thousand dollars unless specifically stated to be otherwise. Signed in accordance with a resolution of the directors. SD Jones Chairman 19 September 2016 SJ Irving Chief Executive Officer PAGE 44 DIRECTORS’ REPORT Computershare Annual Report 2016 AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration As lead auditor for the audit of Computershare Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Computershare Limited and the entities it controlled during the period. Anton Linschoten Partner PricewaterhouseCoopers Melbourne 19 September 2016 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. PAGE 45 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2016 Revenue from continuing operations Sales revenue Other revenue Total revenue from continuing operations Other income Expenses Direct services Technology costs Corporate services Finance costs Total expenses Note 2016 $000 2015 $000 1 1 2 1,957,860 1,966,193 3,265 5,059 1,961,125 1,971,252 27,740 12,777 1,405,410 1,410,524 260,570 22,047 54,480 260,915 15,146 51,957 1,742,507 1,738,542 Share of net profit/(loss) of associates and joint ventures accounted for using the equity method 31 & 32 (1,349) (2,316) Profit before related income tax expense Income tax expense/(credit) Profit for the year Other comprehensive income that may be reclassified to profit or loss Available-for-sale financial assets Cash flow hedges Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Total other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Members of Computershare Limited Non-controlling interests Total comprehensive income for the year is attributable to: Members of Computershare Limited Non-controlling interests Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 5 5 245,009 83,211 161,798 243,171 85,893 157,278 (62) (497) 9 (53) (17,005) (106,480) (6,841) (24,405) 137,393 14,963 (91,561) 65,717 157,334 153,576 4,464 3,702 161,798 157,278 133,912 3,481 137,393 63,239 2,478 65,717 3 3 28.55 cents 27.61 cents 28.51 cents 27.56 cents The above consolidated statement of comprehensive income is presented in United States dollars and should be read in conjunction with the accompanying notes. PAGE 46 Computershare Annual Report 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2016 CURRENT ASSETS Cash and cash equivalents Bank deposits Receivables Loan servicing advances Available-for-sale financial assets Other financial assets Inventories Current tax assets Derivative financial instruments Other current assets Assets classified as held for sale Total current assets NON-CURRENT ASSETS Bank deposits Receivables Investments accounted for using the equity method Available-for-sale financial assets Property, plant and equipment Deferred tax assets Derivative financial instruments Intangibles Total non-current assets Total assets CURRENT LIABILITIES Payables Interest bearing liabilities Current tax liabilities Provisions Derivative financial instruments Deferred consideration Liabilities directly associated with assets classified as held for sale Other liabilities Total current liabilities NON-CURRENT LIABILITIES Payables Interest bearing liabilities Deferred tax liabilities Provisions Deferred consideration Derivative financial instruments Other liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total parent entity interest Non-controlling interests Total equity Note 2016 $000 2015 $000 6 14 15 19 16 17 5 12 18 8 14 30 19 20 5 12 9 21 13 5 22 12 23 8 24 21 13 5 22 23 12 24 26 27 28 25 25 526,575 20,174 425,343 255,139 591 18,655 4,512 6,423 1,952 29,694 26,128 555,278 - 361,185 187,002 620 22,655 4,853 10,574 750 33,362 51,558 1,315,186 1,227,837 - 876 27,357 17,487 116,535 178,644 48,035 2,273,628 2,662,562 3,977,748 382,921 260,088 29,131 40,688 1,238 12,402 - 69,869 796,337 19,664 972 31,596 7,394 161,107 189,348 31,239 2,132,298 2,573,618 3,801,455 392,448 172,805 29,435 44,231 20,838 6,585 12,816 44,537 723,695 9,740 1,374 1,603,217 1,596,299 232,100 29,129 65,969 5,500 127,023 2,072,678 2,869,015 1,108,733 - (81,472) 1,176,690 1,095,218 13,515 214,512 31,548 4,869 9,732 41,785 1,900,119 2,623,814 1,177,641 35,703 (19,362) 1,147,906 1,164,247 13,394 1,108,733 1,177,641 The above consolidated statement of financial position is presented in United States dollars and should be read in conjunction with the accompanying notes. PAGE 47 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2016 Attributable to members of Computershare Limited Contributed Equity $000 Note Reserves $000 Retained Earnings $000 Non- controlling Interests $000 Total $000 Total Equity $000 35,703 (19,362) 1,147,906 1,164,247 13,394 1,177,641 - - - - - - - - 157,334 157,334 4,464 161,798 (62) (497) (16,022) (6,841) - - - - (62) (497) (16,022) (6,841) - - (62) (497) (983) (17,005) - (6,841) (23,422) 157,334 133,912 3,481 137,393 - (128,550) (128,550) (2,799) (131,349) Total equity at 1 July 2015 Profit for the year Available-for-sale financial assets Cash flow hedges Exchange differences on translation of foreign operations Income tax (expense)/credits Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends provided for or paid Share buy-back 26 (35,703) (37,469) Transactions with non-controlling interests Cash purchase of shares on market Share based remuneration Balance at 30 June 2016 Total equity at 1 July 2014 Profit for the year Available-for-sale financial assets Cash flow hedges Exchange differences on translation of foreign operations Income tax (expense)/credits Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends provided for or paid Transactions with non-controlling interests Cash purchase of shares on market Share based remuneration Balance at 30 June 2015 - - - - (73,172) - (12,177) 10,958 - (561) - - (73,172) (561) (12,177) 10,958 (81,472) 1,176,690 1,095,218 13,515 1,108,733 - (12,177) 10,958 - 9 (53) (105,256) 14,963 - - - - - - - - - - - - - - 35,703 84,240 1,134,305 1,254,248 12,964 1,267,212 153,576 153,576 3,702 157,278 - - - - 9 (53) - - 9 (53) (105,256) (1,224) (106,480) 14,963 63,239 - 2,478 14,963 65,717 (90,337) 153,576 - (139,975) (139,975) (2,048) (142,023) (293) (27,971) 14,999 - - - (293) (27,971) 14,999 - - - (293) (27,971) 14,999 35,703 (19,362) 1,147,906 1,164,247 13,394 1,177,641 The above consolidated statement of changes in equity is presented in United States dollars and should be read in conjunction with the accompanying notes. PAGE 48 Computershare Annual Report 2016 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Loan servicing advances (net) Dividends received from equity securities Interest paid and other finance costs Interest received Income taxes paid Net operating cash flows CASH FLOWS FROM INVESTING ACTIVITIES Note 2016 $000 2015 $000 2,001,817 2,064,771 (1,521,470) (1,540,924) (68,137) (44,522) 701 (53,786) 2,564 (57,042) 917 (52,723) 4,142 (59,529) 6 304,647 372,132 Payments for purchase of controlled entities and businesses (net of cash acquired) and intangible assets (167,848) (186,021) Proceeds from sale of a joint venture Dividends received from associates and joint ventures Proceeds from/(payments for) investments Payments for property, plant and equipment Proceeds from sale of subsidiaries and businesses, net of cash disposed Net investing cash flows CASH FLOWS FROM FINANCING ACTIVITIES Payment for purchase of ordinary shares – share based awards Proceeds from borrowings Repayment of borrowings Loan servicing borrowings (net) Dividends paid – ordinary shares (net of dividend reinvestment plan) Purchase of ordinary shares – dividend reinvestment plan Dividends paid to non-controlling interests in controlled entities Payments for on-market share buy-back Repayment of finance leases Net financing cash flows Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the financial year Exchange rate variations on foreign cash balances Cash and cash equivalents at the end of the year* 1,532 445 (19,984) (25,317) (6,511) - 339 (15,495) (28,384) 23,849 (217,683) (205,712) (12,177) (27,971) 494,918 1,242,784 (439,840) (1,161,005) 41,381 76,283 (123,057) (133,601) (5,493) (2,799) (71,830) (6,684) (125,581) (38,617) 604,092 (38,900) 526,575 (6,374) (2,048) - (7,759) (19,691) 146,729 509,151 (51,788) 604,092 * Cash and cash equivalents at 30 June 2016 include nil cash presented in the assets classified as held for sale line item (2015: $48.8 million) in the consolidated statement of financial position. The above consolidated cash flow statement is presented in United States dollars and should be read in conjunction with the accompanying notes. PAGE 49 Results and key balances 1. Revenue and expenses from continuing operations 2. Other income 3. Earnings per share 4. Segment information 5. 6. Notes to the consolidated cashflow statement 7. Business combinations 8. Assets and liabilities classified as held for sale 9. 10. Critical accounting estimates and judgements Income tax expense and balances Intangible assets Financial risk management 11. Financial risk management 12. Derivative financial instruments 13. Interest bearing liabilities Other balance sheet items 14. Receivables 15. Loan servicing advances 16. Other financial assets 17. Inventories 18. Other current assets 19. Available-for-sale financial assets 20. Property, plant and equipment 21. Payables 22. Provisions 23. Deferred consideration 24. Other liabilities Equity 25. Interests in equity 26. Contributed equity 27. Reserves 28. Retained earnings and dividends Group structure 29. Details of controlled entities 30. Investments accounted for using the equity method 31. Associates 32. Joint ventures 33. Deed of cross guarantee 34. Parent entity financial information Unrecognised items 35. Contingent liabilities 36. Commitments 37. Capital expenditure commitments 38. Significant events after year end Other information 39. Related party disclosures 40. Key management personnel disclosures 41. Employee and executive benefits 42. Remuneration of auditors 43. Statement of significant accounting policies PAGE 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 20161. REVENUE AND EXPENSES FROM CONTINUING OPERATIONS a) Revenues Sales revenue Rendering of services Other revenue Dividends received Interest received Total other revenue Total revenue from continuing operations b) Expenses Depreciation and amortisation Depreciation of property, plant and equipment Amortisation of intangible assets (note 9) Amortisation of mortgage servicing related liabilities Total amortisation (net) Total depreciation and amortisation Finance costs Interest expense Loan facility fees and other borrowing expenses Total finance costs Other operating expense items Operating lease rentals Technology spending – research and development Employee entitlements (excluding superannuation and other pension) expense Superannuation and other pension expense Other significant expense items Acquisition related accounting adjustments Foreign currency translation reserve write-off on disposals Put option liability re-measurement Asset write-down Voucher Services impairment 2. OTHER INCOME Gain on acquisition Rent received Marked to market adjustments - derivatives Gain on disposal Other Total other income 2016 $000 2015 $000 1,957,860 1,966,193 701 2,564 3,265 917 4,142 5,059 1,961,125 1,971,252 38,715 120,683 (12,382) 108,301 147,016 51,886 2,594 54,480 58,463 76,882 770,140 37,437 45,642 25,904 7,526 1,687 41,068 103,731 (7,883) 95,848 136,916 49,217 2,740 51,957 59,705 80,433 778,198 38,726 - - 7,749 5,241 - 109,536 11,113 3,734 3,244 325 9,324 27,740 670 1,799 - 7,288 3,020 12,777 PAGE 51 3. EARNINGS PER SHARE Year ended 30 June 2016 Earnings per share (cents per share) Reconciliation of earnings Profit for the year Non-controlling interest (profit)/loss Basic EPS Diluted EPS Management Basic EPS Management Diluted EPS 28.55 cents 28.51 cents 55.09 cents 55.00 cents $000 $000 $000 $000 161,798 161,798 161,798 161,798 (4,464) (4,464) (4,464) (4,464) Add back management adjustment items (see below) - - 146,206 146,206 Net profit attributable to the members of Computershare Limited 157,334 157,334 303,540 303,540 Weighted average number of ordinary shares used as denominator in calculating earnings per share 550,992,891 551,917,891 550,992,891 551,917,891 Year ended 30 June 2015 Earnings per share (cents per share) Reconciliation of earnings Profit for the year Non-controlling interest (profit)/loss 27.61 cents 27.56 cents 59.82 cents 59.72 cents $000 $000 $000 $000 157,278 157,278 157,278 157,278 (3,702) (3,702) (3,702) (3,702) Add back management adjustment items (see below) - - 179,158 179,158 Net profit attributable to the members of Computershare Limited 153,576 153,576 332,734 332,734 Weighted average number of ordinary shares used as denominator in calculating earnings per share 556,203,079 557,178,079 556,203,079 557,178,079 Reconciliation of weighted average number of shares used as the denominator: 2016 Number 2015 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 550,992,891 556,203,079 Adjustments for calculation of diluted earnings per share: Performance rights Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 925,000 975,000 551,917,891 557,178,079 No performance rights have been issued since the end of the reporting period. For the year ended 30 June 2016 management adjustment items were as follows: Amortisation Intangible assets amortisation Acquisitions and disposals Acquisition related accounting adjustments Foreign currency translation reserve write-off on disposals Gain on acquisition Acquisition and disposal related expenses Acquisition related restructuring costs Asset write-down Gain on disposal Other Major restructuring costs Put option liability re-measurement Marked to market adjustments - derivatives Total management adjustment items PAGE 52 Gross $000 Tax effect $000 Net of tax $000 (96,134) 32,091 (64,043) (45,642) (25,904) 11,113 (3,480) (2,002) (1,687) 325 (14,545) (7,526) 3,244 (699) - (2,222) 1,072 698 - - 6,080 - (988) (46,341) (25,904) 8,891 (2,408) (1,304) (1,687) 325 (8,465) (7,526) 2,256 (182,238) 36,032 (146,206) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Management Adjustment Items Management adjustment items net of tax for the year ended 30 June 2016 were as follows: Amortisation > Customer contracts and other intangible assets that are recognised on business combinations or major asset acquisitions are amortised over their useful life in the statutory results but excluded from management earnings. The amortisation of these intangibles for the year ended 30 June 2016 was $64.0 million. Amortisation of intangibles purchased outside of business combinations (eg, mortgage servicing rights) is included as a charge against management earnings. Acquisitions and disposals > A liability of $47.3 million was recognised for contingent consideration payable to the sellers of Homeloan Management Limited. An acquisition accounting adjustment related to the Registrar and Transfer Company resulted in a benefit of $1.0 million. > The finalisation of disposal accounting for the Russian registry business, VEM (a corporate actions bank located in Germany) and the Australian ConnectNow business resulted in a loss of $25.9 million due to a write-off of the associated cumulative translation differences from the foreign currency translation reserve. The cumulative translation differences are only reclassified to profit or loss when the disposal process has been completed and control over a foreign subsidiary is lost. The Russian registry business and VEM were classified as held for sale as at 30 June 2015. > A gain of $8.9 million was recorded on acquisition of assets under the mortgage servicing contract with UK Asset Resolution Limited. > Acquisition and disposal related expenses of $2.4 million were incurred associated with recent acquisitions and disposals including Gilardi & Co, Capital Markets Cooperative, Homeloan Management Limited, Altavera, SyncBASE and ConnectNow. > Restructuring costs of $1.3 million were incurred for the Gilardi & Co, Valiant Trust Company and SyncBASE acquisitions. > A property in the UK was written down to fair value less cost of disposal on classification as ‘held for sale’ resulting in a loss of $1.7 million. > A gain of $0.3 million was recorded on sale of the Japanese joint venture interest. Other > Costs of $8.5 million were incurred in relation to the major operations rationalisation underway in Louisville, USA. > The put option liability re-measurement resulted in an expense of $7.5 million related to the Karvy joint venture arrangement in India. > Derivatives that have not received hedge designation are marked to market at the reporting date and taken to profit and loss in the statutory results. The marked to market valuation resulted in a gain of $2.3 million. For the year ended 30 June 2015 management adjustment items were as follows: Amortisation Intangible assets amortisation Acquisitions and disposals Gain on disposal Acquisition and disposal accounting adjustments Acquisition and disposal related restructuring costs Asset write-down Acquisition and disposal related expenses Gain on acquisition Other Voucher Services impairment Put option liability re-measurement Marked to market adjustments – derivatives Major restructuring costs Total management adjustment items Gross $000 Tax effect $000 Net of tax $000 (90,065) 31,545 (58,520) 7,288 11,383 (9,094) (5,241) (4,540) 670 (109,536) (7,749) (3,179) (2,050) 343 (4,800) 3,080 - 988 - - - 975 824 7,631 6,583 (6,014) (5,241) (3,552) 670 (109,536) (7,749) (2,204) (1,226) (212,113) 32,955 (179,158) PAGE 53 4. SEGMENT INFORMATION The operating segments presented reflect the manner in which the Group has been internally managed and the financial information reported to the chief operating decision maker (CEO) in the current financial year. The Group has determined the operating segments based on the reports reviewed by the CEO that are used to make strategic decisions and assess performance. There are seven operating segments. Six of them are geographic: Asia, Australia and New Zealand, Canada, Continental Europe, UCIA (United Kingdom, Channel Islands, Ireland & Africa) and the United States of America. In addition, Technology and Other segment comprises the provision of software specialising in share registry and financial services. It is also a research and development function, for which discrete financial information is reviewed by the CEO. In each of the six geographic segments the consolidated entity offers a combination of its core products and services: investor services, business services, plan services, communication services and stakeholder relationship management services. Investor services comprise the provision of registry maintenance and related services. Business services comprise the provision of bankruptcy, class action and utilities administration services, voucher services, corporate trust services and mortgage servicing activities. Plan services comprise the provision of administration and related services for employee share and option plans. Communication services comprise intelligent mailing, inbound process automation, scanning and electronic delivery. Stakeholder relationship management services comprise the provision of investor analysis, investor communication and management information services to companies, including their employees, shareholders and other security industry participants. Corporate function includes entities whose main purpose is to hold intercompany investments and conduct financing activities. It is not considered an operating segment and includes activities that are not allocated to other operating segments. OPERATING SEGMENTS June 2016 Total segment revenue and other income External revenue and other income Australia & New Zealand $000 Asia $000 Canada $000 Continental Europe $000 Technology & Other $000 UCIA $000 United States $000 Total $000 128,029 266,897 166,080 80,986 223,491 359,390 957,850 2,182,723 124,413 265,932 164,274 80,772 15,679 356,615 953,816 1,961,501 Intersegment revenue 3,616 965 1,806 214 207,812 2,775 4,034 221,222 Management adjusted EBITDA June 2015 Total segment revenue and other income External revenue and other income 45,231 45,741 67,440 13,732 25,233 100,036 226,392 523,805 124,596 309,635 186,660 113,299 226,705 358,562 870,521 2,189,978 122,350 308,928 184,567 112,979 17,407 354,368 867,473 1,968,072 Intersegment revenue 2,246 707 2,093 320 209,298 4,194 3,048 221,906 Management adjusted EBITDA Segment revenue 42,217 51,652 76,595 22,161 30,646 118,966 213,549 555,786 The revenue reported to the CEO is measured in a manner consistent with that of the statement of comprehensive income. Sales between segments are included in the total segment revenue, whereas sales within a segment have been eliminated from segment revenue. Sales between segments are at normal commercial rates and are eliminated on consolidation. Segment revenue reconciles to total revenue from continuing operations as follows: Total operating segment revenue and other income Intersegment eliminations Corporate revenue and other income Total revenue from continuing operations Management adjusted EBITDA 2016 $000 2015 $000 2,182,723 2,189,978 (221,222) (221,906) (376) 3,180 1,961,125 1,971,252 Management adjusted results are used, along with other measures, to assess operating business performance. The Group believes that exclusion of certain items permits better analysis of the Group’s performance on a comparative basis and provides a better measure of underlying operating performance. PAGE 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 2016 $000 2015 $000 523,805 555,786 8,804 (1,694) 532,609 554,092 (96,134) (45,642) (25,904) 11,113 (3,480) (2,002) (1,687) 325 - (14,545) (7,526) 3,244 (90,065) 11,383 - 670 (4,540) (9,094) (5,241) 7,288 (109,536) (2,050) (7,749) (3,179) (182,238) (212,113) (54,480) (50,882) (51,957) (46,851) 245,009 243,171 727,796 140,510 605,722 70,107 222,186 174,416 20,388 798,859 144,215 519,143 58,208 247,637 179,780 23,410 1,961,125 1,971,252 A reconciliation of management adjusted EBITDA to operating profit before income tax is provided as follows: Management adjusted EBITDA – operating segments Management adjusted EBITDA – corporate Management adjusted EBITDA Management adjustment items (before related income tax effect): Amortisation of intangible assets Acquisition and disposal accounting adjustments Foreign currency translation reserve write-off on disposals Gain on acquisition Acquisition and disposal related expenses Acquisition related restructuring costs Asset write-down Gain on disposal Voucher Services impairment Major restructuring costs Put option liability re-measurement Marked to market adjustments – derivatives Total management adjustment items (note 3) Finance costs Other amortisation and depreciation Profit before income tax from continuing operations External revenue per business line The table below outlines revenue from external customers for each business line: Register Maintenance Corporate Actions Business Services Stakeholder Relationship Management Employee Share Plans Communication Services Technology and Other Revenue Total Geographical Information Australia United Kingdom United States Canada Other non-significant countries Total Geographical allocation of external revenue Geographical allocation of non-current assests 2016 $000 257,308 307,165 961,049 165,243 270,360 2015 $000 298,494 298,216 881,623 185,468 307,451 2016 $000 186,542 217,760 2015 $000 215,562 276,010 1,701,048 1,507,817 175,552 169,122 177,592 178,388 1,961,125 1,971,252 2,450,024 2,355,369 Revenues are allocated based on the countries in which the entities are located. The parent entity is domiciled in Australia. Revenue from external customers in countries other than Australia amounts to $1,703.8 million (2015: $1,672.8 million). Non-current assets exclude financial instruments and deferred tax assets and are allocated to countries based on where the assets are located. Non-current assets held in countries other than Australia amount to $2,263.5 million (2015: $2,139.8 million). PAGE 55 5. INCOME TAX EXPENSE AND BALANCES Income tax expense a) Income tax expense Current tax expense Current tax expense Under/(over) provided in prior years Total current tax expense Deferred tax expense/(benefit) Decrease/(increase) in deferred tax assets (Decrease)/increase in deferred tax liabilities Total deferred tax expense/(credit) Total income tax expense 2016 $000 64,323 5,142 69,465 (51,961) 65,707 13,746 83,211 2015 $000 82,992 3,927 86,919 (33,300) 32,274 (1,026) 85,893 b) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense 245,009 243,171 The tax expense for the financial year differs from the amount calculated on the profit. The differences are reconciled as follows: Prima facie income tax expense thereon at 30% Tax effect of permanent differences: Contingent consideration re-measurement Prior year tax (over)/under provided Research and development allowance Variation in tax rates of foreign controlled entities Voucher Services goodwill impairment Net other deductible Income tax expense c) Amounts recognised directly in equity Deferred tax – (debited)/credited directly to equity d) Tax benefit/(expense) relating to items of other comprehensive income Cash flow hedges Net investment hedges e) Unrecognised tax losses 73,503 72,951 9,463 5,142 (1,733) (472) - (2,692) 83,211 - 3,927 (2,327) (4,277) 32,861 (17,242) 85,893 (30) 92 106 (6,947) (6,841) 243 14,720 14,963 As at 30 June 2016, companies within the consolidated entity had estimated unrecognised tax losses of $1.1 million (2015: $35.4 million) available to offset against future years’ taxable income. PAGE 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Tax assets Current tax assets Refunds receivable Deferred tax assets Attributable to carry forward tax losses Attributable to temporary differences Movements during the year Opening balance at 1 July Currency translation difference Credited/(charged) to profit or loss Credited/(charged) to equity Credited/(charged) to other comprehensive income Set-off of deferred tax liabilities Arising from acquisitions/(disposals) Closing balance at 30 June The deferred tax assets balance comprises temporary differences attributable to: Tax losses Employee benefits Property, plant and equipment Deferred revenue Doubtful debts Provisions Finance leases Other creditors and accruals Financial instruments and foreign exchange Share based remuneration Intangible assets Other liabilities Other Total deferred tax assets Set-off of deferred tax liabilities pursuant to set-off provisions Net deferred tax assets 2016 $000 2015 $000 6,423 10,574 35,166 143,478 178,644 37,772 151,576 189,348 189,348 167,625 (3,354) 51,961 (30) (6,947) (52,839) 505 (11,754) 33,300 92 14,720 (15,238) 603 178,644 189,348 35,166 37,772 6,576 9,882 3,903 2,452 20,383 3,255 6,959 55,252 3,826 42,917 61,456 6,962 7,169 9,419 4,308 1,990 21,926 2,273 8,490 58,364 8,084 34,704 19,704 2,651 258,989 (80,345) 178,644 216,854 (27,506) 189,348 The total deferred tax assets expected to be recovered after more than 12 months amounts to $155.3 million (2015: $102.4 million). PAGE 57 Tax liabilities Current tax liabilities Provision for income tax Deferred tax liabilities 2016 $000 2015 $000 29,131 29,435 Provision for deferred income tax on temporary differences 232,100 214,512 Movements during the year: Opening balance at 1 July Currency translation difference Charged/(credited) to profit or loss Charged/(credited) to other comprehensive income Set-off of deferred tax assets Arising from acquisitions/(disposals) Closing balance at 30 June The deferred tax liabilities balance comprises temporary differences attributable to: Goodwill Intangible assets Financial instruments and foreign exchange Other Total deferred tax liabilities Set-off of deferred tax assets pursuant to set-off provisions Net deferred tax liabilities 214,512 192,215 (1,801) 65,707 (106) (5,396) 32,274 (243) (52,839) (15,238) 6,627 232,100 10,900 214,512 224,449 69,828 14,594 3,574 312,445 (80,345) 232,100 198,063 31,464 8,873 3,618 242,018 (27,506) 214,512 The amount of deferred tax liabilities expected to be settled after more than 12 months amounts to $304.8 million (2015: $212.3 million). PAGE 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 6. NOTES TO THE CONSOLIDATED CASHFLOW STATEMENT (a) Reconciliation of cash and cash equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents include cash on hand, deposits at call with financial institutions and other highly liquid investments with short periods to maturity (three months or less), which are readily convertible to known amounts of cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. Cash and cash equivalents as at the end of the financial year as shown in the consolidated cash flow statement are reconciled to the related items in the consolidated statement of financial position as follows: Shown as cash and cash equivalents in the consolidated statement of financial position Shown as cash and cash equivalents in the assets held for sale line item of the consolidated statement of financial position (refer to note 8) Cash at bank and on hand (b) Reconciliation of net profit after income tax to net cash from operating activities Net profit after income tax Adjustments for non-cash income and expense items: Depreciation and amortisation Contingent consideration re-measurement Net (gain)/loss on asset disposals and asset write downs Gain on acquisition Share of net (profit)/loss of associates and joint ventures accounted for using equity method Employee benefits – share based expense Impairment charge – Voucher Services Fair value adjustments Changes in assets and liabilities: (Increase)/decrease in receivables (Increase)/decrease in inventories (Increase)/decrease in loan servicing advances (Increase)/decrease in other current assets Increase/(decrease) in payables and provisions Increase/(decrease) in tax balances 2016 $000 2015 $000 526,575 555,278 - 48,814 526,575 604,092 161,798 157,278 147,016 136,916 45,642 27,266 (11,113) 1,349 10,366 - 3,889 (64,164) (1,710) (68,137) 5,116 21,160 26,169 (9,434) (2,291) (670) 2,316 16,535 109,536 10,911 (19,162) 2,482 (44,522) 10,207 (24,334) 26,364 Net cash and cash equivalents from operating activities 304,647 372,132 (c) Non-cash transactions During the year Computershare recognised the following material non-cash transactions in the statement of comprehensive income: > An expense of $47.3 million related to contingent consideration payable to the sellers of Homeloan Management Limited > A loss of $25.9 million on finalisation of disposal accounting for the Russian registry business, VEM (a corporate actions bank located in Germany) and the Australian ConnectNow business due to a write-off of the associated cumulative translation differences from the foreign currency translation reserve > A gain of $11.1 million recorded on acquisition of assets under the mortgage servicing contract with UK Asset Resolution Limited There were no other material non-cash transactions during the year. (d) Acquisitions and disposals of businesses For details of businesses acquired during the year and related cash flows refer to note 7. PAGE 59 7. BUSINESS COMBINATIONS The Group continues to seek acquisition and other growth opportunities where value can be added and returns enhanced for the shareholders. The following controlled entities and businesses were acquired by the consolidated entity at the date stated and their operating results have been included in the Group’s results from the acquisition date. Where goodwill or gain on acquisition are marked as provisional, identification and valuation of net assets acquired will be completed within a 12 month measurement period in accordance with the Group’s accounting policy. (a) On 29 April 2016, Computershare acquired Capital Markets Cooperative, LLC (CMC), based in Florida, USA. CMC is a service provider to mortgage originator clients with a substantial mortgage servicing rights co-issue programme. Total consideration was $98.1 million, which included deferred consideration of $10.2 million and contingent consideration of $5.6 million, which is subject to certain performance hurdles being satisfied. Contingent consideration is based on the best estimate at acquisition date and does not contain a cap. This business combination contributed $5.5 million to the total revenue of the group. Had the acquisition occurred on 1 July 2015, the total revenue contribution to the Group by the acquired entity would have been $25.9 million. Details of the acquisition are as follows: Cash consideration Deferred consideration Contingent consideration Total purchase consideration Less fair value of identifiable assets acquired Provisional goodwill on consolidation Assets and liabilities arising from this acquisition are as follows: Cash Receivables Loan servicing advances Current tax assets Derivative financial instruments Other current assets Property, plant and equipment Mortgage servicing rights Payables Other current liabilities Deferred tax liability Net assets Purchase consideration: Inflow/(outflow) of cash to acquire the entity, net of cash acquired: Cash balance acquired Less cash paid Net inflow/(outflow) of cash PAGE 60 $000 82,303 10,192 5,587 98,082 (53,048) 45,034 Fair value $000 8,238 3,200 503 1,704 857 177 848 43,085 (1,807) (579) (3,178) 53,048 $000 8,238 (82,303) (74,065) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 (b) On 4 May 2016, Computershare was appointed by UK Asset Resolution Limited (UKAR) to undertake its mortgage servicing activities under a seven year contract covering GBP 30 billion of UKAR mortgages. In addition, Computershare entered into separate contracts for the servicing of the GBP 11 billion of assets purchased by other parties from UKAR in November 2015. As part of the contract, Computershare acquired around 1,700 staff as well as certain assets and liabilities of UKAR effective 6 June 2016. Consideration paid for the assets acquired was GBP 1. Computershare also paid a working capital adjustment to the sellers of $0.5 million. Due to the structure determined by the UK Government for award of the UKAR contract, business combination accounting rules are applicable, which resulted in a gain on acquisition of $11.1 million as the total value of net assets acquired exceeded the purchase consideration. The gain is included in other income in the statement of comprehensive income and is excluded from management earnings. Since the UKAR contract was only entered into on 4 May 2016, this business combination did not materially contribute to the total revenue of the Group in the year ended 30 June 2016. Details of the acquisition are as follows: Total cash paid Less fair value of identifiable assets acquired Provisional gain on acquisition Assets and liabilities arising from this acquisition are as follows: Other current assets Property, plant and equipment Customer contracts and related relationships Payables Provisions Deferred tax liability Net assets Purchase consideration: Inflow/(outflow) of cash, net of cash acquired: Cash consideration paid Net inflow/(outflow) of cash $000 507 (11,620) (11,113) Fair value $000 2,702 1,548 12,700 (2,195) (595) (2,540) 11,620 $000 (507) (507) (c) On 27 August 2015 Computershare acquired 100% of Gilardi & Co., LLC (Gilardi), based in San Rafael, California, USA. Gilardi is a securities and anti-trust class actions claims administration business and complements Computershare’s KCC business and its integrated suite of corporate restructuring, class action and legal document support solutions. Total consideration was $41.9 million, which included contingent consideration of $11.1 million. Contingent consideration is dependent on achieving net billable revenue targets over a three year period and is capped at $11.1 million. This business combination contributed $29.2 million to the total revenue of the group. Had the acquisition occurred on 1 July 2015, the total revenue contribution to the Group by the acquired entity would have been $34.2 million. Details of the acquisition are as follows: Cash consideration Contingent consideration Total purchase consideration Less fair value of identifiable assets acquired Goodwill on consolidation $000 30,814 11,070 41,884 (37,620) 4,264 PAGE 61 Assets and liabilities arising from this acquisition are as follows: Cash Current receivables Other current assets Plant, property and equipment Customer contracts and related relationships Intellectual property Brand name Deferred tax assets Current payables Other current liabilities Net assets Purchase consideration: Inflow/(outflow) of cash to acquire the entity, net of cash acquired: Cash balance acquired Less cash paid Net inflow/(outflow) of cash Fair value $000 62 6,847 484 182 32,410 1,300 1,050 627 (5,216) (126) 37,620 $000 62 (30,814) (30,752) (d) On 31 January 2016, Computershare acquired SyncBASE Inc., an equity plan administration business based in Toronto, Canada. Total consideration was $9.3 million. This business combination did not materially contribute to the total revenue of the Group. Details of the acquisition are as follows: Cash consideration Contingent consideration Total purchase consideration Less fair value of identifiable assets acquired Provisional goodwill on consolidation Assets and liabilities arising from this acquisition are as follows: Cash Current receivables Other current assets Plant, property and equipment Current payables Current tax liabilities Net assets Purchase consideration: Inflow/(outflow) of cash to acquire the entity, net of cash acquired: Cash balance acquired Less cash paid Net inflow/(outflow) of cash PAGE 62 $000 7,188 2,138 9,326 (388) 8,938 Fair value $000 982 351 16 23 (953) (31) 388 $000 982 (7,188) (6,206) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 (e) On 1 February 2016, Computershare acquired PR im Turm HV-Service AG, a company AGM supervisor based in Mannheim, Germany. Total consideration was $3.0 million. This business combination did not materially contribute to the total revenue of the Group. Details of the acquisition are as follows: Total cash consideration paid Less fair value of identifiable assets acquired Provisional goodwill on consolidation $000 3,049 (133) 2,916 (f) On 13 May 2016, Computershare acquired Altavera, LLC, a mortgage servicing business based in the USA. Total consideration was $2.8 million. This business combination did not materially contribute to the total revenue of the Group. Details of the acquisition are as follows: Cash consideration Contingent consideration Total purchase consideration Less fair value of identifiable assets acquired Provisional goodwill on consolidation $000 1,425 1,350 2,775 (275) 2,500 In accordance with the accounting policy, the acquisition accounting for Valiant Trust Company (Valiant) and Istifid S.p.A (Istifid) has been finalised. Intangible assets of $15.1 million for Valiant and $4.8 million for Istifid have been reclassified out of goodwill. 8. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE Assets classified as held for sale Cash and cash equivalents Financial assets held for trading Property, plant and equipment Other Total assets held for sale Liabilities directly associated with assets classified as held for sale Payables Total liabilities held for sale 2016 $000 - - 26,128 - 2015 $000 48,814 1,904 - 840 26,128 51,558 - - 12,816 12,816 On 26 April 2016, Computershare announced the sale of the land and building housing its Australian head office. The sale was completed on 9 September 2016 and is expected to result in a gain of $40.3 million, which will be recorded in next year’s results. Separately, the sale process of a building located in the United Kingdom is underway and is expected to be completed within the next twelve months. The building was acquired as part of the original IML acquisition. Both the Australian head office building and land as well as the building in the UK are classified as held for sale as at 30 June 2016. Land and buildings classified as held for sale are measured at the lower of carrying amount and fair value less cost to sell at the time of the reclassification and are presented separately within current assets in the consolidated statement of financial position. A loss of $1.7 million before tax resulting from the write-down of the UK property to fair value less cost of disposal has been recognised in the direct services expense line of the consolidated statement of comprehensive income. The sale process of VEM Aktienbank AG (VEM), a corporate actions bank located in Germany, was completed on 31 July 2015 and sale of the Russian registry business was completed on 17 July 2015. VEM and Russia were classified as disposal groups held for sale as at 30 June 2015. The finalisation of disposal accounting for VEM and Russia resulted in a loss of $25.9 million due to a write-off of the associated cumulative translation differences from the foreign currency translation reserve. The cumulative translation differences are only reclassified to profit or loss when the disposal process has been completed and control over a foreign subsidiary is lost. PAGE 63 9. INTANGIBLE ASSETS Customer contracts and relationships $000 Mortgage Servicing Rights $000 Goodwill $000 Other $000 Total $000 At 1 July 2015 Opening cost 1,560,658 625,109 Opening accumulated amortisation and impairment - (205,900) Opening net book amount Additions1 Amortisation charge2 Currency translation difference Closing net book amount At 30 June 2016 Cost Accumulated amortisation and impairment Closing net book amount At 1 July 2014 Opening cost Additions1 Disposals Amortisation charge2 Impairment charge Currency translation difference Closing net book amount At 30 June 2015 Cost Accumulated amortisation and impairment Closing net book amount 1,560,658 419,209 43,208 - (27,968) 65,464 (81,525) (12,476) 143,051 (18,720) 124,331 191,741 86,395 2,415,213 (58,295) (282,915) 28,100 2,132,298 3,481 303,894 (24,472) (14,686) (120,683) - (1,437) (41,881) 1,575,898 390,672 291,600 15,458 2,273,628 1,575,898 672,064 - (281,392) 1,575,898 390,672 334,792 (43,192) 291,600 41,492 2,624,246 (26,034) (350,618) 15,458 2,273,628 1,739,395 665,364 20,945 (10,601) - (93,912) (95,169) 75,653 (8,204) (70,719) - (20,734) 64,048 (5,148) 58,900 79,003 - (13,572) - - 149,016 2,617,823 (115,884) (343,183) 33,132 16,913 (1,608) (19,440) - (897) 2,274,640 192,514 (20,413) (103,731) (93,912) (116,800) 1,560,658 419,209 124,331 28,100 2,132,298 1,560,658 625,109 - (205,900) 1,560,658 419,209 143,051 (18,720) 124,331 86,395 2,415,213 (58,295) (282,915) 28,100 2,132,298 Opening accumulated amortisation and impairment - (222,151) Opening net book amount 1,739,395 443,213 1 Additions comprise the recognition of intangible assets resulting from business combinations and direct purchases as well as adjustments and reclassifications made on finalisation of acquisition accounting. 2 Amortisation charge is included within direct services expense in the statement of comprehensive income. The acquired goodwill can be attributed to the expected future cash flows of the acquired businesses associated with the collective experience of management and staff and the synergies expected to be achieved as a result of the full integration into the Computershare Group. Other intangible assets include intellectual property, software and brands. Where acquisitions have been made during the period, the Group has 12 months from the acquisition date in which to finalise the accounting, including the calculation of goodwill. Until the expiry of the 12 month period provisional amounts have been included in the consolidated results. PAGE 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Impairment test for goodwill For the purpose of impairment testing, goodwill is allocated to cash generating units, or groups of cash generating units, expected to benefit from synergies of the business combination. As the Group continues to acquire operations and reorganise the way that operations are managed, reporting structures may change giving rise to a reassessment of cash generating units and/or the allocation of goodwill to those cash generating units. The carrying amount of goodwill has been allocated to the following groups of cash generating units (CGUs) constituting some of the Group’s operating segments: Asia Australia and New Zealand Canada Continental Europe United Kingdom, Channel Islands, Ireland and Africa (UCIA) United States 2016 $000 84,574 160,083 122,474 26,876 99,319 2015 $000 86,099 164,712 134,461 29,093 114,925 1,082,572 1,031,368 1,575,898 1,560,658 When testing for impairment, the carrying amount of each group of CGUs is compared with its recoverable amount. The recoverable amount is determined based on a value in use calculation for each group of CGUs to which goodwill has been allocated. The value in use calculation uses the discounted cash flow methodology for each CGU typically based upon five years of cash flow projections plus a terminal value. Key assumptions used for value in use calculations Key assumptions used in the value in use calculations are described below for each group of CGUs with a significant amount of allocated goodwill. As there are a number of CGUs in most of the operating segments, presented below are weighted averages of the assumptions applied to individual CGUs. Five-year post-tax cash flow projections are based upon approved budgets covering a one-year period, with the subsequent periods based upon the Group’s expectations of growth excluding the impact of possible future acquisitions, business improvement and restructuring. The earnings growth rates applied beyond the initial five-year period are as follows in 2016: Asia 3.8% (2015: 3.0%), Australia and New Zealand 3.0% (2015: 3.0%), Canada 2.5% (2015: 3.0%), Continental Europe 1.8% (2015: 3.0%), UCIA 3.0% (2015: 3.0%) and the United States 3.0% (2015: 3.0%). In performing the value in use calculations for each CGU, the Group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. The discount rates used reflect the risks specific to each CGU. The equivalent pre-tax discount rates are as follows: Asia 11.5% (2015: 11.0%), Australia and New Zealand 12.2% (2015: 12.7%), Canada 9.8% (2015: 10.4%), Continental Europe 9.9% (2015: 9.8%), UCIA 9.4% (2015: 9.8%) and United States 10.0% (2015: 10.6%). Impact of reasonably possible changes in key assumptions As impairment testing is based on assumptions and judgements, the Group has considered sensitivity of the impairment test results to changes in key assumptions. For all operating segments, the recoverable amount exceeds the carrying amount when testing for reasonably possible changes in key assumptions. Voucher Services The reduction in expected future earnings of Computershare’s Voucher Services business was slower than anticipated and the present value of expected future cash flows continues to support the carrying amount of goodwill related to this business of $27.7 million. Consequently, there was no impairment of goodwill related to Voucher Services during the year. The carrying value of this goodwill will continue to be monitored and is expected to be written off in the coming years. 10. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The significant estimates and assumptions made in the current financial year comprise assumptions made in acquisition accounting, goodwill impairment testing and income taxes, including the recoverability of tax losses. Acquisition accounting requires that management make estimates around the valuation of certain non-monetary assets and liabilities within the acquired entities. These estimates have particular impact in terms of the valuation of intangible assets, contingent consideration and provisions. To the extent that these items are subject to determination during the initial 12 months after acquisition, the variation to estimated value will be adjusted through goodwill. To the extent that determination occurs after 12 months, any variation will impact profit or loss in the relevant period (refer to notes 7 and 9). PAGE 65 Goodwill is tested for impairment annually or more frequently, if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. For more details on assumptions used in value in use calculations refer to note 9. The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final outcome is different from the amounts that were initially recognised, such differences will impact the current and deferred tax provisions in the period in which such determination is made. The Group has recognised deferred tax assets relating to carried forward tax losses to the extent that it is probable that future taxable profits will be available against which these assets can be utilised. The assumptions regarding future utilisation, and therefore the recognition of deferred tax assets, may change due to future operating performance and other factors. 11. FINANCIAL RISK MANAGEMENT Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. The Group’s overall financial risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board. The Board provides written principles for overall risk management, as well as policies covering specific areas such as currency risk management, interest rate risk management, counterparty risk management and the use of derivative financial instruments. Derivative financial instruments are used to manage specifically identified interest rate and foreign currency risks. The Group Treasury function provides services to the business and monitors and manages the financial risks relating to the operations of the Group. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the regional treasury centres and reports regularly to the Board. Capital risk management objectives The primary objective of the Group’s capital management is to ensure that it minimises the working capital funding requirements through effective controls in order to support its businesses and maximise shareholder value. A key financial ratio for the Group is net financial indebtedness to management earnings before interest, tax, depreciation and amortisation (EBITDA). Net debt is calculated as interest bearing liabilities less cash and cash equivalents. Interest bearing liabilities Cash and cash equivalents1 Net debt Management EBITDA (note 4) Net debt to management EBITDA Net debt to management EBITDA (excluding non-recourse debt)2 1 2015 includes $48.8 million cash presented in assets classified as held for sale. 2 Excludes non-recourse SLS advance debt of $208.2 million (2015: $132.4 million). 2016 $000 2015 $000 1,863,305 1,769,104 (526,575) (604,092) 1,336,730 1,165,012 532,609 554,092 2.51 2.12 2.10 1.86 The Group manages its capital structure and makes adjustments to it in line with changes in economic conditions. To achieve its target capital structure, the Group may adjust the dividend payment to shareholders, conduct share buy-backs or issue new shares. On 18 August 2015 Computershare announced an on-market buy-back of shares with an aggregate value of up to AUD 140.0 million. For further details refer to note 26. No other changes were made in the capital structure objectives or processes during the current financial year. Fair value of financial assets and liabilities The carrying amounts of cash and cash equivalents, receivables, payables, non-interest bearing liabilities, finance leases and loans approximate their fair values for the Group except for the unhedged portion of USD Senior Notes of $395.0 million (2015: $395.0 million), where the fair value was $419.8 million as at 30 June 2016 (2015: $410.9 million). Financial risk factors The key financial risk factors that arise from the Group’s activities are outlined below. (a) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. The consolidated entity is exposed to interest rate risk through its primary financial assets and liabilities and as a result of maintaining agent and escrow agent bank accounts on behalf of clients. Given the nature of the client balances, neither the funds nor an offsetting liability are included in the Group’s financial statements. Average client balances during the year approximated $15.7 billion (2015: $15.2 billion) and in relation to these balances, the consolidated entity has in place interest rate derivatives totalling $1.7 billion notionally (2015: $2.1 billion). PAGE 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The following table summarises the interest rate risk for the consolidated entity, together with effective interest rates as at the balance date. Fixed interest rate maturing in Weighted average interest rate Floating interest rate $000 1 year or less $000 1 to 5 years $000 More than 5 years $000 Non- interest bearing $000 Total $000 Floating % Fixed % As at 30 June 2016 Financial assets Cash and cash equivalents 526,575 - Bank deposits Trade receivables Non-trade receivables and loans Loan servicing advances Financial liabilities Trade payables Finance lease liabilities Bank loans Revolving syndicated bank facilities USD Senior Notes1 Derivatives2 13,450 6,724 - - - - - - 540,025 6,724 - - 208,210 771,647 - 30,272 7,892 - - - - - 21,000 345,000 440,000 - - 526,575 20,174 0.62 2.08 - 2.50 205,176 205,176 62,723 62,723 255,139 255,139 523,038 1,069,787 23,366 - - - - 23,366 38,164 208,210 771,647 806,000 - - - - - 2.55 1.77 - - - - - 5.85 - - 4.74 1,426,437 (787,622) (363,815) (275,000) 495,000 495,000 0.95 1.64 2,406,294 (736,350) (10,923) 165,000 518,366 2,342,387 As at 30 June 2015 Financial assets Cash and cash equivalents3 604,092 - Bank deposits Trade receivables Non-trade receivables and loans Loan servicing advances 15,732 3,932 - - - - - - 619,824 3,932 Financial liabilities Trade payables Finance lease liabilities Bank loans - - 166,753 Revolving syndicated bank facilities 736,527 USD Senior Notes1 Derivatives2 6,052 34,337 - - - - - - 604,092 19,664 0.74 2.07 - 2.50 197,925 197,925 47,989 47,989 187,002 187,002 432,916 1,056,672 21,062 21,062 - - - - 40,389 166,753 736,527 806,000 - - - - - 2.31 2.24 - - - - - 5.74 - - 4.73 1.80 - 366,000 440,000 1,732,446 (1,321,446) (136,000) (275,000) 550,000 550,000 0.85 2,635,726 (1,315,394) 264,337 165,000 571,062 2,320,731 1 USD Senior Notes at cost, excluding fair value adjustments (note 13). 2 Notional principal amounts. 3 Includes cash that is classified as an asset held for sale. The sensitivity of the profit and loss statement to interest rate movements is the effect of assumed reasonably possible changes in interest rates for one year, based on the on-balance sheet floating rate financial assets and liabilities as at 30 June 2016. The total sensitivity analysis is based on the assumption that there are parallel shifts in the yield curve. The Group’s judgements of reasonably possible movements in interest rates have been based on a range of 100 basis point movement as at 30 June 2016 for all regions. The sensitivity to a reasonably possible increase in interest rates, with all other variables held constant, of the statement of comprehensive income of the consolidated entity is a decrease to profit of $9.5 million (2015: $0.6 million decrease). The sensitivity to a reasonably possible decrease in interest rates, with all other variables held constant, of the statement of comprehensive income of the Group is an increase to profit of $7.9 million (2015: $0.7 million increase). PAGE 67 This sensitivity calculation includes the impact of changes in interest rates on the fair value of recognised derivatives but excludes the impact on interest income derived from client balances. Client balances have been excluded from the sensitivity analysis as they are not reflected in the Group’s consolidated statement of financial position. Interest income is earned on these balances at various fixed and floating interest rates. In a rising interest rate environment, client balances that earn interest income will result in an increase to profit, while in a falling interest rate environment, client balances that earn interest income will result in a decrease to profit. (b) Foreign exchange risk Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. Entities within the Group typically enter into external transactions and recognise external assets and liabilities that are denominated in their functional currency. Whilst a number of entities within the Group hold bank account balances in a currency which is not their local functional currency, these balances do not expose the Group to significant foreign exchange risk. Foreign exchange risk also arises from net investments in foreign operations held in Europe, Canada, South Africa and Asia Pacific. Accordingly, the Group’s financial position can be affected significantly by movements in the relevant currency exchange rate when translating into the consolidated entity’s presentation currency, the United States dollar. The consolidated entity also has debt that is designated as a hedge of the net investment in foreign operations. On consolidation, any foreign exchange gains or losses on these balances are transferred to the foreign currency translation reserve. (c) Credit risk Credit exposure represents the extent of credit related losses that the consolidated entity may be subject to on amounts to be received from financial assets, which include receivables, cash and cash equivalents and other financial instruments. The consolidated entity, while exposed to credit related losses in the event of non-payment by clients, does not expect any significant clients to fail to meet their obligations. The Group’s trading terms do not generally include the requirement for customers to provide collateral as security for financial assets and accordingly, the consolidated entity does not hold any collateral as security. The consolidated entity’s exposure to credit risk is as indicated by the carrying amounts of its financial assets. Concentrations of credit risk exist when clients have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The consolidated entity’s concentration of credit risk is minimised due to transactions with a large number of clients in various countries and industries. The registry and plans sector transacts with various listed companies across a number of countries. The consolidated entity does not have a significant exposure to any individual client. Transactions involving derivative financial instruments are with counterparties with whom the Group has signed International Swaps and Derivatives Association agreements and who maintain sound credit arrangements. To supplement credit ratings of counterparties the Group has a Board approved policy on managing client balance exposure. (d) Liquidity Risk Liquidity risk management implies maintaining sufficient cash and the availability of funding. The Group has staggered its various debt maturities to reduce re-financing risk. Whilst impacted by acquisitions from time to time, the Group maintains sufficient cash balances and committed credit facilities to meet ongoing commitments. Maturity information for the Group’s debt facility is as follows: Maturity profile (in the 12 months ending) June 2017 June 2018 June 2019 June 2020 June 2021 June 2022 June 2023 June 2024 Total Debt facility utilised $million 229.3 489.6 305.0 322.0 - 220.0 - 220.0 1,785.9 The Group had access to unutilised committed debt of $0.4 million maturing in July 2017 and $128.0 million maturing in July 2019. PAGE 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016Maturities of financial liabilities The table below analyses the Group’s financial liabilities into relevant maturity groupings. The amounts disclosed in the table are the contractual undiscounted cash flows. For interest rate swaps the cash flows have been estimated using the forward interest rates applicable at the end of the reporting period. Contractual maturities of financial liabilities As at 30 June 2016 Non-derivatives Trade payables Other payables Borrowings (excluding finance leases) Finance lease liabilities (undiscounted) Put option liability Total non-derivatives Derivatives Net settled (interest rate swaps) Gross settled (cross currency and FX swaps) - (Inflow) - Outflow Total derivatives As at 30 June 2015 Non-derivatives Trade payables Other payables Borrowings (excluding finance leases) Finance lease liabilities (undiscounted) Put option liability Total non-derivatives Derivatives Net settled (interest rate swaps) Gross settled (cross currency and FX swaps) - (Inflow) - Outflow Total derivatives (e) Fair value measurements Less than 1 year $000 Between 1-5 years $000 More than 5 years $000 Total contractual cash flows $000 23,366 359,555 - 9,740 - - 23,366 369,295 285,816 1,238,105 478,566 2,002,487 33,258 37,275 7,957 - - - 41,215 37,275 739,270 1,255,802 478,566 2,473,638 1,978 (554,310) 549,274 (3,058) 21,062 371,386 246,949 7,775 30,441 944 - - 944 - 1,374 - - - - - - 2,922 (554,310) 549,274 (2,114) 21,062 372,760 1,251,098 497,684 1,995,731 37,192 - - - 44,967 30,441 677,613 1,289,664 497,684 2,464,961 957 1,644 (284,851) 301,920 18,026 - - 1,644 - - - - 2,601 (284,851) 301,920 19,670 The fair value of financial assets and liabilities must be estimated for recognition and measurement or for disclosure purposes. The measurement hierarchy used is as follows: Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period for identical assets and liabilities. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. This includes inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Such instruments include derivative financial instruments and the portion of borrowings included in the fair value hedge. PAGE 69 Specific valuation techniques used to value financial instruments are as follows: > Quoted market prices or dealer quotes are used for similar instruments. > The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. > The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date. > The fair value of cross currency swaps is a combination of the fair value of forward foreign exchange contracts determined using forward exchange rates at the balance sheet date (for the final principal exchange) and the use of quoted market prices or dealer quotes for similar instruments (for the basis valuation). > The fair value of interest rate swaptions is calculated using the Black-Scholes formula and quoted market prices. Level 3: Valuation methodology of the asset or liability uses inputs that are not based on observable market data (unobservable inputs). This is the case of investments in unconsolidated structured entities (refer to note 19), which are included in the available-for-sale financial assets. The fair value of the investment in structured entities is determined by reference to the equity interest in net assets of these entities, which approximate their fair values. As profits are realised and dividends are paid to equity investors, the net assets of these entities decrease and so does the fair value of the Group’s investment. The following tables present the Group’s financial assets and liabilities measured and recognised at fair value at 30 June 2016. The comparative figures are also presented below. As at 30 June 2016 Assets Derivative financial instruments Available-for-sale financial assets Total assets Liabilities Borrowings Derivative financial instruments Total liabilities As at 30 June 2015 Assets Derivative financial instruments Available-for-sale financial assets Total assets Liabilities Borrowings Derivative financial instruments Total liabilities Level 1 $000 Level 2 $000 - 49,987 1,761 1,761 - 49,987 - - - 452,451 6,738 459,189 - 1,980 1,980 - - - 31,989 - 31,989 433,428 30,570 463,998 Level 3 $000 - 16,317 16,317 - - - - 6,034 6,034 - - - The following table presents the changes in level 3 items for the periods ended 30 June 2016 and 30 June 2015: 2016 $000 6,034 10,683 (400) 16,317 Opening balance at 1 July Additions Return of capital Closing balance at 30 June PAGE 70 Total $000 49,987 18,078 68,065 452,451 6,738 459,189 31,989 8,014 40,003 433,428 30,570 463,998 2015 $000 7,068 - (1,034) 6,034 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 12. DERIVATIVE FINANCIAL INSTRUMENTS Derivative assets Current Non-current Derivative assets – current and non-current Fair values of interest rate derivatives designated as cash flow hedges (a) Fair values of interest rate derivatives designated as fair value hedges (b) Fair value of derivatives for which hedge accounting has not been applied Total derivative assets Derivative liabilities Current Non-current Derivative liabilities – current and non-current Fair values of interest rate derivatives designated as cash flow hedges (a) Fair values of cross currency derivatives designated as hedge of net investment (c) Fair value of derivatives for which hedge accounting has not been applied Total derivative liabilities 2016 $000 2015 $000 1,952 48,035 49,987 65 47,075 2,847 49,987 1,238 5,500 6,738 2 976 5,760 6,738 750 31,239 31,989 753 29,570 1,666 31,989 20,838 9,732 30,570 1 20,693 9,876 30,570 (a) The gain or loss from remeasuring the designated cash flow hedging instruments at fair value is deferred in equity in the cash flow hedge reserve (note 27) to the extent that the hedge is effective and reclassified into profit or loss when the hedged income is recognised. The ineffective portion is recognised in the profit or loss immediately. In the year ended 30 June 2016, a loss of $0.1 million was transferred to the profit or loss (30 June 2015: $0.2 million gain). A loss before tax of $0.5 million was transferred to the statement of comprehensive income in the year ended 30 June 2016 (30 June 2015: a loss before tax of $0.1 million). (b) The gain or loss from remeasuring the designated fair value hedging instruments at fair value is recognised immediately in the statement of comprehensive income. Refer to note 13 for further disclosure on the interest rate derivatives designated as fair value hedges. (c) The gain or loss from remeasuring the designated net investment hedging instruments at fair value is recognised in equity in the foreign currency translation reserve (note 27) to the extent that the hedge is effective. The ineffective portion is recognised in the profit or loss immediately. In the year ended 30 June 2016, a gain of $0.9m was recognised in profit or loss (30 June 2015: $0.9m loss). 13. INTEREST BEARING LIABILITIES Current Bank loans (SLS non-recourse advance facility) USD Senior Notes (b) Lease liability – secured (c) Non-current Revolving syndicated bank facilities (a) USD Senior Notes (b) Lease liability – secured (c) 2016 $000 2015 $000 208,210 166,753 21,606 30,272 - 6,052 260,088 172,805 771,647 823,678 7,892 736,527 825,435 34,337 1,603,217 1,596,299 (a) The consolidated entity maintains revolving syndicated facilities that were executed on 17 July 2014. The first facility is a multi-currency facility of $450.0 million maturing on 17 July 2017 and the second facility is a USD only facility of $450.0 million maturing on 17 July 2019. The facilities were drawn to an equivalent of $771.6 million at 30 June 2016. The facilities are subject to negative pledge undertakings and impose certain covenants upon the consolidated entity. The Group has complied with the negative pledge undertakings and covenants imposed on it for the year ended 30 June 2016. The Group expects the facility maturing on 17 July 2017 to be refinanced on or before maturity date. PAGE 71 (b) On 22 March 2005, Computershare US, a controlled entity, issued 52 notes in the United States with the total value of $318.5 million. These notes were six, seven, ten and twelve years in tenor and were issued at fair value, with no premium or discount. The six, seven and ten year notes with a total value of $297.5 million were repaid in prior years. The twelve year notes with a total value of $21.0 million are due to be repaid during the 2017 financial year. On 29 July 2008, Computershare US issued a further 26 notes in the United States with a total value of $235.0 million. These notes were for a tenor of ten years. On 9 February 2012, Computershare Investor Services Inc, a controlled entity, issued 62 notes in the United States with a total value of $550.0 million. These notes were for tenors of six, seven, ten and twelve years. Fixed interest is paid on all the issued notes on a semi-annual basis. The Group uses interest rate derivatives to manage the fixed interest exposure. The following table provides a reconciliation of the USD Senior Notes. USD Senior Notes Reconciliation USD Senior Notes at cost Fair value adjustments Total net debt Interest rate derivative (asset) - fair value hedge (note 12) Total 2016 $000 2015 $000 806,000 806,000 39,284 19,435 845,284 825,435 (47,075) (29,570) 798,209 795,865 Fair value adjustments represent loan origination fees and the revaluation of the hedged portion of the USD Senior Notes. Hedged USD Senior Notes amounted to $411.0 million as at 30 June 2016 (2015: $411.0 million). The gain or loss from re-measuring the hedging instruments (interest rate derivatives) at fair value is recognised immediately in the statement of comprehensive income along with the change in fair value of the underlying hedged item (USD Senior Notes). The fair value adjustment of the hedged USD Senior Notes reflects the valuation change due to lower market interest rates at balance sheet date for the term until maturity. The increase is offset by the fair value of interest rate derivatives used to effectively convert the USD fixed interest rate notes to floating interest rates. The conversion to floating interest rate using derivatives provides a hedge against the Group’s USD interest rate risk exposure. (c) The lease liability is secured directly against the assets to which the leases relate (note 36). During the year, Computershare entered into a contract to sell the land and building housing its Australian head office. The sale was completed on 9 September 2016, and the related finance lease liability was recognised as current at 30 June 2016. 14. RECEIVABLES Current Trade receivables Less: provision for doubtful debts Trade receivables (net) Accrued revenue Other non-trade amounts Non-current Other 2016 $000 2015 $000 215,622 (10,446) 205,176 157,444 62,723 205,126 (7,201) 197,925 115,271 47,989 425,343 361,185 876 876 972 972 Bad and doubtful trade receivables Trade receivables are considered impaired where there is objective evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Terms of trade in relation to credit sales are on a weighted average of 30 days from the date of invoice. Factors considered when determining if impairment exists include ageing and timing of expected receipts and the creditworthiness of counterparties. The Group has recognised a loss of $3.8 million (2015: $3.6 million) in respect of bad trade receivables during the year ended 30 June 2016. The loss has been included in the ‘direct services’ expense and ‘technology costs’ lines in the statement of comprehensive income. PAGE 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 The analysis of trade receivables for the consolidated entity that were past due but not impaired is as follows: Past due but not impaired Neither past due nor impaired $000 Less than 30 days overdue $000 More than 30 days but less than 90 days overdue $000 30 June 2016 30 June 2015 145,531 135,193 36,263 37,865 15,477 18,471 All other receivables do not contain impaired assets and are not past due. 15. LOAN SERVICING ADVANCES Current Loan servicing advances More than 90 days overdue $000 7,905 6,396 Total $000 205,176 197,925 2016 $000 2015 $000 255,139 187,002 An overseas subsidiary performing loan servicing activities regularly makes payments on behalf of mortgagors related to taxes, insurance, principal and interest. The receivable represents the total value of these payments yet to be recovered. In general, the overseas subsidiary is reimbursed for advances from collections from the relevant pool of mortgages. In the event that pool level collections are not adequate for full reimbursement, the outstanding advances receive priority over any other liability from the proceeds from the liquidation of the property. 16. OTHER FINANCIAL ASSETS Current Broker client deposits 18,655 22,655 An overseas entity is a licensed deposit taker. This controlled entity accepts deposits in its own name, and records these funds as other financial assets together with a corresponding liability (note 21). The deposits are insured through a local regulatory authority. 17. INVENTORIES Raw materials and stores, at cost Work in progress, at cost 18. OTHER CURRENT ASSETS Prepayments Other 19. AVAILABLE-FOR-SALE FINANCIAL ASSETS Current Debt securities Equity securities Non-current Equity securities 4,406 106 4,512 26,887 2,807 29,694 4,742 111 4,853 29,098 4,264 33,362 554 37 591 588 32 620 17,487 7,394 PAGE 73 Investment in structured entities Non-current equity securities include $16.3 million of investments in unconsolidated structured entities (2015: $6.0 million). An overseas subsidiary of the Group occasionally sells economic benefits and obligations associated with mortgage servicing rights to unconsolidated structured entities while retaining a 20% equity interest in these entities. An unaffiliated third party, which owns 80% of the structured entities as asset manager, provides investment opportunities to investors and is considered a sponsor of these entities. The overseas subsidiary of the Group continues to service the loans associated with the mortgage servicing rights sold to the structured entities and receives a portion of the related economic benefit for providing such services. The structured entities are designed to hold assets that will generate cash flows for their equity investors. The acquisition of these assets is fully funded at inception and future financial support is not expected to be required. As there is no obligation to provide further funding, the exposure to loss from the Group’s interest in the structured entities is limited to the carrying amount of the investment. 20. PROPERTY, PLANT AND EQUIPMENT Building, freehold and leasehold $000 Land $000 Plant and Equipment owned and leased $000 Fixtures and Fittings $000 Motor Vehicles $000 Leasehold improvements $000 Total $000 At 1 July 2015 Opening net book amount 22,000 51,932 Acquisition of entities and businesses Additions Disposals Depreciation charge Asset write-down Currency translation differences Transfers and other* Closing net book amount Cost Accumulated depreciation At 30 June 2016 - - - (1,190) (1,977) (10,613) 8,220 8,220 - 8,220 1,548 4,348 (720) (1,946) (497) (6,021) (14,975) 33,669 45,012 (11,343) 33,669 53,730 915 22,374 (42) (26,243) - (1,833) (373) 48,528 284,509 (235,981) 48,528 9,422 132 1,096 - (3,223) - (527) (4) 6,896 34,467 (27,571) 6,896 84 43 166 (14) (83) - (10) 4 190 927 (737) 190 23,939 161,107 - 2,638 2,895 30,879 - (776) (7,220) (38,715) - (1,687) (415) (167) (10,783) (26,128) 19,032 116,535 50,378 423,513 (31,346) (306,978) 19,032 116,535 * Includes $26.1 million land, buildings and related property, plant and equipment re-classified as held for sale as at 30 June 2016. At 1 July 2014 Opening net book amount 25,186 60,979 Acquisition of entities and businesses Additions Disposals Depreciation charge Currency translation differences Transfers and other Closing net book amount Cost Accumulated depreciation At 30 June 2015 - - - - (3,186) - 22,000 22,000 - 22,000 - 690 (56) (2,487) (7,341) 147 51,932 66,674 (14,742) 51,932 53,333 4,159 29,147 (296) (28,517) (4,120) 24 53,730 321,261 (267,531) 53,730 11,226 145 2,289 (176) (3,403) (668) 9 9,422 320 29 - - (142) (93) (30) 84 25,129 176,173 - 4,333 6,780 38,906 (31) (6,519) (1,270) (150) (559) (41,068) (16,678) - 23,939 161,107 41,702 1,003 53,001 505,641 (32,280) 9,422 (919) 84 (29,062) (344,534) 23,939 161,107 PAGE 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 The following classes of assets include carrying amounts where the Group is a lessee under a finance lease: Leased assets Land Building, freehold and leasehold Plant and equipment owned and leased 21. PAYABLES Current Trade payables – unsecured Expense accruals Deferred revenue GST/VAT payable Employee entitlements Broker client deposits (note 16) Interest payable Other payables Non-current Other payables 22. PROVISIONS Current Restructuring Acquisitions related Tax related Lease related Other Non-current Employee entitlements Acquisitions related Other 2016 $000 - 1,282 6,601 7,883 23,366 114,919 30,052 19,843 19,749 18,655 18,135 138,202 382,921 2015 $000 9,264 16,675 3,724 29,663 21,063 112,245 29,052 14,566 15,169 22,655 18,946 158,752 392,448 9,740 9,740 1,374 1,374 9,910 9,992 7,316 2,484 10,986 40,688 14,424 13,878 827 29,129 8,510 8,488 7,587 4,014 15,632 44,231 14,900 15,530 1,118 31,548 PAGE 75 Movements in each class of current provision during the financial year, other than employee entitlements, are set out below. Carrying amount at start of year Additions Payments Reversals Transfers and other Foreign exchange movements Carrying amount at end of year Restructuring $000 Acquisitions related $000 8,510 12,144 (11,169) - 482 (57) 9,910 8,488 4,100 (3,049) (641) 1,520 (426) 9,992 Tax related $000 7,587 - (271) - - - Lease related $000 4,014 538 (1,840) (267) 222 (183) Other $000 15,632 4,523 (3,051) (3,388) (493) (2,237) Total $000 44,231 21,305 (19,380) (4,296) 1,731 (2,903) 7,316 2,484 10,986 40,688 Movements in each class of non-current provision during the financial year, other than employee entitlements, are set out below. Carrying amount at start of year Additional provisions recognised through profit or loss Transfers and other Carrying amount at end of year 23. DEFERRED CONSIDERATION Current Deferred settlements on acquisition of entities Non-current Deferred settlements on acquisition of entities Acquisitions related $000 15,530 - (1,652) 13,878 Other $000 1,118 165 (456) 827 Total $000 16,648 165 (2,108) 14,705 2016 $000 2015 $000 12,402 6,585 65,969 4,869 Non-current deferred settlements on acquisition of entities are payable between one and five years. Contingent consideration of $47.3 million was recognised during the financial year related to the acquisition of Homeloan Management Limited. 24. OTHER LIABILITIES Current Put option liability (a) Mortgage servicing related liabilities (b) Lease inducements (c) Non-current Mortgage servicing related liabilities (b) Lease inducements (c) 37,275 30,383 2,211 69,869 124,222 2,801 127,023 30,441 12,998 1,098 44,537 38,288 3,497 41,785 (a) Non-controlling interest shareholders of Computershare’s Indian subsidiary (Karvy Computershare Private Limited) have an option to sell their shareholding to Computershare. The put option liability reflects Computershare’s obligation to pay should this option be exercised. (b) Mortgage servicing related liabilities represent the portion of the economic benefits of mortgage servicing rights that has been transferred to third parties. The liabilities amortise over the same useful life as the related mortgage servicing rights (note 9). (c) Lease inducements represent cash payments received as allowances for leasehold improvements made to a number of premises. These receipts are accounted for as reductions in rental expense over the lease term. PAGE 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 25. INTERESTS IN EQUITY Interest in the equity of the consolidated entity: Contributed equity – ordinary shares Reserves Retained earnings Total interests in equity 26. CONTRIBUTED EQUITY Ordinary shares Total contributed equity Share buy-back Members of the parent entity Non-controlling interests 2016 $000 2015 $000 2016 $000 2015 $000 - (81,472) 35,703 (19,362) 1,176,690 1,147,906 1,095,218 1,164,247 990 (6,490) 19,015 13,515 2016 $000 - - 785 (5,302) 17,911 13,394 2015 $000 35,703 35,703 On 18 August 2015, Computershare announced an on-market buy-back of shares with an aggregate value of up to AUD 140.0 million for capital management purposes. From 1 September 2015 until 30 June 2016, the Company purchased 9,377,069 ordinary shares at a total cost of AU$100.6 million (US$73.2 million). The shares were acquired at an average price of AU$10.73 and a price range from AU$9.00 to AU$11.86. As at 30 June 2016, 9,056,656 of the purchased ordinary shares have been cancelled. Since the effect of share buy-backs over the years has reduced contributed equity to nil, a reserve has been created to reflect the excess value of shares bought over the original amount of subscribed capital. There has been no issue of ordinary shares during the year ended 30 June 2016. Movement in contributed equity Balance at 1 July 2015 Share buy-back Transfer to share buy-back reserve Balance as at 30 June 2016 Number of shares 556,203,079 (9,377,069) - 546,826,010 $000 35,703 (73,172) 37,469 - PAGE 77 27. RESERVES Capital redemption reserve Foreign currency translation reserve Share buy-back reserve Cash flow hedge reserve Share based payments reserve Equity related consideration Available-for-sale asset reserve Transactions with non-controlling interests Movements during the year: Foreign currency translation reserve Opening balance Translation of controlled entities Amounts reclassified to profit or loss during the year Deferred tax Closing balance Share buy-back reserve Excess value of shares bought over the original amount of subscribed capital Closing balance Cash flow hedge reserve Opening balance Revaluation – gross Deferred tax Closing balance Share based payments reserve Opening balance Cash purchase of shares for employee and executive share plans Share based payments expense Closing balance Equity related contingent consideration reserve Opening balance Closing balance Available-for-sale asset reserve Opening balance Revaluation – gross Closing balance Transactions with non-controlling interests Opening balance Transfer from non-controlling interests Closing balance PAGE 78 2016 $000 2 (58,639) (37,469) (4,855) 43,925 (8,199) 267 (16,504) (81,472) (35,670) (45,527) 29,505 (6,947) (58,639) (37,469) (37,469) 2015 $000 2 (35,670) - (4,464) 45,144 (8,199) 329 (16,504) (19,362) 54,865 (105,255) - 14,720 (35,670) - - (4,464) (4,654) (497) 106 (53) 243 (4,855) (4,464) 45,144 (12,177) 10,958 43,925 58,116 (27,971) 14,999 45,144 (8,199) (8,199) (8,199) (8,199) 329 (62) 267 320 9 329 (16,504) (16,210) - (294) (16,504) (16,504) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Nature and purpose of reserves (a) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in note 43. This amount is the net of gains and losses on hedge transactions and intercompany loans after adjusting for related income tax effects. The reserve is recognised in the profit or loss when the net investment is disposed of. (b) Share buy-back reserve This reserve is used to record the excess value of shares bought over the original amount of subscribed capital. (c) Cash flow hedge reserve The hedging reserve is used to record gains and losses on a hedging instrument in a cash flow hedge that are recognised directly in other comprehensive income, as described in note 43. (d) Share based payments reserve The share based payments reserve is used to recognise the fair value of shares which will vest to employees under employee and executive share plans. This reserve is also used to record cash purchase of shares for employee share plans. (e) Equity related contingent consideration reserve This reserve is used to reflect deferred consideration for acquisitions which is payable through the issue of parent entity equity instruments. (f) Available for sale asset reserve Changes in fair value of investments, such as equities, classified as available for sale financial assets after adjusting for related income tax effects are taken to this reserve in accordance with note 43. (g) Transactions with non-controlling interests This reserve is used to record the differences which may arise as a result of transactions with non-controlling interests that do not result in a loss of control. 28. RETAINED EARNINGS AND DIVIDENDS Retained earnings Retained earnings at the beginning of the financial year Ordinary dividends provided for or paid Net profit attributable to members of Computershare Limited Retained earnings at the end of the financial year Dividends Ordinary 2016 $000 2015 $000 1,147,906 1,134,305 (128,550) (139,975) 157,334 153,576 1,176,690 1,147,906 Dividends paid during the financial year in respect of the previous year, AUD 16 cents per share franked to 25% (2015 – AUD 15 cents per share franked to 20%) Dividends paid in respect of the current financial year ended June 2016, AUD 16 cents per share franked to 100% (2015 – AUD 15 cents per share franked to 20%) 64,726 69,987 63,824 69,987 Dividend franking account Franking credits available for subsequent financial years based on a tax rate of 30% 10,292 27,153 PAGE 79 29. DETAILS OF CONTROLLED ENTITIES The financial year-end of all controlled entities is 30 June with the exception of Computershare Canada Inc and its controlled entities, Computershare Hong Kong Investor Services Limited and its controlled entities, Computershare International Information Consultancy Services (Beijing) Company Ltd, ZAO <>, Karvy Computershare Private Limited and Karvy Computershare (Malaysia) Sdn Bhd due to local statutory reporting requirements. These entities prepare results on a 30 June year end basis for consolidation purposes. Voting power is in accordance with the ownership interest held unless otherwise stated. The consolidated financial statements as at 30 June 2016 include the following controlled entities: Name of controlled entity Computershare Limited A.C.N. 080 903 957 Pty Ltd A.C.N. 081 035 752 Pty Ltd CDS International Pty Limited Communication Services Australia Pty Limited Computershare Clearing Pty Limited Computershare Communication Services Pty Limited Computershare Dealing Services Pty Ltd Computershare Depositary Pty Limited Computershare Finance Company Pty Limited Computershare Investor Services Pty Limited Computershare Plan Co Pty Ltd Computershare Plan Managers Pty Ltd Computershare Technology Services Pty Ltd CPU Share Plans Pty Limited CRS Custodian Pty Ltd Financial Market Software Consultants Pty Ltd Georgeson Shareholder Communications Australia Pty. Ltd. Global eDelivery Group Pty Ltd Obadele Pty Ltd Q M Industries (N.S.W.) Pty. Ltd. Registrars Holding Pty Ltd Sepon (Australia) Pty. Limited Serviceworks Management Pty Ltd Source One Communications Australia Pty Ltd Switchwise Pty Ltd Karvy Computershare W.L.L Computershare Canada Inc. Computershare Governance Services Ltd Computershare Investment Inc. Computershare Investments (Canada) (Holdings) ULC Computershare Investments (Canada) (No.1) ULC Computershare Investments (Canada) (No.2) ULC Computershare Investments (Canada) (No.3) ULC Computershare Investments (Canada) (No.4) ULC Computershare Investor Services Inc. Computershare Services Canada Inc. Computershare Technology Services Inc. Computershare Trust Company of Canada Georgeson Shareholder Communications Canada Inc. GSC Shareholder Services Inc. SyncBASE Inc. Computershare International Information Consultancy Services (Beijing) Company Ltd Computershare A/S PAGE 80 Place of incorporation Percentage of shares held 2016 % 2015 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Bahrain Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada Canada China Denmark (2) (1)(2) (1)(2) (1)(2) (1)(2) (1) (1)(2) (1) (1) (1)(2) (1)(2) (1) (1) (1)(2) (1) (1) (1) (1) (1) (1)(2) (1) (1)(2) (1) (1)(2) (1) (1) (3) (1) (1) (1)(4) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)(5) (1)(4) (1) (1) - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 - 100 100 100 100 100 100 100 100 100 100 100 - 100 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Place of incorporation Percentage of shares held 2016 % 2015 % Name of controlled entity Georgeson Shareholder SAS Computershare Communication Services GmbH Computershare Deutschland GmbH & Co. KG Computershare Governance Services GmbH Computershare Verwaltungs GmbH Grundstücksentwicklungs Gesellschaft “Am Schönberg” GmbH PR im Turm HV-Service AG VEM Aktienbank AG Computershare Investor Services (Guernsey) Limited Computershare Asia Limited Computershare Hong Kong Development Limited Computershare Hong Kong Investor Services Limited Computershare Hong Kong Nominees Limited Computershare Hong Kong Trustees Limited Hong Kong Registrars Limited Karvy Computershare Private Limited Computershare Finance Ireland Limited Computershare Governance Services Limited Computershare Investor Services (Ireland) Limited Computershare Services Nominees (Ireland) Limited Computershare Trustees (Ireland) Limited HML Mortgage Services Ireland Limited Specialist Mortgage Services Ireland Limited France Germany Germany Germany Germany Germany Germany Germany Guernsey Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong India Ireland Ireland Ireland Ireland Ireland Ireland Ireland Computershare Investor Services (IOM) Limited Isle of Man Computershare Italy S.r.l. Computershare S.p.A. Georgeson S.r.l. Proxitalia S.r.l. Computershare Company Secretarial Services (Jersey) Limited Computershare DR Nominees Limited Computershare Investor Services (Jersey) Limited Computershare Nominees (Channel Islands) Limited Computershare Offshore Services Limited Computershare Trustees (C.I.) Limited Computershare Trustees (Jersey) Limited EES Nominees International Limited Karvy Computershare (Malaysia) Sdn Bhd Computershare Netherlands B.V. Computershare Investor Services Limited Computershare Nominees NZ Limited Computershare Systems (NZ) Limited ConnectNow New Zealand Limited CPU (NZ) Share Plans Limited CRS Nominees Ltd Sharemart NZ Ltd Closed Joint Stock Company <> Computershare LLC ZAO <> CIS Company Secretaries (Pty) Ltd Computershare (Pty) Ltd Computershare Investor Services (Pty) Ltd Computershare Nominees (Pty) Ltd Italy Italy Italy Italy Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Malaysia Netherlands New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand Russia Russia Russia South Africa South Africa South Africa South Africa (1) (1) (1) (1) (1) (1) (1)(4) (1)(5) (1) (1) (1) (1) (1) (1) (1) (3) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (3)(4) (1) (1) (1) (1)(5) (1) (1)(5) (1) (1)(5) (1)(5) (1)(5) (1) (1) (1) (1) (1) 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 - 100 - 100 - - - 98 74 74 74 74 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 98 74 74 74 74 PAGE 81 Name of controlled entity Computershare Outsourcing (Pty) Ltd Computershare South Africa (Pty) Ltd Computershare TR Services (Pty) Ltd Minu (Pty) Ltd Georgeson S.l Computershare AB Baseline Capital Limited Computershare (Russia) Limited Computershare Company Nominees Limited Computershare Governance Services (UK) Limited Computershare Investments (UK) (No.2) Limited Computershare Investments (UK) (No.3) Limited Computershare Investments (UK) (No.5) Limited Computershare Investments (UK) (No.6) Limited Computershare Investments (UK) (No.7) Limited Computershare Investments (UK) (No.8) Limited Computershare Investments (UK) (No.9) Limited Computershare Investments (UK) Limited Computershare Investor Services (Bermuda) Limited Computershare Investor Services (British Virgin Islands) Limited Computershare Investor Services (Cayman) Limited Computershare Investor Services PLC Computershare Limited Computershare Mortgage Services Limited Computershare PEP Nominees Limited Computershare Regional Services Limited Computershare Services Limited Computershare Services Nominees Limited Computershare Technology Services (UK) Limited Computershare Trustees Limited Computershare Voucher Services Limited Credit Advisory Services Limited EES Capital Trustees Limited EES Corporate Trustees Limited EES Services (UK) Limited EES Trustees Limited Homeloan Management Limited KB Analytics Limited Legotla Investments (UK) Limited Mortgage Systems Limited NRC Investments (UK) Limited Pathbold Limited Topaz Finance Limited Administar Services Group LLC Altavera, LLC Altavera Mortgage Services, LLC Capital Markets Cooperative, LLC Capital Markets Holdings, Inc. CMC Funding, Inc. Computershare Communication Services Inc. Computershare Finance LLC Computershare Governance Services Inc. PAGE 82 Place of incorporation Percentage of shares held 2016 % 2015 % South Africa South Africa South Africa South Africa Spain Sweden United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)(4) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)(4) (1)(4) (1)(4) (1)(4) (1)(4) (1) (1) (1) 74 74 74 74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 74 74 74 74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - 100 100 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Name of controlled entity Computershare Holdings Inc. Computershare Holdings LLC Computershare Inc. Computershare Mortgage Services LLC Computershare Technology Services, Inc. Computershare Trust Company, N.A. Computershare US Computershare US Investments LLC Computershare US Services Inc. Data Point Analysis Group, LLC Georgeson LLC Georgeson Securities Corporation Gilardi & Co., LLC Gilco LLC GTU Ops Inc. HELOC Funding II Trust KCC Class Action Services LLC Kurtzman Carson Consultants Inc. Kurtzman Carson Consultants, LLC MSR Robin Advances (Depositor) LLC MSR Robin Advances Issuer Trust RCNG LLC Rosenthal & Company, LLC Settlement Recovery Group LLC SLS Funding III LLC SLS Investco LLC SLS Servicer Advance Revolving Trust 1 Specialized Asset Management LLC Specialized Default Services LLC Specialized Loan Servicing Holdings LLC Specialized Loan Servicing LLC Specialized Title Services LLC Place of incorporation United States of America United States of America United States of America (1) (1) (1) United States of America (1)(4) United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America United States of America (1) (1) (1) (1)(4) (1) (1)(4) (1) (1) (1)(4) (1)(4) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) Percentage of shares held 2016 % 2015 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 - 100 - 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (1) Controlled entities audited by PricewaterhouseCoopers member firms. (2) These wholly owned companies have entered into a deed of cross guarantee dated 26 June 2008 with Computershare Limited which provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on the winding-up of that company. As a result of a Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission, these companies are relieved from the requirement to prepare financial statements. (3) These companies are controlled entities as Computershare Limited is exposed to, or has rights to, variable returns from its involvement with these companies and has the ability to affect those returns through its power over these companies. (4) These companies became controlled entities during the year ended 30 June 2016. (5) These companies ceased to be controlled entities during the year ended 30 June 2016. PAGE 83 30. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Interests in associates (note 31) Interests in joint ventures (note 32) 31. ASSOCIATES Details of interests in associates are as follows: Name Expandi Ltd Milestone Group Pty Ltd The Reach Agency Pty Ltd INVeSHARE Inc. Mergit s.r.l. Total investments in associates Place of incorporation Principal activity United Kingdom Investor Services Australia Australia Technology Services Investor Services United States Investor Services Italy Technology Services Movements in carrying value of investments in associates Carrying amount at the beginning of the financial year Share of net result (after income tax) Dividends received Share of movement in reserves Carrying amount at the end of the financial year Share of associates capital expenditure commitments There are no material expenditure commitments in respect of associates at balance date. Share of associates contingent liabilities There are no material contingent liabilities in respect of associates at balance date. 2016 $000 27,253 104 2015 $000 30,038 1,558 27,357 31,596 Ownership interest Consolidated carrying amount June 2016 % 25 20 49 40 30 June 2015 % 25 20 49 40 30 June 2016 $000 6,045 5,623 1,244 June 2015 $000 6,226 6,004 1,068 14,326 16,713 15 27 27,253 30,038 2016 $000 2015 $000 30,038 35,052 (1,339) (254) (1,192) (2,617) (206) (2,191) 27,253 30,038 PAGE 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 32. JOINT VENTURES Details of interests in joint ventures are as follows: Name Japan Shareholder Services Ltd* Computershare Pan Africa Holdings Ltd Computershare Pan Africa Ghana Ltd Place of incorporation Japan Mauritius Ghana Computershare Pan Africa Nominees Ghana Ltd Ghana Principal activity Technology Services Investor Services Investor Services Investor Services Asset Checker Ltd VisEq GmbH United Kingdom Investor Services Germany Investor Services Total investment in joint ventures * Japan Shareholder Services Ltd was disposed during the year. Ownership interest Consolidated carrying amount June 2016 % June 2015 % June 2016 $000 - 60 60 60 50 66 50 60 60 60 50 66 Movement in carrying amount of investment in joint ventures Carrying amount at the beginning of the financial year Disposal of investments* Share of net result of joint ventures (after income tax) Dividends received Share of movement in reserves Carrying amount at the end of the financial year * A gain of $0.3m was recorded on the sale of Japan Shareholder Services Ltd. Share of joint venture capital expenditure commitments There are no material capital expenditure commitments in respect of joint ventures at balance date. Share of joint venture contingent liabilities There are no material contingent liabilities in respect of joint ventures at balance date. June 2015 $000 1,415 - - - - - - - - - 104 104 143 1,558 2016 $000 1,558 (1,200) (10) (203) (41) 104 2015 $000 1,761 - 301 (151) (353) 1,558 PAGE 85 33. DEED OF CROSS GUARANTEE Set out below is a consolidated statement of comprehensive income, a consolidated statement of financial position and a summary of movements in consolidated retained earnings of the Australian Closed Group for the year ended 30 June 2016 for all entities that are parties to a deed of cross guarantee (refer to note 29). Computershare Limited Closed Group – Statement of financial position Current assets Cash and cash equivalents Receivables Inventories Other current assets Derivative financial instruments Assets classified as held for sale Total current assets Non-current assets Receivables Other financial assets Property, plant and equipment Deferred tax assets Intangibles Derivative financial instruments Other non-current assets Total non-current assets Total assets Current liabilities Payables Lease liabilities Current tax liabilities Provisions Derivative financial instruments Other liabilities Total current liabilities Non-current liabilities Payables Interest bearing liabilities Lease liabilities Deferred tax liabilities Provisions Derivative financial instruments Other liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity – ordinary shares Reserves Retained earnings Total equity PAGE 86 2016 $000 30,942 70,560 964 3,088 634 23,842 2015 $000 56,327 118,326 1,048 7,559 - - 130,030 183,260 142,982 184,883 1,737,267 1,921,150 10,797 48,579 127,061 48,014 686 38,151 60,098 148,888 31,237 448 2,115,386 2,384,855 2,245,416 2,568,115 172,896 25,966 6,715 1,006 1,236 37,385 181,102 1,431 12,708 2,629 20,836 30,554 245,204 249,260 132,163 491,509 1,411 15,917 11,656 5,500 471 130,248 578,310 26,081 17,048 11,778 9,732 884 658,627 774,081 903,831 1,023,341 1,341,585 1,544,774 - (114,016) 158,818 (35,660) 1,455,601 1,421,616 1,341,585 1,544,774 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Computershare Limited Closed Group – Statement of comprehensive income Revenues from continuing operations Sales revenue Other revenue Total revenue from continuing operations Other income Expenses Direct services Technology costs Corporate services Finance costs Total expenses Share of net profit/(loss) of associates and joint ventures accounted for using the equity method Profit before income tax expense Income tax expense/(credit) Profit for the year Other comprehensive income Cash flow hedges Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Total other comprehensive income for the year, net of tax Total comprehensive income for the year Set out below is a summary of movements in consolidated retained profits for the year of the Closed Group. Retained earnings at the beginning of the financial year Profit for the year Dividends provided for or paid Retained earnings at the end of the financial year 2016 $000 2015 $000 246,832 208,075 454,907 60,547 277,044 440,908 717,952 33,466 205,193 320,298 71,897 22,030 24,545 75,185 15,129 27,335 323,665 437,947 142 191,931 29,383 162,548 (184) 313,287 (1,833) 315,120 - (581) (42,365) (304,597) - 348 (42,365) (304,830) 120,183 10,290 1,421,616 1,246,519 162,548 315,120 (128,563) (140,023) 1,455,601 1,421,616 PAGE 87 34. PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Equity Contributed equity – ordinary shares Reserves Share buy-back reserve Capital redemption reserve Foreign currency translation reserve Share based payment reserve Equity related consideration Available-for-sale asset reserve Retained earnings Total equity Profit/(loss) attributable to members of the parent entity Total comprehensive income attributable to members of the parent entity (b) Guarantees entered into by the parent entity The parent entity’s financial guarantees have been outlined in note 35. (c) Contingent liabilities of the parent entity 2016 $000 2015 $000 64,501 826,016 890,517 63,098 727,479 790,577 106,832 845,945 952,777 76,142 611,174 687,316 - 35,703 (37,469) 2 68,136 33,162 (2,327) (60) 38,496 99,940 45,825 35,040 - 2 78,921 32,001 (2,327) (60) 121,221 265,461 98,483 34,365 The parent entity did not have any contingent liabilities as at 30 June 2016 or 30 June 2015 other than guarantees given by the parent entity outlined in note 35. (d) Contractual commitments for the acquisition of property, plant and equipment The parent entity did not have any commitments for the acquisition of property, plant and equipment as at 30 June 2016 and 30 June 2015. 35. CONTINGENT LIABILITIES (a) Guarantees and Indemnities Guarantees and indemnities of $900.0 million (2015: $900.0 million) have been given to the consolidated entity’s Bankers by Computershare Limited, ACN 081 035 752 Pty Ltd, Computershare Investments (UK) (No. 3) Ltd, Computershare Finance Company Pty Ltd, Computershare US and Computershare Investor Services Inc under a $450.0 million 3-year Multi-currency Syndicated Facility Agreement and a $450.0 million 5-year USD Syndicated Facility Agreement both executed on 17 July 2014 (refer to note 13 for further detail). Guarantees and indemnities of $806.0 million (2015: $930.5 million) have been given to US Institutional Accredited Investors by Computershare Limited, ACN 081 035 752 Pty Ltd, Computershare Finance Company Pty Ltd, Computershare US, Computershare Investments (UK) (No. 3) Ltd and Computershare Investor Services Inc under a Note and Guarantee Agreement dated 22 March 2005, 29 July 2008 and 9 February 2012. Bank guarantees of AUD 4.8 million (2015: AUD 4.2 million) have been given in respect of facilities provided to Australian subsidiaries. A performance guarantee of ZAR 16.0 million (2015: ZAR 15.0 million) has been given by Computershare (Pty) Ltd to provide security for the performance of obligations as a Central Securities Depositor Participant. PAGE 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 (b) Legal and Regulatory Matters Due to the nature of operations, certain commercial claims in the normal course of business have been made against the consolidated entity in various countries. An inherent difficulty in predicting the outcome of such matters exists, but in the opinion of the Group, based on current knowledge and in consultation with legal counsel, we do not expect any material liability to the Group to eventuate. The status of all claims is monitored on an ongoing basis, together with the adequacy of any provisions recorded in the Group’s financial statements. (c) Other The Group is subject to regulatory capital requirements administered by relevant regulatory bodies in countries where Computershare operates. Failure to meet minimum capital requirements, or other ongoing regulatory requirements, can initiate action by the regulators that, if undertaken, could revoke or suspend the Group’s ability to provide trust services to customers in these markets. At all relevant times Group controlled entities have met all minimum capital requirements. Computershare Limited (Australia) has issued a letter of warrant to Computershare (Pty) Ltd. This obligates Computershare Limited (Australia) to maintain combined tier one capital of at least ZAR 455.0 million. Potential withholding and other tax liabilities arising from distribution of all retained distributable earnings of all foreign incorporated controlled entities are $47.1 million (2015: $40.9 million). No provision is made for withholding tax on unremitted earnings of applicable foreign incorporated controlled entities as there is currently no intention to remit these earnings to the parent entity. In consideration of the Australian Securities and Investments Commission agreeing to allow AUD 5.0 million to form part of the net tangible assets of Computershare Clearing Pty Ltd so that it can meet certain financial requirements under the conditions of its Australian Financial Services Licence, Computershare Limited has agreed to make, at the request of Computershare Clearing Pty Ltd, a AUD 5.0 million loan to it. Computershare Limited has agreed to subordinate its loan to any other unsecured creditors of Computershare Clearing Pty Ltd. The loan was made pursuant to a deed of subordination dated 7 January 2004. In consideration of the Australian Securities and Investments Commission agreeing to allow AUD 5.0 million to form part of the net tangible assets of Computershare Share Plans Pty Ltd so that it can meet certain financial requirements under the conditions of its Australian Financial Services Licence, Computershare Limited has agreed to make, at the request of Computershare Share Plans Pty Ltd, a AUD 5.0 million loan to it. Computershare Limited has agreed to subordinate its loan to any other unsecured creditors of Computershare Share Plans Pty Ltd. The loan was made pursuant to a deed of subordination dated 5 July 2007. Computershare Limited (Australia), as the parent entity, has undertaken to own, either directly or indirectly, all of the equity interests and to guarantee performance of the obligations of Computershare Investor Services Pty Ltd, Computershare Trust Company NA, Georgeson LLC, Georgeson Securities Corporation, Computershare Trust Company of Canada and Computershare Investor Services Inc with respect to any financial accommodation related to transactional services provided by BMO Harris Bank, Chicago. PAGE 89 36. COMMITMENTS (a) Retirement benefits Defined Contribution Funds The Group maintains defined contribution superannuation schemes which provide benefits to all employees upon their disability, retirement or death. Employee contributions to the funds are based upon various percentages of employees’ gross salaries as set out below: Australian controlled entities contribute to the defined contribution funds as follows: > Category 1 – Management (employer contributions, voluntary employee contributions of at least 1%) > Category 2 – Staff (statutory employer contributions of 9.5%, voluntary employee contributions) > Category 3 – SGC Staff and casual and fixed term employees (statutory employer contributions, voluntary employee contributions) Foreign controlled entities contribute to the defined contribution funds as follows: > United Kingdom entities – between 7% and 10% of employees’ gross salaries > United States entities – voluntary employee contributions with matching employer contribution up to 4% of employees’ base salaries > Canadian entities – between 2% and 7% of employees’ base salaries dependent upon years of service > South African entities – 12.25% of employees’ gross salaries > New Zealand entities – voluntary employee contributions with matching employer contribution up to 6% of employees’ base salaries > Hong Kong entities – between 5% and 20% of employees’ base salary dependent upon years of service > Indian entity – 12% of employees’ gross salaries Defined Benefit Funds Karvy Computershare Private Limited maintained a defined benefit superannuation scheme which provides benefits to 3,663 employees (2015: 3,031). Actuarial valuation of the scheme is provided by the Life Insurance Corporation, which maintains the fund. The net liability is not material to the Group. Computershare Deutschland GmbH & Co. KG and Computershare Communication Services GmbH maintained a defined benefit scheme which provides benefits to 9 employees (2015: 15) An actuarial assessment of the scheme was completed as at 30 June 2016 and defined benefit plan liability recognised in accordance with the actuarial valuation. The net liability is not material to the Group. (b) Finance lease commitments Commitments in relation to finance leases are payable as follows: Not later than 1 year Later than 1 year but not later than 5 years Minimum lease payments Less: Future finance charges Not later than 1 year Later than 1 year but not later than 5 years Total future finance charges Net finance lease liability Reconciled to: Current liability (note 13) Non-current liability (note 13) PAGE 90 2016 $000 33,258 7,957 41,215 (2,986) (65) (3,051) 38,164 30,272 7,892 38,164 2015 $000 7,775 37,192 44,967 (1,723) (2,855) (4,578) 40,389 6,052 34,337 40,389 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 Significant finance lease The consolidated entity had a finance lease arrangement for the land and building housing its Australian head office. The lease included a facility agreement, head lease and sublease agreements. Under the terms, Computershare had the right to offset payments and receipts related to the facility agreement and the head lease. The financial asset and liabilities related to these agreements were offset against each other in the Group’s balance sheet in accordance with the applicable accounting standards. Details of the offset are included in the table below. On 10 June 2016, Computershare entered into a contract to sell the head office land and building. The associated finance lease arrangement was terminated on 4 August 2016 and is classified as a current liability at the reporting date. 2016 Finance lease liability – Facility agreement Finance lease asset – Head Lease Finance lease liability – Sublease 2015 Finance lease liability – Facility agreement Finance lease asset – Head Lease Finance lease liability – Sublease (c) Operating lease commitments Gross amounts set off in the balance sheet (23,654) (23,654) Net amounts recognised - - - 23,654 Gross Amounts 23,654 23,654 23,654 24,763 24,763 24,763 (24,763) (24,763) - - - 24,763 Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years 37. CAPITAL EXPENDITURE COMMITMENTS Less than 1 year: Fit-out of premises Purchase of equipment Other 2016 $000 45,263 102,627 45,395 2015 $000 45,790 112,993 25,978 193,285 184,761 - 502 794 2,143 795 343 1,296 3,281 38. SIGNIFICANT EVENTS AFTER YEAR END No matter or circumstance has arisen since the end of the financial year which is not otherwise dealt with in this financial report that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. PAGE 91 39. RELATED PARTY DISCLOSURES Key management personnel disclosures are included in note 40. Detailed remuneration disclosures are provided in the remuneration report. Directors’ shareholdings Ordinary shares held at the end of the financial year Net ordinary shares purchased/(sold) by directors during the financial year Ordinary dividends received during the year in respect of those ordinary shares (a) Wholly owned Group – intercompany transactions and outstanding balances Shares in the parent entity 2016 2015 50,147,772 50,422,326 (290,000) (2,677,121) 2016 $ 2015 $ 11,709,346 13,024,460 The parent entity and its controlled entities entered into the following transactions during the year within the wholly owned Group: > Loans were advanced and repayments received on loans and intercompany accounts > Fees were exchanged between entities > Interest was charged between entities > The parent entity and its Australian controlled entities have been parties to a tax sharing deed, which includes a tax funding arrangement (note 43) > Dividends were paid between entities > Bank guarantees were provided by the parent entity to its controlled entities (note 35) These transactions were undertaken on commercial terms and conditions. Ultimate controlling entity The ultimate controlling entity of the Group is Computershare Limited. (b) Ownership interests in related parties Interests in controlled entities are set out in note 29. Interests held in associates and joint ventures are disclosed in notes 31 and 32. (c) Transactions with associates and joint ventures The following transactions occurred with associates and joint ventures: Sales and purchases of goods and services Sales to Purchases from Outstanding balances arising from sales and purchases of goods and services Trade receivables Trade payables Loans to associates Loan receivable from INVeSHARE Inc. These transactions were undertaken on commercial terms and conditions. 2016 $ 2015 $ 700,964 3,115,929 1,993,643 1,325,998 1,199,020 1,911,494 72,658 - 7,192,730 1,000,000 PAGE 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016 40. KEY MANAGEMENT PERSONNEL DISCLOSURES Key management personnel compensation Short-term employee benefits Other long-term benefits Post-employment benefits Share based payments Termination benefits Other Total 2016 $ 2015 $ 7,861,927 8,707,191 26,406 286,033 101,313 308,842 1,143,461 2,320,411 - 428,614 16,933 81,334 9,334,760 11,947,705 For detailed remuneration disclosures please refer to section A to F of the remuneration report within the Directors’ Report. 41. EMPLOYEE AND EXECUTIVE BENEFITS (a) Share plans Exempt Employee Share Plan During the year ended 30 June 2001 the Group introduced an Exempt Employee Share Plan. The Plan gives Computershare employees in Australia the opportunity to acquire shares in Computershare Limited. Each year, participating employees can make contributions from their pre-tax salary to acquire AUD 500 worth of shares. Such employee contributions are matched by the Group with an additional AUD 500 worth of shares being acquired for each participating employee. All permanent employees in Australia with at least 6 months service and employed at the allocation date are entitled to participate in this Plan. Deferred Employee Share Plan During the year ended 30 June 2002 a Deferred Employee Share Plan was established to enable Computershare to match dollar for dollar any employee pre-tax contributions to a maximum of AUD 3,000 per employee. Shares purchased and funded by an employee’s pre-tax salary must remain in the plan for a minimum of 1 year. Matching shares funded by the Group must be kept in the plan for a minimum of 2 years or they will be forfeited. All permanent employees in Australia employed at the allocation date are entitled to participate in this Plan. A derivative of this Plan and the Exempt Employee Share Plan have been made available to employees in New Zealand, Hong Kong, China, the United Kingdom, Ireland, Jersey, Germany, Canada, South Africa and the United States of America. Subject to the discretion of the Board, shares in the parent entity may also be allocated to selected employees in accordance with an employee share plan on a discretionary basis having regard to special circumstances as determined by the Remuneration Committee. Such shares may be subject to vesting and performance criteria as determined by the Board or the Remuneration Committee. Deferred Short-Term Incentive (DSTI) Share Plan The Group also provides DSTI awards to key management personnel and other senior executives as part of a structured STI plan and then other high performing employees on a discretionary basis. Recipients of DSTI awards must complete specified periods of service as a minimum before any share awards under the DSTI plan become unconditional. Number of employee shares held Opening balance Shares purchased on the market Forfeited shares reissued Shares forfeited Shares withdrawn Closing balance Fair value of shares granted through the employee share plan ($000)* Ordinary shares 2016 2015 10,031,383 10,386,943 3,050,756 3,898,899 23,424 (139,873) 240,153 (127,285) (2,443,161) (4,367,327) 10,522,529 10,031,383 23,050 41,694 * Weighted average fair value of shares is determined by the closing price at the end of the day’s trading on the Australian Securities Exchange on the allocation date. The average price per share purchased on market was AUD $10.31. PAGE 93 Phantom Share Awards Plan The Phantom Share Awards Plan (Phantom Plan) was introduced in 2013 as an alternative to the DSTI Share Plan to employees who are resident for tax purposes in countries where the taxation and/or legal requirements mean the DSTI Share Plan does not achieve the most effective outcome for Computershare or those employees. Awards under the Phantom Plan are cash-settled and vest after specified periods of service have been completed. (b) Performance rights Long-Term Incentive Plan The Board has offered to eligible key management personnel and senior group executives in the Group performance rights under long-term incentive plans. In 2014, the Board approved the terms of a new Long-Term Incentive Plan, known as the LTI Plan, which replaces the DLI plan. Performance rights are granted for no consideration and carry no dividend or voting rights. Each performance right carries an entitlement to one fully paid ordinary share in Computershare Limited subject to satisfaction of performance hurdles and continued employment over a three year performance period. Under the plan, 50% of each award of performance rights is subject to EPS hurdle criteria and 50% is subject to TSR Performance criteria. Unvested performance rights lapse on employee’s termination, subject to Board discretion. Set out below are summaries of performance rights granted under the LTI Plan: Grant date Exercise date on or after 1 Dec 2015 30 Sep 2018 1 Dec 2014 30 Sep 2017 Exercise price Balance at beginning of the year $0.00 $0.00 - 579,238 Granted during the year 716,916 - Exercised during the year Forfeited during the year Balance at end of the year Exercisable at end of the year - - - 716,916 (14,709) 564,529 - - No performance rights expired during the period covered by the above table. The fair value of performance rights granted under the 2016 LTI plan were assessed using the following parameters: Grant Date Hurdle start date Hurdle end date Share price at grant date Fair value at measurement date(i) Exercise price Expected volatility(ii) Option life Expected dividend yield p.a(iii) Risk free rate p.a(iv) 2016 Plan – EPS 2016 Plan – TSR 1 Dec 2015 1 Jul 2015 30 Jun 2018 AUD $11.64 AUD $10.72 AUD $0.00 22.81% 3 years 2.89% 2.11% 1 Dec 2015 1 Jul 2015 30 Jun 2018 AUD $11.64 AUD $5.57 AUD $0.00 22.81% 3 years 2.89% n/a i) To allow for the TSR hurdle, a Monte Carlo simulation was used to value the performance rights. To allow for the EPS hurdle, a closed form Black Scholes model was used to value the performance rights. ii) Expected volatility is based on historical daily share price for the three-year period preceding the grant date. iii) Expected dividend yield is based on historic yield for the three-year period immediately preceding the grant date. iv) Risk free interest rate is based on the three-year Australian Bank Bill Swap Rate at grant date. PAGE 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016Deferred Long-Term Incentive Plan The previous long-term incentive plan, known as the DLI Plan, was offered to eligible key management personnel and senior managers in the Group. Performance rights were granted for no consideration and carry no dividend or voting rights. Under the DLI Plan each performance right carries an entitlement to one fully paid ordinary share in Computershare Limited subject to satisfaction of performance hurdles and/or continued employment over a five-year performance period. Set out below are summaries of performance rights granted under the plan: Grant date Exercise date on or after 12 Aug 2010 30 Sep 2015 12 Oct 2011 30 Sep 2016 4 May 2012 30 Sep 2016 25 Sep 2012 30 Sep 2017 Total Exercise price Balance at beginning of the year Granted during the year Exercised during the year Forfeited during the year Balance at end of the year Exercisable at end of the year $0.00 $0.00 $0.00 $0.00 100,000 700,000 200,000 950,000 1,950,000 - - - - - (50,000) (50,000) - - - - - - - 700,000 200,000 950,000 (50,000) (50,000) 1,850,000 - - - - - No performance rights expired during the period covered by the above table. (c) Employee benefits recognised Performance rights expense Share plan and options expense Aggregate employee entitlement liability (note 21 and 22) 42. REMUNERATION OF AUDITORS 2016 $000 416 11,593 34,173 2015 $000 1,775 16,258 30,069 During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its network firms and non-related audit firms: Assurance services: Auditing or review of financial statements > PricewaterhouseCoopers Australia > Network firms of PricewaterhouseCoopers Australia Other assurance services > PricewaterhouseCoopers Australia > Network firms of PricewaterhouseCoopers Australia Taxation services > Related practices of PricewaterhouseCoopers Australia 2016 $000 2015 $000 704 2,691 3,395 317 2,139 2,456 10 10 843 3,084 3,927 372 2,203 2,575 38 38 Remuneration received, or due and receivable, by auditors other than the auditor of the parent entity and its affiliates for: Auditing or review of financial statements 233 302 PAGE 95 43. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report is for the consolidated entity consisting of Computershare Limited and its controlled entities, referred to collectively throughout these financial statements as the “consolidated entity”, “the Group” or “Computershare”. Basis of preparation of full year financial report This general purpose financial report for the reporting period ended 30 June 2016 has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Computershare Limited is a for-profit entity for the purpose of preparing financial statements. This report is to be read in conjunction with any public announcements made by Computershare Limited during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and Australian Securities Exchange Listing Rules. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current period. Compliance with IFRS The financial statements of Computershare Limited and its controlled entities also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through profit or loss. Principles of consolidation The consolidated financial statements include the assets and liabilities of the parent entity, Computershare Limited, and its controlled entities. All intercompany balances and transactions have been eliminated. Where an entity either began or ceased to be controlled during the year, the results are consolidated only from the date control commenced or up to the date control ceased. Financial statements of foreign controlled entities, associates and joint ventures presented in accordance with overseas accounting principles are, for consolidation purposes, adjusted to comply with group policy and Australian Accounting Standards. Controlled entities Controlled entities are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of controlled entities by the Group. Associates Associates are all entities over which the Group has significant influence but not control or joint control. This generally accompanies a shareholding of between 20% and 50% of the voting rights. Interests in material associated entities are brought to account using the equity method. Under this method the investment in associates is initially recognised at cost and its carrying value is subsequently adjusted for increases or decreases in the Group’s share of post-acquisition results and reserves of the associate. The Group’s share of its associates’ post acquisition profits or losses is recognised in the profit or loss. The investment in associated entities is decreased by the amount of dividends received or receivable. Joint ventures Joint ventures are arrangements where Computershare has joint control with another party over that arrangement and each party has rights to the net assets of that arrangement. Joint control is the agreed sharing of control, which exists when decisions about relevant activities require unanimous consent of parties sharing control. Interests in joint ventures are accounted for using the equity method. Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the controlled entity. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the parent entity. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the Computershare Limited Chief Executive Officer (CEO). PAGE 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in US dollars as a significant portion of the Group’s activity is denominated in US dollars. Transactions and balances Foreign currency transactions are converted to US dollars at exchange rates approximating those in effect at the date of each transaction. Amounts payable and receivable in foreign currencies at balance date are converted to US dollars at the average of the buy and sell rates available on the close of business at balance date. Revaluation gains and losses are brought to account as they occur. Exchange differences relating to monetary items are included in profit or loss, as exchange gains or losses, in the period when the exchange rates change, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Group companies The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: > Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement > Income and expenses for each statement of comprehensive income are translated at average exchange rates > All resulting exchange differences are recognised in other comprehensive income On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are recognised in other comprehensive income and reflected in equity. Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate. Income tax The principles of tax-effect accounting are applied in the financial statements. The income tax expense in the profit or loss represents tax on the pre-tax accounting profit adjusted for income and expenses never to be assessed or allowed for taxation purposes. This is also adjusted for changes in 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. The income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are recognised for temporary differences calculated at the tax rates expected to apply when the differences reverse. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised in other comprehensive income or directly in equity are also recognised in other comprehensive income or directly in equity, respectively. Tax consolidation legislation Computershare Limited and its wholly-owned Australian controlled entities implemented the tax consolidation regime with effect from 1 July 2002. The Australian Taxation Office has been formally notified of this decision. The relevant entities have also entered into a tax sharing deed, which includes tax funding arrangements. As a consequence, Computershare Limited, as the head entity in the tax consolidation group, has recognised the current tax liability relating to transactions, events and balances of the wholly owned Australian controlled entities in this group in the financial statements as if that liability was its own, in addition to recognising the current tax liability arising in relation to its own transactions, events and balances. Amounts receivable or payable under the tax sharing deed are recognised separately as tax related intercompany payables or receivables. Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are capitalised and amortised over the shorter of the lease term and the useful life of the asset, or where ownership is reasonably certain to be obtained on expiration of the lease, over the useful life of the asset. Lease payments are allocated between interest expense and reduction in the lease liability. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease assets are not capitalised and rental payments (net of any incentives received from the lessor) are charged against operating profit on a straight line basis over the period of the lease. PAGE 97 Leasehold improvements The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the leasehold properties, whichever is shorter. Software and research and development costs Internally developed software and related research and development costs are expensed in the year in which they are incurred as they do not meet the recognition criteria for capitalisation. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are reviewed at least annually to determine whether their carrying amounts require write-down to recoverable amount or more frequently, if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment testing requires use of assumptions. An impairment loss is recognised as the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For available-for-sale assets, a significant or prolonged decline in fair value is considered when determining whether the asset is impaired. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). Goodwill is allocated to cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the business combination. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is assigned on a first-in first-out basis. Prepaid inventory is recorded at cost and is bought on behalf of the Group’s clients. As the inventory is used, the costs are billed. Property, plant and equipment Property, plant and equipment are stated at historical costs less depreciation. The amounts at which property, plant and equipment are stated in these financial statements are regularly reviewed. Depreciation Items of property, plant and equipment excluding freehold land, are depreciated on a straight line basis at rates calculated to allocate their cost, less estimated residual value, over their estimated useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Additions and disposals are depreciated for the period held, in the year of acquisition or disposal. Depreciation expense has been determined based on the following rates of depreciation: > Buildings (2.5% per annum) > Plant and equipment (10% to 50% per annum) > Fixtures and fittings (13% to 50% per annum) > Motor vehicles (15% to 40% per annum) Revenue Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade discounts and volume rebates. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the consolidated entity and specific criteria have been met for each of the Group’s activities. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Services revenue is recognised in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognised under the percentage of completion method, based on the actual service provided as proportion of the total services to be provided. Software licence sales and associated development, installation and maintenance fees are recognised in accordance with written customer agreements when the entity has the right to be compensated for services and it is probable that compensation will flow to the entity in the future. Other revenue Other revenue includes interest income on short-term deposits controlled by the consolidated entity, and royalties and dividends received from other persons. Interest income is recognised using the effective interest method. Royalties and dividends are recognised as revenue when the right to receive payment is established. Insurance recoveries The consolidated entity recognises amounts receivable under its insurance policies, net of any relevant excess amounts, upon indemnity being acknowledged by the insurers. PAGE 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the profit or loss. Trade and other payables These amounts represent liabilities for those goods and services provided to the Group prior to the end of financial year that are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Dividends Provision is made for the amount of any dividend declared by the directors on or before the end of the financial year but not distributed at balance date. Earnings per share Basic earnings per share Basic earnings per share is determined by dividing profit attributable to members of Computershare Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share is determined by adjusting the weighted average number of shares used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Management basic earnings per share Management basic earnings per share exclude certain items. Management adjusted results are used, along with other measures, to assess operating business performance. The Group believes that exclusion of certain items permits better analysis of the Group’s performance on a comparative basis and provides a better measure of underlying operating performance. The net profit used in the management earnings per share calculation is adjusted for the management adjustment items net of tax (refer to note 3). Cash and cash equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents include cash on hand, deposits at call with financial institutions and other highly liquid investments with short periods to maturity (three months or less) which can readily be converted to known amounts of cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. Cash and cash equivalents exclude broker client deposits reflected in the statement of financial position that are recorded as other current financial assets. Business combinations The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a controlled entity comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the controlled entity. Acquisition-related costs are expensed as incurred. Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Within 12 months of completing the acquisition, identifiable intangible assets are valued and separately recognised in the statement of financial position. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the controlled entity acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently re-measured to fair value with changes in fair value recognised in profit or loss. PAGE 99 Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets acquired. Goodwill is carried at cost less accumulated impairment losses. On disposal or termination of a previously acquired business, any remaining balance of associated goodwill is included in the determination of the profit or loss on disposal. Acquired intangible assets Acquired intangible assets have a finite useful life and are carried at fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated using the straight line method to allocate the value over their estimated useful lives, typically ranging from one to fifteen years. Mortgage servicing rights Mortgage servicing rights acquired as part of business combination are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Mortgage servicing rights acquired as part of ongoing operations are carried at cost less accumulated amortisation and impairment losses. Amortisation for all servicing rights is calculated using the straight line method over their estimated useful lives. Employee benefits Provision has been made in the statement of financial position for benefits accruing to employees in relation to employee bonuses, annual leave and long service leave. No provision is made for non-vesting sick leave because past pattern of sick leave taken indicates that there is no material future obligation for unused absences. Superannuation is included in the determination of provisions. Annual leave is measured at the additional amounts expected to be paid when the liabilities are settled. The long service leave provision is measured at the present value of estimated future cash flows, discounted by the interest rate applicable to the period the liability is expected to fall due. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Retirement benefits Contributory superannuation and pension plans exist to provide benefits for the consolidated entity’s employees and their dependants on retirement, disability or death. The plans are accumulation plans. The employee sponsors contribute to the plans at varying rates of contribution depending on the employee classification. The contributions made to the funds by group entities are charged against profits. Defined benefit superannuation and pension plans are operated in Germany and India only. Where material to the Group, a liability or asset in respect of the these plans is recognised in the consolidated statement of financial position, and is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses) less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. Executive share and performance right schemes Certain employees are entitled to participate in share and performance rights schemes. The market value of shares issued to employees for no cash consideration under employee and executive share schemes is recognised as a personnel expense over the vesting period with a corresponding increase in the share based payments reserve. The fair value of performance rights issued under Computershare’s LTI plan and DLI plan are recognised as a personnel expense over the vesting period with a corresponding increase in the share based payments reserve. At each balance date, the entity revises its estimate of the number of performance rights that are expected to become exercisable. The personnel expense recognised each period takes into account the most recent estimate. Where shares are procured by the Group with cash to satisfy obligations for vested employee entitlements under these plans, a reduction in the share based payments equity reserve is shown. Shares issued under employee and executive share plans are held in trust until vesting date. Unvested shares held by the trust are included in the Group’s consolidated financial statements. Termination benefits Liabilities for termination benefits, not in connection with the acquisition of an entity or operation are recognised when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. The liabilities for termination benefits are recognised in other payables unless the amount or timing of the payments is uncertain, in which case they are recognised as provisions. Liabilities for termination benefits relating to an acquired entity or operation that arise as a consequence of an acquisition are recognised as at the date of acquisition if, at or before the acquisition date, the acquiree had an existing liability for restructuring. PAGE 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016Provisions Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of Group’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Non-current assets (or disposal groups) held-for-sale Non-current assets (or disposal groups) are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Non-current assets and liabilities (or disposal groups) classified as held-for-sale are presented separately from other assets and liabilities in the statement of financial position. They are stated at the lower of their carrying amount and fair value less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Contributed equity Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders and is classified as equity. Costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. If the Group reacquires its own equity instruments, for example as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. Parent entity financial information The financial information for the parent entity, Computershare Limited, disclosed in note 34 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in controlled entities, associates and joint venture entities are accounted for at cost in the financial statements of Computershare Limited. Dividends received from associates and joint ventures are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. Investments and other financial assets The Group classifies its investments and other financial instruments in the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. i. Financial assets at fair value through profit or loss This category has two sub categories: financial assets held-for-trading and those designated at fair value through profit or loss on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current in the consolidated statement of financial position. Derivatives are classified as held for trading unless they are designated as hedge instruments. ii Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included within receivables in the consolidated statement of financial position. iii Available-for-sale assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. PAGE 101 Initial recognition and subsequent measurement Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Subsequently, available-for-sale financial assets and financial assets at fair value through profit or loss are carried at fair value. Details on how the fair value of financial instruments is determined are disclosed in note 11. Realised and unrealised gains and losses arising from changes in fair value of financial assets at fair value through profit or loss category are included in profit or loss in the period in which they arise. Unrealised gains and losses for changes in fair value of available-for-sale assets are recognised in other comprehensive income in the available-for-sale asset reserve. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When available for sale assets are sold, the accumulated fair value adjustments are reclassified to profit or loss. Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss) is reclassified from equity and recognised in profit or loss as a reclassification adjustment. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss. If there is evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in profit or loss. Borrowings Borrowings are initially recognised at fair value and are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the borrowing period using the effective interest method. Borrowings are classified as current liabilities unless the Group has a legal right to defer settlement of the liability for at least 12 months after the balance sheet date. Derivative instruments The Group uses derivative financial instruments to manage specifically identified interest rate and foreign currency risks. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain financial instruments, including derivatives, as either: (1) hedges of net investments of a foreign operation; (2) hedges of firm commitments and highly probable forecast transactions (cash flow hedges); or (3) fair value hedges. Hedging At the inception of the transaction the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. i. Hedge of net investment Changes in the fair value of foreign currency debt balances that are designated and qualify as hedging instruments are recorded in other comprehensive income in the foreign currency translation reserve. The change in value of the net investment is recorded in the foreign currency translation reserve in accordance with requirements of AASB 121 The effects of Changes in Foreign Exchange Rates. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. ii. Cash flow hedge The Group uses interest rate derivatives to manage interest rate exposure. These derivatives are entered into as part of a hedging relationship. The effective portion of changes in the fair value of derivatives which are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are recycled in profit or loss in the periods when the hedged item will affect profit or loss (for instance when the future cash flows that are hedged take place). When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. PAGE 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSComputershare Annual Report 2016iii. Fair value hedge The Group uses interest rate derivatives to manage the fixed interest exposure that arises as a result of notes issued as part of the US Senior Notes. Changes in the fair value of these derivatives are recorded in profit or loss, together with any changes in the fair value of the hedged liabilities that are attributable to the hedged risk. iv. Derivatives that do not qualify for hedge accounting Certain forward exchange contracts and foreign currency options do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss. Rounding of amounts The consolidated entity is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial report. In accordance with this Class Order, amounts in the financial report have been rounded off to the nearest thousand dollars, or in certain cases, the nearest dollar. New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting period. The Group’s assessment of the impact of these new standards and interpretations is presented below. AASB 9 Financial Instruments AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting and a new impairment model for financial assets. The standard is applicable for financial years commencing on or after 1 January 2018 and is available for early adoption. The Group does not expect to adopt AASB 9 before its operative date. The new hedging rules align hedge accounting more closely with the Group’s risk management practices. As a general rule, it will be easier to apply hedge accounting going forward as the standard introduces a more principles-based approach. While the Group is yet to undertake a detailed assessment, it would appear that the Group’s current hedge relationships would qualify as continuing hedges upon adoption of AASB 9. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than incurred credit losses as is the case under AASB 139. While the Group has not yet undertaken a detailed assessment of how its impairment provisions would be affected by the new model, it will likely result in an earlier recognition of credit losses. The new standard also introduces expanded disclosure requirements and changes in presentation. AASB 15 Revenue from contracts with customers AASB 15 is a new standard in relation to recognition of revenue and will replace AASB 118 which covers revenue arising from the sale of goods and services and AASB 111 which covers construction contracts. This standard is applicable to financial years commencing on or after 1 January 2018 and is available for early adoption. The Group does not expect to adopt AASB 15 before its operative date. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. While the Group has not yet estimated the effect of the new rules on the Group’s financial statements, the consolidated entity is in the process of actively investigating the impact of AASB 15 and has a plan in place to ensure timely implementation. AASB 16 Leases AASB 16 is a new standard in relation to leases which will primarily affect the accounting by lessees and will result in the recognition of almost all leases on balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rental. The only exemption relates to short-term and low-value leases. This standard is applicable to financial years commencing on or after 1 January 2019 and is available for early adoption, if AASB 15 has been applied. The Group does not expect to adopt AASB 16 before its operative date. The changes under AASB 16 will have a significant impact on the Group’s accounting for operating lease arrangements. Almost all operating leases will result in recognition of a lease asset and liability. Additionally, operating expense will be replaced with interest and depreciation impacting EBITDA metrics. PAGE 103 DIRECTORS’ DECLARATION In the directors’ opinion: (a) the financial statements and notes set out on pages 46 to 103 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 29 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the deed of cross guarantee described in note 33. Note 43 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors. SD Jones Chairman 19 September 2016 SJ Irving Director PAGE 104 Computershare Annual Report 2016DECLARATION TO THE BOARD OF DIRECTORS The Chief Executive Officer and Chief Financial Officer state that: (a) (b) the financial records of the consolidated entity for the financial year ended 30 June 2016 have been properly maintained in accordance with section 286 of the Corporations Act 2001; and the financial statements, and the notes to the financial statements, of the consolidated entity, for the financial year ended 30 June 2016: (i) (ii) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and give a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of their performance for the financial year ended on that date. SJ Irving Chief Executive Officer MB Davis Chief Financial Officer 19 September 2016 PAGE 105 INDEPENDENT AUDITOR’S REPORT Independent auditor’s report to the members of Computershare Limited Report on the financial report We have audited the accompanying financial report of Computershare Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Computershare Limited Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 43, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. PAGE 106 Computershare Annual Report 2016Auditor’s opinion In our opinion: (a) the financial report of Computershare Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 43. Report on the Remuneration Report We have audited the remuneration report included in pages 32 to 43 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Computershare Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Anton Linschoten Partner Melbourne 19 September 2016 PAGE 107 SHAREHOLDER INFORMATION This section contains additional information required by the Australian Securities Exchange Limited listing rules not disclosed elsewhere in this report. SHAREHOLDINGS Substantial Shareholders The following information is extracted from the Company’s Register of Substantial Shareholders. Name Christopher John Morris Class of shares and voting rights Number of ordinary shares 37,431,000 Fully paid percentage 6.85% At 9 September 2016 there were 43,022 holders of ordinary shares in the Company. The voting rights attaching to the ordinary shares set out in clause 4 of the Company’s Constitution are: (a) the right to receive notice of and to attend and vote at all general meetings of the Company; (b) the right to receive dividends; and (c) in a winding up or a reduction of capital, the right to participate equally in the distribution of the assets of the Company (both capital and surplus), subject to any amounts unpaid on the Share and, in the case of a reduction, to the terms of the reduction Distribution of shareholders of shares as at 9 September 2016 Size of holding 1 – 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total shareholders Ordinary shareholders 19,780 18,730 2,711 1,661 140 43,022 There were 676 shareholders holding less than a marketable parcel of 50 ordinary shares as at 9 September 2016. Twenty largest shareholders of ordinary shares as at 9 September 2016 Ordinary shares HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Mr Chris Morris Citicorp Nominees Pty Limited Welas Pty Ltd Penelope Maclagan BNP Paribas Noms Pty Ltd Computershare Clearing Pty Ltd Ms Michele Jean O’Halloran Argo Investments Limited CPU Share Plans Pty Limited Australian Foundation Investment Company Limited BNP Paribas Nominees Pty Ltd RBC Global Services Australia Nominees Pty Limited UBS Nominees Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited IOOF Investment Management Limited AMP Life Limited Total PAGE 108 Number 126,073,534 83,960,765 56,611,510 37,431,000 30,238,387 17,250,000 11,902,025 9,783,096 7,031,852 5,763,218 4,901,166 4,783,275 4,660,000 3,415,726 2,982,581 1,757,500 1,619,305 1,443,309 1,220,789 968,240 % 23.08 15.37 10.36 6.85 5.53 3.16 2.18 1.79 1.29 1.05 0.90 0.88 0.85 0.63 0.55 0.32 0.30 0.26 0.22 0.18 413,797,278 75.74 Computershare Annual Report 2016SHARE REGISTRY Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 PO BOX 103 Abbotsford VIC 3067 Telephone 1300 307 613 (within Australia) + 61 3 9415 4222 Facsimile + 61 3 9473 2500 INVESTOR RELATIONS Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone +61 3 9415 5000 Facsimile +61 3 9476 2500 Email investor.relations@computershare.com.au Website www.computershare.com CORPORATE DIRECTORY DIRECTORS Simon David Jones (Chairman) Stuart James Irving (President and Chief Executive Officer) Tiffany Lee Fuller Markus Erhard Kerber Penelope Jane Maclagan Christopher John Morris Arthur Leslie Owen Joseph Mark Velli COMPANY SECRETARY Dominic Matthew Horsley REGISTERED OFFICE Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone +61 3 9415 5000 Facsimile +61 3 9476 2500 STOCK EXCHANGE LISTING Australian Securities Exchange SOLICITORS Minter Ellison Level 23, Rialto Towers 525 Collins Street Melbourne VIC 3000 AUDITORS PricewaterhouseCoopers Freshwater Place 2 Southbank Boulevard Southbank VIC 3006 PAGE 109 This page has been left intentionally blank. 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PAGE 112 Computershare Annual Report 2016OFFICE LOCATIONS o t n o r o T l a e r t n o M n o t s o B k r o Y w e N y e s r e J w e N o g a c i h C r e v n e D e l l i v s i u o L y r a g a C l r e v u o c n a V i x n e o h P l s e e g n A s o L o c s i c n a r F n a S s i h p m e M n o i t a t S e g e l l o C g n i j i e B g n o K g n o H a t a k l o K a l i n a M i l h e D d a b a r e d y H i a b m u M t r u f k n a r F h c i n u M e m o R n e g a h n e p o C m a d r e t t o R n o d n o L i n a r h a B n i r u T n a l i M n a h g a n o M l o t s i r B y e s r e J s i r a P l a n o e c r a B d i r d a M l m o h k c o t S s t t a l f s s o r C d r o f x o D h g r u b n d E i n o t p i k S n i l b u D i e d a e d A l d n a l k c u A y e n d y S e n r u o b e M l e r o d y h c o o r a M e n a b s i r B h t r e P g r u b s e n n a h o J i a n n e h C l e r o a g n a B COMPUTERSHARE HEAD OFFICE Computershare Limited ABN 71 005 485 825 Yarra Falls 452 Johnston Street Abbotsford Victoria 3067 Australia Telephone: +61 3 9415 5000 Facsimile: +61 3 9473 2500 The Annual Report is available online at www.computershare.com

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